Comscore Inc.
As filed with the Securities and Exchange Commission on
May 25, 2007
Registration
No. 333-141740
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Amendment No. 2
to
FORM S-1
REGISTRATION
STATEMENT
Under
The Securities Act of
1933
COMSCORE, INC.
(Exact name of Registrant as
specified in its charter)
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Delaware
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7389
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54-19555550
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(State or other jurisdiction
of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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11465 Sunset Hills
Road
Suite 200
Reston, Virginia 20190
(703) 438-2000
(Address, including zip code,
and telephone number, including area code, of Registrants
principal executive offices)
Magid M.
Abraham, Ph.D.
President and Chief Executive
Officer
comScore, Inc.
11465 Sunset Hills
Road
Suite 200
Reston, Virginia 20190
(703) 438-2000
(Name, address, including zip
code, and telephone number, including area code, of agent for
service)
Copies to:
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Jeffrey D. Saper, Esq.
Robert G. Day, Esq.
Wilson Sonsini Goodrich & Rosati,
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
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Christiana L. Lin, Esq.
General Counsel
comScore, Inc.
11465 Sunset Hills Road, Suite 200
Reston, Virginia 20190
Telephone: (703) 438-2000
Facsimile: (703) 438-2051
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Andrew J. Pitts, Esq.
Cravath, Swaine & Moore LLP
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Telephone: (212) 474-1000
Facsimile: (212) 474-3700
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Mark R. Fitzgerald, Esq.
Wilson Sonsini Goodrich & Rosati,
Professional Corporation
1700 K Street, N.W., Fifth Floor
Washington, D.C. 20006
Telephone: (202) 973-8800
Facsimile: (202) 973-8899
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Approximate date of commencement of proposed sale to the
public: As soon as practicable after the
effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
The
information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these
securities in any jurisdiction where the offer or sale is not
permitted.
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SUBJECT
TO COMPLETION, DATED MAY 25, 2007
PRELIMINARY
PROSPECTUS
Shares
Common
Stock
Prior to this
offering, there has been no public market for our common stock.
The initial public offering price of the common stock is
expected to be between $ and
$ per share. We have applied
to list our common stock on The NASDAQ Global Market under the
symbol SCOR.
We are
selling shares
of common stock and the selling stockholders are
selling shares
of common stock. We will not receive any of the proceeds from
the shares of common stock sold by the selling stockholders.
The underwriters
have an option to purchase a maximum
of additional
shares from us and the selling stockholders to cover
over-allotments of shares. The underwriters can exercise this
right at any time within 30 days from the date of this
prospectus.
Investing in our
common stock involves risks. See Risk Factors on
page 9.
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Underwriting
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Proceeds to
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Price to
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Discounts and
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Proceeds to
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Selling
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Public
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Commissions
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comScore
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Stockholders
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Per Share
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$
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$
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$
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$
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Total
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$
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$
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$
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$
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Neither the
Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
Delivery of the
shares of common stock will be made on or
about ,
2007.
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Credit
Suisse |
Deutsche
Bank Securities |
The date of this
prospectus
is ,
2007
TABLE OF
CONTENTS
You should rely only on the information contained in this
document or to which we have referred you. We have not
authorized anyone to provide you with information that is
different. This document may only be used where it is legal to
sell these securities. The information in this document may only
be accurate on the date of this document.
Dealer
Prospectus Delivery Obligation
Until ,
2007 (25 days after the commencement of this offering) all
dealers that effect transactions in these securities, whether or
not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers obligation
to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
comScore, Media Metrix and
MyMetrix are registered trademarks in the U.S. and
several other countries. Our unregistered trademarks and
service marks include: Ad Metrix,
Campaign R/F,
Campaign Metrix, comScore Marketing
Solutions, Marketing Solutions, Plan
Metrix, qSearch, Video Metrix and
World Metrix.
PROSPECTUS
SUMMARY
This summary highlights information contained elsewhere in
this prospectus. This summary does not contain all of the
information you should consider before buying shares in this
offering. Therefore, you should read this entire prospectus
carefully, including the Risk Factors section
beginning on page 8 and our consolidated financial
statements and the related notes. Unless the context requires
otherwise, the words we, us,
our and comScore refer to comScore, Inc.
and its consolidated subsidiaries.
comScore,
Inc.
We provide a leading digital marketing intelligence platform
that helps our customers make better-informed business decisions
and implement more effective digital business strategies. Our
products and solutions offer our customers deep insights into
consumer behavior, including objective, detailed information
regarding usage of their online properties and those of their
competitors, coupled with information on consumer demographic
characteristics, attitudes, lifestyles and offline behavior.
Our digital marketing intelligence platform is comprised of
proprietary databases and a computational infrastructure that
measures, analyzes and reports on digital activity. The
foundation of our platform is data collected from our comScore
panel of more than two million Internet users worldwide who have
granted us explicit permission to confidentially measure their
Internet usage patterns, online and certain offline buying
behavior and other activities. By applying advanced statistical
methodologies to our panel data, we project consumers
online behavior for the total online population and a wide
variety of user categories.
We deliver our digital marketing intelligence through our
comScore Media Metrix product family and through comScore
Marketing Solutions. Media Metrix delivers digital media
intelligence by providing an independent, third-party
measurement of the size, behavior and characteristics of Web
site and online advertising network audiences among home, work
and university Internet users as well as insights into the
effectiveness of online advertising. Our Marketing Solutions
products combine the proprietary information gathered from the
comScore panel with the vertical industry expertise of comScore
analysts to deliver digital marketing intelligence, including
the measurement of online advertising effectiveness, customized
for specific industries. We typically deliver our Media Metrix
products electronically in the form of weekly, monthly or
quarterly reports. Customers can access current and historical
Media Metrix data and analyze these data anytime online. Our
Marketing Solutions products are typically delivered on a
monthly, quarterly or ad hoc basis through electronic reports
and analyses.
In 2006, we generated revenues of $66.3 million and had
cash flow from operations of $10.9 million. For the three
months ended March 31, 2007, we generated revenues of
$18.7 million and had cash flow from operations of
$3.2 million. We derive our revenues primarily from the
fees that we charge for subscription-based products and
customized projects. A significant characteristic of our
business model is our large percentage of subscription-based
contracts. Subscription-based revenues have grown to 77% of
our total revenues in the first quarter of 2007. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations contained in this
prospectus for a discussion of how we determine
subscription-based revenues.
Our
Industry
The Internet is a global digital medium for commerce, content,
advertising and communications. According to International Data
Corporation, or IDC, the number of global Internet users is
projected to grow from approximately 968 million in 2005 to
over 1.7 billion in 2010. As the online population
continues to grow, the Internet is increasingly becoming a tool
for research and commerce and for distributing and consuming
media.
The interactive nature of digital media on the Internet enables
businesses to access a wealth of user information that was
virtually unavailable through offline audience measurement and
marketing intelligence techniques. Digital media provide
businesses with the opportunity to measure detailed user
activity, such as
1
how users interact with Web page content; to assess how users
respond to online marketing, such as which online ads users
click on to pursue a transaction; and to analyze how audiences
and user behavior compare across various Web sites. This type of
detailed user data can be combined with demographic, attitudinal
and transactional information to develop a deeper understanding
of user behavior, attributes and preferences.
We believe that the growth in the online and digital media
markets for digital commerce, content, advertising and
communications creates an unprecedented opportunity for
businesses to acquire a deeper understanding of both their
customers and their competitive market position. Businesses can
use accurate, relevant and objective digital marketing
intelligence to develop and validate key strategies and improve
performance.
The
comScore Digital Marketing Intelligence Platform
We provide a leading digital marketing intelligence platform
that enables our customers to devise and implement more
effective digital business strategies.
Key attributes of our platform include:
Panel of global Internet users. Our ability to
provide digital marketing intelligence is based on information
continuously gathered from a broad cross-section of more than
two million Internet users worldwide who have granted us
explicit permission to confidentially measure their Internet
usage patterns, online and certain offline buying behavior and
other activities.
Scalable technology infrastructure. We
developed our databases and computational infrastructure to
support the growth in online activity among our global Internet
panel and the increasing complexity of digital content formats,
advertising channels and communication applications. The design
of our technology infrastructure is based on distributed
processing and data capture environments that allow for the
collection and organization of vast amounts of data on online
activity.
Benefits of our platform include:
Advanced digital marketing intelligence. We
use our proprietary technology to compile vast amounts of data
on Internet user activity and to organize that data into
discrete, measurable elements that can be used to provide
actionable insights to our customers.
Objective third-party resource for digital marketing
intelligence. We are an independent company that
is not affiliated with the digital businesses we measure and
analyze, allowing us to serve as an objective third-party
provider of digital marketing intelligence.
Vertical industry expertise. We have developed
expertise across a variety of industries to provide digital
marketing intelligence specifically tailored to the needs of our
customers operating in specific industry sectors. We have
dedicated personnel to address the automotive, consumer packaged
goods, entertainment, financial services, media, pharmaceutical,
retail, technology, telecommunications and travel industries.
Ease of use and functionality. The comScore
digital marketing intelligence platform is designed to be easy
to use by our customers. Our products are primarily available
through the Internet using a standard browser; our customers do
not need to install additional hardware or software to access
our products.
Our
Strategy
Our objective is to be the leading provider of global digital
marketing intelligence products. We plan to pursue our objective
through internal initiatives and, potentially, through
acquisitions and other investments. The principal elements of
our strategy are to:
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deepen relationships with current customers;
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grow our customer base;
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expand our digital marketing intelligence platform;
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address emerging digital media;
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extend technology leadership;
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build brand awareness through media exposure; and
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grow internationally.
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Risks
Related to Our Business
Our business is subject to a number of risks that you should be
aware of before making an investment decision. These risks are
discussed more fully in the section entitled Risk
Factors immediately following this prospectus summary. We
have a limited operating history, and we must continue to retain
and attract customers. We must be able to maintain an Internet
user panel of sufficient size in order to provide the quality of
marketing intelligence demanded by our customers. Although we
were profitable in each quarter of 2006 and the first quarter of
2007, we were not profitable in 2005, and we had, at
March 31, 2007, an accumulated deficit of
$98.6 million.
Company
Information
We incorporated in August 1999 in Delaware. Our principal
offices are located at 11465 Sunset Hills Road,
Suite 200, Reston, Virginia 20190. Our telephone number is
(703) 438-2000.
You can access our Web site at www.comscore.com. Information
contained on our Web site is not part of this prospectus and is
not incorporated in this prospectus by reference.
comScore, Media Metrix and MyMetrix are registered trademarks in
the U.S. and several other countries. Our unregistered
trademarks and service marks include: Ad Metrix, Campaign R/F,
Campaign Metrix, comScore Marketing Solutions, Marketing
Solutions, Plan Metrix, qSearch, Video Metrix and World Metrix.
3
The
Offering
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Common stock offered by us |
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shares |
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Common stock offered by the selling stockholders
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shares |
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Total common stock offered |
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shares |
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Common stock outstanding after this offering
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shares |
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Use of proceeds |
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We intend to use the net proceeds from this offering for working
capital, for capital expenditures and for other general
corporate purposes. We may also use a portion of our net
proceeds to fund potential acquisitions. We will not receive any
proceeds from the sale of shares of our common stock by the
selling stockholders. See Use of Proceeds. |
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Proposed NASDAQ Global Market symbol
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SCOR |
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Risk factors |
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See Risk Factors and other information included in
this
prospectus
for a discussion of factors you should carefully consider before
deciding to invest in shares of our common stock. |
The number of shares of common stock that will be outstanding
after this offering is based on the number of shares outstanding
as of March 31, 2007 and assumes the conversion of our
preferred stock into an aggregate of 86,286,697 shares of
our common stock. This number excludes:
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12,486,511 shares of common stock issuable upon exercise of
options outstanding at a weighted-average exercise price of
$0.41 per share;
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264,250 shares of our common stock issuable upon the
settlement of outstanding restricted stock unit awards;
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2,295,125 shares of common stock reserved for future
issuance under our 1999 Stock Plan;
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7,000,000 shares of common stock reserved for future
issuance under our 2007 Equity Incentive Plan, which will be
effective upon completion of this offering; and
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875,923 shares of common stock issuable upon the exercise
of warrants, which total includes warrants for our preferred
stock that will become exercisable for common stock after this
offering, at a weighted-average exercise price of $0.97 per
share.
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Unless otherwise indicated, all information in this prospectus
assumes:
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a -for-
reverse split of our common stock that will occur prior to the
consummation of this offering;
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the conversion, in accordance with our certificate of
incorporation, of all our shares of outstanding preferred stock
into an aggregate of 86,286,697 shares of our common stock;
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no exercise by the underwriters of their option to purchase up
to
additional shares to cover over-allotments, consisting
of
shares to be purchased from us
and
shares to be purchased from the selling stockholders; and
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the adoption of our amended and restated certificate of
incorporation and bylaws that will occur immediately prior to
the consummation of this offering.
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4
Summary
Historical Financial Data
You should read the summary historical financial data set forth
below in conjunction with our consolidated financial statements,
the notes to our consolidated financial statements and
Managements Discussion and Analysis of Financial
Condition and Results of Operations contained elsewhere in
this prospectus. The consolidated statements of operations data
and the consolidated statements of cash flows data for each of
the three years ended December 31, 2004, 2005 and 2006 as
well as the consolidated balance sheet data as of
December 31, 2005 and 2006 are derived from our audited
consolidated financial statements that are included elsewhere in
this prospectus. The consolidated statements of operations data
for the three months ended March 31, 2006 and 2007 and the
consolidated balance sheet data as of March 31, 2007 have
been derived from our unaudited consolidated financial
statements that are included elsewhere in this prospectus. We
have prepared this unaudited financial information on the same
basis as the audited consolidated financial statements and have
included all adjustments, consisting only of normal recurring
adjustments, that we consider necessary for a fair presentation
of our financial position and operating results for such period.
Our historical results are not necessarily indicative of results
to be expected for future periods. Results for the three months
ended March 31, 2007 are not necessarily indicative of
results expected for the full year.
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Three Months Ended
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Year Ended December 31,
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March 31,
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2004
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2005
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2006
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2006
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2007
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(Unaudited)
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(In thousands)
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Consolidated Statement of
Operations Data:
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Revenues
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$
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34,894
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$
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50,267
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$
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66,293
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$
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14,985
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$
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18,681
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Cost of revenues(1)
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13,153
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18,218
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20,560
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5,148
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5,388
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Selling and marketing(1)
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13,890
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18,953
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21,473
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5,345
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6,451
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Research and development(1)
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5,493
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7,416
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9,009
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2,137
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2,556
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General and administrative(1)
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4,982
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7,089
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8,293
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1,918
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2,507
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Amortization
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356
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2,437
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1,371
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371
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293
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Total expenses from operations
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37,874
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54,113
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60,706
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14,919
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17,195
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(Loss) income from operations
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(2,980
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(3,846
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5,587
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66
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1,486
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Interest (expense) income, net
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(246
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(208
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231
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11
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97
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(Loss) gain from foreign currency
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(96
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125
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6
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(8
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Revaluation of preferred stock
warrant liabilities
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(14
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(224
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2
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11
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(Loss) income before income taxes
and cumulative effect of change in accounting principle
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(3,226
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)
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(4,164
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5,719
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85
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1,586
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(Benefit) provision for income taxes
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(182
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)
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50
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46
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Net (loss) income before cumulative
effect of change in accounting principle
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(3,226
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(3,982
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5,669
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85
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1,540
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Cumulative effect of change in
accounting principle
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(440
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Net (loss) income
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(3,226
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(4,422
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5,669
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85
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1,540
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Accretion of redeemable preferred
stock
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(2,141
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(2,638
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(3,179
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(742
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(885
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Net (loss) income attributable to
common stockholders
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$
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(5,367
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$
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(7,060
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$
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2,490
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$
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(657
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$
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655
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(1) |
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Amortization of stock-based compensation is included in the line
items above as follows: |
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Three Months Ended
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Year Ended December 31,
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March 31,
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2004
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2005
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2006
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Cost of revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
12
|
|
|
$
|
|
|
|
$
|
9
|
|
Selling and marketing
|
|
|
|
|
|
|
|
|
|
|
82
|
|
|
|
6
|
|
|
|
39
|
|
Research and development
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
8
|
|
General and administrative
|
|
|
14
|
|
|
|
3
|
|
|
|
91
|
|
|
|
1
|
|
|
|
51
|
|
5
The following table presents consolidated balance sheet data as
of March 31, 2007:
|
|
|
|
|
on an actual basis without any adjustments to reflect subsequent
or anticipated events;
|
|
|
|
|
|
on a pro forma basis reflecting (i) the conversion of all
outstanding shares of our Series A, Series B,
Series C,
Series C-1,
Series D and Series E preferred stock into an
aggregate of 86,286,697 shares of our common stock
effective immediately prior to the completion of this offering,
for a total of 111,915,643 shares of common stock, which
amount includes 1,738,172 shares subject to put and (ii) the
reclassification of our preferred stock warrant liabilities from
current liabilities to additional paid in capital effective upon
the completion of this offering; and
|
|
|
|
|
|
on a pro forma as adjusted basis reflecting the conversion and
reclassification described above and the receipt by us of the
net proceeds from the sale
of shares
of common stock in this offering at an assumed initial public
offering price of $ per
share, after deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by us.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2007
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
Actual
|
|
|
Pro Forma
|
|
|
as Adjusted
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Consolidated Balance Sheet
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and
short-term investments
|
|
$
|
18,181
|
|
|
$
|
18,181
|
|
|
|
|
|
Total current assets
|
|
|
34,520
|
|
|
|
34,520
|
|
|
|
|
|
Total assets
|
|
|
45,479
|
|
|
|
45,479
|
|
|
|
|
|
Total current liabilities
|
|
|
34,897
|
|
|
|
33,902
|
|
|
|
|
|
Capital lease obligations,
long-term
|
|
|
1,896
|
|
|
|
1,896
|
|
|
|
|
|
Common stock subject to put
|
|
|
4,392
|
|
|
|
4,392
|
|
|
|
|
|
Redeemable preferred stock
|
|
|
102,580
|
|
|
|
|
|
|
|
|
|
Stockholders equity (deficit)
|
|
|
(98,683
|
)
|
|
|
4,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
March 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Consolidated Statement of Cash
Flows Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
$
|
1,907
|
|
|
$
|
4,253
|
|
|
$
|
10,905
|
|
|
$
|
2,824
|
|
|
$
|
3,156
|
|
Depreciation and amortization
|
|
|
2,745
|
|
|
|
5,123
|
|
|
|
4,259
|
|
|
|
1,059
|
|
|
|
1,154
|
|
Capital expenditures
|
|
|
1,208
|
|
|
|
1,071
|
|
|
|
2,314
|
|
|
|
292
|
|
|
|
494
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
March 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Other Financial and Operating
Data (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(2)
|
|
$
|
(221
|
)
|
|
$
|
730
|
|
|
$
|
9,945
|
|
|
$
|
1,140
|
|
|
$
|
2,750
|
|
|
|
|
(2) |
|
We define Adjusted EBITDA as net income plus the (benefit)
provision for income taxes, depreciation, amortization of
purchased intangible assets and stock-based compensation; plus
interest expense (income) and other income. Adjusted EBITDA is
not a measure of liquidity calculated in accordance with GAAP,
and should be viewed as a supplement to not a
substitute for our results of operations presented
on the basis of GAAP. Adjusted EBITDA does not purport to
represent cash flow provided by, or used in, operating
activities as defined by GAAP. Our statement of cash flows
presents our cash flow activity in accordance with GAAP.
Furthermore, Adjusted EBITDA is not necessarily comparable to
similarly-titled measures reported by other companies. |
|
|
|
We prepare Adjusted EBITDA to eliminate the impact of items that
we do not consider indicative of our core operating performance.
You are encouraged to evaluate these adjustments and the reasons
we consider them appropriate for supplemental analysis. Our
presentation of Adjusted EBITDA should not be construed as an
implication that our future results will be unaffected by
unusual or non-recurring items. |
We believe Adjusted EBITDA is useful to an investor in
evaluating our operating performance for the following reasons:
|
|
|
|
|
Adjusted EBITDA is widely used by investors to measure a
companys operating performance without regard to items
such as interest expense, taxes, depreciation and amortization,
and stock-based compensation, which can vary substantially from
company to company depending upon accounting methods and book
value of assets, capital structure and the method by which
assets were acquired;
|
|
|
|
analysts and investors use Adjusted EBITDA as a supplemental
measure to evaluate the overall operating performance of
companies in our industry;
|
|
|
|
we believe Adjusted EBITDA is an important indicator of our
operational strength and the performance of our business because
it provides a link between profitability and operating cash
flow. Although our cash flow from operations presented is a
similar measure, Adjusted EBITDA is a better measure of our true
operating results because it adjusts for the effects of
collections of receivables, disbursements of payables, and other
factors that are influenced by seasonal conditions; and
|
|
|
|
prior to January 1, 2006, we accounted for stock-based
compensation plans under the recognition and measurement
provisions of Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees,
and related interpretations, as permitted by Statement of
Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation. In December
2004, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 123 (revised
2004), Share-Based Payment (SFAS 123R), which is a
revision of SFAS No. 123. SFAS 123R requires all
share-based payments to employees, including grants of employee
stock options, to be recognized in the income statement based on
their estimated fair values. Pro forma disclosure is no longer
an alternative permitted under SFAS 123R. We adopted the
provisions of SFAS 123R on January 1, 2006, using the
prospective method. Unvested stock-based awards issued to
employees prior to January 1, 2006, the date that we
adopted the provisions of SFAS 123R, were accounted for at
the date of adoption using the intrinsic value method originally
applied to those awards. We recorded approximately $198,000 in
stock-based compensation expense subsequent to the adoption of
SFAS 123R for the fiscal year ended December 31, 2006
as compared with approximately $14,000 and $3,000 for the years
ended December 31, 2004 and 2005, respectively, prior to the
adoption of SFAS 123R. By comparing our Adjusted EBITDA our
investors can evaluate our operating results without the
additional variations of stock compensation expense, which is
not necessarily
|
7
|
|
|
|
|
comparable from year to year due to the change in accounting
treatment and is a non-cash expense that is not a primary
measure of our operations.
|
Our management uses Adjusted EBITDA:
|
|
|
|
|
as a measure of operating performance, because it does not
include the impact of items not directly resulting from our core
operations;
|
|
|
|
for planning purposes, including the preparation of our annual
operating budget;
|
|
|
|
to allocate resources to enhance the financial performance of
our business;
|
|
|
|
as a metric for evaluating the performance of Dr. Magid M.
Abraham, our Chief Executive Officer, and Mr. Gian M.
Fulgoni, our Executive Chairman of the Board of Directors. The
Company uses Adjusted EBITDA as a quantitative metric for
setting both Dr. Abraham and Mr. Fulgonis
respective salaries and bonuses. In addition, option grants held
by both Dr. Abraham and Mr. Fulgoni include vesting
which can be accelerated upon achieving certain targets tied to
EBITDA;
|
|
|
|
to evaluate the effectiveness of our business
strategies; and
|
|
|
|
in communications with our board of directors, stockholders,
analysts and investors concerning our financial performance.
|
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 of operations as
reported under GAAP. Some of these limitations are:
|
|
|
|
|
Adjusted EBITDA does not reflect our cash expenditures or future
requirements for capital expenditures or other 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, related to 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.
|
A reconciliation of Adjusted EBITDA to net income, the most
directly comparable GAAP measure, for each of the fiscal periods
indicated is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
March 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Net (loss) income
|
|
$
|
(3,226
|
)
|
|
$
|
(4,422
|
)
|
|
$
|
5,669
|
|
|
$
|
85
|
|
|
$
|
1,540
|
|
(Benefit) provision for income
taxes
|
|
|
|
|
|
|
(182
|
)
|
|
|
50
|
|
|
|
|
|
|
|
46
|
|
Amortization
|
|
|
356
|
|
|
|
2,437
|
|
|
|
1,371
|
|
|
|
371
|
|
|
|
293
|
|
Depreciation
|
|
|
2,389
|
|
|
|
2,686
|
|
|
|
2,888
|
|
|
|
688
|
|
|
|
861
|
|
Stock-based compensation
|
|
|
14
|
|
|
|
3
|
|
|
|
198
|
|
|
|
7
|
|
|
|
107
|
|
Interest expense (income), net
|
|
|
246
|
|
|
|
208
|
|
|
|
(231
|
)
|
|
|
(11
|
)
|
|
|
(97
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
(221
|
)
|
|
$
|
730
|
|
|
$
|
9,945
|
|
|
$
|
1,140
|
|
|
$
|
2,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
RISK
FACTORS
An investment in our common stock offered by this prospectus
involves a substantial risk of loss. You should carefully
consider these risk factors, together with all of the other
information included in this prospectus, before you decide to
purchase shares of our common stock. The occurrence of any of
the following risks could materially adversely affect our
business, financial condition or operating results. In that
case, the trading price of our common stock could decline, and
you may lose part or all of your investment.
Risks
Related to Our Business and Our Technologies
If we
are not able to maintain a panel of sufficient size and scope,
or if the costs of maintaining our panel materially increase,
our business would be harmed.
We believe that the quality, size and scope of our Internet user
panel are critical to our business. There can be no assurance,
however, that we will be able to maintain a panel of sufficient
size and scope to provide the quality of marketing intelligence
that our customers demand from our products. If we fail to
maintain a panel of sufficient size and scope, customers might
decline to purchase our products or renew their subscriptions,
our reputation could be damaged and our business could be
materially and adversely affected. We expect that our panel
costs may increase and may comprise a greater portion of our
cost of revenues in the future. The costs associated with
maintaining and improving the quality, size and scope of our
panel are dependent on many factors, many of which are beyond
our control, including the participation rate of potential panel
members, the turnover among existing panel members and
requirements for active participation of panel members, such as
completing survey questionnaires. Concerns over the potential
unauthorized disclosure of personal information or the
classification of our software as spyware or
adware may cause existing panel members to uninstall
our software or may discourage potential panel members from
installing our software. To the extent we experience greater
turnover, or churn, in our panel than we have historically
experienced, these costs would increase more rapidly. In
addition, publishing content on the Internet and purchasing
advertising space on Web sites may become more expensive or
restrictive in the future, which could decrease the availability
and increase the cost of advertising the incentives we offer to
panel members. To the extent that such additional expenses are
not accompanied by increased revenues, our operating margins
would be reduced and our financial results would be adversely
affected.
Our
quarterly results of operations may fluctuate in the future. As
a result, we may fail to meet or exceed the expectations of
securities analysts or investors, which could cause our stock
price to decline.
Our quarterly results of operations may fluctuate as a result of
a variety of factors, many of which are outside of our control.
If our quarterly revenues or results of operations do not meet
or exceed the expectations of securities analysts or investors,
the price of our common stock could decline substantially. In
addition to the other risk factors set forth in this Risk
Factors section, factors that may cause fluctuations in
our quarterly revenues or results of operations include:
|
|
|
|
|
our ability to increase sales to existing customers and attract
new customers;
|
|
|
|
our failure to accurately estimate or control costs;
|
|
|
|
our revenue recognition policies related to the timing of
contract renewals, delivery of products and duration of
contracts and the corresponding timing of revenue recognition;
|
|
|
|
the mix of subscription-based versus project-based revenues;
|
|
|
|
the impact on our contract renewal rates, in particular for our
subscription-based products, caused by our customers
budgetary constraints, competition, customer dissatisfaction or
our customers actual or perceived lack of need for our
products;
|
|
|
|
the potential loss of significant customers;
|
|
|
|
the effect of revenues generated from significant one-time
projects;
|
|
|
|
the amount and timing of capital expenditures and operating
costs related to the maintenance and expansion of our operations
and infrastructure;
|
|
|
|
the timing and success of new product introductions by us or our
competitors;
|
9
|
|
|
|
|
variations in the demand for our products and the implementation
cycles of our products by our customers;
|
|
|
|
changes in our pricing and discounting policies or those of our
competitors;
|
|
|
|
service outages, other technical difficulties or security
breaches;
|
|
|
|
limitations relating to the capacity of our networks, systems
and processes;
|
|
|
|
maintaining appropriate staffing levels and capabilities
relative to projected growth;
|
|
|
|
adverse judgments or settlements in legal disputes;
|
|
|
|
the timing of costs related to the development or acquisition of
technologies, services or businesses to support our existing
customer base and potential growth opportunities; and
|
|
|
|
general economic, industry and market conditions and those
conditions specific to Internet usage and online businesses.
|
We believe that our quarterly revenues and results of operations
on a
year-over-year
and sequential
quarter-over-quarter
basis may vary significantly in the future and that
period-to-period
comparisons of our operating results may not be meaningful. You
should not rely on the results of prior quarters as an
indication of future performance.
The
market for digital marketing intelligence is at an early stage
of development, and if it does not develop, or develops more
slowly than expected, our business will be harmed.
The market for digital marketing intelligence products is at a
relatively early stage of development, and it is uncertain
whether these products will achieve high levels of demand and
increased market acceptance. Our success will depend to a
substantial extent on the willingness of companies to increase
their use of such products. Factors that may affect market
acceptance include:
|
|
|
|
|
the reliability of digital marketing intelligence products;
|
|
|
|
public concern regarding privacy and data security;
|
|
|
|
decisions of our customers and potential customers to develop
digital marketing intelligence capabilities internally rather
than purchasing such products from third-party suppliers like us;
|
|
|
|
decisions by industry associations in the United States or in
other countries that result in association-directed awards, on
behalf of their members, of digital measurement contracts to one
or a limited number of competitive vendors;
|
|
|
|
the ability to maintain high levels of customer
satisfaction; and
|
|
|
|
the rate of growth in eCommerce, online advertising and digital
media.
|
The market for our products may not develop further, or may
develop more slowly than we expect, either of which could
adversely affect our business and operating results.
We
have a limited operating history and may not be able to achieve
financial or operational success.
We were incorporated in 1999 and introduced our first syndicated
Internet audience measurement product in 2000. Many of our other
products were first introduced during the past few years.
Accordingly, we are still in the early stages of development and
have only a limited operating history upon which our business
can be evaluated. You should evaluate our likelihood of
financial and operational success in light of the risks,
uncertainties, expenses, delays and difficulties associated with
an early-stage business in an evolving market, some of which may
be beyond our control, including:
|
|
|
|
|
our ability to successfully manage any growth we may achieve in
the future;
|
|
|
|
the risks associated with operating a business in international
markets, including China; and
|
|
|
|
our ability to successfully integrate acquired businesses,
technologies or services.
|
10
We
have a history of significant net losses, may incur significant
net losses in the future and may not maintain
profitability.
We have incurred significant losses in recent periods, including
net losses of $3.2 million and $4.4 million in 2004
and 2005, respectively. Although we achieved net income of
$5.7 million in 2006 and $1.5 million for the three
months ended March 31, 2007, we cannot assure you that we
will continue to sustain or increase profitability in the
future. As of March 31, 2007, we had an accumulated deficit
of $98.6 million. Because a large portion of our costs are
fixed, we may not be able to reduce or maintain our expenses in
response to any decrease in our revenues, which would adversely
affect our operating results. In addition, we expect operating
expenses to increase as we implement certain growth initiatives,
which include, among other things, the development of new
products, expansion of our infrastructure, plans for
international expansion and general and administrative expenses
associated with being a public company. If our revenues do not
increase to offset these expected increases in costs and
operating expenses, our operating results would be materially
and adversely affected. You should not consider our revenue
growth in recent periods as indicative of our future
performance, as our operating results for future periods are
subject to numerous uncertainties.
Material
defects or errors in our data collection and analysis systems
could damage our reputation, result in significant costs to us
and impair our ability to sell our products.
Our data collection and analysis systems are complex and may
contain material defects or errors. In addition, the large
amount of data that we collect may cause errors in our data
collection and analysis systems. Any defect in our panelist data
collection software, network systems, statistical projections or
other methodologies could result in:
|
|
|
|
|
loss of customers;
|
|
|
|
damage to our brand;
|
|
|
|
lost or delayed market acceptance and sales of our products;
|
|
|
|
interruptions in the availability of our products;
|
|
|
|
the incurrence of substantial costs to correct any material
defect or error;
|
|
|
|
sales credits, refunds or liability to our customers;
|
|
|
|
diversion of development resources; and
|
|
|
|
increased warranty and insurance costs.
|
Any material defect or error in our data collection systems
could adversely affect our reputation and operating results.
Our
business may be harmed if we deliver, or are perceived to
deliver, inaccurate information to our customers or to the
media.
If the information that we provide to our customers or the media
is inaccurate, or perceived to be inaccurate, our brand may be
harmed. The information that we collect or that is included in
our databases and the statistical projections that we provide to
our customers may contain inaccuracies. Any dissatisfaction by
our customers or the media with our digital marketing
intelligence, measurement or data collection and statistical
projection methodologies could have an adverse effect on our
ability to retain existing customers and attract new customers
and could harm our brand. Additionally, we could be
contractually required to pay damages, which could be
substantial, to certain of our customers if the information we
provide to them is found to be inaccurate. Any liability that we
incur or any harm to our brand that we suffer because of actual
or perceived irregularities or inaccuracies in the data we
deliver to our customers could harm our business.
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Our
business may be harmed if we change our methodologies or the
scope of information we collect.
We have in the past and may in the future change our
methodologies or the scope of information we collect. Such
changes may result from identified deficiencies in current
methodologies, development of more advanced methodologies,
changes in our business plans or expressed or perceived needs of
our customers or potential customers. Any such changes or
perceived changes, or our inability to accurately or adequately
communicate to our customers and the media such changes and the
potential implications of such changes on the data we have
published or will publish in the future, may result in customer
dissatisfaction, particularly if certain information is no
longer collected or information collected in future periods is
not comparable with information collected in prior periods. For
example, in 2002, we integrated our existing methodologies with
those of Jupiter Media Metrix, which we had recently acquired.
As part of this process, we discontinued reporting certain
metrics. Some customers were dissatisfied and either terminated
their subscriptions or failed to renew their subscriptions
because of these changes. Future changes to our methodologies or
the information we collect may cause similar customer
dissatisfaction and result in loss of customers.
We may
lose customers or be liable to certain customers if we provide
poor service or if our products do not comply with our customer
agreements.
Errors in our systems resulting from the large amount of data
that we collect, store and manage could cause the information
that we collect to be incomplete or to contain inaccuracies that
our customers regard as significant. The failure or inability of
our systems, networks and processes to adequately handle the
data in a high quality and consistent manner could result in the
loss of customers. In addition, we may be liable to certain of
our customers for damages they may incur resulting from these
events, such as loss of business, loss of future revenues,
breach of contract or loss of goodwill to their business.
Our insurance policies may not cover any claim against us for
loss of data, inaccuracies in data or other indirect or
consequential damages and defending a lawsuit, regardless of its
merit, could be costly and divert managements attention.
Adequate insurance coverage may not be available in the future
on acceptable terms, or at all. Any such developments could
adversely affect our business and results of operations.
The
market for digital marketing intelligence is highly competitive,
and if we cannot compete effectively, our revenues will decline
and our business will be harmed.
The market for digital marketing intelligence is highly
competitive and is evolving rapidly. We compete primarily with
providers of digital media intelligence and related analytical
products and services. We also compete with providers of
marketing services and solutions, with full-service survey
providers and with internal solutions developed by customers and
potential customers. Our principal competitors include:
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large and small companies that provide data and analysis of
consumers online behavior, including Compete Inc., Hitwise
Pty. Ltd and NetRatings, Inc.;
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online advertising companies that provide measurement of online
ad effectiveness, including aQuantive, Inc., DoubleClick Inc.,
ValueClick, Inc. and WPP Group plc;
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companies that provide audience ratings for TV, radio and other
media that have extended or may extend their current services,
particularly in certain international markets, to the
measurement of digital media, including Arbitron Inc., Nielsen
Media Research, Inc. and Taylor Nelson Sofres plc;
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analytical services companies that provide customers with
detailed information of behavior on their own Web sites,
including Omniture, Inc., WebSideStory, Inc. and WebTrends
Corporation;
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full-service market research firms and survey providers that may
measure online behavior and attitudes, including Harris
Interactive Inc., Ipsos Group, Taylor Nelson Sofres plc and The
Nielsen Company; and
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specialty information providers for certain industries that we
serve, including IMS Health Incorporated (healthcare) and
Telephia, Inc. (telecommunications).
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Some of our current competitors have longer operating histories,
access to larger customer bases and substantially greater
resources than we do. As a result, these competitors may be able
to devote greater resources to marketing and promotional
campaigns, panel retention, panel development or development of
systems and technologies than we can. In addition, some of our
competitors may adopt more aggressive pricing policies.
Furthermore, large software companies, Internet portals and
database management companies may enter our market or enhance
their current offerings, either by developing competing services
or by acquiring our competitors, and could leverage their
significant resources and pre-existing relationships with our
current and potential customers.
If we are unable to compete successfully against our current and
future competitors, we may not be able to retain and acquire
customers, and we may consequently experience a decline in
revenues, reduced operating margins, loss of market share and
diminished value from our products.
Concern
over spyware and privacy, including any violations of privacy
laws or perceived misuse of personal information, could cause
public relations problems and could impair our ability to
recruit panelists or maintain a panel of sufficient size and
scope, which in turn could adversely affect our ability to
provide our products.
Any perception of our practices as an invasion of privacy,
whether legal or illegal, may subject us to public criticism.
Existing and future privacy laws and increasing sensitivity of
consumers to unauthorized disclosures and use of personal
information may create negative public reaction related to our
business practices. Public concern has increased recently
regarding certain kinds of downloadable software known as
spyware and adware. These concerns might
cause users to refrain from downloading software from the
Internet, including our proprietary technology, which could make
it difficult to recruit additional panelists or maintain a panel
of sufficient size and scope to provide meaningful marketing
intelligence. In response to spyware and adware concerns,
numerous programs are available, many of which are available for
free, that claim to identify and remove spyware and adware from
users computers. Some of these anti-spyware programs have
in the past identified, and may in the future identify, our
software as spyware or as a potential spyware application. We
actively seek to prevent the inclusion of our software on lists
of spyware applications or potential spyware applications, to
apply best industry practices for obtaining appropriate consent
from panelists and protecting the privacy and confidentiality of
our panelist data and to comply with existing privacy laws.
However, to the extent that we are not successful, or to the
extent that new anti-spyware programs classify our software as
spyware or as a potential spyware application, our brand may be
harmed and users of these programs may uninstall our software.
Any resulting reputational harm or decrease in the size or scope
of our panel could reduce the demand for our products, increase
the cost of recruiting panelists and adversely affect our
ability to provide our products to our customers. Any of these
effects could harm our business.
Any
unauthorized disclosure or theft of private information we
gather could harm our business.
Unauthorized disclosure of personally identifiable information
regarding Web site visitors, whether through breach of our
secure network by an unauthorized party, employee theft or
misuse, or otherwise, could harm our business. If there were an
inadvertent disclosure of personally identifiable information,
or if a third party were to gain unauthorized access to the
personally identifiable information we possess, our operations
could be seriously disrupted and we could be subject to claims
or litigation arising from damages suffered by panel members or
pursuant to the agreements with our customers. In addition, we
could incur significant costs in complying with the multitude of
state, federal and foreign laws regarding the unauthorized
disclosure of personal information. For example, California law
requires companies that maintain data on California residents to
inform individuals of any security breaches that result in their
personal information being stolen. Finally, any perceived or
actual unauthorized disclosure of the information we collect
could harm our reputation, substantially impair our ability to
attract and retain panelists and have an adverse impact on our
business.
13
We may
encounter difficulties managing our growth, which could
adversely affect our results of operations.
We have experienced significant growth in recent periods. We
have substantially expanded our overall business, customer base,
headcount, data collection and processing infrastructure and
operating procedures as our business has grown. We increased our
total number of full time employees from 176 employees as of
December 31, 2003 to 386 employees as of March 31,
2007, and we expect to continue to expand our workforce to meet
our strategic objectives. In addition, during this same period,
we made substantial investments in our network infrastructure
operations as a result of our growth. We believe that we will
need to continue to effectively manage and expand our
organization, operations and facilities in order to accommodate
our expected future growth. If we continue to grow, our current
systems and facilities may not be adequate. Our need to
effectively manage our operations and growth requires that we
continue to assess and improve our operational, financial and
management controls, reporting systems and procedures. If we are
not able to efficiently and effectively manage our growth, our
business may be impaired.
If the
Internet advertising and eCommerce markets develop slower than
we expect, our business will suffer.
Our future success will depend on continued growth in the use of
the Internet as an advertising medium, a continued increase in
eCommerce spending and the proliferation of the Internet as a
platform for a wide variety of consumer activities. These
markets are evolving rapidly, and it is not certain that their
current growth trends will continue.
The adoption of Internet advertising, particularly by
advertisers that have historically relied on traditional offline
media, requires the acceptance of new approaches to conducting
business. Advertisers may perceive Internet advertising to be
less effective than traditional advertising for marketing their
products. They may also be unwilling to pay premium rates for
online advertising that is targeted at specific segments of
users based on their demographic profile or Internet behavior.
The online advertising and eCommerce markets may also be
adversely affected by privacy issues relating to such targeted
advertising, including that which makes use of personalized
information. Furthermore, online merchants may not be able to
establish online commerce models that are cost effective and may
not learn how to effectively compete with other Web sites or
offline merchants. In addition, consumers may not continue to
shift their spending on goods and services from offline outlets
to the Internet. As a result, growth in the use of the Internet
for eCommerce may not continue at a rapid rate, or the Internet
may not be adopted as a medium of commerce by a broad base of
customers or companies worldwide. Because of the foregoing
factors, among others, the market for Internet advertising and
eCommerce may not continue to grow at significant rates. If
these markets do not continue to develop, or if they develop
slower than expected, our business will suffer.
Our
growth depends upon our ability to retain existing large
customers and add new large customers; however, to the extent we
are successful in doing so, our ability to maintain
profitability and positive cash flow may be
impaired.
Our success depends in part on our ability to sell our products
to large customers and on the renewal of the subscriptions of
those customers in subsequent years. For the years ended
December 31, 2004, 2005 and 2006 and the three months ended
March 31, 2007, we derived over 38%, 41%, 39% and 39%,
respectively, of our total revenues from our top 10 customers.
The loss of any one or more of those customers could decrease
our revenues and harm our current and future operating results.
The addition of new large customers or increases in sales to
existing large customers may require particularly long
implementation periods and other costs, which may adversely
affect our profitability. To compete effectively, we have in the
past been, and may in the future be, forced to offer significant
discounts to maintain existing customers or acquire other large
customers. In addition, we may be forced to reduce or withdraw
from our relationships with certain existing customers or
refrain from acquiring certain new customers in order to acquire
or maintain relationships with important large customers. As a
result, new large customers or increased usage of our products
by large customers may cause our profits to decline and our
ability to sell our products to other customers could be
adversely affected.
We derive a significant portion of our revenues from a single
customer, Microsoft Corporation. For the years ended
December 31, 2004, 2005 and 2006 and the three months ended
March 31, 2007, we derived
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approximately 5%, 14%, 12% and 12%, respectively, of our total
revenues from Microsoft. If Microsoft were to cease or
substantially reduce its use of our products, our revenues and
earnings might decline.
If we
fail to develop our brand, our business may
suffer.
We believe that building and maintaining awareness of comScore
and our portfolio of products in a cost-effective manner is
critical to achieving widespread acceptance of our current and
future products and is an important element in attracting new
customers. We rely on our relationships with the media and the
exposure we receive from numerous citations of our data by media
outlets to build brand awareness and credibility among our
customers and the marketplace. Furthermore, we believe that
brand recognition will become more important for us as
competition in our market increases. Our brands success
will depend on the effectiveness of our marketing efforts and on
our ability to provide reliable and valuable products to our
customers at competitive prices. Our brand marketing activities
may not yield increased revenues, and even if they do, any
increased revenues may not offset the expenses we incur in
attempting to build our brand. If we fail to successfully market
our brand, we may fail to attract new customers, retain existing
customers or attract media coverage to the extent necessary to
realize a sufficient return on our brand-building efforts, and
our business and results of operations could suffer.
Failure
to effectively expand our sales and marketing capabilities could
harm our ability to increase our customer base and achieve
broader market acceptance of our products.
Increasing our customer base and achieving broader market
acceptance of our products will depend to a significant extent
on our ability to expand our sales and marketing operations. We
expect to continue to rely on our direct sales force to obtain
new customers. We plan to continue to expand our direct sales
force both domestically and internationally. We believe that
there is significant competition for direct sales personnel with
the sales skills and technical knowledge that we require. Our
ability to achieve significant growth in revenues in the future
will depend, in large part, on our success in recruiting,
training and retaining sufficient numbers of direct sales
personnel. In general, new hires require significant training
and substantial experience before becoming productive. Our
recent hires and planned hires may not become as productive as
we require, and we may be unable to hire or retain sufficient
numbers of qualified individuals in the future in the markets
where we currently operate or where we seek to conduct business.
Our business will be seriously harmed if the efforts to expand
our sales and marketing capabilities are not successful or if
they do not generate a sufficient increase in revenues.
We
have limited experience with respect to our pricing model, and
if the prices we charge for our products are unacceptable to our
customers, our revenues and operating results will be
harmed.
We have limited experience in determining the prices for our
products that our existing and potential customers will find
acceptable. As the market for our products matures, or as new
competitors introduce new products or services that compete with
ours, we may be unable to renew our agreements with existing
customers or attract new customers at the prices we have
historically charged. As a result, it is possible that future
competitive dynamics in our market may require us to reduce our
prices, which could have an adverse effect on our revenues,
profitability and operating results.
We
derive a significant portion of our revenues from sales of our
subscription-based digital marketing intelligence products. If
our customers terminate or fail to renew their subscriptions,
our business could suffer.
We currently derive a significant portion of our revenues from
our subscription-based digital marketing intelligence products.
Subscription-based products accounted for 70%, 75% and 77% of
our revenues in 2005, 2006 and the first quarter of 2007,
respectively. However, if our customers terminate their
subscriptions for our products, do not renew their
subscriptions, delay renewals of their subscriptions or renew on
terms less favorable to us, our revenues could decline and our
business could suffer.
Our customers have no obligation to renew after the expiration
of their initial subscription period, which is typically one
year, and we cannot assure you that current subscriptions will
be renewed at the same or higher price levels, if at all. Some
of our customers have elected not to renew their subscription
agreements
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with us in the past. If we experience a change of control, as
defined in such agreements, some of our customers have the right
to terminate their subscriptions. Moreover, some of our major
customers have the right to cancel their subscription agreements
without cause at any time. We have limited historical data with
respect to rates of customer subscription renewals, so we cannot
accurately predict future customer renewal rates. Our customer
renewal rates may decline or fluctuate as a result of a number
of factors, including customer satisfaction or dissatisfaction
with our products, the prices or functionality of our products,
the prices or functionality of products offered by our
competitors, mergers and acquisitions affecting our customer
base or reductions in our customers spending levels.
If we
are unable to sell additional products to our existing customers
or attract new customers, our revenue growth will be adversely
affected.
To increase our revenues, we believe we must sell additional
products to existing customers and regularly add new customers.
If our existing and prospective customers do not perceive our
products to be of sufficient value and quality, we may not be
able to increase sales to existing customers and attract new
customers, and our operating results will be adversely affected.
We
depend on third parties for data that is critical to our
business, and our business could suffer if we cannot continue to
obtain data from these suppliers.
We rely on third-party data sources for information regarding
certain offline activities of our panelists. The availability
and accuracy of these data is important to the continuation and
development of our products that link online activity to offline
purchases. If this information is not available to us at
commercially reasonable terms, or is found to be inaccurate, it
could harm our reputation, business and financial performance.
System
failures or delays in the operation of our computer and
communications systems may harm our business.
Our success depends on the efficient and uninterrupted operation
of our computer and communications systems and the third-party
data centers we use. Our ability to collect and report accurate
data may be interrupted by a number of factors, including our
inability to access the Internet, the failure of our network or
software systems, computer viruses, security breaches or
variability in user traffic on customer Web sites. A failure of
our network or data gathering procedures could impede the
processing of data, cause the corruption or loss of data or
prevent the timely delivery of our products.
In the future, we may need to expand our network and systems at
a more rapid pace than we have in the past. Our network or
systems may not be capable of meeting the demand for increased
capacity, or we may incur additional unanticipated expenses to
accommodate these capacity demands. In addition, we may lose
valuable data, be unable to obtain or provide data on a timely
basis or our network may temporarily shut down if we fail to
adequately expand or maintain our network capabilities to meet
future requirements. Any lapse in our ability to collect or
transmit data may decrease the value of our products and prevent
us from providing the data requested by our customers. Any
disruption in our network processing or loss of Internet user
data may damage our reputation and result in the loss of
customers, and our business and results of operations could be
adversely affected.
We
rely on a small number of third-party service providers to host
and deliver our products, and any interruptions or delays in
services from these third parties could impair the delivery of
our products and harm our business.
We host our products and serve all of our customers from two
third-party data center facilities located in Virginia and
Illinois. While we operate our equipment inside these
facilities, we do not control the operation of either of these
facilities, and, depending on service level requirements, we may
not continue to operate or maintain redundant data center
facilities for all of our products or for all of our data, which
could increase our vulnerability. These facilities are
vulnerable to damage or interruption from earthquakes,
hurricanes, floods,
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fires, power loss, telecommunications failures and similar
events. They are also subject to break-ins, computer viruses,
sabotage, intentional acts of vandalism and other misconduct. A
natural disaster or an act of terrorism, a decision to close the
facilities without adequate notice or other unanticipated
problems could result in lengthy interruptions in availability
of our products. We may also encounter capacity limitations at
our third-party data centers. Additionally, our data center
facility agreements are of limited durations, and our data
center facilities have no obligation to renew their agreements
with us on commercially reasonable terms, if at all. Our
agreement for our data center facility located in Virginia
expires on October 3, 2008, if not renewed, and our
agreement for our data center facility located in Illinois
expires on April 28, 2008, if not renewed. Although we are
not substantially dependent on either data center facility
because of planned redundancies, and although we currently are
able to migrate to alternative data centers, such a migration
may result in an interruption or delay in service. If we are
unable to renew our agreements with the owners of the facilities
on commercially reasonable terms, or if we migrate to a new data
center, we may experience delays in delivering our products
until an agreement with another data center facility can be
arranged or the migration to a new facility is completed.
Further, we depend on access to the Internet through third-party
bandwidth providers to operate our business. If we lose the
services of one or more of our bandwidth providers for any
reason, we could experience disruption in the delivery of our
products or be required to retain the services of a replacement
bandwidth provider. It may be difficult for us to replace any
lost bandwidth on commercially reasonable terms, or at all, due
to the large amount of bandwidth our operations require.
Our operations also rely heavily on the availability of
electrical power and cooling capacity, which are also supplied
by third-party providers. If we or the third-party data center
operators that we use to deliver our products were to experience
a major power outage or if the cost of electrical power
increases significantly, our operations and profitability would
be harmed. If we or the third-party data centers that we use
were to experience a major power outage, we would have to rely
on back-up
generators, which may not function properly, and their supply
may be inadequate. Such a power outage could result in the
disruption of our business. Additionally, if our current
facilities fail to have sufficient cooling capacity or
availability of electrical power, we would need to find
alternative facilities.
Any errors, defects, disruptions or other performance problems
with our products caused by third parties could harm our
reputation and may damage our business. Interruptions in the
availability of our products may reduce our revenues due to
increased turnaround time to complete projects, cause us to
issue credits to customers, cause customers to terminate their
subscription and project agreements or adversely affect our
renewal rates. Our business would be harmed if our customers or
potential customers believe our products are unreliable.
Because
our long-term success depends, in part, on our ability to expand
the sales of our products to customers located outside of the
United States, our business will become increasingly susceptible
to risks associated with international operations.
We have very limited experience operating in markets outside of
the United States. Our inexperience in operating our business
outside of the United States may increase the risk that the
international expansion efforts we have begun to undertake will
not be successful. In addition, conducting international
operations subjects us to new risks that we have not generally
faced in the United States. These risks include:
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recruitment and maintenance of a sufficiently large and
representative panel both globally and in certain countries;
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different customer needs and buying behavior than we are
accustomed to in the United States;
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difficulties and expenses associated with tailoring our products
to local markets, including their translation into foreign
languages;
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difficulties in staffing and managing international operations;
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longer accounts receivable payment cycles and difficulties in
collecting accounts receivable;
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potentially adverse tax consequences, including the complexities
of foreign value-added taxes and restrictions on the
repatriation of earnings;
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reduced or varied protection for intellectual property rights in
some countries;
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the burdens of complying with a wide variety of foreign laws and
regulations;
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fluctuations in currency exchange rates;
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increased accounting and reporting burdens and
complexities; and
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political, social and economic instability abroad, terrorist
attacks and security concerns.
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Additionally, operating in international markets requires
significant management attention and financial resources. We
cannot be certain that the investments and additional resources
required to establish and maintain operations in other countries
will hold their value or produce desired levels of revenues or
profitability. We cannot be certain that we will be able to
maintain and increase the size of the Internet user panel that
we currently have in various countries or that we will be able
to recruit a representative sample for our audience measurement
products. In addition, there can be no assurance that Internet
usage and eCommerce will continue to grow in international
markets. In addition, governmental authorities in various
countries have different views regarding regulatory oversight of
the Internet. For example, the Chinese government has recently
taken steps to restrict the content available to Internet users
in China.
The impact of any one or more of these risks could negatively
affect or delay our plans to expand our international business
and, consequently, our future operating results.
If we
fail to respond to technological developments, our products may
become obsolete or less competitive.
Our future success will depend in part on our ability to modify
or enhance our products to meet customer needs, to add
functionality and to address technological advancements. For
example, online publishers and advertisers have recently started
to use Asynchronous JavaScript and XML, or AJAX, a development
technique that allows Web applications to quickly make
incremental updates without having to refresh the entire Web
page. AJAX may make page views a less useful metric for
measuring the usage and effectiveness of online media. If our
products are not effective at addressing evolving customer needs
that result from increased AJAX usage, our business may be
harmed. Similarly, technological advances in the handheld device
industry may lead to changes in our customers
requirements. For example, if certain handheld devices become
the primary mode of receiving content and conducting
transactions on the Internet, and we are unable to adapt our
software to collect information from such devices, then we would
not be able to report on online activity. To remain competitive,
we will need to develop new products that address these evolving
technologies and standards. However, we may be unsuccessful in
identifying new product opportunities or in developing or
marketing new products in a timely or cost-effective manner. In
addition, our product innovations may not achieve the market
penetration or price levels necessary for profitability. If we
are unable to develop enhancements to, and new features for, our
existing products or if we are unable to develop new products
that keep pace with rapid technological developments or changing
industry standards, our products may become obsolete, less
marketable and less competitive, and our business will be harmed.
The
success of our business depends in large part on our ability to
protect and enforce our intellectual property
rights.
We rely on a combination of patent, copyright, service mark,
trademark and trade secret laws, as well as confidentiality
procedures and contractual restrictions, to establish and
protect our proprietary rights, all of which provide only
limited protection. While we have filed a number of patent
applications and own one issued patent, we cannot assure you
that any additional patents will be issued with respect to any
of our pending or future patent applications, nor can we assure
you that any patent issued to us will provide adequate
protection, or that any patents issued to us will not be
challenged, invalidated, circumvented, or held to be
unenforceable in actions against alleged infringers. Also, we
cannot assure you that any future trademark or service mark
registrations will be issued with respect to pending or future
applications or that any of our
18
registered trademarks and service marks will be enforceable or
provide adequate protection of our proprietary rights.
Furthermore, adequate (or any) patent, trademark, service mark,
copyright and trade secret protection may not be available in
every country in which our services are available.
We endeavor to enter into agreements with our employees and
contractors and with parties with whom we do business in order
to limit access to and disclosure of our proprietary
information. We cannot be certain that the steps we have taken
will prevent unauthorized use of our technology or the reverse
engineering of our technology. Moreover, third parties might
independently develop technologies that are competitive to ours
or that infringe upon our intellectual property. In addition,
the legal standards relating to the validity, enforceability and
scope of protection of intellectual property rights in
Internet-related industries are uncertain and still evolving,
both in the United States and in other countries. The protection
of our intellectual property rights may depend on our legal
actions against any infringers being successful. We cannot be
sure any such actions will be successful.
An
assertion from a third party that we are infringing its
intellectual property, whether such assertions are valid or not,
could subject us to costly and time-consuming litigation or
expensive licenses.
The Internet, software and technology industries are
characterized by the existence of a large number of patents,
copyrights, trademarks and trade secrets and by frequent
litigation based on allegations of infringement or other
violations of intellectual property rights, domestically or
internationally. As we grow and face increasing competition, the
probability that one or more third parties will make
intellectual property rights claims against us increases. In
such cases, our technologies may be found to infringe on the
intellectual property rights of others. Additionally, many of
our subscription agreements may require us to indemnify our
customers for third-party intellectual property infringement
claims, which would increase our costs if we have to defend such
claims and may require that we pay damages and provide
alternative services if there were an adverse ruling in any such
claims. Intellectual property claims could harm our
relationships with our customers, deter future customers from
subscribing to our products or expose us to litigation. Even if
we are not a party to any litigation between a customer and a
third party, an adverse outcome in any such litigation could
make it more difficult for us to defend against intellectual
property claims by the third party in any subsequent litigation
in which we are a named party. Any of these results could
adversely affect our brand, business and results of operations.
One of our competitors has filed patent infringement lawsuits
against others, demonstrating this partys propensity for
patent litigation. It is possible that this third party, or some
other third party, may bring an action against us, and thus
cause us to incur the substantial costs and risks of litigation.
Any intellectual property rights claim against us or our
customers, with or without merit, could be time-consuming and
expensive to litigate or settle and could divert management
resources and attention. An adverse determination also could
prevent us from offering our products to our customers and may
require that we procure or develop substitute products that do
not infringe on other parties rights.
With respect to any intellectual property rights claim against
us or our customers, we may have to pay damages or stop using
technology found to be in violation of a third partys
rights. We may have to seek a license for the technology, which
may not be available on reasonable terms or at all, may
significantly increase our operating expenses or may
significantly restrict our business activities in one or more
respects. We may also be required to develop alternative
non-infringing technology, which could require significant
effort and expense. Any of these outcomes could adversely affect
our business and results of operations.
Domestic
or foreign laws, regulations or enforcement actions may limit
our ability to collect and use information about Internet users
or restrict or prohibit our product offerings, causing a
decrease in the value of our products and an adverse impact on
the sales of our products.
