form10q.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the quarterly period ended September 30, 2011
   
 
OR
   
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the transition period from ________________ to ________________

Commission file number 001-34523

interclick, inc.
(Exact name of registrant as specified in its charter)

Delaware
 
01-0692341
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
     
11 West 19th Street, 10th Floor, New York, NY
 
10011
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number: (646) 722-6260
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x                       No   o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x                       No   o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o
Accelerated filer   o
   
Non-accelerated filer   o   (Do not check if a smaller reporting company)
Smaller reporting company   x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o                       No   x

Class
Outstanding at November 8, 2011
Common Stock, $0.001 par value per share
25,208,416, shares
 


 
 

 
 
TABLE OF CONTENTS
 
 
Page
F-1
   
Item 1.
  F-1
     
 
  F-2
     
 
  F-3
     
 
  F-4
     
 
  F-5
     
 
  F-7
   
Item 2.
3
     
Item 3.
 15
     
Item 4.
 15
     
15
   
Item 1.
 15
     
Item 1A.
16
     
Item 2.
16
     
Item 3.
16
     
Item 4.
 16
     
Item 5.
 16
     
Item 6.
16
     
 17
 
 
 

 
PART I – FINANCIAL INFORMATION
 
INTERCLICK, INC. AND SUBSIDIARY
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 
Item 1.   Financial Statements  
Page 
       
 
Condensed Consolidated Balance Sheets – September 30, 2011 (unaudited) and December 31, 2010
 
F-2
 
Condensed Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2011 and 2010 (unaudited)
 
F-3
 
Condensed Consolidated Statement of Changes in Stockholders' Equity for the nine months ended September 30, 2011 (unaudited)
 
F-4
 
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010 (unaudited)
 
F-5
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
F-7

 
F-1

 
INTERCLICK, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
 
   
September 30, 2011
   
December 31, 2010
 
Assets
 
(unaudited)
   
(Note 1)
 
             
Current assets:
           
Cash and cash equivalents
  $ 12,511,690     $ 12,450,650  
Short-term investment
    500,208       498,132  
Restricted cash
    500,820       500,388  
Accounts receivable, net of allowance for doubtful accounts of $637,538 and $563,512, respectively
    38,788,478       44,517,434  
Deferred taxes, current portion
    476,109       457,185  
Prepaid expenses and other current assets
    2,739,963       763,680  
Total current assets
    55,517,268       59,187,469  
                 
Restricted cash
    298,153       296,610  
Property and equipment, net
    3,494,966       2,283,721  
Intangible assets, net
    1,412,758       263,333  
Goodwill
    7,909,571       7,909,571  
Deferred line of credit costs, net of accumulated amortization of $66,105 and $19,109, respectively
    59,736       106,732  
Deferred taxes, net of current portion
    3,031,681       2,715,655  
Other assets
    518,577       208,182  
                 
Total assets
  $ 72,242,710     $ 72,971,273  
                 
Liabilities and Stockholders’ Equity
               
                 
Current liabilities:
               
Accounts payable
  $ 16,529,082     $ 20,147,129  
Accrued expenses (includes accrued compensation of $3,457,373 and $3,274,004, respectively)
    5,064,455       4,772,188  
Line of credit payable
    4,000,000       8,500,000  
Obligations under capital leases, current portion
    981,328       483,583  
Deferred rent, current portion (includes cease-use liability of $87,410 and $78,193, respectively)
    134,278       89,325  
Total current liabilities
    26,709,143       33,992,225  
                 
Obligations under capital leases, net of current portion
    1,446,305       932,451  
Deferred rent (includes cease-use liability of $242,691 and $306,578, respectively)
    539,897       630,124  
Other liabilities
    300,102       -  
Total liabilities
    28,995,447       35,554,800  
                 
Commitments and contingencies
               
                 
Stockholders’ equity:
               
Preferred stock, $0.001 par value; 10,000,000 shares authorized,  zero shares issued and outstanding
    -       -  
Common stock, $0.001 par value; 140,000,000 shares authorized, 24,872,999 and 24,065,611 issued and outstanding, respectively
    24,872       24,065  
Additional paid-in capital
    50,918,463       46,626,284  
Accumulated deficit
    (7,696,072 )     (9,233,876 )
Total stockholders’ equity
    43,247,263       37,416,473  
                 
Total liabilities and stockholders’ equity
  $ 72,242,710     $ 72,971,273  
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
F-2

 
INTERCLICK, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME

   
For the Three
Months Ended
September 30, 2011
   
For the Three
Months Ended
September 30, 2010
   
For the Nine
Months Ended
September 30, 2011
   
For the Nine
Months Ended
September 30, 2010
 
   
(unaudited)
   
(unaudited)
   
(unaudited)
   
(unaudited)
 
                         
Revenues
  $ 36,177,567     $ 26,442,854     $ 88,994,837     $ 62,304,594  
Cost of revenues
    21,194,956       14,292,265       50,974,054       34,145,933  
Gross profit
    14,982,611       12,150,589       38,020,783       28,158,661  
                                 
Operating expenses:
                               
General and administrative
    6,356,141       4,143,866       16,859,355       11,248,139  
Sales and marketing
    4,879,406       3,563,827       12,843,177       8,767,724  
Technology support
    1,720,021       1,517,621       4,691,469       4,276,561  
Amortization of intangible assets
    104,341       39,500       237,142       118,500  
Total operating expenses
    13,059,909       9,264,814       34,631,143       24,410,924  
                                 
Operating income
    1,922,702       2,885,775       3,389,640       3,747,737  
                                 
Other income (expense):
                               
Interest income
    1,927       7,682       6,187       24,701  
Warrant derivative liability income
    -       -       -       21,413  
Other than temporary impairment of available-for-sale securities
    -       (126,080 )     -       (584,618 )
Interest expense
    (71,019 )     (19,429 )     (387,353 )     (196,375 )
Total other expense, net
    (69,092 )     (137,827 )     (381,166 )     (734,879 )
                                 
Income before income taxes
    1,853,610       2,747,948       3,008,474       3,012,858  
                                 
Income tax expense
    (1,061,451 )     (1,502,417 )     (1,470,670 )     (1,641,543 )
                                 
Net income
    792,159       1,245,531       1,537,804       1,371,315  
                                 
Other comprehensive income:
                               
Unrealized gain on available-for-sale securities
    -       20,427       -       -  
                                 
Total comprehensive income
  $ 792,159     $ 1,265,958     $ 1,537,804     $ 1,371,315  
                                 
Earnings per share:
                               
Basic
  $ 0.03     $ 0.05     $ 0.06     $ 0.06  
Diluted
  $ 0.03     $ 0.05     $ 0.06     $ 0.06  
                                 
Weighted average number of common shares:
                               
Basic
    24,280,077       23,750,068       24,156,483       23,681,188  
Diluted
    26,584,201       24,620,768       26,354,761       24,748,108  
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
F-3

 
INTERCLICK, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011
 
   
Common Stock
   
Additional
Paid-In
   
Accumulated
   
Total
Stockholders'
 
   
Shares
   
Amount
   
Capital
   
Deficit
   
Equity
 
Balances, January 1, 2011
    24,065,611     $ 24,065     $ 46,626,284     $ (9,233,876 )   $ 37,416,473  
Stock-based compensation
                    3,599,545               3,599,545  
Issuances of restricted shares
    542,500       543       (543 )             -  
Forefiture of restricted shares
    (1,900 )     (2 )     2               -  
Issuance of common shares for stock options and warrants exercised
    245,293       245       632,657               632,902  
Cashless exercise of warrants
    21,495       21       (21 )             -  
Adjustment to additional paid-in capital related to tax benefit of stock-based compensation
                    60,539                60,539  
Net income
                            1,537,804       1,537,804  
Balances, September 30, 2011 (unaudited)
    24,872,999     $ 24,872     $ 50,918,463     $ (7,696,072 )   $ 43,247,263  
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
INTERCLICK, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

   
For the Nine
Months Ended
September 30, 2011
   
For the Nine
Months Ended
September 30, 2010
 
   
(unaudited)
   
(unaudited)
 
Cash flows from operating activities:
           
Net income
  $ 1,537,804     $ 1,371,315  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
               
