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

FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

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 19 th Street, 10 th 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 o                       No   o

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

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

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

Class
 
Outstanding at November 11, 2010
Common Stock, $0.001 par value per share
 
23,969,011 shares
 
 
 

 

TABLE OF CONTENTS
 
 
Page
PART I – FINANCIAL INFORMATION
F-1
   
Item 1.
 
Financial Statements
  F-1
       
   
Condensed Consolidated Balance Sheets (unaudited)
  F-2
       
   
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (unaudited)
  F-3
       
   
Condensed Consolidated Statement of Changes in Stockholders’ Equity (unaudited)
  F-4
       
   
Condensed Consolidated Statements of Cash Flows (unaudited)
  F-5
       
   
Notes to Condensed Consolidated Financial Statements (unaudited)
  F-7
   
Item 2.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
3
       
Item 3.
 
Quantitative and Qualitative Disclosures about Market Risk
 11
       
Item 4.
 
Controls and Procedures
 12
       
PART II – OTHER INFORMATION
12
   
Item 1.
 
Legal Proceedings
 12
       
Item 1A.
 
Risk Factors
12
       
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds
12
       
Item 3.
 
Defaults Upon Senior Securities
12
       
Item 4.
 
(Removed and Reserved)
 12
       
Item 5.
 
Other Information
 12
       
Item 6.
 
Exhibits
13
       
SIGNATURES
 13
 

 
PART I – FINANCIAL INFORMATION

INTERCLICK, INC. AND SUBSIDIARY
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
   
Page 
Item 1. Financial Statements
   
     
Condensed Consolidated Balance Sheets – September 30, 2010 (unaudited) and December 31, 2009
 
F-2
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2010 and 2009 (unaudited)
 
F-3
Condensed Consolidated Statement of Changes in Stockholders' Equity for the nine months ended September 30, 2010 (unaudited)
 
F-4
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2009 (unaudited)
 
F-5
Notes to Condensed Consolidated Financial Statements (unaudited)
 
F-7
 
 
F-1

 

INTERCLICK, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS

   
September 30, 2010
   
December 31, 2009
 
   
(Unaudited)
   
(See Note 1)
 
Assets
           
             
Current assets:
           
Cash and cash equivalents
  $ 10,992,013     $ 12,653,958  
Restricted cash
    998,097       -  
Accounts receivable, net of allowance for doubtful accounts of $453,490 and $383,188, respectively
    30,135,090       21,631,305  
Line of credit reserve
    -       1,052,167  
Deferred taxes, current portion
    828,950       955,471  
Prepaid expenses and other current assets
    377,086       367,183  
Total current assets
    43,331,236       36,660,084  
                 
Restricted cash
    296,090       -  
Property and equipment, net of accumulated depreciation and amortization of $1,100,014 and $597,288, respectively
    1,724,268       988,899  
Intangible assets, net of accumulated amortization of $1,027,850 and $909,350, respectively
    302,833       421,333  
Goodwill
    7,909,571       7,909,571  
Investment in available-for-sale marketable securities
    119,741       715,608  
Deferred line of credit costs, net of accumulated amortization of $3,271 and $35,028, respectively
    122,570       4,972  
Deferred taxes, net of current portion
    3,118,416       2,579,568  
Other assets
    207,573       192,179  
                 
Total assets
  $ 57,132,298     $ 49,472,214  
                 
Liabilities and Stockholders’ Equity
               
                 
Current liabilities:
               
Accounts payable
  $ 12,833,212     $ 10,934,236  
Accrued expenses (includes accrued compensation of $2,220,083 and $2,241,731, respectively)
    3,227,108       3,164,044  
Line of credit payable
    5,200,000       5,260,834  
Income taxes payable
    790,375       515,306  
Obligations under capital leases, current portion
    351,810       161,940  
Deferred rent, current portion (includes cease use liability of $75,603 at September 30, 2010)
    86,440       3,508  
Warrant derivative liability
    -       69,258  
Total current liabilities
    22,488,945       20,109,126  
                 
Obligations under capital leases, net of current portion
    514,114       338,562  
Deferred rent (includes cease use liability of $326,434 at September 30, 2010)
    632,102       83,823  
Total liabilities
    23,635,161       20,531,511  
                 
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,
23,837,335 and 23,632,707 issued and outstanding, respectively
    23,837       23,633  
Additional paid-in capital
    45,414,208       42,229,293  
Accumulated deficit
    (11,940,908 )     (13,312,223 )
Total stockholders’ equity
    33,497,137       28,940,703  
                 
Total liabilities and stockholders’ equity
  $ 57,132,298     $ 49,472,214  

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 (LOSS)
(Unaudited)

   
For the Three
Months Ended
September 30, 2010
   
For the Three
Months Ended
September 30, 2009
   
For the Nine
Months Ended
September 30, 2010
   
For the Nine
Months Ended
September 30, 2009
 
                                 
Revenues
  $ 26,442,854     $ 14,395,236     $ 62,304,594     $ 33,467,213  
Cost of revenues
    14,292,265       7,141,926       34,145,933       17,498,860  
Gross profit
    12,150,589       7,253,310       28,158,661       15,968,353  
                                 
Operating expenses:
                               
General and administrative
    4,143,866       3,348,581       11,248,139       7,921,964  
Sales and marketing
    3,563,827       2,320,507       8,767,724       5,471,950  
Technology support
    1,517,621       862,535       4,276,561       2,244,417  
Amortization of intangible assets
    39,500       49,760       118,500       149,280  
Total operating expenses
    9,264,814       6,581,383       24,410,924       15,787,611  
                                 
Operating income from continuing operations
    2,885,775       671,927       3,747,737       180,742  
                                 
Other income (expense):
                               
Interest income
    7,682       -       24,701       12  
Warrant derivative liability income (expense)
    -       (274,725 )     21,413       (506,786 )
Loss on sale of available-for-sale securities
    -       -       -       (36,349 )
Other than temporary impairment of available-for-sale securities
    (126,080 )     -       (584,618 )     -  
Interest expense
    (19,429 )     (245,854 )     (196,375 )     (486,127 )
Total other expense
    (137,827 )     (520,579 )     (734,879 )     (1,029,250 )
                                 
