form10k.htm


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

FORM 10-K

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

For the fiscal year ended: December 31, 2010
or

¨
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
(I.R.S. Employer
of Incorporation or Organization)
Identification No.)

11 West 19th Street
10th Floor
New York, NY 10011
 (Address of Principal Executive Office) (Zip Code)

(646) 722-6260
(Registrant’s telephone number, including area code)
 
 
Securities registered pursuant to Section 12(b) of the Act:

Title of each class
 
Name of each exchange on which registered
Common Stock, par value $0.001
 
The NASDAQ Capital Market


Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
  ¨  Yes  x  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
  ¨  Yes  x  No
 
 
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.
x  Yes  ¨  No
 


 
 

 


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232-405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)
Yes  ¨  No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this  chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer
¨
Accelerated filer
¨
Non-accelerated filer
¨
Smaller reporting company
x

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the closing price as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $71,293,715.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.  24,108,943 shares were outstanding as of March 11, 2011.

 
 

 

INDEX

PART I
3
5
5
5
5
6
 
 
PART II
6
7
8
25
25
25
26
   
27
 
 
PART III
27
32
37
39
39
 
 
PART IV
40

 
2


PART I
 
 
Item 1.
Business.

Company Overview

interclick, inc. (“interclick” or the “Company”) 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. We generate our revenue by serving as a principal in transacting online advertising (namely display, video and rich media formats) between agency clients and third party website publishers.  Substantially all of the Company’s revenues are generated in the United States.

Corporate History and Acquisitions

We were formed in Delaware on March 4, 2002 under the name Outsiders Entertainment, Inc.  On August 28, 2007, we completed a merger and acquired Customer Acquisition Network, Inc.  In connection with the merger, we changed our name to Customer Acquisition Network Holdings, Inc.  Three days later, on August 31, 2007, we acquired Desktop Interactive, Inc. (“Desktop”).  On June 25, 2008, we changed our name to interCLICK, Inc.  In September 2010, we changed our name to interclick, inc.

On January 4, 2008, we acquired Options Newsletter, Inc., a privately-held Delaware corporation primarily engaged in the email service provider business. On June 23, 2008, we sold the Options Newsletter business to Options Media Group Holdings, Inc. (“OPMG”).

Industry Overview

According to eMarketer, U.S. spending on display, video and rich media online advertising formats is projected to grow collectively faster than the online advertising market overall through 2014.   For the period from 2009 to 2014, eMarketer expects U.S. spending on display, video and rich media online advertising formats to grow collectively at a 16% compound annual growth rate, as compared to an expected 12% compound annual growth rate for the online advertising market overall. As advertisers continue to place a higher value on clear return on investments, or ROIs, we expect market share gains will accrue to those companies with the most advanced audience targeting, campaign fulfillment and analytical capabilities.

Seasonality

Our business is subject to seasonal fluctuations.  The fourth quarter of the calendar year, during the holiday season, is our strongest with respect to revenues.  While we are a relatively young company, our experience to date and our management’s knowledge of the advertising industry indicates that the first calendar quarter is our slowest quarter.
 
Customers

Digital marketers, through our agency customers are shifting more of their marketing budgets from traditional media channels such as direct mail, television, radio and newspapers to interactive mediums because of increasing usage of the Internet and mobile devices by their potential customers.  We focus on providing services to our clients in a way that protects and enhances their brands and their relationships with prospective customers.  In order to provide opportunities for advertisers, we buy display advertising impressions from publishers or companies that manage website inventory and seek to monetize the websites through the sale of advertising.  In 2010, we derived more than 10% of our revenues from one agency customer.  In 2009, we derived more than 14% of our revenues from the same customer.  We deliver advertising campaigns for a wide variety of advertisers with no overwhelming concentration on any specific industry vertical.  As such, our existing advertiser base includes numerous industries including, but not limited to, automotive, communications and media, consumer packaged goods, electronics, finance and insurance, health, retail and travel.

 
3

 
Sales and Marketing

We sell and market our solutions through our sales team of approximately two dozen experienced sales persons as of March 2011.  We carefully select industry-veteran sales representatives and managers adept at articulating our technically-driven, value-oriented solutions.  We currently have sales persons based in New York, Chicago, San Francisco, Los Angeles, Atlanta, and Boston.

In September 2010, we launched a new branding campaign and various marketing initiatives in an effort to promote interclick to prospective clients throughout the Internet marketing community.