Stock-based compensation
    3,599,545       2,800,566  
Other than temporary impairment of available-for-sale securities
    -       584,618  
Accrued interest income
    (4,051 )     -  
Depreciation and amortization of property and equipment
    722,079       502,726  
Amortization of intangible assets
    237,142       118,500  
Provision for bad debts
    222,434       103,241  
Amortization of deferred line of credit costs
    46,996       8,243  
Deferred tax benefit
    (274,411 )     (412,327 )
Change in warrant derivative liability
    -       (21,413 )
Excess tax benefits from stock-based compensation
    (60,539 )     -  
Changes in cash and cash equivalents attributable to changes in operating assets and liabilities:
               
Accounts receivable
    5,506,522       (8,607,026 )
Prepaid expenses and other current assets
    (1,616,571 )     (9,903 )
Other assets
    49,011       (15,394 )
Accounts payable
    (3,618,047 )     1,898,976  
Accrued expenses
    (77,936 )     25,564  
Deferred rent
    (45,274 )     548,141  
Other liabilities
    (48,813 )     -  
Income taxes payable
    -       275,069  
Net cash provided by (used in) operating activities
    6,175,891       (829,104 )
                 
Cash flows from investing activities:
               
Proceeds from sale of available-for-sale securities
    -       11,250  
Transfers to restricted cash
    -       (1,294,187 )
Purchases of property and equipment
    (381,063 )     (659,425 )
Costs incurred for development of internal-use software
    (1,386,567 )     -  
Net cash used in investing activities
    (1,767,630 )     (1,942,362 )
                 
Cash flows from financing activities:
               
Proceeds from current line of credit
    -       5,200,000  
Repayments of current line of credit, net
    (4,500,000 )     -  
Repayments of former line of credit, net
    -       (4,208,667 )
Proceeds from stock options and warrants exercised
    632,902       336,707  
Payments of deferred line of credit costs
    -       (88,341 )
Principal payments on capital leases
    (540,662 )     (130,178 )
Excess tax benefits from stock-based compensation
    60,539       -  
Net cash provided by (used in) financing activities
    (4,347,221 )     1,109,521  
                 
Net increase (decrease) in cash and cash equivalents
    61,040       (1,661,945 )
                 
Cash and cash equivalents at beginning of period
    12,450,650       12,653,958  
                 
Cash and cash equivalents at end of period
  $ 12,511,690     $ 10,992,013  
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
F-5

 
INTERCLICK, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

   
For the Nine
Months Ended
September 30, 2011
   
For the Nine
Months Ended
September 30, 2010
 
   
(unaudited)
   
(unaudited)
 
Supplemental disclosure of cash flow information:
           
Interest paid
  $ 350,467     $ 232,447  
Income taxes paid
  $ 3,036,446     $ 1,693,535  
                 
Non-cash investing and financing activities:
               
Property and equipment acquired through capital leases
  $ 1,552,260     $ 495,600  
Leasehold improvements increased for deferred rent
  $ -     $ 83,070  
Reclassification of warrant derivative liability to equity upon expiration of price protection
  $ -     $ 47,846  
Deferred line of credit costs included in accrued expenses
  $ -     $ 37,500  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
F-6

 
INTERCLICK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
(Unaudited)
 
Note 1.   Nature of Operations

Overview
 
Powered by OSM, interclick, inc. (the “Company” or “interclick”) offers proprietary data-valuation capabilities combining analytical expertise and media fulfillment to help marketers navigate the complex data ecosystem to drive successful online display and video campaigns.  OSM is a powerful solution which aggregates and organizes billions of data points from 3rd party providers – delivering actionable consumer insights, scalable audiences and the most effective campaign execution.  The Company generates revenue by serving as a principal in transacting online display and online video advertising between agency clients and third party website publishers.  Substantially all of the Company’s revenues are generated in the United States.  

The Company is particularly sensitive to industry seasonality given that the majority of its revenues are tied to CPM (cost-per-thousand) campaigns, which are strongest in the fourth quarter and weakest in the first quarter.  While not necessarily indicative of future seasonality, the Company’s revenue mix in 2010 was as follows: 14.0% in the first quarter, 21.4% in the second quarter, 26.1% in the third quarter, and 38.5% in the fourth quarter.

Basis of Presentation

The interim condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).  In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments and reclassifications and non-recurring adjustments) necessary to present fairly our results of operations and comprehensive income for the three and nine months ended September 30, 2011 and 2010, our statement of changes in stockholders’ equity for the nine months ended September 30, 2011, cash flows for the nine months ended September 30, 2011 and 2010, and our financial position as of September 30, 2011, have been made.  The results of operations for such interim periods are not necessarily indicative of the operating results to be expected for the full year.

Certain information and disclosures normally included in the notes to the annual consolidated financial statements have been condensed or omitted from these interim consolidated financial statements.  Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2010, as filed with the SEC on March 22, 2011.  The December 31, 2010 consolidated balance sheet is derived from those statements.
 
Note 2.   Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.  On an ongoing basis, we evaluate our estimates, including those related to the accounts receivable and allowance for doubtful accounts, intangible assets and goodwill, useful lives of intangible assets and property and equipment, fair values of stock-based awards, income taxes, and contingent liabilities, among others.

Principles of Consolidation

The interim condensed consolidated financial statements include the accounts of interclick, inc. and its wholly-owned subsidiary.  All significant inter-company balances and transactions have been eliminated in consolidation.

 
F-7

 
INTERCLICK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
(Unaudited)

Accounts Receivable and Allowance for Doubtful Accounts Receivable
 
Trade accounts receivables are non-interest bearing and are stated at gross invoice amounts less an allowance for doubtful accounts receivable.

Credit is extended to customers based on an evaluation of their financial condition and other factors.  The Company generally does not require collateral or other security to support accounts receivable.  The Company performs ongoing credit evaluations of its customers and maintains an allowance for doubtful accounts.
 
The Company estimates its allowance for doubtful accounts by evaluating specific accounts where information indicates the customers may have an inability to meet financial obligations, such as bankruptcy proceedings and receivable amounts outstanding for an extended period beyond contractual terms.  In these cases, the Company uses assumptions and judgment, based on the best available facts and circumstances, to either record a specific allowance against these customer balances or to write the balances off.  In addition, the Company calculates an overall reserve based on a percentage of the overall gross accounts receivable.  This percentage is based on management’s assessment of the aging of accounts receivable, historical write-offs of receivables and the associated risk profile of the Company’s customer base.

The Company’s customer agreements are primarily entered into with agencies which manage campaigns on behalf of brand advertisers.  Such agreements are governed by Standard Terms and Conditions for Internet Advertising as prescribed by the Interactive Advertising Bureau.  Under these agreements, the Company holds the agency liable for payments to the extent proceeds have cleared from the advertiser to the agency for campaigns placed in accordance with the agreement.  For sums not cleared to the agency, the Company may hold the advertiser solely liable.  Write-offs of accounts receivable are taken in the period when the Company has exhausted its efforts to collect overdue and unpaid receivables or otherwise has evaluated other circumstances that indicate that the Company should abandon such efforts.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization.  Depreciation and amortization are provided for on a straight-line basis over the estimated useful lives of the assets per the following table.  Leasehold improvements are amortized over the lesser of the estimated useful life or the term of the underlying lease.  Expenditures for additions and improvements are capitalized while repairs and maintenance are expensed as incurred.

The following table reflects the estimated useful lives of the various categories of property and equipment:

Category
 
 Depreciation Term
Computer equipment
 
3-5 years
Software
 
 3 years
Furniture and fixtures
 
3-5 years
Office equipment
 
3-5 years
Leasehold improvements
 
5 years
 
 
F-8


INTERCLICK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
(Unaudited)
 
Intangible Assets

The Company records the purchase of intangible assets not acquired in a business combination in accordance with Accounting Standards Codification (“ASC”) Topic 350 “Intangibles - Goodwill and Other” and records intangible assets acquired in a business combination in accordance with ASC Topic 805 “Business Combinations”.
 
Customer relationships were fully amortized as of December 31, 2009 and were amortized based upon the estimated percentage of annual or period projected cash flows generated by such relationships, to the total cash flows generated over the estimated three-year life of the customer relationships.  Developed technology is being amortized on a straight-line basis over five years.  The domain name was amortized over its remaining useful life of six months at its acquisition date in August 2007.