Income (loss) from continuing operations before income taxes
    2,747,948       151,348       3,012,858       (848,508 )
                                 
Income tax expense
    (1,502,417 )     -       (1,641,543 )     -  
                                 
Income (loss) from continuing operations
    1,245,531       151,348       1,371,315       (848,508 )
                                 
Discontinued operations:
                               
Loss on sale of discontinued operations, net of income taxes
    -       -       -       (1,220 )
Loss from discontinued operations
    -       -       -       (1,220 )
                                 
Net income (loss)
    1,245,531       151,348       1,371,315       (849,728 )
                                 
Other comprehensive income (loss):
                               
Unrealized loss on available-for-sale securities
    (105,653 )     -       (584,618 )     (899,999 )
Reclassification adjustments for losses included in net income (loss):
                               
Loss on sale of available-for-sale securities
    -       -       -       36,349  
Other than temporary impairment of available-for-sale securities
    126,080       -       584,618       -  
Total other comprehensive income (loss)
    20,427       -       -       (863,650 )
                                 
Comprehensive income (loss)
  $ 1,265,958     $ 151,348     $ 1,371,315     $ (1,713,378 )
                                 
Basic earnings (loss) per share:
                               
Continuing operations
  $ 0.05     $ 0.01     $ 0.06     $ (0.04 )
Discontinued operations
    -       -       -       -  
Net income
  $ 0.05     $ 0.01     $ 0.06     $ (0.04 )
                                 
Diluted earnings (loss) per share:
                               
Continuing operations
  $ 0.05     $ 0.01     $ 0.06     $ (0.04 )
Discontinued operations
    -       -       -       -  
Net income
  $ 0.05     $ 0.01     $ 0.06     $ (0.04 )
                                 
Weighted average number of common shares - basic
    23,750,068       20,628,042       23,681,188       19,578,110  
Weighted average number of common shares - diluted
    24,620,768       22,399,847       24,748,108       19,578,110  

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, 2010
(Unaudited)

                     
Accumulated
             
               
Additional
   
Other
         
Total
 
   
Common Stock
   
Paid-In
   
Comprehensive
   
Accumulated
   
Stockholders'
 
   
Shares
   
Amount
   
Capital
   
Income (Loss)
   
Deficit
   
Equity
 
Balances, January 1, 2010
    23,632,707     $ 23,633     $ 42,229,293     $ -     $ (13,312,223 )   $ 28,940,703  
                                                 
Stock-based compensation
    -       -       2,800,566       -       -       2,800,566  
                                                 
Issuances of restricted shares
    10,100       10       (10 )     -       -       -  
                                                 
Issuance of common shares for stock options and warrants exercised
    194,528       194       336,513       -       -       336,707  
                                                 
Reclassification of warrant derivative liability to equity upon expiration of price protection
    -       -       47,846       -       -       47,846  
                                                 
Unrealized loss on available-for-sale securities
    -       -       -       (584,618 )     -       (584,618 )
                                                 
Other than temporary impairment on available-for-sale securities
    -       -       -       584,618       -       584,618  
                                                 
Net income
    -       -       -       -       1,371,315       1,371,315  
                                                 
Balances, September 30, 2010
    23,837,335     $ 23,837     $ 45,414,208     $ -     $ (11,940,908 )   $ 33,497,137  

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

 
F-4

 

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

   
For the Nine
   
For the Nine
 
   
Months Ended
   
Months Ended
 
   
September 30, 2010
   
September 30, 2009
 
Cash flows from operating activities:
           
Net income (loss)
  $ 1,371,315     $ (849,728 )
Add back loss from discontinued operations, net
    -       1,220  
Income (loss) from continuing operations
    1,371,315       (848,508 )
Adjustments to reconcile net income (loss) from continuing operations to net cash used in operating activities:
               
Stock-based compensation
    2,800,566       1,953,884  
Other than temporary impairment of available-for-sale securities
    584,618       -  
Depreciation and amortization of property and equipment
    502,726       225,281  
Amortization of intangible assets
    118,500       149,280  
Provision for bad debts
    103,241       (87,084 )
Amortization of deferred line of credit costs
    8,243       24,972  
Deferred tax benefit
    (412,327 )     -  
Change in warrant derivative liability
    (21,413 )     506,786  
Loss on sale of available-for-sale securities
    -       36,349  
Amortization of debt discount
    -       12,000  
Changes in cash attributable to changes in operating assets and liabilities:
               
Accounts receivable
    (8,607,026 )     (7,268,876 )
Prepaid expenses and other current assets
    (9,903 )     (155,341 )
Other assets
    (15,394 )     (515 )
Accounts payable
    1,898,976       2,219,724  
Accrued expenses
    25,564       1,521,435  
Income taxes payable
    275,069       -  
Deferred rent
    548,141       13,573  
Net cash used in operating activities
    (829,104 )     (1,697,040 )
                 
Cash flows from investing activities:
               
Proceeds from sale of available-for-sale securities
    11,250       21,429  
Payments for restricted cash
    (1,294,187 )     -  
Purchases of property and equipment
    (659,425 )     (86,851 )
Net cash used in investing activities
    (1,942,362 )     (65,422 )
                 
Cash flows from financing activities:
               
Proceeds from current line of credit
    5,200,000       -  
Proceeds from stock options and warrants exercised
    336,707       15,200  
(Repayments to) proceeds from former line of credit, net
    (4,208,667 )     1,893,593  
Payments of deferred line of credit costs
    (88,341 )     -  
Principal payments on capital leases
    (130,178 )     (8,108 )
Proceeds from common stock and warrants issued for cash
    -       2,257,000  
Principal payments on notes payable
    -       (400,000 )
Net cash provided by financing activities
    1,109,521       3,757,685  
                 
Cash flows from discontinued operations:
               