Competition
 
We face intense competition in the Internet advertising market from other online advertising networks, demand side platforms, and other direct marketing and technology solution providers for a share of client advertising budgets.  We expect that this competition will continue to intensify in the future as a result of industry consolidation, the pace of technological innovation in the industry, and low barriers to entry.  Additionally, we compete for advertising budgets with traditional media including television, radio, newspapers and magazines.  Furthermore, many of the advertising, media, and Internet companies possess greater resources and are more adequately capitalized than we are.  We compete for business on the basis of a number of factors including the ability to meet the performance needs of our clients, ROI, price, agency customer relationships, ability to deliver large volumes or precise types of targeted audiences.
 
Our ability to compete depends upon several factors, including the following:
 
 
·
the timing and market acceptance of our new solutions and enhancements to existing solutions developed by us;

 
·
continuing our relationships with top quality publisher websites;

 
·
our customer service and support efforts;

 
·
our sales and marketing efforts; and

 
·
our ability to add value to our clients and remain price competitive.

Regulation

Federal Trade Commission (the “FTC”) has issued informal guidance about companies like us that engage in audience targeting.  The report proposes a framework to balance the privacy interests of consumers with innovation that relies on consumer information to develop beneficial new products and services, and to suggest the implementation of a “Do Not Track” mechanism so consumers can choose whether to allow the collection of data regarding their online searching and browsing activities.  Our management viewed this FTC report as being favorable and believes its business model will not be adversely affected from self-regulation.   Many states also have adopted similar laws that include the power to seek injunctions, triple damages and attorneys’ fees.

Employees

As of March 11, 2011, interclick had a total of 118 employees, of which 117 were full-time employees.  None of these employees is represented by a labor union.  Management believes that our relations with our employees are good.  At December 31, 2010, we had a total of 111 employees, of which 110 were full-time employees.
 
Intellectual Property
 
We currently rely on a combination of copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights.  We enter into proprietary information and confidentiality agreements with our employees, consultants and commercial partners and control access to, and distribution of, our software documentation and other proprietary information.

 
4


Headed by our Chief Technology Officer, we employ a team of approximately 30 experienced technology specialists in our South Florida office.  Our technology and product management teams have developed a new state-of-the-art technology platform called Open Segment Manager or OSM, that we believe is the first data enrichment solution designed to help advertisers and agencies operationalize data effectively—to discover which facts drive optimal campaign performance, create more valuable audiences from those facts, and connect to those audiences at unprecedented scale.  OSM is an enhancement to our current technology platform which is a leading solution providing advanced behavioral targeting and transparency.

Since its launch in May 2010, OSM has proven it can produce consistent, scalable and portable results, even allowing us to successfully outperform vertical and niche solutions in their respective markets.  As our financial results are directly attributable to our ability to provide sustained campaign performance for our advertisers, we view this as the ultimate validation of OSM and the technology behind it.

Item 1A.
Risk Factors.

Not applicable to smaller reporting companies.  See Item 7 for the principal risk factors facing interclick.

Item 1B.
Unresolved Staff Comments.
 
Not applicable to smaller reporting companies.
 
Item 2.
Properties.

Our principal executive offices are located in a leased facility in New York, New York, consisting of approximately 17,000 square feet of office space under a lease that expires in December 2017.  This facility accommodates our principal sales, marketing, operations, finance and administrative activities.   Our technology offices are located in Boca Raton, Florida, consisting of approximately 8,000 square feet of office space under a lease that expires in February 2015.  We also lease sales offices in Chicago, Illinois (1,269 square feet), San Francisco, California (1,324 square feet), and Los Angeles, California (1,000 square feet).  Except for our current executive offices, we believe that our current facilities are sufficient for our current and short-term needs.  We may add new facilities and expand our existing facilities as we add employees and expand our markets, and we believe that suitable additional or substitute space will be available as needed to accommodate any such expansion of our operations.
 
Item 3.
Legal Proceedings.

From time-to-time, we may become involved in legal proceedings and claims arising in the ordinary course of our business.  Except as set forth below, we are not currently a party to any material litigation. 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 attorneys’ fees.  The plaintiff also seeks injunctive and declaratory relief and class action certification.

On or about December 23, 2010, Sonal Bose commenced a related action in the United States District Court for the Southern District of New York against McDonald’s Corporation, CBS Corporation, Mazda Motor of America, Inc., and Microsoft Corporation (Sonal Bose v. McDonald’s Corporation; CBS Corporation; Mazda Motor of America, Inc.; and Microsoft Corporation, Case No. 10 Civ. 9569-DAB  (S.D.N.Y.)) alleging that the actions of interclick caused the defendants to violate various laws and seeking class action certification.  We are not a party to this action but are providing for the defense of the case at our expense based upon indemnification obligations in our standard agency agreements.  The complaint asserts the same claims as are alleged in the complaint against us, together with a cause of action for tortious interference, and seeks similar relief.