Expenditures for software developed for internal use are capitalized and amortized over a three-year period on a straight-line basis.  For software developed for internal use, the Company capitalizes costs in accordance with the provisions of ASC 350-40 “Internal Use Software.”  The Company’s policy provides for the capitalization of external direct costs of materials and services associated with developing or obtaining internal-use software.  In addition, the Company also capitalizes certain payroll and payroll-related costs for employees who are directly associated with internal use software projects.  The amount of capitalizable payroll costs with respect to these employees is limited to the time directly spent on such projects.  Costs associated with preliminary project state activities, training, maintenance and all other post-implementation stage activities are expensed as incurred.  The Company also expenses internal costs related to minor upgrades and enhancements related activities, as it is impractical to separate these costs from normal maintenance activities.  Internal-use software is being amortized over three years.

Revenue Recognition

Revenues consist of amounts charged to customers, net of discounts and credits, for serving advertising impressions, click-throughs or other actions placed on our publisher vendor’s websites.  The Company’s revenue is recognized in the period that the advertising impressions, click-throughs or actions occur, when lead-based information is delivered or, provided that no significant Company obligations remain, collection of the resulting receivable is reasonably assured, and prices are fixed or determinable.  The Company recognizes revenue when the following criteria have been met: (i) persuasive evidence of an arrangement exists, (ii) the fees are fixed or determinable, (iii) no significant Company obligations remain, and (iv) collection of the related receivable is reasonably assured.

Recently Issued Accounting Pronouncements

In September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2011-08, “Intangibles — Goodwill and Other,” (“ASU 2011-08”), which amends current guidance to allow a company to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. The amendment also improves previous guidance by expanding upon the examples of events and circumstances that an entity should consider between annual impairment tests in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Accordingly, the Company will adopt ASU 2011-08 beginning in the first quarter of fiscal year ending December 31, 2012.  The impact of the adoption of ASU 2011-08 has not yet been evaluated.
 
In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income,” (“ASU 2011-05”), which requires entities to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of net income and other comprehensive income. ASU 2011-05 is effective for fiscal years and interim periods beginning after December 15, 2011. Accordingly, the Company will adopt ASU 2011-05 beginning in the first quarter of fiscal year ending December 31, 2012. The adoption of this updated disclosure guidance is not expected to have a material impact upon the Company’s financial position and results of operations.
 
 
F-9


INTERCLICK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
(Unaudited)
 
Note 3.   Property and Equipment

Property and equipment consisted of the following at September 30, 2011 and December 31, 2010:

   
September 30, 2011
   
December 31, 2010
 
Computer equipment
  $ 4,593,070     $ 2,926,114  
Furniture and fixtures
    327,106       195,597  
Software
    222,629       183,207  
Leasehold improvements
    252,097       173,764  
Office equipment
    39,547       22,443  
      5,434,449       3,501,125  
Accumulated depreciation and amortization
    (1,939,483 )     (1,217,404 )
Property and equipment, net
  $ 3,494,966     $ 2,283,721  


Property and equipment held under capitalized leases of $3,180,464 and $1,628,203 at September 30, 2011 and December 31, 2010, respectively, are included in computer equipment above.

Depreciation and amortization expense for the nine months ended September 30, 2011 and 2010 was $722,079 and $502,726, respectively, of which $405,100 and $129,775 pertained to capitalized leases.  Accumulated depreciation and amortization related to capitalized leases amounted to $604,126 and $199,026 as of September 30, 2011 and December 31, 2010, respectively.
 
Note 4.   Intangible Assets

Intangible assets consisted of the following at September 30, 2011 and December 31, 2010:

   
September 30, 2011
   
December 31, 2010
 
Customer relationships
  $ 540,000     $ 540,000  
Developed technology
    790,000       790,000  
Internal-use software
    1,386,567       -  
Domain name
    683       683  
      2,717,250       1,330,683  
Accumulated amortization
    (1,304,492 )     (1,067,350 )
Intangible assets, net
  $ 1,412,758     $ 263,333  

The following is a schedule of estimated future amortization expense of intangible assets as of September 30, 2011:

Year Ending December 31,
     
2011
  $ 155,032  
2012
    567,462  
2013
    462,129  
2014
    228,135  
Total
  $ 1,412,758  
 
 
F-10


INTERCLICK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
(Unaudited)
 
Note 5.   Commitments and Contingencies

Minimum Fees

The Company is party to multi-year agreements with third parties whereby the Company is obligated to pay minimum publisher, data and ad verification fees of approximately $3,933,000 for the remainder of 2011, $757,000 in 2012 and $50,000 in 2013. The Company expensed approximately $14,622,000 and $1,698,000 in fees under these agreements for the nine months ended September 30, 2011 and 2010, respectively.

Legal Matters
 
On or about December 8, 2010, Sonal Bose commenced an action in the United States District Court for the Southern District of New York (Sonal Bose v. Interclick, Inc., Case No. 10 Civ. 9183-DAB (S.D.N.Y.)) alleging that interclick engaged in certain activities that plaintiff claims violate electronic privacy and computer use laws.  The plaintiff asserts federal and state law claims, and seeks compensatory, statutory, and punitive damages, restitution, and reimbursement of expenses and attorney’s fees.  The plaintiff also seeks injunctive and declaratory relief and class action certification.

Plaintiff also had brought a related action in the United States District Court for the Southern District of New York against certain of our advertisers, which has been voluntarily dismissed as a separate action now that plaintiff has filed an Amended Complaint naming the advertisers as defendants in the action against the Company.  The Company provided for the defense of the advertisers.

On August 17, 2011, ruling on the Company’s and the advertisers’ motions to dismiss the Amended Complaint, the Court dismissed the sole remaining federal claim alleging violation of the Computer Fraud and Abuse Act and the state law claims for breach of implied contract and tortious interference with prejudice, and dismissed all claims against the advertisers with prejudice.  The only remaining claims are claims against the Company for trespass to chattels and under New York’s Consumer Protection Law (General Business Law Section 349).
 
On September 16, 2011, the Company filed an Answer to the Amended Complaint, denying plaintiff’s claims.  As previously noted, the Company believes the case is entirely without merit and intends to vigorously defend its prior practices and technology.

There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our interest.

Note 6.   Stockholders’ Equity
 
Preferred Stock

The Company is authorized to issue up to 10,000,000 shares of preferred stock having a par value of $0.001 per share, of which none was issued and outstanding at September 30, 2011 and December 31, 2010.

Common Stock

The Company is authorized to issue up to 140,000,000 shares of common stock having a par value of $0.001 per share, of which 24,872,999 and 24,065,611 shares were issued and outstanding at September 30, 2011 and December 31, 2010, respectively.

During the nine months ended September 30, 2011, proceeds of $632,902 were received and an aggregate of 245,293 shares were issued as a result of stock option and warrant exercises.

 
F-11


INTERCLICK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
(Unaudited)
 
Stock Warrants
 
On April 15, 2010, as part of a consulting agreement, the Company issued to an investor relations firm a three-year warrant to purchase 25,000 shares of common stock exercisable at $4.44 per share for services to be rendered over a 12-month period.  Accordingly, the Company has recognized stock-based compensation of $35,094 for the nine months ended September 30, 2011.

A summary of the Company’s warrant activity during the nine-months ended September 30, 2011 is presented below:
Warrants
 
Number of
Shares
   
Weighted
Average
Exercise
Price
   
Weighted 
Average
Remaining
Contractual
 Term
   
Aggregate
Intrinsic
Value
 
Balance Outstanding, December 31, 2010
    873,219     $ 3.67              
Granted
    -                      
Exercised
    (65,225 )   $ 3.99              
Forfeited
    -                      
Expired
    -                      
                             
Balance Outstanding, September 30, 2011
    807,994     $ 3.64       1.11     $ 1,541,866  
                                 
Exercisable, September 30, 2011
    807,994     $ 3.64       1.11     $ 1,541,866  
 
Stock Incentive Plan and Stock Option Grants to Employees and Directors

On June 23, 2011, the shareholders of the Company ratified and approved the adoption of the 2011 Equity Incentive Plan (the “2011 Award Plan”).  The 2011 Award Plan provides for the grant of up to 1,722,760  shares of common stock and/or stock options to purchase shares of common stock (422,760 of which were transferred from the 2007 Incentive Stock and Award Plan (the “2007 Award Plan”) to directors, employees and consultants.  In connection with the adoption of the 2011 Award Plan, the Company will no longer grant any stock-based awards under the 2007 Award Plan.