Our business could be adversely impacted by existing or future
laws or regulations of, or actions by, domestic or foreign
regulatory agencies. For example, privacy concerns could lead to
legislative, judicial and regulatory limitations on our ability
to collect, maintain and use information about Internet users in
the United States and abroad. Various state legislatures,
including those of Utah and California, have enacted legislation
designed to protect Internet users privacy, for example by
prohibiting spyware. In recent years, similar legislation has
been
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proposed in other states and at the federal level and has been
enacted in foreign countries, most notably by the European
Union, which adopted a privacy directive regulating the
collection of personally identifiable information online. These
laws and regulations, if drafted or interpreted broadly, could
be deemed to apply to the technology we use, and could restrict
our information collection methods or decrease the amount and
utility of the information that we would be permitted to
collect. In addition, our ability to conduct business in certain
foreign jurisdictions, including China, is restricted by the
laws, regulations and agency actions of those jurisdictions. The
costs of compliance with, and the other burdens imposed by,
these and other laws or regulatory actions may prevent us from
selling our products or increase the costs associated with
selling our products, and may affect our ability to invest in or
jointly develop products in the United States and in foreign
jurisdictions.
In addition, failure to comply with these and other laws and
regulations may result in, among other things, administrative
enforcement actions and fines, class action lawsuits and civil
and criminal liability. State attorneys general, governmental
and non-governmental entities and private persons may bring
legal actions asserting that our methods of collecting, using
and distributing Web site visitor information are illegal or
improper, which could require us to spend significant time and
resources defending these claims. For example, some companies
that collect, use and distribute Web site visitor information
have been the subject of governmental investigations and
class-action
lawsuits. Any such regulatory or civil action that is brought
against us, even if unsuccessful, may distract our
managements attention, divert our resources, negatively
affect our public image or reputation among our panelists and
customers and harm our business.
The impact of any of these current or future laws or regulations
could make it more difficult or expensive to attract or maintain
panelists, particularly in affected jurisdictions, and could
adversely affect our business and results of operations.
Laws
related to the regulation of the Internet could adversely affect
our business.
Laws and regulations that apply to communications and commerce
over the Internet are becoming more prevalent. In particular,
the growth and development of the market for eCommerce has
prompted calls for more stringent tax, consumer protection and
privacy laws in the United States and abroad that may impose
additional burdens on companies conducting business online. The
adoption, modification or interpretation of laws or regulations
relating to the Internet or our customers digital
operations could negatively affect the businesses of our
customers and reduce their demand for our products.
If we
fail to respond to evolving industry standards, our products may
become obsolete or less competitive.
The market for our products is characterized by rapid
technological advances, changes in customer requirements,
changes in protocols and evolving industry standards. For
example, industry associations such as the Advertising Research
Foundation, the Council of American Survey Research
Organizations, the Internet Advertising Bureau, or IAB, and the
Media Ratings Council have independently initiated efforts to
either review online market research methodologies or to develop
minimum standards for online market research. On April 19,
2007, we received a letter from the IAB, citing discrepancies
between our audience measurement data, those of our competitors
and those provided by the server logs of IABs member
organizations. In its letter, the IAB asked us to submit to an
independent audit and accreditation process of our audience
measurement systems and processes. On May 16, 2007, we
attended a meeting hosted by the IAB in which we indicated a
commitment to finalizing a timeline for a full audit and
accreditation by the Media Ratings Council within the
90 days of the meeting.
Any standards adopted by the IAB or similar organizations may
lead to costly changes to our procedures and methodologies. As a
result, the cost of developing our digital marketing
intelligence products could increase. If we do not adhere to
standards prescribed by the IAB or other industry associations,
our customers could choose to purchase products from competing
companies that meet such standards. Furthermore, industry
associations based in countries outside of the United States
often endorse certain vendors or methodologies. If our
methodologies fail to receive an endorsement from an important
industry association located in a foreign country, advertising
agencies, media companies and advertisers in that country may
not purchase our products. As a result, our efforts to further
expand internationally could be adversely affected.
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The
success of our business depends on the continued growth of the
Internet as a medium for commerce, content, advertising and
communications.
Expansion in the sales of our products depends on the continued
acceptance of the Internet as a platform for commerce, content,
advertising and communications. The use of the Internet as a
medium for commerce, content, advertising and communications
could be adversely impacted by delays in the development or
adoption of new standards and protocols to handle increased
demands of Internet activity, security, reliability, cost,
ease-of-use,
accessibility and
quality-of-service.
The performance of the Internet and its acceptance as a medium
for commerce, content commerce, content, advertising and
communications has been harmed by viruses, worms, and similar
malicious programs, and the Internet has experienced a variety
of outages and other delays as a result of damage to portions of
its infrastructure. If for any reason the Internet does not
remain a medium for widespread commerce, content, advertising
and communications, the demand for our products would be
significantly reduced, which would harm our business.
We
rely on our management team and need additional personnel to
grow our business, and the loss of one or more key employees or
the inability to attract and retain qualified personnel could
harm our business.
Our success and future growth depends to a significant degree on
the skills and continued services of our management team,
including our founders, Magid M. Abraham, Ph.D. and Gian M.
Fulgoni. Our future success also depends on our ability to
retain, attract and motivate highly skilled technical,
managerial, marketing and customer service personnel, including
members of our management team. All of our employees work for us
on an at-will basis. We plan to hire additional personnel in all
areas of our business, particularly for our sales, marketing and
technology development areas, both domestically and
internationally, which will likely increase our recruiting and
hiring costs. Competition for these types of personnel is
intense, particularly in the Internet and software industries.
As a result, we may be unable to successfully attract or retain
qualified personnel. Our inability to retain and attract the
necessary personnel could adversely affect our business.
We may
expand through investments in, or acquisitions of, other
companies, any of which may not be successful and may divert our
managements attention.
Our business strategy may include acquiring complementary
products, technologies or businesses. We also may enter into
relationships with other businesses in order to expand our
product offerings, which could involve preferred or exclusive
licenses, discount pricing or investments in other companies.
Negotiating any such transactions could be time-consuming,
difficult and expensive, and our ability to close these
transactions may be subject to regulatory or other approvals and
other conditions which are beyond our control. Consequently, we
can make no assurances that any such transactions, if undertaken
and announced, would be completed.
An acquisition, investment or business relationship may result
in unforeseen operating difficulties and expenditures. In
particular, we may encounter difficulties assimilating or
integrating the businesses, technologies, products, personnel or
operations of the acquired companies, particularly if the key
personnel of the acquired company choose not to be employed by
us, and we may have difficulty retaining the customers of any
acquired business due to changes in management and ownership.
Acquisitions may also disrupt our ongoing business, divert our
resources and require significant management attention that
would otherwise be available for ongoing development of our
business. Moreover, we cannot assure you that the anticipated
benefits of any acquisition, investment or business relationship
would be realized or that we would not be exposed to unknown
liabilities. In connection with any such transaction, we may:
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encounter difficulties retaining key employees of the acquired
company or integrating diverse business cultures;
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issue additional equity securities that would dilute the common
stock held by existing stockholders;
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incur large charges or substantial liabilities;
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become subject to adverse tax consequences, substantial
depreciation or deferred compensation charges;
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use cash that we may need in the future to operate our
business; and
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incur debt on terms unfavorable to us or that we are unable to
repay.
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The impact of any one or more of these factors could adversely
affect our business or results of operations or cause the price
of our common stock to decline substantially.
Changes
in, or interpretations of, accounting rules and regulations,
including recent rules and regulations regarding expensing of
stock options, could result in unfavorable accounting charges or
cause us to change our compensation policies.
Accounting methods and policies, including policies governing
revenue recognition, expenses and accounting for stock options
are continually subject to review, interpretation, and guidance
from relevant accounting authorities, including the Financial
Accounting Standards Board, or FASB, and the SEC. Changes to, or
interpretations of, accounting methods or policies in the future
may require us to reclassify, restate or otherwise change or
revise our financial statements, including those contained in
this prospectus.
On December 16, 2004, the FASB issued
SFAS No. 123R (revised 2004), Share-Based
Payment, which is a revision of SFAS No. 123,
Accounting for Stock-Based Compensation
(SFAS No. 123R). SFAS No. 123R
supersedes APB Opinion No. 25, Accounting for Stock
Issued to Employees, and amends SFAS No. 95,
Statement of Cash Flows. Generally, the approach in
SFAS No. 123R is similar to the approach described in
SFAS No. 123. However, SFAS No. 123R
requires all share-based payments to employees, including grants
of employee stock options, to be recognized in the income
statement based on their fair values. We were required to adopt
SFAS No. 123R on January 1, 2006, and have
adopted it as of that date.
As permitted by SFAS No. 123, we accounted for
share-based payments to employees through December 31, 2005
using APB Opinion No. 25s intrinsic value method and,
as such, generally recognized no compensation cost for employee
stock options. Accordingly, the adoption of
SFAS No. 123Rs fair value method has had a
significant impact on the presentation of our results of
operations, although it has not impacted our overall financial
position. The long-term impact of adoption of
SFAS No. 123R cannot be predicted at this time because
it will depend on levels of share-based payments granted in the
future and the assumptions for the variables which impact the
computation of the fair value of any such grants.
Historically, we have used stock options as part of our
compensation programs to motivate and retain existing employees
and to attract new employees. Because we are now required to
expense stock options, we may choose to reduce our reliance on
stock options as part of our compensation packages. If we reduce
our use of stock options, it may be more difficult for us to
retain and attract qualified employees. If we do not reduce our
use of stock options, our expenses in future periods may
increase. Beginning in 2007, we issued restricted stock awards
and restricted stock units, and we expect to reduce our use of
stock options as a form of stock-based compensation, but we
cannot be certain whether or how our stock-based compensation
policy will change in the future.
Investors
could lose confidence in our financial reports, and our business
and stock price may be adversely affected, if our internal
control over financial reporting is found by management or by
our independent registered public accounting firm to not be
adequate or if we disclose significant existing or potential
deficiencies or material weaknesses in those
controls.
Section 404 of the Sarbanes-Oxley Act of 2002 requires us
to include a report on our internal control over financial
reporting in our Annual Report on
Form 10-K
for each year beginning with the year ending December 31,
2008. That report must include managements assessment of
the effectiveness of our internal control over financial
reporting as of the end of that and each subsequent fiscal year.
Additionally, our independent registered public accounting firm
will be required to issue a report on managements
assessment of our internal control over financial reporting and
on their evaluation of the operating effectiveness of our
internal control over financial reporting.
We continue to evaluate our existing internal controls against
the standards adopted by the Public Company Accounting Oversight
Board, or PCAOB. During the course of our ongoing evaluation of
our
22
internal controls, we have in the past identified, and may in
the future identify, areas requiring improvement, and may have
to design enhanced processes and controls to address issues
identified through this review. Remedying any significant
deficiencies or material weaknesses that we or our independent
registered public accounting firm may identify could require us
to incur significant costs and expend significant time and
management resources. We cannot assure you that any of the
measures we may implement to remedy any such deficiencies will
effectively mitigate or remedy such deficiencies. In addition,
we cannot assure you that we will be able to complete the work
necessary for our management to issue its management report in a
timely manner, or that we will be able to complete any work
required for our management to be able to conclude that our
internal control over financial reporting is operating
effectively. If we are not able to complete the assessment under
Section 404 in a timely manner or to remedy any identified
material weaknesses, we and our independent registered public
accounting firm would be unable to conclude that our internal
control over financial reporting is effective as of
December 31, 2008. If our internal control over financial
reporting is found by management or by our independent
registered public accountant to not be adequate or if we
disclose significant existing or potential deficiencies or
material weaknesses in those controls, investors could lose
confidence in our financial reports, we could be subject to
sanctions or investigations by The NASDAQ Global Market, the
Securities and Exchange Commission or other regulatory
authorities and our stock price could be adversely affected.
A determination that there is a significant deficiency or
material weakness in the effectiveness of our internal control
over financial reporting could also reduce our ability to obtain
financing or could increase the cost of any financing we obtain
and require additional expenditures to comply with applicable
requirements.
Our
net operating loss carryforwards may expire unutilized or
underutilized, which could prevent us from offsetting future
taxable income.
We have experienced changes in control that have
triggered the limitations of Section 382 of the Internal
Revenue Code on our net operating loss carryforwards. As a
result, we may be limited in the portion of net operating loss
carryforwards that we can use in the future to offset taxable
income for U.S. Federal income tax purposes.
At December 31, 2006, we had both federal and state net
operating loss carryforwards of approximately
$81.2 million, which are available to offset future taxable
income. The federal net operating loss carryforwards will begin
to expire in 2020. The state net operating loss carryforwards
begin to expire in 2010.
In addition, at December 31, 2005 and 2006, we had net
operating loss carryforwards for tax purposes related to our
foreign subsidiaries of $966,000 and $703,000, respectively,
which begin to expire in 2010.
In 2006, deferred tax assets, before valuation allowance,
decreased approximately $2.4 million due to our use of net
operating loss carryforwards to offset taxable income.
We periodically assess the likelihood that we will be able to
recover our deferred tax assets. We consider all available
evidence, both positive and negative, including historical
levels of income, expectations and risks associated with
estimates of future taxable income and ongoing prudent and
feasible profits. As a result of this analysis of all available
evidence, both positive and negative, we concluded that a full
valuation allowance against deferred tax assets should be
applied as of December 31, 2006. To the extent we determine
that all or a portion of our valuation allowance is no longer
necessary, we will recognize an income tax benefit in the period
such determination is made for the reversal of the valuation
allowance. Once the valuation allowance is eliminated or
reduced, its reversal will no longer be available to offset our
current tax provision. These events could have a material impact
on our reported results of operations.
We may
require additional capital to support business growth, and this
capital may not be available on acceptable terms or at
all.
We intend to continue to make investments to support our
business growth and may require additional funds to respond to
business challenges, including the need to develop new products
or enhance our existing products, enhance our operating
infrastructure and acquire complementary businesses and
technologies.
23
Accordingly, we may need to engage in equity or debt financings
to secure additional funds. If we raise additional funds through
further issuances of equity or convertible debt securities, our
existing stockholders could suffer significant dilution, and any
new equity securities we issue could have rights, preferences
and privileges superior to those of holders of our common stock.
Any debt financing secured by us in the future could include
restrictive covenants relating to our capital raising activities
and other financial and operational matters, which may make it
more difficult for us to obtain additional capital and to pursue
business opportunities, including potential acquisitions. In
addition, we may not be able to obtain additional financing on
terms favorable to us or at all. If we are unable to obtain
adequate financing or financing on terms satisfactory to us when
we require it, our ability to continue to support our business
growth and to respond to business challenges could be
significantly limited. In addition, the terms of any additional
equity or debt issuances may adversely affect the value and
price of our common stock.
Risks
Related to this Offering
We
cannot assure you that a market will develop for our common
stock or what the market price of our common stock will
be.
Before this offering, there was no public trading market for our
common stock, and we cannot assure you that one will develop or
be sustained after this offering. If a market does not develop
or is not sustained, it may be difficult for you to sell your
shares of common stock at an attractive price or at all. We
cannot predict the prices at which our common stock will trade.
The initial public offering price for our common stock will be
determined through our negotiations with the underwriters, and
may not bear any relationship to the market price at which our
common stock will trade after this offering or to any other
established criteria of the value of our business. The price of
our common stock that will prevail in the market after this
offering may be higher or lower than the price you pay,
depending on many factors, some of which are beyond our control
and may not be related to our operating performance. It is
possible that, in future quarters, our operating results may be
below the expectations of securities analysts or investors. As a
result of these and other factors, the price of our common stock
may decline, possibly materially. These fluctuations could cause
you to lose all or part of your investment in our common stock.
The public trading price for our common stock after this
offering will be affected by a number of factors, including:
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price and volume fluctuations in the overall stock market from
time to time;
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volatility in the market price and trading volume of technology
companies and of companies in our industry;
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actual or anticipated changes or fluctuations in our operating
results;
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actual or anticipated changes in expectations regarding our
performance by investors or securities analysts;
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the failure of securities analysts to cover our common stock
after this offering or changes in financial estimates by
analysts;
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actual or anticipated developments in our competitors
businesses or the competitive landscape;
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actual or perceived inaccuracies in information we provide to
our customers or the media;
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litigation involving us, our industry or both;
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regulatory developments;
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privacy and security concerns, including public perception of
our practices as an invasion of privacy;
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general economic conditions and trends;
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major catastrophic events;
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sales of large blocks of our stock;
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the timing and success of new product introductions or upgrades
by us or our competitors;
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changes in our pricing policies or payment terms or those of our
competitors;
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concerns relating to the security of our network and systems;
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our ability to expand our operations, domestically and
internationally, and the amount and timing of expenditures
related to this expansion; or
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departures of key personnel.
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In addition, the stock prices of many technology companies have
experienced wide fluctuations that have often been unrelated to
the operating performance of those companies.
In the past, following periods of volatility in the market price
of a companys securities, securities class action
litigation has often been brought against that company. If our
stock price is volatile, we may become the target of securities
litigation, which could result in substantial costs and divert
our managements attention and resources from our business.
Our
stock price could decline due to the large number of outstanding
shares of our common stock eligible for future
sale.
Sales of substantial amounts of our common stock in the public
market following this offering, or the perception that these
sales could occur, could cause the market price of our common
stock to decline. These sales could also make it more difficult
for us to sell equity or equity-related securities in the future
at a time and price that we deem appropriate.
Upon completion of this offering, we will
have outstanding
shares of common stock, assuming no exercise of the
underwriters over-allotment option and no exercise of
outstanding options or warrants
after ,
2007.
The shares
sold pursuant to this offering will be immediately tradable
without restriction. Of the remaining shares:
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shares
will be eligible for sale immediately upon completion of this
offering, subject in some cases to volume and other restrictions
of Rule 144 and Rule 701 under the Securities Act;
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shares
will be eligible for sale upon the expiration of
lock-up
agreements, subject in some cases to volume and other
restrictions of Rule 144 and Rule 701 under the
Securities Act; and
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shares
will be eligible for sale upon the exercise of vested options
after the expiration of the
lock-up
agreements.
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The lock-up
agreements expire 180 days after the date of this
prospectus, provided that the
180-day
period may be extended in certain cases for up to 34 additional
days under certain circumstances where we announce or
pre-announce earnings or a material event within approximately
17 days prior to, or approximately 16 days after, the
termination of the
180-day
period. Credit Suisse Securities (USA) LLC may, in its sole
discretion and at any time without notice, release all or any
portion of the securities subject to
lock-up
agreement. After the closing of this offering, we intend to
register
approximately shares
of common stock that have been reserved for future issuance
under our stock incentive plans.
Insiders
will continue to have substantial control over us after this
offering, which could limit your ability to influence the
outcome of key transactions, including a change of
control.
Our directors, executive officers and each of our stockholders
who own greater than 5% of our outstanding common stock and
their affiliates, in the aggregate, will beneficially own
approximately % of the outstanding shares of our
common stock after this offering. As a result, these
stockholders, if acting together, would be able to influence or
control matters requiring approval by our stockholders,
including the election of directors and the approval of mergers,
acquisitions or other extraordinary transactions. They may have
interests that differ from yours and may vote in a way with
which you disagree and which may be adverse to your interests.
This concentration of ownership may have the effect of delaying,
preventing or deterring a change of control of our company,
could
25
deprive our stockholders of an opportunity to receive a premium
for their common stock as part of a sale of our company and
might affect the market price of our common stock.
Our
management will have broad discretion over the use of the
proceeds from this offering and may not apply the proceeds of
this offering in ways that increase the value of your
investment.
Our management will have broad discretion to use the net
proceeds we receive from this offering, and you will be relying
on its judgment regarding the application of these proceeds. We
expect to use the net proceeds from this offering for general
corporate purposes, which may include working capital, capital
expenditures, other corporate expenses and potential
acquisitions of complementary products, technologies or
businesses. We have not allocated these net proceeds for any
specific purposes. However, management may not apply the net
proceeds of this offering in ways that increase the value of
your investment.
If you
purchase shares of our common stock in this offering, you will
experience substantial and immediate dilution.
If you purchase shares of our common stock in this offering, you
will experience substantial and immediate dilution of
$ per share based on an
assumed initial public offering price of
$ per share, the mid-point of
the range shown on the cover of this prospectus, because the
price that you pay will be substantially greater than the net
tangible book value per share of the common stock that you
acquire. This dilution is due in large part to the fact that our
earlier investors paid substantially less than the initial
public offering price when they purchased their shares of our
capital stock. You will experience additional dilution upon the
exercise of options to purchase common stock under our equity
incentive plans, if we issue restricted stock to our employees
under these plans or if we otherwise issue additional shares of
our common stock. See Dilution.
We
will incur increased costs and demands upon management as a
result of complying with the laws and regulations affecting a
public company, which could adversely affect our operating
results.
As a public company, we will incur significant legal, accounting
and other expenses that we did not incur as a private company.
In addition, the Sarbanes-Oxley Act of 2002, as well as rules
implemented by the Securities and Exchange Commission and The
NASDAQ Stock Market, requires certain corporate governance
practices for public companies. Our management and other
personnel will need to devote a substantial amount of time to
public reporting requirements and corporate governance. We
expect these rules and regulations to significantly increase our
legal and financial compliance costs and to make some activities
more time-consuming and costly. We will also incur additional
costs associated with our public company reporting requirements.
We are unable to currently estimate these costs with any degree
of certainty. If these costs are not offset by increased
revenues and improved financial performance, our operating
results would be adversely affected. We also expect these rules
and regulations to make it more difficult and more expensive for
us to obtain director and officer liability insurance, and we
may be required to accept reduced policy limits and coverage or
incur substantially higher costs to obtain the same or similar
coverage. As a result, it may be more difficult for us to
attract and retain qualified people to serve on our board of
directors or as executive officers.
Provisions
in our certificate of incorporation and bylaws and under
Delaware law might discourage, delay or prevent a change of
control of our company or changes in our management and,
therefore, depress the trading price of our common
stock.
Our certificate of incorporation and bylaws contain provisions
that could depress the trading price of our common stock by
acting to discourage, delay or prevent a change of control of
our company or changes in our management that the stockholders
of our company may deem advantageous. These provisions:
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establish a classified board of directors so that not all
members of our board of directors are elected at one time;
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authorize blank check preferred stock that our board
of directors could issue to increase the number of outstanding
shares to discourage a takeover attempt;
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prohibit stockholder action by written consent, which means that
all stockholder actions must be taken at a meeting of our
stockholders;
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prohibit stockholders from calling a special meeting of our
stockholders;
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provide that the board of directors is expressly authorized to
make, alter or repeal our bylaws; and
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establish advance notice requirements for nominations for
elections to our board of directors or for proposing matters
that can be acted upon by stockholders at stockholder meetings.
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Additionally, we are subject to Section 203 of the Delaware
General Corporation Law, which prohibits a Delaware corporation
from engaging in any of a broad range of business combinations
with any interested stockholder for a period of
three years following the date on which the stockholder became
an interested stockholder and which may discourage,
delay or prevent a change of control of our company.
27
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY
DATA
This prospectus, including the sections entitled
Summary, Risk Factors,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and
Business, contains forward-looking statements. These
statements may relate to, but are not limited to, expectations
of future operating results or financial performance, capital
expenditures, introduction of new products, regulatory
compliance, plans for growth and future operations, as well as
assumptions relating to the foregoing. Forward-looking
statements are inherently subject to risks and uncertainties,
some of which cannot be predicted or quantified. These risks and
other factors include, but are not limited to, those listed
under Risk Factors. In some cases, you can identify
forward-looking statements by terminology such as
may, will, should,
could, expect, plan,
anticipate, believe,
estimate, predict, intend,
potential, might, would,
continue or the negative of these terms or other
comparable terminology. These statements are only predictions.
Actual events or results may differ materially.
We believe that it is important to communicate our future
expectations to our investors. However, there may be events in
the future that we are not able to accurately predict or control
and that may cause our actual results to differ materially from
the expectations we describe in our forward-looking statements.
Except as required by applicable law, including the securities
laws of the United States and the rules and regulations of the
SEC, we do not plan to publicly update or revise any
forward-looking statements after we distribute this prospectus,
whether as a result of any new information, future events or
otherwise. Potential investors should not place undue reliance
on our forward-looking statements. Before you invest in our
common stock, you should be aware that the occurrence of any of
the events described in the Risk Factors section and
elsewhere in this prospectus could harm our business, prospects,
operating results and financial condition. Although we believe
that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements.
This prospectus also contains estimates and other information
concerning our industry, including market size and growth rates
of the markets in which we participate, that are based on
industry publications, surveys and forecasts, including those
generated by Forrester Research, IDC, JupiterResearch,
Infonetics, the Internet Advertising Bureau and
PricewaterhouseCoopers. This information involves a number of
assumptions and limitations, and you are cautioned not to give
undue weight to these estimates. These industry publications,
surveys and forecasts generally indicate that their information
has been obtained from sources believed to be reliable. The
industry in which we operate is subject to a high degree of
uncertainty and risk due to a variety of factors, including
those described in Risk Factors. These and other
factors could cause actual results to differ materially from
those expressed in these publications, surveys and forecasts.
28
USE OF
PROCEEDS
We estimate that the net proceeds from the sale of
the shares of our common
stock that we are selling in this offering will be approximately
$ million, based on an
assumed initial public offering price of
$ per share, the mid-point of
the range on the front cover of this prospectus, after deducting
underwriting discounts and commissions and estimated offering
expenses. If the underwriters over-allotment option is
exercised in full, we estimate that we will receive additional
net proceeds of approximately
$ million. We will not
receive any proceeds from the sale of shares of our common stock
by the selling stockholders.
The principal purposes of this offering are to create a public
market for our common stock and to facilitate our future access
to the public equity markets, as well as to obtain additional
capital.
Except as discussed below, we currently have no specific plans
for the use of a significant portion of the net proceeds of this
offering. However, we anticipate that we will use the net
proceeds from this offering for general corporate purposes,
which may include working capital, capital expenditures, other
corporate expenses and acquisitions of complementary products,
technologies or businesses. We expect to use approximately
$4 million of the net proceeds for capital expenditures
related to computer hardware and equipment as well as office
improvements. We currently have no agreements or commitments
with respect to acquisitions of complementary products,
technologies or businesses. The timing and amount of our actual
expenditures will be based on many factors, including cash flows
from operations and the anticipated growth of our business.
Pending these uses, we intend to invest the net proceeds of this
offering primarily in short-term, investment-grade,
interest-bearing instruments.
If we were to price the offering at
$ per share, the low end of
the range on the cover of this prospectus, we estimate that we
would receive net proceeds of
$ million, assuming the total
number of shares offered by us remains the same and after
deducting underwriting discounts and commissions and estimated
offering expenses payable by us. If we were to price the
offering at $ per share, the
high end of the range on the cover of this prospectus, then we
estimate that we would receive net proceeds of
$ million, assuming the total
number of shares offered by us remains the same and after
deducting underwriting discounts and commissions and estimated
offering expenses payable by us.
DIVIDEND
POLICY
We have never declared or paid any dividends on our capital
stock. We anticipate that we will retain any earnings to support
operations and to finance the growth and development of our
business. Accordingly, we do not expect to pay cash dividends on
our common stock in the foreseeable future.
29
CAPITALIZATION
The following table sets forth our capitalization as of
March 31, 2007:
|
|
|
|
|
on an actual basis without any adjustments to reflect subsequent
or anticipated events;
|
|
|
|
|
|
on a pro forma basis reflecting (i) the conversion of all
outstanding shares of our Series A, Series B,
Series C,
Series C-1,
Series D and Series E preferred stock into an
aggregate of 86,286,697 shares of our common stock
effective immediately prior to the completion of this offering,
for a total of 111,915,643 shares of common stock, which
amount includes 1,738,172 shares subject to put and
(ii) the reclassification of our preferred stock warrant
liabilities from current liabilities to additional paid in
capital effective upon the completion of this offering; and
|
|
|
|
|
|
on a pro forma as adjusted basis reflecting the conversion and
reclassification described above and the receipt by us of the
net proceeds from the sale
of shares
of common stock in this offering at an assumed initial public
offering price of $ per
share, after deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by us.
|
You should read this table in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our consolidated
financial statements and related notes included elsewhere in
this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2007
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
Actual
|
|
|
Pro Forma
|
|
|
as Adjusted
|
|
|
|
(In thousands, except share data)
|
|
|
Preferred stock warrant liabilities
|
|
|
995
|
|
|
|
|
|
|
|
|
|
Redeemable preferred stock,
$0.001 par value, 73,673,224 shares authorized;
71,829,471 shares issued and outstanding actual; no shares
issued or outstanding pro forma and pro forma as adjusted
|
|
|
102,580
|
|
|
|
|
|
|
|
|
|
Common stock subject to put right,
1,738,172 shares outstanding
|
|
|
4,392
|
|
|
|
4,392
|
|
|
|
|
|
Stockholders equity
(deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par
value; 130,000,000 shares authorized,
23,890,774 shares issued and outstanding actual;
150,000,000 shares authorized, 110,177,471 shares
issued and outstanding pro forma
and shares
issued and outstanding pro forma as adjusted
|
|
|
24
|
|
|
|
110
|
|
|
|
|
|
Additional paid-in capital
|
|
|
|
|
|
|
103,489
|
|
|
|
|
|
Accumulated other comprehensive
loss
|
|
|
(70
|
)
|
|
|
(70
|
)
|
|
|
|
|
Accumulated deficit
|
|
|
(98,637
|
)
|
|
|
(98,637
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
(deficit)
|
|
|
(98,683
|
)
|
|
|
4,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
9,284
|
|
|
$
|
9,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table above excludes, as of March 31, 2007:
|
|
|
|
|
12,486,511 shares of common stock issuable upon exercise of
options outstanding at a weighted-average exercise price of
$0.41 per share;
|
|
|
|
|
|
264,250 shares of our common stock issuable upon the
settlement of outstanding restricted stock unit awards;
|
30
|
|
|
|
|
2,295,125 shares of common stock reserved for future
issuance under our 1999 Stock Plan;
|
|
|
|
|
|
7,000,000 shares of common stock reserved for future
issuance under our 2007 Equity Incentive Plan, which will be
effective upon completion of this offering; and
|
|
|
|
|
|
875,923 shares of common stock issuable upon the exercise
of warrants, which total includes warrants for our preferred
stock that will become exercisable for common stock after this
offering, at a weighted-average exercise price of $0.97 per
share.
|
A $1.00 decrease or increase in the offering price would result
in an approximately $ million
increase or decrease in each of as adjusted cash and cash
equivalents, as adjusted additional paid-in capital, as adjusted
total stockholders equity and as adjusted total
capitalization, assuming the total number of shares offered by
us remains the same and after deducting estimated underwriting
discounts and commissions and estimated offering expenses
payable by us.
31
DILUTION
If you invest in our common stock, your interest will be diluted
to the extent of the difference between the public offering
price per share of our common stock and the pro forma as
adjusted net tangible book value per share of our common stock
after this offering. Our pro forma net tangible book value as of
March 31, 2007 was $6.2 million, or $0.06 per
share of common stock. Pro forma net tangible book value per
share represents total tangible assets less total liabilities,
divided by the number of shares of common stock outstanding
after giving effect to the conversion of all outstanding shares
of our Series A, Series B, Series C,
Series C-1,
Series D and Series E preferred stock into an
aggregate of 86,286,697 shares of our common stock
effective immediately prior to the completion of this offering,
for a total of 111,915,643 shares of common stock
outstanding on March 31, 2007, which amount includes
1,738,172 shares subject to put. After giving effect to the sale
by us
of shares
of our common stock in this offering at the assumed initial
public offering price of
$ per share, the mid-point of
the range on the front cover of this prospectus, and after
deducting the underwriting discounts and commissions and our
estimated offering expenses, our pro forma as adjusted net
tangible book value as of March 31, 2007 would have been
$ million, or
$ per share. This represents
an immediate increase in net tangible book value of
$ per share to our existing
stockholders and an immediate dilution of
$ per share to our new
investors purchasing shares of common stock in this offering.
The following table illustrates this dilution on a per share
basis:
|
|
|
|
|
|
|
|
|
Assumed initial public offering
price per share
|
|
|
|
|
|
$
|
|
|
Pro forma net tangible book value
per share as of March 31, 2007
|
|
$
|
0.06
|
|
|
|
|
|
Increase in pro forma net tangible
book value per share attributable to this offering per share to
existing investors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma as adjusted net tangible
book value per share after this offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilution per share to new investors
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth as of March 31, 2007, on a
pro forma as adjusted basis, the differences between the number
of shares of common stock purchased from us, the total
consideration paid, and the average price per share paid by
existing stockholders and new investors purchasing shares of our
common stock in this offering based on an assumed initial public
offering price of $ per
share, the mid-point of the range on the front cover of this
prospectus, and before deducting underwriting discounts and
commissions and estimated offering expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased
|
|
|
Total Consideration
|
|
|
Average Price
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
per Share
|
|
|
Existing stockholders
|
|
|
111,915,643
|
|
|
|
|
%
|
|
$
|
88,892,972
|
|
|
|
|
%
|
|
$
|
0.79
|
|
New investors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
100.0
|
%
|
|
$
|
|
|
|
|
100.0
|
%
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
If the underwriters exercise their over-allotment option in
full, the percentage of shares of common stock held by existing
stockholders will decrease to approximately % of the
total number of shares of our common stock outstanding after
this offering, and the number of shares held by new investors
will be increased
to ,
or approximately % of the total number of shares of
our common stock outstanding after this offering.
A $1.00 decrease in the assumed offering price would decrease
our net tangible book value after this offering by
$ million and dilution in net
tangible book value per share to new investors by
$ , assuming the total number of
shares offered by us remains the same and after deducting
estimated underwriting discounts and commissions and estimated
offering expenses payable by us. A $1.00 decrease in the assumed
offering price would decrease each of total consideration paid
by new investors in the offering and total consideration paid by
all stockholders by
$ million, assuming the total
number of shares offered by us remains the same and before
deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by us.
32
A $1.00 increase in the assumed offering price would increase
our net tangible book value after this offering by
$ million and dilution in net
tangible book value per share to new investors by
$ , assuming the total number of
shares offered by us remains the same and after deducting
estimated underwriting discounts and commissions and estimated
offering expenses payable by us. A $1.00 increase in the assumed
offering price would increase each of total consideration paid
by new investors in the offering and total consideration paid by
all stockholders by
$ million, assuming the total
number of shares offered by us remains the same and before
deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by us.
The table above excludes, as of March 31, 2007:
|
|
|
|
|
12,486,511 shares of common stock issuable upon exercise of
options outstanding at a weighted-average exercise price of
$0.41 per share;
|
|
|
|
|
|
264,250 shares of our common stock issuable upon the
settlement of outstanding restricted stock unit awards;
|
|
|
|
|
|
2,295,125 shares of common stock reserved for future
issuance under our 1999 Stock Plan;
|
|
|
|
|
|
7,000,000 shares of common stock reserved for future issuance
under our 2007 Equity Incentive Plan, which will be effective
upon completion of this offering; and
|
|
|
|
|
|
875,923 shares of common stock issuable upon the exercise
of warrants, which total includes warrants for our preferred
stock that will become exercisable for common stock after this
offering, at a weighted-average exercise price of $0.97 per
share.
|
Assuming the exercise of all options and warrants outstanding as
of March 31, 2007, the effects would be as follows:
|
|
|
|
|
pro forma as adjusted net tangible book value per share after
this offering would decrease from
$ to
$ , resulting in additional
dilution to new investors of $ per
share;
|
|
|
|
our existing stockholders, including the holders of these
options and warrants, would own %,
and our new investors would own %
of the total number of shares of our common stock outstanding
upon the completion of this offering; and
|
|
|
|
our existing stockholders, including the holders of these
options and warrants, would have
paid % of the total consideration,
at an average price per share of
$ , and our new investors would
have paid % of the total
consideration.
|
33
SELECTED
CONSOLIDATED FINANCIAL DATA
You should read the selected consolidated financial data set
forth below in conjunction with our consolidated financial
statements, the notes to our consolidated financial statements
and Managements Discussion and Analysis of Financial
Condition and Results of Operations contained elsewhere in
this prospectus.
The consolidated statements of operations data and the
consolidated statements of cash flows data for the years ended
January 31, 2003 and December 31, 2003 as well as the
consolidated balance sheet data as of January 31, 2003 and
December 31, 2003 and 2004 are derived from our audited
consolidated financial statements not included in this
prospectus. The consolidated statements of operations data and
the consolidated statements of cash flows data for each of the
three years ended December 31, 2004, 2005 and 2006 as well
as the consolidated balance sheet data as of December 31,
2005 and 2006 are derived from our audited consolidated
financial statements that are included elsewhere in this
prospectus. In 2003, we changed our fiscal year to the twelve
months ended December 31. The year ended January 31,
2003 and the year ended December 31, 2003 in the table
below both include the results of operations for the month ended
January 31, 2003. The consolidated statements of operations
data for the three months ended March 31, 2006 and 2007 and
the consolidated balance sheet data as of March 31, 2007
have been derived from our unaudited consolidated financial
statements that are included elsewhere in this prospectus. We
have prepared this unaudited financial information on the same
basis as the audited consolidated financial statements and have
included all adjustments, consisting only of normal recurring
adjustments, that we consider necessary for a fair presentation
of our financial position and operating results for such period.
The pro forma basic net income per share data are unaudited and
give effect to the conversion into common stock of all
outstanding shares of our Series A, Series B,
Series C,
Series C-1,
Series D and Series E preferred stock from their dates
of original issuance. Our historical results are not necessarily
indicative of results to be expected for future periods. Results
for the three months ended March 31, 2007 are not
necessarily indicative of results expected for the full year.
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
Three Months Ended
|
|
|
|
January 31,
|
|
|
Year Ended December 31,
|
|
|
March 31,
|
|
|
|
2003
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Consolidated Statement of
Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
15,400
|
|
|
$
|
23,355
|
|
|
$
|
34,894
|
|
|
$
|
50,267
|
|
|
$
|
66,293
|
|
|
$
|
14,985
|
|
|
$
|
18,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues(1)
|
|
|
14,925
|
|
|
|
15,671
|
|
|
|
13,153
|
|
|
|
18,218
|
|
|
|
20,560
|
|
|
|
5,148
|
|
|
|
5,388
|
|
Selling and marketing(1)
|
|
|
9,134
|
|
|
|
11,677
|
|
|
|
13,890
|
|
|
|
18,953
|
|
|
|
21,473
|
|
|
|
5,345
|
|
|
|
6,451
|
|
Research and development(1)
|
|
|
6,172
|
|
|
|
5,444
|
|
|
|
5,493
|
|
|
|
7,416
|
|
|
|
9,009
|
|
|
|
2,137
|
|
|
|
2,556
|
|
General and administrative(1)
|
|
|
4,431
|
|
|
|
4,124
|
|
|
|
4,982
|
|
|
|
7,089
|
|
|
|
8,293
|
|
|
|
1,918
|
|
|
|
2,507
|
|
Amortization
|
|
|
562
|
|
|
|
772
|
|
|
|
356
|
|
|
|
2,437
|
|
|
|
1,371
|
|
|
|
371
|
|
|
|
293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses from operations
|
|
|
35,224
|
|
|
|
37,688
|
|
|
|
37,874
|
|
|
|
54,113
|
|
|
|
60,706
|
|
|
|
14,919
|
|
|
|
17,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(19,824
|
)
|
|
|
(14,333
|
)
|
|
|
(2,980
|
)
|
|
|
(3,846
|
)
|
|
|
5,587
|
|
|
|
66
|
|
|
|
1,486
|
|
Interest (expense) income, net
|
|
|
(885
|
)
|
|
|
(595
|
)
|
|
|
(246
|
)
|
|
|
(208
|
)
|
|
|
231
|
|
|
|
11
|
|
|
|
97
|
|
(Loss) gain from foreign currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(96
|
)
|
|
|
125
|
|
|
|
6
|
|
|
|
(8
|
)
|
Revaluation of preferred stock
warrant liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
(224
|
)
|
|
|
2
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
and cumulative effect of change in accounting principle
|
|
|
(20,709
|
)
|
|
|
(14,928
|
)
|
|
|
(3,226
|
)
|
|
|
(4,164
|
)
|
|
|
5,719
|
|
|
|
85
|
|
|
|
1,586
|
|
(Benefit) provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(182
|
)
|
|
|
50
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income before cumulative
effect of change in accounting principle
|
|
|
(20,709
|
)
|
|
|
(14,928
|
)
|
|
|
(3,226
|
)
|
|
|
(3,982
|
)
|
|
|
5,669
|
|
|
|
85
|
|
|
|
1,540
|
|
Cumulative effect of change in
accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(20,709
|
)
|
|
|
(14,928
|
)
|
|
|
(3,226
|
)
|
|
|
(4,422
|
)
|
|
|
5,669
|
|
|
|
85
|
|
|
|
1,540
|
|
Accretion of redeemable preferred
stock
|
|
|
(2,742
|
)
|
|
|
(3,795
|
)
|
|
|
(2,141
|
)
|
|
|
(2,638
|
)
|
|
|
(3,179
|
)
|
|
|
(742
|
)
|
|
|
(885
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to
common stockholders
|
|
$
|
(23,451
|
)
|
|
$
|
(18,723
|
)
|
|
$
|
(5,367
|
)
|
|
$
|
(7,060
|
)
|
|
$
|
2,490
|
|
|
$
|
(657
|
)
|
|
$
|
655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to
common stockholders per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(1.82
|
)
|
|
$
|
(1.39
|
)
|
|
$
|
(0.38
|
)
|
|
$
|
(0.46
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.04
|
)
|
|
$
|
0.00
|
|
Weighted-average number of shares
used in per share calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
12,918,989
|
|
|
|
13,451,440
|
|
|
|
14,358,561
|
|
|
|
15,650,969
|
|
|
|
19,236,064
|
|
|
|
18,049,639
|
|
|
|
20,754,230
|
|
Pro forma net (loss) income
attributable to common stockholders per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted-average number
of shares used in per share calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
|
(1) |
|
Amortization of stock-based compensation is included in the line
items above as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
|
Year Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
|
|
2003
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Cost of revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
12
|
|
|
$
|
|
|
|
$
|
9
|
|
Selling and marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82
|
|
|
|
6
|
|
|
|
39
|
|
Research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
8
|
|
General and administrative
|
|
|
128
|
|
|
|
171
|
|
|
|
14
|
|
|
|
3
|
|
|
|
91
|
|
|
|
1
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
|
|
|
January 31,
|
|
|
As of December 31,
|
|
|
March 31,
|
|
|
|
|
|
|
2003
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(In thousands)
|
|
|
Consolidated Balance Sheet
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and
short-term investments
|
|
$
|
6,973
|
|
|
$
|
9,557
|
|
|
$
|
8,404
|
|
|
$
|
9,174
|
|
|
$
|
16,032
|
|
|
$
|
18,181
|
|
|
|
|
|
Total current assets
|
|
|
11,778
|
|
|
|
15,482
|
|
|
|
15,678
|
|
|
|
20,792
|
|
|
|
31,493
|
|
|
|
34,520
|
|
|
|
|
|
Total assets
|
|
|
23,603
|
|
|
|
22,154
|
|
|
|
23,618
|
|
|
|
29,477
|
|
|
|
42,087
|
|
|
|
45,479
|
|
|
|
|
|
Total current liabilities
|
|
|
13,645
|
|
|
|
15,515
|
|
|
|
18,591
|
|
|
|
27,220
|
|
|
|
32,880
|
|
|
|
34,897
|
|
|
|
|
|
Equipment loan and capital lease
obligations, long-term
|
|
|
4,072
|
|
|
|
2,421
|
|
|
|
1,438
|
|
|
|
1,283
|
|
|
|
2,261
|
|
|
|
1,896
|
|
|
|
|
|
Preferred stock warrant
liabilities and common stock subject to put
|
|
|
404
|
|
|
|
349
|
|
|
|
(2,141
|
)
|
|
|
4,997
|
|
|
|
5,362
|
|
|
|
5,387
|
|
|
|
|
|
Redeemable preferred stock
|
|
|
78,586
|
|
|
|
93,737
|
|
|
|
95,878
|
|
|
|
98,516
|
|
|
|
101,695
|
|
|
|
102,580
|
|
|
|
|
|
Stockholders deficit
|
|
|
(73,735
|
)
|
|
|
(89,919
|
)
|
|
|
(95,230
|
)
|
|
|
(102,294
|
)
|
|
|
(99,557
|
)
|
|
|
(98,683
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
|
Year Ended December 31,
|
|
|
Three Months Ended March 31,
|
|
|
|
2003
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Consolidated Statement of Cash
Flows Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities
|
|
$
|
(12,653
|
)
|
|
$
|
(3,912
|
)
|
|
$
|
1,907
|
|
|
$
|
4,253
|
|
|
$
|
10,905
|
|
|
$
|
2,824
|
|
|
$
|
3,156
|
|
Depreciation and amortization
|
|
|
5,865
|
|
|
|
6,604
|
|
|
|
2,745
|
|
|
|
5,123
|
|
|
|
4,259
|
|
|
|
1,059
|
|
|
|
1,154
|
|
Capital expenditures
|
|
|
1,962
|
|
|
|
726
|
|
|
|
1,208
|
|
|
|
1,071
|
|
|
|
2,314
|
|
|
|
292
|
|
|
|
494
|
|
Other Financial and Operating
Data (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(2)
|
|
$
|
(13,930
|
)
|
|
$
|
(7,558
|
)
|
|
$
|
(221
|
)
|
|
$
|
730
|
|
|
$
|
9,945
|
|
|
$
|
1,140
|
|
|
$
|
2,750
|
|
|
|
|
(2) |
|
We define Adjusted EBITDA as net income plus the (benefit)
provision for income taxes, depreciation, amortization of
purchased intangible assets and stock-based compensation; plus
interest expense (income) and other income. Adjusted EBITDA is
not a measure of liquidity calculated in accordance with GAAP,
and should be viewed as a supplement to not a
substitute for our results of operations presented
on the basis of GAAP. Adjusted EBITDA does not purport to
represent cash flow provided by, or used in, operating
activities as defined by GAAP. Our statement of cash flows
presents our cash flow activity in |
36
|
|
|
|
|
accordance with GAAP. Furthermore, Adjusted EBITDA is not
necessarily comparable to similarly-titled measures reported by
other companies. |
We prepare Adjusted EBITDA to eliminate the impact of items that
we do not consider indicative of our core operating performance.
You are encouraged to evaluate these adjustments and the reasons
we consider them appropriate for supplemental analysis. Our
presentation of Adjusted EBITDA should not be construed as an
implication that our future results will be unaffected by
unusual or non-recurring items.
We believe Adjusted EBITDA is useful to an investor in
evaluating our operating performance for the following reasons:
|
|
|
|
|
Adjusted EBITDA is widely used by investors to measure a
companys operating performance without regard to items
such as interest expense, taxes, depreciation and amortization,
and stock-based compensation, which can vary substantially from
company to company depending upon accounting methods and book
value of assets, capital structure and the method by which
assets were acquired;
|
|
|
|
analysts and investors use Adjusted EBITDA as a supplemental
measure to evaluate the overall operating performance of
companies in our industry;
|
|
|
|
we believe Adjusted EBITDA is an important indicator of our
operating performance because it provides a link between
profitability and operating cash flow. Although our cash flow
from operations presented is a similar measure, Adjusted EBITDA
is a better measure of our true operating results because it
adjusts for the effects of collections of receivables,
disbursements of payables, and other factors that are influenced
by seasonal conditions; and
|
|
|
|
prior to January 1, 2006, we accounted for stock-based
compensation plans under the recognition and measurement
provision s of Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees,
and related interpretations, as permitted by Statement of
Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation. In December
2004, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 123 (revised
2004), Share-Based Payment (SFAS 123R), which is a
revision of SFAS No. 123. SFAS 123R requires all
share-based payments to employees, including grants of employee
stock options, to be recognized in the income statement based on
their estimated fair values. Pro forma disclosure is no longer
an alternative permitted under SFAS 123R. We adopted the
provisions of SFAS 123R on January 1, 2006, using the
prospective method. Unvested stock-based awards issued prior to
January 1, 2006, the date that we adopted the provisions of
SFAS 123R, were accounted for at the date of adoption using
the intrinsic value method originally applied to those awards.
We recorded approximately $198,000 in stock-based compensation
expense subsequent to the adoption of SFAS 123R for the
fiscal year ended December 31, 2006 as compared with
approximately $14,000 and $3,000 for the years ended
December 31, 2004 and 2005, respectively, prior to the
adoption of SFAS 123R. By comparing our Adjusted EBITDA our
investors can evaluate our operating results without the
additional variations of stock compensation expense, which is
not necessarily comparable from year to year due to the change
in accounting treatment and is a non-cash expense that is not a
primary measure of our operations.
|
Our management uses Adjusted EBITDA:
|
|
|
|
|
as a measure of operating performance, because it removes the
impact of items not directly resulting from our core operations;
|
|
|
|
for planning purposes, including the preparation of our internal
annual operating budget;
|
|
|
|
to allocate resources to enhance the financial performance of
our business;
|
|
|
|
as a metric for evaluating the performance of Dr. Magid M.
Abraham, our Chief Executive Officer, and Mr. Gian M.
Fulgoni, our Executive Chairman of the Board of Directors. The
Company uses Adjusted EBITDA as a quantitative metric for
setting both Dr. Abraham and Mr. Fulgonis
respective salaries
|
37
|
|
|
|
|
and bonuses. In addition, option grants held by both
Dr. Abraham and Mr. Fulgoni include vesting which can
be accelerated upon achieving certain targets tied to EBITDA;
|
|
|
|
|
|
to evaluate the effectiveness of our operational
strategies; and
|
|
|
|
in communications with the board of directors, stockholders,
analysts and investors concerning our financial performance.
|
We understand that although Adjusted EBITDA is frequently used
by securities analysts, lenders, investors 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 of operations as
reported under GAAP. Some of these limitations are:
|
|
|
|
|
Adjusted EBITDA does not reflect our cash expenditures or future
requirements for capital expenditures or other 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, related to 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.
|
A reconciliation of Adjusted EBITDA to net income, the most
directly comparable GAAP measure, for each of the fiscal periods
indicated is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
Three Months Ended
|
|
|
|
January 31,
|
|
|
Year Ended December 31,
|
|
|
March 31,
|
|
|
|
2003
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Net (loss) income
|
|
$
|
(20,708
|
)
|
|
$
|
(14,928
|
)
|
|
$
|
(3,226
|
)
|
|
$
|
(4,422
|
)
|
|
$
|
5,669
|
|
|
$
|
85
|
|
|
$
|
1,540
|
|
(Benefit) provision for income
taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(182
|
)
|
|
|
50
|
|
|
|
|
|
|
|
46
|
|
Amortization
|
|
|
562
|
|
|
|
772
|
|
|
|
356
|
|
|
|
2,437
|
|
|
|
1,371
|
|
|
|
371
|
|
|
|
293
|
|
Depreciation
|
|
|
5,303
|
|
|
|
5,832
|
|
|
|
2,389
|
|
|
|
2,686
|
|
|
|
2,888
|
|
|
|
688
|
|
|
|
861
|
|
Stock-based compensation
|
|
|
28
|
|
|
|
171
|
|
|
|
14
|
|
|
|
3
|
|
|
|
198
|
|
|
|
7
|
|
|
|
107
|
|
Interest expense (income), net
|
|
|
885
|
|
|
|
595
|
|
|
|
246
|
|
|
|
208
|
|
|
|
(231
|
)
|
|
|
(11
|
)
|
|
|
(97
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
(13,930
|
)
|
|
$
|
(7,558
|
)
|
|
$
|
(221
|
)
|
|
$
|
730
|
|
|
$
|
9,945
|
|
|
$
|
1,140
|
|
|
$
|
2,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
MANAGEMENTS
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 our consolidated financial statements and the
related notes to those statements included elsewhere in this
prospectus. In addition to historical financial information, the
following discussion and analysis contains forward-looking
statements that involve risks, uncertainties and assumptions.
Our actual results and timing of selected events may differ
materially from those anticipated in these forward-looking
statements as a result of many factors, including those
discussed under Risk Factors and elsewhere in this
prospectus. See Cautionary Note Regarding
Forward-Looking Statements.
Overview
We provide a leading digital marketing intelligence platform
that helps our customers make better-informed business decisions
and implement more effective digital business strategies. Our
products and solutions offer our customers deep insights into
consumer behavior, including objective, detailed information
regarding usage of their online properties and those of their
competitors, coupled with information on consumer demographic
characteristics, attitudes, lifestyles and offline behavior.
Our digital marketing intelligence platform is comprised of
proprietary databases and a computational infrastructure that
measures, analyzes and reports on digital activity. The
foundation of our platform is data collected from our comScore
panel of more than two million Internet users worldwide who have
granted us explicit permission to confidentially measure their
Internet usage patterns, online and certain offline buying
behavior and other activities. By applying advanced statistical
methodologies to our panel data, we project consumers
online behavior for the total online population and a wide
variety of user categories.
We deliver our digital marketing intelligence through our
comScore Media Metrix product family and through comScore
Marketing Solutions. Media Metrix delivers digital media
intelligence by providing an independent, third-party
measurement of the size, behavior and characteristics of Web
site and online advertising network audiences among home, work
and university Internet users as well as insight into the
effectiveness of online advertising. Our Marketing Solutions
products combine the proprietary information gathered from the
comScore panel with the vertical industry expertise of comScore
analysts to deliver digital marketing intelligence, including
the measurement of online advertising effectiveness, customized
for specific industries. We typically deliver our Media Metrix
products electronically in the form of weekly, monthly or
quarterly reports. Customers can access current and historical
Media Metrix data and analyze these data anytime online. Our
Marketing Solutions products are typically delivered on a
monthly, quarterly or ad hoc basis through electronic reports
and analyses.
Our company was founded in August 1999. By 2000, we had
established a panel of Internet users and began delivering
digital marketing intelligence products that measured online
browsing and buying behavior to our first customers. We also
introduced netScore, our initial syndicated Internet audience
measurement product. We accelerated our introduction of new
products in 2003 with the launch of Plan Metrix (formerly
AiM 2.0), qSearch, the Campaign R/F (Reach and Frequency)
analysis system and product offerings that measure online
activity at the local market level. By 2004, we had built a
global panel of over two million Internet users. In that year,
in cooperation with Arbitron, we launched a service that
provides ratings of online radio audiences. In 2005, we expanded
our presence in Europe by opening an office in London. In 2006,
we continued to expand our measurement capabilities with the
launch of World Metrix, a product that provides worldwide data
on digital media usage, and Video Metrix, our product that
measures the audience for streaming online video.
We have complemented our internal development initiatives with
select acquisitions. On June 6, 2002, we acquired
certain Media Metrix assets from Jupiter Media Metrix, Inc.
Through this acquisition, we acquired certain Internet audience
measurement services that report details of Web site usage and
visitor demographics. On July 28, 2004, we acquired the
outstanding stock of Denaro and Associates, Inc, otherwise known
as Q2 Brand Intelligence, Inc. or Q2, to improve our
ability to provide our customers more robust survey research
integrated with our underlying digital marketing intelligence
platform. The total cost of the
39
acquisition was approximately $3.3 million, consisting of
cash and shares of our common stock. For the
ninety-day
period beginning July 28, 2007, the former shareholder of
Q2 (or its transferees) has the right to sell
1,060,000 shares of our common stock back to us for an
aggregate price of $2.65 million, or $2.50 per share.
On January 4, 2005, we acquired the assets and assumed
certain liabilities of SurveySite Inc., or SurveySite. Through
this acquisition, we acquired proprietary Internet-based
data-collection technologies and increased our customer
penetration and revenues in the survey business. The total cost
of the acquisition was approximately $3.6 million,
consisting of cash and shares of our common stock. For the
ninety-day
period beginning January 1, 2008, the former shareholders
of SurveySite (or their transferees) have the right to sell
678,172 shares of our common stock back to us for an
aggregate price of approximately $1.8 million, or
$2.67 per share.
Our total revenues have grown from $15.4 million during the
fiscal year ending January 31, 2003 to $66.3 million
during the fiscal year ended December 31, 2006, a
compounded annual growth rate of approximately 63%. By
comparison, our total expenses from operations have grown from
$35.2 million to $60.7 million over the same period, a
compounded annual growth rate of approximately 20%. The growth
in our revenues was primarily the result of:
|
|
|
|
|
increased sales to existing customers, as a result of our
efforts to deepen our relationships with these clients by
increasing their awareness of, and confidence in, the value of
our digital marketing intelligence platform;
|
|
|
|
growth in our customer base through the addition of new
customers;
|
|
|
|
increases in the prices of our products and services;
|
|
|
|
the sales of new products to existing and new customers; and
|
|
|
|
growth in sales outside of the U.S. as a result of entering
into new international markets.
|
As of March 31, 2007, we had 743 customers, compared
to 334 as of January 31, 2003. We sell most of our products
through our direct sales force.
Our
Revenues
We derive our revenues primarily from the fees that we charge
for subscription-based products and customized projects. We
define subscription-based revenues as revenues that we generate
from products that we deliver to a customer on a recurring
basis. We define project revenues as revenues that we generate
from customized projects that are performed for a specific
customer on a non-recurring basis. We market our
subscription-based products, customized projects and survey
services within the comScore Media Metrix product family and
through comScore Marketing Solutions.
A significant characteristic of our business model is our large
percentage of subscription-based contracts. Subscription-based
revenues accounted for 78% of our total revenues in 2004 and
decreased to 70% of total revenues in 2005 primarily due to the
acquisition of SurveySite. Subscription-based revenues increased
to 75% of total revenues in 2006 and to 77% of total revenues
during the first quarter of 2007.
Many of our customers who initially purchased a customized
project have subsequently purchased one of our
subscription-based products. Similarly, many of our
subscription-based customers have subsequently purchased
additional customized projects.
Historically, we have generated most of our revenues from the
sale and delivery of our products to companies and organizations
located within the United States. We intend to expand our
international revenues by selling our products and deploying our
direct sales force model in additional international markets in
the future. For the fiscal year ended December 31, 2006,
our international revenues were $5.7 million, an increase
of $2.4 million over international revenues of
$3.4 million for the fiscal year ended December 31,
2005. For the three months ended March 31, 2007, our
international revenues were $1.8 million, an increase of
$670,000 over international revenues of $1.1 million for
the three months ended March 31, 2006. International
revenues
40
comprised approximately 7%, 9% and 10% of our total revenues
for the fiscal years ended December 31, 2005 and 2006 and
the three months ended March 31, 2007, respectively.