 
5


On February 28, 2011, motions to dismiss each of the foregoing cases were filed, which are pending.  As noted in the motions to dismiss, interclick believes the cases are entirely without merit and interclick intends to vigorously defend its prior practices and technology.

Item 4.
(Removed and Reserved).


PART II
 
 
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
 
Since November 5, 2009, our common stock has been listed on the NASDAQ Capital Market under the symbol “ICLK”.  Prior to being listed, our common stock was quoted on the Over-the-Counter Bulletin Board.

The last reported sale price of our common stock as reported by NASDAQ on March 11, 2011 was $5.97.  As of that date, there were 25 record holders.  We believe an additional number of shareholders own our stock through brokerage accounts.

The following table provides the high and low bid price information for our common stock for the periods our stock was quoted on the Bulletin Board and the high and low sales prices for the periods our stock has been listed on NASDAQ.  For the period our stock was quoted on the Bulletin Board, the prices reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
 
 
Year
Quarter Ended
 
Prices (1)
 
 
 
 
High
 
 
Low
 
 
 
 
 
 
 
 
 
2009
March 31
 
$
2.10
 
 
$
1.10
 
 
June 30
 
$
2.70
 
 
$
1.20
 
 
September 30
 
$
4.50
 
 
$
2.20
 
 
December 31
 
$
6.00
 
 
$
4.00
 
 
 
 
 
 
 
 
 
 
 
2010
March 31
 
$
5.82
 
 
$
3.40
 
 
June 30
 
$
4.85
 
 
$
3.46
 
 
September 30
 
$
4.41
 
 
$
3.25
 
 
December 31
 
$
6.48
 
 
$
3.97
 

 
(1)
On October 23, 2009, we completed a 1-for-2 reverse stock split.  All prices in the table have been adjusted for the reverse split.

Dividend Policy

We have not paid cash dividends on our common stock and do not plan to pay such dividends in the foreseeable future.  Our Board of Directors will determine our future dividend policy on the basis of many factors, including results of operations, capital requirements, and general business conditions.

 
6


Recent Sales of Unregistered Securities

In addition to those unregistered securities previously disclosed in reports filed with the Securities and Exchange Commission (“SEC”), we have sold securities without registration under the Securities Act of 1933 (the “Securities Act”) in reliance upon the exemption provided in Section 4(2) and Rule 506 thereunder as described below.
 
 
     
No of
   
Name
Date Sold
 
Securities
 
Reason for Issuance
           
Seacliff Consulting, LLC
10/29/10
    22,500 (1)
Warrant exercise
GVA Research LLC
11/2/10
    1,190 (2)
Warrant exercise
Alpha Capital Anstalt
11/10/10
    76,375 (3)
Warrant exercise
Seacliff Consulting, LLC
11/19/10
    22,275 (4)
Warrant exercise
Phillip Frost
11/3/10
    37,500 (5)
Option exercise

 
(1)
Cashless warrant exercise resulting in 4,801 net shares issued.
 
(2)
Cashless warrant exercise resulting in 585 net shares issued.
 
(3)
Cashless warrant exercise resulting in 40,154 net shares issued.
 
(4)
Cashless warrant exercise resulting in 6,348 net shares issued.
 
(5)
Total of 120,000 options issued outside of the 2007 Award Plan on 7/10/09 with an exercise price of $2.48.
 
Equity Compensation Plan Information
 
The following table sets forth the aggregate information of our equity compensation plans in effect as of December 31, 2010:

   
Aggregate
Number of
Securities
Underlying
Options
Granted
   
Weighted
Average
Exercise
Price Per
Share
   
Aggregate
Number of
Securities
Available
for
Grant
 
Equity compensation plans approved by security holders (1) (2)(3)
    5,397,292     $ 2.92       1,221,983  
Equity compensation plans not approved by security holders
                       
Total
    5,397,292     $ 2.92       1,221,983  

(1)
Because they are identical, for purposes of this table, we have combined the Plans.
(2)
Includes two option grants granted outside of the Plans, including 150,000 5-year stock options to purchase common stock exercisable at $2.40 per share granted to a director.
(3)
On October 23, 2009, our shareholders ratified the adoption of our equity compensation plans.

Selected Financial Data.
 
Not required for smaller reporting companies.

 
7

 
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this report on Form 10-K. 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” at the end of this Item 7 in this report.