The material terms of each option granted pursuant to the 2011 Award Plan shall contain the following terms: (i) that the purchase price of each share purchasable under an option shall not be less than 100% of the fair market value (as defined in the 2011 Award Plan) of such common share on the day prior to the date the option is granted, (ii) the term of each option shall be fixed, but no option shall be exercisable more than 10 years after the date such option is granted and (iii) in the absence of any option vesting periods at the time of grant, options shall vest and become exercisable as to one-third of the total number of shares subject to the option on each of the first, second and third anniversaries of the date of grant.  Upon exercise of stock options, the Company will issue new common shares from the pool of authorized, unissued shares of the Company.

During the nine months ended September 30, 2011, the Company granted 712,000 stock options, 481,000 of which were issued under the 2007 Award Plan and 231,000 of which were issued under the 2011 Award Plan, at various exercise prices ranging from $5.01 to $8.90 per share.  The options granted vest pro rata over three years; all options expire ten years from the grant date.

As of September 30, 2011, 1,392,593 shares were remaining under the 2011 Award Plan for future issuance.

 
F-12

 
INTERCLICK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
(Unaudited)
 
The total fair value of stock options granted to employees and directors during the nine months ended September 30, 2011 was $3,451,488, which is being recognized over the respective vesting periods.  The Company recorded stock-based compensation expense of $454,248 for the nine months ended September 30, 2011 in connection with these stock options.

The Company estimates the fair value of share-based compensation utilizing the Black-Scholes option pricing model, which is dependent upon several variables such as the expected option term, expected volatility of our stock price over the expected life, expected risk-free interest rate over the expected option term, expected dividend yield rate over the expected option term, and an estimate of expected forfeiture rates.  The Company believes this valuation methodology is appropriate for estimating the fair value of stock options granted to employees and directors which are subject to ASC Topic 718 “Compensation – Stock Compensation” requirements.  These amounts are estimates and thus may not be reflective of actual future results, nor amounts ultimately realized by recipients of these grants.  The Company recognizes compensation on a straight-line basis over the requisite vesting period for each award.  The following table summarizes the assumptions the Company utilized to record compensation expense for stock options granted during the nine months ended September 30, 2011 and 2010:

Assumptions
 
For the
Nine Months Ended
September 30, 2011
 
For the
Nine Months Ended
September 30, 2010
Expected life (years)
 
6.0
 
3.5 - 3.75
Expected volatility
 
89.3% - 95.6%
 
98.6% - 110.1%
Weighted-average volatility
 
92.7%
 
105.10%
Risk-free interest rate
 
1.10% - 2.66%
 
0.069% - 2.69%
Dividend yield
 
0.00%
 
0.00%
 
For stock options issued through September 30, 2009, the expected life is based on the contractual term.  Thereafter, the Company utilized the simplified method to estimate the expected life for stock options granted to employees and directors.  The simplified method was used as the Company does not have sufficient historical data regarding stock option exercises.  The expected volatility is based on historical volatility.  The risk-free interest rate is based on the U.S. Treasury yields with terms equivalent to the expected life of the related option at the time of the grant.  Dividend yield is based on historical trends.  While the Company believes these estimates are reasonable, the compensation expense recorded would increase if the expected life was increased, a higher expected volatility was used, or if the expected dividend yield increased.

A summary of the Company’s stock option activity under the Award Plans for employees and directors during the nine months ended September 30, 2011 is presented below:
 
Options
 
Number of
Shares
   
Weighted Average
Exercise
 Price
   
Weighted Average Remaining Contractual Term
   
Aggregate Intrinsic
Value
 
Balance Outstanding, December 31, 2010
    5,134,792     $ 2.94              
Granted
    712,000     $ 6.39              
Exercised
    (210,293 )   $ 2.58              
Forfeited
    (118,205 )   $ 4.51              
Expired
    (5,003 )   $ 5.14              
Balance Outstanding, September 30, 2011
    5,513,291     $ 3.36       3.2     $ 12,281,445  
                                 
Exercisable, September 30, 2011
    3,377,855     $ 2.62       2.0     $ 9,605,820  
                                 
Outstanding, Exercisable and Expected to Vest at September 30, 2011
    5,435,049     $ 3.33       3.2     $ 12,231,524  
 
 
F-13

 
INTERCLICK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
(Unaudited)
 
The balance of options outstanding at December 31, 2010 in the table above includes awards granted under the 2007 Award Plan and the 2007 Equity Incentive Plan, under which there were no shares available for future issuance.  The table above excludes 150,000 options granted to a director of the Company on September 29, 2009, at a strike price of $2.40 that had been granted outside of the 2007 Award Plan and 2007 Equity Incentive Plan.

The weighted-average grant-date fair value of options granted to employees during the nine months ended September 30, 2011 and 2010 was $4.85 and $2.85, respectively.  The total intrinsic value of options exercised by employees during the nine months ended September 30, 2011 and 2010 was $864,678 and $138,401, respectively.

During the nine months ended September 30, 2011 and 2010, the Company recognized an aggregate amount of $2,878,567 and $2,535,868, respectively, of stock-based compensation for options granted.

Nonvested Common Stock Grants to Employees and Directors

On August 13, 2011, members of the Board of Directors were granted an aggregate of 150,000 shares of restricted common stock, under the 2011 Award Plan, having a fair value of $816,755 (based on a quoted trading price of $5.50 per share) that will vest in one-third installments on an annual basis.  Accordingly, the Company has recognized stock-based compensation of $36,482 for the nine months ended September 30, 2011.

On March 21, 2011, executive officers and members of the Board of Directors were granted an aggregate of 387,500 shares of restricted common stock, under the 2007 Award Plan, having a fair value of $2,344,375 (based on a quoted trading price of $6.05 per share) that will vest in one-third installments on an annual basis.  Accordingly, the Company has recognized stock-based compensation of $425,119 for the nine months ended September 30, 2011.

During the nine months ended September 30, 2011 and 2010, the Company recognized an aggregate amount of $528,795 and $84,933, respectively, of stock-based compensation for nonvested shares of common stock issued to employees and directors.
 
Nonvested Shares
 
Number of
Shares
   
Weighted
Average
Grant Date
Fair Value
 
Nonvested at December 31, 2010
    46,198     $ 4.36  
Granted
    542,500     $ 5.90  
Vested
    (7,173 )   $ 2.85  
Forfeited
    (1,900 )   $ 5.21  
Nonvested at September 30, 2011
    579,625     $ 5.82  

The total fair value of shares vested to employees during the nine months ended September 30, 2011 and 2010 was $46,969 and $79,078, respectively.

As of September 30, 2011, there was $2,816,988 of total unrecognized compensation costs related to nonvested share-based compensation arrangements.  That cost is expected to be recognized over a weighted-average period of 2.52 years.

Other Stock-Based Option Awards to Nonemployees

On March 21, 2011, 5,000 restricted shares of common stock were granted to an advisor and will vest on March 21, 2012.  Accordingly, the Company has recognized stock-based compensation of $14,669 for the nine months ended September 30, 2011.
 
 
F-14


INTERCLICK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
(Unaudited)
 
As of September 30, 2011, there were 90,000 options outstanding out of 150,000 options granted in July 2009 to advisors.  The options were granted outside of the 2007 Award Plan and 2007 Equity Incentive Plan, have an exercise price of $2.48, and vest quarterly through March 2013.