We anticipate that revenues from our U.S. customers will
continue to constitute the substantial majority of our revenues,
but we expect that revenues from customers outside of the
U.S. will increase as a percentage of total revenues as we
build greater international recognition of our brand and expand
our sales operations globally.
Subscription
Revenues
We generate a significant proportion of our subscription-based
revenues from our Media Metrix product family. Products within
the Media Metrix family include Media Metrix 2.0, Plan Metrix,
World Metrix and Video Metrix. We intend to commercially launch
Ad Metrix in the second quarter of 2007. These product offerings
provide subscribers with intelligence on digital media usage,
audience characteristics, audience demographics and online and
offline purchasing behavior. Customers who subscribe to our
Media Metrix products are provided with login IDs to our Web
site, have access to our database and can generate reports at
anytime.
We also generate subscription-based revenues from certain
reports and analyses provided through comScore Marketing
Solutions, if that work is procured by customers for at least a
nine month period and the customer enters into an agreement to
continue or extend the work. Through our Marketing Solutions
products, we deliver digital marketing intelligence relating to
specific industries, such as automotive, consumer packaged
goods, entertainment, financial services, media, pharmaceutical,
retail, technology, telecommunications and travel. This
marketing intelligence leverages our global consumer panel and
extensive database to deliver information unique to a particular
customers needs on a recurring schedule, as well as on a
continual-access basis. Our Marketing Solutions customer
agreements typically include a fixed fee with an initial term of
at least one year. We also provide these products on a
non-subscription basis as described under Project
Revenues below.
In addition, we generate subscription-based revenues from survey
products that we sell to our customers. In conducting our
surveys, we generally use our global Internet user panel. After
questionnaires are distributed to the panel members and
completed, we compile their responses and then deliver our
findings to the customer, who also has ongoing access to the
survey response data as they are compiled and updated over time.
These data include responses and information collected from the
actual survey questionnaire and can also include behavioral
information that we passively collect from our panelists. If a
customer contractually commits to having a survey conducted on a
recurring basis, we classify the revenues generated from such
survey products as subscription-based revenues. Approximately
half of the revenues derived from survey products are generated
on a subscription basis. Our contracts for survey services
typically include fixed fee agreements that range from two
months to one year.
Project
Revenues
We generate project revenues by providing customized information
reports to our customers on a non-recurring basis as part of our
comScore Marketing Solutions. For example, a customer in the
media industry might request a custom report that profiles the
behavior of the customers active online users and
contrasts their market share and loyalty with similar metrics
for a competitors online user base. If this customer
continues to request the report beyond an initial project term
of at least nine months and enters into an agreement to purchase
the report on a recurring basis, we begin to classify these
future revenues as subscription-based.
In the second quarter of 2007, we intend to commercially launch
Campaign Metrix, a product that will provide detailed
information about online advertising campaigns. Project revenues
from Campaign Metrix will be generated when a customer accesses
or downloads a report through our Web site. Pricing for our
Campaign Metrix product will initially be based on the scope of
the information provided in the report generated by the customer.
41
Critical
Accounting Policies and Estimates
Our discussion and analysis of our financial condition and
results of operations are based on our consolidated financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the U.S. The
preparation of these financial statements requires us to make
estimates, assumptions and judgments that affect the amounts
reported in our financial statements and the accompanying notes.
We base our estimates on historical experience and on various
other assumptions that we believe to be reasonable under the
circumstances. Actual results may differ from these estimates.
While our significant accounting policies are described in more
detail in the notes to our consolidated financial statements
included in this prospectus, we believe the following accounting
policies to be the most critical to the judgments and estimates
used in the preparation of our consolidated financial statements.
Revenue
Recognition
We recognize revenues in accordance with Securities and Exchange
Commission Staff Accounting Bulletin No. 104,
Revenue Recognition (SAB 104). SAB 104 requires
that four basic criteria must be met prior to revenue
recognition: (i) persuasive evidence of an arrangement
exists, (ii) delivery has occurred or the services have
been rendered, (iii) the fee is fixed and determinable, and
(iv) collection of the resulting receivable is reasonably
assured.
We generate revenues by providing access to our online database
or delivering information obtained from our database, usually in
the form of periodic reports. Revenues are typically recognized
on a straight-line basis over the period in which access to data
or reports are provided, which generally ranges from three to
24 months.
We also generate revenues through survey services under
contracts ranging in term from two months to one year. Our
survey services consist of survey and questionnaire design with
subsequent data collection, analysis and reporting. We recognize
revenues on a straight-line basis over the estimated data
collection period once the survey or questionnaire design has
been delivered. Any change in the estimated data collection
period results in an adjustment to revenues recognized in future
periods.
Certain of our arrangements contain multiple elements,
consisting of the various services we offer. Multiple element
arrangements typically consist of a subscription to our online
database combined with periodic reports of customized data.
These arrangements are accounted for in accordance with Emerging
Issues Task Force (EITF) Issue
No. 00-21,
Revenue Arrangements with Multiple Deliverables. We have
determined that there is not objective and reliable evidence of
fair value for any of our services and, therefore, account for
all elements in multiple elements arrangements as a single unit
of accounting. Access to data under the subscription element is
generally provided shortly after the execution of the contract.
However, the initial delivery of periodic reports of customized
data generally occurs after the data has been accumulated for a
specified period subsequent to contract execution, usually one
calendar quarter. We recognize the entire arrangement fee over
the performance period of the last deliverable. As a result, the
total arrangement fee is recognized on a straight-line basis
commencing upon the delivery of the first report of customized
data over the period such reports are delivered.
Generally, our contracts are non-refundable and non-cancelable.
In the event a portion of a contract is refundable, revenue
recognition is delayed until the refund provisions lapse. A
limited number of customers have the right to cancel their
contracts by providing us with written notice of cancellation.
In the event that a customer cancels its contract, it is not
entitled to a refund for prior services, and it will be charged
for costs incurred plus services performed up to the
cancellation date.
Advance payments are recorded as deferred revenues until
services are delivered or obligations are met and revenue can be
recognized. Deferred revenues represent the excess of amounts
invoiced over amounts recognized as revenues.
42
Goodwill
and Intangible Assets
We record goodwill and intangible assets when we acquire other
businesses. The allocation of acquisition costs to intangible
assets and goodwill involves the extensive use of
managements estimates and assumptions, and the result of
the allocation process can have a significant impact on our
future operating results. We estimate the fair value of
identifiable intangible assets acquired using several different
valuation approaches, including the replacement cost, income and
market approaches. The replacement cost approach is based on
determining the discrete cost of replacing or reproducing a
specific asset. We generally use the replacement cost approach
for estimating the value of acquired technology/methodology
assets. The income approach converts the anticipated economic
benefits that we assume will be realized from a given asset into
value. Under this approach, value is measured as the present
worth of anticipated future net cash flows generated by an
asset. We generally use the income approach to value customer
relationship assets and non-compete agreements. The market
approach compares the acquired asset to similar assets that have
been sold. We generally use the market approach to value
trademarks and brand assets.
Under Statement of Financial Accounting Standards (SFAS)
No. 142, Goodwill and Other Intangible Assets
(SFAS 142), intangible assets with finite lives are
amortized over their useful lives while goodwill and indefinite
lived assets are not amortized, but rather are periodically
tested for impairment. An impairment review generally requires
developing assumptions and projections regarding our operating
performance. In accordance with SFAS 142, we have
determined that all of our goodwill is associated with one
reporting unit as we do not operate separate lines of business
with respect to our services. Accordingly, on an annual basis we
perform the impairment assessment for goodwill required under
SFAS 142 at the enterprise level by comparing the fair
value of a reporting unit, based on estimated future cash flow,
to its carrying value including goodwill recorded by the
reporting unit. If the carrying value exceeds the fair value,
impairment is measured by comparing the derived fair value of
the goodwill to its carrying value and any impairment determined
is recorded in the current period. If our estimates or the
related assumptions change in the future, we may be required to
record impairment charges to reduce the carrying value of these
assets, which could be material.
Long-lived
assets
Our long-lived assets primarily consist of property and
equipment and intangible assets. In accordance with SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, we evaluate the recoverability of our
long-lived assets for impairment whenever events or changes in
circumstances indicate the carrying value of such assets may not
be recoverable. If an indication of impairment is present, we
compare the estimated undiscounted future cash flows to be
generated by the asset to its carrying amount. If the
undiscounted future cash flows are less than the carrying amount
of the asset, we record an impairment loss equal to the excess
of the assets carrying amount over its fair value. The
fair value is determined based on valuation techniques such as a
comparison to fair values of similar assets or using a
discounted cash flow analysis. Substantially all of our
long-lived assets are located in the United States. Although we
believe that the carrying values of our long-lived assets are
appropriately stated, changes in strategy or market conditions
or significant technological developments could significantly
impact these judgments and require adjustments to recorded asset
balances. There were no impairment charges recognized during the
years ended December 31, 2004, 2005, or 2006.
Allowance
for Doubtful Accounts
We manage credit risk on accounts receivable by performing
credit evaluations of our customers on a selective basis, by
reviewing our accounts and contracts and by providing
appropriate allowances for uncollectible amounts. Allowances are
based on managements judgment, which considers historical
experience and specific knowledge of accounts that may not be
collectible. We make provisions based on our historical bad debt
experience, a specific review of all significant outstanding
invoices and an assessment of general economic conditions. If
the financial condition of a customer deteriorates, resulting in
an impairment of its ability to make payments, additional
allowances may be required.
43
Income
Taxes
We account for income taxes using the liability method in
accordance with SFAS No. 109, Accounting for Income
Taxes. We estimate our tax liability through calculations we
perform for the determination of our current tax liability,
together with assessing temporary differences resulting from the
different treatment of items for income tax and financial
reporting purposes. These differences result in deferred tax
assets and liabilities, which are recorded on our balance sheet.
Management then assesses the likelihood that deferred tax assets
will be recovered in future periods. In assessing the need for a
valuation allowance against the net deferred tax asset, we
consider factors such as future reversals of existing taxable
temporary differences, taxable income in prior carryback years,
if carryback is permitted under the tax law, tax planning
strategies and future taxable income exclusive of reversing
temporary differences and carryforwards. To the extent that we
cannot conclude that it is more likely than not that the benefit
of such assets will be realized, we establish a valuation
allowance to adjust the net carrying value of such assets.
To date, we have recorded a full valuation allowance against our
gross deferred tax assets, principally net operating loss
carryforwards, due to uncertainty regarding our ability to
generate future taxable income. Any deferred tax benefit or
provision to date has been offset by changes in the valuation
allowance against our deferred tax assets. To the extent we
determine that all or a portion of our valuation allowance is no
longer necessary, we will recognize an income tax benefit in the
period such determination is made for the reversal of the
valuation allowance. Once the valuation allowance is eliminated,
its reversal will no longer be available to offset our current
tax provision. These events could have a material impact on our
reported results of operations.
As of December 31, 2006, we had $81.2 million of both
federal and state net operating loss carryforwards which begin
to expire in 2020 for federal and begin to expire in 2010 for
state income tax reporting purposes. In addition, we had net
operating loss carryforwards related to our foreign subsidiaries
totaling $966,000 as of December 31, 2005 and $703,000 as
of December 31, 2006, which begin to expire in 2010.
Approximately $13.3 million of our net operating loss
carryforwards are subject to annual limitations under
Section 382 of the Internal Revenue Code based on changes
in percentage of our ownership. We do not expect that this
limitation will impact our ability to utilize all of our net
operating losses prior to their expiration.
In June 2006, the FASB issued FASB Interpretation No. 48
(FIN 48), Accounting for Uncertainty in Income
Taxes, an interpretation of SFAS No. 109. This
interpretation clarifies the accounting for income taxes by
prescribing that a company should use a more-likely-than-not
recognition threshold based on the technical merits of the tax
position taken. Tax provisions that meet the
more-likely-than-not recognition threshold should be measured as
the largest amount of tax benefits, determined on a cumulative
probability basis, which is more likely than not to be realized
upon ultimate settlement in the financial statements.
FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting for interim
periods, disclosure and transition, and explicitly excludes
income taxes from the scope of SFAS No. 5,
Accounting for Contingencies. FIN 48 is effective
for fiscal years beginning after December 15, 2006, and was
adopted by us on January 1, 2007. As of the adoption date
of FIN 48 of January 1, 2007 and March 31, 2007,
we do not have any material gross unrecognized tax benefits. We
or one of our subsidiaries files income tax returns in the
U.S. federal jurisdiction and various states and foreign
jurisdictions. For income tax returns filed by us, we are no
longer subject to U.S. federal, state and local tax
examinations by tax authorities for years before 2002, although
carryforward tax attributes that were generated prior to 2002
may still be adjusted upon examination by tax authorities if
they either have been or will be utilized. It is our policy to
recognize interest and penalties related to income tax matters
in income tax expense.
Stock-Based
Compensation
Through December 31, 2005, as permitted by
SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS 123), we applied the intrinsic value
method for accounting for stock-based compensation as set forth
in Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25).
For purposes of the pro forma disclosures required under
SFAS 123, we used the minimum-value method to estimate the
fair value of our stock-based awards. On January 1, 2006,
we adopted SFAS No. 123R, Share-
44
Based Compensation (SFAS 123R). Under SFAS 123R, a
non-public company that previously used the minimum value method
for pro forma disclosure purposes is required to adopt the
standard using the prospective method. Under the prospective
method, all awards granted, modified or settled after the date
of adoption are accounted for using the measurement, recognition
and attribution provisions of SFAS 123R. As a result,
stock-based awards granted prior to the date of adoption of
SFAS 123R will continue to be accounted for under
APB 25 with no recognition of stock-based compensation in
future periods, unless such awards are modified or settled.
Subsequent to the adoption of SFAS 123R, we estimate the
fair value of our stock-based awards on the date of grant using
the Black-Scholes option-pricing model. The determination of
fair value using the Black-Scholes model requires a number of
complex and subjective variables. One key input into the model
is the estimated fair value of our common stock on the date of
grant. Our board of directors has estimated the fair value of
our common stock for the purpose of determining stock-based
compensation expense. Our board utilized valuation methodologies
commonly used in the valuation of private company equity
securities for purposes of estimating the fair value of our
common stock.
Other key variables in the Black-Scholes option-pricing model
include the expected volatility of our common stock price, the
expected term of the award and the risk-free interest rate. In
addition, under SFAS 123R, we are required to estimate
forfeitures of unvested awards when recognizing compensation
expense. If factors change and we employ different assumptions
in the application of SFAS 123R in future periods, the
compensation expense we record may differ significantly from
what we have recorded during 2006.
At March 31, 2007, total estimated unrecognized
compensation expense related to unvested stock-based awards
granted prior to that date was $6.6 million, which is
expected to be recognized over a weighted-average period of
2.39 years.
We expect stock-based compensation expense to increase in
absolute dollars as a result of the adoption of SFAS 123R
as options that were granted at the beginning of 2006 and beyond
vest. Beginning in 2007, we expect to make use of restricted
stock awards and reduce our use of stock options as a form of
stock-based compensation. The actual amount of stock-based
compensation expense we record in any fiscal period will depend
on a number of factors, including the number of shares subject
to the stock options issued, the fair value of our common stock
at the time of issuance and the expected volatility of our stock
price over time.
Estimation
of Fair Value of Warrants to Purchase Redeemable Convertible
Preferred Stock
On July 1, 2005, we adopted FASB Staff Position
150-5 (FSP
150-5). Our
outstanding warrants to purchase shares of our redeemable
convertible preferred stock are subject to the requirements in
FSP 150-5,
which require us to classify these warrants as current
liabilities and to adjust the value of these warrants to their
fair value at the end of each reporting period. At the time of
adoption, we recorded $440,000 for the cumulative effect of this
change in accounting principle to reflect the cumulative change
in estimated fair value of these warrants as of that date. We
recorded $14,000 and $224,000 for the years ended
December 31, 2005 and 2006, respectively, to reflect
increases in the estimated fair value of the warrants. We
recorded a decrease in the estimated fair value of the warrants
during the three months ended March 31, 2007 of $11,000. We
estimated the fair value of these warrants at the respective
dates using the Black-Scholes option valuation model, based on
the estimated market value of the underlying redeemable
convertible preferred stock at the valuation measurement date,
the contractual term of the warrant, risk-free interest rates
and expected dividends on and expected volatility of the price
of the underlying redeemable convertible preferred stock. These
estimates, especially the market value of the underlying
redeemable convertible preferred stock and the expected
volatility, are highly judgmental and could differ materially in
the future.
Upon the closing of this offering, all outstanding warrants to
purchase shares of our preferred stock will become warrants to
purchase shares of our common stock and, as a result, will no
longer be subject to FSP
150-5. The
then-current aggregate fair value of these warrants will be
reclassified from liabilities to additional paid-in capital, a
component of stockholders equity, and we will cease to
record any related periodic fair
45
value adjustments. We anticipate that we will incur a non-cash
charge relating to our outstanding warrants for preferred stock
in the period in which this offering closes. Assuming that the
price at which our common stock is valued for these purposes is
the initial public offering price of
$
per share, the amount of that charge would be approximately
$ .
The exact amount of the charge may depend on the closing trading
price of our common stock on The NASDAQ Global Market
on ,
the expected date of the closing of this offering.
Seasonality
Historically, a slightly higher percentage of our customers have
renewed their subscription products with us toward the end of
the fourth quarter. While we execute projects for our customers
throughout the year, we have historically experienced a slight
upturn in our project-based business in the fourth quarter.
46
Results
of Operations
The following table sets forth selected consolidated statements
of operations data as a percentage of total revenues for each of
the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
March 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
37.7
|
|
|
|
36.2
|
|
|
|
31.0
|
|
|
|
34.4
|
|
|
|
28.8
|
|
Selling and marketing
|
|
|
39.8
|
|
|
|
37.7
|
|
|
|
32.4
|
|
|
|
35.7
|
|
|
|
34.5
|
|
Research and development
|
|
|
15.7
|
|
|
|
14.8
|
|
|
|
13.6
|
|
|
|
14.3
|
|
|
|
13.7
|
|
General and administrative
|
|
|
14.3
|
|
|
|
14.1
|
|
|
|
12.5
|
|
|
|
12.8
|
|
|
|
13.4
|
|
Amortization
|
|
|
1.0
|
|
|
|
4.8
|
|
|
|
2.1
|
|
|
|
2.5
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses from operations
|
|
|
108.5
|
|
|
|
107.7
|
|
|
|
91.6
|
|
|
|
99.6
|
|
|
|
92.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(8.5
|
)
|
|
|
(7.7
|
)
|
|
|
8.4
|
|
|
|
0.4
|
|
|
|
8.0
|
|
Interest (expense) income, net
|
|
|
(0.7
|
)
|
|
|
(0.4
|
)
|
|
|
0.3
|
|
|
|
0.1
|
|
|
|
0.5
|
|
(Loss) gain from foreign currency
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
Revaluation of preferred stock
warrant liabilities
|
|
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
and cumulative effect of change in accounting principle
|
|
|
(9.2
|
)
|
|
|
(8.3
|
)
|
|
|
8.6
|
|
|
|
0.6
|
|
|
|
8.5
|
|
(Benefit) provision for income
taxes
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
0.1
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income before
cumulative effect of change in accounting principle
|
|
|
(9.2
|
)
|
|
|
(7.9
|
)
|
|
|
8.6
|
|
|
|
0.6
|
|
|
|
8.2
|
|
Cumulative effect of change in
accounting principle
|
|
|
|
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(9.2
|
)
|
|
|
(8.8
|
)
|
|
|
8.6
|
|
|
|
0.6
|
|
|
|
8.2
|
|
Accretion of redeemable preferred
stock
|
|
|
(6.1
|
)
|
|
|
(5.2
|
)
|
|
|
(4.8
|
)
|
|
|
(5.0
|
)
|
|
|
(4.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to
common stockholders
|
|
|
(15.4
|
)%
|
|
|
(14.0
|
)%
|
|
|
3.8
|
%
|
|
|
(4.4
|
)%
|
|
|
3.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended March 31, 2006 and 2007
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
Percent
|
|
|
|
2006
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
|
|
|
(Dollars in thousands)
|
|
|
Total revenues
|
|
$
|
14,985
|
|
|
$
|
18,681
|
|
|
$
|
3,696
|
|
|
|
24.7
|
%
|
Total revenues increased by approximately $3.7 million for
the three months ended March 31, 2007 as compared to the
three months ended March 31, 2006. This increase was
primarily due to increased sales to existing customers based in
the U.S. totaling $14.6 million in the first three
months of 2007, which was $2.3 million higher than in the
first three months of 2006. In addition, revenues in the first
three months of 2007 from new U.S. customers were
$2.3 million, an increase of approximately $707,000 as
compared to the first three months of 2006. Revenues from
customers outside of the U.S. totaled approximately
$1.8 million, or approximately 10% of total revenues, in
the first three months of 2007, which was an increase of
$670,000 as compared to the first three months of 2006. This
increase in the first three months of 2007 was due primarily to
our ongoing expansion efforts in Europe, plus continued growth
in Canada. We also experienced revenue growth due to general
increases in our price levels in the first three months of 2007
as compared to the first three months of 2006.
Our total customer base grew during the first three months of
2007 by a net increase of 37 customers to a total of 743
customers as of March 31, 2007 compared to 706 customers as
of December 31, 2006. There was continued revenue growth in
both our subscription revenues, which increased by approximately
$3.6 million
47
from $10.9 million in the first three months of 2006 to
$14.5 million in the first three months of 2007, and, to a
lesser extent our project-based revenues, which increased by
$100,000 from $4.1 million in the first three months of
2006 to $4.2 million in the first three months of 2007.
Cost of
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
Percent
|
|
|
|
2006
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
|
|
|
(dollars in thousands)
|
|
|
Cost of revenues
|
|
$
|
5,148
|
|
|
$
|
5,388
|
|
|
$
|
240
|
|
|
|
4.7
|
%
|
As a percentage of revenues
|
|
|
34.4
|
%
|
|
|
28.8
|
%
|
|
|
|
|
|
|
|
|
Cost of revenues consists primarily of expenses related to
operating our network infrastructure and the recruitment,
maintenance and support of our consumer panels. Expenses
associated with these areas include the salaries and related
expenses of network operations, survey operations, custom
analytics and technical support, all of which are expensed as
they are incurred. Cost of revenues also includes data
collection costs for our products and operational costs
associated with our data centers, including depreciation expense
associated with computer equipment.
Cost of revenues increased in the three months ending
March 31, 2007 as compared to the three months ending
March 31, 2006, primarily due to increased salaries and
related costs associated with supporting our consumer panel and
data centers. Our data center costs increased as a result of the
relocation in June 2006 of our Illinois data center to a new
service provider and increased utility costs at our Virginia
data center. Cost of revenues declined as a percentage of
revenues by 5.6% over the same period primarily due to the
increases in revenues as described above and a moderation of the
increases in costs to build and maintain our panel. In addition,
the headcount and costs associated with our technology staff
grew at a lower rate than our growth in revenues. The decline in
cost of revenues as a percentage of revenues was offset in part
by increases in bandwidth costs, which grew approximately
$91,000 from the prior period, an increase of approximately 16%.
We expect cost of revenues to increase in absolute dollar
amounts as we seek to grow our business but vary as a percentage
of revenues depending on whether we benefit from investments in
our panel and network infrastructure.
Selling
and Marketing Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
Percent
|
|
|
|
2006
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
|
|
|
(Dollars in thousands)
|
|
|
Selling and marketing expenses
|
|
$
|
5,345
|
|
|
$
|
6,451
|
|
|
$
|
1,106
|
|
|
|
20.7
|
%
|
As a percentage of revenues
|
|
|
35.7
|
%
|
|
|
34.5
|
%
|
|
|
|
|
|
|
|
|
Selling and marketing expenses consist primarily of salaries,
benefits, commissions and bonuses paid to our direct sales force
and industry analysts, as well as costs related to online and
offline advertising, product management, industry conferences,
promotional materials, public relations, other sales and
marketing programs, and allocated overhead, including rent and
depreciation. All selling and marketing costs are expensed as
they are incurred. Commission plans are developed for our
account managers with criteria and size of sales quotas that
vary depending upon the individuals role. Commissions are
paid to a salesperson and are expensed as selling and marketing
costs when a sales contract is executed by both the customer and
comScore. In the case of multi-year agreements, one year of
commissions is paid initially, with the remaining amounts paid
at the beginning of the succeeding years.
Selling and marketing expenses increased in the three months
ending March 31, 2007 as compared to the three months
ending March 31, 2006 primarily due to increased employee
salaries and benefits and related costs associated with an
increase in account management personnel for our sales force,
the formation of our
48
product management team and an increase in commission costs
associated with increased revenues. Our selling and marketing
headcount increased by approximately 40 employees to 170
employees as of March 31, 2007. In addition, we experienced
an increase in recruiting and relocation fees associated with
the hiring of additional personnel and an increase in
advertising costs. Sales and marketing expenses as a percentage
of revenues during this period reflect the increased
productivity of our direct sales force.
We expect selling and marketing expenses to increase in absolute
dollar amounts as we continue to grow our selling and marketing
efforts but to vary in future periods as a percentage of
revenues depending on whether we benefit from increased
productivity in our sales force and from increased revenues
resulting in part from our ongoing marketing initiatives.
Research
and Development Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
Percent
|
|
|
|
2006
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
|
|
|
(Dollars in thousands)
|
|
|
Research and development expenses
|
|
$
|
2,137
|
|
|
$
|
2,556
|
|
|
$
|
419
|
|
|
|
19.6
|
%
|
As a percentage of revenues
|
|
|
14.3
|
%
|
|
|
13.7
|
%
|
|
|
|
|
|
|
|
|
Research and development expenses include new product
development costs, consisting primarily of compensation and
related costs for personnel associated with research and
development activities, and allocated overhead, including rent
and depreciation.
Research and development expenses increased in the three months
ended March 31, 2007 as compared to the three months ended
March 31, 2006 primarily due to an increased headcount and
our continued focus on developing new products, such as World
Metrix, Video Metrix, Campaign Metrix and Ad Metrix. Research
and development costs decreased slightly as a percentage of
revenues, primarily due to our growth in revenues outpacing our
existing investments in research and development. We also
experienced an increase in costs paid to outsourced services to
support our development of new products.
We expect research and development expenses to increase in
absolute dollar amounts as we continue to enhance and expand our
product offerings. As a result of the size and diversity of our
panel and our historical investment in our technology
infrastructure, we expect that we will be able to develop new
products with moderate increases in research and development
spending as compared to our growth in revenues. We also expect
research and development expenses to moderate due to our
decision to outsource certain software development activities in
2005.
General
and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
Percent
|
|
|
|
2006
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
|
|
|
(Dollars in thousands)
|
|
|
General and administrative expenses
|
|
$
|
1,918
|
|
|
$
|
2,507
|
|
|
$
|
589
|
|
|
|
30.7
|
%
|
As a percentage of revenues
|
|
|
12.8
|
%
|
|
|
13.4
|
%
|
|
|
|
|
|
|
|
|
General and administrative expenses consist primarily of
salaries and related expenses for executive management, finance,
accounting, human capital, legal, information technology and
other administrative functions, as well as professional fees,
overhead, including allocated rent and depreciation, and
expenses incurred for other general corporate purposes.
General and administrative expenses increased in the three
months ending March 31, 2007 as compared to the three
months ending March 31, 2006, primarily due to increased
professional fees and expanding our finance department. General
and administrative expenses also increased to a lesser extent
due to our investment to support further revenue growth.
49
We expect general and administrative expenses to increase on an
absolute basis in future annual periods as we incur increased
costs associated with being a public company. Operating as a
public company will present additional management and reporting
requirements that will significantly increase our
directors and officers liability insurance premiums
and professional fees both in absolute dollars and as a
percentage of revenues. We also anticipate hiring additional
personnel to help manage future growth and our operations as a
public company.
Amortization
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
Percent
|
|
|
|
2006
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
|
|
|
(Dollars in thousands)
|
|
|
Amortization expense
|
|
$
|
371
|
|
|
$
|
293
|
|
|
$
|
(78
|
)
|
|
|
(21.0
|
)%
|
As a percentage of revenues
|
|
|
2.5
|
%
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
Amortization expense consists of charges related to the
amortization of intangible assets associated with past
acquisitions.
Amortization expense decreased in the three months ended
March 31, 2007 over the three months ended March 31,
2006 because certain intangible assets related to previous
acquisitions were fully amortized during 2006.
Absent additional acquisitions, we expect amortization expense
to continue to decline as the remaining amount of intangible
assets related to previous acquisitions is amortized.
Interest
(Expense) Income, Net
Interest income consists primarily of interest earned from
short-term investments, such as auction rate securities, and our
cash and cash equivalent balances. Interest expense is incurred
due to capital leases pursuant to several equipment loan and
security agreements and a line of credit that we have entered
into in order to finance the lease of various hardware and other
equipment purchases. Our capital lease obligations are secured
by a senior security interest in eligible equipment.
Interest (expense) income, net was $11,000 and $97,000 for the
three months ended March 31, 2006 and 2007, respectively.
The quarterly change from 2006 to 2007 reflects the net effect
of interest income that we earned on our cash balances offset by
the interest expense associated with the capital leases that we
had in place in each period. Our cash, cash equivalents and
short-term investments balance increased by $2.1 million in
the first quarter of 2007. We also continued to reduce the
outstanding balance on our outstanding capital lease obligations.
(Loss)
Gain from Foreign Currency
Our gains and losses from foreign currency transactions arise
from our Canadian and United Kingdom foreign subsidiaries that
hold cash and receivables in currencies other than their
functional currency. During the three months ended
March 31, 2007 we recorded a loss of $8,000 compared to a
gain of $6,000 in the three month period ended March 31,
2006. Our foreign currency transactions are recorded as a result
of fluctuations in the exchange rate between the
U.S. dollar and the Canadian dollar, Euro and British Pound.
Provision
for Income Taxes
As of March 31, 2007, we had net operating loss
carryforwards for federal income tax purposes in the amount of
approximately $78.9 million, which begin to expire in 2020
for federal and begin to expire in 2010 for state income tax
reporting purposes. In the future, we intend to utilize any
carryforwards available to us to reduce our tax payments.
Approximately $13.3 million of our net operating loss
carryforwards are subject to annual limitations under
Section 382 of the Internal Revenue Code based on changes
in percentage of our ownership. We do not expect that this
limitation will impact our ability to utilize all of our net
operating losses
50
prior to their expiration. During the three months ended
March 31, 2007, we recorded an income tax provision of
$46,000 as compared to no provision recorded during the three
months ended March 31, 2006. The tax provision is comprised
of an income tax expense of $65,000 reflecting our alternative
minimum tax and is partly offset by a decrease of $19,000 in the
deferred tax liability associated with a temporary difference
related to certain acquired intangible assets of SurveySite.
Years
Ended December 31, 2004, 2005 and 2006
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Increase
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 v.
|
|
|
2005 v.
|
|
|
2004 v.
|
|
|
2005 v.
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Total revenues
|
|
$
|
34,894
|
|
|
$
|
50,267
|
|
|
$
|
66,293
|
|
|
$
|
15,373
|
|
|
$
|
16,026
|
|
|
|
44.1
|
%
|
|
|
31.9
|
%
|
Total revenues increased by approximately $16.0 million for
the year ended December 31, 2006 as compared to the year
ended December 31, 2005. This increase was primarily due to
increased sales to existing customers based in the U.S. totaling
$52.9 million in 2006, or $12.5 million higher than in
2005. In addition, revenues in 2006 from new U.S. customers were
$7.7 million, an increase of $1.2 million compared to
2005. Revenues from customers outside of the U.S. totaled
approximately $5.7 million, or approximately 9% of total
revenues, in 2006, representing an increase of $2.3 million
compared to 2005. This increase in 2006 was due primarily to our
ongoing expansion efforts in Europe, which included the opening
of an office in London in the first half of 2005, plus continued
growth in Canada. We also experienced revenue growth due to
general increases in our price levels in 2006 as compared to
2005.
Our total customer base grew during this period from 565 as of
December 31, 2005 to 706 as of December 31, 2006.
There was continued revenue growth in both our subscription
revenues, which increased by approximately $14.6 million
from 2005 to 2006, and our project-based revenues, which
increased by $1.4 million from 2005 to 2006.
In 2005, total revenues increased approximately
$15.4 million over 2004 revenues. This growth was
principally driven by increased sales to existing U.S. customers
of $40.4 million, an increase of $11.2 million over
2004. Further, revenues from new customers based in the U.S.
were $6.5 million, which was a $2.6 million increase
over 2004. Revenues from customers outside of the U.S. totaled
$3.4 million, or approximately 7% of revenues, in 2005.
This represented an increase of $1.6 million over 2004,
when international revenues were $1.8 million, or 5% of
total revenues. We also experienced revenue growth due to
general increases in our price levels in 2005 compared to 2004.
Our total customer base grew during this period from 469 as of
December 31, 2004 to 565 as of December 31, 2005.
During this period, our subscription revenues increased by
approximately $8.0 million from 2004 to 2005, while
project-based revenues increased by approximately
$7.4 million. Our 2005 revenues were positively impacted by
the acquisitions of SurveySite and Q2. SurveySite, which we
acquired on January 4, 2005, contributed $5.1 million
in revenues in 2005. Q2, which we acquired on July 28,
2004, contributed $3.6 million in revenues in 2005 as
compared to $1.5 million in revenues in 2004.
We generally invoice customers on an annual, quarterly or
monthly basis, or at the completion of certain milestones, in
advance of revenues being recognized. Amounts that have been
invoiced are recorded in accounts receivable and any unearned
revenues are recorded in deferred revenues until the invoice has
been collected and the revenue recognized. As a result of the
increased revenues in 2006 as compared to 2005, we experienced
an increase in our cash, cash equivalents and short-term
investments of $6.9 million, accounts receivable increased
$3.8 million and deferred revenues increased by
$3.2 million. In 2005 as compared to 2004, we experienced
an increase in our cash, cash equivalents and short-term
investments of $770,000, an increase in accounts receivables of
$4.1 million and an increase in deferred revenues of
$7.1 million.
51
Cost of Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Increase
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 v.
|
|
|
2005 v.
|
|
|
2004 v.
|
|
|
2005 v.
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Cost of revenues
|
|
$
|
13,153
|
|
|
$
|
18,218
|
|
|
$
|
20,560
|
|
|
$
|
5,065
|
|
|
$
|
2,342
|
|
|
|
38.5
|
%
|
|
|
12.9
|
%
|
As a percentage of revenues
|
|
|
37.7
|
%
|
|
|
36.2
|
%
|
|
|
31.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues consists primarily of expenses related to
operating our network infrastructure and the recruitment,
maintenance and support of our consumer panels. Expenses
associated with these areas include the salaries and related
expenses of network operations, survey operations, custom
analytics and technical support, all of which are expensed as
they are incurred. Cost of revenues also includes data
collection costs for our products and operational costs
associated with our data centers, including depreciation expense
associated with computer equipment.
Cost of revenues increased in 2006 as compared to 2005,
primarily due to increased costs associated with supporting our
consumer panel and data centers. Our panel costs increased in
large part due to increased recruiting costs per panelist
reflecting the impact of higher growth in online advertising and
advertising rates. Our data center costs increased as a result
of the relocation in 2006 of our Illinois data center to a new
service provider and increased utility costs at our Virginia
data center. Cost of revenues declined as a percentage of
revenues over the same periods primarily due to the increases in
revenues as described above and a moderation of the increases in
costs to build and maintain our panel. The decline in cost of
revenues as a percentage of revenues was offset in part by
increases in bandwidth and data costs, which grew 9%. The
headcount and costs associated with our technology staff grew at
a lower rate than our growth in revenues.
Cost of revenues increased in 2005 as compared to 2004 primarily
due to our acquisition of SurveySite and higher costs associated
with data center operations and employee salaries, benefits and
related costs required to support growth in our revenues and
customer base during 2005. The cost of revenues as a percentage
of revenues declined in 2005 compared to 2004 primarily due to
the increases in revenues as described above as well as
relatively flat panel costs and smaller increases in bandwidth
and data center costs, which did not grow at the same rate as
our customer base and revenues. The headcount and costs
associated with our technology staff grew at a lower rate than
our growth in revenues.
Selling
and Marketing Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Increase
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 v.
|
|
|
2005 v.
|
|
|
2004 v.
|
|
|
2005 v.
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Selling and marketing expenses
|
|
$
|
13,890
|
|
|
$
|
18,953
|
|
|
$
|
21,473
|
|
|
$
|
5,063
|
|
|
$
|
2,520
|
|
|
|
36.5
|
%
|
|
|
13.3
|
%
|
As a percentage of revenues
|
|
|
39.8
|
%
|
|
|
37.7
|
%
|
|
|
32.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing expenses consist primarily of salaries,
benefits, commissions and bonuses paid to our direct sales force
and industry analysts, as well as costs related to online and
offline advertising, product management, industry conferences,
promotional materials, public relations, other sales and
marketing programs, and allocated overhead, including rent and
depreciation. All selling and marketing costs are expensed as
they are incurred. Commission plans are developed for our
account managers with criteria and size of sales quotas that
vary depending upon the individuals role. Commissions are
paid to a salesperson and are expensed as selling and marketing
costs when a sales contract is executed by both the customer and
comScore. In the case of multi-year agreements, one year of
commissions is paid initially, with the remaining amounts paid
at the beginning of the succeeding years.
Selling and marketing expenses increased in 2006 as compared to
2005 in absolute dollars, primarily due to increased employee
salaries and benefits and related costs resulting from
additional account management
52
personnel in our sales force, plus an increase in commission
costs associated with increased revenues. Our selling and
marketing headcount increased from 143 employees as of
December 31, 2005 to 155 employees as of
December 31, 2006. In addition, the expansion of our
European office in London and increased marketing efforts in
Europe contributed to our increase in selling and marketing
expenses and headcount in 2006. The decrease in selling and
marketing expenses as a percentage of revenues during this
period reflects the increased productivity of our direct sales
force and an increase in revenues.
Selling and marketing expenses increased in 2005 as compared to
2004, primarily due to an increase in the number of account
managers, higher commissions associated with our growth in
revenues and an increase in online and offline advertising and
promotional efforts in support of building our brands. In
addition, our selling and marketing headcount increased from 77
employees as of December 31, 2004 to 143 employees as of
December 31, 2005. The acquisition of SurveySite and the
opening of our first European office in London also contributed
to our increase in selling and marketing expenses and headcount
in 2005. The decrease in selling and marketing expenses as a
percentage of revenues during this period reflected the
increased productivity of our direct sales force.
Research
and Development Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Increase
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 v.
|
|
|
2005 v.
|
|
|
2004 v.
|
|
|
2005 v.
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Research and development expenses
|
|
$
|
5,493
|
|
|
$
|
7,416
|
|
|
$
|
9,009
|
|
|
$
|
1,923
|
|
|
$
|
1,593
|
|
|
|
35.0
|
%
|
|
|
21.5
|
%
|
As a percentage of revenues
|
|
|
15.7
|
%
|
|
|
14.8
|
%
|
|
|
13.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses include new product
development costs, consisting primarily of compensation and
related costs for personnel associated with research and
development activities, and allocated overhead, including rent
and depreciation.
Research and development expenses increased in 2006 as compared
to 2005 primarily due to increased headcount and our continued
focus on developing new products, such as World Metrix, Video
Metrix, Campaign Metrix and Ad Metrix. Research and development
costs decreased slightly as a percentage of revenues, primarily
due to our growth in revenues.
The increase in research and development expenses in 2005
compared to 2004 was due to new product development activity,
including the launch of a streaming media audience measurement
product. The acquisition and integration of SurveySites
operations also contributed to the absolute dollar increase in
research and development costs during this period.
General
and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Increase
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 v.
|
|
|
2005 v.
|
|
|
2004 v.
|
|
|
2005 v.
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
General and administrative expenses
|
|
$
|
4,982
|
|
|
$
|
7,089
|
|
|
$
|
8,293
|
|
|
$
|
2,107
|
|
|
$
|
1,204
|
|
|
|
42.3
|
%
|
|
|
17.0
|
%
|
As a percentage of revenues
|
|
|
14.3
|
%
|
|
|
14.1
|
%
|
|
|
12.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses consist primarily of
salaries and related expenses for executive management, finance,
accounting, human capital, legal, information technology and
other administrative functions, as well as professional fees,
overhead, including allocated rent and depreciation, and
expenses incurred for other general corporate purposes.
General and administrative expenses increased in 2006 as
compared to 2005, primarily due to increased professional fees
and expanding our finance department. As a percentage of
revenues, general and administrative expenses decreased in 2006
as compared to 2005, due primarily to our growth in revenues.
53
General and administrative expenses increased in 2005 as
compared to 2004, primarily due to higher salaries, benefits and
related costs associated with our existing employees plus an
increase in our general and administrative headcount from 14
employees as of December 31, 2004 to 27 employees as of
December 31, 2005. The higher headcount was due primarily
to an increase in employees in such functions as finance,
accounting, human capital and legal, as we built our staff and
infrastructure to support our growth. Our acquisition of
SurveySite also contributed to the increase in general and
administrative expenses and related headcount in 2005. On a
percentage of revenues basis, general and administrative
expenses were flat in 2005 as compared to 2004, as the increase
in headcount related to broadening our administrative support
capabilities and the acquisition of SurveySite was offset by the
growth in our customer base and revenues.
Amortization
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Increase
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 v.
|
|
|
2005 v.
|
|
|
2004 v.
|
|
|
2005 v.
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Amortization expense
|
|
$
|
356
|
|
|
$
|
2,437
|
|
|
$
|
1,371
|
|
|
$
|
2,081
|
|
|
$
|
(1,066
|
)
|
|
|
584.6
|
%
|
|
|
(43.7
|
)%
|
As a percentage of revenues
|
|
|
1.0
|
%
|
|
|
4.8
|
%
|
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense consists of charges related to the
amortization of intangible assets associated with past
acquisitions.
Amortization expense decreased during fiscal year 2006 over 2005
because certain intangible assets related to previous
acquisitions were fully amortized as of that period.
The increase in amortization expense from 2004 to 2005 in
absolute dollars is attributable primarily to the amortization
expense relating to the Q2 acquisition on July 28, 2004 and
the SurveySite acquisition on January 4, 2005.
Interest
(Expense) Income, Net
Interest income consists primarily of interest earned from
short-term investments, such as auction rate securities, and our
cash and cash equivalent balances. Interest expense is incurred
due to capital leases pursuant to several equipment loan and
security agreements and a line of credit that we have entered
into in order to finance the lease of various hardware and other
equipment purchases. Our capital lease obligations are secured
by a senior security interest in eligible equipment.
Interest (expense) income, net was $(246,000) in 2004,
$(208,000) in 2005 and $231,000 in 2006. The
year-to-year
change from 2004 to 2005 and from 2005 to 2006 primarily
reflects the net effect of interest income that we earned on our
cash balances offset by the interest expense associated with the
capital leases that we had in place in each year. Our net
interest expense decreased from 2004 to 2005 due to our larger
cash and investments balances and the lower amounts outstanding
under our capital leases. We reported net interest income in
2006 due to a $6.9 million increase in our cash and
investments balance. We also continued to reduce the outstanding
balance on our outstanding capital lease obligations.
(Loss)
Gain from Foreign Currency Transactions
Our gains and losses from foreign currency transactions arise
from our Canadian and United Kingdom foreign subsidiaries that
hold cash and receivables in currencies other than their
functional currency. Our loss on foreign currency transactions
in 2005 was $96,000. We recorded a gain of $125,000 in 2006 as a
result of fluctuations in the exchange rate between the
U.S. dollar and the Canadian dollar, Euro and British Pound.
Provision
for Income Taxes
As of December 31, 2006, we had net operating loss
carryforwards for federal income tax purposes in the amount of
approximately $81.2 million, which begin to expire in 2020
for federal and begin to expire in 2010 for state income tax
reporting purposes. In the future, we intend to utilize any
carryforwards available to us to reduce our tax payments.
Approximately $13.3 million of the net operating loss
carryforwards are subject to
54
annual limitations under Section 382 of the Internal
Revenue Code based on changes in percentage of our ownership. We
do not expect that this limitation will impact our ability to
utilize all of our net operating losses prior to their
expiration. In 2005, we had an income tax benefit of $182,000
related to a deferred tax liability of $356,000 associated with
a temporary difference related to certain acquired intangible
assets of SurveySite. This compares to an income tax expense of
$50,000 in 2006 reflecting a payment of alternative minimum tax
(AMT) partly offset by a decrease in the deferred tax liability.
Quarterly
Results of Operations
The following tables set forth selected unaudited quarterly
consolidated statement of operations data for each of the
quarters indicated. The consolidated financial statements for
each of these quarters have been prepared on the same basis as
the audited consolidated financial statements included in this
prospectus and, in the opinion of management, include all
adjustments necessary for the fair presentation of the
consolidated results of operations for these periods. You should
read this information together with our consolidated financial
statements and related notes included elsewhere in this
prospectus. These quarterly operating results are not
necessarily indicative of the results for any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Mar. 31,
|
|
|
Jun. 30,
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
Mar. 31,
|
|
|
Jun. 30,
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
Mar. 31,
|
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands) (Unaudited)
|
|
|
Revenues
|
|
$
|
11,135
|
|
|
$
|
13,150
|
|
|
$
|
12,953
|
|
|
$
|
13,029
|
|
|
$
|
14,985
|
|
|
$
|
16,906
|
|
|
$
|
16,165
|
|
|
$
|
18,237
|
|
|
$
|
18,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues(1)
|
|
|
3,936
|
|
|
|
4,863
|
|
|
|
4,602
|
|
|
|
4,817
|
|
|
|
5,148
|
|
|
|
5,205
|
|
|
|
4,977
|
|
|
|
5,230
|
|
|
|
5,388
|
|
Selling and marketing(1)
|
|
|
4,234
|
|
|
|
4,813
|
|
|
|
4,821
|
|
|
|
5,085
|
|
|
|
5,345
|
|
|
|
5,323
|
|
|
|
5,171
|
|
|
|
5,634
|
|
|
|
6,451
|
|
Research and development(1)
|
|
|
1,678
|
|
|
|
1,876
|
|
|
|
1,908
|
|
|
|
1,954
|
|
|
|
2,137
|
|
|
|
2,258
|
|
|
|
2,273
|
|
|
|
2,341
|
|
|
|
2,556
|
|
General and administrative(1)
|
|
|
1,489
|
|
|
|
1,804
|
|
|
|
1,779
|
|
|
|
2,017
|
|
|
|
1,918
|
|
|
|
2,176
|
|
|
|
1,897
|
|
|
|
2,302
|
|
|
|
2,507
|
|
Amortization
|
|
|
621
|
|
|
|
603
|
|
|
|
612
|
|
|
|
601
|
|
|
|
371
|
|
|
|
333
|
|
|
|
333
|
|
|
|
334
|
|
|
|
293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses from operations
|
|
|
11,958
|
|
|
|
13,959
|
|
|
|
13,722
|
|
|
|
14,474
|
|
|
|
14,919
|
|
|
|
15,295
|
|
|
|
14,651
|
|
|
|
15,841
|
|
|
|
17,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(823
|
)
|
|
|
(809
|
)
|
|
|
(769
|
)
|
|
|
(1,445
|
)
|
|
|
66
|
|
|
|
1,611
|
|
|
|
1,514
|
|
|
|
2,396
|
|
|
|
1,486
|
|
Interest (expense) income, net
|
|
|
(58
|
)
|
|
|
(71
|
)
|
|
|
(39
|
)
|
|
|
(40
|
)
|
|
|
11
|
|
|
|
23
|
|
|
|
84
|
|
|
|
113
|
|
|
|
97
|
|
(Loss) gain from foreign currency
|
|
|
(21
|
)
|
|
|
(1
|
)
|
|
|
(72
|
)
|
|
|
(2
|
)
|
|
|
6
|
|
|
|
(33
|
)
|
|
|
3
|
|
|
|
149
|
|
|
|
(8
|
)
|
Revaluation of preferred stock
warrant liabilities
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
(8
|
)
|
|
|
2
|
|
|
|
(211
|
)
|
|
|
(6
|
)
|
|
|
(9
|
)
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
and cumulative effect of change in accounting principle
|
|
|
(902
|
)
|
|
|
(881
|
)
|
|
|
(886
|
)
|
|
|
(1,495
|
)
|
|
|
85
|
|
|
|
1,390
|
|
|
|
1,595
|
|
|
|
2,649
|
|
|
|
1,586
|
|
(Benefit) provision for income taxes
|
|
|
(53
|
)
|
|
|
(52
|
)
|
|
|
(38
|
)
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income before cumulative
effect of change in accounting principle
|
|
|
(849
|
)
|
|
|
(829
|
)
|
|
|
(848
|
)
|
|
|
(1,456
|
)
|
|
|
85
|
|
|
|
1,390
|
|
|
|
1,595
|
|
|
|
2,599
|
|
|
|
1,540
|
|
Cumulative effect of change in
accounting principle
|
|
|
|
|
|
|
|
|
|
|
(440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(849
|
)
|
|
|
(829
|
)
|
|
|
(1,288
|
)
|
|
|
(1,456
|
)
|
|
|
85
|
|
|
|
1,390
|
|
|
|
1,595
|
|
|
|
2,599
|
|
|
|
1,540
|
|
Accretion of redeemable preferred
stock
|
|
|
(611
|
)
|
|
|
(643
|
)
|
|
|
(675
|
)
|
|
|
(709
|
)
|
|
|
(742
|
)
|
|
|
(777
|
)
|
|
|
(812
|
)
|
|
|
(848
|
)
|
|
|
(885
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to
common stockholders
|
|
$
|
(1,460
|
)
|
|
$
|
(1,472
|
)
|
|
$
|
(1,963
|
)
|
|
$
|
(2,165
|
)
|
|
$
|
(657
|
)
|
|
$
|
613
|
|
|
$
|
783
|
|
|
$
|
1,751
|
|
|
$
|
655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amortization of stock-based compensation is included in the line
items above as follows: |
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Mar. 31,
|
|
|
Jun. 30,
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
Mar. 31,
|
|
|
Jun. 30,
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
Mar. 31,
|
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands) (Unaudited)
|
|
|
Cost of revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2
|
|
|
$
|
4
|
|
|
$
|
6
|
|
|
$
|
9
|
|
Selling and marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
26
|
|
|
|
23
|
|
|
|
27
|
|
|
|
39
|
|
Research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
4
|
|
|
|
7
|
|
|
|
8
|
|
General and administrative
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
10
|
|
|
|
40
|
|
|
|
40
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a Percentage of Total Revenues
|
|
|
|
Three Months Ended
|
|
|
|
Mar. 31,
|
|
|
Jun. 30,
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
Mar. 31,
|
|
|
Jun. 30,
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
Mar. 31,
|
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
Revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
35.3
|
|
|
|
37.0
|
|
|
|
35.5
|
|
|
|
37.0
|
|
|
|
34.4
|
|
|
|
30.8
|
|
|
|
30.8
|
|
|
|
28.7
|
|
|
|
28.8
|
|
Selling and marketing
|
|
|
38.0
|
|
|
|
36.6
|
|
|
|
37.2
|
|
|
|
39.0
|
|
|
|
35.7
|
|
|
|
31.5
|
|
|
|
32.0
|
|
|
|
30.9
|
|
|
|
34.5
|
|
Research and development
|
|
|
15.1
|
|
|
|
14.3
|
|
|
|
14.7
|
|
|
|
15.0
|
|
|
|
14.3
|
|
|
|
13.4
|
|
|
|
14.1
|
|
|
|
12.9
|
|
|
|
13.7
|
|
General and administrative
|
|
|
13.4
|
|
|
|
13.7
|
|
|
|
13.7
|
|
|
|
15.5
|
|
|
|
12.8
|
|
|
|
12.9
|
|
|
|
11.7
|
|
|
|
12.6
|
|
|
|
13.4
|
|
Amortization
|
|
|
5.6
|
|
|
|
4.6
|
|
|
|
4.7
|
|
|
|
4.6
|
|
|
|
2.5
|
|
|
|
2.0
|
|
|
|
2.1
|
|
|
|
1.8
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses from operations
|
|
|
107.4
|
|
|
|
106.2
|
|
|
|
105.8
|
|
|
|
111.1
|
|
|
|
99.6
|
|
|
|
90.5
|
|
|
|
90.6
|
|
|
|
86.9
|
|
|
|
92.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(7.4
|
)
|
|
|
(6.2
|
)
|
|
|
(5.8
|
)
|
|
|
(11.1
|
)
|
|
|
0.4
|
|
|
|
9.5
|
|
|
|
9.4
|
|
|
|
13.1
|
|
|
|
8.0
|
|
Interest (expense) income, net
|
|
|
(0.5
|
)
|
|
|
(0.5
|
)
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.5
|
|
|
|
0.6
|
|
|
|
0.5
|
|
(Loss) gain from foreign currency
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
0.8
|
|
|
|
|
|
Revaluation of preferred stock
warrant liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
and cumulative effect of change in accounting principle
|
|
|
(8.1
|
)
|
|
|
(6.7
|
)
|
|
|
(6.8
|
)
|
|
|
(11.4
|
)
|
|
|
0.6
|
|
|
|
8.2
|
|
|
|
9.9
|
|
|
|
14.5
|
|
|
|
8.5
|
|
(Benefit) provision for income
taxes
|
|
|
(0.5
|
)
|
|
|
(0.4
|
)
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income before
cumulative effect of change in accounting principle
|
|
|
(7.6
|
)
|
|
|
(6.3
|
)
|
|
|
(6.5
|
)
|
|
|
(11.1
|
)
|
|
|
0.6
|
|
|
|
8.2
|
|
|
|
9.9
|
|
|
|
14.3
|
|
|
|
8.2
|
|
Cumulative effect of change in
accounting principle
|
|
|
|
|
|
|
|
|
|
|
(3.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(7.6
|
)
|
|
|
(6.3
|
)
|
|
|
(9.9
|
)
|
|
|
(11.1
|
)
|
|
|
0.6
|
|
|
|
8.2
|
|
|
|
9.9
|
|
|
|
14.3
|
|
|
|
8.2
|
|
Accretion of redeemable preferred
stock
|
|
|
(5.5
|
)
|
|
|
(4.9
|
)
|
|
|
(5.2
|
)
|
|
|
(5.4
|
)
|
|
|
(5.0
|
)
|
|
|
(4.6
|
)
|
|
|
(5.0
|
)
|
|
|
(4.6
|
)
|
|
|
(4.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to
common stockholders
|
|
|
(13.1
|
)
|
|
|
(11.2
|
)
|
|
|
(15.1
|
)
|
|
|
(16.6
|
)
|
|
|
(4.4
|
)
|
|
|
3.6
|
|
|
|
4.8
|
|
|
|
9.6
|
|
|
|
3.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Over the nine quarters presented in the table above, revenues
have generally increased due primarily to increases in
subscription revenues from existing customers, growth in our
customer base (both domestically and internationally), general
increases in pricing for our products and the acquisition of
SurveySite. In 2005, revenues increased sequentially from the
first quarter to the second quarter before declining slightly in
the third quarter and remaining relatively flat in the fourth
quarter. Over these quarterly periods, fluctuations in project
revenues partially offset the steady growth in subscription
revenues and contributed to the relatively flat revenues on a
sequential basis from the second through the fourth quarters of
2005. In 2006, revenues increased significantly on a sequential
basis in the first and second quarters before decreasing in the
third
56
quarter due to fluctuations in the closing of agreements
relating to, and the execution of, projects. Revenues increased
significantly in the fourth quarter of 2006 due to increased
growth in subscription revenues for existing and new customers.
Subscription revenues increased sequentially in each of the
quarters presented.
Cost of revenues as a percentage of total revenues held
relatively steady in each of the quarters in 2005 before
declining in 2006. The decrease in cost of revenues on a
percentage basis was due to the growth in revenues relative to
the moderation in fixed costs to support our consumer panel,
data center and technical infrastructure.
On an absolute basis, total expenses from operations increased
significantly in the second quarter of 2005 due primarily to
costs associated with the integration of the Q2 and SurveySite
acquisitions and certain expenses for external data sources.
Total expenses from operations remained relatively flat in the
third quarter of 2005 and increased in the fourth quarter of
2005, primarily due to higher sales costs related to the opening
of our first European sales office, located in London, and
increased general and administrative costs in support of overall
business growth. On an absolute basis, total expenses from
operations declined slightly in the first quarter of 2006 before
increasing in the second quarter of 2006, due to increases in
general and administrative expenses associated with the hiring
of new finance personnel and increases in professional services
fees related to anticipated business expansion. In addition,
expenses from operations increased in the second quarter of 2006
due to higher research and development costs tied to the
development of several new products. After a decline in the
third quarter, expenses from operations increased again in the
fourth quarter of 2006, due to increased commissions tied to
higher sales growth plus higher salaries, benefits and related
costs associated with hiring additional personnel in our
operations, technology, sales, research and development and
general and administrative organizations to support the growth
of our business. The total expenses from operations in 2006
increased at a lower rate than revenues and we were consequently
able to better leverage our cost structure.
We became profitable on a net income basis in the first quarter
of 2006, and were profitable on a net income basis every quarter
in 2006 as our revenues increased significantly during these
periods and our costs grew at a lower rate.
Liquidity
and Capital Resources
The following table summarizes our cash flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Consolidated Cash Flow
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
$
|
1,907
|
|
|
$
|
4,253
|
|
|
$
|
10,905
|
|
|
$
|
2,824
|
|
|
$
|
3,156
|
|
Net cash used in investing
activities
|
|
|
(1,332
|
)
|
|
|
(2,505
|
)
|
|
|
(9,573
|
)
|
|
|
(2,694
|
)
|
|
|
(971
|
)
|
Net cash used in financing
activities
|
|
|
(952
|
)
|
|
|
(1,092
|
)
|
|
|
(1,381
|
)
|
|
|
(271
|
)
|
|
|
(525
|
)
|
Effect of exchange rate changes on
cash
|
|
|
25
|
|
|
|
(36
|
)
|
|
|
(43
|
)
|
|
|
18
|
|
|
|
14
|
|
Net increase (decrease) in cash
and equivalents
|
|
|
(352
|
)
|
|
|
620
|
|
|
|
(92
|
)
|
|
|
123
|
|
|
|
1,674
|
|
Since our inception, we have funded our operations and met our
capital expenditure requirements primarily with venture capital
and private equity funding. In five separate issuances of
preferred stock, from Series A on September 27, 1999
to Series E on August 1, 2003, we have raised over
$88 million from a number of institutional investors. The
proceeds from all of these issuances have been used for general
business purposes, with the exception of the Series E
Preferred Stock offering, which was partially used to extinguish
a $1.5 million bank note. Each share of preferred stock is
convertible into common stock at the respective conversion ratio
for each series of preferred stock at any time, subject to
adjustment triggered by changes in our capitalization such as a
stock split. Conversion is automatic in the event of a public
offering of common stock at a price of at least $2.50 per
share with gross proceeds of at least $25 million. This
conversion is expected to take place upon consummation of this
offering.