Cash flows from investing activities - divestiture
    -       (250,000 )
Net cash used in discontinued operations
    -       (250,000 )
                 
Net (decrease) increase in cash and cash equivalents
    (1,661,945 )     1,745,223  
                 
Cash and cash equivalents at beginning of period
    12,653,958       183,871  
                 
Cash and cash equivalents at end of period
  $ 10,992,013     $ 1,929,094  

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 (Continued)
(Unaudited)

   
For the Nine
   
For the Nine
 
   
Months Ended
   
Months Ended
 
   
September 30, 2010
   
September 30, 2009
 
Supplemental disclosure of cash flow information:
           
Interest paid
  $ 232,447     $ 412,364  
Income taxes paid
  $ 1,693,535     $ -  
                 
Non-cash investing and financing activities:
               
Property and equipment acquired through capital leases
  $ 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     $ -  
Unrealized loss on available-for-sale securities
  $ -     $ 863,650  
Issuance of common stock to eliminate or modify price protection for warrants
  $ -     $ 508,497  
Issuance of common stock for services to be rendered
  $ -     $ 124,000  
Issuance of common stock to pay accrued interest payable
  $ -     $ 13,266  
Issuance of common stock to extend debt maturity date
  $ -     $ 12,000  

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, 2010
(Unaudited)

Note 1. Nature of Operations

Overview 
 
interclick, inc. (the “Company”, or “interclick”) was formed in Delaware on March 4, 2002 under the name Outsiders Entertainment, Inc.

On August 28, 2007, the Company closed an Agreement and Plan of Merger and Reorganization (the “CAN Merger Agreement”) and acquired Customer Acquisition Network, Inc. (“CAN”), a privately-held corporation formed in Delaware on June 14, 2007.   In connection with this acquisition, the Company changed its name to Customer Acquisition Network Holdings, Inc.  On June 25, 2008, the Company changed its name to interclick, inc.

On August 31, 2007, the Company closed an Agreement and Plan of Merger (the “Desktop Merger”), wherein the Company acquired Desktop Interactive, Inc. (“Desktop Interactive”), a privately-held Delaware corporation engaged in the Internet advertising business.   Desktop Interactive merged with and into Desktop Acquisition Sub, Inc. (“Desktop”), a wholly-owned subsidiary of the Company.  Desktop was the surviving corporation.  Desktop was formed in Delaware on August 24, 2007.

interclick, inc. is a technology company providing solutions for data-driven advertising.  Combining scalable media execution capabilities with analytical expertise, interclick delivers exceptional results for marketers.  The Company’s proprietary Open Segment Manager (OSM) platform organizes and valuates billions of data points daily to construct the most responsive digital audiences for major digital marketers.  Substantially all of the Company’s revenues are generated in the United States.

On January 4, 2008, the Company closed an Agreement and Plan of Merger (the “Options Merger”), wherein the Company acquired Options Newsletter, Inc. (“Options Newsletter”).  Options Newsletter merged with and into Options Acquisition Sub, Inc. (“Options Acquisition”), a wholly-owned subsidiary of the Company.  Options Acquisition was the surviving corporation.  On June 23, 2008, Options Acquisition was sold to Options Media Group Holdings, Inc. (“OPMG”).

The Company is particularly sensitive to 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 2009 was as follows: 15.2% in the first quarter, 19.3% in the second quarter, 26.1% in the third quarter, and 39.4% 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 for the three and nine months ended September 30, 2010 and 2009, our cash flows for the nine months ended September 30, 2010 and 2009, our statement of changes in stockholders’ equity for the nine months ended September 30, 2010 and our financial position as of September 30, 2010, have been made.  The results of operations for such interim periods are not necessarily indicative of the operating results to be expected for the full year.

Certain information and disclosures normally included in the notes to the annual consolidated financial statements have been condensed or omitted from these interim consolidated financial statements.  Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009, as filed with the SEC on March 31, 2010.  The December 31, 2009 balance sheet is derived from those statements.

All references to outstanding shares, options, warrants and per share information have been adjusted to give effect to the one-for-two reverse stock split effective October 23, 2009.

The Company has evaluated subsequent events for potential recognition and/or disclosure through the date of issuance of these financial statements.

 
F-7

 

INTERCLICK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
(Unaudited)

Note 2. Significant Accounting Policies

Use of Estimates

Our unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  These accounting principles require us to make certain estimates, judgments and assumptions.  We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made.  These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of our unaudited condensed consolidated financial statements as well as the reported amounts of revenues and expenses during the periods presented.  Our unaudited condensed consolidated financial statements would be affected to the extent there are material differences between these estimates and actual results.  In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application.  There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result.  Significant estimates include the valuation of accounts receivable and the allowance for doubtful accounts, estimates of depreciable lives and valuation of property and equipment, valuation and amortization periods of intangible assets and deferred costs, valuation of goodwill, valuation of discounts on debt, valuation of derivatives, valuation of investment in available-for-sale securities, valuation of shares of common stock, options and warrants granted for services or recorded as debt discounts or other non-cash purposes, the valuation allowance on deferred tax assets, and estimates of the tax effects of the sale of a subsidiary.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of interclick, inc. and its wholly-owned subsidiary and Options Newsletter through its sale date.  All significant inter-company balances and transactions have been eliminated in consolidation.  As a result of the Options Divestiture, the results of Options Newsletter are reported as “Discontinued Operations”.

Restricted Cash

Restricted cash represents amounts pledged as security for certain agreements with third parties.  Upon satisfying the terms of the agreements, the funds are expected to be released and available for use by the Company.

In January 2010, the Company pledged a $500,000, 3-month certificate of deposit bearing interest at 0.60% per annum, to a third party in connection with a service agreement.  In April 2010, July 2010 and October 2010, the certificate of deposit and the pledge were renewed for an additional three months.