Note 7.   Earnings per Share

Components of basic and diluted earnings per share for the three and nine months ended September 30, 2011 and 2010 were as follows:
 
   
For the Three Months Ended September 30, 2011
 
   
Income
(Numerator)
   
Shares
(Denominator)
   
Per-Share
Amount
 
                   
Net income
  $ 792,159              
                     
Basic EPS
                   
Income available to common stockholders
  $ 792,159       24,280,077     $ 0.03  
                         
Effect of dilutive securities
                       
Stock options
            1,858,391          
Stock warrants
            352,576          
Nonvested shares
            93,157          
                         
Diluted EPS
                       
Income available to common stockholders + assumed conversions
  $ 792,159       26,584,201     $ 0.03  
                         
   
For the Three Months Ended September 30, 2010
 
   
Income
(Numerator)
   
Shares
(Denominator)
   
Per-Share
Amount
 
                         
Net income
  $ 1,245,531                  
                         
Basic EPS
                       
Income available to common stockholders
  $ 1,245,531       23,750,068     $ 0.05  
                         
Effect of dilutive securities
                       
Stock options
    -       732,843          
Stock warrants
    -       129,860          
Nonvested shares
    -       7,997          
                         
Diluted EPS
                       
Income available to common stockholders + assumed conversions
  $ 1,245,531       24,620,768     $ 0.05  
 
 
INTERCLICK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
(Unaudited)
 
   
For the Nine Months Ended September 30, 2011
 
   
Income
(Numerator)
   
Shares
(Denominator)
   
Per-Share
Amount
 
                         
Net income
  $ 1,537,804                  
                         
Basic EPS
                       
Income available to common stockholders
  $ 1,537,804       24,156,483     $ 0.06  
                         
Effect of dilutive securities
                       
Stock options
    -       1,786,971          
Stock warrants
    -       359,269          
Nonvested shares
    -       52,038          
                         
Diluted EPS
                       
Income available to common stockholders + assumed conversions
  $ 1,537,804       26,354,761     $ 0.06  
                         
   
For the Nine Months Ended September 30, 2010
 
   
Income
(Numerator)
   
Shares
(Denominator)
   
Per-Share
Amount
 
                         
Net income
  $ 1,371,315                  
                         
Basic EPS
                       
Income available to common stockholders
  $ 1,371,315       23,681,188     $ 0.06  
                         
Effect of dilutive securities
                       
Stock options
    -       858,915          
Stock warrants
    -       197,099          
Nonvested shares
    -       10,906          
                         
Diluted EPS
                       
Income available to common stockholders + assumed conversions
  $ 1,371,315       24,748,108     $ 0.06  

Options to purchase 725,500 and 766,500 shares of common stock were outstanding during the three and nine months ended September 30, 2011, respectively, but were not included in the computation of diluted earnings per share because the effects would have been anti-dilutive.

Options to purchase 2,797,500 and 2,053,750 shares of common stock and warrants to purchase 533,750 and 348,750 shares of common stock were outstanding during the three and nine months ended September 30, 2010, respectively, but were not included in the computation of diluted earnings per share because the effects would have been anti-dilutive.  In addition, 46,300 nonvested common shares were not included in the computation of diluted earnings per share for the three and nine months ended September 30, 2010, because the number of shares assumed purchased (calculated using the compensation cost attributed to future services and not yet recognized) under the treasury stock method exceeds the number of shares that would be issued.

 
F-16

 
INTERCLICK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
(Unaudited)

Note 8.   Income Taxes

Income tax expense amounting to $1,470,670 for the nine months ended September 30, 2011 is based on the Company's estimate of the effective tax rate expected to be applicable for the full year 2011.  The effective tax rate of 48.9% for the nine months ended September 30, 2011 differs from the statutory federal rate principally because of the effect of state income taxes, non-deductible expenses and the application of a higher marginal tax rate to the Company’s opening deferred tax asset.  The effective tax rate is based on the Company's best estimate of projected taxable income through the end of 2011.

Income tax expense amounting to $1,641,543 for the nine months ended September 30, 2010 is based on the Company's estimate of the effective tax rate expected to be applicable for the full year 2010.  The effective tax rate of 54.5% for the nine months ended September 30, 2010 differs from the statutory federal rate principally because of the effect of state income taxes, a valuation allowance established on capital loss carryforwards and other non-deductible expenses.  The effective rate is based on the Company's best estimate of projected net income through the end of 2010.
 
Note 9.   Concentrations
 
Concentrations of Credit Risk
 
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents and accounts receivable.  Cash and cash equivalents are deposited in three financial institutions.  The balance, at any given time, may exceed Federal Deposit Insurance Corporation insurance limits.  As of September 30, 2011, there was approximately $915,000 in excess of FDIC insurable limits.

Concentration of Revenues, Accounts Receivable and Publisher Expense

For the three and nine months ended September 30, 2011 and 2010, the Company had concentrations of revenues with agency customers representing revenues equaling 10% or greater as follows:
 
 
For the Three
Months Ended
September 30, 2011
 
For the Three
Months Ended
September 30, 2010
   
For the Nine
Months Ended
September 30, 2011
 
For the Nine
Months Ended
September 30, 2010
Agency
14.2%
 
Less than 10%
   
12.0%
 
Less than 10%
Agency
Less than 10%
 
10.0%
   
Less than 10%
 
Less than 10%
Agency
Less than 10%
 
Less than 10%
   
Less than 10%
 
10.0%

At September 30, 2011 and December 31, 2010, concentration of accounts receivable with individual agency customers representing 10% or greater of accounts receivable was as follows:

 
September 30, 2011
   
December 31, 2010
Agency
17.7%
   
Less than 10%
Agency
Less than 10%
   
13.8%

 
F-17

 
INTERCLICK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
(Unaudited)
 
For the three and nine months ended September 30, 2011 and 2010, the Company made significant purchases of advertising impressions from a publisher with a percentage of total publisher expense (included in cost of revenues) equaling 10% or greater as follows:
 
 
For the Three
Months Ended
September 30, 2011
 
For the Three
Months Ended
September 30, 2010
   
For the Nine
Months Ended
September 30, 2011
 
For the Nine
Months Ended
September 30, 2010
Publisher
30.5%
 
31.4%
   
26.9%
 
30.8%

Note 10. Subsequent Events
 
On November 1, 2011, the Company announced that it had entered into an Agreement and Plan of Merger, dated October 31, 2011 (the ‘’Merger Agreement”), with Yahoo! Inc. (“Yahoo”), a Delaware corporation and Innsbruck Acquisition Corporation (“Purchaser”), a Delaware corporation and a wholly-owned subsidiary of Yahoo. Pursuant to the Merger Agreement and upon the terms and subject to the conditions thereof, Purchaser will commence a tender offer (the “ Tender Offer) to acquire all the issued and outstanding shares of the common stock of the Company for $9.00 per share, net to the holder thereof in cash, without interest and subject to applicable withholding taxes. The Merger Agreement provides that, among other things, upon its terms and subjects to the satisfaction or written waiver of certain conditions, following completion of the Tender Offer, and in accordance with the applicable provisions of the Delaware General Corporation Law, Purchaser will be merged with and into the Company (the “Merger”), with the Company continuing as the surviving corporation in the Merger.
 
On November 8, 2011, a purported class action lawsuit was filed in the Supreme Court of the State of New York, New York County, under the caption Sam Elghanian, individually and on behalf of all others similarly situated v. interclick, inc. et al., Index No. 653101/2011. The plaintiff alleges that members of the Board of Directors breached their fiduciary duties by, amongst other things, agreeing to sell the Company for inadequate consideration. The lawsuit names the Company and the members of the Board of Directors as defendants and seeks, among other relief, an injunction over the proposed sale of the Company to Yahoo.
 
 
F-18

 
Item 2.
 
The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those set forth under “Risk Factors” in our Form 10-K/A for the year ended December 31, 2010, filed with the SEC on March 22, 2011.

This following discussion and analysis includes both financial measures in accordance with GAAP, as well as a non-GAAP financial measure, EBITDA. EBITDA represents operating income exclusive of interest, taxes, depreciation and amortization, including stock-based compensation, merger and related costs, and other income and expense of a non-operating nature.  EBITDA should be viewed as supplemental to, and not as an alternative for, net income or loss, income or loss from operations or any other measure for determining operating performance or liquidity, as determined under GAAP. We have included a reconciliation of our non-GAAP financial measure to net income. See pages 8 & 12 of this report.

EBITDA is used by our management as an additional measure of our performance for purposes of business decision-making, including developing budgets and managing expenditures. Period-to-period comparisons of EBITDA helps our management identify additional trends in our financial results that may not be shown solely by period-to-period comparisons of net income or loss, or income or loss from operations. Our management recognizes that EBITDA has inherent limitations because of the excluded items, particularly those items that are recurring in nature.
 