57
Our principal uses of cash historically have consisted of
payroll and other operating expenses and payments related to the
purchase of equipment primarily to support our consumer panel
and technical infrastructure required to support our customer
base. Since the beginning of 2004, we have purchased over
$4.6 million in property and equipment, made
$3.9 million in principal payments on capital lease
obligations, and spent $1.9 million as the cash component
of consideration paid for acquisitions.
As of March 31, 2007, our principal sources of liquidity
consisted of cash, cash equivalents and short-term investments
of $18.2 million.
Operating
Activities
Our cash flows from operating activities are significantly
influenced by our investments in personnel and infrastructure to
support the anticipated growth in our business, increases in the
number of customers using our products and the amount and timing
of payments made by these customers.
We generated approximately $3.2 million of net cash from
operating activities during the three months ended
March 31, 2007. The significant components of cash flows
from operations were net income of $1.5 million,
$1.2 million in non-cash depreciation and amortization
expenses, a $2.4 million increase in amounts collected from
customers in advance of when we recognize revenues as a result
of our growing customer base, offset by a $843,000 increase in
accounts receivable and a $1.2 million decrease in accounts
payable and accrued expenses.
We generated approximately $2.8 million of net cash from
operating activities during the three months ended
March 31, 2006. The significant components of cash flows
from operations were $1.1 million in non-cash depreciation
and amortization expenses and a $2.3 million decrease in
accounts receivable, offset by a $1.1 million decrease in
amounts collected from customers in advance of when we recognize
revenues.
We generated approximately $10.9 million of net cash from
operating activities during 2006. The significant components of
cash flows from operations were net income of $5.7 million,
$4.3 million in non-cash depreciation and amortization
expenses, a $1.4 million increase in accounts payable and
accrued expenses and a $3.1 million increase in amounts
collected from customers in advance of when we recognize
revenues as a result of our growing customer base, offset by a
$3.9 million increase in accounts receivable.
We generated $4.3 million of net cash from operating
activities during 2005. The significant components of cash flows
from operations were a $6.4 million increase in amounts
collected from customers in advance of when we recognized
revenues as a result of our growing customer base, and
$5.1 million in non-cash depreciation and amortization
expenses. These items were partially offset by a
$3.5 million net increase in accounts receivable related to
our larger customer base, a net loss of $4.4 million and
other uses of cash in operations.
We generated $1.9 million of net cash from operating
activities in 2004. The significant components of cash flows
from operations were a $0.6 million increase in amounts
collected from customers in advance of when we recognized
revenues as a result of our growing customer base, a
$1.7 million net increase in accounts payable and accrued
expenses due to the timing of payments to our vendors when
compared to the same period in 2003 and $2.7 million in
non-cash depreciation and amortization expenses. These items
were partially offset by a $0.7 million net increase in
accounts receivable due to our larger customer base, a net loss
of $3.2 million and other uses of cash in operations.
Investing
Activities
Our primary investing activities have consisted of purchases of
computer network equipment to support our Internet user panel
and maintenance of our database, furniture and equipment to
support our operations, and payments related to the acquisition
of several companies. As our customer base continues to expand,
we expect purchases of technical infrastructure equipment to
grow in absolute dollars. The extent of these investments will
be affected by our ability to expand relationships with existing
customers, grow our customer base, introduce new digital formats
and increase our international presence.
58
We used $971,000 of net cash in investing activities during the
three months ended March 31, 2007, a net $475,000 of which
was used to purchase short-term investments, and $494,000 of
which was used to purchase property and equipment.
We used $2.7 million of net cash in investing activities
during the three months ended March 31, 2006, a net
$2.1 million of which was used to purchase short-term
investments, $292,000 of which was used to purchase property and
equipment, and $300,000 of which was used to pay contingent
consideration associated with our acquisition of Q2.
We used $9.6 million of net cash in investing activities
during 2006, a net $7.0 million of which was used to
purchase short-term investments, $2.3 million of which was
used to purchase property and equipment and $0.3 million of
which was used to pay contingent considerations associated with
our Q2 and SurveySite acquisitions. We used $2.5 million of
net cash in investing activities during 2005, of which
$1.1 million was used to purchase property and equipment,
$0.9 million was used as part of the acquisition of
SurveySite and $0.3 million was used to pay contingent
consideration associated with the Q2 acquisition. In 2004, we
used $1.3 million of net cash in investing activities,
$1.2 million of which was used to purchase property and
equipment and $0.9 million of which was used as part of the
consideration for the acquisition of Q2, partially offset by
$0.8 million in net proceeds from the sale of short-term
investments.
We expect to achieve greater economies of scale and operating
leverage as we expand our customer base and utilize our Internet
user panel and technical infrastructure more efficiently. While
we anticipate that it will be necessary for us to continue to
invest in our Internet user panel, technical infrastructure and
technical personnel to support the combination of an increased
customer base, new products, international expansion and new
digital market intelligence formats, we believe that these
investment requirements will be less than the revenue growth
generated by these actions. This should result in a lower rate
of growth in our capital expenditures to support our technical
infrastructure. In any given period, the timing of our
incremental capital expenditure requirements could impact our
cost of revenues, both in absolute dollars and as a percentage
of revenues.
Financing
Activities
Our primary financing activities since 2004 have consisted of
financings to fund the acquisition of capital assets. We entered
into an equipment lease agreement with GE Capital in 2003 and a
line of credit agreement with GE Capital in 2005 to finance the
purchase of hardware and other computer equipment to support our
business growth. These borrowings were secured by a senior
security interest in the equipment acquired under the facility.
In December 2006, we entered into an equipment lease agreement
with Banc of America Leasing & Capital, LLC to finance
the purchase of new hardware and other computer equipment as we
continue to expand our technology infrastructure in support of
our business growth. This agreement includes a $5 million
line of credit available through December 31, 2007. Through
December 31, 2006, we used this credit facility to
establish an equipment lease for the amount of approximately
$2.9 million. The base term for this lease is three years
and includes a small charge in the event of prepayment.
We used $525,000 of net cash in financing activities during the
three months ended March 31, 2007. We used $665,000 to make
payments on our capital lease obligations partially offset by
$140,000 in proceeds from the exercise of our common stock
options.
We used $271,000 of net cash in financing activities during the
three months ended March 31, 2006. We used $387,000 to make
payments on our capital lease obligations partially offset by
$116,000 in proceeds from the exercise of our common stock
options.
We used $1.4 million of net cash in financing activities
during 2006. We used $1.6 million to make payments on our
capital lease obligations partially offset by $241,000 in
proceeds from the exercise of our common stock options.
We used $1.1 million of net cash from financing activities
during 2005. We used $1.2 million to make payments on our
capital lease obligations partially offset by $136,000 in
proceeds from the exercise of our common stock options.
59
In 2004, we used approximately $1.0 million of cash in
financing activities. Substantially all of the use of this cash
resulted from payments on our capital lease obligations.
We do not have any special purpose entities, and other than
operating leases for office space, described below, we do not
engage in off-balance sheet financing arrangements.
Contractual
Obligations and Known Future Cash Requirements
Set forth below is information concerning our known contractual
obligations as of December 31, 2006 that are fixed and
determinable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More Than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
|
(In thousands)
|
|
|
Capital lease obligations
|
|
$
|
4,418
|
|
|
$
|
1,986
|
|
|
$
|
2,432
|
|
|
|
|
|
|
|
|
|
Operating lease obligations
|
|
|
5,058
|
|
|
|
2,009
|
|
|
|
2,063
|
|
|
|
760
|
|
|
|
226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,476
|
|
|
$
|
3,995
|
|
|
$
|
4,495
|
|
|
$
|
760
|
|
|
$
|
226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our principal lease commitments consist of obligations under
leases for office space and computer and telecommunications
equipment. We finance the purchase of some of our computer
equipment under a capital lease arrangement over a period of
36 months. Our purchase obligations relate to outstanding
orders to purchase computer equipment and are typically small;
they do not materially impact our overall liquidity.
We currently have a line of credit for up to $5.0 million
available to us until December 31, 2007. We have used
$2.9 million of such line of credit to establish an
equipment lease for the amount of approximately
$2.9 million bearing interest at a rate of 7.75% per annum.
Future
Capital Requirements
We believe that our existing cash, cash equivalents, and
short-term investments and operating cash flow, will be
sufficient to meet our projected operating and capital
expenditure requirements for at least the next twelve months. In
addition, we expect that the net proceeds from this offering
will provide us with the financial flexibility to execute our
strategic objectives, including the ability to make acquisitions
and strategic investments. Our ability to generate cash,
however, is subject to our performance, general economic
conditions, industry trends and other factors. To the extent
that funds from this offering, combined with existing cash, cash
equivalents, short-term investments and operating cash flow are
insufficient to fund our future activities and requirements, we
may need to raise additional funds through public or private
equity or debt financing. If we issue equity securities in order
to raise additional funds, substantial dilution to existing
stockholders may occur.
For the
ninety-day
period beginning July 28, 2007, the former shareholder of
Q2 has the right to sell its 1,060,000 shares back to us
for an aggregate price of $2.65 million, or $2.50 per
share. For the
ninety-day
period beginning January 1, 2008, the former shareholders
of SurveySite have the right to sell their 678,172 shares
back to us for an aggregate price of approximately
$1.8 million, or $2.67 per share.
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. We do not hold or issue financial instruments
for trading purposes or have any derivative financial
instruments. To date, most payments made under our contracts are
denominated in U.S. dollars and we have not experienced
material gains or losses as a result of transactions denominated
in foreign currencies. As of March 31, 2007, our cash
reserves were maintained in money market investment accounts and
fixed income securities totaling $11.5 million. These
securities, like all fixed income instruments, are subject to
interest rate risk and will decline in value if market interest
rates increase. We have the ability to hold our fixed income
investments until maturity and, therefore, we would not expect
to experience any material adverse impact in income or cash flow.
60
Foreign
Currency Risk
A portion of our revenues is derived from transactions
denominated in U.S. dollars, even though we maintain sales and
business operations in foreign countries. As such, we have
exposure to adverse changes in exchange rates associated with
operating expenses of our foreign operations, but we believe
this exposure to be immaterial at this time. As such, we do not
currently engage in any transactions that hedge foreign currency
exchange rate risk. As we grow our international operations, our
exposure to foreign currency risk could become more significant.
Recent
Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements. The purpose of this statement is
to define fair value, establish a framework for measuring fair
value and enhance disclosures about fair value measurements. The
measurement and disclosure requirements are effective for us as
of January 1, 2008 and are applied prospectively. We are
currently evaluating the potential impact of adopting this new
guidance on our results of operations and financial position.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities
(SFAS No. 159), to permit all entities to choose
to elect, at specified election dates, to measure eligible
financial instruments at fair value. An entity shall report
unrealized gains and losses on items for which the fair value
option has been elected in earnings at each subsequent reporting
date, and recognize upfront costs and fees related to those
items in earnings as incurred and not deferred.
SFAS No. 159 applies to fiscal years beginning after
November 15, 2007, with early adoption permitted for an
entity that has also elected to apply the provisions of
SFAS No. 157. An entity is prohibited from
retrospectively applying SFAS No. 159, unless it
chooses early adoption. We are currently evaluating the impact
of the provisions of SFAS No. 159 on our consolidated
financial statements.
61
BUSINESS
Overview
We provide a leading digital marketing intelligence platform
that helps our customers make better-informed business decisions
and implement more effective digital business strategies. Our
products and solutions offer our customers deep insights into
consumer behavior, including objective, detailed information
regarding usage of their online properties and those of their
competitors, coupled with information on consumer demographic
characteristics, attitudes, lifestyles and offline behavior.
Our digital marketing intelligence platform is comprised of
proprietary databases and a computational infrastructure that
measures, analyzes and reports on digital activity. The
foundation of our platform is data collected from our comScore
panel of more than two million Internet users worldwide who have
granted us explicit permission to confidentially measure their
Internet usage patterns, online and certain offline buying
behavior and other activities. By applying advanced statistical
methodologies to our panel data, we project consumers
online behavior for the total online population and a wide
variety of user categories.
We deliver our digital marketing intelligence through our
comScore Media Metrix product family and through comScore
Marketing Solutions. Media Metrix delivers digital media
intelligence by providing an independent, third-party
measurement of the size, behavior and characteristics of Web
site and online advertising network audiences among home, work
and university Internet users as well as insight into the
effectiveness of online advertising. Our Marketing Solutions
products combine the proprietary information gathered from the
comScore panel with the vertical industry expertise of comScore
analysts to deliver digital marketing intelligence, including
the measurement of online advertising effectiveness, customized
for specific industries. We typically deliver our Media Metrix
products electronically in the form of weekly, monthly or
quarterly reports. Customers can access current and historical
Media Metrix data and analyze these data anytime online. Our
Marketing Solutions products are typically delivered on a
monthly, quarterly or ad hoc basis through electronic reports
and analyses.
Industry
Background
Growth
of Digital Commerce, Content, Advertising and
Communications
The Internet is a global digital medium for commerce, content,
advertising and communications. According to IDC, the number of
global Internet users is projected to grow from approximately
968 million in 2005 to over 1.7 billion in 2010. As
the online population continues to grow, the Internet is
increasingly becoming a tool for research and commerce and for
distributing and consuming media. According to IDC, the global
business-to-consumer
eCommerce market is projected to grow from $411 billion in
2005 to $1 trillion in 2010. According to Jupiter Research, over
80% of online users in the United States research offline
purchases using the Internet, making the Internet an important
channel for both online and offline merchants. Consumers are
also using the Internet to access an increasing amount of
digital content across media formats including video, music,
text and games. According to IDC, the domestic markets for
online video and music consumption are projected to reach over
$1.7 billion and over $3.3 billion, respectively, in
2010.
As consumers increasingly use the Internet to research and make
purchases and to consume digital media, advertisers are shifting
more of their marketing budgets to digital channels. According
to the Internet Advertising Bureau and PricewaterhouseCoopers,
domestic online advertising spending, including search
advertising, grew to $16.8 billion in 2006, an increase of
34% over 2005. Despite the size and growth of the digital
marketing sector, the shift of traditional advertising spending
to the Internet has yet to match the rate of consumption of
online media. According to Forrester Research, digital
advertising represented only 6% of the total United States
advertising market in 2004 despite consumers spending 16% of
their available media time online. As advertisers spend more of
their marketing budgets to reach Internet users, we believe that
digital marketing will continue to grow.
In addition to the growth in online commerce, content and
marketing, a number of new digital technologies and devices are
emerging that enable users to access content and communicate in
new ways.
62
Internet-enabled mobile phones allow users to access digital
content such as games, music, video and news on their mobile
devices through a wireless connection to the Internet. According
to IDC, the worldwide number of shipments of converged mobile
devices is projected to grow from 57 million in 2005 to
261 million in 2010, representing compounded annual growth
of 36% over that period. Other digital communications
technologies such as voice over Internet protocol (VoIP) utilize
the Internet network infrastructure to enable efficient and
cost-effective personal communications such as chat and
VoIP-based
telephony. According to Infonetics, the worldwide number of VoIP
subscribers is projected to grow from 24.5 million in 2005
to 140.7 million in 2009. Delivery of digital television
services over a network infrastructure using Internet Protocol,
or IPTV, has a number of advantages over conventional
television, including two-way communications, digital content
and features, and interactivity. According to Infonetics, the
worldwide number of IPTV subscribers is projected to grow from
2.4 million in 2005 to 68.9 million in 2009. We
believe these and other new digital media and communications
devices and services offer a similar opportunity as the Internet
for us to measure and analyze user behavior.
Importance
of Digital Marketing Intelligence
The interactive nature of digital media such as the Internet
enables businesses to access a wealth of user information that
was virtually unavailable through offline audience measurement
and marketing intelligence techniques. Digital media provide
businesses with the opportunity to measure detailed user
activity, such as how users interact with Web page content; to
assess how users respond to online marketing, such as which
online ads users click on to pursue a transaction; and to
analyze how audiences and user behavior compare across various
Web sites. This type of detailed user data can be combined with
demographic, attitudinal and transactional information to
develop a deeper understanding of user behavior, attributes and
preferences. Unlike offline media such as television and radio,
which generally only allow for the passive measurement of
relative audience size, digital media enable businesses to
actively understand the link between digital content,
advertising and user behavior.
We believe that the growth in the online and digital media
markets for digital commerce, content, advertising and
communications creates an unprecedented opportunity for
businesses to acquire a deeper understanding of both their
customers and their competitive market position. Businesses can
use accurate, relevant and objective digital marketing
intelligence to develop and validate key strategies and improve
performance. For example, with a deep understanding of the size,
demographic composition and other characteristics of its
audience, an online content provider can better communicate the
value of its audience to potential advertisers. With detailed
metrics on the effectiveness of an online advertising campaign
and how that campaign influences online and offline purchasing
behavior, a business can refine its marketing initiatives. With
insight into market share and customer behavior and preferences,
a business can understand not only how its digital business is
performing relative to its competitors but also the drivers
behind such performance. Moreover, by using the appropriate
digital marketing intelligence, businesses can refine their
digital content, commerce, advertising and communications
initiatives to enhance the effectiveness and return on
investment of their marketing spending, enabling them to build
more successful businesses.
Challenges
in Providing Digital Marketing Intelligence
While the interactive and dynamic nature of digital markets
creates the opportunity for businesses to gain deep insights
into user behavior and competitive standing, there are a number
of issues unique to the Internet that make it challenging for
companies to provide digital marketing intelligence. Compared to
offline media such as television or radio, the markets for
digital media are significantly more fragmented, complex and
dynamic. As of December 2006, we believe that there were more
than 17,000 and 25,000 U.S. and global Web sites, respectively,
that each receive more than 30,000 unique visitors per month, as
compared to only a few hundred channels typically available with
standard digital cable or satellite television and broadcast or
satellite radio. The complexities of online user activity and
the breadth of digital content and advertising make providing
digital marketing intelligence a technically challenging and
highly data-intensive process.
Digital media continues to develop at a rapid pace and includes
numerous formats such as textual content, streaming and
downloadable video and music, instant messaging, VoIP telephony,
online gaming and email.
63
Digital advertising also includes multiple formats such as
display, search, rich media and video. Detailed user activity
such as viewing, clicking or downloading various components of a
Web page across digital media or interacting with various
advertising formats creates a substantial amount of data that
must be captured on a continuous basis. The data must also be
cleansed for quality, relevancy and privacy protection and be
organized to enable companies to obtain relevant digital
marketing intelligence. This capture of audience data can prove
extremely challenging when it involves millions of Internet
users with varying demographic characteristics accessing tens of
thousands of Web sites across diverse geographies. In addition,
the ongoing development of digital media programming languages
and technologies contributes to the challenge of accurately
measuring user activity. For example, online publishers and
advertisers have recently started to use Asynchronous JavaScript
and XML, or AJAX, a development technique that allows Web
applications to quickly make incremental updates without having
to refresh the entire Web page. Prior to AJAX, marketers relied
heavily on page view statistics to plan and evaluate their
online media spending programs. With AJAX, we believe marketers
are beginning to question the definition of, and need for, page
views, and are seeking alternative metrics for measuring the
usage and effectiveness of online media. To maintain their
relevance, audience and media measurement technologies must keep
pace with the continued evolution and increasing complexity of
digital media.
Need for Accuracy and Reliability. Relevant
digital marketing intelligence requires access to accurate and
reliable global data that measure online user activity. Existing
data collection methodologies, including those that rely on
third party sources, surveys or panels, face significant
challenges and limitations. Survey or panel methodologies must
measure a sufficiently large and representative sample size of
Internet users to accurately capture data that is statistically
projectable to the broader Internet population. In addition, the
international composition of Internet audiences requires a
geographically dispersed sample to accurately capture global
digital activity. Digital marketing intelligence that depends on
third-party sources to obtain Internet audience usage data has
the potential to be biased, may be constrained by the data that
the third party is capable of capturing, and may be limited in
its application. For example, a solution that relies on data
supplied by an Internet service provider, or ISP, may show a
bias toward the demographic composition or other characteristics
of that ISPs users. We believe that a meaningful digital
media sourcing methodology must be based on data sourced from a
large, representative global sample of online users that can be
parsed, enhanced, mined and analyzed; must evolve rapidly and be
flexible to adapt to changing technologies; and must be able to
provide actionable digital marketing intelligence that can be
used to improve business decision-making.
Need for Third-Party Objectivity. We believe
that the availability of objective third-party data that measure
digital audience size, behavior, demographic and attitudinal
characteristics represents a key factor in the continued growth
of digital content, advertising and commerce. This is similar to
offline media markets, such as television and radio, whose
development was significantly enhanced by the introduction of
third-party audience measurement ratings that provided a basis
for the pricing of advertising in those media. As the buying and
selling of online advertising continues to grow, we believe that
companies on both sides of the advertising transaction will
increasingly seek third-party marketing intelligence to assess
the value and effectiveness of digital media. In addition, as
advertisers work with Web site publishers to target online
advertising campaigns to reach a specific demographic or
behavioral user profile, the need for objective audience and
user information, unbiased by either party to the transaction,
will become increasingly important.
Need for Competitive Information. In addition
to the scope, complexity and rapid evolution of online digital
media, the lack of data on competitors makes it difficult for
companies to gain a comprehensive view of user behavior beyond
their own digital businesses. While products and tools exist
that enable companies to understand user activity on their own
Web sites, these products are unable to provide a view of
digital audience activity on other Web sites or offline. In
order for publishers, marketers, merchants and service providers
to benefit from accurate and comprehensive digital marketing
intelligence they need to understand user activity on Web sites
across the Internet and how online consumer behavior translates
into offline actions.
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The
comScore Digital Marketing Intelligence Platform
We provide a leading digital marketing intelligence platform
that enables our customers to devise and implement more
effective digital business strategies. Our platform is comprised
of proprietary databases and a computational infrastructure that
measures, analyzes and reports digital activity from our global
panel of more than two million Internet users. We offer our
customers deep insights into consumer behavior on their own
online properties and those of their competitors, including
objective, detailed information on users demographic
characteristics, attitudes, lifestyles and multi-channel buying
activity. We also provide industry-specific metrics to our
customers.
We deliver our digital marketing intelligence through our
comScore Media Metrix product family and through comScore
Marketing Solutions. Media Metrix provides intelligence on
digital media usage, including a measurement of the size,
behavior and characteristics of the audiences for individual Web
sites and advertising networks within the global home, work and
university Internet user populations as well as insight into the
effectiveness of online advertising. Our Marketing Solutions
products combine the proprietary information gathered from our
user panel with the vertical industry expertise of comScore
analysts to deliver digital marketing intelligence customized
for specific industries. Media Metrix and Marketing Solutions
products are typically delivered electronically in the form of
periodic reports, through customized analyses or are generally
available online via a user interface on the comScore Web site.
Key attributes of our platform include:
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Panel of global Internet users. Our ability to
provide digital marketing intelligence is based on information
continuously gathered from a broad cross-section of more than
two million Internet users worldwide who have granted us
explicit permission to confidentially measure their Internet
usage patterns, online and certain offline buying behavior and
other activities. Through our proprietary technology, we measure
detailed Internet audience activity across the spectrum of
digital content and marketing channels. Many comScore panelists
also participate in online survey research that captures and
integrates demographic, attitudinal, lifestyle and product
preference information with Internet behavior data. The global
nature of our Internet panel enables us to provide digital
marketing intelligence for over 30 individual countries. Our
global capability is valuable to companies based in
international markets as well as to multi-national companies
that want to better understand their global Internet audiences
and the effectiveness of their global digital business
initiatives.
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Scalable technology infrastructure. We
developed our databases and computational infrastructure to
support the growth in online activity among our global Internet
panel and the increasing complexity of digital content formats,
advertising channels and communication applications. The design
of our technology infrastructure is based on distributed
processing and data capture environments that allow for the
collection and organization of vast amounts of data on online
activity, including usage of proprietary networks such as AOL,
instant messaging and audio and video streaming. Our database
infrastructure currently captures approximately 182 million
Web pages and 4.5 billion URL records each week from our
global Internet panel, resulting in over 28 terabytes of data
collected by our platform each month. We believe that our
efficient and scalable technology infrastructure allows us to
operate and expand our data collection infrastructure on a
cost-effective basis. In recognition of the scale of our data
collection and warehousing technology, we have received multiple
awards, including the 2003, 2004 and 2005 Winter Corporation
Grand Prize for Database Size on a Windows NT Platform.
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Benefits of our platform include:
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Advanced digital marketing intelligence. We
use our proprietary technology to compile vast amounts of data
on Internet user activity and to organize the data into
discrete, measurable elements that can be used to provide
actionable insights to our customers. We believe that our
digital marketing intelligence platform enables companies to
gain a deeper understanding of their digital audiences, which
allows them to better assess and improve their company and
product-specific competitive position. Because our marketing
intelligence is based on a large sample of global Internet users
and can incorporate
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multi-channel transactional data, we are able to provide
companies with an enhanced understanding of digital audience
activity beyond their own Web sites and the ability to better
assess the link between digital marketing and offline user
activity. Digital content providers, marketers, advertising
agencies, merchants and service providers can use the insights
our platform provides to craft improved marketing campaigns and
strategies and to measure the effectiveness and return on
investment of their digital initiatives.
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Objective third-party resource for digital marketing
intelligence. We are an independent company that
is not affiliated with the digital businesses we measure and
analyze, allowing us to serve as an objective third-party
provider of digital marketing intelligence. Because businesses
use our data to plan and evaluate the purchase and sale of
online advertising and to measure the effectiveness of digital
marketing, it is important that we provide unbiased data,
marketing intelligence, reports and analyses. We deploy advanced
statistical methodologies in building and maintaining the
comScore global Internet user panel and utilize proven data
capture, and computational practices in collecting,
statistically projecting, aggregating and analyzing information
regarding online user activity. We believe that our approach
ensures that the insights we provide are as objective as
possible and allows us to deliver products and services that are
of value to our customers in their key business decision-making.
We believe that the media industry views us as a highly
recognized and credible resource for digital marketing
intelligence. For example, between March 1 and
December 31, 2006, our information on digital activity was
cited more than 16,500 times by third-party media outlets, an
average of approximately 55 citations per day. Our data are
regularly cited by well-known media outlets such as the
Associated Press, Reuters, Bloomberg, CNBC, The New York
Times and The Wall Street
Journal. Moreover, many of the leading Wall
Street investment banks also purchase and cite our data in their
published research reports prepared by financial analysts that
cover Internet businesses.
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Vertical industry expertise. We have developed
expertise across a variety of industries to provide digital
marketing intelligence specifically tailored to the needs of our
customers operating in specific industry sectors. We have
dedicated personnel to address the automotive, consumer packaged
goods, entertainment, financial services, media, pharmaceutical,
retail, technology, telecommunications and travel sectors. We
believe that companies across different industries have distinct
information and marketing intelligence needs related to
understanding their digital audiences and buyers, evaluating
marketing initiatives and understanding company or
product-specific competitive position. For example, a
pharmaceutical company may want to understand how online
research by consumers influences new prescriptions for a
particular drug, while a financial services company may want to
assess the effectiveness of its online advertising campaigns in
signing up new consumers and how this compares to the efforts of
its competitors. By working with companies in various industries
over the course of multiple years, we have developed
industry-specific applications of our data and our client
service representatives have developed industry-specific
knowledge and expertise that allow us to deliver relevant and
meaningful marketing insight to our customers.
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Ease of use and functionality. The comScore
digital marketing intelligence platform is designed to be easy
to use by our customers. Our Media Metrix products are available
through the Internet using a standard browser. Media Metrix
customers can also run customized reports and refine their
analyses using an intuitive interface available on our Web site.
Our Marketing Solutions products are available either through
the Internet or by using standard software applications such as
Microsoft Excel, Microsoft PowerPoint or SPSS analytical
software. Our customers do not need to install additional
hardware or complex software to access and use our products.
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Strategy
Our objective is to be the leading provider of global digital
marketing intelligence products. We plan to pursue our objective
through internal initiatives and, potentially, through
acquisitions and other investments. The principal elements of
our strategy are to:
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Deepen relationships with current
customers. We intend to work closely with our
customers to enable them to continuously enhance the value they
obtain from our digital marketing intelligence platform. Many of
our customers are Fortune 1000 companies that deploy
multiple marketing initiatives, and we believe many of our
customers would benefit from more extensive use of our product
offerings to gain additional insights into their key digital
initiatives. We will work to develop and expand our customer
relationships to increase our customers use of our digital
marketing intelligence platform.
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Grow our customer base. As the digital media,
commerce, marketing and communications sectors continue to grow,
we believe the demand for digital marketing intelligence
products will increase. To meet this increase in market demand,
we intend to invest in sales, marketing and account management
initiatives in an effort to expand our customer base. We intend
to offer both general and industry-specific digital marketing
products that deliver value to a wide range of potential
customers in current and new industry verticals.
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Expand our digital marketing intelligence
platform. We expect to continue to increase our
product offerings through our digital marketing intelligence
platform. As digital markets become more complex, we believe
that companies will require new information and insights to
measure, understand and evaluate their digital business
initiatives. We intend to develop new applications that leverage
our digital marketing intelligence platform to be able to
provide the most timely and relevant information to our
customers. For example, in 2003 we were one of the first
companies to offer data, analysis and reports on the
fast-growing Internet search market.
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Address emerging digital media. The extension
of digital media and communications to include new formats such
as VoIP, IP television, content for mobile phones and next
generation gaming consoles creates new opportunities to measure
and analyze emerging digital media. We intend to extend our
digital marketing platform to capture, measure and analyze user
activity in these emerging digital media and communications
formats.
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Extend technology leadership. We believe that
the scalability and functionality of our database and
computational infrastructure provide us with a competitive
advantage in the digital media intelligence market. Accordingly,
we intend to continue to invest in research and development to
extend our technology leadership. We intend to continue to
enhance our technology platform to improve scalability,
performance and cost effectiveness and to expand our product
offerings.
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Build brand awareness through media
exposure. Our digital media, commerce and
marketing information is frequently cited by media outlets. In
addition, we proactively provide them with data and insights
that we believe may be relevant to their news reports and
articles. We believe that media coverage increases awareness and
credibility of the comScore and Media Metrix brands and
supplements our marketing efforts. We intend to continue to work
with media outlets, including news distributors, newspapers,
magazines, television networks, radio stations and online
publishers, to increase their use of comScore data in content
that discusses digital sector activity.
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Grow internationally. While we are currently
in the early stages of providing customers with international
services, we believe that a significant opportunity exists to
provide our product offerings to multi-national and
international companies. Approximately half of the existing
comScore Internet user panel resides outside of the United
States. In July 2006, we launched World Metrix, a product that
measures global digital media usage. World Metrix is based on a
sample of online users from countries that comprise
approximately 95% of the global Internet population. We plan to
expand our sales and marketing and account management presence
outside the U.S. as we provide a broader array of digital
marketing intelligence products that are tailored to local
country markets as well as the global marketplace.
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Our
Product Offerings
We deliver our digital marketing intelligence through our
comScore Media Metrix product family and through comScore
Marketing Solutions.
comScore
Media Metrix
Media Metrix provides its subscribers, consisting primarily of
publishers, marketers, advertising agencies and advertising
networks, with intelligence on digital media usage and a
measurement of the size, behavior and characteristics of the
audiences for Web sites and advertising networks among home,
work and university Internet populations. Media Metrix also
provides insights into the effectiveness of online advertising.
Media Metrix data can be used to accurately identify and target
key online audiences, evaluate the effectiveness of digital
marketing and commerce initiatives, support the selling of
online advertising by publishers, and to identify and exploit
relative competitive standing. The vast majority of our Media
Metrix subscribers access selected reports and analyses through
the MyMetrix user interface on our Web site.
Our flagship product, Media Metrix 2.0, details the online
activity and site visitation behavior of Internet users,
including use of proprietary networks such as AOL, instant
messaging, audio and video streaming, and other digital
applications. Our customers subscribe to ongoing access to our
digital marketing intelligence reports and analyses, including:
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comprehensive reports detailing online behavior for home, work
and university audiences;
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demographic characteristics of visitors to Web sites and
properties;
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buying power metrics that profile Web site audiences based on
their online buying behavior;
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detailed measurement and reporting of online behavior for over
30 countries and over 100 U.S. local markets;
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measurement of key ethnic segments, including the online
Hispanic population; and
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reach and frequency metrics for online advertising campaigns
that show the percent of a target audience reached and the
frequency of exposure to advertising messages.
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A representative MyMetrix screenshot, detailing the most visited
online properties in the United States for December 2006, is
shown on the following page.
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In addition to our core offering, customers can subscribe to the
following additional products in the Media Metrix product family:
Plan Metrix. Plan Metrix is a product that
combines the continuously and passively observed Internet
behavior provided by Media Metrix with comprehensive attitude,
lifestyle and product usage data collected through online
surveys of our U.S. Internet user panel. Plan Metrix
provides advertising agencies, advertisers and publishers with
multiple views of Web site audiences including their online
behavior, demographics, lifestyles, attitudes, technology
product ownership, product purchases and offline media usage.
These data are used in the design and evaluation of online
marketing campaigns. For example, an online auto retailer could
use Plan Metrix to help understand which Web sites a prospective
automobile purchaser is most likely to visit prior to making a
purchase decision.
World Metrix. We provide insights into
worldwide Internet activity through our World Metrix product,
which delivers aggregate information about the behavior of
online users on a global basis, for approximately 30 individual
countries and for regional aggregations such as Latin America,
Europe and Asia Pacific. For example, a content publisher can
understand its market share of the global Internet audience
using our World Metrix product.
Video Metrix. Video Metrix provides insights
into the viewing of streaming video by U.S. Internet users.
The product measures a wide range of video players and formats,
including Windows Media, Flash, RealMedia and QuickTime. Video
Metrix offers site-level measurement and audience ratings by
demographics and
time-of-day
to assist agencies, advertisers and publishers in designing and
implementing media plans that include streaming video. For
example, an advertiser that is seeking to maximize the exposure
of its streaming video ads to its target audience could use
Video Metrix to help understand on which sites and at what times
of the day its target audience is viewing the most streaming
video.
Ad Metrix. Available through the Media Metrix
client interface, Ad Metrix provides advertisers, agencies and
publishers with a variety of online advertising metrics relating
to impressions, or advertisements on a Web site that reach a
target audience. Ad Metrix helps customers determine the
impressions delivered by advertising campaigns across Web sites
and online properties, including how many visitors are reached
with advertisements and how often. In addition, Ad Metrix allows
customers to determine the demographic profile of the
advertising audience at a particular site, as well as how the
volume of impressions changes over time on that site. The Ad
Metrix data are consistent with offline media planning metrics
such as GRPs, or gross rating points, which measure the percent
of a target audience that is reached with an advertisement
weighted by the number of exposures. For example, an advertiser
might use Ad Metrix to plan the online portion of an advertising
campaign for a sports product on sites that have previously
successfully delivered advertising impressions to a target
demographic audience. A publisher might use Ad Metrix data to
measure its share of advertising impressions relative to
competitive publishers. Ad Metrix was launched in early 2007 in
beta format and we plan to commercially launch this product in
the second quarter of 2007.
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Some examples of Media Metrix digital marketing intelligence
measurements and their customer uses are described in the
following table.
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Digital Marketing Intelligence
Measurement
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Examples of Customer
Uses
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Site Traffic & Usage
Intensity
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rank Web sites based
on online usage metrics such as unique visitors, page views or
minutes of use
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drill-down to standard
or customer-defined site subsets such as channels or
sub-channels
(such as Yahoo! Finance and Yahoo! Sports)
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analyze statistics
over time such as trends in site visitors within demographic
segments
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assess which Web site
audiences are growing or declining, which sites are most
attractive to particular demographic segments or which sites or
digital applications have the highest level of usage
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identify the source of
traffic to a particular Web site or channel within a site
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Quantitative Consumer Information
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profile site users
based on life-stage or offline behavior such as
panelist-reported TV usage, car ownership, health conditions or
offline purchases
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efficiently identify
and target a particular user segment (e.g., people who say they
are likely to buy a car in the next six months)
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quantify the audience
overlap between different consumer segments or Web sites to
identify the number of unique visitors reached
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Online Buying Power
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quantify the
propensity of a particular Web sites audience to purchase
certain categories of products (e.g., consumer electronics)
online
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Competitive Intelligence
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compare the standings
of Web sites within particular content categories, such as
finance or health information
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quantify audience size
relative to competitors, including share of usage within a
category and usage trends across competitors
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track major
competitors, quantify their growth, and identify initiatives to
promote growth and market share
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Reach and Frequency
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identify and quantify
the size of audiences reached by individual Web sites and
determine how often they reach those audiences
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assist with the
planning of online advertising campaigns that need to achieve
specific reach or frequency objectives against a targeted
audience across multiple Web sites
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design the most
cost-effective media plans that can achieve campaign objectives
for reach and frequency
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comScore
Marketing Solutions
comScore Marketing Solutions products use our global database,
computational infrastructure and our staff of experienced
analytical personnel to help customers design more effective
marketing strategies that increase sales, reduce costs, deepen
customer relationships and ultimately enhance a customers
competitive position. We offer solutions tailored for specific
industry verticals, including the automotive, consumer packaged
goods, entertainment, financial services, media, pharmaceutical,
retail, technology, telecommunications and travel sectors. Many
of our Marketing Solutions products are delivered to subscribers
on a recurring schedule such as monthly or quarterly. In some
cases, we provide customized reports and analyses that combine
our expertise with other proprietary information to address a
specific customer need.
The core information products offered by comScore Marketing
Solutions include:
Market Share Reports. These reports track a
companys share of market as measured by industry-specific
performance metrics. The metrics of choice vary by industry
vertical, including as examples: share of online credit card
spending for credit card issuers; share of online travel
spending for travel companies; or share of subscribers for ISPs.
In each case, market share reports provide an ongoing
measurement of competitive performance and insight into the
factors driving changes in market share.
Competitive Benchmark Reports. These reports
allow customers to compare themselves to competitors using
various industry-specific metrics. For example, retailers may
look at metrics such as the rate of conversion of site visitors
to buyers, average order size or rate of repeat purchases among
existing customers. Banks may focus on the percentage of bank
customers using online bill payment services, or compare the
effectiveness of customer acquisition programs as reflected by
the percentage of leads they acquire that ultimately sign up for
an online account. In each case, a customer may define and
obtain
best-of-category
metrics and use them as a benchmark to monitor its business
performance over time.
Loyalty and Retention Analysis. These analyses
provide an understanding of the extent to which consumers are
also engaged with competitors, and identifies loyalty drivers to
assist customers in capturing a higher share of the
consumers wallet. For example, a travel company might
quantify the potential business lost when consumers visit its
site, do not complete a purchase but then visit a competing site
to book a travel reservation. Retention or churn analyses
quantify consumer losses to competitors and the key drivers of
such losses. For example, a narrowband Internet service provider
may track the rate of attrition among its customer base,
identify which competitors are capturing those lost customers,
and analyze the characteristics of the lost customers in order
to gain insight into ways to improve retention.
Customer Satisfaction Reports. These reports
are based on panelist responses to survey questionnaires that
ascertain the degree of satisfaction with various products or
services offered to consumers. This information is often
integrated with the online usage information that we collect
from our panelists in order to identify which digital media
usage activities affect customer satisfaction. For instance, a
sports portal may use these reports to determine which features,
such as participating in fantasy sports leagues or viewing
streaming video clips, affect customer satisfaction and loyalty
the most.
qSearch. This product is a monthly scorecard
of the search market that provides a comparison of search
activity across portals and major search engines. It helps
identify the reach of a search engine, the loyalty of its user
base, the frequency of search queries, and the effectiveness of
sponsored links displayed on search result pages in driving
referrals to advertiser sites. qSearch is used by major search
engines and advertising agencies in planning search campaigns.
Campaign Metrix. This product provides
detailed information about specific online advertising
campaigns. These reports, available through a Web-based
interface, describe for each advertising image, or
creative within an advertising campaign, the size
and demographic composition of the audience exposed to that
particular advertisement, the average number of impressions
delivered and other details regarding ad formats and ad sizes
used in the campaign. An advertiser, agency or publisher could
use Campaign Metrix to gain insight into the effectiveness of an
online advertising campaign by examining the number of unique
users exposed to the campaign, the number of times on average
that a unique user was exposed to the campaign and
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whether the campaign reached the targeted audience demographic.
This product was launched in February 2007 in beta format and we
plan to commercially launch this product in the second quarter
of 2007.
Internet Advertising Effectiveness
Studies. These studies provide an understanding
of the effectiveness of particular advertising campaigns by
measuring the online and offline behavior of a target
group of comScore panelists, following their exposure to a
particular advertisement, and comparing their behavior to that
of a control group of comScore panelists who were
not exposed to such advertisements. This type of a study allows
a marketer to understand the impact of their advertising
campaign and to estimate the return on their investment in
online marketing.
Survey-Based Products. These products leverage
our ability to administer surveys to our panel members to obtain
valuable information that can be seamlessly integrated with
online behavioral data to provide our clients with additional
insights into the drivers of consumer behavior.
Customers
As of March 31, 2007, we had 743 customers, including
over 100 Fortune 1000 customers. Our customers include:
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fifteen of the top twenty online properties, based on total
unique visitors, as ranked by our Media Metrix database for the
month of December 2006, including Microsoft, Yahoo!, AOL and
Google;
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ten of the top twenty U.S. Internet service providers,
based on the number of subscribers as of the third quarter of
2006, as ranked by ISP Planet;
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the top ten investment banks, based on 2006 revenues, as ranked
by Dealogic;
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97 advertising and media buying agencies;
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five of the top six consumer banks, based on consolidated assets
as of December 31, 2006, as ranked by the Federal Reserve
System, National Information Center;
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seven of the top ten pharmaceutical companies, based on 2005
worldwide sales, as ranked by IMS Health; and
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seven of the top eight credit card issuers, based on total
credit cards outstanding in 2006, as ranked by the 2006 Nilson
Report.
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One of our customers, Microsoft Corporation, accounted for 5%,
14%, 12% and 12% of our revenues in the year ended
December 31, 2004, 2005 and 2006 and the three months ended
March 31, 2007, respectively.
The following examples are provided as an illustration of the
development and growth of our relationships with our customers:
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Microsoft is a leading provider of software,
services and solutions. Since 2001, Microsofts Internet
division, MSN, has used our global panel data to better
understand the needs of consumers, to help guide product
planning strategies and to measure the impact of online
marketing efforts, and has increased its use of our products in
each subsequent year. Since 2004, MSN has purchased detailed
Internet clickstream data patterns to study how consumers use
MSN and competitive services, in order to better meet consumer
needs. Since June 2005, MSN has used our qSearch product to
measure and benchmark the behavior of consumers and competitors
in the Internet search market. Since 2005, we have also provided
MSN with advertising studies that it has used to measure the
impact of MSNs online marketing campaigns and demonstrate
to clients the effectiveness of online advertising. In addition,
since 1999, Microsoft has been a customer of SurveySite, a
company that we acquired on December 31, 2004. comScore
SurveySite provides Microsoft with insights about their
customers, partners and employees by conducting online
qualitative research and quantitative surveys, including ongoing
customer satisfaction tracking programs. comScore SurveySite has
been a Premier Vendor for Online Research to Microsoft since
2002. comScore SurveySite was also the winner of the 2005
Microsoft Vendor Program Excellence Award in Technology in
recognition of its innovative SiteRecruit
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system. In 2006, comScore SurveySite was also named a
Relationship Marketing Specialty Vendor, a designation shared by
only five market research vendors worldwide. comScore SurveySite
has worked across all of Microsofts principal business
groups including Platform Products and Services, Business
Products and Services and Entertainment and Devices.
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Verizon Communications is a leader in delivering
broadband and other wireline and wireless communication
innovations to business, government and wholesale and retail
customers. Since 2001, Verizon Communications has used comScore
Marketing Solutions products to better understand the
competitive landscape in the Internet access industry and trends
in broadband offerings. Starting with the purchase of an ISP
market share analysis for two specific markets, Verizon
Communications now uses our data and analyses in over 40 markets
to not only understand its competitive position in the industry,
but also to determine the efficacy of its broadband product line
and to help guide marketing strategies. Verizon Communications
also uses other comScore Marketing Solutions products to obtain
answers to a variety of other business issues.
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Starcom USA is an independent operating unit of
Starcom MediaVest Group, a global advertising and marketing
agency. Starcom has been a customer of comScores Marketing
Solutions products since 2004, when it purchased an analysis to
quantify the impact of a Fortune 500 clients online
advertising on its share of consumer eCommerce spending during
the 2003 holiday shopping season. In 2005, Starcom expanded the
relationship to include comScore Marketing Solutions
online survey capabilities. Since 2004, Starcoms purchases
of our products have expanded from purchasing surveys and
holiday season eCommerce tracking to purchases covering almost
the entire year. Starcom uses our digital market intelligence to
analyze the impact of online advertising on its clients
share of consumer eCommerce spending at a total Internet and
product category level. Starcom also uses our marketing
solutions brand accountability analyses that we generate from
survey results from our global consumer Internet panel.
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Yahoo! is a leading global Internet portal. Yahoo!
became a customer when we acquired certain Media Metrix assets
in 2002. Since then, Yahoo! has purchased additional Media
Metrix products and in 2004 chose comScore as Yahoo!s
source of record for Internet audience measurement and search.
Yahoo! has exclusively used Media Metrix for digital marketing
intelligence in the U.S. since 2006. In 2002, our
relationship with Yahoo! expanded with the launch of our qSearch
product that tracks consumers use of various search
engines. qSearch information is used by Yahoo! in numerous
aspects of managing its search business, including product
development, market share tracking, competitive analysis, ad
effectiveness and executive reporting. Yahoo! also commissioned
us to conduct several analyses that measured the degree to which
offline sales and latent online sales (sales made days or weeks
after the initial click-through) were impacted by search
advertising. In late 2005 and throughout 2006, Yahoo! integrated
our advertising effectiveness testing products into its suite of
advertiser products, thereby enabling its advertisers to analyze
campaign effectiveness by measuring a variety of different
metrics including offline sales, surveyed branding and
awareness, online site usage and trademark search activity. In
2006, we completed two significant studies for Yahoo! entitled
Close the Loop a study on the link
between search and image advertising, and Brand Advocates:
The Impact of Search and Social Media on Branding. We
became a preferred provider of services to Yahoo! in 2006. In
2007, our relationship with Yahoo! grew with the addition of
international and worldwide data and ongoing adoption of certain
of our new syndicated and custom comScore digital marketing
intelligence products.
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Selling
and Marketing
We sell the majority of our products through a direct sales
force. Sales of the comScore Media Metrix product suite to new
clients are managed by sales representatives assigned
specifically to new business development. A separate group of
account managers within our sales organization is assigned to
manage, renew and increase sales to existing Media Metrix
customers. The comScore Marketing Solutions sales organization
is organized vertically by industry with account executives
dedicated to selling into the automotive, consumer packaged
goods, entertainment, financial services, media, pharmaceutical,
retail,
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technology, telecommunications and travel sectors and other
industries. Marketing Solutions account executives are tasked
with both identifying and generating new business in specific
verticals as well as servicing existing customers. Our sales and
account representatives receive a base salary and are eligible
for bonuses or commissions based on performance.
Our marketing communications staff is primarily focused on
leveraging the use of comScore data and insights by the media
and maximizing the number of times that comScore is cited as a
source of information. We believe that the use of our data by
general and industry-specific media outlets increases
recognition of the comScore brand name and serves to help
validate the value of the analyses and products we provide. In
order to accomplish this goal, we seek to maintain relationships
with key news distributors, publications, TV networks, reporters
and other media outlets. We believe that the media views us as a
highly recognized and credible resource for digital marketing
intelligence. For example, between March 1 and
December 31, 2006, comScore data were cited more than
16,500 times by third-party media outlets, an average of over 55
citations per day. Moreover, we are regularly cited by
well-known news distributors, publications and TV networks such
as the Associated Press, Reuters, Bloomberg, CNBC, The New
York Times and The Wall Street Journal. We also
target various industry conferences and tradeshows as part of
our marketing efforts. These events are typically focused on a
particular industry, allowing us to demonstrate to industry
participants the value of our products to businesses in that
industry.
Panel and
Methodology
The foundation of our digital marketing intelligence platform is
data collected from our comScore panel, which includes more than
two million persons worldwide whose online behavior we have
explicit permission to measure on a continuous, passive basis.
We believe that our panel is one of the largest global panels of
its kind, delivering a multi-faceted view of digital media usage
and transactional activity as well as selected offline activity.
By applying advanced statistical methodologies to our panel
data, we project the behavior of the total online population.
We recruit our panel through a variety of online recruitment
programs that have been tested and refined since our inception
to ensure a diverse sample that sufficiently represents the
broader global Internet population. In addition, in the United
States we enlist a
sub-sample
of panelists through various offline recruiting methods.
Participants in the comScore research panel receive a package of
benefits that is designed to appeal to a broad variety of user
categories. Examples of such benefits include, as of December
2006, free security applications such as server-based virus
protection, encrypted file protection, encrypted network disk
storage locations for user backups; free general purpose
applications such as screensavers and games; sweepstakes; cash
payments; and points that may be redeemed for prizes.
Participants data and privacy are protected by defined
privacy policies that safeguard personally-identifiable
information. This combination of recruiting methods allows us to
maintain a panel large enough to provide statistically
representative samples in most demographic segments.
We continuously determine the size, demographics and other
characteristics of the online population using enumeration
surveys of tens of thousands of persons annually, whereby
respondents are asked a variety of questions about their
Internet use, as well as demographic and other descriptive
questions about themselves and their households. The sample of
participants in each enumeration survey is selected using a
random recruiting methodology. The result is an
up-to-date
picture of the population to which the comScore sample is then
projected. We use the results from the enumeration surveys to
weight and statistically project the panel data to ensure that
the projected data reflect the characteristics of the Internet
population.
Privacy
We believe that a key factor differentiating our digital
marketing intelligence is our ability to track and analyze
online usage behavior using the data collected from our panel.
Since the founding of our company, we have endeavored to
undertake such data collection and analysis responsibly and only
with consumer permission. Participation in our research panel is
voluntary. Participants must consent to our privacy and data
security practices before our software collects information on
the users online activity. In addition, we provide
75
panelists with multiple opportunities and methods to remove
themselves from our panel. We limit the type of information that
we collect by identifying and filtering certain personal
information from the data collected. The collected data is
secured using multiple layers of physical and digital security
mechanisms. Moreover, we maintain a strict policy of not sharing
panelists personally identifiable information with our
customers. These actions and policies are consistent with the
AICPA/CICA WebTrust criteria for online privacy.
Technology
and Infrastructure
We have developed a proprietary system for the measurement of
the activity of our global online panel. This system is
continuously refined and developed to address the changing
digital media landscape and to meet new customer business needs.
The system is comprised of hundreds of servers that operate
using software built on Microsoft and other technologies. Our
technology infrastructure is operated in two third-party Tier-1
co-location facilities (one in Virginia and the other in
Illinois). Our systems have multiple redundancies and are
structured to ensure the continuation of business operations in
the event of network failure or if one of our data centers has
been rendered inoperable. As of December 31, 2006, our
technology team (excluding employees devoted to research and
development) was comprised of over 105 full-time employees
(or full-time equivalents) working in four different geographic
locations, who design, develop, maintain and operate our entire
technology infrastructure. In addition, we have established a
relationship with a third party firm for software development in
an economically beneficial locale as a means to augment our
technology efforts for discrete projects.
Our development efforts have spanned all aspects of our
business. We have developed a data capture system that operates
across our panelists computers in almost 200 countries and
is used for the real-time capture of consumer Internet behavior.
We have built a large scale, efficient and proprietary system
for processing massive amounts of data. Typically our systems
handle and process data in excess of 10 billion input
records per month. Despite the scale of processing required,
these data are generally available on a daily basis for our
business use. We have also developed a highly efficient and
scalable system for the extraction and tabulation of all online
activities of our panelists. Likewise, we have created a highly
scalable data warehousing environment that allows ready access
and analysis of the data we collect. This system, based on
Sybase IQ, was awarded the 2003, 2004 and 2005 Grand Prize for
the largest Microsoft-based decision support warehouse by the
Winter Corporation. In December 2006, we were recognized as a
2007 Technology Pioneer by the World Economic Forum. We believe
our scalable and highly cost-effective systems and processing
methods provide us with a significant competitive advantage.
Our customers access our digital marketing intelligence product
offerings through a variety of methods including MyMetrix, our
proprietary, Web-based analysis and reporting system, which in
the month of December 2006 was used by 4,020 users to produce
more than 170,000 reports.
Research
and Development
Our research and development efforts focus on the enhancement of
our existing products and the development of new products to
meet our customers digital marketing intelligence needs
across a broad range of industries and applications. Because of
the rapidly growing and evolving use of the Internet and other
digital mediums for commerce, content, advertising and
communications, these efforts are critical to satisfying our
customers demand for relevant digital marketing
intelligence. As of March 31, 2007, we had approximately
85 full-time employees (or full-time equivalents) working
on research and development activities (excluding employees on
our technology team cited under Technology and
Infrastructure above). In addition, we involve management
and operations personnel in our research and development
efforts. In 2006, 2005 and 2004, we spent $9.0 million,
$7.4 million and $5.5 million, respectively, on
research and development. During the three months ended
March 31, 2007, we spent $2.6 million on research and
development.
Intellectual
Property
We rely on a combination of patent, trademark, copyright and
trade secret laws in the United States and other jurisdictions
together with confidentiality procedures and contractual
provisions to protect our proprietary
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technology and our brand. We seek patent protection on
inventions that we consider important to the development of our
business. We control access to our proprietary technology and
enter into confidentiality and invention assignment agreements
with our employees and consultants and confidentiality
agreements with other third parties.
Our success depends in part on our ability to develop patentable
products and obtain, maintain and enforce patent and trade
secret protection for our products, including successfully
defending these patents against any third-party challenges, both
in the United States and in other countries. We may be able to
protect our technologies from unauthorized use by third parties
to the extent that we own or have licensed valid and enforceable
patents or trade secrets that cover them. However, the degree of
future protection of our proprietary rights is uncertain because
legal means afford only limited protection and may not
adequately protect our rights or permit us to gain or keep our
competitive advantage.
Currently, we own U.S. patent 7,181,412, which was filed
March 22, 2000 and covers, among other things, techniques
for collecting consumer data. Under current U.S. law, the
statutory term for a patent is 20 years from its earliest
effective filing date. Accordingly, U.S. patent 7,181,412 is
expected to expire on March 22, 2020. However, various
circumstances, such as the provisions under U.S. patent law for
patent term adjustment and patent term extension, may extend the
duration of this patent. Similarly, various circumstances may
shorten the duration of this patent, such as a change in U.S.
law or a need or decision on our part to terminally disclaim a
portion of the statutory term of this patent.
We also currently have twelve U.S. and foreign patent
applications pending, and we intend to file, or request that our
licensors file, additional patent applications for patents
covering our products. However, patents may not be issued for
any pending or future pending patent applications owned by or
licensed to us, and claims allowed under any issued patent or
future issued patent owned or licensed by us may not be valid or
sufficiently broad to protect our technologies. Any issued
patents owned by or licensed to us now or in the future may be
challenged, invalidated, held unenforceable or circumvented, and
the rights under such patents may not provide us with the
expected benefits. In addition, competitors may design around
our technology or develop competing technologies. Intellectual
property rights may also be unavailable or limited in some
foreign countries, which could make it easier for competitors to
capture or increase their market share with respect to related
technologies. Although we are not currently involved in any
legal proceedings related to intellectual property, we could
incur substantial costs to defend ourselves in suits brought
against us or in suits in which we may assert our patent rights
against others. An unfavorable outcome in any such litigation
could have a material adverse effect on our business and results
of operations.
In addition to patent and trade secret protection, we also rely
on several trademarks and service marks to protect our
intellectual property assets. We are the owner of numerous
trademarks and service marks and have applied for registration
of our trademarks and service marks in the United States and in
certain other countries to establish and protect our brand names
as part of our intellectual property strategy. Some of our
registered marks include comScore, Media Metrix and MyMetrix.
Our intellectual property policy is to protect our products,
technology and processes by asserting our intellectual property
rights where we believe it is appropriate and prudent. Any
pending or future pending patent applications owned by or
licensed to us (in the United States or abroad) may not be
allowed or may in the future be challenged, invalidated, held
unenforceable or circumvented, and the rights under such patents
may not provide us with competitive advantages. Any significant
impairment of our intellectual property rights could harm our
business or our ability to compete. Protecting our intellectual
property rights is costly and time consuming. Any increase in
the unauthorized use of our intellectual property could make it
more expensive to do business and harm our operating results.
There is always the risk that third parties may claim that we
are infringing upon their intellectual property rights and, if
successful in proving such claims, we could be prevented from
selling our products.
For additional, important information related to our
intellectual property, please review the information set forth
in Risk Factors Risks Related to Our Business,
Our Technologies and Our Industry.
77
Competition
The market for digital marketing intelligence is highly
competitive and evolving rapidly. We compete primarily with
providers of digital marketing intelligence and related
analytical products and services. We also compete with providers
of marketing services and solutions, with survey providers, as
well as with internal solutions developed by customers and
potential customers. Our principal competitors include:
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large and small companies that provide data and analysis of
consumers online behavior, including Compete Inc., Hitwise
Pty. Ltd and NetRatings, Inc.;
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online advertising companies that provide measurement of online
ad effectiveness, including aQuantive, Inc., DoubleClick Inc.,
ValueClick Inc., and WPP Group plc;
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companies that provide audience ratings for TV, radio and other
media that have extended or may extend their current services,
particularly in certain international markets, to the
measurement of digital media, including Arbitron Inc., Nielsen
Media Research, Inc. and Taylor Nelson Sofres plc;
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analytical services companies that provide customers with
detailed information of behavior on their own Web sites,
including Omniture, Inc., WebSideStory, Inc. and WebTrends
Corporation;
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full-service market research firms and survey providers that may
measure online behavior and attitudes, including Harris
Interactive Inc., Ipsos Group, Taylor Nelson Sofres plc and The
Nielsen Company; and
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specialty information providers for certain industries that we
serve, including IMS Health Incorporated (healthcare) and
Telephia, Inc. (telecommunications).