In February 2010, the Company acquired $495,600 of computer equipment under a capital lease agreement.  In connection with the lease agreement, the Company’s banking institution issued an irrevocable 1-year standby letter of credit for the benefit of the leasing company.  The Company opened a 14-month certificate of deposit, bearing interest at 0.56% per annum, maturing April 1, 2011, with its banking institution in the amount of $495,600 and pledged that to the letter of credit.  The Company shall consider the certificate of deposit and accrued interest as restricted cash until such letter of credit expires.

On March 11, 2010, the Company entered into a lease agreement to relocate its New York City headquarters to a larger space.  In connection with the lease agreement, the Company’s banking institution issued an irrevocable 1-year standby letter of credit for the benefit of the landlord.  The Company opened a 14-month certificate of deposit, bearing interest at 0.70% per annum, maturing March 27, 2011, with its banking institution in the amount of $294,700 and pledged that to the letter of credit.  Through the lease term, the Company is required to maintain a standby letter of credit for the benefit of the landlord.  Accordingly, as of September 30, 2010, the Company has classified the certificate of deposit, including accrued interest, as restricted cash, a non-current asset.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization.  Depreciation and amortization is 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 their useful life or the lease term.  Expenditures for additions and improvements are capitalized while repairs and maintenance are expensed as incurred.

 
F-8

 

INTERCLICK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
(Unaudited)

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

Fair Value Measurements

The Company has adopted the provisions of Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures”.  ASC Topic 820 defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.  Excluded from the scope of ASC Topic 820 are certain leasing transactions accounted for under ASC Topic 840, “Leases.”  The exclusion does not apply to fair value measurements of assets and liabilities recorded as a result of a lease transaction but measured pursuant to other pronouncements within the scope of ASC Topic 820.

Reclassifications

Certain amounts in the accompanying 2009 financial statements have been reclassified in order to conform to the 2010 presentation.  The following tables show the reclassifications to the condensed consolidated statements of operations for the three and nine months ended September 30, 2009.

   
For the Three Months Ended September 30, 2009
 
         
Reclassifications
       
   
As Previously
   
Compensation and
   
As
 
   
Reported
   
Employee-Related Costs
   
Reclassified
 
                   
Operating expenses:
                 
General and administrative
  $ 3,383,752     $ (35,171 )   $ 3,348,581  
Sales and marketing
    2,317,245       3,262       2,320,507  
Technology support
    830,626       31,909       862,535  
Amortization of intangible assets
    49,760               49,760  
Total operating expenses
  $ 6,581,383             $ 6,581,383  

   
For the Nine Months Ended September 30, 2009
 
         
Reclassifications
       
   
As Previously
   
Compensation and
   
As
 
   
Reported
   
Employee-Related Costs
   
Reclassified
 
                   
Operating expenses:
                 
General and administrative
  $ 8,021,106     $ (99,142 )   $ 7,921,964  
Sales and marketing
    5,468,122       3,828       5,471,950  
Technology support
    2,149,103       95,314       2,244,417  
Amortization of intangible assets
    149,280               149,280  
Total operating expenses
  $ 15,787,611             $ 15,787,611  
 
 
F-9

 

INTERCLICK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
(Unaudited)

Discontinued Operations

On June 23, 2008, the Company completed the sale of its Options Acquisition subsidiary pursuant to an Agreement of Merger and Plan of Reorganization.  The amounts associated with the sale of this subsidiary are reported as discontinued operations in the accompanying condensed consolidated financial statements, in accordance with ASC Topic 820.  In addition, certain allocable corporate expenses pertaining to Options Acquisition are also included in discontinued operations.

Accounting for Derivatives

The Company evaluates its options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, “Derivatives and Hedging”.  The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability.  In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income (expense).  Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.  Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to liability at the fair value of the instrument on the reclassification date.

Codification Update

In January 2010, the Financial Accounting Standards Board (“FASB”) issued ASU 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements”.  This update provides amendments to Topic 820 to provide more robust disclosures about (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements, and (4) the transfers between Levels 1, 2, and 3.  The adoption of ASU 2010-06 did not have a material impact on the Company’s consolidated results of operations or financial condition.

In February 2010, the FASB issued ASU 2010-09, “Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements”.  This update addresses both the interaction of the requirements of Topic 855, “Subsequent Events”, with the SEC’s reporting requirements and the intended breadth of the reissuance disclosures provision related to subsequent events (paragraph 855-10-50-4).  The amendments in this update have the potential to change reporting by both private and public entities, however, the nature of the change may vary depending on facts and circumstances.  The adoption of ASU 2010-09 did not have a material impact on the Company’s consolidated results of operations or financial condition.

In April 2010, the FASB issued ASU No. 2010-13, “Compensation – Stock Compensation”.  This update clarified the classification of an employee share based payment award with an exercise price denominated in the currency of a market in which the underlying security trades.  This update will be effective for the first fiscal quarter beginning after December 15, 2010, with early adoption permitted.  The Company does not expect the provisions of ASU 2010-13 to have a material effect on the Company’s consolidated results of operations or financial condition.

Note 3. Property and Equipment

Property and equipment consisted of the following at September 30, 2010 and December 31, 2009:

   
September 30, 2010
   
December 31, 2009
 
Computer equipment
  $ 2,288,221     $ 1,433,461  
Furniture and fixtures
    195,596       72,711  
Software
    144,258       57,572  
Leasehold improvements
    173,764       -  
Office equipment
    22,443       22,443  
      2,824,282       1,586,187  
Accumulated depreciation and amortization
    (1,100,014 )     (597,288 )
Property and equipment, net
  $ 1,724,268     $ 988,899  
 
 
F-10

 

INTERCLICK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
(Unaudited)

In February 2010, the Company acquired $495,600 of computer equipment under a capital lease agreement.  Property and equipment held under capital leases of $1,015,965 and $520,365 at September 30, 2010 and December 31, 2009, respectively, are included in computer equipment above.

Depreciation and amortization expense for the nine months ended September 30, 2010 and 2009 was $502,726 and $225,281, of which $129,775 and $4,404, respectively, pertained to capital leases.  Accumulated depreciation and amortization amounted to $1,100,014 and $597,288, of which $146,926 and $17,152 pertained to capital leases, as of September 30, 2010 and December 31, 2009, respectively.