We believe that the presentation of EBITDA is useful to investors in their analysis of our results for reasons similar to the reasons why our management finds it useful and because it helps facilitate investor understanding of decisions made by our management in light of the performance metrics used in making those decisions. In addition, we believe that providing EBITDA, together with a reconciliation to GAAP, helps investors make comparisons between interclick and other companies. In making any comparisons to other companies, investors need to be aware that companies use different non-GAAP measures to evaluate their financial performance. Investors should pay close attention to the specific definition being used and to the reconciliation between such measure and the corresponding GAAP measure provided by each company under applicable SEC rules.
 
Company Overview

Powered by OSM, interclick, inc. (the “Company” or “interclick”) offers proprietary data-valuation capabilities combining analytical expertise and media fulfillment to help marketers navigate the complex data ecosystem to drive successful online display and video campaigns.  OSM is a powerful solution which aggregates and organizes billions of data points from 3rd party providers – delivering actionable consumer insights, scalable audiences and the highly effective campaign execution.    We generate our revenue by serving as a principal in transacting online display and online video advertising between agency clients and third party website publishers.  Substantially all of the Company’s revenues are generated in the United States.

interclick is particularly sensitive to seasonality given that the majority of its revenues are tied to CPM (cost-per-thousand) branded advertisers campaigns, which are strongest in the fourth quarter and weakest in the first quarter.
 
Significant events which affected our results of operations include:
 
 
·
Revenues for the three months ended September 30, 2011 increased 36.8% to $36,177,567 from $26,442,854 for the three months ended September 30, 2010; revenues for the nine months ended September 30, 2011 increased 42.8% to $88,997,837 from $62,304,594 for the nine months ended September 30, 2010;
 
 
·
Gross profit percentage for the three months ended September 30, 2011 was 41.4% as compared to 46.0% for the three months ended September 30, 2010; gross profit percentage for the nine months ended September 30, 2011 was 42.7% as compared to 45.2% for the nine months ended September 30, 2010;
 
 
·
Operating expenses were 36.1% of revenue for the three months ended September 30, 2011 compared to 35.0% of revenue for the three months ended September 30, 2010; operating expenses were 38.9% of revenue for the nine months ended September 30, 2011 compared to 39.2% of revenue for the nine months ended September 30, 2010;
 
 
 
·
Headcount increased to 134 people at September 30, 2011 from 107 people at September 30, 2010;
 
 
·
Operating income for the three months ended September 30, 2011 was $1,922,702 as compared to $2,885,775 for the three months ended September 30, 2010; operating income for the nine months ended September 30, 2011 was $3,389,640 as compared to $3,747,737 for the nine months ended September 30, 2010.  Results in 2011 included approximately $519,000 relating to merger and related expenses;
 
 
·
EBITDA (a non-GAAP measure) for the three months ended September 30, 2011 was $4,127,931 compared to $4,086,141 for the three months ended September 30, 2010; EBITDA for the nine months ended September 30, 2011 was $8,467,157 compared to $7,169,529 for the nine months ended September 30, 2010; and
 
 
·
Net income for the three months ended September 30, 2011 was $792,159 or $0.03 per diluted share, compared net income of $1,245,531 or $0.05 per diluted share for the three months ended September 30, 2010.  Net income for the nine months ended September 30, 2011 was $1,537,804 or $0.06 per diluted share, compared to $1,371,315 or $0.06 per diluted share for the nine months ended September 30, 2010.  Results for the three months ended September 30, 2011 included an income tax expense of $1,061,451, compared to an income tax expense of $1,502,417 for the three months ended September 30, 2010 and an other than temporary impairment of available-for-sale securities of $126,080.  Results for the nine months ended September 30, 2011 included an income tax expense of $1,470,670.  Results for the nine months ended September 30, 2010 included an income tax expense of $1,641,543 and an other than temporary impairment of available-for-sale securities of $584,618.
 
Results of Operations

Three Months Ended September 30, 2011 Compared with Three Months Ended September 30, 2010
 
 Revenues
 
   
2011
   
2010
   
Period-over-
Period $ Change
   
Period-over-
Period % Change
 
                         
Revenues
  $ 36,177,567     $ 26,442,854     $ 9,734,713       36.8 %

Our revenue growth is attributed primarily to the continued increase in the number of advertisers seeking interclick’s online solutions, including a video advertising platform introduced in the first quarter of 2011 and a greater number of advertising impressions sold.

The continued overall growth in online advertising, the ongoing enhancements to our technology platforms, new product innovations, our ability to acquire quality advertising impressions from publishers, and our effectiveness at providing data integrations across campaigns and analytical insights to our clients, gives us confidence we will continue to increase our revenues on a year-over-year basis for the foreseeable future.
 
Cost of Revenues and Gross Profit
 
   
2011
   
2010
   
Period-over-
Period $ Change
   
Period-over-
Period % Change
 
                         
Cost of revenues
  $ 21,194,956     $ 14,292,265     $ 6,902,691       48.3 %
Percentage of revenues
    58.6 %     54.0 %                

 The increase in our cost of revenues is primarily attributable to the continued growth in advertising campaigns requiring the purchase of appropriate levels of advertising impressions from publishers.  Cost of revenues is comprised primarily of the amounts paid for advertising impressions, third-party data, ad verification, privacy notification, rich media and ad serving expenses directly associated with given campaigns.  The increase in cost of revenues as a percentage of revenue is primarily attributable to higher advertising impressions (including video), and data fees.  Changes in cost of revenues as a percentage of revenue in any given period are also a function of the mix of advertising campaigns and general market conditions.
 
 
4

 
   
2011
   
2010
   
Period-over-
Period $ Change
   
Period-over-
Period % Change
 
                         
Gross profit
  $ 14,982,611     $ 12,150,589     $ 2,832,022       23.3 %
Percentage of revenues
    41.4 %     46.0 %                

The overall increase in gross profit is the primary result of the increase in revenue, largely offset by higher cost of revenues.  The decrease in gross profit as a percentage of revenue is attributable to higher year-over-year growth in cost of revenues as compared to the growth in revenues.  We expect gross margin percentages will range in the mid to low 40’s over the next 12 months due to general market conditions, seasonal fluctuations and varying costs in connection with the dynamic mix of advertising campaigns, data, ad verification and privacy notification efforts.
 
 Operating Expenses

Operating expenses consist of general and administrative, sales and marketing, technology support, and amortization of intangible assets.  These are discussed in further detail below.  Total operating expenses increased to $13,059,909 for the three months ended September 30, 2011, from $9,264,814 for the three months ended September 30, 2010, an increase of $3,795,095 or 41.0%.  The increase was primarily due to headcount expansion from 107 employees as of September 30, 2010 to 134 employees as of September 30, 2011 (an increase of 25%) and higher compensation, higher sales related expenses, license fees and increased overhead expenditures necessary to support interclick’s increased business, ongoing product innovation initiatives, including our new audience recommendation engine Genome powered by OSMTM (“Genome”), and costs associated with merger and related activities of approximately $519,000.  These increases were partially offset by the capitalization of approximately $377,000 of internal-use software costs during the period (discussed further below).  As a percentage of revenues, operating expenses increased to 36.1% for the three months ended September 30, 2011, from 35.0% for the three months ended September 30, 2010.    The majority of hiring was in the operations, technology, product and sales areas to support the growth of our business and the ongoing innovation, development and marketing of our technology platform, including OSM.  We expect to continue hiring at a slower pace than year-over-year revenue growth for the remainder of 2011.

General and Administrative

   
2011
   
2010
   
Period-over-
Period $ Change
   
Period-over-
Period % Change
 
                         
General and administrative
  $ 6,356,141     $ 4,143,866     $ 2,212,275       53.4 %
Percentage of revenues
    17.6 %     15.7 %                

General and administrative expenses consist primarily of executive, finance, administrative, operations and product support compensation (including stock-based compensation), facilities costs, depreciation, professional fees, licenses, insurance, and other expenses.   The increase in general and administrative expenses is primarily attributable to our headcount expansion, higher expenditures necessary to support interclick’s increased business, such as depreciation and insurance, as well as approximately $91,000 of legal litigation expenses that did not occur in the prior year period and approximately $519,000 of expenses incurred in connection with merger and related activities.  As a percentage of revenue, general and administrative expenses increased year-over-year, due largely to merger and related activity expenses, license fees, and other overhead, including headcount growth. The Company expects general and administrative expenses as a percentage of revenue to generally decline as the business expands, notwithstanding legal litigation costs which are currently expected to range between approximately $1.2 million and $1.5 million in 2011.