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Some of our current competitors have longer operating histories,
relationships with more customers and substantially greater
resources than we do. As a result, these competitors may be able
to devote more resources to marketing and promotional campaigns,
panel retention and development techniques or technology and
systems development than we can. In addition, some of our
competitors may be able to adopt more aggressive pricing
policies. Furthermore, large software companies, Internet
portals and database management companies may enter the market
or enhance their current offerings, either by developing
competing services or by acquiring our competitors, and could
leverage their significant resources and pre-existing
relationships with our current and potential customers.
We believe the principal competitive factors in our markets
include the following:
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the ability to provide actual and perceived high-quality,
accurate and reliable data regarding Internet and other digital
media audience behavior and activity in a timely manner,
including the ability to maintain a large and statistically
representative sample panel;
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the ability to adapt product offerings to emerging digital media
technologies and standards;
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the breadth and depth of our products and their flexibility and
ease of use;
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the availability of data across various industry verticals and
geographic areas and our expertise across these verticals and in
these geographic areas;
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the ability to offer survey-based information combined with
digital media usage, eCommerce data and other online information
collected from panelists;
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the ability to offer high-quality analytical services based on
Internet and other digital media audience measurement
information;
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the ability to offer products that meet the changing needs of
customers and provide high-quality service; and
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the prices that are charged for products based on the perceived
value delivered.
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We believe that we compete favorably with our competitors on the
basis of these factors. However, if we are unable to compete
successfully against our current and future competitors, we may
not be able to acquire
78
and retain customers, and we may consequently experience a
decline in revenues, reduced operating margins, loss of market
share and diminished value from our products.
Government
Regulation
Although we do not believe that significant existing laws or
government regulations adversely impact us, our business could
be affected by different interpretations or applications of
existing laws or regulations, future laws or regulations, or
actions by domestic or foreign regulatory agencies. For example,
privacy concerns could lead to legislative, judicial and
regulatory limitations on our ability to collect, maintain and
use information about Internet users in the United States and
abroad. Various state legislatures, including those of Utah and
California, have enacted legislation designed to protect
Internet users privacy, for example by prohibiting
spyware. In recent years, similar legislation has been proposed
in other states and at the federal level and has been enacted in
foreign countries, most notably by the European Union, which
adopted a privacy directive regulating the collection of
personally identifiable information online. These laws and
regulations, if drafted or interpreted broadly, could be deemed
to apply to the technology we use, and could restrict our
information collection methods or decrease the amount and
utility of the information that we would be permitted to
collect. In addition, our ability to conduct business in certain
foreign jurisdictions, including China, is restricted by the
laws, regulations and agency actions of those jurisdictions. The
costs of compliance with, and the other burdens imposed by,
these and other laws or regulatory actions may prevent us from
selling our products or increase the costs associated with
selling our products, and may affect our ability to invest in or
jointly develop products in the United States and in foreign
jurisdictions. In addition, failure to comply with these and
other laws and regulations may result in, among other things,
administrative enforcement actions and fines, class action
lawsuits and civil and criminal liability. State attorneys
general, governmental and non-governmental entities and private
persons may bring legal actions asserting that our methods of
collecting, using and distributing Web site visitor information
are illegal or improper, which could require us to spend
significant time and resources defending these claims. For
example, some companies that collect, use and distribute Web
site visitor information have been the subject of governmental
investigations and
class-action
lawsuits. Any such regulatory or civil action that is brought
against us, even if unsuccessful, may distract our
managements attention, divert our resources, negatively
affect our public image or reputation among our panelists and
customers and harm our business. The impact of any of these
current or future laws or regulations could make it more
difficult or expensive to attract or maintain panelists,
particularly in affected jurisdictions, and could adversely
affect our business and results of operations.
Additionally, laws and regulations that apply to communications
and commerce over the Internet are becoming more prevalent. In
particular, the growth and development of the market for
eCommerce has prompted calls for more stringent tax, consumer
protection and privacy laws in the United States and abroad that
may impose additional burdens on companies conducting business
online. The adoption, modification or interpretation of laws or
regulations relating to the Internet or our customers
digital operations could negatively affect the businesses of our
customers and reduce their demand for our products. For
additional, important information related to government
regulation of our business, please review the information set
forth in Risk Factors Risks Related to Our
Business and Our Technologies.
Employees
As of December 31, 2006, we had 377 employees. None of our
employees is represented by a labor union. We have experienced
no work stoppages and believe that our employee relations are
good.
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Legal
Generally, we are involved in various legal proceedings arising
from the normal course of business activities. Currently, we do
not believe that resolution of these matters will have a
material adverse impact on our consolidated results of
operations, cash flows or our financial position. However,
depending on the amount and timing, an unfavorable resolution of
a matter could materially affect our future results of
operations, cash flows or financial position in a particular
period.
Facilities
Our corporate headquarters and executive offices are located in
Reston, Virginia, where we occupy approximately
34,000 square feet of office space under a lease that
expires in June 2008. We also lease space in various locations
throughout the United States and in Toronto and London for sales
and other personnel. If we require additional space, we believe
that we would be able to obtain such space on commercially
reasonable terms.
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MANAGEMENT
Executive
Officers and Directors
The following table sets forth certain information concerning
our current executive officers and directors:
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Name
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Age
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Position(s)
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Executive Officers
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Magid M. Abraham, Ph.D.
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48
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President, Chief Executive Officer
and Director
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Gian M. Fulgoni
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Executive Chairman of the Board of
Directors
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John M. Green
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55
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Chief Financial Officer
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Gregory T. Dale
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37
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Chief Technology Officer
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Christiana L. Lin
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General Counsel and Chief Privacy
Officer
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Non-Employee
Directors:
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Thomas D. Berman(1)(2)
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Director
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Bruce Golden(3)
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48
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Director
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William J. Henderson(2)(3)
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59
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Director
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Ronald J. Korn(1)(3)
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67
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Director
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Frederick R. Wilson(1)(2)
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45
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Director
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(1) |
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Member of the audit committee. |
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Member of the compensation committee. |
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Member of the nominating and governance committee. |
Magid M. Abraham, Ph.D., one of our co-founders, has
served as President, Chief Executive Officer and Director since
September 1999. In 1995, Dr. Abraham founded Paragren
Technologies, Inc., which specialized in delivering large scale
Customer Relationship Marketing systems for strategic and target
marketing, and served as its Chief Executive Officer from 1995
to 1999. Prior to founding Paragren, Dr. Abraham was
employed by Information Resources, Inc. from 1985 until 1995,
where he was President and Chief Operating Officer from 1993 to
1994 and later Vice Chairman of the Board of Directors from 1994
until 1995. Since May 2006, Dr. Abraham has also been a
member of the board of directors of ES3, LLC, a storage and
logistics services company. Dr. Abraham received the Paul
Green Award in 1996 and the William F. ODell Award in 2000
from the American Marketing Association for a 1995 article that
he co-authored in the Journal of Marketing Research. He received
a Ph.D. in Operations Research and an M.B.A. from MIT. He also
holds an Engineering degree from the École Polytechnique in
France.
Gian M. Fulgoni, one of our co-founders, has served as
Executive Chairman of the Board of Directors since September
1999. Prior to co-founding comScore, Mr. Fulgoni was
employed by Information Resources, Inc., where he served as
President from 1981 to 1989, Chief Executive Officer from 1986
to 1998 and Chairman of the Board of Directors from 1991 until
1995. Mr. Fulgoni has served on the board of directors of
PetMed Express, Inc. since 2002 and previously served from
August 1999 through November 2000. Mr. Fulgoni also serves
on the board of directors of INXPO, LLC, an Illinois-based
provider of virtual events, since July 2005. He also served on
the board of directors of Platinum Technology, Inc. from 1990 to
1999, U.S. Robotics, Inc. from 1991 to 1994, and
Yesmail.com, Inc. from 1999 to 2000. Mr. Fulgoni has twice
been named an Illinois Entrepreneur of the Year. In 1992, he
received the Wall Street Transcript Award for outstanding
contributions as Chief Executive Officer of Information
Resources, Inc. in enhancing the overall value of that company
to the benefit of its shareholders. Educated in the United
Kingdom, Mr. Fulgoni holds an M.A. in Marketing from the
University of Lancaster and a B.Sc. in Physics from the
University of Manchester.
John M. Green has served as Chief Financial Officer since
May 2006. Prior to joining comScore, Mr. Green served as
the Chief Financial Officer and U.S. Services Business
Leader for BioReliance, a subsidiary of Invitrogen Corporation,
from 2004 to March 2006. Prior to joining BioReliance,
Mr. Green
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served as the General Manager, Business Integrations at
Invitrogen from September 2003 to April 2004. From March 2001
through August 2003, Mr. Green served as the Chief
Financial Officer for InforMax, and as its Chief Operating
Officer from October 2001 until the sale of InforMax and
integration into Invitrogen in August 2003. Prior to 2001,
Mr. Green held several financial and operating management
roles, including serving as Executive Vice President of
Operations at HMSHost Corporation, Senior Vice President of
Finance and Corporate Controller at Marriott International
Incorporated and Director of Business Planning and Director of
Finance, Central Europe, at PepsiCo, Inc. Mr. Green
received an M.Sc. in Economics from The London School of
Economics and a B.A. in Political Science/International
Relations from Tufts University.
Gregory T. Dale has served as Chief Technology Officer
since October 2000. Prior to that, he served as Vice President,
Product Management starting in September 1999. Prior to joining
us, he served as Vice President of Client Service at Paragren
Technologies, Inc., a company that specialized in enterprise
relationship marketing. He holds a B.S. in Industrial Management
from Purdue University.
Christiana L. Lin has served as General Counsel and Chief
Privacy Officer since January 2006. Prior to that, she served as
our Corporate Counsel and Chief Privacy Officer starting in
March 2003. Prior to that, she served as our Deputy General
Counsel starting in February 2001. Ms. Lin holds a J.D.
from the Georgetown University Law Center and a B.A. in
Political Science from Yale University.
Thomas D. Berman has served as a director since August
2001. Mr. Berman is a partner with Adams Street Partners,
where he has led investments in information technology and
business services companies since 1990. He served on the board
of directors of PathScale, Inc. from May 2004 to April 2006 and
has served on the board of directors of Adams Harris, Inc. since
March 2006. Mr. Berman holds an S.B. in Electrical
Engineering from MIT and an S.M. from the Sloan School of
Management at MIT.
Bruce Golden has served as a director since June 2002. He
is a partner at Accel Partners, which he joined in 1997.
Mr. Golden has led a number of investments in enterprise
software and Internet-related companies while at Accel and
currently serves as a member of the boards of directors at
several private companies. He holds an M.B.A. from Stanford
University and a B.A. from Columbia University.
William J. Henderson has served as a director since
August 2001. Mr. Henderson was the 71st Postmaster
General of the United States. He served in that position from
May 1998 until his retirement in May 2001. Mr. Henderson
also served as the Chief Operations Officer of Netflix, Inc.
from January 2006 until February 2007. Mr. Henderson also
currently serves on the board of directors of Acxiom
Corporation, where he has been a director since June 2001.
Mr. Henderson holds a B.S. from the University of North
Carolina at Chapel Hill and served in the U.S. Army.
Ronald J. Korn has served as a director since November
2005. Since 1991, he has served as the President of Ronald Korn
Consulting, which provides business and marketing services.
Mr. Korn served as a director, chairman of the audit
committee, and member of the loan committee of Equinox
Financial Corporation from 1999 until its acquisition in October
2005. Since 2002, he has served as a director, chairman of the
audit committee and a member of the compensation and nominating
and governance committees of PetMed Express, Inc. and since July
2003, he has served as a director, chairman of the audit
committee and a member of the compensation committee of Ocwen
Financial Corporation. Prior to that, Mr. Korn was a
partner and employee of KPMG, LLP, from 1961 to 1991, where he
was the managing partner of KPMGs Miami office from 1985
until 1991. Mr. Korn holds a B.S. from the University of
Pennsylvania, Wharton School and a J.D. from New York University
Law School.
Frederick R. Wilson has served as a director since August
1999. He has served as managing partner of Union Square Ventures
since August 2003. He is also a managing partner of Flatiron
Partners and has held that position since August 1996. He holds
an M.B.A. from the Wharton School of Business at the University
of Pennsylvania and an S.B. in Mechanical Engineering from MIT.
Board
Composition
Upon completion of this offering, our directors will be divided
into three classes serving staggered three-year terms.
Class I, Class II and Class III directors will
serve until our annual meetings of stockholders in
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2008, 2009 and 2010, respectively. Upon expiration of the term
of class of directors, directors in that class will be eligible
to be elected for a new three-year term at the annual meeting of
stockholders in the year in which their term expires. This
classification of directors could have the effect of increasing
the length of time necessary to change the composition of a
majority of our board of directors. In general, at least two
annual meetings of stockholders will be necessary for
stockholders to effect a change in a majority of the members of
our board of directors.
Our board of directors currently consists of seven members.
Messrs. Abraham, Berman and Wilson are Class I
directors and will serve for one year. Messrs. Henderson
and Korn are Class II directors and will serve for two
years. Messrs. Fulgoni and Golden are Class III
directors and will serve for three years.
Board
Committees
Our board of directors has established an audit committee, a
compensation committee and a nominating and governance committee.
Audit
Committee
Our audit committee consists of Messrs. Berman, Korn and
Wilson, with Mr. Korn serving as chairman. Our audit
committee oversees our corporate accounting and financial
reporting process and internal controls over financial
reporting. Our audit committee evaluates the independent
registered public accounting firms qualifications,
independence and performance; engages and provides for the
compensation of the independent registered public accounting
firm; approves the retention of the independent registered
public accounting firm to perform any proposed permissible
non-audit services; reviews our consolidated financial
statements; reviews our critical accounting policies and
estimates and internal controls over financial reporting; and
discusses with management and the independent registered public
accounting firm the results of the annual audit and the reviews
of our quarterly consolidated financial statements. We believe
that our audit committee members meet the requirements for
independence and financial literacy under the current
requirements of the Sarbanes-Oxley Act of 2002, The NASDAQ
Global Market and SEC rules and regulations. In addition, the
board of directors has determined that Mr. Korn is
qualified as an audit committee financial expert within the
meaning of SEC regulations. We have made this determination
based on information received by our board of directors,
including questionnaires provided by the members of our audit
committee. We believe that our audit committee complies with the
applicable requirements of the Sarbanes-Oxley Act of 2002, The
NASDAQ Global Market and SEC rules and regulations. We intend to
comply with future requirements to the extent they become
applicable to us. We have adopted an audit committee charter. We
expect that the committee will meet no less frequently than
quarterly. Our audit committee has previously met approximately
two to four times each year in connection with the annual audit
of our financial statements.
Compensation
Committee
Our compensation committee consists of Messrs. Berman,
Henderson and Wilson, with Mr. Henderson serving as chair.
Our compensation committee reviews and recommends policy
relating to compensation and benefits of our officers and
employees, including reviewing and approving corporate goals and
objectives relevant to compensation of the Chief Executive
Officer and other senior officers, evaluating the performance of
these officers in light of those goals and objectives and
setting compensation of these officers based on such
evaluations. The compensation committee also administers the
issuance of stock options and other awards under our stock
plans. We believe that the composition of our compensation
committee meets the requirements for independence under, and the
functioning of our compensation committee complies with, any
applicable requirements of the Sarbanes-Oxley Act of 2002, The
NASDAQ Global Market and SEC rules and regulations. We intend to
comply with future requirements to the extent they become
applicable to us. We have adopted a compensation committee
charter. We expect that the committee will meet at least once a
year. Our compensation committee has previously met on an annual
basis to review key compensation decisions.
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Nominating
and Governance Committee
Our nominating and governance committee consists of
Messrs. Golden, Henderson and Korn, with Mr. Golden
serving as chairman, each of whom the board of directors has
determined is an independent director under the rules of The
NASDAQ Global Market. The nominating and governance committee
recommends to the board of directors nominees for election as
directors, and meets as necessary to review director candidates
and nominees for election as directors.
Code of
Business Conduct and Ethics
Our board of directors has adopted a code of business conduct
and ethics, which establishes the standards of ethical conduct
applicable to all directors, officers and employees of our
company. The code addresses, among other things, conflicts of
interest, compliance with disclosure controls and procedures and
internal controls over financial reporting, corporate
opportunities and confidentiality requirements. The audit
committee is responsible for applying and interpreting our code
of business conduct in situations where questions are presented
to the committee.
Compensation
Committee Interlocks and Insider Participation
None of the members of our compensation committee is an
executive officer or employee of our company. None of our
executive officers serves as a member of the compensation
committee of any entity that has one or more executive officers
serving on our compensation committee.
Director
Compensation
None of our non-employee directors are currently compensated for
service on the board of directors. We do, however, reimburse
director expenses for attending meetings of the board of
directors.
We previously granted equity awards for the purchase of our
common stock to two of our present non-employee directors,
William Henderson and Ronald Korn, upon their initial
appointment to our board of directors. A warrant to purchase
100,000 shares of our common stock at an exercise price of
$1.00 per share was issued on June 26, 2001 to
Mr. Henderson, Such warrant shall terminate on the earlier
of (i) June 26, 2011; (ii) the completion of this
offering; or (iii) a change of control as defined in the
warrant. In addition, Mr. Henderson was previously granted
stock options for the purchase of 30,000 shares of our
common stock at an exercise price of $0.50 per share on
April 9, 2002 and for the purchase of 50,000 shares of
our common stock at an exercise price of $0.90 per share on
December 27, 2005. Mr. Korn was awarded stock options
for the purchase of 100,000 shares of our common stock at
an exercise price of $0.85 per share on November 25,
2005. The warrant for the purchase of 100,000 shares of our
common stock issued to Mr. Henderson, the stock options for
the purchase of 80,000 shares of common stock granted to
Mr. Henderson and the stock option for the purchase of
100,000 shares of common stock granted to Mr. Korn
remained outstanding as of December 31, 2006. Mr. Henderson
subsequently exercised his warrant for 100,000 shares on
May 15, 2007.
Upon the closing of this offering, our non-employee directors
will be entitled to an annual grant of restricted stock having a
value of $50,000 at the time of the grant. Non-employee
directors will also be paid an annual cash retainer of $25,000
for serving on our board of directors, an additional annual cash
retainer of $10,000 for serving as the chairman of our audit
committee and $7,500 for serving as the chair of our
compensation committee.
Our non-employee directors did not receive any compensation for
their services as directors in 2006, and we did not incur
stock-based compensation expense for any outstanding equity
awards held by our non-employee directors during 2006.
Limitations
on Director and Officer Liability and Indemnification
Our amended and restated certificate of incorporation as will be
in effect upon completion of this offering limits the liability
of our directors to the maximum extent permitted by Delaware
law. Delaware law provides
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that directors of a corporation will not be personally liable
for monetary damages for breach of their fiduciary duties as
directors, except liability for:
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any breach of their duty of loyalty to the corporation or its
stockholders;
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acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
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unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
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any transaction from which the director derived an improper
personal benefit.
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Our amended and restated certificate of incorporation and our
amended and restated bylaws will provide that we are required to
indemnify our directors and officers, in each case to the
fullest extent permitted by Delaware law. Any repeal of or
modification to our amended and restated certificate of
incorporation and our amended and restated bylaws may not
adversely affect any right or protection of a director or
officer for or with respect to any acts or omissions of such
director or officer occurring prior to such amendment or repeal.
Our bylaws will also provide that we shall advance expenses
incurred by a director or officer in advance of the final
disposition of any action or proceeding, and permit us to secure
insurance on behalf of any officer, director, employee or other
agent for any liability arising out of his or her actions in
connection with their services to us, regardless of whether our
bylaws permit such indemnification.
We have entered into separate indemnification agreements with
our directors and executive officers, in addition to the
indemnification provided for in our bylaws. These agreements,
among other things, provide that we will indemnify our directors
and executive officers for certain expenses (including
attorneys fees), judgments, fines, penalties and
settlement amounts incurred by a director or executive officer
in any action or proceeding arising out of such persons
services as one of our directors or executive officers, or any
other company or enterprise to which the person provides
services at our request. We believe that these provisions and
agreements are necessary to attract and retain qualified persons
as directors and executive officers.
The limitation of liability and indemnification provisions that
will be contained in our amended and restated certificate of
incorporation and our amended and restated bylaws may discourage
stockholders from bringing a lawsuit against our directors for
breach of their fiduciary duty. They may also reduce the
likelihood of derivative litigation against our directors and
officers, even though an action, if successful, might benefit us
and other stockholders. Further, a stockholders investment
may be adversely affected to the extent that we pay the costs of
settlement and damage awards against directors and officers as
required by these indemnification provisions. There is no
pending litigation or proceeding involving one of our directors
or executive officers as to which indemnification is required or
permitted and we are not aware of any threatened litigation or
proceeding that may result in a claim for indemnification.
85
COMPENSATION
DISCUSSION AND ANALYSIS
Our
Philosophy
The objective of our compensation programs for employees is to
retain and attract top talent. The plans are designed to reward,
motivate and align employees to achieve business results and to
reinforce accountability. In determining the compensation of
senior executives, we are guided by the following key principles:
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Competitive Compensation. Compensation should
allow us to retain, attract, and motivate talented executives
and be competitive with other opportunities that the executive
may have. The competitive marketplace for our executives is not
necessarily the same as for our business. Once we identify the
type of employee needed, we then identify the competitive
marketplace relevant to that employee based on the competencies
and skills of that employee. For example, the marketplace for a
chief financial officer may include all public companies, while
the marketplace for a chief operating officer would focus on
digital marketing intelligence providers. We seek to compensate
our executives at levels that compare favorably with other
opportunities in the executives competitive marketplace.
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Accountability for Business
Performance. Compensation should be tied, in
part, to financial performance, so that executives are held
accountable through their compensation for contributions to our
performance as a whole through the performance of the businesses
for which they are responsible.
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Accountability for Individual
Performance. Compensation should be tied, in
part, to the individuals performance to encourage and
reflect individual contributions to our performance. Our board
of directors considers individual performance as well as
performance of the businesses and responsibility areas that an
individual oversees, and weights these factors as appropriate in
assessing a particular individuals performance.
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Alignment with Stockholder
Interests. Compensation should be tied, in part,
to our financial performance through equity awards to align
executives interests with those of our stockholders.
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Independence. An independent committee of our
board of directors should be, and is, responsible for reviewing
and establishing the compensation for our Chief Executive
Officer and Executive Chairman, and for reviewing and approving
the compensation recommendations made by our Chief Executive
Officer for all of our other executive officers.
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Application
of our Philosophy
Our executive compensation and benefit program aims to encourage
our management team to continually pursue our strategic
opportunities while effectively managing the risks and
challenges inherent to our business. Specifically, we have
created an executive compensation package that balances short
versus long-term components, cash versus equity elements, and
fixed versus contingent payments, in ways we believe are most
appropriate to incentivize our senior management and reward them
for achieving the following goals:
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develop a culture that embodies a passion for our business,
creative contribution and a drive to achieve established goals
and objectives;
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provide leadership to the organization in such a way as to
maximize the results of our business operations;
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lead us by demonstrating forward thinking in the operation,
development and expansion of our business;
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effectively manage organizational resources to derive the
greatest value possible from each dollar invested; and
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take strategic advantage of the market opportunity to expand and
grow our business.
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Our executive compensation structure aims not only to compare
favorably with other opportunities in an executives
competitive marketplace, but also to be fair relative to
compensation paid to other professionals
86
within our organization, relative to our short and long-term
performance and relative to the value we deliver to our
stockholders. We seek to maintain a performance-oriented culture
and a compensation approach that rewards our executive officers
when we achieve our goals and objectives, while putting at risk
an appropriate portion of their compensation against the
possibility that our goals and objectives may not be achieved.
Overall, our approach is designed to relate the compensation of
our executive officers to: the achievement of short and longer
term goals and objectives; their willingness to challenge and
improve existing policies and structures; and their capability
to take advantage of unique opportunities and overcome difficult
challenges within our business.
Role of
Our Compensation Committee
Our compensation committee approves, administers and interprets
our executive compensation and benefit policies, including our
1999 Stock Plan, our 2007 Equity Incentive Plan and our
short-term compensation, long-term incentives and benefits
programs. Our compensation committee is appointed by our board
of directors, and consists entirely of directors who are
outside directors for purposes of
Section 162(m) of the Internal Revenue Code and
non-employee directors for purposes of
Rule 16b-3
under the Exchange Act. Our compensation committee is comprised
of Messrs. Berman, Henderson and Wilson, and is chaired by
Mr. Henderson.
Our compensation committee reviews and makes recommendations to
our board of directors to ensure that our executive compensation
and benefit program is consistent with our compensation
philosophy and corporate governance guidelines and, subject to
the approval of our board of directors, is responsible for
establishing the executive compensation packages offered to our
executive officers. We believe our executives base salary,
target annual bonus levels and long-term incentive award values
are set at levels that compare favorably with other
opportunities in an executives competitive marketplace.
Our compensation committee has taken the following steps to
ensure that our executive compensation and benefit program is
consistent with both our compensation philosophy and our
corporate governance guidelines:
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regularly reviewed the performance of and the total compensation
earned by or awarded to our Chief Executive Officer and
Executive Chairman independent of input from them;
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examined on an annual basis the performance of our other named
executive officers and other key employees with assistance from
our Chief Executive Officer and Executive Chairman, and approved
compensation packages that compare favorably in the
executives competitive marketplace; and
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regularly held executive sessions of the compensation committee
meeting without management present.
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Components
of our Executive Compensation Program.
Our executive compensation program consists of three components:
short-term compensation (including base salary and annual
performance bonuses), long-term incentives and benefits.
Short-term
Compensation
We utilize short-term compensation, including base salary,
annual adjustments to base salary and annual performance
bonuses, to motivate and reward our key executives in accordance
with our performance-based program. Each individuals
short-term compensation components are tied to an annual
assessment of his or her progress against established objectives.
Base salary is used to recognize the experience, skills,
knowledge and responsibilities required of each executive
officer, as well as competitive market conditions. Base salary
determinations are primarily guided by our objective to provide
competitive compensation. In establishing the 2007 base salaries
of the executive officers, our compensation committee and
management took into account a number of factors, including the
executives seniority, position and functional role, level
of responsibility and, to the extent such individual was
employed by us for at least the prior six months, his or her
accomplishments against personal and group objectives. For newly
hired executives, we consider the base salary of the individual
at his or her prior employment, any unique personal
circumstances that motivated the executive to leave that prior
position to
87
join us and the compensation range for the particular role
being filled. In addition, we consider the competitive market
for corresponding positions within comparable geographic areas
and industries.
The base salary of our executive officer group is reviewed on an
annual basis and adjustments are made to reflect
performance-based factors, as well as competitive conditions.
Increases are considered within the context of our overall
annual merit increase structure as well as individual and market
competitive factors. We do not apply specific formulas to
determine increases. Generally, executive officer salaries are
adjusted effective the first quarter of each year based on a
review of:
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their achievement of specific objectives established during the
prior review;
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an assessment of their professional effectiveness, consisting of
a portfolio of competencies that include leadership, commitment,
creativity and organizational accomplishment; and
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their knowledge, skills and attitude, focusing on capabilities,
capacity and the ability to drive results.
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Annual performance bonuses for our executive officers are tied
to the achievement of our annual company goals and objectives,
functional area goals,
and/or
individual performance objectives. Annual performance bonuses
are primarily guided by our objectives of accountability for
individual and business performance. We set clearly defined
goals for each executive officer, with an emphasis on
quantifiable and achievable targets. A portion of each executive
officers bonus is clearly tied to the achievement of
specific targets relative to the performance of the particular
business segment or functional area for which they are
responsible, with the remainder tied to similar targets relative
to our overall financial performance. Individual awards under
the program are based on a thorough review of the applicable
performance results of the company, business, function or
individual as compared to the applicable goals.
In 2006, Magid M. Abraham, our Chief Executive Officer, and Gian
M. Fulgoni, our Executive Chairman of the Board of Directors,
were our only named executive officers that had annual
performance bonuses tied solely to quantitative factors. Both
Dr. Abraham and Mr. Fulgonis respective bonuses
were based on a combination of total revenue and EBITDA achieved
by the Company in 2006. Dr. Abraham received $117,273 in
bonus for the year ended December 31, 2006, which amount
represented 80% of his target bonus of $146,591.
Mr. Fulgoni received $111,409, which amount also
represented 80% of his target bonus of $139,261. Although for
competitive reasons we do not publicly disclose the specific
revenue or EBITDA targets that the Company must achieve for
Messrs. Abraham and Fulgoni to earn their target bonus, we
establish these revenue and EBITDA targets such that, if the
Company and the officer perform as expected, there is a high
likelihood that he will achieve 100% of the target bonus.
The annual performance bonuses for our other named executive
officers in 2006 were based on qualitative factors several of
which were the satisfactory completion of specific projects or
initiatives. At the end of each fiscal year, the executive
officers complete a self-assessment of their performance in the
context of their bonus criteria. Dr. Abraham reviews these
self-assessments and makes a recommendation to our compensation
committee. Messrs. Green and Dale and Ms. Lin each
received 100% of their respective target bonus amounts for 2006,
which amounts were $47,019, $44,423 and $29,815, respectively.
Ms. Huston did not receive a bonus payment for 2006 as her
employment terminated in February 2006. Although for competitive
reasons we do not publicly disclose the specific qualitative
factors relating to target bonuses for our other executive
officers, we establish these qualitative factors such that if
they reasonably perform their duties, there is a high likelihood
that they will achieve 100% of the target bonus.
Magid M. Abraham, our Chief Executive Officer, periodically
reviews the performance of our executive officers on the basis
noted above and recommends to the compensation committee any
base salary changes or bonuses deemed appropriate.
For the 2005 and 2006 performance measurement years, executive
bonuses were paid out in one installment during the month of
February following the measurement year.
Long-term
Compensation
Our long-term compensation program has historically consisted
solely of stock options. Long-term equity based incentives are
primarily guided by our objective of aligning executive
compensation with the interests of
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our stockholders. Option grants made to executive officers are
designed to provide them with incentive to execute their
responsibilities in such a way as to generate long-term benefit
to us and our stockholders. Through possession of stock options,
our executives participate in the long-term results of their
efforts, whether by appreciation of our companys value or
the impact of business setbacks, either company-specific or
industry based. Additionally, stock options provide a means of
ensuring the retention of key executives, in that they are in
almost all cases subject to vesting over an extended period of
time.
Stock options are granted periodically, and are subject to
vesting based on the executives continued employment. Most
options vest evenly over four years, beginning on the date of
the grant. A portion of options granted to our executives vest
according to defined performance milestones rather than solely
based on time. Of the option grants and restricted stock
currently outstanding and held by our executives, only the stock
options held by Dr. Abraham and Mr. Fulgoni are
subject to vesting based on performance milestones, as further
described in the section entitled Executive Compensation
Outstanding Equity Awards at December 31, 2006. These
grants occurred in December 2003, and we have not used
performance milestone-based vesting since then for any of our
employees.
Upon joining us, each executive is granted an initial option
award that is primarily based on competitive conditions
applicable to the executives specific position. In
addition, the compensation committee considers the number of
options owned by other executives in comparable positions within
our company. We believe this strategy is consistent with the
approach of other companies at the same stage of development in
our industry and, in our compensation committees view, is
appropriate for aligning the interests of our executives with
those of our stockholders over the long term.
Periodic awards to executive officers are made based on an
assessment of their sustained performance over time, their
ability to impact results that drive value to our stockholders
and their organization level. Equity awards are not granted
regularly or automatically to our executives on an annual basis.
Magid Abraham, our Chief Executive Officer, periodically reviews
the performance of our executive officers on the basis noted
above and recommends to the compensation committee any equity
awards deemed appropriate. The compensation committee reviews
any such recommendations and presents them to our board of
directors for approval, if appropriate.
During 2006, our board of directors granted stock options based
upon the recommendations of our compensation committee. These
grants were generally made during regularly scheduled board
meetings. The exercise price of options was determined by our
board of directors after taking into account a variety of
factors, including the quality and growth of our management team
and specific and general market comparables within our industry.
In addition, our board of directors took into account the
valuation opinion of our outside consultant, who provided
valuations of our common stock at the end of each calendar
quarter.
On March 25, 2007, we awarded an aggregate of
1,210,000 shares of restricted stock to our named executive
officers based upon the recommendations of our compensation
committee, taking into account the factors described above.
Beginning in 2007, we expect to increase our use of restricted
stock awards and reduce our use of stock options as a form of
stock-based compensation.
Benefits
We provide the following benefits to our executive officers on
the same basis as the benefits provided to all employees:
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health and dental insurance;
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life insurance;
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short-and long-term disability; and
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401(k) plan.
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These benefits are consistent with those offered by other
companies and specifically with those companies with which we
compete for employees.
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Our
Competitive Market
The market for experienced management with the knowledge, skills
and experience our organization requires is highly competitive.
Our objective is to attract and retain the most highly qualified
executives to manage each of our business functions. In doing
so, we draw upon a pool of talent that is highly sought after by
other companies in our industry and those industries that also
produce the requisite skills we seek. The competitive
marketplace for our executives is not necessarily the same as
for our business. Once we identify the type of employee needed,
we then identify the competitive marketplace relevant to that
employee based on the competencies and skills of that employee.
For example, the marketplace for a chief financial officer may
include all public companies, while the marketplace for a chief
operating officer would focus on digital marketing intelligence
providers. Upon identifying the target marketplace, we then
solicit information through public data sources or through
engaging consultants to assist us with an executive search. In
the future, we intend to engage a compensation consultant to
assist us in obtaining necessary information regarding
compensation levels within a particular competitive marketplace.
We believe that our ability to offer significant upside
potential through restricted stock
and/or other
equity instruments gives us a competitive advantage.
Nonetheless, we must also offer cash compensation to our
existing and prospective employees through base salaries and
cash bonuses that are competitive in the marketplace and allow
them to satisfy their day to day financial requirements.
We also compete on the basis of our vision of future success,
our culture and company values and the excellence of our
management personnel. In all of these areas, we compete with
other market research and technology companies.
Total
Compensation
We intend to continue our strategy of compensating our named
executive officers at competitive levels for each type of
executive, with the opportunity to impact their total annual
compensation through performance-based incentive programs that
include both cash and equity elements. Our approach to total
executive compensation is designed to drive results that
maximize our financial performance and deliver value to our
stockholders. In light of our compensation philosophy, we
believe that the total compensation package for our executives
should continue to consist of base salary, annual cash
performance bonus and long-term equity-based incentives,
reflecting our key compensation principles of competitive
compensation, accountability for individual and business
performance, and alignment with stockholder interests,
respectively. We do not consider benefits to be a key element in
attracting executive officers, and we typically offer largely
the same benefits to our executive officers. Historically, we
have typically offered a combination of short-term and long-term
compensation to suit our executives preferences. Certain
of our executives who joined us earlier in our history preferred
to accept more long-term compensation in the form of stock
options, as the potential return was higher at that stage and
our ability to fund short-term cash compensation was more
limited. At the same time, certain of our executives have
preferred greater short-term compensation and reduced long-term
compensation. As we have become more profitable, our ability to
attract executives through short-term compensation has
increased. As we transition to becoming a public company, we
expect that our decisions regarding the relationship among our
elements of compensation will become less dependent upon our
stage as a growing company and more dependent upon our key
compensation principles.
Evolution
of our Compensation Approach
Our compensation approach is necessarily tied to our stage of
development as a company. Accordingly, the specific direction,
emphasis and components of our executive compensation program
will continue to evolve as our company and its underlying
business strategy continue to grow and develop. For example, we
intend to reduce our executive compensation programs
emphasis on stock options as a long-term incentive component in
favor of other forms of equity compensation such as restricted
stock awards. Similarly, we may revise how we measure senior
executive performance to take into account the unique
requirements of being a public company, including, but not
limited to, strict compliance with the standards of the Sarbanes
Oxley Act. In addition, we may engage a compensation consultant
to assist our compensation committee in continuing to evolve our
executive compensation program, and we may look to programs
implemented by comparable public companies in refining our
compensation approach.
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EXECUTIVE
COMPENSATION
Summary
Compensation Table
The following table sets forth the summary information
concerning compensation during 2006 for the following persons:
(i) our chief executive officer, (ii) our current
chief financial officer and any individual serving as our chief
financial officer during 2006 and (iii) the three most
highly compensated of our other executive officers who received
compensation during 2006 of at least $100,000 and who were
executive officers on December 31, 2006. We refer to these
persons as our named executive officers elsewhere in
this prospectus.
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Option
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All Other
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Name and Principal Position
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Year
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Salary
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Bonus
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Awards(1)
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Compensation
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Total
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Magid M. Abraham, Ph.D.
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2006
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$
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297,612
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$
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117,273
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$
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3,072
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(2)
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$
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417,957
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President, Chief Executive
Officer and Director
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John M. Green
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|
|
2006
|
|
|
|
156,731
|
|
|
|
47,019
|
|
|
$
|
87,366
|
|
|
|
42
|
(3)
|
|
|
291,158
|
|
Chief Financial
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gian M. Fulgoni
|
|
|
2006
|
|
|
|
281,635
|
|
|
|
111,409
|
|
|
|
|
|
|
|
3,072
|
(2)
|
|
|
396,116
|
|
Executive Chairman of the
Board
of Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gregory T. Dale
|
|
|
2006
|
|
|
|
222,115
|
|
|
|
44,423
|
|
|
|
|
|
|
|
3,072
|
(2)
|
|
|
269,610
|
|
Chief Technology
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christiana L. Lin
|
|
|
2006
|
|
|
|
149,077
|
|
|
|
29,815
|
|
|
|
|
|
|
|
2,173
|
(4)
|
|
|
181,065
|
|
General Counsel and Chief
Privacy Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sheri Huston
|
|
|
2006
|
|
|
|
60,772
|
|
|
|
|
|
|
|
|
|
|
|
141,345
|
(5)
|
|
|
202,117
|
|
Former Chief Financial
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts represent stock-based compensation expense for fiscal
year 2006 for stock options granted in 2006 as calculated in
accordance with SFAS 123R and as further described in
Note 11 Stockholders Deficit 1999
Stock Option Plan of the Notes to Consolidated Financial
Statements included elsewhere in this prospectus. |
|
(2) |
|
Includes discretionary matching contributions of $3,000 each by
us to Dr. Abrahams, Mr. Fulgonis and
Mr. Dales respective 401(k) plan accounts and payment
of life insurance premiums on behalf of each officer. |
|
(3) |
|
Represents life insurance premium paid by us on behalf of
Mr. Green. |
|
(4) |
|
Includes discretionary matching contributions of $2,000 by us to
Ms. Lins 401(k) plan account and payment of life
insurance premiums on behalf of Ms. Lin. |
|
(5) |
|
Includes discretionary matching contribution of $2,043 by us to
Ms. Hustons 401(k) plan account and payment of life
insurance premiums on behalf of Ms. Huston prior to
termination of Ms. Hustons employment in February
2006. Pursuant to her termination, Ms. Huston received
aggregate severance payments of $139,290, representing six
months salary and unused accrued vacation, as well as payments
of health insurance premiums on her behalf. |
All bonuses received by our named executive officers were based
on a percentage of their base salary. Our employees historically
receive a grant of stock options upon hiring. All of our named
executive officers were employed by us prior to the beginning of
2006 except for John M. Green, our Chief Financial Officer.
Mr. Green received an option grant in connection with his
hiring in May 2006.
Grants of
Plan-Based Awards
Our board of directors approved awards under our 1999 Stock Plan
to several of our named executive officers in 2006. See
Benefit Plans 1999 Stock Plan for more
detail regarding these options.
91
The following table sets forth certain information concerning
grants of plan-based awards to named executive officers in 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other Option
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards: Number of
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
|
Securities
|
|
|
Exercise or Base
|
|
|
Fair Value of
|
|
|
|
|
|
|
Underlying
|
|
|
Price per Share
|
|
|
Stock and Option
|
|
Name
|
|
Grant Date
|
|
|
Options
|
|
|
of Option Awards
|
|
|
Awards(2)
|
|
|
Magid M. Abraham, Ph.D.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
President, Chief Executive
Officer and
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John M. Green
|
|
|
5/9/2006
|
|
|
|
650,000
|
(1)
|
|
$
|
1.50
|
|
|
$
|
617,045
|
|
Chief Financial
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gian M. Fulgoni
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Chairman of the Board
of Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gregory T. Dale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Technology
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christiana L. Lin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Counsel and Chief
Privacy Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sheri Huston
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Former Chief Financial
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
1/48th of the total number of shares subject to option vest
monthly. |
|
(2) |
|
Amounts represent fair value of stock options granted in 2006 as
calculated in accordance with SFAS 123R and as further described
in Note 11 Stockholders Deficit
1999 Stock Option Plan of the Notes to Consolidated
Financial Statements included elsewhere in this prospectus. |
92
Outstanding
Equity Awards at December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
|
|
|
|
|
|
Equity Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Awards: Number
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
of Securities
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
Option
|
|
|
Option
|
|
|
|
Unexercised Options
|
|
|
Unexercised
|
|
|
Exercise
|
|
|
Expiration
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
Unearned Options
|
|
|
Price
|
|
|
Date
|
|
|
Dr. Magid M. Abraham
|
|
|
1,083,465
|
(1)
|
|
|
|
|
|
|
1,622,030
|
(1)
|
|
$
|
0.05
|
|
|
|
12/16/2013
|
|
President, Chief Executive
Officer and Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John M. Green
|
|
|
81,248
|
(2)
|
|
|
568,752
|
(2)
|
|
|
|
|
|
|
1.50
|
|
|
|
5/9/2016
|
|
Chief Financial
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gian M. Fulgoni
|
|
|
|
|
|
|
|
|
|
|
1,166,725
|
(3)
|
|
|
0.05
|
|
|
|
12/16/2013
|
|
Executive Chairman of the
Board of Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gregory T. Dale
|
|
|
170,633
|
|
|
|
|
|
|
|
|
|
|
|
0.05
|
|
|
|
4/28/2014
|
|
Chief Technology
Officer
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
0.05
|
|
|
|
4/28/2014
|
|
|
|
|
59,896
|
|
|
|
|
|
|
|
|
|
|
|
0.05
|
|
|
|
4/28/2014
|
|
|
|
|
349
|
|
|
|
|
|
|
|
|
|
|
|
0.05
|
|
|
|
4/28/2014
|
|
|
|
|
90,625
|
|
|
|
|
|
|
|
|
|
|
|
0.05
|
|
|
|
4/28/2014
|
|
|
|
|
99,998
|
(2)
|
|
|
50,002
|
(2)
|
|
|
|
|
|
|
0.05
|
|
|
|
4/28/2014
|
|
|
|
|
91,665
|
(2)
|
|
|
108,335
|
(2)
|
|
|
|
|
|
|
0.49
|
|
|
|
2/2/2015
|
|
|
|
|
18,749
|
(2)
|
|
|
56,251
|
(2)
|
|
|
|
|
|
|
0.90
|
|
|
|
12/28/2015
|
|
Christiana L. Lin
|
|
|
5,417
|
|
|
|
|
|
|
|
|
|
|
|
0.05
|
|
|
|
4/28/2014
|
|
General Counsel and
Chief
|
|
|
5,834
|
|
|
|
|
|
|
|
|
|
|
|
0.05
|
|
|
|
4/28/2014
|
|
Privacy Officer
|
|
|
21,879
|
(4)
|
|
|
6,245
|
(4)
|
|
|
|
|
|
|
0.05
|
|
|
|
4/28/2014
|
|
|
|
|
25,402
|
(2)
|
|
|
19,356
|
(2)
|
|
|
|
|
|
|
0.05
|
|
|
|
4/28/2014
|
|
|
|
|
12,499
|
(2)
|
|
|
37,501
|
(2)
|
|
|
|
|
|
|
0.90
|
|
|
|
12/28/2015
|
|
Sheri Huston
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Former Chief Financial
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Vesting for Dr. Abrahams option grant for
3,305,495 shares is based on the following milestones
related to our performance. Our board of directors has made good
faith determinations that the following milestones and vesting
have occurred as of December 31, 2006: |
|
|
|
|
|
581,633 shares vested when we first achieved an EBITDA
greater than $0 for a full fiscal quarter; |
|
|
|
581,633 shares vested when we first achieved revenues of
$40 million or greater for a twelve month period; and |
|
|
|
520,199 shares vested when we first achieved revenues of
$50 million or greater for a twelve month period. |
|
|
|
|
|
Dr. Abraham has exercised his option for 600,000 of the
vested shares above. As of December 31, 2006, our board of
directors had not yet made a good faith determination that the
following milestones and vesting have occurred: |
|
|
|
|
|
581,633 shares shall vest when we first achieve net income
of greater than $0 for a twelve month period; |
|
|
|
520,199 shares shall vest when we first achieve pretax net
income of $5 million or greater for a twelve month
period; and |
|
|
|
520,198 shares shall vest when we first achieve pretax net
income of $10 million or greater for a twelve month period. |
|
|
|
Any unvested shares remaining under the option, including any
shares not addressed by the milestones above, shall vest on the
earlier of (i) December 16, 2009 or (ii) the
consummation of a change in control, provided that
Dr. Abraham remains a service provider to us. |
|
|
|
(2) |
|
1/48th of the total number of shares subject to option vest
monthly. |
93
|
|
|
(3) |
|
Vesting for Mr. Fulgonis option grant for 2,377,637
shares is based on the following milestones related to our
performance. Our board of directors has made good faith
determinations that the following milestones and vesting have
occurred as of December 31, 2006: |
|
|
|
|
|
418,367 shares vested when we first achieved an EBITDA
greater than $0 for a full fiscal quarter; |
|
|
|
418,367 shares vested when we first achieved revenues of
$40 million or greater for a twelve month period; and |
|
|
|
374,178 shares vested when we first achieved revenues of
$50 million or greater for a twelve month period. |
|
|
|
|
|
Mr. Fulgoni has exercised his option for all 1,210,912 of
the vested shares above. As of December 31, 2006, our board
of directors had not yet made a good faith determination that
the following milestones and vesting have occurred: |
|
|
|
|
|
418,367 shares shall vest when we first achieve net income
of greater than $0 for a twelve month period; |
|
|
|
374,178 shares shall vest when we first achieve pretax net
income of $5 million or greater for a twelve month
period; and |
|
|
|
374,178 shares shall vest when we first achieve pretax net
income of $10 million or greater for a twelve month period. |
|
|
|
Any unvested shares remaining under the option, including any
shares not addressed by the milestones above, shall vest on the
earlier of (i) December 16, 2009 or (ii) the
consummation of a change in control, provided that
Mr. Fulgoni remains a service provider to us. |
|
|
|
(4) |
|
1/38th of the total number of shares subject to option vest
monthly. |
Option
Exercises and Stock Vested Table
The following table presents certain information concerning the
exercise of options by each of the named executive officers
during the fiscal year ended December 31, 2006.
There was no public trading market for our common stock at the
time of exercise of the options listed below. The values
realized on exercise have been calculated based on the initial
public offering price of $ , less
the applicable exercise price.
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
Number of Shares
|
|
|
Value Realized
|
|
Name
|
|
Acquired on Exercise
|
|
|
on Exercise
|
|
|
Magid M. Abraham Ph.D.
|
|
|
|
|
|
|
|
|
President, Chief Executive
Officer and Director
|
|
|
|
|
|
|
|
|
John M. Green
|
|
|
|
|
|
|
|
|
Chief Financial
Officer
|
|
|
|
|
|
|
|
|
Gian M. Fulgoni
|
|
|
836,734
|
|
|
$
|
|
|
Executive Chairman of the Board
of Directors
|
|
|
374,178
|
|
|
|
|
|
Gregory T. Dale
|
|
|
|
|
|
|
|
|
Chief Technology
Officer
|
|
|
|
|
|
|
|
|
Christiana L. Lin
|
|
|
|
|
|
|
|
|
General Counsel and Chief
Privacy Officer
|
|
|
|
|
|
|
|
|
Sheri Huston
|
|
|
114,581
|
|
|
|
|
|
Former Chief Financial
Officer
|
|
|
166,666
|
|
|
|
|
|
|
|
|
114,574
|
|
|
|
|
|
|
|
|
114,577
|
|
|
|
|
|
Employment
Agreements and Potential Payments upon Termination or
Change-In-Control
We currently do not have an employment agreement with any of our
named executive officers. We have offer letter agreements with
Gregory T. Dale, our Chief Technology Officer,
Christiana L. Lin, our General
94
Counsel and Chief Privacy Officer, and John M. Green, our
Chief Financial Officer. We also had an offer letter agreement
with Sheri Huston, who was formerly our Chief Financial Officer.
We do not have offer letter agreements or employment agreements
with Magid M. Abraham, our President and Chief Executive
Officer, or Gian M. Fulgoni, our Executive Chairman of the
Board of Directors.
In September 1999, we entered into an offer letter agreement
with Gregory T. Dale. The letter agreement set forth
Mr. Dales base salary of $105,000 per year, an
annual performance bonus of up to 15% of Mr. Dales
base salary and a grant of options for the purchase of
250,000 shares of our common stock. Mr. Dales
current annual base salary is $225,000, and the compensation
committee of our board of directors has approved an increase of
his annual base salary to $260,000 effective March 1, 2007.
Mr. Dale is entitled to receive all normal benefits
provided to our employees including health insurance and three
weeks paid vacation. In December 1999, Mr. Dale was granted
a stock option to purchase an aggregate of 275,000 shares
of our common stock at an exercise price of $0.10 per share
pursuant to this agreement. The shares subject to the options
vested over the next four years in equal monthly installments.
In December 2003, we entered into an offer letter agreement with
Christiana L. Lin. The letter agreement set forth
Ms. Lins base salary of $106,000 per year.
Ms. Lins current annual base salary is $150,000, and
the compensation committee of our board of directors has
approved an increase of her annual base salary to $200,000
effective March 1, 2007. Ms. Lin is entitled to
receive all normal benefits provided to our employees including
health insurance and twelve days paid vacation. The offer letter
agreement provides that our employment relationship with
Ms. Lins employment is at will, and we or
Ms. Lin may terminate the relationship at anytime.
In August 2002, we entered into an offer letter agreement with
Sheri L. Huston. The letter agreement set forth
Ms. Hustons base salary of $215,000 per year, an
annual performance bonus of up to 30% of Ms. Hustons
base salary and a grant of options for the purchase of
250,000 shares of our common stock. In October 2002,
Ms. Huston was granted a stock option to purchase an
aggregate of 250,000 shares of our common stock at an
exercise price of $0.25 per share pursuant to this
agreement. The shares subject to the options vested over the
next four years in equal monthly installments. On
February 28, 2006, Ms. Huston terminated her
employment and entered into a Separation Agreement with us.
Pursuant to such Separation Agreement, we agreed to pay
Ms. Huston severance benefits equivalent to six months base
salary as well as Ms. Hustons 2005 performance bonus
and the amount of her health insurance premiums in a lump sum
payment upon her termination.
In May 2006, we entered into an offer letter agreement with John
M. Green. The letter agreement set forth Mr. Greens
base salary of $250,000 per year, an annual performance
bonus of up to 30% of Mr. Greens base salary and a
grant of options for the purchase of 650,000 shares of our
common stock. Mr. Greens current annual base salary
is $250,000, and the compensation committee of our board of
directors has approved an increase of his annual base salary to
$270,000 effective March 1, 2007. In May 2006,
Mr. Green was granted a stock option to purchase an
aggregate of 650,000 shares of our common stock at an
exercise price of $1.50 per share pursuant to this
agreement. The shares subject to the options vest over the four
years following the start of Mr. Greens employment in
equal monthly installments. Upon a change of control, if
Mr. Green loses his position as Chief Financial Officer or
is not provided an equivalent position, any remaining unvested
shares under this option shall fully vest. Also, upon a change
of control, if Mr. Green is provided with an alternative
but diminished position, the lesser of either (i) any
remaining unvested shares under this option or
(ii) 162,500 shares under this option shall fully
vest. The offer letter agreement provides that we may terminate
Mr. Greens employment at any time with or without
cause. In the event we terminate Mr. Green without cause,
Mr. Green is entitled to severance for six pay periods. If
we terminate his employment or he resigns, he is entitled to
receive any unpaid prorated base salary along with all benefits
and expense reimbursements to which he is entitled by virtue of
his past employment with us.
Additionally, any unvested shares pursuant to stock options held
by Magid M. Abraham and Gian M. Fulgoni would fully vest upon a
change of control, provided that each respectively remained a
service provider. These option grants are further described at
the section entitled Outstanding Equity Awards at
December 31, 2006.
95
Upon a change of control in the Company, the options held by the
following executive officers at December 31, 2006 would
immediately vest as indicated in the table below. Furthermore,
assuming a fair market value of our common stock of
$ , which is the mid-point of the
range on the front cover of this prospectus, such executive
officers would obtain an immediate increase in value in their
stock holdings as indicated in the table below.
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Shares Vesting Upon
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Exercise
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Increase
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Name
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|
Change of Control
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Price
|
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in Value
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Dr. Magid M. Abraham
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1,622,030
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|
|
$
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0.05
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President, Chief Executive
Officer and Director
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John M. Green
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568,752
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|
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1.50
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Chief Financial
Officer
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Gian M. Fulgoni
|
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1,166,725
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0.05
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Executive Chairman of the Board
of Directors
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Additionally, if Mr. Green is terminated by us without
cause, he will receive a severance payment of $57,692.40. Other
than the increases in value of unvested options listed in the
table above and the severance payment to Mr. Green, our
named executive officers are not otherwise entitled to
additional payments or benefits upon a change in control or
termination of their respective employment.
Benefit
Plans
The following section provides more details concerning our 1999
Stock Plan and our 2007 Equity Incentive Plan.
1999
Stock Plan
Our 1999 Stock Plan, as amended (the 1999 Stock
Plan) was adopted by our board of directors and approved
by our stockholders on September 23, 1999. The plan was
last amended by our board of directors and approved by our
stockholders on April 12, 2005. Our 1999 Stock Plan
provides for the grant of incentive stock options, within the
meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the Code), to our employees and
any parent and subsidiary corporations employees, and for
the grant of nonstatutory stock options and stock purchase
rights to our employees, directors and consultants and any
parent and subsidiary corporations employees and
consultants. We do not intend to grant any additional awards
under our 1999 Stock Plan following this offering. However, our
1999 Stock Plan will continue to govern the terms and conditions
of outstanding awards granted thereunder.
We have reserved a total of 26,760,284 shares of our common
stock for issuance pursuant to the 1999 Stock Plan. As of
March 31, 2007, options to purchase 12,486,511 shares
of common stock and restricted stock unit awards for
264,250 shares of our common stock were outstanding and
2,295,125 shares were available for future grant under this
plan.
The compensation committee of our board of directors currently
administers our 1999 Stock Plan. Under our 1999 Stock Plan, the
plan administrator has the power to determine the terms of the
awards, including the employees, directors and consultants who
will receive awards, the exercise price, the number of shares
subject to each award, the vesting schedule and exercisability
of awards and the form of consideration payable upon exercise.
With respect to all incentive stock options granted under the
1999 Stock Plan, the exercise price must at least be equal to
the fair market value of our common stock on the date of grant.
With respect to all nonstatutory stock options granted under the
1999 Stock Plan, the exercise price must at least be equal to
85% of the fair market value of our common stock on the date of
grant. The term of an option may not exceed ten years, except
that with respect to any participant who owns 10% of the voting
power of all classes of our outstanding stock as of the grant
date, the term must not exceed five years and the exercise price
must equal at least 110% of the fair market value on the grant
date. The administrator determines the terms of all other
options.
96
After termination of an employee, director or consultant, he or
she may exercise his or her option for the period of time stated
in the option agreement. If termination is due to disability or
death, the option will remain exercisable for no less than six
months. In all other cases, the option will generally remain
exercisable for at least thirty days. In the absence of a
specified period of time in the option agreement, the option
will remain exercisable for a period of three months following
termination (or twelve months in the event of a termination due
to death of disability). However, an option generally may not be
exercised later than the expiration of its term.
Stock purchase rights may be granted alone, in addition to or in
tandem with other awards granted under our 1999 Stock Plan.
Stock purchase rights are rights to purchase shares of our
common stock that vest in accordance with terms and conditions
established by the administrator. The administrator will
determine the number of shares subject to a stock purchase right
granted to any employee, director or consultant. The
administrator may impose whatever conditions to vesting it
determines to be appropriate. Unless the administrator
determines otherwise, we have a repurchase option exercisable
upon termination of the purchasers service with us. Shares
subject to stock purchase rights that do not vest are subject to
our right of repurchase or forfeiture.
Our 1999 Stock Plan provides that in the event of certain change
in control transactions, including our merger with or into
another corporation or the sale of substantially all of our
assets, the successor corporation will assume or substitute an
equivalent award with respect to each outstanding award under
the plan. If there is no assumption or substitution of
outstanding awards, such awards will become fully vested and
exercisable and the administrator will provide notice to the
recipient that he or she has the right to exercise such
outstanding awards for a period of fifteen days from the date of
such notice. The awards will terminate upon the expiration of
such stated notice period.
Unless otherwise determined by the administrator, the 1999 Stock
Plan generally does not allow for the sale or transfer of awards
under the 1999 Stock Plan other than by will or the laws of
descent and distribution, and may be exercised only during the
lifetime of the participant and only by such participant.
We have also established a U.K.
sub-plan to
our 1999 Stock Plan for option grants to U.K. residents.
Our board of directors has the authority to amend, alter,
suspend or terminate the 1999 Stock Plan provided such action
does not impair the rights of any participant without the
written consent of such participant.
2007
Equity Incentive Plan
Our board of directors and stockholders have adopted our 2007
Equity Incentive Plan (the 2007 Equity Incentive
Plan), to become effective upon the completion of this
offering. Our 2007 Equity Incentive Plan provides for the grant
of incentive stock options, within the meaning of
Section 422 of the Code, to our employees and any parent
and subsidiary corporations employees, and for the grant
of nonstatutory stock options, restricted stock, restricted
stock units, stock appreciation rights, performance units and
performance shares to our employees, directors and consultants
and our parent and subsidiary corporations employees and
consultants.