Note 4. Intangible Assets

Intangible assets, which were all acquired from the Desktop business combination, consisted of the following at September 30, 2010 and December 31, 2009:

   
September 30, 2010
   
December 31, 2009
 
Customer relationships
  $ 540,000     $ 540,000  
Developed technology
    790,000       790,000  
Domain name
    683       683  
      1,330,683       1,330,683  
Accumulated amortization
    (1,027,850 )     (909,350 )
Intangible assets, net
  $ 302,833     $ 421,333  

Customer relationships are fully amortized and were amortized based upon the estimated percentage of annual or period projected cash flows generated by such relationships, to the total cash flows generated over the estimated three-year life of the customer relationships.  Accordingly, this resulted in accelerated amortization in which the majority of costs were amortized during the two-year period following the acquisition date of the intangible.

Developed technology is being amortized on a straight-line basis over five years.

The domain name is fully amortized and was amortized over its remaining life of six months following the acquisition date of the intangible.

The following is a schedule of estimated future amortization expense of intangible assets as of September 30, 2010:

Year Ending December 31,
     
2010
  $ 39,500  
2011
    158,000  
2012
    105,333  
Total
  $ 302,833  

Note 5.  Investment in Available-For-Sale Marketable Securities

The following represents information about available-for sale securities held at September 30, 2010:

Securities in loss positions
 
Amortized
   
Aggregate
   
Aggregate
 
less than 12 months
 
Cost Basis
   
Unrealized losses
   
Fair Value
 
Options Media Group Holdings, Inc. ("OPMG")
  $ 119,741     $ -     $ 119,741  

 
F-11

 

INTERCLICK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
(Unaudited)

The following represents information about available-for sale securities held at December 31, 2009:

Securities in loss positions
 
Amortized
   
Aggregate
   
Aggregate
 
less than 12 months
 
Cost Basis
   
Unrealized losses
   
Fair Value
 
Options Media Group Holdings, Inc. ("OPMG")
  $ 715,608     $ -     $ 715,608  

As of September 30, 2010, the Company determined that its investment in OPMG shares was other-than-temporarily impaired to $0.017 per share (from a carrying basis of $0.0349 per share) and recognized an other-than-temporary impairment of $126,080 for the three months ended September 30, 2010, resulting in an aggregate other-than-temporary impairment loss of $584,618 for the nine months ended September 30, 2010.  This was based primarily on the extent and length of time over which the investment had been in a continuous unrealized loss position and the Company’s belief that it is unlikely OPMG’s stock price will increase significantly in the foreseeable future.  Furthermore, the Company has not conducted any private sale transactions and has not received any offers to buy shares at any price.  

As of June 30, 2010, the Company determined that its investment in OPMG shares was temporarily impaired due to the relatively short amount of time OPMG had traded under $0.0349 per share.  Thus, the Company valued its investment at $225,394 as of June 30, 2010, and an unrealized loss of $20,427 had been recognized in other comprehensive loss for the three months ended June 30, 2010.  This unrealized loss was reversed during the three months ended September 30, 2010, due to the other-than-temporary impairment recognized at September 30, 2010.

As of March 31, 2010, the Company determined that its investment in OPMG shares was other-than-temporarily impaired to $0.0349 per share (from a carrying basis of $0.10 per share) and recognized an other-than-temporary impairment of $458,538 during the three months ended March 31, 2010.  This was based primarily on the extent and length of time over which the investment had been in a continuous unrealized loss position and the Company’s belief that it was unlikely OPMG’s stock price would increase significantly in the foreseeable future.  Furthermore, the Company had not conducted any private sale transactions and had not received any offers to buy shares at any price.  

In January 2010, the Company sold 112,500 OPMG shares having a basis of $11,250 for proceeds of $11,250 resulting in no gain or loss.

In May 2009, the Company sold 214,285 OPMG shares having a basis of $57,778 for proceeds of $21,429 resulting in a loss of $36,349.

Note 6. Line of Credit Agreements and Capital Lease Obligations

Current Line of Credit

On September 10, 2010, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Silicon Valley Bank (“SVB”).  Under the Loan Agreement, SVB has committed to make advances to the Company in an aggregate amount up to $15,000,000, subject to the availability of eligible account receivables.  The Loan Agreement has a two-tier borrowing system.  Under the first tier, which applies if the Company’s Adjusted Quick Ratio (“AQR”) (as defined) is at least 1.25 to 1.0, the Company may request an advance based on eligible accounts receivable on an aggregate basis.  Under the second tier, which applies if the Company’s AQR is less than 1.25 to 1.0, advances will be based on specific invoices.  Repayment of advances under the Loan Agreement are due and payable on the earliest of (i) the date on which payment is received on the account receivable with respect to which the advance was made (the “Financed Receivable”), (ii) the date on which the Financed Receivable is no longer eligible for an advance, (iii) the date on which any adjustment is asserted against the Financed Receivable, (iv) the date on which there is a breach of any representation, warranty or covenant in the Loan Agreement or, (v) 728 days from the effective date of the Loan Agreement.  Advances under both tiers bear interest at a rate per annum equal to SVB’s prime rate (4.00% at September 30, 2010) plus 2.5%.  In addition, advances under the second tier incur a monthly handling fee of 0.15% of each Financed Receivable.  All accrued and unpaid interest and handling fees are payable on a monthly basis.  The line of credit requires no unused line fee, monthly monitoring fee, or minimum interest charge and expires on September 10, 2012.

 
F-12

 

INTERCLICK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
(Unaudited)

The Loan Agreement is secured by substantially all of the Company’s assets.  The Loan Agreement contains affirmative covenants that, among other things, require the Company to deliver to SVB specified financial information on an annual and monthly basis and to maintain an AQR of no less than 1.0 to 1.0.  The Loan Agreement also contains negative covenants that limit the Company’s ability to (or to permit any subsidiaries to), subject to certain exceptions and limitations, merge with or acquire other companies, create liens on its property, incur debt obligations, enter into transactions with affiliates, except on an arm’s length basis, dispose of property or issue dividends or make distributions.  Any failure by the Company to comply with these covenants and any other obligations under the Loan Agreement could result in an event of default which could lead to acceleration of the amounts owed and other remedies.  The Company was in compliance with all covenants as of September 30, 2010.