 
5

 
Sales and Marketing

   
2011
   
2010
   
Period-over-
Period $ Change
   
Period-over-
Period % Change
 
                         
Sales and marketing
  $ 4,879,406     $ 3,563,827     $ 1,315,579       36.9 %
Percentage of revenues
    13.5 %     13.5 %                

Sales and marketing expenses consist primarily of compensation (including sales commissions and stock-based compensation) for sales and marketing personnel, sales support resources, marketing and advertising efforts and industry event expenses.  The increase in our sales and marketing expenses is primarily attributable to higher sales-related expenses and headcount expansion.    Sales and marketing expenses as a percentage of revenue remained relatively consistent.  The Company expects to continue its marketing and advertising efforts for the foreseeable future, including the promotion of the recently launched Genome platform.
 
Technology Support

   
2011
   
2010
   
Period-over-
Period $ Change
   
Period-over-
Period % Change
 
                         
Technology support
  $ 1,720,021     $ 1,517,621     $ 202,400       13.3 %
Percentage of revenues
    4.8 %     5.7 %                

Technology support consists primarily of compensation (including stock-based compensation) of technology support and related resources such as co-location hosting, software, hardware and internet-related expenses. Technology support and related resources have been directed primarily towards supporting the growth of our business and the continued development and enhancement of our OSM and ad serving platforms, including the integration of data providers, and ongoing maintenance and improvement of our technology infrastructure, including expansion of our data center facilities in the first quarter of 2011. 

The increase in technology support is primarily attributable to headcount expansion and higher co-location hosting expenses, largely offset by the capitalization of approximately $377,000 of internal-use software costs in the third quarter of 2011, principally related to the development of Genome.  Such costs included payroll and payroll related costs attributable to product development personnel in our technology support group.  We expect to capitalize, albeit likely to a lesser degree, additional costs associated with the development of internal-use software in the near-term.

As a technology-centric company, interclick is highly dependent on technology related costs to support its infrastructure, operations, and differentiated product offerings in the marketplace.  The Company expects that its efforts in this regard will continue to help drive revenue growth and operating effectiveness for the foreseeable future.
 
Amortization of Intangible Assets
 
   
2011
   
2010
   
Period-over-
Period $ Change
   
Period-over-
Period % Change
 
                         
Amortization of intangible assets
  $ 104,341     $ 39,500     $ 64,841       164.2 %
Percentage of revenues
    0.3 %     0.1 %                

Amortization of intangible assets includes amortization of customer relationships, developed technology, and internal-use software.   The increase in amortization of intangible assets expense is attributable to the capitalization and amortization of internal-use software beginning in the first quarter of 2011.
 
 
6

 
Other Income (Expense)
 
   
2011
   
2010
   
Period-over-
Period $ Change
   
Period-over-
Period % Change
 
                         
Other income (expense)
  $ (69,092 )   $ (137,827 )   $ 68,735       -49.9 %
Percentage of revenues
    -0.2 %     -0.5 %                

Other income (expense) consists primarily of interest expense, and in the prior year period, other than temporary impairment of available-for-sale securities.  The decrease in other expense is primarily attributable to the absence of $126,080 in other than temporary impairment of available-for-sale securities recognized in the prior year period.  The vast majority of such available-for-sale securities were sold in December 2010 and accordingly no material impairments or loss on these available-for-sale securities is expected to occur in future periods.   This decrease was partially offset by an increase in interest expense to $71,019 for the three months ended September 30, 2011 from $19,429 for the three months ended September 30, 2010. This increase is primarily attributable to higher average outstanding borrowings under our current line of credit versus our former line of credit, which is partially offset with savings from more favorable borrowing rates on our current line of credit.  The increase is also partially attributable to increased interest expense incurred on capitalized leases for computer equipment purchased during the second half of 2010 and during the nine months ended September 30, 2011.
 
Income Tax Expense

   
2011
   
2010
   
Period-over-
Period $ Change
   
Period-over-
Period % Change
 
                         
Income tax expense
  $ (1,061,451 )   $ (1,502,417 )   $ 440,966       -29.4 %
Percentage of revenues
    -2.9 %     -5.7 %                

The decrease in income tax expense for the three months ended September 30, 2011 is primarily attributable to the reversal of an income tax benefit recognized during the three months ended March 31, 2010, and decreased taxable income generated by the Company for the three months ended September 30, 2011 as compared to the three months ended September 30, 2010.  The Company’s effective tax rate for the three months ended September 30, 2011 was 57.3%.  The Company currently estimates that its effective tax rate will be in the mid to high-40s percentage range for the foreseeable future.
 
Net Income

   
2011
   
2010
   
Period-over-
Period $ Change
   
Period-over-
Period % Change
 
                         
Net income (loss)
  $ 792,159     $ 1,245,531     $ (453,372 )     -36.4 %
Percentage of revenues
    2.2 %     4.7 %                

The decrease in net income is primarily attributable to cost of revenues and operating expenses growing at a faster rate than revenues during the three months ended September 30, 2011.
 
 
7

 
Reconciliation of GAAP to Non-GAAP Measure

   
For the Three
Months Ended
September 30, 2011
   
For the Three
Months Ended
September 30, 2010
 
             
GAAP net income
  $ 792,159     $ 1,245,531  
                 
Income tax expense
    1,061,451       1,502,417  
                 
Income before income taxes
    1,853,610       2,747,948  
                 
Interest expense
    71,019       19,429  
Interest income
    (1,927 )     (7,682 )
Other than temporary impairment of available-for sale securities
    -       126,080  
                 
Operating income
    1,922,702       2,885,775  
                 
Stock-based compensation
    1,315,934       978,496  
Amortization of intangible assets
    104,341       39,500  
Depreciation
    266,203       182,370  
Merger and related expenses
    518,751       -  
                 
EBITDA
  $ 4,127,931     $ 4,086,141  
 
Nine Months Ended September 30, 2011 Compared with Nine Months Ended September 30, 2010

 Revenues
 
   
2011
   
2010
   
Period-over-
Period $ Change
   
Period-over-
Period % Change
 
                         
Revenues
  $ 88,994,837     $ 62,304,594     $ 26,690,243       42.8 %

Our revenue growth is attributed primarily to the continued increase in the number of advertisers seeking interclick’s online solutions including a video advertising platform introduced in the first quarter of 2011 and a greater number of advertising impressions sold.

The continued overall growth in online advertising, ongoing enhancements to our technology platforms and new product innovations, our ability to acquire quality advertising impressions from publishers, and our effectiveness at providing data integrations across campaigns and analytical insights to clients, gives us confidence we will continue to increase our revenues on a year-over-year basis for the foreseeable future.
 
Cost of Revenues and Gross Profit
 
   
2011
   
2010
   
Period-over-
Period $ Change
   
Period-over-
Period % Change
 
                         
Cost of revenues
  $ 50,974,054     $ 34,145,933     $ 16,828,121       49.3 %
Percentage of revenues
    57.3 %     54.8 %                

The increase in our cost of revenues is primarily attributable to the continued growth in advertising campaigns requiring the purchase of appropriate levels of advertising impressions from publishers.  Cost of revenues is comprised primarily of the amounts paid for advertising impressions, third-party data, ad verification, privacy notification, rich media and ad serving expenses directly associated with given campaigns.   The increase in cost of revenues as a percentage of revenue is primarily attributable to higher advertising impression (including video), and data.  Changes in cost of revenues as a percentage of revenue in any given period are also a function of the mix of advertising campaigns and general market conditions.

 
8

 
   
2011
   
2010
   
Period-over-
Period $ Change
   
Period-over-
Period % Change
 
                         
Gross profit
  $ 38,020,783     $ 28,158,661     $ 9,862,122       35.0 %
Percentage of revenues
    42.7 %     45.2 %                

The overall increase in gross profit dollars is the primary result of the increase in revenue largely offset by higher cost of revenues.  The decrease in gross profit as a percentage of revenue in 2011 from 2010 is attributable the higher year-over-year growth in cost of revenues as compared to the growth in revenues.    We expect gross margin percentages will continue to range in the mid to low 40’s over the next 12 months due to general market conditions, seasonal fluctuations and varying costs in connection with the dynamic mix of advertising campaigns, data,  ad verification and privacy notification efforts.
 