We have reserved a total of 7,000,000 shares of our common
stock for issuance pursuant to the 2007 Equity Incentive Plan,
plus (a) any shares which have been reserved but not issued
under our 1999 Stock Plan and are not subject to any awards
granted thereunder, and (b) any shares subject to stock
options or similar awards granted under the 1999 Stock Plan that
expire or otherwise terminate without having been exercised in
full and shares issued pursuant to awards granted under the 1999
Stock Plan that are forfeited to or repurchased by us. The
maximum number of shares that may be added to the 2007 Equity
Incentive Plan from the 1999 Stock Plan is
5,000,000 shares. In addition, our 2007 Equity Incentive
Plan provides for annual increases in the number of shares
available for issuance thereunder on the first day of each
fiscal year, beginning with our 2008 fiscal year, equal to the
least of:
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|
|
|
|
4% of the outstanding shares of our common stock on the last day
of the immediately preceding fiscal year;
|
97
|
|
|
|
|
9,000,000 shares; or
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|
|
|
such other amount as our board of directors may determine.
|
Our board of directors or a committee of our board administers
our 2007 Equity Incentive Plan. In the case of options intended
to qualify as performance based compensation within
the meaning of Section 162(m) of the Code, the committee
will consist of two or more outside directors within
the meaning of Section 162(m) of the Code. The
administrator has the power to determine the terms of the
awards, including the exercise price, the number of shares
subject to each such award, the exercisability of the awards and
the form of consideration payable upon exercise. The
administrator also has the authority to institute an exchange
program whereby the exercise prices of outstanding awards may be
reduced, outstanding awards may be surrendered or cancelled in
exchange for awards with a higher or lower exercise price, or
outstanding awards may be transferred to a third party.
The exercise price of options granted under our 2007 Equity
Incentive Plan must at least be equal to the fair market value
of our common stock on the date of grant. The term of an
incentive stock option may not exceed ten years, except that
with respect to any participant who owns 10% of the voting power
of all classes of our outstanding stock as of the grant date,
the term must not exceed five years and the exercise price must
equal at least 110% of the fair market value on the grant date.
The administrator determines the terms of all other options.
After termination of an employee, director or consultant, he or
she may exercise his or her option for the period of time stated
in the option agreement. Generally, if termination is due to
death or disability, the option will remain exercisable for
twelve months. In all other cases, the option will generally
remain exercisable for three months. However, an option
generally may not be exercised later than the expiration of its
term.
Stock appreciation rights may be granted under our 2007 Equity
Incentive 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
administrator 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. Stock appreciation rights
expire under the same rules that apply to stock options.
Restricted stock may be granted under our 2007 Equity Incentive
Plan. Restricted stock awards are shares of our common stock
that vest in accordance with terms and conditions established by
the administrator. The administrator will determine the number
of shares of restricted stock granted to any employee. The
administrator may impose whatever conditions to vesting it
determines to be appropriate. For example, the administrator may
set restrictions based on the achievement of specific
performance goals. Shares of restricted stock that do not vest
are subject to our right of repurchase or forfeiture.
Restricted stock units may be granted under our 2007 Equity
Incentive Plan. Restricted stock units are awards that will
result in a payment to a participant at the end of a specified
period only if performance goals established by the
administrator are achieved or the award otherwise vests. The
administrator may impose whatever conditions to vesting,
restrictions and conditions to payment it determines to be
appropriate. For example, the administrator may set restrictions
based on the achievement of specific performance goals, on the
continuation of service or employment or any other basis
determined by the administrator. Payments of earned restricted
stock units may be made, in the administrators discretion,
in cash or with shares of our common stock, or a combination
thereof.
Performance units and performance shares may be granted under
our 2007 Equity Incentive Plan. Performance units and
performance shares are awards that will result in a payment to a
participant only if performance goals established by the
administrator are achieved or the awards otherwise vest. The
administrator will establish organizational or individual
performance goals in its discretion, which, depending on the
extent to which they are met, will determine the number
and/or the
value of performance units and performance shares to be paid out
to participants. Performance units shall have an initial dollar
value established by the administrator prior to the grant date.
Performance shares shall have an initial value equal to the fair
market value of our common stock on the grant date. Payment for
performance units and performance
98
shares may be made in cash or in shares of our common stock with
equivalent value, or in some combination, as determined by the
administrator.
Unless the administrator provides otherwise, our 2007 Equity
Incentive Plan does not allow for the transfer of awards and
only the recipient of an award may exercise an award during his
or her lifetime.
Our 2007 Equity Incentive Plan provides that in the event of a
change in control, as defined in the 2007 Equity Incentive Plan,
each outstanding award will be treated as the administrator
determines, including that the successor corporation or its
parent or subsidiary will assume or substitute an equivalent
award for each outstanding award. The administrator is not
required to treat all awards similarly. If there is no
assumption or substitution of outstanding awards, the awards
will fully vest, all restrictions will lapse, and the awards
will become fully exercisable. The administrator will provide
notice to the recipient that he or she has the right to exercise
the option and stock appreciation right as to all of the shares
subject to the award, all restrictions on restricted stock will
lapse, and all performance goals or other vesting requirements
for performance shares and units will be deemed achieved, and
all other terms and conditions met. The option or stock
appreciation right will terminate upon the expiration of the
period of time the administrator provides in the notice. In the
event the service of an outside director is terminated on or
following a change in control, other than pursuant to a
voluntary resignation, his or her options and stock appreciation
rights will fully vest and become immediately exercisable, all
restrictions on restricted stock will lapse, and all performance
goals or other vesting requirements for performance shares and
units will be deemed achieved, and all other terms and
conditions met.
Our 2007 Equity Incentive Plan will automatically terminate in
2017, unless we terminate it sooner. In addition, our board of
directors has the authority to amend, alter, suspend or
terminate the 2007 Equity Incentive Plan provided such action
does not impair the rights of any participant.
99
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Policies
and Procedures for Transactions with Related Persons
Our policy for approving related party transactions is for the
audit committee of our board of directors and a majority of
disinterested directors on our board of directors to approve all
transactions involving an executive officer, director or a
holder of more than five percent of our common stock, including
any of their immediate family members and any entity owned or
controlled by such persons. For certain past transactions, such
as preferred stock financings that involved sales of our
securities to existing stockholders and directors, our
stockholders were made aware of the nature of the conflict of
interest and approved the transaction.
In any transaction involving a related person, our audit
committee and board of directors consider all of the available
material facts and circumstances of the transaction, including:
the direct and indirect interests of the related persons; in the
event the related person is a director (or immediate family
member of a director or an entity with which a director is
affiliated), the impact that the transaction will have on a
directors independence; the risks, costs and benefits of
the transaction to us; and whether any alternative transactions
or sources for comparable services or products are available.
Next, our board of directors makes a determination as to whether
the proposed terms of the transaction are reasonable and at
least as favorable as could have been obtained from unrelated
third parties.
The charter for our audit committee provides that one of its
responsibilities is to review and approve in advance any
proposed related party transactions. Otherwise, the policies and
procedures for reviewing and approving related party
transactions described above are not in writing. Each of the
transactions described below were entered into prior to the
adoption of our audit committee charter; instead, they were
approved by our board of directors in the manner described
above. We believe that the transactions described below were
executed on terms no less favorable to us than we could have
obtained from unrelated third parties.
Transactions
and Relationships with Directors, Officers and 5%
Stockholders
On August 1, 2003, we sold shares of our Series E
preferred stock to certain investors, including Citadel Equity
Fund Ltd. who, along with other investors, had the right to
appoint one member of our board of directors. In connection with
the sale of our Series E preferred stock, we entered into a
Licensing and Services Agreement with Citadel Investment Group,
L.L.C., an entity affiliated with Citadel Equity Fund. Pursuant
to the terms of the Licensing and Services Agreement, we granted
Citadel Investment Group, L.L.C. a license to our digital
marketing intelligence data and products, subject to certain
standard limitations, such as the right to resell or grant
sublicenses to the data. In each of 2004, 2005 and 2006, we
received license fees of $3 million and in 2007 we will
receive an additional $3 million. The initial term of the
Licensing and Service Agreement is five years and expires in
August 2008. On November 27, 2006, Citadel Equity Fund
sold its voting stock to several of our other stockholders and,
as a result, no longer beneficially owns more than 5% of our
outstanding voting stock nor has the right to appoint a
representative on our board of directors.
In 2006, Linda Abraham, the spouse of our President and Chief
Executive Officer, Magid Abraham, held the positions of acting
Executive Vice President for Finance, Telecom and
Pharmaceuticals and Executive Vice President for Product
Management. In these positions, Ms. Abraham earned
approximately $143,564 in salary. Ms. Abraham remains
employed as our Executive Vice President for Product Management.
Registration
Rights Agreements
We and certain holders of our capital stock have entered into an
agreement, pursuant to which these stockholders will have
registration rights with respect to their shares of common stock
following this offering. See Description of Capital
Stock Registration Rights for a further
description of the terms of this agreement.
Indemnification
Agreements
We have entered into an indemnification agreement with each of
our directors and officers. The indemnification agreements and
our amended and restated certificate of incorporation and bylaws
require us to indemnify our directors and officers to the
fullest extent permitted by Delaware law. See
Management Limitations on Director and Officer
Liability and Indemnification.
100
PRINCIPAL
AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect
to the beneficial ownership of our common stock as of
May 1, 2007 and as adjusted to reflect the sale of shares
of our common stock offered by this prospectus, by:
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each beneficial owner of 5% or more of the outstanding shares of
our common stock;
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each of our directors;
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|
each of our named executive officers;
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|
each selling stockholder; and
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all directors and executive officers as a group.
|
The table assumes the conversion of all shares of our preferred
stock into shares of our common stock immediately prior to the
completion of this offering. See Description of Capital
Stock Preferred Stock. Beneficial ownership is
determined in accordance with the rules of the SEC. In computing
the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of common stock
subject to options or warrants held by that person that are
currently exercisable or exercisable within 60 days of
May 1, 2007 are deemed outstanding, but are not deemed
outstanding for computing the percentage ownership of any other
person. Percentage of beneficial ownership is based on
112,483,349 shares of common stock outstanding as of
May 1, 2007
and shares
of common stock outstanding after this offering.
To our knowledge, except as set forth in the footnotes to this
table and subject to applicable community property laws, each
person named in the table has sole voting and investment power
with respect to the shares set forth opposite such persons
name. Except as otherwise indicated, the address of each of the
persons in this table is c/o comScore, Inc., 11465 Sunset
Hills Road, Suite 200, Reston, Virginia 20190.
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Shares Beneficially Owned
|
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|
Shares Beneficially Owned
|
|
|
|
Prior to the Offering
|
|
|
Number of
|
|
|
After the Offering
|
|
Name of Beneficial Owner
|
|
Number
|
|
|
Percent
|
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|
Shares Offered
|
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Number
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Percent
|
|
5%
Stockholders:
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|
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Accel Partners(1)
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29,514,275
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26.2
|
%
|
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|
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J.P. Morgan Partners SBIC,
LLC and related entities(2)(18)
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12,530,421
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11.1
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Institutional Venture Partners(3)
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10,949,164
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9.7
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Lehman Brothers Inc.(4)(18)
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8,708,908
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7.7
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Adams Street Partners(5)
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8,505,767
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7.6
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|
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Topspin Partners, L.P.(6)
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5,887,217
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|
5.2
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Directors and Named
Executive Officers:
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Magid M. Abraham, Ph.D.(7)
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9,531,028
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8.3
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|
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Gian M. Fulgoni(8)
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7,863,564
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|
6.9
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|
|
|
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|
|
|
|
|
|
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Gregory T. Dale(9)
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958,756
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|
*
|
|
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|
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|
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John M. Green(10)
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350,000
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*
|
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|
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Sheri Huston
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510,398
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*
|
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|
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Christiana L. Lin(11)
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285,653
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*
|
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|
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|
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|
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Thomas D. Berman(12)
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8,505,767
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7.6
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|
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Bruce Golden(13)
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29,514,275
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26.2
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|
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|
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William J. Henderson(14)
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147,708
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*
|
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|
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Ronald J. Korn(15)
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41,667
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*
|
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Frederick R. Wilson(16)
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3,699,712
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3.3
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All directors and executive
officers as a group (eleven persons)(17)
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61,408,528
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52.7
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* |
|
Represents less than one percent (1%) of the outstanding shares
of common stock. |
|
(1) |
|
Includes 21,486,401 shares held by Accel VII L.P.,
5,371,593 shares held by Accel Internet Fund III L.P.,
and 2,656,281 shares held by Accel Investors 99 L.P.
(together, the Accel Funds). Accel VII |
101
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Associates L.L.C. is a general partner of Accel VII L.P. and has
sole voting and dispositive power with respect to the shares
held by Accel VII L.P. Accel Internet Fund III Associates
L.L.C. is a general partner of Accel Internet Fund III L.P.
and has sole voting and dispositive power with respect to the
shares held by Accel Internet Fund III L.P. James W.
Breyer, Arthur C. Patterson, Theresia Gouw Ranzetta, James R.
Swartz, and J. Peter Wagner are managing members of Accel VII
Associates L.L.C. and Accel Internet Fund III Associates
L.L.C. and share voting and dispositive powers. They are also
the General Partners of Accel Investors 99 L.P. and share
voting and dispositive power with respect to the shares held by
Accel Investors 99 L.P. The general partners and managing
members disclaim beneficial ownership of the shares owned by the
Accel Funds except to the extent of their proportionate
pecuniary interest therein. The address for Accel Partners is
428 University Avenue, Palo Alto, California 94301. |
|
(2) |
|
Includes 10,988,417 shares held by J.P. Morgan
Partners (SBIC), LLC (JPMP SBIC) and
1,542,004 shares held by J.P. Morgan Partners (BHCA),
L.P. (BHCA). The sole member of JPMP SBIC is BHCA.
Pursuant to
Rule 13d-3
under the Exchange Act, BHCA may be deemed to beneficially own
the shares held by JPMP SBIC; however, the foregoing shall not
be construed as an admission that BHCA is the beneficial owner
of such shares. The general partner of BHCA is JPMP Master Fund
Manager, L.P. (JPMP MFM). The general partner of
JPMP MFM is JPMP Capital Corp. (JPMP Capital), a
wholly owned subsidiary of JPMorgan Chase & Co. Each
of JPMP MFM and JPMP Capital may be deemed, pursuant to
Rule 13d-3
under the Exchange Act, to beneficially own the shares held by
JPMP MFM and BHCA; however, the foregoing shall not be construed
as an admission that JPMP SBIC or JPMP Capital is the beneficial
owner of such shares. JPMP Capital exercises voting and
dispositive power over the securities held by JPMP SBIC and
BHCA. Voting and disposition decisions at JPMP Capital are made
by an investment committee of three or more of its officers, and
therefore no individual officer of JPMP Capital is the
beneficial owner of the securities. The address for each of JPMP
SBIC, BHCA, JPMP MFM and JPMP Capital is
c/o J.P. Morgan Partners, LLC, 270 Park Avenue, New
York, New York 10017. |
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(3) |
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Includes 8,968,827 shares held by Institutional Venture
Partners X, L.P. (IVP X) and 1,980,337 shares
held by Institutional Venture Partners X GmbH & Co.
Beteiligungs KG (IVP X-KG). Institutional Venture
Management X, LLC (IVM X) is the general partner of
IVP X and managing limited partner of IVP X-KG. Todd Chaffee,
Reid Dennis, Norm Fogelsong, Steve Harrick and Dennis Phelps are
managing directors of IVM X and share voting and investment
control over these shares. Such individuals disclaim beneficial
ownership of these shares except to the extent of his actual
respective pecuniary interest therein. The address of
Institutional Venture Partners is 3000 Sand Hill Road,
Building 2, Suite 250, Menlo Park, California 94025. |
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(4) |
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Shares which may deemed to be beneficially owned by Lehman
Brothers Inc. include shares held by the following wholly owned
subsidiaries and affiliates of Lehman Brothers Inc.:
3,829,870 shares held by LB I Group Inc.,
3,157,739 shares held by Lehman Brothers Venture Partners
L.P., and 1,721,299 shares held by Lehman Brothers Venture
Capital Partners I, L.P. Lehman Brothers Inc. is a direct
wholly owned subsidiary of Lehman Brothers Holding Inc., a
reporting company under the Securities Exchange Act of 1934,
which has voting and investment control over the shares held by
these entities. No individual officer of Lehman Brothers Holding
Inc. has voting or investment control over these shares. The
address for Lehman Brothers Inc. is 3000 Sand Hill Road,
Building 3, Suite 190, Menlo Park, CA 94025. |
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(5) |
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BVCF IV, L.P., the entity that holds these shares, is managed by
its general partner, Adams Street Partners, LLC. Adams Street
Partners, LLC is an investment advisor registered with the U.S.
Securities and Exchange Commission and is responsible for voting
these shares. Adams Street Partners, LLC disclaims beneficial
ownership of these shares except to the extent of its
proportionate pecuniary interest therein. Mr. Thomas D.
Berman is a partner and member of the direct investment
sub-committee
of Adams Street Partners, LLC and disclaims beneficial ownership
of these shares except to the extent of his proportionate
pecuniary interest therein. |
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(6) |
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Includes 5,621,116 shares held by Topspin Partners, L.P.
and 266,101 shares held by Topspin Associates, L.P. Topspin
Partners, L.P. and Topspin Associates, L.P. are controlled by
general partner Topspin Management, LLC. Topspin Management, LLC
is a manager-managed limited liability company and may be deemed
to be controlled by Leo A. Guthart. Leo A. Guthart was
previously a member of our board of directors. The address for
Topspin Partners is Three Expressway Plaza, Roslyn Heights, New
York 11577. |
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(7) |
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Includes 2,185,297 shares subject to options that are
immediately exercisable or exercisable within 60 days of
May 1, 2007. Also includes 2,909,375 shares held by the
Abraham Family Trust, of which Mr. Abraham and his wife,
Linda Abraham, are co-trustees and share voting and investment
control. Mr. and Mrs. Abraham disclaim beneficial ownership
of such shares except to the extent of their respective
pecuniary interests. Also includes 120,116 shares subject
to options held by Mrs. Abraham that are immediately
exercisable or exercisable within 60 days of May 1,
2007. Also includes 500,000 shares held directly by
Mr. Abraham and 105,000 shares held by
Mrs. Abraham subject to a right of repurchase held by the
Company pursuant to restricted stock sale agreements. |
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(8) |
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Includes 792,545 shares subject to options that are immediately
exercisable or exercisable within 60 days of May 1, 2007. Also
includes 375,000 shares subject to a right of repurchase held by
the Company pursuant to a restricted stock sale agreement. |
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(9) |
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Includes 585,170 shares subject to options that are
immediately exercisable or exercisable within 60 days of
May 1, 2007. Also includes 90,000 shares subject to a right
of repurchase held by the Company pursuant to a restricted stock
sale agreement. |
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(10) |
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Includes 64,586 shares subject to options that are
immediately exercisable or exercisable within 60 days of
May 1, 2007. Also includes 150,000 shares subject to a
right of repurchase held by the Company pursuant to a restricted
stock sale agreement. |
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(11) |
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Includes 90,786 shares subject to options that are
immediately exercisable or exercisable within 60 days of
May 1, 2007. Also includes 95,000 shares subject to a right
of repurchase held by the Company pursuant to a restricted stock
sale agreement. |
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(12) |
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This total includes 8,505,767 shares held by JP Morgan
Chase Bank as custodian for BVCF IV, L.P. Mr. Berman is a
partner of Adams Street Partners, LLC, the administrative member
of BVCF IV, L.P., and is deemed to have voting and investment
control over these shares. Mr. Berman disclaims beneficial
ownership of these shares except to the extent of his
proportionate pecuniary interest therein. See footnote 5 of this
table for further details of ownership by Adams Street Partners,
LLC. |
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(13) |
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This total includes 29,514,275 shares owned by the Accel
Funds. Bruce Golden is a general partner of Accel Partners.
Mr. Golden disclaims beneficial ownership of any of the
Accel Funds shares except to the extent of his
proportionate pecuniary interest therein. See footnote 1 of this
table for further details of ownership by Accel Funds. |
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(14) |
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Includes 47,708 shares subject to options that are
immediately exercisable or exercisable within 60 days of
May 1, 2007 and 100,000 shares subject to warrants
that are immediately exercisable or exercisable within
60 days of May 1, 2007. |
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(15) |
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Includes 41,667 shares subject to options that are
immediately exercisable or exercisable within 60 days of
May 1, 2007. |
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(16) |
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Mr. Wilson is a managing member of Flatiron Partners and
shares voting and investment power with Jerry Colonna, and Bob
Greene over the 3,699,712 shares of common stock (assuming
the conversion of all shares of preferred stock) owned by the
Flatiron Funds and Flatiron Associates entities. Such
individuals disclaim beneficial ownership of these shares except
to the extent of their respective proportionate pecuniary
interest therein. |
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(17) |
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Includes 3,987,269 shares subject to options that are
immediately exercisable or exercisable within 60 days of
May 1, 2007 and 100,000 shares subject to warrants
that are immediately exercisable or exercisable within
60 days of May 1, 2007. Also includes 1,315,000 shares
subject to a right of repurchase held by the Company pursuant to
restricted stock sale agreements. |
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(18) |
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The stockholder is an affiliate of a registered broker-dealer.
To our knowledge, (i) the stockholder did not receive any
securities as underwriting compensation; (ii) the
stockholder purchased the shares of common stock in a private
placement in the ordinary course of the stockholders
business; and (3) at the time of the purchase of such
shares, the stockholder did not have any agreements or
understandings, directly or indirectly, with any person to
distribute such shares. |
103
DESCRIPTION
OF CAPITAL STOCK
The following information describes our common stock and
preferred stock, as well as options to purchase our common stock
and provisions of our amended and restated certificate of
incorporation and bylaws. This description is only a summary.
You should also refer to our amended and restated certificate of
incorporation and bylaws, which have been filed with the
Securities and Exchange Commission as exhibits to our
registration statement, of which this prospectus forms a part.
General
Upon the completion of this offering, our authorized capital
stock will consist of 150,000,000 shares of common stock
with a $0.001 par value per share, and
5,000,000 shares of preferred stock with a $0.001 par
value per share, all of which shares of preferred stock will be
undesignated. Our board of directors may establish the rights
and preferences of the preferred stock from time to time. As of
March 31, 2007, after giving effect to the conversion of
all outstanding preferred stock into shares of common stock,
there would have been 111,915,643 shares of common stock
issued and outstanding, held of record by 465 stockholders.
Common
Stock
Each holder of our common stock is entitled to one vote for each
share on all matters to be voted upon by the stockholders and
there are no cumulative rights. Subject to any preferential
rights of any outstanding preferred stock, holders of our common
stock will be entitled to receive ratably the dividends, if any,
as may be declared from time to time by the board of directors
out of funds legally available therefor. If there is a
liquidation, dissolution or winding up of our company, holders
of our common stock would be entitled to share in our assets
remaining after the payment of liabilities and any preferential
rights of any outstanding preferred stock.
Holders of our common stock will have no preemptive or
conversion rights or other subscription rights, and there will
be no redemption or sinking fund provisions applicable to the
common stock. All outstanding shares of our common stock will be
fully paid and non-assessable. The rights, preferences and
privileges of the holders of our common stock will be subject
to, and may be adversely affected by, the rights of the holders
of shares of any series of preferred stock which we may
designate and issue in the future.
Pursuant to our acquisition of Q2 Brand Intelligence, Inc. and
SurveySite Inc., we granted the former shareholders of these
entities the right to sell a certain number of shares of our
common stock back to us at an
agreed-upon
price. These rights transfer to any subsequent holder of these
shares and are described in more detail in the
Overview section of Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
Preferred
Stock
Immediately prior to the completion of this offering, all
outstanding shares of all series of our convertible preferred
stock will be converted into shares of common stock according to
the formula set forth in our current certificate of
incorporation.
Under the terms of our amended and restated certificate of
incorporation, our board of directors is authorized to issue
shares of preferred stock in one or more series without
stockholder approval. Our board of directors has the discretion
to determine the rights, preferences, privileges and
restrictions, including voting rights, dividend rights,
conversion rights, redemption privileges and liquidation
preferences, of each series of preferred stock.
The purpose of authorizing our board of directors to issue
preferred stock and determine its rights and preferences is to
eliminate delays associated with a stockholder vote on specific
issuances. The issuance of preferred stock, while providing
flexibility in connection with possible future acquisitions and
other corporate purposes, will affect, and may adversely affect,
the rights of holders of common stock. It is not possible to
104
state the actual effect of the issuance of any shares of
preferred stock on the rights of holders of common stock until
the board of directors determines the specific rights attached
to that preferred stock. The effects of issuing preferred stock
could include one or more of the following:
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restricting dividends on the common stock;
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diluting the voting power of the common stock;
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impairing the liquidation rights of the common stock; or
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delaying or preventing changes in control or management of our
company.
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We have no present plans to issue any shares of preferred stock.
Warrants
As of March 31, 2007, assuming the conversion of our
convertible preferred stock into common stock, warrants for the
purchase of an aggregate of 875,923 shares of our common
stock were outstanding as follows:
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A warrant issued on June 9, 2000 to purchase
46,551 shares of our Series B Convertible Preferred
Stock at an exercise price of $2.90 per share. This warrant
was issued in connection with the lease of certain of our
equipment. Upon the automatic conversion of our convertible
preferred stock immediately prior to the completion of this
offering, the warrant shall be exercisable for
92,347 shares of our common stock at an exercise price of
$1.46 per share. The warrant shall terminate on the earlier
of (i) June 9, 2010 or (ii) five years from the
date of effectiveness of this registration statement. However,
if this warrant is not exercised prior to termination and the
fair market value of a share of our common stock exceeds the
exercise price per share of this warrant immediately prior to
termination, this warrant will automatically exercise prior to
expiration.
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A warrant issued on July 31, 2000 to purchase
20,100 shares of our common stock to a consultant to us at
an exercise price of $2.50 per share. The warrant shall
terminate on July 31, 2010.
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A warrant issued on September 29, 2000 to purchase
9,694 shares of our Series B Convertible Preferred
Stock at an exercise price of $4.90 per share. This warrant
was issued in connection with the lease of certain of our
equipment. Upon the automatic conversion of our convertible
preferred stock immediately prior to the completion of this
offering, the warrant shall be exercisable for
19,231 shares of our common stock at an exercise price of
$2.47 per share. The warrant shall terminate on the earlier
of (i) September 29, 2010 or (ii) five years from
the date of effectiveness of this registration statement.
However, if this warrant is not exercised prior to termination
and the fair market value of a share of our common stock exceeds
the exercise price per share of this warrant immediately prior
to termination, this warrant will automatically exercise prior
to expiration.
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A warrant issued on June 26, 2001 to purchase
100,000 shares of our common stock to William Henderson, a
member of our board of directors, at an exercise price of
$1.00 per share. The warrant shall terminate on the earlier
of (i) June 26, 2011; (ii) the completion of this
offering; or (iii) a change of control as defined in the
warrant. Mr. Henderson subsequently exercised his warrant
for 100,000 shares on May 15, 2007.
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A warrant issued on November 30, 2001 to purchase
10,000 shares of our common stock to our landlord at an
exercise price of $5.90 per share. The warrant shall
terminate on September 30, 2009.
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A warrant issued on July 3, 2002 to purchase
12,000 shares of our common stock to our landlord at an
exercise price of $3.00 per share. The warrant shall
terminate on the earlier of (i) July 3, 2012;
(ii) the receipt of prior written notice from an
underwriter of this offering requesting exercise; or
(iii) the closing of a merger as defined in the warrant.
However, if this warrant is not exercised prior to termination
and the fair market value of a share of our common stock exceeds
the exercise price per
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105
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share of this warrant immediately prior to termination, this
warrant will automatically exercise prior to expiration.
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A warrant issued on July 31, 2002 to purchase
36,127 shares of our Series D Convertible Preferred
Stock at an exercise price of $0.8996 per share. This
warrant was issued in connection with a promissory note. Upon
the automatic conversion of our convertible preferred stock
immediately prior to the completion of this offering, the
warrant shall be exercisable for 40,625 shares of our
common stock at an exercise price of $0.80 per share. The
warrant includes certain registration rights under our fourth
amended and restated investor rights agreement, but the holder
of the warrant does not have a stand-alone right to demand
registration of the shares. The warrant shall terminate on the
later of (i) July 31, 2012 or (ii) five years
from the completion of this offering. However, if this warrant
is not exercised prior to termination and the fair market value
of a share of our common stock exceeds the exercise price per
share of this warrant immediately prior to termination, this
warrant will automatically exercise prior to expiration.
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A warrant issued on July 31, 2002 to purchase
108,382 shares of our Series D Convertible Preferred
Stock at an exercise price of $0.8996 per share. This
warrant was issued in connection with the lease of certain of
our equipment originally. Upon the automatic conversion of our
convertible preferred stock immediately prior to the completion
of this offering, the warrant shall be exercisable for
121,875 shares of our common stock at an exercise price of
$0.80 per share. The warrant includes certain registration
rights under our fourth amended and restated investor rights
agreement, but the holder of the warrant does not have a
stand-alone right to demand registration of the shares. The
warrant shall terminate on the later of (i) July 31,
2012 or (ii) five years from the completion of this
offering. However, if this warrant is not exercised prior to
termination and the fair market value of a share of our common
stock exceeds the exercise price per share of this warrant
immediately prior to termination, this warrant will
automatically exercise prior to expiration.
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A warrant issued on December 5, 2002 to purchase
45,854 shares of our Series D Convertible Preferred
Stock at an exercise price of $0.8996 per share. This
warrant was issued in connection with a promissory note. Upon
the automatic conversion of our convertible preferred stock
immediately prior to the completion of this offering, the
warrant shall be exercisable for 51,563 shares of our
common stock at an exercise price of $0.80 per share. The
warrant includes certain registration rights under our fourth
amended and restated investor rights agreement. The warrant
shall terminate on December 4, 2012. However, if this
warrant is not exercised prior to termination and the fair
market value of a share of our common stock exceeds the exercise
price per share of this warrant immediately prior to
termination, this warrant will automatically exercise prior to
expiration.
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A warrant issued on June 24, 2003 to purchase
100,000 shares of our common stock to our landlord at an
exercise price of $0.60 per share. The warrant shall
terminate on the earlier of (i) June 24, 2013;
(ii) the receipt of prior written notice from an
underwriter of this offering requesting exercise; or
(iii) the closing of a merger as defined in the warrant.
However, if this warrant is not exercised prior to termination
and the fair market value of a share of our common stock exceeds
the exercise price per share of this warrant immediately prior
to termination, this warrant will automatically exercise prior
to expiration.
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A warrant issued on December 19, 2003 to purchase
240,000 shares of our Series E Convertible Preferred
Stock at an exercise price of $0.50 per share. This warrant
was issued in connection with an equipment financing. Upon the
automatic conversion of our convertible preferred stock
immediately prior to the completion of this offering, the
warrant shall be exercisable for 240,000 shares of our
common stock at an exercise price of $0.50 per share. The
warrant includes certain registration rights under our fourth
amended and restated investor rights agreement, but the holder
of the warrant does not have a stand-alone right to demand
registration of the shares. The warrant shall terminate on the
later of (i) December 19, 2013; or (ii) five
years from the completion of this offering. However, in the
event that an underwriter of this offering provides prior
written notice to the holder of the warrant requesting exercise,
the warrant must either be exercised or waived. Furthermore,
this warrant will expire upon the closing of a merger as
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defined in the warrant. However, if this warrant is not
exercised prior to termination and the fair market value of a
share of our common stock exceeds the exercise price per share
of this warrant immediately prior to termination, this warrant
will automatically exercise prior to expiration.
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A warrant issued on April 29, 2005 to purchase 68,182 shares of
our common stock to a creditor at an exercise price of $1.10 per
share. The warrant shall terminate on the later of (i) April 29,
2015 or (ii) five years after the closing of this offering. The
warrant shall also terminate upon a merger as defined in the
warrant. However, if the warrant is not exercised prior to
termination and the fair market value of a share of our common
stock exceeds the exercise price per share of this warrant
immediately prior to termination, this warrant shall
automatically exercise prior to expiration.
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Registration
Rights
In August 2003, we and the holders of all series of our
convertible preferred stock entered into a fourth amended and
restated investor rights agreement, which is included as an
exhibit to the registration statement of which this prospectus
is a part. Under the agreement, commencing 180 days after
the closing of this offering, the holders of a majority of the
shares of common stock issued upon the conversion of the shares
of our Series A, B, C, C-1, D and E convertible preferred
stock, which we refer to as registrable securities,
may require us to prepare and file a registration statement
under the Securities Act, at our expense, covering the lesser of
registrable securities with an aggregate anticipated offering
price of at least $10,000,000 or 3,000,000 shares of
registrable securities. Under these demand registration rights,
we are required to use our best efforts to cause the shares
requested to be included in the registration statement, subject
to customary conditions and limitations. We are not obligated to
effect more than two of these demand registrations.
In addition, these holders have certain piggyback
registration rights. If we propose to register any of our equity
securities under the Securities Act other than specified
excluded registrations, these holders are entitled to written
notice of the registration and may require us to include all or
a portion of their registrable securities in the registration
and in any related underwriting. However, the managing
underwriter has the right, subject to specified conditions, to
limit the number of registrable securities such holders may
include. Once we become eligible to file a registration
statement on
Form S-3,
the holders of the registrable securities may require us to
register these shares on
Form S-3,
if such registration will generate anticipated aggregate net
proceeds of at least $2,000,000, or consist of at least
3,000,000 shares. The holder of certain of our warrants
that are exercisable for shares of our convertible preferred
stock also have some or all of the registration rights described
above. The registration rights described above terminate no
later than five years after this offering. Registration of these
shares under the Securities Act would result in these shares,
other than shares purchased by our affiliates, becoming freely
tradable without restriction under the Securities Act.
Effect of
Certain Provisions of our Amended and Restated Certificate of
Incorporation and Bylaws and the Delaware Anti-Takeover
Statute
Amended
and Restated Certificate of Incorporation and
Bylaws
Some provisions of Delaware law and our amended and restated
certificate of incorporation and bylaws contain provisions that
could make the following transactions more difficult:
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acquisition of us by means of a tender offer;
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acquisition of us by means of a proxy contest or
otherwise; or
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removal of our incumbent officers and directors.
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These provisions, summarized below, are expected to discourage
coercive takeover practices and inadequate takeover bids and to
promote stability in our management. These provisions are also
designed to encourage persons seeking to acquire control of us
to first negotiate with our board of directors.
107
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Undesignated Preferred Stock. The ability to
authorize undesignated preferred stock makes it possible for our
board of directors to issue one or more series of preferred
stock with voting or other rights or preferences that could
impede the success of any attempt to change control of comScore.
These and other provisions may have the effect of deferring
hostile takeovers or delaying changes in control or management
of our company.
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Stockholder Meetings. Our charter documents
provide that a special meeting of stockholders may be called
only by resolution adopted by the board of directors.
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Requirements for Advance Notification of Stockholder
Nominations and Proposals. Our bylaws establish
advance notice procedures with respect to stockholder proposals
and the nomination of candidates for election as directors,
other than nominations made by or at the direction of the board
of directors or a committee of the board of directors.
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Board Classification. Our board of directors
is divided into three classes. The directors in each class will
serve for a three-year term, one class being elected each year
by our stockholders. This system of electing and removing
directors may tend to discourage a third party from making a
tender offer or otherwise attempting to obtain control of us,
because it generally makes it more difficult for stockholders to
replace a majority of the directors.
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Limits on Ability of Stockholders to Act by Written
Consent. We have provided in our certificate of
incorporation that our stockholders may not act by written
consent. This limit on the ability of our stockholders to act by
written consent may lengthen the amount of time required to take
stockholder actions. As a result, a holder controlling a
majority of our capital stock would not be able to amend our
bylaws or remove directors without holding a meeting of our
stockholders called in accordance with our bylaws.
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Amendment of Certificate of Incorporation and
Bylaws. The amendment of the above provisions of
our amended and restated certificate of incorporation and bylaws
requires approval by holders of at least two-thirds of our
outstanding capital stock entitled to vote generally in the
election of directors.
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Delaware
Anti-Takeover Statute
We are subject to Section 203 of the General Corporation
Law of the State of Delaware, which prohibits a Delaware
corporation from engaging in any business combination with any
interested stockholder for a period of three years after the
date that such stockholder became an interested stockholder,
with the following exceptions:
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before such date, the board of directors of the corporation
approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder;
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upon completion of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction began,
excluding for purposes of determining the voting stock
outstanding (but not the outstanding voting stock owned by the
interested stockholder) those shares owned (i) by persons
who are directors and also officers and (ii) employee stock
plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer; or
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on or after such date, the business combination is approved by
the board of directors and authorized at an annual or special
meeting of the stockholders, and not by written consent, by the
affirmative vote of at least
662/3%
of the outstanding voting stock that is not owned by the
interested stockholder.
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In general, Section 203 defines business combination to
include the following:
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any merger or consolidation involving the corporation and the
interested stockholder;
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108
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any sale, lease, exchange, mortgage, transfer, pledge or other
disposition of 10% or more of either the assets or outstanding
stock of the corporation involving the interested stockholder;
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subject to certain exceptions, any transaction that results in
the issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder;
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any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested
stockholder; or
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the receipt by the interested stockholder of the benefit of any
loans, advances, guarantees, pledges or other financial benefits
by or through the corporation.
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In general, Section 203 defines interested stockholder as
an entity or person who, together with affiliates and
associates, beneficially owns, or within three years prior to
the determination of interested stockholder status did own, 15%
or more of the outstanding voting stock of the corporation.
Listing
on The NASDAQ Global Market
We have applied to list our common stock on The NASDAQ Global
Market under the symbol SCOR.
Transfer
Agent and Registrar
The transfer agent and registrar for our common stock is
Computershare Investor Services. Its address is P.O.
Box 43078, Providence, RI 02940, and its telephone number
is
1-800-942-5909.
109
SHARES ELIGIBLE
FOR FUTURE SALE
We will
have shares
of common stock outstanding after the completion of this
offering
( shares
if the underwriters exercise their over-allotment option in
full). Of those shares,
the shares
of common stock sold in the offering
( shares
if the underwriters exercise their over-allotment option in
full) will be freely transferable without restriction, unless
purchased by persons deemed to be our affiliates as
that term is defined in Rule 144 under the Securities Act.
Any shares purchased by an affiliate may not be resold except
pursuant to an effective registration statement or an applicable
exemption from registration, including an exemption under
Rule 144 promulgated under the Securities Act. The
remaining shares
of common stock to be outstanding immediately following the
completion of this offering are restricted, which
means they were originally sold in offerings that were not
registered under the Securities Act. Restricted shares may be
sold through registration under the Securities Act or under an
available exemption from registration, such as provided through
Rule 144, which rules are summarized below. Taking into
account the
180-day lock
up agreements described below, and assuming the underwriters do
not release any stockholders from these agreements, shares of
our common stock will be available for sale in the public market
as follows:
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shares
will be eligible for sale immediately upon completion of this
offering, subject in some cases to volume and other restrictions
of Rule 144 and Rule 701 under the Securities Act;
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additional
shares will be eligible for sale in the public market under
Rule 144 or Rule 701 beginning 90 days after the
date of this prospectus, subject to volume, manner of sale, and
other limitations under those rules;
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additional
shares will become eligible for sale, subject to the provisions
of Rule 144, Rule 144(k) or Rule 701, beginning
180 days after the date of this prospectus, upon the
expiration of agreements not to sell such shares entered into
between the underwriters and such stockholders; and
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additional
shares will be eligible for sale from time to time thereafter
upon expiration of their respective one-year holding periods,
but could be sold earlier if the holders exercise any available
registration rights.
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Subject to certain exceptions, each of our officers, directors
and security holders has agreed not to offer, sell, contract to
sell, pledge or otherwise dispose of, directly or indirectly,
any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock,
enter into a transaction which would have the same effect, or
enter into any swap, hedge or other arrangement that transfers,
in whole or in part, any of the economic consequences of
ownership of our common stock, whether any such aforementioned
transaction is to be settled by delivery of our common stock or
such other securities, in cash or otherwise, or publicly
disclose the intention to make any such offer, sale, pledge or
disposition, or to enter into any such transaction, swap, hedge
or other arrangement, without, in each case, the prior written
consent of Credit Suisse Securities (USA) LLC for a period that
shall continue and include the date 180 days after the date
of this prospectus. In addition, without the prior written
consent of Credit Suisse Securities (USA) LLC, such officers,
directors and security holders will not make any demand for or
exercise any right with respect to, the registration of any
common stock or any security convertible into or exercisable or
exchangeable for common stock during such lock-in period.
Notwithstanding the foregoing, for the purpose of allowing the
underwriters to comply with NASD Rule 2711(f)(4), if
(1) during the last 17 days of the initial
180-day
lock-up
period, we release earnings results or material news or a
material event relating to us occurs or (2) prior to the
expiration of the initial
180-day
lock-up
period, we announce that we will release earnings results during
the 16-day
period beginning on the last day of the initial
180-day
lock-up
period, then in each case the initial
180-day
lock-up
period will be extended until the expiration of the
18-day
period beginning on the date of release of the earnings results
or the occurrence of the material news or material event, as
applicable, unless Credit Suisse Securities (USA) LLC waives, in
writing, such extension.
110
After the offering, the holders of approximately
86,286,692 shares of our issued and outstanding common
stock will be entitled to registration rights. For more
information on these registration rights, see Description
of Capital Stock Registration Rights.
In general, under Rule 144, as currently in effect,
beginning 90 days after the effective date of this
offering, a person (or persons whose shares are aggregated),
including an affiliate, who has beneficially owned shares of our
common stock for one year or more, may sell in the open market
within any three-month period a number of shares that does not
exceed the greater of:
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one percent of the then outstanding shares of our common stock
(approximately shares
immediately after the offering); or
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the average weekly trading volume in the common stock on The
NASDAQ Global Market during the four calendar weeks preceding
the sale.
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Sales under Rule 144 are also subject to certain
limitations on the manner of sale, notice requirements and the
availability of our current public information. In addition, a
person (or persons whose shares are aggregated) who is deemed
not to have been our affiliate at any time during the
90 days preceding a sale by such person and who has
beneficially owned his or her shares for at least two years, may
sell the shares in the public market under Rule 144(k)
without regard to the volume limitations, manner of sale
provisions, notice requirements or the availability of current
public information we refer to above.
Any of our employees, officers, directors or consultants who
purchased his or her shares before the completion of this
offering or who holds options as of that date pursuant to a
written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701, which permits non-affiliates
to sell their Rule 701 shares without having to comply
with the public information, holding period, volume limitation
or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply
with Rule 144s holding-period restrictions, in each
case commencing 90 days after completion of this offering.
Neither Rule 144, Rule 144(k) nor Rule 701
supersedes the contractual obligations of our security holders
set forth in the
lock-up
agreements described above.
Within three months following the completion of this offering,
we intend to file a registration statement on
Form S-8
under the Securities Act to
register shares
of common stock reserved for issuance under our 1999 Stock Plan
and our 2007 Equity Incentive Plan, thus permitting the resale
of such shares. Prior to the completion of this offering, there
has been no public market for our common stock, and any sale of
substantial amounts in the open market may adversely affect the
market price of our common stock offered hereby.
111
U.S. FEDERAL
TAX CONSEQUENCES TO
NON-U.S. HOLDERS
This section summarizes certain material U.S. federal
income and estate tax considerations relating to the ownership
and disposition of common stock by
non-U.S. holders.
This summary does not provide a complete analysis of all
potential tax considerations. The information provided below is
based on existing authorities. These authorities may change, or
the Internal Revenue Service (IRS) might interpret
the existing authorities differently. In either case, the tax
considerations of owning or disposing of common stock could
differ from those described below. For purposes of this summary,
a
non-U.S. holder
is any holder that holds our common stock as a capital asset for
U.S. federal income tax purposes and is any holder other
than a citizen or resident of the United States, a corporation
organized under the laws of the United States or any state, a
trust that is (i) subject to the primary supervision of a
U.S. court and the control of one of more U.S. persons
or (ii) has a valid election in effect under applicable
U.S. Treasury regulations to be treated as a
U.S. person or an estate whose income is subject to
U.S. income tax regardless of source. If a partnership or
other flow-through entity is a beneficial owner of common stock,
the tax treatment of a partner in the partnership or an owner of
the entity will depend upon the status of the partner or other
owner and the activities of the partnership or other entity.
Accordingly, partnerships that hold our common stock and
partners in such partnerships should consult their own tax
advisors. The summary generally does not address tax
considerations that may be relevant to particular investors
because of their specific circumstances, or because they are
subject to special rules (such as insurance companies,
tax-exempt organizations, financial institutions, brokers,
dealers in securities, partnerships, owners of 5% or more of our
common stock and certain U.S. expatriates). Finally, the
summary does not describe the effects of any applicable foreign,
state, or local laws.
Investors considering the purchase of common stock should
consult their own tax advisors regarding the application of the
U.S. federal income and estate tax laws to their particular
situations and the consequences of foreign, state or local laws,
and tax treaties.
Dividends
Any dividend paid to a
non-U.S. holder
on our common stock will generally be subject to
U.S. withholding tax at a 30 percent rate. The
withholding tax might not apply, however, or might apply at a
reduced rate, if the
non-U.S. holder
satisfies the applicable conditions under the terms of an
applicable income tax treaty between the United States and the
non-U.S. holders
country of residence. A
non-U.S. holder
must demonstrate its entitlement to treaty benefits by providing
a properly completed
Form W-8BEN
or appropriate substitute form to us or our paying agent. If the
holder holds the stock through a financial institution or other
agent acting on the holders behalf, the holder will be
required to provide appropriate documentation to the agent. The
holders agent will then be required to provide
certification to us or our paying agent, either directly or
through other intermediaries. For payments made to a foreign
partnership or other flow through entity, the certification
requirements generally apply to the partners or other owners
rather than to the partnership or other entity, and the
partnership or other entity must provide the partners or
other owners documentation to us or our paying agent.
Special rules, described below, apply if a dividend is
effectively connected with a U.S. trade or business
conducted by the
non-U.S. holder.
Sale of
Common Stock
Non-U.S. holders
will generally not be subject to U.S. federal income tax on
any gains realized on the sale, exchange, or other disposition
of common stock. This general rule, however, is subject to
several exceptions. For example, the gain would be subject to
U.S. federal income tax if:
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the gain is effectively connected with the conduct by the
non-U.S. holder
of a U.S. trade or business (in which case the special
rules described below under the caption Dividends or Gains
Effectively Connected with a U.S. Trade or Business
apply);
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subject to certain exceptions, the
non-U.S. holder
is an individual who is present in the United States for
183 days or more in the year of disposition, in which case
the gain would be subject to a flat 30% tax, which may be offset
by U.S. source capital losses, even though the individual
is not considered a resident of the U.S.; or
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112
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the rules of the Foreign Investment in Real Property Tax Act, or
FIRPTA, described below, treat the gain as effectively connected
with a U.S. trade or business.
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The FIRPTA rules may apply to a sale, exchange or other
disposition of common stock if we are, or were within five years
before the transaction, a U.S. real property holding
corporation, or USRPHC. In general, we would be a USRPHC
if interests in U.S. real estate comprised most of our
assets. We do not believe that we are a USRPHC or that we will
become one in the future.
Dividends
or Gain Effectively Connected With a U.S. Trade or
Business
If any dividend on common stock, or gain from the sale, exchange
or other disposition of common stock, is effectively connected
with a U.S. trade or business conducted by the
non-U.S. holder,
then the dividend or gain will be subject to U.S. federal
income tax at the regular graduated rates. If the
non-U.S. holder
is eligible for the benefits of an income tax treaty between the
United States and the holders country of residence, any
effectively connected dividend or gain would
generally be subject to U.S. federal income tax only if it
is also attributable to a permanent establishment or fixed base
maintained by the holder in the United States. Payments of
dividends that are effectively connected with a U.S. trade
or business, and therefore included in the gross income of a
non-U.S. holder,
will not be subject to the 30 percent withholding tax. To
claim exemption from withholding, the holder must certify its
qualification, which can be done by filing a
Form W-8ECI.
If the
non-U.S. holder
is a corporation, that portion of its earnings and profits that
is effectively connected with its U.S. trade or business
would generally be subject to a branch profits tax
in addition to any regular U.S. federal income tax on the
dividend or gain. The branch profits tax rate is generally
30 percent, although an applicable income tax treaty might
provide for a lower rate.
U.S. Federal
Estate Tax
The estates of nonresident alien individuals are generally
subject to U.S. federal estate tax on property with a
U.S. situs. Because we are a U.S. corporation, our
common stock will be U.S. situs property and therefore will
be included in the taxable estate of a nonresident alien
decedent. The U.S. federal estate tax liability of the
estate of a nonresident alien may be affected by a tax treaty
between the United States and the decedents country of
residence.
Backup
Withholding and Information Reporting
The Internal Revenue Code of 1986, as amended, and the Treasury
regulations promulgated thereunder require those who make
specified payments to report the payments to the IRS. Among the
specified payments are dividends and proceeds paid by brokers to
their customers. The required information returns enable the IRS
to determine whether the recipient properly included the
payments in income. This reporting regime is reinforced by
backup withholding rules. These rules require the
payors to withhold tax from payments subject to information
reporting if the recipient fails to cooperate with the reporting
regime by failing to provide his taxpayer identification number
to the payor, furnishing an incorrect identification number, or
repeatedly failing to report interest or dividends on his
returns. The withholding tax rate is currently 28 percent.
The backup withholding rules do not apply to payments to
corporations, whether domestic or foreign.
Payments to
non-U.S. holders
of dividends on common stock will generally not be subject to
backup withholding, and payments of proceeds made to
non-U.S. holders
by a broker upon a sale of common stock will not be subject to
information reporting or backup withholding, in each case so
long as the
non-U.S. holder
certifies its nonresident status. Some of the common means of
certifying nonresident status are described under
Dividends. We must report annually to
the IRS any dividends paid to each
non-U.S. holder
and the tax withheld, if any, with respect to such dividends.
Copies of these reports may be made available to tax authorities
in the country where the
non-U.S. holder
resides.
Information reporting and backup withholding also generally will
not apply to a payment of the proceeds of a sale of common stock
effected outside the United States by a foreign office of a
foreign broker. However, information reporting requirements (but
not backup withholding) will apply to a payment of the proceeds
of a sale of common stock effected outside the United States by
a foreign office of a broker if the broker (i) is a
113
United States person, (ii) derives 50 percent or more
of its gross income for certain periods from the conduct of a
trade or business in the United States, (iii) is a
controlled foreign corporation as to the United
States, or (iv) is a foreign partnership that, at any time
during its taxable year is more than 50 percent (by income
or capital interest) owned by United States persons or is
engaged in the conduct of a U.S. trade or business, unless
in any such case the broker has documentary evidence in its
records that the holder is a
non-U.S. holder
and certain conditions are met, or the holder otherwise
establishes an exemption. Payment by a United States office of a
broker of the proceeds of a sale of common stock will be subject
to both backup withholding and information reporting unless the
holder certifies its
non-United
States status under penalties of perjury or otherwise
establishes an exemption.
Any amounts withheld from a payment to a holder of common stock
under the backup withholding rules can be credited against any
U.S. federal income tax liability of the holder.
Each prospective investor should consult its own tax advisor
regarding the particular U.S. federal, state, local and
foreign tax consequences of purchasing, holding and disposing of
our common stock, including the consequences of any proposed
change in applicable laws.
114
UNDERWRITING
Under the terms and subject to the conditions contained in an
underwriting agreement
dated ,
2007, we and the selling stockholders have agreed to sell to the
underwriters named below, for whom Credit Suisse Securities
(USA) LLC is acting as representative, the following respective
numbers of shares of common stock:
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Underwriter
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Number of Shares
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Credit Suisse Securities (USA) LLC
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Deutsche Bank Securities Inc.
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Friedman, Billings,
Ramsey & Co., Inc.
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Jefferies & Company,
Inc.
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William Blair & Company,
L.L.C.
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Total
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The underwriting agreement provides that the underwriters are
obligated to purchase all the shares of common stock in the
offering if any are purchased, other than those shares covered
by the over-allotment option described below. The underwriting
agreement also provides that, if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be
increased or the offering may be terminated.
We and the selling stockholders have granted to the underwriters
a 30-day
option to purchase on a pro rata basis up
to
additional shares from us and the selling stockholders at the
initial public offering price less the underwriting discounts
and commissions. The option may be exercised only to cover any
over-allotments of common stock.
The underwriters propose to offer the shares of common stock
initially at the public offering price on the cover page of this
prospectus and to selling group members at that price less a
selling concession of $ per
share. After the initial public offering Credit Suisse
Securities (USA) LLC may change the public offering price and
concession.
The following table summarizes the compensation and estimated
expenses we and the selling stockholders will pay:
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Per Share
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Total
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Without
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With
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Without
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With
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Over-allotment
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Over-allotment
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Over-allotment
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Over-allotment
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Underwriting Discounts and
Commissions paid by us
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$
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$
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$
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$
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Expenses payable by us
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$
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$
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$
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$
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Underwriting Discounts and
Commissions paid by selling stockholders
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$
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$
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$
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$
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Expenses payable by the selling
stockholders
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$
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$
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$
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$
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Credit Suisse Securities (USA) LLC has informed us that they do
not expect sales to accounts over which the underwriters have
discretionary authority to exceed 5% of the shares of common
stock being offered.
We have agreed that we will not offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, or file
with the Securities and Exchange Commission, or SEC, a
registration statement under the Securities Act relating to, any
shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock,
or publicly disclose the intention to make any offer, sale,
pledge, disposition or filing, without the prior written consent
of Credit Suisse Securities (USA) LLC for a period of
180 days after the date of this prospectus, except (a)
issuances by us pursuant to the exercise of employee stock
options outstanding on the date hereof or pursuant to our
dividend reinvestment plan and (b) up
to shares
of our common stock that may be sold at our permission by
certain existing and former
115
employees designated by us. However, in the event that either
(1) during the last 17 days of the
lock-up
period, we release earnings results or material news or a
material event relating to us occurs or (2) prior to the
expiration of the
lock-up
period, we announce that we will release earnings results during
the 16-day
period beginning on the last day of the
lock-up
period, then in either case the expiration of the
lock-up
will be extended until the expiration of the
18-day
period beginning on the date of the release of the earnings
results or the occurrence of the material news or event, as
applicable, unless Credit Suisse Securities (USA) LLC waives, in
writing, such an extension.
Subject to certain exceptions, our officers, directors and
certain of our existing security holders have agreed that they
will not offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, any shares of our common
stock or securities convertible into or exchangeable or
exercisable for any shares of our common stock, enter into a
transaction that would have the same effect, or enter into any
swap, hedge or other arrangement that transfers, in whole or in
part, any of the economic consequences of ownership of our
common stock, whether any of these transactions are to be
settled by delivery of our common stock or other securities, in
cash or otherwise, or publicly disclose the intention to make
any offer, sale, pledge or disposition, or to enter into any
transaction, swap, hedge or other arrangement, without, in each
case, the prior written consent of Credit Suisse Securities
(USA) LLC for a period of 180 days after the date of this
prospectus. However, in the event that either (1) during
the last 17 days of the
lock-up
period, we release earnings results or material news or a
material event relating to us occurs or (2) prior to the
expiration of the
lock-up
period, we announce that we will release earnings results during
the 16-day
period beginning on the last day of the
lock-up
period, then in either case the expiration of the
lock-up
will be extended until the expiration of the
18-day
period beginning on the date of the release of the earnings
results or the occurrence of the material news or event, as
applicable, unless Credit Suisse Securities (USA) LLC waives, in
writing, such an extension.
We and the selling stockholders have agreed to indemnify the
underwriters against liabilities under the Securities Act, or
contribute to payments that the underwriters may be required to
make in that respect.
We have applied to list the shares of common stock on The NASDAQ
Global Market under the symbol SCOR.
Prior to this offering, there has been no public market for our
common stock. The initial public offering price has been
determined by a negotiation between us and Credit Suisse
Securities (USA) LLC and will not necessarily reflect the market
price of our common stock following the offering. The principal
factors that were considered in determining the public offering
price included:
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the information presented in this prospectus and otherwise
available to the underwriters;
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the history of and prospects for the industry in which we
compete;
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the ability of our management;
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the prospects for our future earnings;
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the present state of our development and our current financial
condition;
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the recent market prices of, and the demand for, publicly traded
common stock of generally comparable companies; and
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the general condition for the securities markets at the time of
this offering.
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In connection with the offering the underwriters may engage in
stabilizing transactions, over-allotment transactions, syndicate
covering transactions and penalty bids in accordance with
Regulation M under the Securities Exchange Act of 1934, or
the Exchange Act.
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Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a
specified maximum.
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Over-allotment involves sales by the underwriters of shares in
excess of the number of shares the underwriters are obligated to
purchase, which creates a syndicate short position. The short
position may
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116
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be either a covered short position or a naked short position. In
a covered short position, the number of shares over-allotted by
the underwriters is not greater than the number of shares that
they may purchase in the over-allotment option. In a naked short
position, the number of shares involved is greater than the
number of shares in the over-allotment option. The underwriters
may close out any covered short position by either exercising
their over-allotment option
and/or
purchasing shares in the open market.
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Syndicate covering transactions involve purchases of the common
stock in the open market after the distribution has been
completed in order to cover syndicate short positions. In
determining the source of shares to close out the short
position, the underwriters will consider, among other things,
the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through
the over-allotment option. If the underwriters sell more shares
than could be covered by the over-allotment option, a naked
short position, the position can only be closed out by buying
shares in the open market. A naked short position is more likely
to be created if the underwriters are concerned that there could
be downward pressure on the price of the shares in the open
market after pricing that could adversely affect investors who
purchase in the offering.
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Penalty bids permit Credit Suisse Securities (USA) LLC to
reclaim a selling concession from a syndicate member when the
common stock originally sold by the syndicate member is
purchased in a stabilizing or syndicate covering transaction to
cover syndicate short positions.
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These stabilizing transactions, syndicate covering transactions
and penalty bids may have the effect of raising or maintaining
the market price of our common stock or preventing or retarding
a decline in the market price of the common stock. As a result
the price of our common stock may be higher than the price that
might otherwise exist in the open market. These transactions may
be effected on The NASDAQ Global Market and, if commenced, may
be discontinued at any time.
A prospectus in electronic format may be made available on the
Web sites maintained by one or more of the underwriters, or
selling group members, if any, participating in this offering
and one or more of the underwriters participating in this
offering may distribute prospectuses electronically. Credit
Suisse Securities (USA) LLC may agree to allocate a number of
shares to underwriters and selling group members for sale to
their online brokerage account holders. Internet distributions
will be allocated by the underwriters and selling group members
that will make Internet distributions on the same basis as other
allocations.
The common stock is being offered for sale in those
jurisdictions in the United States, Europe and elsewhere where
it is lawful to make such offers.