As of September 30, 2010, the balance outstanding on the SVB line of credit was $5,200,000.  As of September 30, 2010, the Company had $9,800,000 of borrowing capacity available under the SVB line of credit based on the availability of eligible accounts receivable.

Former Line of Credit

On November 13, 2008, the Company entered into a line of credit, in the form of an Accounts Receivable Financing Agreement (the “Agreement”), with Crestmark Commercial Capital Lending, LLC (“Crestmark”)  to finance certain eligible accounts receivable of the Company, as defined in the Agreement, up to a maximum credit line of $3.5 million (subsequently increased to $4.5 million on February 3, 2009, $5.5 million on April 30, 2009, and to $7.0 million on September 2, 2009), which would represent gross financed accounts receivable less a 20% reserve holdback by Crestmark.  The Crestmark line of credit had an interest rate equal to prime plus 1.0% and was secured by all of the Company’s assets except property and equipment financed elsewhere and the Company’s investment in OPMG shares.  In addition, the Company paid a monthly fee (initially 0.575% and decreased to 0.375% on September 2, 2009) per 30 days on each financed invoice amount until the invoice was paid.  The Crestmark line of credit was for an initial term of six months expiring May 12, 2009 (extended on March 3, 2009 for one year to May 12, 2010) and effective May 12, 2010, either the Company or Crestmark may terminate the Agreement with 60 days prior written notice to the other party without being subject to any early termination fee.  On July 12, 2010, the Company provided Crestmark with notification of termination of the Agreement effective September 10, 2010.  

As of September 30, 2010, the Company has repaid all outstanding amounts owed by the Company to Crestmark under the Agreement and Crestmark has terminated its security interest in the Company’s assets.

Capital Lease Obligations

In February 2010, the Company purchased computer equipment for $495,600 through a capital lease agreement, bearing interest of 8.35%, payable in 12 quarterly installments of $47,119.

Capital lease obligations consisted of the following at September 30, 2010 and December 31, 2009:

   
September 30, 2010
   
December 31, 2009
 
Capital lease obligations
  $ 865,924     $ 500,502  
Less: Current maturities
    (351,810 )     (161,940 )
Amount due after one year
  $ 514,114     $ 338,562  

Note 7. Fair Value of Financial Instruments

The accounting standard for fair value measurements provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements.  Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date.  The accounting standard established a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available.  This hierarchy prioritizes the inputs into three broad levels as follows.  Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.  Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.  Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value.  A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

 
F-13

 

INTERCLICK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
(Unaudited)

We classify assets and liabilities measured at fair value in their entirety based on the lowest level of input that is significant to their fair value measurement.  Assets and liabilities measured at fair value on a recurring basis consisted of the following at September 30, 2010 and December 31, 2009:
 
   
Total Carrying
   
Fair Value Measurements at
   
Total Carrying
   
Fair Value Measurements at
 
   
Value at
   
September 30, 2010
   
Value at
   
December 31, 2009
 
   
September 30, 2010
   
(Level 1)
   
(Level 2)
   
(Level 3)
   
December 31, 2009
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
Assets:
                                               
Investment in available-for-sale marketable securities
  $ 119,741     $ 119,741     $ -     $ -     $ 715,608     $ -     $ 715,608     $ -  
                                                                 
Liabilities:
                                                               
Warrant derivative liability
  $ -     $ -     $ -     $ -     $ 69,258     $ -     $ 69,258     $ -  

Unrealized gains (losses) recognized on the investment in available-for-sale marketable securities are included in other comprehensive income (loss) in the accompanying condensed consolidated statements of operations (See Note 5 for valuation methodology).  Realized gains (losses) recognized on the investment in available-for-sale marketable securities are included in other income (expense) in the accompanying condensed consolidated statements of operations.  Income (expense) recognized on the warrant derivative liability are included in other income (expense) in the accompanying condensed consolidated statements of operations.

As of December 31, 2009, the Company concluded that OPMG’s quoted market price was not a reliable basis to use for fair valuation because OPMG was too thinly traded and its stock price too volatile and, therefore, did not reliably occur in an active market.  Furthermore, attempting to sell a significant number of OPMG shares on the open market would not have been worthwhile because it would require the Company to trade many small blocks and pay broker commissions for each transaction.  The Company therefore believed that a private transaction was among the most economically feasible ways to sell any portion of our investment in OPMG.  Accordingly, the Company applied Level 2 considerations to determine the market value using the best available evidence.  The Company concluded that recent principal-to-principal (non-distressed) transactions – in November 2009 and January 2010 at $0.10 per share – were appropriate valuation inputs to determine fair value of OPMG shares as of December 31, 2009.

The valuation technique of the investment in available-for-sale marketable securities changed during the three months ended March 31, 2010.  During 2010, OPMG has traded in an active market.  Sufficient trading volume, the lack of principal-to-principal transactions to support a value higher than current market price, and the near-term potential of the Company selling OPMG shares in the open market support the use of a Level 1 input for the basis of fair value.  Commencing March 31, 2010, the Company began utilizing the closing share price of OPMG’s stock (Level 1) in order to value the Company’s remaining investment in OPMG shares.  As of September 30, 2010, OPMG’s closing market price was $0.017 per share.

The estimated fair value of certain financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.

Note 8. Commitments and Contingencies

Operating Leases

In January 2010, the Company entered into a 16-month agreement for its Chicago office space with monthly rent of $2,151 commencing February 1, 2010 with 3.0% escalation effective June 1, 2010.