 Operating Expenses

Operating expenses consist of general and administrative, sales and marketing, technology support, and amortization of intangible assets.  These are discussed in further detail below.  Total operating expenses increased to $34,631,143 for the nine months ended September 30, 2011, from $24,410,924 for the nine months ended September 30, 2010, an increase of $10,220,219 or 41.9%.  The increase was primarily due to headcount expansion from 107 employees as of September 30, 2010 to 134 employees as of September 30, 2011 (an increase of 25%) and higher compensation, higher sales related expenses, license fees, and increased overhead expenditures necessary to support interclick’s increased business and ongoing product innovation initiatives, including our new audience recommendation engine Genome powered by OSMTM (“Genome”) and costs associated with merger and related activities of approximately $519,000.  These increases were partially offset by the capitalization of approximately $1,387,000 of internal-use software costs during the period (discussed further below) and the absence of a net cease-use charge of approximately $432,000 recognized in the prior year period. As a percentage of revenues, operating expenses decreased to 38.9% for the nine months ended September 30, 2011, from 39.2% for the nine months ended September 30, 2010, representing improved operating efficiency as the business expanded, offset by the expenses associated with merger and related activities.  The majority of hiring was in the operations, technology, product and sales areas to support the growth of our business and the ongoing innovation, development and marketing of our technology platform, including OSM.    We expect to continue hiring at a slower pace than year-over-year revenue growth during the remainder of 2011

In the first quarter of 2011, we began capitalizing the costs of internal-use software development projects.  In connection with these projects, we capitalized approximately $1,386,000 of payroll and payroll related costs attributable to the product development personnel in our technology support group during the nine months ended September 30, 2011.  These costs are amortized over three years as intangible assets as discussed further below.
 
General and Administrative

   
2011
   
2010
   
Period-over-
Period $ Change
   
Period-over-
Period % Change
 
                         
General and administrative
  $ 16,859,355     $ 11,248,139     $ 5,611,216       49.9 %
Percentage of revenues
    18.9 %     18.1 %                

General and administrative expenses consist primarily of executive, finance, administrative, operations and product support compensation (including stock-based compensation), facilities costs, depreciation, professional fees, licenses, insurance and other expenses.   The increase in general and administrative expenses is primarily attributable to our headcount expansion, higher expenditures necessary to support interclick’s increased business, such as rent, depreciation and insurance, as well as approximately $967,000 of legal litigation expenses that did not occur in the prior year period, and approximately $519,000 of expenses incurred in connection with merger and related activities, partially offset by the absence of a net cease-use charge of approximately $432,000 recognized in the prior year period.   As a percentage of revenue, general and administrative expenses increased year-over-year, due largely to merger and related activity expenses, license fees, and other overhead, including headcount growth. The Company expects general and administrative expenses as a percentage of revenue to generally decline as the business expands, despite legal litigation costs which are currently expected to range between approximately $1.2 million and $1.5 million in 2011.
 
 
9

 
Sales and Marketing

   
2011
   
2010
   
Period-over-
Period $ Change
   
Period-over-
Period % Change
 
                         
Sales and marketing
  $ 12,843,177     $ 8,767,724     $ 4,075,453       46.5 %
Percentage of revenues
    14.4 %     14.1 %                

Sales and marketing expenses consist primarily of compensation (including sales commissions and stock-based compensation) for sales and marketing personnel, sales support resources, marketing and advertising efforts and industry event expenses.  The increase in our sales and marketing expenses is primarily attributable to higher sales-related expenses and headcount expansion.    The Company expects to continue its marketing and advertising efforts for the foreseeable future, including the promotion of the Genome platform.
 
Technology Support

   
2011
   
2010
   
Period-over-
Period $ Change
   
Period-over-
Period % Change
 
                         
Technology support
  $ 4,691,469     $ 4,276,561     $ 414,908       9.7 %
Percentage of revenues
    5.3 %     6.9 %                

Technology support consists primarily of compensation (including stock-based compensation) of technology support and related resources such as hosting, software and internet-related expenses. Technology support and related resources have been directed primarily towards supporting the growth of our business and the continued development and enhancement of our OSM and ad serving platforms, including the integration of data providers, and ongoing maintenance and improvement of our technology infrastructure, including expansion of our data center facilities. 

The increase in technology support is primarily attributable to headcount expansion and higher hosting expenses, largely offset by the capitalization of approximately $1,387,000 of internal-use software costs for the nine months ended September 30, 2011, principally related to the development of Genome.  Such costs included payroll and payroll related costs attributable to product development personnel in our technology support group.  We expect to capitalize, albeit likely to a lesser degree, additional costs associated with the development of internal-use software in the near-term.

As a technology-centric company, interclick is highly dependent on technology related costs to support its infrastructure operations, and differentiated product offerings in the marketplace.  The Company expects that its efforts in this regard will continue to help drive revenue growth and operating effectiveness for the foreseeable future.
 
Amortization of Intangible Assets

   
2011
   
2010
   
Period-over-
Period $ Change
   
Period-over-
Period % Change
 
                         
Amortization of intangible assets
  $ 237,142     $ 118,500     $ 118,642       100.1 %
Percentage of revenues
    0.3 %     0.2 %                

Amortization of intangible assets includes amortization of customer relationships, developed technology, and internal-use software.   The increase in amortization of intangible assets expense is attributable to the capitalization and amortization of internal-use software beginning in the first quarter of 2011.
 
 
10

 
Other Income (Expense)

   
2011
   
2010
   
Period-over-
Period $ Change
   
Period-over-
Period % Change
 
                         
Other income (expense)
  $ (381,166 )   $ (734,879 )   $ 353,713       -48.1 %
Percentage of revenues
    -0.4 %     -1.2 %                

Other income (expense) consists primarily of interest expense, and in the prior year period, other than temporary impairment of available-for-sale securities and warrant derivative liability income.  The decrease in other expense is primarily attributable to the absence of $584,618 in other than temporary impairment of available-for-sale securities recognized in the prior year period.  The vast majority of such available-for-sale securities were sold in December and accordingly no material impairments or loss on these available-for-sale securities is expected to occur in future periods.   This decrease was partially offset by an increase in interest expense to $387,353 for the nine months ended September 30, 2011 from $196,375 for the nine months ended September 30, 2010, in connection with higher outstanding borrowings under our current line of credit versus our former line of credit, as well as increased interest expense incurred on capitalized leases for computer equipment purchased during 2010 and during the nine months ended September 30, 2011.

Income Tax Expense

   
2011
   
2010
   
Period-over-
Period $ Change
   
Period-over-
Period % Change
 
                         
Income tax expense
  $ (1,470,670 )   $ (1,641,543 )   $ 170,873       -10.4 %
Percentage of revenues
    -1.7 %     -2.6 %                

Income tax expense for the nine months ended September 30, 2011 is attributable to the decreased taxable income generated by the Company for the nine months ended September 30, 2011 over for the nine months ended September 30, 2010, partially offset by the reversal of an income tax benefit recognized during the three months ended March 31, 2010.   The Company’s effective tax rate for the nine months ended September 30, 2011 was 48.9%.  The Company currently estimates that its effective tax rate will be in the mid to high-40s percentage range for the foreseeable future.

Net Income

   
2011
   
2010
   
Period-over-
Period $ Change
   
Period-over-
Period % Change
 
                         
Net income
  $ 1,537,804     $ 1,371,315     $ 166,489       12.1 %
Percentage of revenues
    1.7 %     2.2 %                

The increase in net income is largely attributable to revenue growth, operating expenses growing at a slower pace than revenues, the absence of an impairment on available-for-sale securities, the absence of a net cease-use charge, and reduced income tax expense.  The increase was partially offset by higher cost of revenues and higher interest expense.
 
 
11

 
Reconciliation of GAAP to Non-GAAP Measure

   
For the Nine
Months Ended
September 30, 2011
   
For the Nine
Months Ended
September 30, 2010
 
             
GAAP net income
  $ 1,537,804     $ 1,371,315  
                 
Income tax expense
    1,470,670       1,641,543  
                 
Income before income taxes
    3,008,474       3,012,858  
                 
Interest expense
    387,353       196,375  
Interest income
    (6,187 )     (24,701 )
Warrant derivative liability income
    -       (21,413 )
Other than temporary impairment of available-for sale securities
    -       584,618  
                 
Operating income
    3,389,640       3,747,737