In relation to each Member State of the European Economic Area
that has implemented the Prospectus Directive (each, a
Relevant Member State), each underwriter represents
and agrees that with effect from and including the date on which
the Prospectus Directive is implemented in that Relevant Member
State (the Relevant Implementation Date) it has not
made and will not make an offer of shares to the public in that
Relevant Member State prior to the publication of a prospectus
in relation to the shares which has been approved by the
competent authority in that Relevant Member State or, where
appropriate, approved in another Relevant Member State and
notified to the competent authority in that Relevant Member
State, all in accordance with the Prospectus Directive, except
that it may, with effect from and including the Relevant
Implementation Date, make an offer of shares to the public in
that Relevant Member State at any time:
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(a)
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to legal entities that are authorized or regulated to operate in
the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities;
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(b)
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to any legal entity that has two or more of (1) an average
of at least 250 employees during the last financial year;
(2) a total balance sheet of more than 43,000,000 and
(3) an annual net turnover of more than 50,000,000,
as shown in its last annual or consolidated accounts;
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(c)
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to fewer than 100 natural or legal persons (other than qualified
investors as defined in the Prospectus Directive) subject to
obtaining the prior consent of the manager for any such
offer; or
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(d)
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in any other circumstances that do not require the publication
by us of a prospectus pursuant to Article 3 of the
Prospectus Directive.
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117
For the purposes of this provision, the expression an
offer of shares to the public in relation to any
shares in any Relevant Member State means the communication in
any form and by any means of sufficient information on the terms
of the offer and the shares to be offered so as to enable an
investor to decide to purchase or subscribe the shares, as the
same may be varied in that Member State by any measure
implementing the Prospectus Directive in that Member State and
the expression Prospectus Directive means Directive
2003/71/EC
and includes any relevant implementing measure in each Relevant
Member State.
Each of the underwriters has represented and agreed that:
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|
|
(a)
|
it has only communicated or caused to be communicated and will
only communicate or cause to be communicated an invitation or
inducement to engage in investment activity (within the meaning
of section 21 of FSMA) to persons who have professional
experience in matters relating to investments falling with
Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005 or in circumstances in
which section 21 of FSMA does not apply to us; and
|
|
|
|
|
(b)
|
it has complied with, and will comply with, all applicable
provisions of FSMA with respect to anything done by it in
relation to the common stock in, from or otherwise involving the
United Kingdom.
|
118
NOTICE TO
CANADIAN RESIDENTS
Resale
Restrictions
The distribution of the common stock in Canada is being made
only on a private placement basis exempt from the requirement
that we and the selling stockholders prepare and file a
prospectus with the securities regulatory authorities in each
province where trades of common stock are made. Any resale of
the common stock in Canada must be made under applicable
securities laws, which will vary depending on the relevant
jurisdiction, and which may require resales to be made under
available statutory exemptions or under a discretionary
exemption granted by the applicable Canadian securities
regulatory authority. Purchasers are advised to seek legal
advice prior to any resale of shares of the common stock.
Representations
of Purchasers
By purchasing common stock in Canada and accepting a purchase
confirmation, a purchaser is representing to us, the selling
stockholders and the dealer from whom the purchase confirmation
is received that:
|
|
|
|
|
the purchaser is entitled under applicable provincial securities
laws to purchase the common stock without the benefit of a
prospectus qualified under those securities laws;
|
|
|
|
where required by law, that the purchaser is purchasing as
principal and not as agent;
|
|
|
|
the purchaser has reviewed the text above under Resale
Restrictions; and
|
|
|
|
the purchaser acknowledges and consents to the provision of
specified information concerning its purchase of common stock to
the regulatory authority that by law is entitled to collect the
information.
|
Further details concerning the legal authority for this
information is available on request.
Rights of
Action Ontario Purchasers Only
Under Ontario securities legislation, certain purchasers who
purchase a security offered by this prospectus during the period
of distribution will have a statutory right of action for
damages or, while still the owner of shares of common stock, for
rescission against us and the selling stockholders in the event
that this prospectus contains a misrepresentation without regard
to whether the purchaser relied on the misrepresentation. The
right of action for damages is exercisable not later than the
earlier of 180 days from the date the purchaser first had
knowledge of the facts giving rise to the cause of action and
three years from the date on which payment is made for shares of
common stock. The right of action for rescission is exercisable
not later than 180 days from the date on which payment is
made for shares of common stock. If a purchaser elects to
exercise the right of action for rescission, the purchaser will
have no right of action for damages against us or the selling
stockholders. In no case will the amount recoverable in any
action exceed the price at which shares of common stock were
offered to the purchaser and if the purchaser is shown to have
purchased the securities with knowledge of the
misrepresentation, we and the selling stockholders will have no
liability. In the case of an action for damages, we and the
selling stockholders will not be liable for all or any portion
of the damages that are proven to not represent the depreciation
in value of the common stock as a result of the
misrepresentation relied upon. These rights are in addition to,
and without derogation from, any other rights or remedies
available at law to an Ontario purchaser. The foregoing is a
summary of the rights available to an Ontario purchaser. Ontario
purchasers should refer to the complete text of the relevant
statutory provisions.
Enforcement
of Legal Rights
All of our directors and officers as well as the experts
named herein and the selling stockholders may be located outside
of Canada and, as a result, it may not be possible for Canadian
purchasers to effect service of process within Canada upon us or
those persons. All or a substantial portion of our assets and
the assets of those persons may be located outside of Canada
and, as a result, it may not be
119
possible to satisfy a judgment against us or those persons in
Canada or to enforce a judgment obtained in Canadian courts
against us or those persons outside of Canada.
Taxation
and Eligibility for Investment
Canadian purchasers of our common stock should consult their own
legal and tax advisors with respect to the tax consequences of
an investment in the common stock in their particular
circumstances and about the eligibility of the common stock for
investment by the purchaser under relevant Canadian legislation.
LEGAL
MATTERS
The validity of the shares of common stock offered hereby has
been passed upon for comScore, Inc. by Wilson Sonsini
Goodrich & Rosati, Professional Corporation,
Washington, D.C. The underwriters have been represented in
connection with this offering by Cravath, Swaine &
Moore LLP, New York, New York. Certain members of, investment
partnerships comprised of members of, and persons associated
with, Wilson Sonsini Goodrich & Rosati, Professional
Corporation beneficially hold an aggregate of 151,083 shares of
our common stock on an as-converted basis.
EXPERTS
Ernst & Young LLP, independent registered public
accounting firm, has audited our consolidated financial
statements and schedule at December 31, 2005 and 2006, and
for each of the three years in the period ended
December 31, 2006, as set forth in their reports. We have
included our consolidated financial statements and schedule in
this prospectus and elsewhere in the registration statement in
reliance on Ernst & Young LLPs reports, given on
their authority as experts in accounting and auditing.
120
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on
Form S-1
with the SEC for the common stock we are offering pursuant to
this prospectus. This prospectus does not include all of the
information contained in the registration statement. You should
refer to the registration statement and its exhibits for
additional information. Whenever we make reference in this
prospectus to any of our contracts, agreements or other
documents, the references are summaries and are not necessarily
complete and you should refer to the exhibits attached to the
registration statement for copies of the actual contract,
agreement or other document. When we complete this offering, we
will also be required to file annual, quarterly and special
reports, proxy statements and other information with the SEC.
You can read our SEC filings, including the registration
statement, over the Internet at the SECs Web site at
www.sec.gov. You may also read and copy any document we file
with the SEC at its public reference facilities at 100 F Street,
N.E., Room 1580, Washington, D.C. 20549. You may also
obtain copies of the documents at prescribed rates by writing to
the Public Reference Section of the SEC at 100 F Street, N.E.,
Room 1580, Washington, D.C. 20549. Please call the SEC
at
1-800-SEC-0330
for further information on the operation of the public reference
facilities.
121
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
comScore, Inc.
We have audited the accompanying consolidated balance sheets of
comScore, Inc. (the Company) as of December 31, 2005 and
2006, and the related consolidated statements of operations,
stockholders deficit, and cash flows for each of the three
years in the period ended December 31, 2006. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on the 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. We were not engaged to perform an
audit of the Companys internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of comScore, Inc. at
December 31, 2005 and 2006, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2006, in conformity with
U.S. generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial
statements, the Company adopted FASB Staff
Position 150-5,
Issuers Accounting Under FASB Statement No. 150
for Freestanding Warrants and Other Similar Instruments on
Shares That Are Redeemable, effective July 1, 2005, and
changed its method of accounting for stock-based compensation in
accordance with guidance provided in FASB Statement
No. 123(R), Share-Based Payments, effective January
1, 2006.
March 29, 2007
McLean, Virginia
F-2
COMSCORE,
INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,124
|
|
|
$
|
5,032
|
|
|
$
|
6,706
|
|
|
|
|
|
Short-term investments
|
|
|
4,050
|
|
|
|
11,000
|
|
|
|
11,475
|
|
|
|
|
|
Accounts receivable, net of
allowances of $185, $188 and $235, respectively
|
|
|
10,328
|
|
|
|
14,123
|
|
|
|
14,941
|
|
|
|
|
|
Prepaid expenses and other current
assets
|
|
|
1,029
|
|
|
|
1,068
|
|
|
|
1,126
|
|
|
|
|
|
Restricted cash
|
|
|
261
|
|
|
|
270
|
|
|
|
272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
20,792
|
|
|
|
31,493
|
|
|
|
34,520
|
|
|
|
|
|
Property and equipment, net
|
|
|
4,480
|
|
|
|
6,980
|
|
|
|
6,615
|
|
|
|
|
|
Other non-current assets
|
|
|
786
|
|
|
|
1,267
|
|
|
|
2,290
|
|
|
|
|
|
Intangible assets, net
|
|
|
2,355
|
|
|
|
983
|
|
|
|
690
|
|
|
|
|
|
Goodwill
|
|
|
1,064
|
|
|
|
1,364
|
|
|
|
1,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
29,477
|
|
|
$
|
42,087
|
|
|
$
|
45,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
COMSCORE,
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except share data)
|
|
|
Liabilities and
stockholders deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,048
|
|
|
$
|
1,353
|
|
|
$
|
1,088
|
|
Accrued expenses
|
|
|
4,185
|
|
|
|
6,020
|
|
|
|
6,185
|
|
Deferred revenues
|
|
|
19,588
|
|
|
|
22,776
|
|
|
|
25,204
|
|
Capital lease obligations
|
|
|
1,618
|
|
|
|
1,726
|
|
|
|
1,425
|
|
Preferred stock warrant liabilities
|
|
|
781
|
|
|
|
1,005
|
|
|
|
995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
27,220
|
|
|
|
32,880
|
|
|
|
34,897
|
|
Capital lease obligations,
long-term
|
|
|
1,283
|
|
|
|
2,261
|
|
|
|
1,896
|
|
Deferred tax liability
|
|
|
174
|
|
|
|
77
|
|
|
|
58
|
|
Other liabilities
|
|
|
362
|
|
|
|
374
|
|
|
|
339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
29,039
|
|
|
|
35,592
|
|
|
|
37,190
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable preferred stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A preferred
convertible stock, $0.001 par value; 9,187,500 shares
authorized; 9,187,500 shares issued and outstanding;
liquidation preference of $7,715 at March 31, 2007
|
|
|
8,443
|
|
|
|
8,154
|
|
|
|
8,083
|
|
Series B preferred
convertible stock, $0.001 par value; 3,535,486 shares
authorized; 3,479,241 shares issued and outstanding;
liquidation preference of $14,315 at March 31, 2007
|
|
|
15,668
|
|
|
|
15,130
|
|
|
|
14,998
|
|
Series C preferred
convertible stock, $0.001 par value; 13,355,052 shares
authorized; 13,236,018 shares issued and outstanding;
liquidation preference of $25,220 at March 31, 2007
|
|
|
27,565
|
|
|
|
26,633
|
|
|
|
26,405
|
|
Series C-1
preferred convertible stock, $0.001 par value;
357,144 shares authorized; 357,144 shares issued and
outstanding; liquidation preference of $420 at March 31,
2007
|
|
|
458
|
|
|
|
443
|
|
|
|
439
|
|
Series D preferred
convertible stock, $0.001 par value; 22,238,042 shares
authorized; 21,564,020 shares issued and outstanding;
liquidation preference of $40,723 at March 31, 2007
|
|
|
31,337
|
|
|
|
34,682
|
|
|
|
35,573
|
|
Series E preferred
convertible stock, $0.001 par value; 25,000,000 shares
authorized; 24,005,548 shares issued and outstanding;
liquidation preference of $19,565 at March 31, 2007
|
|
|
15,045
|
|
|
|
16,653
|
|
|
|
17,082
|
|
Common Stock subject to put;
1,738,172 shares issued and outstanding
|
|
|
4,216
|
|
|
|
4,357
|
|
|
|
4,392
|
|
Stockholders deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par
value; 130,000,000 shares authorized; 16,737,440,
20,000,813 and 23,890,774 shares issued and outstanding at
December 31, 2005 and 2006 and March 31, 2007,
respectively
|
|
|
17
|
|
|
|
20
|
|
|
|
24
|
|
Additional paid-in capital
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred stock compensation
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive
loss
|
|
|
(24
|
)
|
|
|
(75
|
)
|
|
|
(70
|
)
|
Accumulated deficit
|
|
|
(102,281
|
)
|
|
|
(99,502
|
)
|
|
|
(98,637
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders deficit
|
|
|
(102,294
|
)
|
|
|
(99,557
|
)
|
|
|
(98,683
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders deficit
|
|
$
|
29,477
|
|
|
$
|
42,087
|
|
|
$
|
45,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
COMSCORE,
INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Years Ended December 31,
|
|
|
March 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Revenues
|
|
$
|
34,894
|
|
|
$
|
50,267
|
|
|
$
|
66,293
|
|
|
$
|
14,985
|
|
|
$
|
18,681
|
|
Cost of revenues (excludes
amortization of intangible assets resulting from acquisitions
shown below)(1)
|
|
|
13,153
|
|
|
|
18,218
|
|
|
|
20,560
|
|
|
|
5,148
|
|
|
|
5,388
|
|
Selling and marketing(1)
|
|
|
13,890
|
|
|
|
18,953
|
|
|
|
21,473
|
|
|
|
5,345
|
|
|
|
6,451
|
|
Research and development(1)
|
|
|
5,493
|
|
|
|
7,416
|
|
|
|
9,009
|
|
|
|
2,137
|
|
|
|
2,556
|
|
General and administrative(1)
|
|
|
4,982
|
|
|
|
7,089
|
|
|
|
8,293
|
|
|
|
1,918
|
|
|
|
2,507
|
|
Amortization of intangible assets
resulting from acquisitions
|
|
|
356
|
|
|
|
2,437
|
|
|
|
1,371
|
|
|
|
371
|
|
|
|
293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses from operations
|
|
|
37,874
|
|
|
|
54,113
|
|
|
|
60,706
|
|
|
|
14,919
|
|
|
|
17,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(2,980
|
)
|
|
|
(3,846
|
)
|
|
|
5,587
|
|
|
|
66
|
|
|
|
1,486
|
|
Interest (expense) income, net
|
|
|
(246
|
)
|
|
|
(208
|
)
|
|
|
231
|
|
|
|
11
|
|
|
|
97
|
|
(Loss) gain from foreign currency
|
|
|
|
|
|
|
(96
|
)
|
|
|
125
|
|
|
|
6
|
|
|
|
(8
|
)
|
Revaluation of preferred stock
warrant liabilities
|
|
|
|
|
|
|
(14
|
)
|
|
|
(224
|
)
|
|
|
2
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
and cumulative effect of change in accounting principle
|
|
|
(3,226
|
)
|
|
|
(4,164
|
)
|
|
|
5,719
|
|
|
|
85
|
|
|
|
1,586
|
|
(Benefit) provision for income
taxes
|
|
|
|
|
|
|
(182
|
)
|
|
|
50
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income before
cumulative effect of change in accounting principle
|
|
|
(3,226
|
)
|
|
|
(3,982
|
)
|
|
|
5,669
|
|
|
|
85
|
|
|
|
1,540
|
|
Cumulative effect of change in
accounting principle
|
|
|
|
|
|
|
(440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(3,226
|
)
|
|
|
(4,422
|
)
|
|
|
5,669
|
|
|
|
85
|
|
|
|
1,540
|
|
Accretion of redeemable preferred
stock
|
|
|
(2,141
|
)
|
|
|
(2,638
|
)
|
|
|
(3,179
|
)
|
|
|
(742
|
)
|
|
|
(885
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to
common stockholders
|
|
$
|
(5,367
|
)
|
|
$
|
(7,060
|
)
|
|
$
|
2,490
|
|
|
$
|
(657
|
)
|
|
$
|
655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to
common stockholders per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.38
|
)
|
|
$
|
(0.46
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.04
|
)
|
|
$
|
0.00
|
|
Weighted-average number of shares
used in per share calculation common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
14,358,561
|
|
|
|
15,650,969
|
|
|
|
19,236,064
|
|
|
|
18,049,639
|
|
|
|
20,754,230
|
|
Net (loss) income attributable to
common stockholders per common share subject to put:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.07
|
|
|
$
|
0.08
|
|
|
$
|
0.08
|
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
Weighted-average number of shares
used in per share calculation common share subject
to put:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
457,596
|
|
|
|
1,738,172
|
|
|
|
1,738,172
|
|
|
|
1,738,172
|
|
|
|
1,738,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Amortization of
stock-based compensation is included in the line items above as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
12
|
|
|
$
|
|
|
|
$
|
9
|
|
Selling and marketing
|
|
|
|
|
|
|
|
|
|
|
82
|
|
|
|
6
|
|
|
|
39
|
|
Research and development
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
8
|
|
General and administrative
|
|
|
14
|
|
|
|
3
|
|
|
|
91
|
|
|
|
1
|
|
|
|
51
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
COMSCORE,
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional Paid-In
|
|
|
Deferred Stock
|
|
|
Comprehensive
|
|
|
|
|
|
Total Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Income (Loss)
|
|
|
Accumulated Deficit
|
|
|
Deficit
|
|
|
|
(In thousands, except share data)
|
|
|
Balance at December 31, 2003
|
|
|
13,729,967
|
|
|
$
|
14
|
|
|
$
|
|
|
|
$
|
(10
|
)
|
|
$
|
30
|
|
|
$
|
(89,953
|
)
|
|
$
|
(89,919
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,226
|
)
|
|
|
(3,226
|
)
|
Foreign currency translation
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
(19
|
)
|
Exercise of common stock options
|
|
|
2,403,710
|
|
|
|
2
|
|
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123
|
|
Repurchase of options previously
issued
|
|
|
(928,125
|
)
|
|
|
(1
|
)
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46
|
)
|
Amortization of deferred stock
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Issuance of common stock warrants
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
Accretion of redeemable preferred
stock warrants
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
Accretion of redeemable preferred
stock
|
|
|
|
|
|
|
|
|
|
|
(105
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,036
|
)
|
|
|
(2,141
|
)
|
Accretion of common stock subject
to put
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32
|
)
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
15,205,552
|
|
|
|
15
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
11
|
|
|
|
(95,247
|
)
|
|
|
(95,230
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,422
|
)
|
|
|
(4,422
|
)
|
Foreign currency translation
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35
|
)
|
|
|
|
|
|
|
(35
|
)
|
Exercise of common stock options
|
|
|
1,531,888
|
|
|
|
2
|
|
|
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136
|
|
Amortization of deferred stock
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Issuance of common stock warrants
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
Accretion of redeemable preferred
stock warrants
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
Accretion of redeemable preferred
stock
|
|
|
|
|
|
|
|
|
|
|
(158
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,480
|
)
|
|
|
(2,638
|
)
|
Accretion of common stock subject
to put
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(132
|
)
|
|
|
(132
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
16,737,440
|
|
|
|
17
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
(24
|
)
|
|
|
(102,281
|
)
|
|
|
(102,294
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,669
|
|
|
|
5,669
|
|
Foreign currency translation
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51
|
)
|
|
|
|
|
|
|
(51
|
)
|
Exercise of common stock options
|
|
|
3,263,373
|
|
|
|
3
|
|
|
|
238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
241
|
|
Amortization of deferred stock
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
3
|
|
Amortization of stock-based
compensation
|
|
|
|
|
|
|
|
|
|
|
195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
195
|
|
Accretion of redeemable preferred
stock
|
|
|
|
|
|
|
|
|
|
|
(433
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,746
|
)
|
|
|
(3,179
|
)
|
Accretion of common stock subject
to put
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(141
|
)
|
|
|
(141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
20,000,813
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
(75
|
)
|
|
|
(99,502
|
)
|
|
|
(99,557
|
)
|
Net income (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,540
|
|
|
|
1,540
|
|
Foreign currency translation
adjustment (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
Exercise of common stock options
(unaudited)
|
|
|
939,211
|
|
|
|
1
|
|
|
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140
|
|
Issuance of restricted stock
|
|
|
2,950,750
|
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of stock-based
compensation (unaudited)
|
|
|
|
|
|
|
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107
|
|
Accretion of redeemable preferred
stock (unaudited)
|
|
|
|
|
|
|
|
|
|
|
(243
|
)
|
|
|
|
|
|
|
|
|
|
|
(642
|
)
|
|
|
(885
|
)
|
Accretion of common stock subject
to put (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33
|
)
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2007
(unaudited)
|
|
|
23,890,774
|
|
|
$
|
24
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(70
|
)
|
|
$
|
(98,637
|
)
|
|
$
|
(98,683
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
COMSCORE,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
Ended
|
|
|
|
Years Ended December 31,
|
|
|
March 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(3,226
|
)
|
|
$
|
(4,422
|
)
|
|
$
|
5,669
|
|
|
$
|
85
|
|
|
$
|
1,540
|
|
Adjustments to reconcile net
(loss) income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
2,389
|
|
|
|
2,686
|
|
|
|
2,888
|
|
|
|
688
|
|
|
|
861
|
|
Amortization of intangible assets
resulting from acquisitions
|
|
|
356
|
|
|
|
2,437
|
|
|
|
1,371
|
|
|
|
371
|
|
|
|
293
|
|
Provisions for bad debts
|
|
|
12
|
|
|
|
90
|
|
|
|
212
|
|
|
|
|
|
|
|
51
|
|
Stock-based compensation
|
|
|
14
|
|
|
|
3
|
|
|
|
198
|
|
|
|
7
|
|
|
|
107
|
|
Revaluation of preferred stock
warrant liabilities
|
|
|
|
|
|
|
14
|
|
|
|
224
|
|
|
|
(2
|
)
|
|
|
(10
|
)
|
Cumulative effect of change in
accounting principle
|
|
|
|
|
|
|
440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred finance
costs
|
|
|
30
|
|
|
|
33
|
|
|
|
33
|
|
|
|
9
|
|
|
|
1
|
|
Deferred tax benefit
|
|
|
|
|
|
|
(182
|
)
|
|
|
(97
|
)
|
|
|
|
|
|
|
(19
|
)
|
Changes in operating assets and
liabilities, net of effect of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
(736
|
)
|
|
|
(3,540
|
)
|
|
|
(3,882
|
)
|
|
|
2,335
|
|
|
|
(843
|
)
|
Prepaid expenses and other current
assets
|
|
|
539
|
|
|
|
(157
|
)
|
|
|
(311
|
)
|
|
|
(276
|
)
|
|
|
(3
|
)
|
Other non-current assets
|
|
|
174
|
|
|
|
539
|
|
|
|
30
|
|
|
|
325
|
|
|
|
(6
|
)
|
Accounts payable, accrued
expenses, and other liabilities
|
|
|
1,747
|
|
|
|
(115
|
)
|
|
|
1,431
|
|
|
|
402
|
|
|
|
(1,222
|
)
|
Deferred revenues
|
|
|
608
|
|
|
|
6,427
|
|
|
|
3,139
|
|
|
|
(1,120
|
)
|
|
|
2,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
1,907
|
|
|
|
4,253
|
|
|
|
10,905
|
|
|
|
2,824
|
|
|
|
3,156
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of restricted cash
|
|
|
|
|
|
|
(41
|
)
|
|
|
(9
|
)
|
|
|
(2
|
)
|
|
|
(2
|
)
|
Purchase of short-term investments
|
|
|
(5,600
|
)
|
|
|
(8,960
|
)
|
|
|
(14,900
|
)
|
|
|
(3,600
|
)
|
|
|
(1,575
|
)
|
Sale of short-term investments
|
|
|
6,400
|
|
|
|
8,810
|
|
|
|
7,950
|
|
|
|
1,500
|
|
|
|
1,100
|
|
Purchase of property and equipment
|
|
|
(1,208
|
)
|
|
|
(1,071
|
)
|
|
|
(2,314
|
)
|
|
|
(292
|
)
|
|
|
(494
|
)
|
Acquisition of businesses, net of
cash acquired of $715 in 2005
|
|
|
(924
|
)
|
|
|
(943
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of additional
consideration for acquired businesses
|
|
|
|
|
|
|
(300
|
)
|
|
|
(300
|
)
|
|
|
(300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(1,332
|
)
|
|
|
(2,505
|
)
|
|
|
(9,573
|
)
|
|
|
(2,694
|
)
|
|
|
(971
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the exercise of
common stock options
|
|
|
123
|
|
|
|
136
|
|
|
|
241
|
|
|
|
116
|
|
|
|
140
|
|
Repurchase of previously issued
stock options
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on capital
lease obligations
|
|
|
(1,029
|
)
|
|
|
(1,228
|
)
|
|
|
(1,622
|
)
|
|
|
(387
|
)
|
|
|
(665
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing
activities
|
|
|
(952
|
)
|
|
|
(1,092
|
)
|
|
|
(1,381
|
)
|
|
|
(271
|
)
|
|
|
(525
|
)
|
Effect of exchange rate changes on
cash
|
|
|
25
|
|
|
|
(36
|
)
|
|
|
(43
|
)
|
|
|
18
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash
and cash equivalents
|
|
|
(352
|
)
|
|
|
620
|
|
|
|
(92
|
)
|
|
|
(123
|
)
|
|
|
1,674
|
|
Cash and cash equivalents at
beginning of year
|
|
|
4,856
|
|
|
|
4,504
|
|
|
|
5,124
|
|
|
|
5,124
|
|
|
|
5,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end
of year
|
|
$
|
4,504
|
|
|
$
|
5,124
|
|
|
$
|
5,032
|
|
|
$
|
5,001
|
|
|
$
|
6,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow
disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
353
|
|
|
$
|
314
|
|
|
$
|
249
|
|
|
$
|
79
|
|
|
$
|
88
|
|
Capital lease obligations incurred
|
|
$
|
|
|
|
$
|
1,704
|
|
|
$
|
2,707
|
|
|
$
|
|
|
|
$
|
|
|
Accretion of preferred stock
|
|
$
|
2,141
|
|
|
$
|
2,638
|
|
|
$
|
3,179
|
|
|
$
|
742
|
|
|
$
|
885
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
comScore, Inc. (the Company), a Delaware corporation
incorporated in August 1999, provides a digital marketing
intelligence platform that helps customers make better-informed
business decisions and implement more effective digital business
strategies. The Companys products and solutions offer
customers insights into consumer behavior, including objective,
detailed information regarding usage of their online properties
and those of their competitors, coupled with information on
consumer demographic characteristics, attitudes, lifestyles and
offline behavior.
The Companys digital marketing intelligence platform is
comprised of proprietary databases and a computational
infrastructure that measures, analyzes and reports on digital
activity. The foundation of the platform is data collected from
a panel of more than two million Internet users worldwide who
have granted to the Company explicit permission to
confidentially measure their Internet usage patterns, online and
certain offline buying behavior and other activities. By
applying advanced statistical methodologies to the panel data,
the Company projects consumers online behavior for the
total online population and a wide variety of user categories.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Basis
of Presentation and Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany transactions and accounts have been
eliminated upon consolidation. The Company consolidates
investments where it has a controlling financial interest as
defined by Accounting Research Bulletin (ARB) No. 51,
Consolidated Financial Statements, as amended by
Statement of Financial Accounting Standards (SFAS) No. 94,
Consolidation of all Majority-Owned Subsidiaries. The
usual condition for controlling financial interest is ownership
of a majority of the voting interest and, therefore, as a
general rule, ownership, directly or indirectly, of more than
50% of the outstanding voting shares is a condition indicating
consolidation. For investments in variable interest entities, as
defined by Financial Accounting Standards Board (FASB)
Interpretation No. 46, Consolidation of Variable
Interest Entities, the Company would consolidate when it is
determined to be the primary beneficiary of a variable interest
entity. The Company does not have any variable interest entities.
Unaudited
Interim Financial Information
The accompanying unaudited interim consolidated balance sheet as
of March 31, 2007, the consolidated statements of
operations and cash flows for the three months ended
March 31, 2006 and 2007 and the consolidated statement of
stockholders deficit for the three months ended
March 31, 2007 are unaudited. These unaudited interim
consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States. In the opinion of the Companys management,
the unaudited interim consolidated financial statements have
been prepared on the same basis as the audited consolidated
financial statements and include all adjustments necessary for
the fair presentation of the Companys statement of
financial position, results of operations and its cash flows for
the three months ended March 31, 2006 and 2007. The results
for the three months ended March 31, 2007 are not
necessarily indicative of the results to be expected for the
year ending December 31, 2007. All references to
March 31, 2007 or to the three months ended March 31,
2006 and 2007 in the notes to the consolidated financial
statements are unaudited.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the reported amounts of
F-8
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
assets and liabilities and the disclosure 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 materially from those
estimates.
Reclassifications
Certain amounts in the prior years financial statements
have been reclassified to conform to the current year
presentation.
Cash
and Cash Equivalents, Short-Term Investments, and Restricted
Cash
Cash and cash equivalents and restricted cash consist of highly
liquid investments with an original maturity of three months or
less at the time of purchase. Cash, cash equivalents, and
restricted cash consists primarily of money market accounts.
Short-term investments, which consist principally of high-grade
auction rate securities, are stated at fair market value, which
approximates cost. These securities are accounted for as
available-for-sale
securities in accordance with SFAS No. 115,
Accounting for Certain Investments in Debt and Equity
Securities. The Company typically has the option to
re-invest in its short-term investments every 30 days. The
Company uses the specific identification method to compute
realized gains and losses on its short-term investments.
Restricted cash is comprised of a certificate of deposit that is
collateral for a letter of credit pertaining to the security
deposit for an operating lease.
Interest income on short-term investments was $100,000, $133,000
and $515,000 for the years ended December 31, 2004, 2005
and 2006, respectively.
Accounts
Receivable
Accounts receivable are recorded at the invoiced amount and are
non-interest bearing. The Company generally grants
uncollateralized credit terms to its customers and maintains an
allowance for doubtful accounts to reserve for potentially
uncollectible receivables. Allowances are based on
managements judgment, which considers historical
experience and specific knowledge of accounts where
collectibility may not be probable. The Company makes provisions
based on historical bad debt experience, a specific review of
all significant outstanding invoices and an assessment of
general economic conditions. If the financial condition of a
customer deteriorates, resulting in an impairment of its ability
to make payments, additional allowances may be required.
Property
and Equipment
Property and equipment is stated at cost, net of accumulated
depreciation. Property and equipment is depreciated on a
straight-line basis over the estimated useful lives of the
assets, ranging from three to five years. Assets under capital
leases are recorded at their net present value at the inception
of the lease and are included in the appropriate asset category.
Assets under capital leases and leasehold improvements are
amortized over the shorter of the related lease terms or their
useful lives. Replacements and major improvements are
capitalized; maintenance and repairs are charged to expense as
incurred. Amortization of assets under capital leases is
included within the expense category on the Statement of
Operations in which the asset is deployed.
Goodwill
and Intangible Assets
Goodwill represents the excess of the purchase price over the
fair value of identifiable assets acquired and liabilities
assumed when other businesses are acquired. The allocation of
the purchase price to intangible
F-9
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
assets and goodwill involves the extensive use of
managements estimates and assumptions, and the result of
the allocation process can have a significant impact on future
operating results. The Company estimates the fair value of
identifiable intangible assets acquired using several different
valuation approaches, including the replacement cost, income and
market approaches. The replacement cost approach is based on
determining the discrete cost of replacing or reproducing a
specific asset. The Company generally uses the replacement cost
approach for estimating the value of acquired
technology/methodology assets. The income approach converts the
anticipated economic benefits that the Company assumes will be
realized from a given asset into value. Under this approach,
value is measured as the present worth of anticipated future net
cash flows generated by an asset. The Company generally uses the
income approach to value customer relationship assets and
non-compete agreements. The market approach compares the
acquired asset to similar assets that have been sold. The
Company generally uses the market approach to value trademarks
and brand assets.
Under SFAS No. 142, Goodwill and Other Intangible
Assets (SFAS 142), intangible assets with finite lives
are amortized over their useful lives while goodwill and
indefinite lived assets are not amortized but are evaluated for
potential impairment at least annually by comparing the fair
value of a reporting unit, based on estimated future cash flows,
to its carrying value including goodwill recorded by the
reporting unit. If the carrying value exceeds the fair value,
impairment is measured by comparing the derived fair value of
the goodwill to its carrying value, and any impairment
determined is recorded in the current period. In accordance with
SFAS 142, all of the Companys goodwill is associated
with one reporting unit. Accordingly, on an annual basis the
Company performs the impairment assessment for goodwill required
under SFAS 142 at the enterprise level. The Company
completed its annual impairment analysis for 2004, 2005 and 2006
and determined that there was no impairment of goodwill.
Intangible assets with finite lives are amortized using the
straight-line method over the following useful lives:
|
|
|
|
|
|
|
Useful Lives (Years)
|
|
|
Non-compete agreements
|
|
|
3 to 4
|
|
Customer relationships
|
|
|
1 to 3
|
|
Acquired methodologies/technology
|
|
|
1 to 3
|
|
Trademarks and brands
|
|
|
2
|
|
Impairment
of Long-Lived Assets
Long-lived assets, including property and equipment, are
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount should be
addressed pursuant to SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets
(SFAS 144). Pursuant to SFAS 144, impairment is
determined by comparing the carrying value of these long-lived
assets to an estimate of the future undiscounted cash flows
expected to result from the use of the assets and eventual
disposition. In the event an impairment exists, a loss is
recognized based on the amount by which the carrying value
exceeds the fair value of the asset, which is generally
determined by using quoted market prices or valuation techniques
such as the discounted present value of expected future cash
flows, appraisals, or other pricing models as appropriate. There
were no impairment charges recognized during the years ended
December 31, 2004, 2005 and 2006. In the event that there
are changes in the planned use of the Companys long-term
assets or its expected future undiscounted cash flows are
reduced significantly, the Companys assessment of its
ability to recover the carrying value of these assets could
change.
Foreign
Currency Translation
The Company applies SFAS No. 52, Foreign Currency
Translation, with respect to its international operations.
The functional currency of the Companys foreign
subsidiaries is the local currency. All assets and
F-10
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
liabilities are translated at the current exchange rate as of
the end of the period, and revenues and expenses are translated
at average exchange rates in effect during the period. The gain
or loss resulting from the process of translating foreign
currency financial statements into U.S. dollars is included
as a component of other comprehensive income. The Company
incurred a foreign currency transaction loss of $96,000 for the
year ended December 31, 2005 and a gain of $125,000 for the
year ended December 31, 2006. These gains and losses
related to U.S. dollar denominated cash accounts and
accounts receivable held by the Companys foreign
subsidiaries. Foreign currency transaction losses were not
material in 2004.
Business
Segment Information
The Company is managed and operated as one business segment. A
single management team reports to the chief operating decision
maker who manages the entire business. The Company does not
operate any material separate lines of business or separate
business entities with respect to its services. The various
products that the Company offers are all related to analyzing
consumer behavior on the Internet. The same data source is used
regardless of the product delivered. The Companys expenses
are shared and are not allocated to individual products.
Accordingly, the Company does not accumulate discrete financial
information by product line and does not have separately
reportable segments as defined by SFAS No. 131,
Disclosure About Segments of an Enterprise and Related
Information.
Revenue
Recognition
The Company recognizes revenues in accordance with Securities
and Exchange Commission Staff Accounting Bulletin (SAB)
No. 104, Revenue Recognition (SAB 104).
SAB 104 requires that four basic criteria must be met prior
to revenue recognition: (i) persuasive evidence of an
arrangement exists, (ii) delivery has occurred or the
services have been rendered, (iii) the fee is fixed and
determinable and (iv) collection of the resulting
receivable is reasonably assured.
The Company generates revenues by providing access to the
Companys online database or delivering information
obtained from the database, usually in the form of periodic
reports. Revenues are typically recognized on a straight-line
basis over the period in which access to data or reports are
provided, which generally ranges from three to 24 months.
Revenues are also generated through survey services under
contracts ranging in term from two months to one year.
Survey services consist of survey and questionnaire design with
subsequent data collection, analysis and reporting. Revenues are
recognized on a straight-line basis over the estimated data
collection period once the survey or questionnaire has been
delivered. Any change in the estimated data collection period
results in an adjustment to revenues recognized in future
periods.
Certain of the Companys arrangements contain multiple
elements, consisting of the various services the Company offers.
Multiple element arrangements typically consist of a
subscription to the Companys online database combined with
periodic reports of customized data. These arrangements are
accounted for in accordance with Emerging Issues Task Force
(EITF) Issue
No. 00-21,
Revenue Arrangements with Multiple Deliverables. The
Company has determined that there is not objective and reliable
evidence of fair value for any of its services and, therefore,
accounts for all elements in multiple elements arrangements as a
single unit of accounting. Access to data under the subscription
element is generally provided shortly after the execution of the
contract. However, the initial delivery of periodic reports of
customized data generally occurs after the data has been
accumulated for a specified period subsequent to contract
execution, usually one calendar quarter. The Company recognizes
the entire arrangement fee over the performance period of the
last deliverable. As a result, the total arrangement fee is
recognized on a straight-line basis commencing upon the delivery
of the first report of customized data over the period such
reports are delivered.
F-11
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Generally, contracts are non-refundable and non-cancelable. In
the event a portion of a contract is refundable, revenue
recognition is delayed until the refund provisions lapse. A
limited number of customers have the right to cancel their
contracts by providing a written notice of cancellation. In the
event that a customer cancels its contract, the customer is not
entitled to a refund for prior services, and will be charged for
costs incurred plus services performed up to the cancellation
date.
Advance payments are recorded as deferred revenues until
services are delivered or obligations are met and revenue can be
recognized. Deferred revenues represent the excess of amounts
invoiced over amounts recognized as revenues.
Costs
of Revenues
Cost of revenues consists primarily of expenses related to the
operating network infrastructure and the recruitment,
maintenance and support of consumer panels. Expenses associated
with these areas include the salaries, stock-based compensation
and related expenses of network operations, survey operations,
custom analytics and technical support departments, and are
expensed as they are incurred. Cost of revenues also includes
data collection costs for the products and operational costs
associated with the Companys data centers, including
depreciation expense associated with computer equipment.
Selling
and Marketing
Selling and marketing expenses consist primarily of salaries,
stock-based compensation, benefits, commissions and bonuses paid
to the direct sales force and industry analysts, as well as
costs related to online and offline advertising, product
management, seminars, promotional materials, public relations,
other sales and marketing programs, and allocated overhead,
including rent and depreciation. All selling and marketing costs
are expensed as they are incurred.
Research
and Development
Research and development expenses include new product
development costs, consisting primarily of compensation,
stock-based compensation and related costs for personnel
associated with research and development activities, and
allocated overhead, including rent and depreciation.
General
and Administrative
General and administrative expenses consist primarily of
salaries, stock-based compensation and related expenses for
executive management, finance, accounting, human capital, legal,
information technology and other administrative functions, as
well as professional fees, overhead, including allocated rent
and depreciation and expenses incurred for other general
corporate purposes.
Concentration
of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash
equivalents, short term investments and accounts receivable.
Cash equivalents are held at financial institutions, which are
regarded as highly creditworthy. Short term investments consist
of high-grade auction rate securities which the Company has the
option to
re-invest in
every 30 days. With respect to accounts receivable, credit
risk is mitigated by the Companys ongoing credit
evaluation of its customers financial condition.
For the years ended December 31, 2004, 2005 and 2006, one
customer accounted for 5%, 14% and 12%, respectively, of total
revenues. No customer accounted for more than 10% of accounts
receivable as of December 31, 2005 and 2006.
F-12
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Advertising
Costs
All advertising costs are expensed as incurred. Advertising
expense, which is included in sales and marketing expense,
totaled $84,000, $58,000 and $210,000 for the years ended
December 31, 2004, 2005 and 2006, respectively.
Stock-Based
Compensation
In December 2004, the FASB issued SFAS No. 123(R),
Share-Based Payment (SFAS 123R), which requires
companies to expense the estimated fair value of employee stock
options and similar awards. This statement is a revision to
SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS 123), supersedes Accounting
Principles Board Opinion No. 25 (APB 25),
Accounting for Stock Issued to Employees, and amends
SFAS No. 95, Statement of Cash Flows.
Prior to January 1, 2006, the Company accounted for its
stock-based compensation plans under the recognition and
measurement provisions of APB 25, and related
interpretations, as permitted by SFAS 123. Effective
January 1, 2006, the Company adopted SFAS 123R,
including the fair value recognition provisions, using the
prospective method. Under SFAS 123R, a non-public company
that previously used the minimum value method for pro forma
disclosure purposes is required to adopt the standard using the
prospective method. Under the prospective method, all awards
granted, modified or settled after the date of adoption are
accounted for using the measurement, recognition and attribution
provisions of SFAS 123R. As a result, stock-based awards
granted prior to the date of adoption of SFAS 123R will
continue to be accounted for under APB 25 with no
recognition of stock-based compensation in future periods,
unless such awards are modified or settled. Subsequent to the
adoption of SFAS 123R, the Company estimates the value of
stock-based awards on the date of grant using the Black-Scholes
option-pricing model. For stock-based awards subject to graded
vesting, the Company has utilized the straight-line ratable
method for allocating compensation cost by period. For the year
ended December 31, 2006 and the three months ended
March 31, 2006 and 2007, the Company recorded stock-based
compensation expense of $198,000, $7,000 and $107,000,
respectively, in accordance with SFAS 123R.
In its determination of stock based compensation expense under
both APB 25 and SFAS 123R, the Company has estimated
the fair value of its common stock. The primary approach used by
the Company for estimating the fair value of its common stock
was the probability-weighted expected return method, consistent
with the recommendations of the American Institute of Certified
Public Accountants Technical Practice Aid, Valuation of
Privately-Held Company Equity Securities Issued as
Compensation. As the Companys securities are not
publicly traded or subject to any market evaluation of fair
value, the Company utilized valuation methodologies commonly
used in the valuation of private company equity securities.
In its use of the probability-weighted expected return method,
the Company considered a combination of two generally accepted
approaches to determine the Companys business enterprise
value: the income and market approaches. Under the income
approach, value is measured as the present worth of
anticipated future net cash flows generated by the business or
asset. Under the market approach, the Companys
value is compared to similar businesses, business ownership
interests, securities or assets that have been sold. These
approaches were used in conjunction with probability-weighted
expected returns for three scenarios: an initial public
offering, a sale or merger, or the Company remaining privately
held.
Applying the income approach, a discounted cash flow, or DCF
analysis was performed as of the valuation date. The DCF
analysis included a forecast of revenues, operating expenses,
capital expenditures and incremental working capital. Based on
these forecasts, the net cash flow to be generated by the
business during the projection period and the terminal value was
determined and discounted to present value. An unlevered cash
flow forecast was utilized and a weighted-average cost of
capital was used as the discount rate. The income approach was
used to value the Company assuming it remained a private
company. The market
F-13
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
approach was used in the scenario involving a sale or merger of
the Company. Transactions were identified for the acquisition of
similar companies and acquisition multiples were determined and
applied to the Companys operating metrics. The market
approach was also used for the initial public offering scenario,
using comparable public company valuations. The Company
determined a set of comparable public companies and developed
multiples that were then applied to the Companys operating
metrics.
To determine the value of the total equity (both common and
preferred), the value determined under each scenario was then
adjusted by adding non-operating assets and subtracting
interest-bearing obligations. The equity value was then
allocated to the various security holders, including the common
stockholders. Once the common equity value was determined for
each scenario, certain adjustments were also made to reflect the
value of a specific ownership interest in the business including
the application of discounts for lack of marketability and
control in appropriate circumstances. The resulting common
equity value was then divided by the applicable shares
outstanding to arrive at the estimated fair value of common
stock per share for each scenario. As discussed above, the
probability-weighted expected return method was the primary
generally accepted approach used by the Company to determine the
fair value of the Companys common stock. Applying this
approach, relative weightings were determined by the Company
that applied the likelihood of the Company pursuing an initial
public offering versus a sale of the Company or remaining an
independent, private company. This resulted in the final
estimated fair value of common stock per share used in the
Companys determination of stock based compensation.
Cumulative
Effect of Change in Accounting Principle
Effective July 1, 2005, the Company adopted the provisions
of FASB Staff Position
No. 150-5,
Issuers Accounting under Statement No. 150 for
Freestanding Warrants and Other Similar Instruments on Shares
that are Redeemable (FSP
150-5), an
interpretation of SFAS No. 150, Accounting for
Certain Financial Instruments with Characteristics of Both
Liabilities and Equity (SFAS 150). Pursuant to FSP
150-5,
freestanding warrants for shares that are either puttable or
warrants for shares that are redeemable are classified as
liabilities on the consolidated balance sheet at fair value.
Upon adoption of FSP
150-5, the
Company reclassified the carrying value of its warrants to
purchase shares of its redeemable convertible preferred stock
from mezzanine equity to a liability and recorded a cumulative
effect charge of approximately $440,000 for the change in
accounting principle to record the warrants at fair value on
July 1, 2005. The Company recorded additional charges of
approximately $14,000 to reflect the increase in fair value
between July 1, 2005 and December 31, 2005. In the
year ended December 31, 2006, the Company recorded
approximately $224,000 of charges to reflect the increase in
fair value between January 1, 2006 and December 31,
2006. The Company recorded approximately $2,000 and $11,000 of
income during the three months ended March 31, 2006 and
2007, respectively, to reflect a decrease in fair value during
the period. The Company will continue to adjust the liabilities
for changes in fair value until the earlier of the exercise of
the warrants to purchase shares of its redeemable convertible
preferred stock or the completion of a liquidation event,
including the completion of an initial public offering, at which
time the liabilities will be reclassified to stockholders
equity (deficit).
The pro forma effect of the adoption of FSP
150-5 on the
results of operations for fiscal years 2004 and 2005 if applied
retroactively, assuming FSP
150-5 had
been adopted in these years, has not been disclosed as these
amounts would not be materially different from the reported
amounts.
F-14
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Comprehensive
(Loss) Income
Comprehensive (loss) income includes net (loss) income as well
as the effects of foreign currency translation loss adjustments
reflected in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Years Ended December 31,
|
|
|
March 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(3,226
|
)
|
|
$
|
(4,422
|
)
|
|
$
|
5,669
|
|
|
$
|
85
|
|
|
$
|
1,540
|
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency cumulative
translation adjustment
|
|
|
(19
|
)
|
|
|
(35
|
)
|
|
|
(51
|
)
|
|
|
17
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive (loss) income
|
|
$
|
(3,245
|
)
|
|
$
|
(4,457
|
)
|
|
$
|
5,618
|
|
|
$
|
102
|
|
|
$
|
1,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Taxes
Income taxes are accounted for using the liability method in
accordance with SFAS No. 109, Accounting for Income
Taxes. Deferred income taxes are provided for temporary
differences in recognizing certain income, expense and credit
items for financial reporting purposes and tax reporting
purposes. Such deferred income taxes primarily relate to the
difference between the tax bases of assets and liabilities and
their financial reporting amounts. Deferred tax assets and
liabilities are measured by applying enacted statutory tax rates
applicable to the future years in which deferred tax assets or
liabilities are expected to be settled or realized.
In June 2006, the FASB issued FASB Interpretation No. 48
(FIN 48), Accounting for Uncertainty in Income
Taxes, an interpretation of SFAS No. 109. This
interpretation clarifies the accounting for income taxes by
prescribing that a company should use a more-likely-than-not
recognition threshold based on the technical merits of the tax
position taken. Tax provisions that meet the
more-likely-than-not recognition threshold should be measured as
the largest amount of tax benefits, determined on a cumulative
probability basis, which is more likely than not to be realized
upon ultimate settlement in the financial statements.
FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting for interim
periods, disclosure and transition, and explicitly excludes
income taxes from the scope of SFAS No. 5,
Accounting for Contingencies. FIN 48 is effective
for fiscal years beginning after December 15, 2006, and was
adopted by the Company on January 1, 2007. As of
January 1, 2007 and March 31, 2007, the Company does
not have any material gross unrecognized tax benefit
liabilities. The Company or one of its subsidiaries files income
tax returns in the U.S. federal jurisdiction and various
states and foreign jurisdictions. For income tax returns filed
by the Company, the Company is no longer subject to
U.S. federal, state and local tax examinations by tax
authorities for years before 2002, although carryforward tax
attributes that were generated prior to 2002 may still be
adjusted upon examination by tax authorities if they either have
been or will be utilized. It is the Companys policy to
recognize interest and penalties related to income tax matters
in income tax expense.
Earnings
Per Share
The Company computes earnings per share in accordance with the
provisions of FASB No. 128, Earnings Per Share
(SFAS 128). The Company has issued shares of common
stock in connection with business acquisitions (see Note 3) that
give the holders the right to require the Company to repurchase
the shares at a fixed price at a specified future date
(Common Stock Subject to Put). The difference
between the fair value
F-15
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
of the shares of Common Stock Subject to Put on the issuance
date and the price at which the Company may be required to
repurchase those shares is being accreted over the period from
issuance to the first date at which the Company could be
required to repurchase the shares as a dividend to the holders.
EITF
Topic D-98,
Classification and Measurement of Redeemable Securities
(EITF D-98)
states that when a common shareholder has a contractual right to
receive, at share redemption, an amount that is other than fair
value, such shareholder has received, in substance, a
preferential distribution. Under SFAS 128, entities with
capital structures that include classes of common stock with
different dividend rates are required to apply the two-class
method of calculating earnings per share. Accordingly, the
Company calculates earnings per share for its common stock and
its Common Stock Subject to Put using a method akin to the
two-class method under SFAS 128.
In addition, the Companys series of convertible redeemable
preferred stock are considered participating securities as they
are entitled to an 8% noncumulative preferential dividend before
any dividends can be paid to common stockholders. The Company
includes its participating preferred stock in the computation of
earnings per share using the two-class method in accordance with
EITF 03-06, Participating Securities and the Two-Class
Method under FASB Statement No. 128 (EITF 03-06).
The two-class computation method for each period allocates the
undistributed earnings or losses to each participating security
based on their respective rights to receive dividends. In
addition to undistributed earnings or losses, the accretion to
their redemption or put prices is also allocated to the Common
Stock Subject to Put and the convertible redeemable preferred
stock. In periods of undistributed losses, all losses are
allocated to common stock in accordance with EITF 03-06 as
the holders of Common Stock Subject to Put and participating
preferred stock are not required to fund losses nor are their
redemption or put prices reduced as a result of losses incurred.
In periods of undistributed income, income is first allocated to
the participating preferred stock for their preferential
dividend, currently $7.1 million per annum. Any
undistributed earnings remaining are then allocated to holders
of common stock, Common Stock Subject to Put and preferred stock
(assuming conversion) on a pro rata basis. The total earnings or
losses allocated to each class of common stock are then divided
by the weighted-average number of shares outstanding for each
class of common stock to determine basic earnings per share.
EITF 03-06 does not require the presentation of basic and
diluted earnings per share for securities other than common
stock; therefore, earnings per share is only computed for the
Companys common stock.
Diluted earnings per share for common stock reflects the
potential dilution that could result if securities or other
contracts to issue common stock were exercised or converted into
common stock. Diluted earnings per share assumes the exercise of
stock options and warrants using the treasury stock method and
the conversion of the Companys convertible preferred stock
using the if-converted method. No potentially dilutive
securities are convertible or exercisable into shares of Common
Stock Subject to Put.
For all periods presented, all potentially dilutive securities
have been excluded from earnings per share calculations as their
effect would have been anti-dilutive. The following is a summary
of common stock
F-16
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
equivalents for the securities outstanding during the respective
periods that have been excluded from the earnings per share
calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
Ended
|
|
|
|
Year Ended December 31,
|
|
|
March 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Stock options
|
|
|
8,950,177
|
|
|
|
14,104,727
|
|
|
|
13,750,111
|
|
|
|
15,361,062
|
|
|
|
12,789,419
|
|
Restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
196,683
|
|
Convertible preferred stock
warrants
|
|
|
565,643
|
|
|
|
565,643
|
|
|
|
565,643
|
|
|
|
565,643
|
|
|
|
565,643
|
|
Common stock warrants
|
|
|
1,948,660
|
|
|
|
1,994,800
|
|
|
|
576,786
|
|
|
|
1,391,103
|
|
|
|
310,282
|
|
Convertible preferred stock
|
|
|
86,286,744
|
|
|
|
86,286,744
|
|
|
|
86,286,744
|
|
|
|
86,286,744
|
|
|
|
86,286,744
|
|
F-17
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table sets forth the computation of basic and
diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
March 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Calculation of basic and diluted
net income per share two class method:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(3,226
|
)
|
|
$
|
(4,422
|
)
|
|
$
|
5,669
|
|
|
$
|
85
|
|
|
$
|
1,540
|
|
Accretion of redeemable preferred
stock
|
|
|
(2,141
|
)
|
|
|
(2,638
|
)
|
|
|
(3,179
|
)
|
|
|
(742
|
)
|
|
|
(885
|
)
|
Accretion of common stock subject
to put
|
|
|
(32
|
)
|
|
|
(133
|
)
|
|
|
(138
|
)
|
|
|
(34
|
)
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed (loss) earnings
|
|
|
(5,399
|
)
|
|
|
(7,193
|
)
|
|
|
2,352
|
|
|
|
(691
|
)
|
|
|
620
|
|
Allocation of undistributed (loss)
earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before cumulative effect
of change in accounting principle
|
|
|
(5,399
|
)
|
|
|
(6,753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of change in
accounting principle
|
|
|
|
|
|
|
(440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock subject to put
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
|
|
|
|
|
2,352
|
|
|
|
|
|
|
|
620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allocated (loss) earnings
|
|
$
|
(5,399
|
)
|
|
$
|
(7,193
|
)
|
|
$
|
2,352
|
|
|
$
|
(691
|
)
|
|
$
|
620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to
common stockholders per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.38
|
)
|
|
$
|
(0.46
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.04
|
)
|
|
$
|
0.00
|
|
Cumulative effect of change in
accounting principle
|
|
$
|
0.00
|
|
|
$
|
(0.03
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
Weighted average shares
outstanding common stock basic and diluted
|
|
|
14,358,561
|
|
|
|
15,650,969
|
|
|
|
19,236,064
|
|
|
|
18,049,639
|
|
|
|
20,754,230
|
|
Net (loss) income attributable to
common stockholders per common share subject to put:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.07
|
|
|
$
|
0.08
|
|
|
$
|
0.08
|
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
Weighted average shares
outstanding common stock subject to put basic and
diluted
|
|
|
457,596
|
|
|
|
1,738,172
|
|
|
|
1,738,172
|
|
|
|
1,738,172
|
|
|
|
1,738,172
|
|
F-18
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Fair
Value of Financial Instruments
SFAS No. 107, Disclosure about Fair Value of
Financial Instruments, defines the fair value of financial
instruments as the amount at which the instrument could be
exchanged in a current transaction between willing parties. Cash
equivalents, short-term investments, accounts receivable,
accounts payable, accrued expenses and capital lease obligations
reported in the consolidated balance sheets equal or approximate
their respective fair values. The fair value of the
Companys preferred stock warrants liabilities, convertible
preferred stock and common stock subject to put is not
practicable to determine, as no quoted market price exists for
these instruments. The convertible preferred stock will be
converted into common stock of the Company upon consummation of
a qualified initial public offering.
Recent
Pronouncements
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements. The purpose of this statement is
to define fair value, establish a framework for measuring fair
value and enhance disclosures about fair value measurements. The
measurement and disclosure requirements are effective for the
Company as of January 1, 2008 and are applied
prospectively. The Company is currently evaluating the potential
impact of adopting this new guidance on its results of
operations and financial position.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities
(SFAS No. 159), to permit all entities to choose
to elect, at specified election dates, to measure eligible
financial instruments at fair value. An entity shall report
unrealized gains and losses on items for which the fair value
option has been elected in earnings at each subsequent reporting
date, and recognize upfront costs and fees related to those
items in earnings as incurred and not deferred.
SFAS No. 159 applies to fiscal years beginning after
November 15, 2007, with early adoption permitted for an
entity that has also elected to apply the provisions of
SFAS No. 157. An entity is prohibited from
retrospectively applying SFAS No. 159, unless it
chooses early adoption. The Company is currently evaluating the
impact of the provisions of SFAS No. 159 on its
consolidated financial statements.
Q2
Brand Intelligence, Inc.
On July 28, 2004, the Company acquired the outstanding
stock of Denaro and Associates, Inc, otherwise known as Q2 Brand
Intelligence, Inc. (Q2), to improve the Companys ability
to provide customers more robust custom research integrated with
its underlying digital marketing intelligence platform. The
total cost of the acquisition was $3,336,000, which included
cash of $873,000, the issuance of 1,060,000 shares of
restricted common stock valued at $2,412,000 and related costs
incurred in the amount of $51,000. The former sole shareholder
of Q2 is entitled to receive up to an additional $600,000 in
cash based on the entitys achievement of certain
performance criteria. No amounts were earned as of
December 31, 2004. In 2005 and 2006, the performance
criteria were met and the Company paid $300,000 each year which
was recorded as additional goodwill.
The Company accounted for the acquisition as a purchase in
accordance with SFAS No. 141, Business
Combinations (SFAS 141). Accordingly, the results of
operations of Q2 have been included in the accompanying
consolidated financial statements since the purchase date. In
accordance with SFAS 141, the purchase price was allocated
to the assets and liabilities of Q2 based on their estimated
fair values.
F-19
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table summarizes the estimated fair values of the
tangible assets acquired and liabilities assumed at the date of
acquisition:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Accounts receivable
|
|
$
|
917
|
|
Prepaids and other
|
|
|
24
|
|
Property and equipment
|
|
|
60
|
|
|
|
|
|
|
Total assets acquired
|
|
|
1,001
|
|
Accounts payable and accrued
expenses
|
|
|
511
|
|
Deferred revenues
|
|
|
58
|
|
|
|
|
|
|
Net tangible assets acquired
|
|
$
|
432
|
|
|
|
|
|
|
The common stock issued to the former sole shareholder of Q2 is
subject to a restricted stock agreement that includes a put
right at a price of $2.50 per share to be effective for a
ninety-day
period beginning on the third anniversary of the closing date.