In February 2010, the lease amendment for the Company’s office space located in Boca Raton, Florida became effective upon completion of the improvements to the expansion premises.  Accordingly, the Company moved into the expansion premises and agreed to (i) lease additional space for a period of 60 months, and (ii) extend the lease term of the original space to terminate the same time as the expanded space.  Upon the expansion premises commencement date, the original premises monthly rent was adjusted to $2,840 with 3.0% annual escalation and the expansion premises monthly rent was $6,923 with 3.0% annual escalation.  The landlord provided an allowance of $83,070 for the improvements to the expansion premises as well as an abatement of rent for the first 14 months of the lease on the expansion premises.  The leasehold improvements were recognized with an $83,070 increase in property and equipment and a corresponding increase in deferred rent, both of which shall be amortized over the lease term.

 
F-14

 

INTERCLICK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
(Unaudited)

On February 22, 2010, the Company entered into a 5-year agreement, commencing June 1, 2010, for office space in Santa Monica, California bearing monthly rent of $3,827 with an annual 3.0% escalation.

On March 11, 2010, the Company entered into a lease agreement to relocate its New York City headquarters to a larger space, having 16,840 square feet.  The new lease is for a term of 92 months commencing on May 1, 2010, bearing monthly rent of $49,117 with an annual 2.5% escalation.  In connection with the lease agreement, the Company’s banking institution issued an irrevocable 1-year standby letter of credit for the benefit of the landlord.  The Company opened a certificate of deposit with its banking institution in the amount of $294,700 and pledged that to the letter of credit.  Through the lease term, the Company is required to maintain a standby letter of credit for the benefit of the landlord. Accordingly, as of September 30, 2010, the Company has classified the certificate of deposit, including accrued interest, as restricted cash, a non-current asset.

The Company entered into an agreement to sublease the office space of its former New York City headquarters commencing May 1, 2010 for the remainder of the original lease term with monthly rent of $16,717 with an annual 2.5% escalation.  Accordingly, the Company recognized an early cease use liability of $497,851 pertaining to the prior New York office space.  The charge to operations for the establishment of the liability was offset by $66,350 due to the elimination of deferred rent related to the former office space.  The balance of the early cease use liability was $402,037 at September 30, 2010, of which $326,434 is long-term.

Minimum Fees

The Company is party to multi-year agreements with third parties whereby the Company is obligated to incur minimum fees of $645,355 through December 31, 2010 and $864,000 in 2011.  Under the agreements, the Company has expensed $1,698,123 in fees during the nine months ended September 30, 2010.

Legal Matters

From time to time, the Company may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of September 30, 2010, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations.

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

Note 9. 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, 2010 and December 31, 2009.

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 23,837,335 and 23,632,707 shares were issued and outstanding at September 30, 2010 and December 31, 2009, respectively.

During the nine months ended September 30, 2010, proceeds of $336,707 were received and an aggregate of 194,528 shares were issued as a result of stock option and warrant exercises.

Stock Warrants
 
A summary of the Company’s warrant activity during the nine months ended September 30, 2010 is presented below:

 
F-15

 

INTERCLICK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
(Unaudited)

               
Weighted
       
         
Weighted
   
Average
       
         
Average
   
Remaining
   
Aggregate
 
   
Number of
   
Exercise
   
Contractual
   
Intrinsic
 
Warrants
 
Shares
   
Price
   
Term
   
Value
 
Balance Outstanding, December 31, 2009
    1,286,809     $ 3.51              
Granted
    25,000     $ 4.44              
Exercised
    (251,250 )   $ 2.80              
Forfeited
    (60,000 )   $ 4.24              
Expired
    (5,000 )   $ 11.14              
Balance Outstanding, September 30, 2010
    995,559     $ 3.63       2.1     $ 609,594  
                                 
Exercisable, September 30, 2010
    983,059     $ 3.62       2.1     $ 609,594  

Warrant exercises during the nine months ended September 30, 2010, include 163,750 warrants exercised on a cashless basis. Such cashless exercises resulted in the issuance of 62,445 shares of common stock.

During 2010, 15,494 of the Company’s warrants contained round-down protection (price protection), which caused the warrants to be treated as derivatives (see Note 7).  In May 2010, price protection expired requiring $47,846 of the warrant derivative liability to be reclassified to additional paid-in capital.  Accordingly, the fair value of the warrant derivative liability was $0 as of September 30, 2010 as shown in the accompanying condensed consolidated balance sheet.  The change in fair value (taking into consideration the cumulative effect of the change in accounting principle adopted on January 1, 2009) of the warrant derivative liability of $21,413 and ($506,786) during the nine months ended September 30, 2010 and 2009, respectively, has been recorded in the accompanying condensed consolidated statements of operations as warrant derivative liability income (expense).

Stock Incentive Plan and Stock Option Grants to Employees and Directors

In 2007, the Company adopted the 2007 Stock Incentive Plan (the “Plan”) and the 2007 Incentive Stock and Award Plan (the “2007 Award Plan”) that provide for the grant of shares of common stock and/or options to purchase shares of common stock to directors, employees and consultants.  On June 11, 2010, the Company increased the number of shares of common stock eligible for grant under the 2007 Award Plan from 3,112,500 to 4,512,500 shares.

During the nine months ended September 30, 2010, the Company granted 816,250 stock options, all of which were under the 2007 Award Plan, at various exercise prices ranging from $3.52 to $5.46 per share.  The options vest pro rata over three to four years; all options expire five years from the grant date.

The total fair value of stock options granted to employees during the nine months ended September 30, 2010 was $2,325,173, which is being recognized over the respective vesting periods.  During the nine months ended September 30, 2010 and 2009, the Company recorded compensation expense of $2,535,868 and $1,715,206, respectively, in connection with employee stock options.

As of September 30, 2010, 1,234,900 shares were remaining under the 2007 Award Plan for future issuance.