The Company has valued the common stock subject to put at fair
value on the date of issuance. The fair value of the common
stock subject to put was estimated as the sum of (i) the
fair value of common stock exclusive of a put right with a fair
value of $0.05 per share and (ii) the fair value of
the embedded put right as measured using the Black-Scholes
option-pricing formula of $2.23 per share. The key
assumptions used in the Black-Scholes option-pricing formula
were as follows: expected dividend yield 0%;
risk-free interest rate 3.16%; expected
volatility 40.0%; expected term
3 years. The carrying value of the common stock subject to
the put right is being accreted to the put obligation over the
three year term using the effective interest rate method. For
the years ended December 31, 2004, 2005 and 2006, the
Company accreted a total of $32,000, $78,000 and $80,000,
respectively.
The non-tangible portion of the purchase price, including the
payment of the contingent purchase consideration, was allocated
as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Trademarks and brands
|
|
$
|
338
|
|
Non-compete agreements
|
|
|
112
|
|
Customer relationships
|
|
|
1,249
|
|
Goodwill
|
|
|
1,364
|
|
Acquired methodology
|
|
|
451
|
|
Acquired trademarks and brand names were initially determined to
have an indefinite life and, therefore, were not amortized. In
July 2005, the Company determined that the trademarks and brand
names would be phased out over the next six months so that the
services could be branded under the Companys name. At the
time of the decision, there were no indicators of impairment.
Accordingly, the asset was amortized on a straight-line basis
over its remaining six month useful life. The change in the
estimated useful life resulted in additional amortization
expense of $290,000 for the year ended December 31, 2005.
Acquired methodology and customer relationships are being
amortized on a straight-line basis over one to three years. The
non-compete agreement is being amortized on a straight-line
basis over four years.
SurveySite,
Inc.
On January 4, 2005, the Company acquired the assets and
assumed certain liabilities of SurveySite Inc., or SurveySite.
Through this acquisition, the Company acquired proprietary
data-collection technology and increased customer penetration
and revenues in the survey business. The total cost of the
acquisition was $3.6 million, which included cash of
$1.7 million, the payment of additional purchase
consideration of
F-20
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
$132,000, the issuance of 678,172 shares of restricted
common stock valued at $1.6 million and related costs
incurred and adjustments in the amount of $111,000.
The Company accounted for the acquisition as a purchase in
accordance with SFAS 141. Accordingly, the results of
operations of SurveySite have been included in the accompanying
consolidated financial statements since the purchase date. In
accordance with SFAS 141, the purchase price was allocated
to the assets and liabilities of SurveySite based on their
estimated fair values. Based on this analysis, the fair value of
the identifiable tangible and intangible assets exceeded the
cost of the acquired business by approximately $790,000.
Therefore, in accordance with SFAS 141, the Company
reduced, on a pro rata basis, the value attributed to certain
assets acquired.
The following table summarizes the estimated fair values of the
tangible assets acquired and liabilities assumed at the date of
acquisition:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Cash
|
|
$
|
715
|
|
Accounts receivable
|
|
|
606
|
|
Prepaid expense and other current
assets
|
|
|
90
|
|
Property and equipment
|
|
|
283
|
|
|
|
|
|
|
Total assets acquired
|
|
|
1,694
|
|
Accounts payable and accrued
expenses
|
|
|
245
|
|
Deferred revenues
|
|
|
480
|
|
Deferred tax liability
|
|
|
356
|
|
|
|
|
|
|
Net tangible assets acquired
|
|
$
|
613
|
|
|
|
|
|
|
The former shareholders of SurveySite are entitled to receive
$132,000 based on the entitys achievement of certain
performance criteria. The performance criteria was achieved as
of December 31, 2005 and the performance criteria was also
expected to be achieved in 2006, therefore, the total contingent
purchase consideration was paid in January 2006 and is included
in the purchase price. The common stock issued is subject to a
restricted stock agreement that includes a put right at a price
of $2.67 per share to be effective for a
ninety-day
period beginning on the third anniversary of the closing date.
The Company has valued the common stock subject to put at fair
value on the date of issuance. The fair value of the common
stock subject to put was estimated as the sum of (i) the
fair value of common stock exclusive of a put right of
$0.25 per share and (ii) the fair value of the
embedded put right as measured using the Black-Scholes
option-pricing formula of $2.17 per share. The key
assumptions used in the Black-Scholes option-pricing formula
were as follows: expected dividend yield 0%;
risk-free interest rate 3.36%; expected
volatility 40.0%; expected term
3 years. The carrying value of the common stock subject to
the put right is being accreted to the put obligation over the
three year term using the effective interest rate method. For
the years ended December 31, 2005 and 2006, the Company
accreted a total of $55,000 and $58,000, respectively.
The non-tangible portion of the purchase price, including the
payment of the contingent purchase consideration, was allocated
as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Trademarks
|
|
$
|
323
|
|
Non-compete agreements
|
|
|
213
|
|
Customer relationships
|
|
|
2,228
|
|
Acquired methodologies/technology
|
|
|
237
|
|
Acquired methodology and customer relationships are being
amortized on a straight-line basis over six months to three
years. The trademarks and non-compete agreements are being
amortized on a straight-line basis over two and three years,
respectively.
F-21
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
4.
|
Property
and Equipment
|
Property and equipment, including equipment under capital lease
obligations, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2005
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Computer equipment
|
|
$
|
15,165
|
|
|
$
|
14,855
|
|
Computer software
|
|
|
3,220
|
|
|
|
2,816
|
|
Office equipment and furniture
|
|
|
1,178
|
|
|
|
1,159
|
|
Leasehold improvements
|
|
|
832
|
|
|
|
1,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,395
|
|
|
|
19,909
|
|
Less: accumulated depreciation and
amortization
|
|
|
(15,915
|
)
|
|
|
(12,929
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,480
|
|
|
$
|
6,980
|
|
|
|
|
|
|
|
|
|
|
Property and equipment financed through capital lease
obligations, consisting of computer equipment, totaled
$4.5 million and $4.6 million at December 31,
2005 and 2006, respectively. At December 31, 2005 and 2006,
accumulated depreciation related to property and equipment
financed through capital leases totaled $2.2 million and
$1.1 million, respectively. During the year ended
December 31, 2006, $3.2 million of fully depreciated
assets were written off. In addition, $2.6 million of
assets financed through capital leases terminated and were
subsequently returned and written off.
For the years ended December 31, 2004, 2005 and 2006, total
depreciation expense was $2.4 million, $2.7 million
and $2.9 million, respectively.
|
|
5.
|
Goodwill
and Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
March 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Goodwill
|
|
$
|
1,064
|
|
|
$
|
1,364
|
|
|
$
|
1,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and brands
|
|
$
|
662
|
|
|
$
|
662
|
|
|
$
|
662
|
|
Non-compete agreements
|
|
|
326
|
|
|
|
326
|
|
|
|
326
|
|
Customer relationships
|
|
|
3,467
|
|
|
|
3,467
|
|
|
|
3,467
|
|
Acquired methodologies/technology
|
|
|
688
|
|
|
|
688
|
|
|
|
688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
5,143
|
|
|
|
5,143
|
|
|
|
5,143
|
|
Accumulated amortization
|
|
|
(2,788
|
)
|
|
|
(4,160
|
)
|
|
|
(4,453
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
$
|
2,355
|
|
|
$
|
983
|
|
|
$
|
690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense related to intangible assets was
approximately $356,000, $2.4 million, $1.4 million,
$371,000 and $293,000 for the years ended December 31,
2004, 2005 and 2006 and the three months ended March 31,
2006 and 2007, respectively.
Future expected amortization of intangible assets as of
December 31, 2006, is as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
2007
|
|
$
|
967
|
|
2008
|
|
|
16
|
|
F-22
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The weighted average amortization period by major asset class as
of December 31, 2006, is as follows:
|
|
|
|
|
|
|
|
|
(In years)
|
|
|
|
|
Trademarks and brands
|
|
|
1.7
|
|
|
|
Non-compete agreements
|
|
|
3.4
|
|
|
|
Customer relationships
|
|
|
2.7
|
|
|
|
Acquired methodologies/technology
|
|
|
2.0
|
|
|
|
Accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Accrued payroll and related
|
|
$
|
2,428
|
|
|
$
|
3,118
|
|
Other
|
|
|
1,757
|
|
|
|
2,902
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,185
|
|
|
$
|
6,020
|
|
|
|
|
|
|
|
|
|
|
|
|
7.
|
Commitments
and Contingencies
|
Leases
In December 2006, the Company entered into an equipment lease
agreement with Banc of America Leasing & Capital, LLC
to finance the purchase of new hardware and other computer
equipment as the Company continues to expand its technology
infrastructure in support of its business growth. This agreement
includes a $5.0 million line of credit available through
December 31, 2007; its initial utilization of this credit
facility was to establish an equipment lease for approximately
$2.9 million bearing interest at a rate of 7.75% per annum.
The base term for this lease is three years and includes a
nominal charge in the event of prepayment. Assets acquired under
the equipment leases secure the obligations.
In addition to equipment financed through capital leases, the
Company is obligated under various noncancelable operating
leases for office facilities and equipment. These leases
generally provide for renewal options and escalation increases.
Future minimum payments under noncancelable lease agreements
with initial terms of one year or more as of December 31,
2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Capital Leases
|
|
|
Operating Leases
|
|
|
|
(In thousands)
|
|
|
2007
|
|
$
|
1,986
|
|
|
$
|
2,009
|
|
2008
|
|
|
1,418
|
|
|
|
1,383
|
|
2009
|
|
|
1,014
|
|
|
|
680
|
|
2010
|
|
|
|
|
|
|
377
|
|
2011
|
|
|
|
|
|
|
383
|
|
Thereafter
|
|
|
|
|
|
|
226
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
4,418
|
|
|
$
|
5,058
|
|
|
|
|
|
|
|
|
|
|
Less amount representing interest
|
|
|
(431
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of net minimum lease
payments
|
|
|
|
|
|
|
|
|
Less current portion
|
|
|
(1,726
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations,
long-term
|
|
$
|
2,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-23
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Total rent expense was $1.9 million, $2.5 million,
$2.1 million, $519,000 and $512,000 for the years ended
December 31, 2004, 2005 and 2006 and the three months ended
March 31, 2006 and 2007, respectively.
The Company is required to maintain a letter of credit in the
amount of approximately $256,000 as additional security deposit
pertaining to an operating lease. In connection with the
modification of this lease, the amount was increased to
$537,000. As of March 31, 2007 no amounts were paid.
In June 2003, the Company modified its lease for its corporate
headquarters resulting in (i) a reduction in the space
rented, (ii) the lease termination date being revised from
January 2011 to June 2008, and (iii) a reduction in the
monthly lease rate. In connection with the modification, the
Company relinquished its security deposit on the original lease
and made certain cash payments which totaled $2.0 million.
The Company has treated the modification payments, net of a
deferred rent liability of approximately $300,000 associated
with the vacated space, as prepaid rent and is recognizing the
amount over the remaining lease term. The prepaid lease balance
at December 31, 2005 and 2006 and March 31, 2007 was
approximately $665,000, $386,000 and $319,000, respectively. The
short-term portion is included in Prepaid Expenses and Other
Current Assets and the long-term portion is included in Other
Non-Current Assets in the Consolidated Balance Sheets. In March
2007, the Company modified its lease for its New York office
resulting in (i) vacating existing space once new space is
available, (ii) an increase in the space rented,
(iii) the lease termination date being revised from October
2012 to November 2012, and (iv) an increase in the monthly
lease rate from $21,000 to $45,000.
Contingencies
The Company has no asserted claims, but is from time to time
exposed to unasserted potential claims encountered in the normal
course of business. Although the outcome of any legal
proceedings cannot be predicted with certainty, management
believes that the final resolution of these matters will not
materially affect the Companys financial position or
results of operations.
Income tax expense (benefit) is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
|
|
|
$
|
147
|
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
147
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
|
|
|
|
|
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
(182
|
)
|
|
|
(97
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
(182
|
)
|
|
|
(97
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
|
|
|
$
|
(182
|
)
|
|
$
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
A reconciliation of the statutory United States income tax rate
to the effective income tax rate follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
Statutory federal tax rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
Nondeductible items
|
|
|
(0.9
|
)
|
|
|
(1.2
|
)
|
|
|
3.4
|
|
State tax rate, net of federal
benefit
|
|
|
4.5
|
|
|
|
2.6
|
|
|
|
5.6
|
|
Foreign
|
|
|
|
|
|
|
0.4
|
|
|
|
(0.2
|
)
|
Change in valuation allowance
|
|
|
(37.6
|
)
|
|
|
(31.2
|
)
|
|
|
(41.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
0.0
|
%
|
|
|
4.6
|
%
|
|
|
0.9
|
%
|
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Companys net deferred income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2005
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Deferred tax asset:
|
|
|
|
|
|
|
|
|
Net operating loss
|
|
$
|
34,498
|
|
|
$
|
31,580
|
|
Tax credits
|
|
|
|
|
|
|
147
|
|
Accrued vacation and bonus
|
|
|
96
|
|
|
|
197
|
|
Deferred revenues
|
|
|
708
|
|
|
|
438
|
|
Acquired intangibles
|
|
|
287
|
|
|
|
673
|
|
Depreciation
|
|
|
345
|
|
|
|
525
|
|
Deferred rent
|
|
|
103
|
|
|
|
96
|
|
Other
|
|
|
102
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
36,139
|
|
|
|
33,746
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Intangibles
|
|
|
(174
|
)
|
|
|
(77
|
)
|
Less valuation allowance
|
|
|
(36,139
|
)
|
|
|
(33,746
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(174
|
)
|
|
$
|
(77
|
)
|
|
|
|
|
|
|
|
|
|
As of December 31, 2005 and 2006 and March 31, 2007,
the Company had both federal and state net operating loss
carryforwards for tax purposes of approximately
$88.5 million, $81.2 million and $78.9 million,
respectively, which begin to expire in 2020 for federal and
begin to expire in 2010 for state income tax reporting purposes.
In addition, at December 31, 2005 and 2006 and
March 31, 2007 the Company had net operating loss
carryforwards for tax purposes related to our foreign
subsidiaries of $966,000, $703,000 and $943,000, respectively,
which begin to expire in 2010.
Under the provisions of the Internal Revenue Code
Section 382, certain substantial changes in the
Companys ownership may result in a limitation on the
amount of U.S. net operating loss carryforwards which could be
utilized annually to offset future taxable income and taxes
payable. Additionally, despite the net operating loss
carryforward, the Company may have a future tax liability due to
alternative minimum tax, foreign tax or state tax requirements.
Management believes that, based on a number of factors, the
available objective evidence creates sufficient uncertainty
regarding the realizability of the deferred tax assets such that
a full valuation allowance
F-25
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
is required. Such factors include the lack of a significant
history of profits, recent increases in expense levels to
support the Companys growth, the fact that the market in
which the Company competes is intensely competitive and
characterized by rapidly changing technology, and the lack of
carryback capacity to realize deferred tax assets.
|
|
9.
|
Convertible
Preferred Stock
|
The Companys certificate of incorporation provides for the
issuance of 9,187,500 shares of Series A Preferred
Stock (Series A), 3,535,486 shares of Series B
Preferred Stock (Series B), 13,355,052 shares of
Series C Preferred Stock (Series C),
357,144 shares of
Series C-1
Preferred Stock
(Series C-1),
22,238,042 shares of Series D Preferred Stock
(Series D) and 25,000,000 shares of Series E
Preferred Stock (Series E).
The Series E ranks senior to all other classes of capital
stock, with the exception of the Incentive Plan (see
Note 11), on a distribution of assets upon liquidation,
dissolution, or winding up of the Company. Upon such event, each
share of Series E is entitled to a liquidation preference
equal to 1.63 times the original purchase price of
$0.50 per share. In addition, each share of Series E
is entitled to participate in any distribution pari passu with
all classes of stock after $88,392,465 (the Cap Amount) has been
distributed to the holders of Series A through
Series D preferred stock. The assets distributed to each
share of Series E upon liquidation, dissolution or winding
up of the Company shall not exceed five times the original
purchase price of $0.50 per share. Series E is
convertible into common stock at a conversion price equal to the
original issuance price, subject to adjustment.
The holders of Series E are entitled to dividends in
preference to any class of capital stock of the Company at an
annual rate of 8.0%. Following payment of any dividends to
holders of Series E, holders of Series D are entitled
to dividends in preference to any class of stock other than
Series E at an annual rate of 8%. Following the payment of
any dividends to the holders of Series D, holders of
Series A, Series B, Series C and
Series C-1
are entitled to dividends in preference to common stockholders
at an annual rate of 8%. All dividends are noncumulative and are
paid only when, if, and as declared by the Board of Directors.
No dividend shall be paid on shares of common stock in any
fiscal year unless (i) the noncumulative preferential
dividends of the preferred stock have been paid in full and
(ii) the holders of preferred stock participate in any such
dividend on common stock on a pro rata basis assuming conversion
of all preferred stock into common stock.
The Series A, B, C, C-1 and D
(Series A-D)
each has a liquidation preference senior to the common stock. In
the event of any liquidation, dissolution, or winding up of the
Company, each
Series A-D
share is entitled to a liquidation preference equal to a portion
of the Cap Amount. The portion of the Cap Amount to which each
share of Series A, B, C and C-1 is entitled is equal to the
original purchase price for such share (plus all declared and
unpaid dividends) multiplied by an adjustment factor set forth
in the certificate of incorporation. The portion of the Cap
Amount to which each share of Series D is entitled is equal
to the original issue price (plus all declared and unpaid
dividends) plus a 25% premium, compounded annually (but such
total not to exceed 250% of the original issue price) multiplied
by an adjustment factor set forth in the certificate of
incorporation. The original purchase price per share for
Series A, Series B, Series C,
Series C-1
and Series D was $1.00, $4.90, $2.27, $1.40 and $0.90,
respectively. After the payment of the liquidation preference to
the
Series A-D,
each share of
Series A-D
is entitled to participate in any distribution pari passu with
all classes of stock. The assets distributed to each share of
Series A-D
upon liquidation, dissolution, or winding up of the Company
shall not exceed 2.5 times the original purchase price of such
shares.
Upon the occurrence of a Liquidation Event, defined as a
consolidation, merger, or sale of the Company, Management shall
be entitled to receive the first 10% of any liquidation proceeds
pursuant to an Incentive Plan (see Note 11). The
distribution of such proceeds shall be to the Incentive Plan
participants (senior management and Companys founders)
based on both their respective equity ownership in the Company
and a variable percentage which is subject to Board approval.
F-26
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
As a result of the issuance of Series E, the conversion
prices of the Series A, Series B, Series C,
Series C-1
and Series D were adjusted to the following rates:
Series A $0.86 per share, Series B $2.47 per
share, Series C $1.50 per share,
Series C-1
$1.18 per share and Series D of $0.80 per share.
Each share of preferred stock is convertible at any time into
shares of common stock based on the conversion price then in
effect. Conversion is automatic in the event of a public
offering of common stock at a price of at least $2.50 per
share with gross proceeds of at least $25 million. Each
holder of preferred stock is entitled to the number of votes
equal to the number of whole shares of common stock into which
the shares held by the holder are then convertible at each
meeting of the stockholders of the Company. All series of
preferred stock have anti-dilution protection in the event the
Company issues shares at a purchase price less than $0.50.
All classes of preferred stock are redeemable by the holder on
or after August 1, 2008. Series E ranks senior to all
other classes of stock and may be redeemed at 1.63 times its
original purchase price plus all declared but unpaid dividends.
The aggregate redemption value for the
Series A-D
shares is equal to the Cap Amount. In the event that any series
of preferred stock is converted into common stock prior to
redemption, the aggregate redemption value of the remaining
series of preferred stock remains equal to the Cap Amount. The
redemption value for the
Series A-D
shares is equal to the liquidation preference in effect on the
redemption date for each series of preferred stock as adjusted
by a formula set forth in the certificate of incorporation. Upon
the initiation of the Cap Amount, the carrying values of
Series A, Series B, Series C and
Series C-1
were in excess of their individual redemption values. The
carrying value of Series D was below its individual
redemption value. The differences between the carrying value of
each series of preferred stock and its respective redemption
value (as adjusted for the Cap Amount for
Series A-D)
is being accreted as preferred stock dividends using the
interest method over the period to the redemption date. Such
accretion amounted to $2.1 million, $2.6 million and
$3.2 million for the years ended December 31, 2004,
2005 and 2006, respectively, and $742,000 and $885,000 for the
three months ended March 31, 2006 and 2007, respectively.
|
|
10.
|
Convertible
Preferred Stock Warrants
|
In prior years, the Company issued fully vested warrants to
purchase 486,608 shares of preferred stock in connection
with a master lease and various equipment lease agreements. The
exercise prices of the warrants range from $0.50 to
$4.90 per share and the warrants expire 10 years from
the date of issue. The Company recorded the fair value of the
warrants totaling $383,000 as deferred financing costs with an
offset to warrants to purchase redeemable preferred stock. The
fair value of the warrants was estimated using the Black-Scholes
option pricing model. The deferred financing costs are being
amortized to interest expense over the respective agreement on a
straight line basis. For each of the years ended
December 31, 2004, 2005 and 2006, the Company recorded
$33,000 in interest expense.
Upon adoption of
FSP 150-5
(July 1, 2005), the Company reclassified the carrying value
of its warrants to purchase shares of its convertible preferred
stock from mezzanine equity to a liability and adjusted the
warrants to fair value. The fair value of the convertible
preferred stock warrants at December 31, 2005 and 2006 and
March 31, 2007 was approximately $781,000,
$1.0 million and $995,000, respectively. The fair value of
warrants was estimated using the Black-Scholes option pricing
model.
|
|
11.
|
Stockholders
Deficit
|
1999
Stock Option Plan
In September 1999, the Company established the 1999 Stock Option
Plan (the Plan) under which eligible employees and nonemployees
may be granted options to purchase shares of the Companys
common stock, restricted stock or restricted stock units. The
Plan provides for the issuance of a maximum of 26.8 million
shares of common stock. The exercise price is determined by the
Board of Directors, which is generally equal
F-27
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
to fair value for incentive stock options and is determined on a
per-grant basis for nonqualified options. The vesting period of
options granted under the Plan is determined by the Board of
Directors, generally ratably over a four-year period. The
options expire 10 years from the date of the grant. As of
December 31, 2006 and March 31, 2007, 5,316,147 and
2,295,125 shares, respectively, were available for grant
under the plan.
Effective January 1, 2006, the Company adopted the fair
value recognition provisions of SFAS 123R using the
prospective transition method, which requires the Company to
apply its provisions only to awards granted, modified,
repurchased or cancelled after the effective date. Under this
transition method, stock-based compensation expense recognized
beginning January 1, 2006 is based on the following:
(1) the grant-date fair value of stock option awards
granted or modified beginning January 1, 2006; and
(2) the balance of deferred stock-based compensation
related to stock option awards granted prior to January 1,
2006, which was calculated using the intrinsic-value method as
previously permitted under APB 25. Results for prior
periods have not been restated.
In connection with the adoption of SFAS 123R, the Company
estimates the fair value of stock option awards granted
beginning January 1, 2006 using the Black-Scholes
option-pricing formula and a single option award approach. The
Company then amortizes the fair value of awards expected to vest
on a straight-line basis over the requisite service periods of
the awards, which is generally the period from the grant date to
the end of the vesting period. The weighted-average expected
option term for options granted during the year ended
December 31, 2006 was calculated using the simplified
method described in SAB No. 107, Share-Based
Payment. The simplified method defines the expected term as
the average of the contractual term and the vesting period.
Estimated volatility for the year ended December 31, 2006
also reflected the application of SAB No. 107
interpretive guidance and, accordingly, incorporates historical
volatility of similar entities whose share prices are publicly
available. The risk-free interest rate is based on the yield
curve of a zero-coupon U.S. Treasury bond on the date the
stock option award is granted with a maturity equal to the
expected term of the stock option award. The Company used
historical data to estimate the number of future stock option
forfeitures.
As a result of adopting SFAS 123R on January 1, 2006,
the Companys income before income taxes and net income for
the year ended December 31, 2006 was $198,000 less than if
the Company had continued to account for stock-based
compensation under APB No. 25. Basic and diluted net income
per common share for the year ended December 31, 2006 would
have been unaffected if the Company had not adopted
SFAS 123R. As of December 31, 2006, total unrecognized
compensation expense related to non-vested stock options granted
prior to that date is estimated at $1.3 million, which the
Company expects to recognize over a weighted average period of
approximately 1.86 years. As of March 31, 2007, total
unrecognized compensation expense related to non-vested stock
options, restricted stock and restricted stock units granted
prior to that date is estimated at $6.6 million, which the
Company expects to recognize over a weighted average period of
approximately 2.39 years. Total unrecognized compensation
expense as of December 31, 2006 is estimated based on
outstanding non-vested stock options and may be increased or
decreased in future periods for subsequent grants or
forfeitures. The following are the weighted-average assumptions
used in valuing the stock options granted during the year ended
December 31, 2006, and a discussion of the Companys
assumptions.
|
|
|
|
|
Dividend yield
|
|
|
0.00
|
%
|
Expected volatility
|
|
|
63.37
|
%
|
Risk-free interest rate
|
|
|
4.76
|
%
|
Expected life of options (in years)
|
|
|
6.02
|
|
Dividend yield The Company has never declared or
paid dividends on its common stock and does not anticipate
paying dividends in the foreseeable future.
Expected volatility Volatility is a measure of the
amount by which a financial variable such as a share price has
fluctuated (historical volatility) or is expected to fluctuate
(expected volatility) during a period. The
F-28
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Company has used the historical volatility of its peer group to
estimate expected volatility. The peer group includes companies
that are similar in revenue size, in the same industry or are
competitors.
Risk-free interest rate This is the average
U.S. Treasury rate (with a term that most closely resembles
the expected life of the option) for the quarter in which the
option was granted.
Expected life of the options This is the period of
time that the options granted are expected to remain
outstanding. This estimate is derived from the average midpoint
between the weighted average vesting period and the contractual
term as described in the SAB No. 107.
The weighted average grant date fair value of options granted
during the year ended December 31, 2006 was $0.86. Options
granted in the years ended December 31, 2004 and 2005 were
issued prior to the adoption of SFAS 123R. The total fair
value of shares vested during the year ended December 31,
2006 was $178,000.
A summary of the Plan is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
Number of Shares
|
|
|
Exercise Price
|
|
|
Options outstanding at
December 31, 2003
|
|
|
8,909,016
|
|
|
$
|
0.12
|
|
Options granted
|
|
|
9,281,457
|
|
|
|
0.07
|
|
Options exercised
|
|
|
2,403,710
|
|
|
|
0.05
|
|
Options forfeited
|
|
|
481,733
|
|
|
|
0.15
|
|
Options expired
|
|
|
164,630
|
|
|
|
0.97
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at
December 31, 2004
|
|
|
15,140,400
|
|
|
|
0.09
|
|
Options granted
|
|
|
4,194,511
|
|
|
|
0.70
|
|
Options exercised
|
|
|
1,531,888
|
|
|
|
0.09
|
|
Options forfeited
|
|
|
878,210
|
|
|
|
0.22
|
|
Options expired
|
|
|
59,999
|
|
|
|
0.33
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at
December 31, 2005
|
|
|
16,864,814
|
|
|
|
0.23
|
|
Options granted
|
|
|
1,713,550
|
|
|
|
1.45
|
|
Options exercised
|
|
|
3,263,373
|
|
|
|
0.07
|
|
Options forfeited
|
|
|
1,509,284
|
|
|
|
0.45
|
|
Options expired
|
|
|
186,007
|
|
|
|
0.56
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at
December 31, 2006
|
|
|
13,619,700
|
|
|
|
0.40
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
939,211
|
|
|
|
0.15
|
|
Options forfeited
|
|
|
192,191
|
|
|
|
0.58
|
|
Options expired
|
|
|
1,787
|
|
|
|
1.30
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at
March 31, 2007
|
|
|
12,486,511
|
|
|
|
0.41
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at
March 31, 2007
|
|
|
8,014,859
|
|
|
|
0.23
|
|
|
|
|
|
|
|
|
|
|
F-29
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table summarizes information about options
outstanding at December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
Options
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Options
|
|
|
Exercise
|
|
|
Contractual
|
|
Exercise Price
|
|
Outstanding
|
|
|
Price
|
|
|
Life
|
|
|
Exercisable
|
|
|
Price
|
|
|
Life
|
|
|
$0.01 $0.50
|
|
|
9,791,048
|
|
|
$
|
0.11
|
|
|
|
6.4
|
|
|
|
6,079,905
|
|
|
$
|
0.11
|
|
|
|
5.9
|
|
0.51 1.00
|
|
|
2,414,903
|
|
|
|
0.87
|
|
|
|
8.5
|
|
|
|
741,666
|
|
|
|
0.85
|
|
|
|
8.1
|
|
1.01 1.50
|
|
|
896,639
|
|
|
|
1.50
|
|
|
|
8.9
|
|
|
|
171,228
|
|
|
|
1.50
|
|
|
|
7.4
|
|
1.51 2.00
|
|
|
517,110
|
|
|
|
1.75
|
|
|
|
9.3
|
|
|
|
57,720
|
|
|
|
1.83
|
|
|
|
6.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,619,700
|
|
|
|
0.40
|
|
|
|
7.0
|
|
|
|
7,050,519
|
|
|
|
0.24
|
|
|
|
6.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value of options exercised for the years
ended December 31, 2004, 2005 and 2006 was $1,747,
$1,072,511 and $3,699,292, respectively. The aggregate intrinsic
value for all options outstanding under the Companys stock
plans as of December 31, 2006 was $18,454,548. The
aggregate intrinsic value for options exercisable under the
Companys stock plans as of December 31, 2006 was
$10,665,346.
During 2003, the Company initiated an offer to exchange certain
outstanding incentive stock options. Employees had the option to
exchange all outstanding incentive stock options to purchase
shares of the Companys common stock that had an exercise
price equal to or greater than $0.10 for new options with an
exercise price equal to fair market value of the common stock to
be granted the first business day that was six months and one
day after the cancellation date. Employees tendered options to
purchase 4,919,090 shares of common stock during the offer
period. In April 2004, 4,436,009 stock options were granted in
connection with the tender offer.
During the three months ended March 31, 2007, the Company
awarded an aggregate of 2,950,750 shares of restricted
common stock to certain of its employees. The weighted average
estimated fair value for these shares is $2.25. The aggregate
intrinsic value for all non-vested shares of restricted common
stock outstanding at March 31, 2007 was $6.6 million.
The Company has a right of repurchase on such shares that lapses
at a rate of twenty-five percent (25%) of the total shares
awarded at each successive anniversary of the initial award
date, provided that the employee continues to provide services
to the Company. In the event that an employee terminates their
employment with the Company, any shares that remain unvested and
consequently subject to the right of repurchase shall be
automatically reacquired by the Company at the original purchase
price paid by the employee.
During the three months ended March 31, 2007, the Company
awarded an aggregate of 264,250 units of restricted common
stock units to certain of its employees. The estimated fair
value for these units is $2.25. The aggregate intrinsic value
for all non-vested restricted stock units outstanding at
March 31, 2007 was $595,000. The Company has a right of
repurchase on such units that lapses at a rate of twenty-five
percent (25%) of the total shares awarded at each successive
anniversary of the initial award date, provided that the
employee continues to provide service to the Company. In the
event that an employee terminates their employment with the
Company, any units that remain unvested shall be automatically
reacquired by the Company.
Incentive
Plan
In connection with the Series E offering, the Company
created a management incentive plan (the Incentive Plan) for
certain officers, founders and key employees of the Company.
Under the terms of the Incentive Plan, up to 10% of any
liquidation proceeds from the consolidation, merger, or sale of
the Company
F-30
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
will be distributed to the plan participants. Of the potential
payout to a plan participant, 75% is based on a pre-determined
formula with the remaining 25% of the payout at the discretion
of the administrators of the Incentive Plan. The potential
payout is reduced by any amounts the participant would receive
in the liquidation through stock option exercises or stock
ownership. The Incentive Plan terminates upon a qualifying
initial public offering of the Companys common stock.
Common
Stock Warrants
In prior years, the Company had granted an aggregate of
2,016,842 warrants to purchase common stock. The common
stock warrants begin to expire in February 2006 through to April
2015 with exercise prices ranging from $0.60 to $4.90. As of
December 31, 2006, warrants to purchase 310,282 shares
of common stock were outstanding.
Shares Reserved
for Issuance
At December 31, 2006, the Company has reserved for future
issuance the following shares of common stock upon conversion of
preferred stock and the exercise of options and warrants:
|
|
|
|
|
Series A
|
|
|
10,683,130
|
|
Series B
|
|
|
6,902,114
|
|
Series C
|
|
|
20,023,442
|
|
Series C-1
|
|
|
423,730
|
|
Series D
|
|
|
24,248,733
|
|
Series E
|
|
|
24,005,548
|
|
Common stock available for future
issuances under the Plan
|
|
|
5,316,147
|
|
Common stock available for
outstanding options
|
|
|
13,619,700
|
|
Common stock warrants
|
|
|
310,282
|
|
|
|
|
|
|
|
|
|
105,532,826
|
|
|
|
|
|
|
In addition, the Company has reserved 111,579 Series B
shares, 214,062 Series D shares and 240,000 Series E
shares pursuant to outstanding warrants.
|
|
12.
|
Employee
Benefit Plans
|
The Company has a 401(k) Plan for the benefit of all employees
who meet certain eligibility requirements. This plan covers
substantially all of the Companys full-time employees. The
Company made $181,000 and $221,000 in contributions to the
401(k) Plan for the year ended December 31, 2005 and 2006,
respectively. No contributions were made for the year ended
December 31, 2004.
|
|
13.
|
Related
Party Transactions
|
On August 1, 2003, the Company entered into a Licensing and
Services Agreement with a counterparty that until
November 27, 2006 was a stockholder of the Company.
Pursuant to the terms of the Licensing and Services Agreement,
the Company granted the counterparty a license to certain
digital marketing intelligence data and products. In each of
2004, 2005 and 2006, the Company recognized revenues of
$3 million. In relation to this counterparty, there were no
outstanding amounts included in our accounts receivable balance
as of December 31, 2004, 2005 and 2006.
F-31
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
14.
|
Geographic
Information
|
The Company attributes revenues to customers based on the
location of the customer. The composition of the Companys
sales to unaffiliated customers between those in the United
States and those in other locations for each year is set forth
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
March 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
United States
|
|
$
|
33,096
|
|
|
$
|
46,900
|
|
|
$
|
60,550
|
|
|
$
|
13,858
|
|
|
$
|
16,884
|
|
Canada
|
|
|
1,798
|
|
|
|
2,479
|
|
|
|
3,150
|
|
|
|
706
|
|
|
|
845
|
|
United Kingdom/Other
|
|
|
|
|
|
|
888
|
|
|
|
2,593
|
|
|
|
421
|
|
|
|
952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
34,894
|
|
|
$
|
50,267
|
|
|
$
|
66,293
|
|
|
$
|
14,985
|
|
|
$
|
18,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The composition of the Companys property, plant and
equipment between those in the United States and those in other
countries as of the end of each year is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
(Unaudited)
|
|
|
United States
|
|
$
|
4,063
|
|
|
$
|
6,525
|
|
|
$
|
6,096
|
|
Canada
|
|
|
413
|
|
|
|
305
|
|
|
|
270
|
|
United Kingdom
|
|
|
4
|
|
|
|
150
|
|
|
|
249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,480
|
|
|
$
|
6,980
|
|
|
$
|
6,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-32
COMSCORE,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
15.
|
Quarterly
Financial Information (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Mar. 31,
|
|
|
Jun. 30,
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
Mar. 31,
|
|
|
Jun. 30,
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Revenues
|
|
$
|
11,135
|
|
|
$
|
13,150
|
|
|
$
|
12,953
|
|
|
$
|
13,029
|
|
|
$
|
14,985
|
|
|
$
|
16,906
|
|
|
$
|
16,165
|
|
|
$
|
18,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues(1)
|
|
|
3,936
|
|
|
|
4,863
|
|
|
|
4,602
|
|
|
|
4,817
|
|
|
|
5,148
|
|
|
|
5,205
|
|
|
|
4,977
|
|
|
|
5,230
|
|
Selling and marketing(1)
|
|
|
4,234
|
|
|
|
4,813
|
|
|
|
4,821
|
|
|
|
5,085
|
|
|
|
5,345
|
|
|
|
5,323
|
|
|
|
5,171
|
|
|
|
5,634
|
|
Research and development(1)
|
|
|
1,678
|
|
|
|
1,876
|
|
|
|
1,908
|
|
|
|
1,954
|
|
|
|
2,137
|
|
|
|
2,258
|
|
|
|
2,273
|
|
|
|
2,341
|
|
General and administrative(1)
|
|
|
1,489
|
|
|
|
1,804
|
|
|
|
1,779
|
|
|
|
2,017
|
|
|
|
1,918
|
|
|
|
2,176
|
|
|
|
1,897
|
|
|
|
2,302
|
|
Amortization
|
|
|
621
|
|
|
|
603
|
|
|
|
612
|
|
|
|
601
|
|
|
|
371
|
|
|
|
333
|
|
|
|
333
|
|
|
|
334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses from operations
|
|
|
11,958
|
|
|
|
13,959
|
|
|
|
13,722
|
|
|
|
14,474
|
|
|
|
14,919
|
|
|
|
15,295
|
|
|
|
14,651
|
|
|
|
15,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(823
|
)
|
|
|
(809
|
)
|
|
|
(769
|
)
|
|
|
(1,445
|
)
|
|
|
66
|
|
|
|
1,611
|
|
|
|
1,514
|
|
|
|
2,396
|
|
Interest (expense) income, net
|
|
|
(58
|
)
|
|
|
(71
|
)
|
|
|
(39
|
)
|
|
|
(40
|
)
|
|
|
11
|
|
|
|
23
|
|
|
|
84
|
|
|
|
113
|
|
(Loss) gain from foreign currency
|
|
|
(21
|
)
|
|
|
(1
|
)
|
|
|
(72
|
)
|
|
|
(2
|
)
|
|
|
6
|
|
|
|
(33
|
)
|
|
|
3
|
|
|
|
149
|
|
Revaluation of preferred stock
warrant liabilities
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
(8
|
)
|
|
|
2
|
|
|
|
(211
|
)
|
|
|
(6
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
and cumulative effect of change in accounting principle
|
|
|
(902
|
)
|
|
|
(881
|
)
|
|
|
(886
|
)
|
|
|
(1,495
|
)
|
|
|
85
|
|
|
|
1,390
|
|
|
|
1,595
|
|
|
|
2,649
|
|
(Benefit) provision for income taxes
|
|
|
(53
|
)
|
|
|
(52
|
)
|
|
|
(38
|
)
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income before cumulative
effect of change in accounting principle
|
|
|
(849
|
)
|
|
|
(829
|
)
|
|
|
(848
|
)
|
|
|
(1,456
|
)
|
|
|
85
|
|
|
|
1,390
|
|
|
|
1,595
|
|
|
|
2,599
|
|
Cumulative effect of change in
accounting principle
|
|
|
|
|
|
|
|
|
|
|
(440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(849
|
)
|
|
|
(829
|
)
|
|
|
(1,288
|
)
|
|
|
(1,456
|
)
|
|
|
85
|
|
|
|
1,390
|
|
|
|
1,595
|
|
|
|
2,599
|
|
Accretion of redeemable preferred
stock
|
|
|
(611
|
)
|
|
|
(643
|
)
|
|
|
(675
|
)
|
|
|
(709
|
)
|
|
|
(742
|
)
|
|
|
(777
|
)
|
|
|
(812
|
)
|
|
|
(848
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to
common stockholders
|
|
$
|
(1,460
|
)
|
|
$
|
(1,472
|
)
|
|
$
|
(1,963
|
)
|
|
$
|
(2,165
|
)
|
|
$
|
(657
|
)
|
|
$
|
613
|
|
|
$
|
783
|
|
|
$
|
1,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to
common stockholders
|
|
$
|
(1,493
|
)
|
|
$
|
(1,505
|
)
|
|
$
|
(1,996
|
)
|
|
$
|
(2,199
|
)
|
|
$
|
(691
|
)
|
|
$
|
579
|
|
|
$
|
748
|
|
|
$
|
1,716
|
|
Net (loss) income attributable to
common stockholders per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.10
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
Weighted-average number of shares
used in per share calculation common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
15,256,120
|
|
|
|
15,608,104
|
|
|
|
15,752,664
|
|
|
|
15,977,938
|
|
|
|
18,049,639
|
|
|
|
19,217,897
|
|
|
|
19,790,295
|
|
|
|
19,860,437
|
|
Net (loss) income attributable to
common stockholders per common share subject to put:
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
Basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares
used in per share calculation common share subject
to put:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
1,738,172
|
|
|
|
1,738,172
|
|
|
|
1,738,172
|
|
|
|
1,738,172
|
|
|
|
1,738,172
|
|
|
|
1,738,172
|
|
|
|
1,738,172
|
|
|
|
1,738,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Amortization of
stock-based compensation is included in the line items above as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2
|
|
|
$
|
4
|
|
|
$
|
6
|
|
Selling and marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
26
|
|
|
|
23
|
|
|
|
27
|
|
Research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
4
|
|
|
|
7
|
|
General and administrative
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
10
|
|
|
|
40
|
|
|
|
40
|
|
F-33
Until ,
2007 (25 days after the commencement of this offering) all
dealers that effect transactions in these securities, whether or
not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers obligation
to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
Shares
Common
Stock
PROSPECTUS
|
|
Credit
Suisse |
Deutsche
Bank Securities |
,
2007
PART II
Information
not required in prospectus
|
|
ITEM 13.
|
Other
Expenses of Issuance and Distribution
|
The following table sets forth the costs and expenses, other
than underwriting discounts and commissions, payable by
comScore, Inc. in connection with the sale of the common stock
being registered hereby. All amounts are estimates except the
SEC Registration Fee, the NASD filing fee and The NASDAQ Global
Market listing fee.
|
|
|
|
|
|
|
Amount to be Paid
|
|
|
Securities and Exchange Commission
registration fee
|
|
$
|
2,648
|
|
NASD filing fee
|
|
|
9,125
|
|
The NASDAQ Global Market listing
fee
|
|
|
100,000
|
|
Blue Sky fees and expenses
|
|
|
|
*
|
Printing and engraving expenses
|
|
|
|
*
|
Legal fees and expenses
|
|
|
|
*
|
Accounting fees and expenses
|
|
|
|
*
|
Transfer agent and registrar fees
|
|
|
|
*
|
Miscellaneous
|
|
|
|
*
|
Total
|
|
|
|
*
|
|
|
|
* |
|
To be filed by amendment |
|
|
ITEM 14.
|
Indemnification
of Directors and Officers
|
Section 145(a) of the Delaware General Corporation Law
provides that a Delaware corporation may indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) by reason
of the fact that such person is or was a director, officer,
employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee
or agent of another corporation or enterprise, against expenses
(including attorneys fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding if he
or she acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or
proceeding, had no cause to believe his or her conduct was
unlawful.
Section 145(b) of the Delaware General Corporation Law
provides that a Delaware corporation may indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by
reason of the fact that such person acted in any of the
capacities set forth above, against expenses (including
attorneys fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such
action or suit if he or she acted under similar standards,
except that no indemnification may be made in respect of any
claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the
extent that the court in which such action or suit was brought
shall determine that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is
fairly and reasonably entitled to be indemnified for such
expenses which the court shall deem proper.
Section 145 of the Delaware General Corporation Law further
provides that: (i) to the extent that a former or present
director or officer of a corporation has been successful in the
defense of any action, suit or proceeding referred to in
subsections (a) and (b) or in the defense of any
claim, issue or matter therein, such person shall be indemnified
against expenses (including attorneys fees) actually and
reasonably incurred by
II-1
him or her in connection therewith; (ii) indemnification
provided for by Section 145 shall not be deemed exclusive
of any other rights to which the indemnified party may be
entitled; and (iii) the corporation may purchase and
maintain insurance on behalf of any present or former director,
officer, employee or agent of the corporation or any person who
at the request of the corporation was serving in such capacity
for another entity against any liability asserted against such
person and incurred by him or her in any such capacity or
arising out of his or her status as such, whether or not the
corporation would have the power to indemnify him or her against
such liabilities under Section 145.
Article X of our amended and restated certificate of
incorporation authorizes us to provide for the indemnification
of directors to the fullest extent permissible under Delaware
law.
Article VI of our bylaws provides for the indemnification
of officers, directors and third parties acting on our behalf if
such person acted in good faith and in a manner reasonably
believed to be in and not opposed to our best interest and, with
respect to any criminal action or proceeding, the indemnified
party had no reason to believe his or her conduct was unlawful.
We have entered into indemnification agreements with our
directors, executive officers and others, in addition to
indemnification provided for in our bylaws, and intend to enter
into indemnification agreements with any new directors and
executive officers in the future.
We have purchased and intend to maintain insurance on behalf of
any person who is or was a director or officer against any loss
arising from any claim asserted against him or her and incurred
by him or her in any such capacity, subject to certain
exclusions.
See also the undertakings set out in response to Item 17
herein.
|
|
ITEM 15.
|
Recent
Sales of Unregistered Securities
|
In the past three years, we have issued and sold the following
securities as adjusted for the -for-
stock split:
1. From December 7, 1999 through the date hereof, we
have granted options to purchase 38,213,285 shares of our
Common Stock at a weighted average exercise price of
$0.53 per share. As of the date hereof, of these options
had been exercised at prices ranging from $0.05 to
$2.29 per share, and 13,579,296 of these options had been
cancelled or otherwise returned to our 1999 Stock Plan at prices
ranging from $0.05 to $2.29 per share.
2. On March 25, 2007, we awarded an aggregate of
2,950,250 shares of our restricted stock to certain of our named
executive officers and our employees based upon the
recommendations of our compensation committee. The Company has a
right of repurchase on such units that lapses at a rate of
twenty-five percent of the total award at the end of each year
following the date of award, provided that the employee
continues to be a service provider of the Company. In the event
that an employee terminates their employment with the Company,
any shares that remain unvested shall be automatically
reacquired by the Company at the original purchase price paid by
the employee.
3. On March 25, 2007, we awarded restricted stock
units that may be settled for an aggregate of 264,250 of our
common stock to certain of our employees based upon the
recommendations of our compensation committee. The Company has a
right of repurchase on such units that lapses at a rate of
twenty-five percent of the total award at the end of each year
following the date of the award, provided that the employee
continues to be a service provider of the Company. In the event
that an employee terminates their employment with the Company,
any units that remain unvested shall be automatically reacquired
by the Company.
4. On April 10, 2007, we awarded an aggregate of
224,500 shares of our restricted stock to certain of our
employees based upon the recommendations of our compensation
committee. The Company has a right of repurchase on such shares
that lapses at a rate of twenty-five percent of the total award
at the end of each year following the date of the award,
provided that the employee continues to be a service provider of
the Company. In the event that an employee terminates their
employment with the Company,
II-2
any shares that remain unvested and consequently subject to the
right of repurchase shall be automatically reacquired by the
Company at the original purchase price paid by the employee
5. On May 15, 2007, we sold 100,000 shares of our
common stock to one of our directors, Mr. William
Henderson, pursuant to the exercise of a warrant granted to
Mr. Henderson on June 26, 2001.
6. In April 2005, we issued a warrant to purchase
68,182 shares of our common stock at a price of $1.10 per
share. That warrant has not been exercised as of the date hereof.
The sales of the above securities were deemed to be exempt from
registration under the Securities Act with respect to
items 1, 2, 3, 4 and 5 above in reliance on Rule 701
promulgated under Section 3(b) of the Securities Act as
transactions by an issuer not involving a public offering or
transactions pursuant to compensatory benefit plans and
contracts relating to compensation as provided under such
Rule 701, and with respect to items 1 through 6 above
also in reliance on Section 4(2) of the Securities Act. The
recipients of securities in each such transaction represented
their intention to acquire the securities for investment only
and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the
share certificates and warrants issued in such transactions. All
recipients had adequate access, through their relationships with
us, to information about us.
|
|
ITEM 16.
|
Exhibits
and Financial Statement Schedules
|
(a) Exhibits.
A list of exhibits filed herewith is contained in the exhibit
index that immediately precedes such exhibits and is
incorporated herein by reference.
(b) Financial Statement Schedule
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
As of March 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
(Unaudited)
|
|
|
Allowance for Doubtful
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
(298
|
)
|
|
$
|
(102
|
)
|
|
$
|
(185
|
)
|
|
$
|
(188
|
)
|
Additions
|
|
|
(12
|
)
|
|
|
(90
|
)
|
|
|
(212
|
)
|
|
|
(54
|
)
|
Reductions
|
|
|
208
|
|
|
|
7
|
|
|
|
209
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
(102
|
)
|
|
$
|
(185
|
)
|
|
$
|
(188
|
)
|
|
$
|
(235
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Tax Valuation
Allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
(32,698
|
)
|
|
$
|
(33,056
|
)
|
|
$
|
(36,139
|
)
|
|
$
|
(33,746
|
)
|
Additions
|
|
|
(358
|
)
|
|
|
(3,083
|
)
|
|
|
|
|
|
|
|
|
Reductions
|
|
|
|
|
|
|
|
|
|
|
2,393
|
|
|
|
638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
(33,056
|
)
|
|
$
|
(36,139
|
)
|
|
$
|
(33,746
|
)
|
|
$
|
(33,108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Report of
Independent Registered Public Accounting Firm
Board of Directors
comScore, Inc.
We have audited the consolidated financial statements of
comScore, Inc. as of December 31, 2005 and 2006, and for
each of the three years in the period ended December 31,
2006, and have issued our report thereon dated March 29,
2007 (including elsewhere in this Registration Statement). Our
audits also included the financial statement schedule listed in
Item 16(b) of Form S-1 of this Registration Statement.
These
II-3
schedules are the responsibility of the Companys
management. Our responsibility is to express an opinion based on
our audits.
In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ Ernst & Young LLP
McLean, VA
March 29, 2007
II-4
The undersigned Registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting
agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities
arising under the Securities Act may be permitted to directors,
officers and controlling persons of the Registrant pursuant to
the provisions described in Item 14 or otherwise, the
Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) For the purpose of determining liability under the
Securities Act to any purchaser, each prospectus filed pursuant
to Rule 424(b) as part of a registration statement relating
to an offering, other than registration statements relying on
Rule 430B or other than prospectuses filed in reliance on
Rule 430A, shall be deemed to be part of and included in
the registration statement as of the date it is first used after
effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the
registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement
or prospectus that is part of the registration statement will,
as to a purchaser with a time of contract of sale prior to such
first use, supersede or modify any statement that was made in
the registration statement or prospectus that was part of the
registration statement or made in any such document immediately
prior to such date of first use.
(4) For the purpose of determining liability of the
registrant under the Securities Act to any purchaser in the
initial distribution of the securities: The undersigned
registrant undertakes that in a primary offering of securities
of the undersigned registrant pursuant to this registration
statement, regardless of the underwriting method used to sell
the securities to the purchaser, if the securities are offered
or sold to such purchaser by means of any of the following
communications, the undersigned registrant will be a seller to
the purchaser and will be considered to offer or sell such
securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the
undersigned registrant relating to the offering required to be
filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering
prepared by or on behalf of the undersigned registrant or used
or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus
relating to the offering containing material information about
the undersigned registrant or its securities provided by or on
behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the
offering made by the undersigned registrant to the purchaser.
II-5
Signatures
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 2 to the
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Reston, Commonwealth
of Virginia, on the twenty-fifth day of May, 2007.
comScore, Inc.
Magid M. Abraham, Ph.D.
President, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to the Registration Statement has been
signed by the following persons in the capacities and on the
dates indicated:
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
/s/ Magid
M. Abraham
Magid
M. Abraham, Ph.D.
|
|
President, Chief Executive Officer
(Principal Executive Officer) and Director
|
|
May 25, 2007
|
|
|
|
|
|
/s/ John
M. Green
John
M. Green
|
|
Chief Financial Officer (Principal
Financial and Accounting Officer)
|
|
May 25, 2007
|
|
|
|
|
|
*
Gian
M. Fulgoni
|
|
Executive Chairman of the Board of
Directors
|
|
May 25, 2007
|
|
|
|
|
|
*
Thomas
D. Berman
|
|
Director
|
|
May 25, 2007
|
|
|
|
|
|
*
Bruce
Golden
|
|
Director
|
|
May 25, 2007
|
|
|
|
|
|
*
William
J. Henderson
|
|
Director
|
|
May 25, 2007
|
|
|
|
|
|
*
Ronald
J. Korn
|
|
Director
|
|
May 25, 2007
|
|
|
|
|
|
*
Frederick
R. Wilson
|
|
Director
|
|
May 25, 2007
|
|
|
|
|
|
|
|
*By:
|
|
/s/ Magid
M. Abraham
Magid
M. Abraham, Ph.D.
Attorney-In-Fact
|
|
|
|
|
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
1
|
.1**
|
|
Form of Underwriting Agreement
|
|
3
|
.1**
|
|
Amended and Restated Certificate
of Incorporation currently in effect
|
|
3
|
.2*
|
|
Amended and Restated Bylaws
currently in effect
|
|
3
|
.3**
|
|
Form of Amended and Restated
Certificate of Incorporation of the Registrant (to be effective
upon the closing of the offering)
|
|
3
|
.4**
|
|
Form of Amended and Restated
Bylaws of the Registrant (to be effective upon the closing of
the offering)
|
|
4
|
.1**
|
|
Specimen Common Stock Certificate
|
|
4
|
.2*
|
|
Fourth Amended and Restated
Investor Rights Agreement by and among comScore Networks, Inc.
and certain holders of preferred stock, dated August 1, 2003
|
|
4
|
.3
|
|
Warrant to purchase
46,551 shares of Series B Convertible Preferred Stock,
dated June 9, 2000
|
|
4
|
.4*
|
|
Warrant to purchase
20,100 shares of common stock, dated July 31, 2000
|
|
4
|
.5
|
|
Warrant to purchase
9,694 shares of Series B Convertible Preferred Stock,
dated September 29, 2000
|
|
4
|
.6*
|
|
Warrant to purchase
100,000 shares of common stock, dated June 26, 2001
|
|
4
|
.7*
|
|
Warrant to purchase
10,000 shares of common stock, dated November 30, 2001
|
|
4
|
.8*
|
|
Warrant to purchase
12,000 shares of common stock, dated July 3, 2002
|
|
4
|
.9
|
|
Warrant to purchase
36,127 shares of Series D Convertible Preferred Stock,
dated July 31, 2002
|
|
4
|
.10
|
|
Warrant to purchase
108,382 shares of Series D Convertible Preferred
Stock, dated July 31, 2002
|
|
4
|
.11*
|
|
Warrant to purchase
45,854 shares of Series D Convertible Preferred Stock,
dated December 5, 2002
|
|
4
|
.12*
|
|
Warrant to purchase
100,000 shares of common stock, dated June 24, 2003
|
|
4
|
.13
|
|
Warrant to purchase
240,000 shares of Series E Convertible Preferred
Stock, dated December 19, 2003
|
|
4
|
.14*
|
|
Warrant to purchase 68,182 shares
of common stock, dated April 29, 2005
|
|
4
|
.15*
|
|
Stock Restriction and Put Right
Agreement by and between comScore Networks, Inc. and Lawrence
Denaro, dated July 28, 2004
|
|
4
|
.16*
|
|
Stock Restriction and Put Right
Agreement by and among comScore Networks, Inc., 954253 Ontario,
Inc. and Rice and Associates Advertising Consultants, Inc.,
dated January 1, 2005
|
|
5
|
.1**
|
|
Opinion of Wilson Sonsini
Goodrich & Rosati, Professional Corporation
|
|
10
|
.1*
|
|
Form of Indemnification Agreement
for directors and executive officers
|
|
10
|
.2*
|
|
1999 Stock Plan
|
|
10
|
.3*
|
|
Form of Stock Option Agreement
under 1999 Stock Plan
|
|
10
|
.4*
|
|
Form of Notice of Grant of
Restricted Stock Purchase Right under 1999 Stock Plan
|
|
10
|
.5*
|
|
Form of Notice of Grant of
Restricted Stock Units under 1999 Stock Plan
|
|
10
|
.6*
|
|
2007 Equity Incentive Plan
|
|
10
|
.7*
|
|
Form of Notice of Grant of Stock
Option under 2007 Equity Incentive Plan
|
|
10
|
.8*
|
|
Form of Notice of Grant of
Restricted Stock under 2007 Equity Incentive Plan
|
|
10
|
.9*
|
|
Form of Notice of Grant of
Restricted Stock Units under 2007 Equity Incentive Plan
|
|
10
|
.10*
|
|
Stock Option Agreement with Magid
M. Abraham, dated December 16, 2003
|
|
10
|
.11*
|
|
Stock Option Agreement with Gian
M. Fulgoni, dated December 16, 2003
|
|
10
|
.12*
|
|
Lease Agreement by and between
comScore Networks, Inc. and Comstock Partners, L.C., dated
June 23, 2003, as amended
|
|
10
|
.13
|
|
Separation Agreement with Sheri L.
Huston, dated February 28, 2006
|
|
10
|
.14*
|
|
Letter Agreement with John M.
Green, dated May 8, 2006
|
|
10
|
.15*
|
|
Letter Agreement with Gregory
Dale, dated September 27, 1999
|
|
10
|
.16*
|
|
Letter Agreement with Christiana
Lin, dated December 29, 2003
|
|
10
|
.17*
|
|
Asset Purchase Agreement by and
among SurveySite Inc., comScore Networks, Inc., comScore Canada,
Inc. and certain other parties, dated December 16, 2004
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.18*
|
|
Agreement and Plan of Merger and
Reorganization by and among comScore Networks, Inc., comScore
Acquisition Holding Company, Denaro and Associates, Inc. and
Lawrence Denaro, dated July 28, 2004.
|
|
21
|
.1*
|
|
List of Subsidiaries
|
|
23
|
.1
|
|
Consent of Ernst & Young
LLP
|
|
23
|
.2**
|
|
Consent of Wilson Sonsini
Goodrich & Rosati, Professional Corporation (included
in Exhibit 5.1)
|
|
24
|
.1*
|
|
Power of Attorney
|
|
|
|
* |
|
Previously filed. |
|
** |
|
To be filed by amendment. |