The Company estimates the fair value of share-based compensation utilizing the Black-Scholes option pricing model, which is dependent upon several variables such as the expected option term, expected volatility of our stock price over the expected term, expected risk-free interest rate over the expected option term, expected dividend yield rate over the expected option term, and an estimate of expected forfeiture rates.  The Company believes this valuation methodology is appropriate for estimating the fair value of stock options granted to employees and directors which are subject to ASC Topic 718 requirements.  These amounts are estimates and thus may not be reflective of actual future results, nor amounts ultimately realized by recipients of these grants.  The Company recognizes compensation on a straight-line basis over the requisite service period for each award.  The following table summarizes the assumptions the Company utilized to record compensation expense for stock options granted during the nine months ended September 30, 2010 and 2009:

 
F-16

 

INTERCLICK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
(Unaudited)

   
For the Nine
   
For the Nine
 
   
Months Ended
   
Months Ended
 
Assumptions
 
September 30, 2010
   
September 30, 2009
 
Expected life (years)
    3.5 - 3.75       5.0  
Expected volatility
    98.6% - 110.1 %     115.5% - 121.4 %
Weighted-average volatility
    105.1 %     119.6 %
Risk-free interest rate
    0.69% - 2.69 %     1.89% - 2.86 %
Dividend yield
    0.00 %     0.00 %
Expected forfeiture rate
    8.1 %     3.2 %

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.  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 for employees and directors during the nine months ended September 30, 2010 is presented below:

               
Weighted
       
         
Weighted
   
Average
       
         
Average
   
Remaining
   
Aggregate
 
   
Number of
   
Exercise
   
Contractual
   
Intrinsic
 
Options
 
Shares
   
Price
   
Term
   
Value
 
Balance Outstanding, December 31, 2009
    4,994,167     $ 2.69              
Granted
    816,250     $ 4.15              
Exercised
    (44,583 )   $ 2.06              
Forfeited
    (269,375 )   $ 3.28              
Expired
    (49,167 )   $ 2.00              
Balance Outstanding, September 30, 2010
    5,447,292     $ 2.89       3.3     $ 6,927,353  
                                 
Exercisable, September 30, 2010
    2,627,289     $ 2.27       2.7     $ 4,663,609  
                                 
Expected to vest post September 30, 2010
    2,665,128     $ 3.45       3.9     $ 2,180,488  

The weighted-average grant-date fair value of options granted to employees during the nine months ended September 30, 2010 and 2009 was $2.85 and $2.25, respectively.  The total intrinsic value of options exercised by employees during the nine months ended September 30, 2010 and 2009 was $138,401 and $100,800, respectively.

Nonvested Common Stock Grants to Employees

On January 25, 2010, the Company granted an aggregate of 7,600 restricted shares of common stock having a fair value of $39,596 (based on a quoted trading price of $5.21 per share) to employees.  The shares were issued under the 2007 Award Plan and vest annually over a two-year period, subject to continued employment by the Company.

During the nine months ended September 30, 2010 and 2009, the Company recognized an aggregate amount of $84,933 and $19,656 of stock-based compensation for nonvested shares of common stock issued to employees.

 
F-17

 

INTERCLICK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
(Unaudited)

         
Weighted
 
         
Average
 
   
Number of
   
Grant Date
 
Nonvested Shares
 
Shares
   
Fair Value
 
Nonvested at December 31, 2009
    73,594     $ 4.21  
Granted
    7,600     $ 5.21  
Vested
    (19,073 )   $ 3.55  
Forfeited
    -     $ -  
Nonvested at September 30, 2010
    62,121     $ 4.54  

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

As of September 30, 2010, there was $6,728,163 of total unrecognized compensation costs related to nonvested stock-based compensation arrangements.  That cost is expected to be recognized over a weighted-average period of 1.2 years.

Other Stock-Based Awards to Nonemployees

On April 15, 2010, as part of a one-year consulting agreement, the Company granted warrants to purchase an aggregate of 25,000 shares of common stock having a fair value of $72,000 to a consultant for services to be rendered.  The warrants have an exercise price of $4.44 per share, were not part of the 2007 Award Plan, vest in equal increments quarterly over a one-year period commencing June 30, 2010, and expire three years from the grant date.  As these warrants were issued to nonemployees, the fair value was recalculated at September 30, 2010 at $55,750 and, accordingly, $44,135 was recognized as stock-based compensation during the nine months ended September 30, 2010.  The warrants shall be revalued and expensed in a similar manner in each subsequent reporting period during the consultant’s one-year service term.

During the nine months ended September 30, 2010 and 2009, the Company recognized an aggregate amount of $179,765 and $157,022 of stock-based compensation for stock options, stock warrants and common shares issued to nonemployees.

Note 10. Net Earnings (Loss) per Share

Basic earnings (loss) per share are computed using the weighted average number of shares of common stock outstanding during the period.  Diluted earnings (loss) per share are computed using the weighted average number of common shares and potentially dilutive securities outstanding during the period.  Potentially dilutive securities consist of the incremental shares of common stock issuable upon exercise of stock options and warrants (using the treasury stock method) as well as nonvested shares of common stock.  The options, warrants and nonvested shares are considered to be common stock equivalents and are only included in the calculation of diluted earnings per common share when their effect is dilutive.  Potentially dilutive securities are excluded from the computation if their effect is anti-dilutive.

Components of basic and diluted earnings per share for the three months ended September 30, 2010 and 2009 and for the nine months ended September 30, 2010 were as follows:

 
F-18

 

INTERCLICK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
(Unaudited)
 
   
For the Three Months Ended September 30, 2010
 
   
Income
   
Shares
   
Per-Share
 
   
(Numerator)
   
(Denominator)
   
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  
       
   
For the Three Months Ended September 30, 2009
 
   
Income
   
Shares
   
Per-Share
 
   
(Numerator)
   
(Denominator)
   
Amount
 
Income from continuing operations
  $ 151,348                  
                         
Basic EPS
                       
Income available to common stockholders
  $ 151,348       20,628,042     $ 0.01  
                         
Effect of Dilutive Securities
                       
Stock options
    -       1,565,617          
Warrants
    -       158,012          
Nonvested common stock
    -       23,448          
Convertible debt
    1,496       24,728