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 before interest, taxes, depreciation and amortization, including stock-based compensation.  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 page 13 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 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

interclick, inc. (“interclick” or the “Company”) is a technology company providing unique and innovative 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 on a daily basis to construct the most responsive digital audiences for major digital marketers.  We generate our revenue through the sale by serving as a principal in transacting online display 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 2010 increased 83.1% to $101,201,720 from  $55,258,703 in 2009;

 
·
Gross profit percentage for 2010 was 43.2% as compared to 45.6% in 2009;

 
·
Operating expenses were 35.0% of revenue in 2010 compared to 44.3% of revenue in 2009;

 
·
Headcount increased to 111 people at December 31, 2010 from 78 people at December 31, 2009;

 
·
EBITDA (a non-GAAP measure) for 2010 was  $13,014,904  compared to  $4,612,738  in 2009; and

 
8


 
·
Net income for 2010 was $4,078,347 or $0.16 per diluted share, compared to $501,831 or $0.02 per diluted share, in 2009.  Results for 2010 included an income tax expense of $3,370,565 and an other than temporary impairment of available-for-sale-securities of $584,618.  Results for 2009 included an income tax benefit of $2,139,640 and an other than temporary impairment of available-for-sale securities of $1,042,470.

Results of Operations

Year Ended December 31, 2010 Compared with Year Ended December 31, 2009
 
Revenues
 
                         
   
2010
   
2009
   
Year-over-
Year $ Change
   
Year-over-
Year % Change
 
                         
Revenues
  $ 101,201,720     $ 55,258,703     $ 45,943,017       83.1 %
 
Our significant revenue growth was attributed to higher campaign revenue from the retention of our existing clients as well as new clients seeking interclick’s unique and innovative solution, which were further enhanced during 2010 with the deployment of OSM.   The Company also generated the highest effective CPM (“eCPM”) in its history resulting from our ability to maximize value on behalf of clients.

The continued overall growth in online advertising, the planned further enhancements to OSM, our ability to acquire top tier advertising impressions from publishers, and our effectiveness at providing data integrations across a growing number of clients, gives us confidence we will continue to increase our advertising customer base and revenues on a year-over-year basis for the foreseeable future.
 
Cost of Revenues and Gross Profit

   
2010
   
2009
   
Year-over-
Year $ Change
   
Year-over-
Year % Change
 
                         
Cost of revenues
  $ 57,458,212     $ 30,072,627     $ 27,385,585       91.1 %
Percentage of revenues
    56.8 %     54.4 %                

The increase in our cost of revenues is primarily attributable to the growth in advertising campaigns requiring the purchase of appropriate levels of advertising impressions from publishers.  Cost of revenues is comprised primarily of the amounts we paid to website publishers on interclick’s online advertising network, amounts paid to third-party data providers, data verification fees, and ad serving and rich media expenses directly associated with given campaigns.   The increase in cost of revenues as a percentage of revenue is primarily attributable to higher data fees and additional campaign-specific costs, such as rich media fees.  This increase was partially offset by: (1) improvements in our supply chain management platform, resulting in a better match between acquired advertising impressions and advertising campaign demand, and (2) targeting efficiencies achieved through OSM.

   
2010
   
2009
   
Year-over-
Year $ Change
   
Year-over-
Year % Change
 
                         
Gross profit
  $ 43,743,508     $ 25,186,076     $ 18,557,432       73.7 %
Percentage of revenues
    43.2 %     45.6 %                

The overall increase in gross profit dollars is the result of the increase in revenue attributable to existing customer retention and obtaining new customers, which translated into a significant increase in the total number of impressions served by the Company.  The decrease in gross profit as a percentage of revenue in 2010 from 2009 is attributable the higher year-over-year growth in cost of revenues as compared to revenues.    We expect gross margins may vary slightly in the near-term due to costs in connection with ad verification and privacy notification, measures which we believe are valuable to our clients and thus, likely to result in higher revenue.

 
9

 
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 for the year ended December 31, 2010 increased to $35,385,373 from $24,471,214 for the year ended December 31, 2009, an increase of  $10,914,159 or 44.6%. As a percentage of revenues, operating expenses decreased to 35% for the year ended December 31, 2010, from 44.3% for the year ended December 31, 2009, representing significantly improved operating efficiency as the business expanded. The increase is primarily attributable to significant headcount expansion from 78 employees as of December 31, 2009 to 111 employees as of December 31, 2010 (a headcount increase of 42%), overhead expenditures necessary to support interclick’s increased business, and a net cease-use charge of approximately $432,000 relating to the Company’s expansion into larger headquarters.  The majority of hiring was in the technology, product and operations 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 aggressively in these areas in 2011, albeit at a slower pace than in 2010, and at a slower pace than revenue growth.

General and Administrative

   
2010
   
2009
   
Year-over-
Year $ Change
   
Year-over-
Year % Change
 
                         
General and administrative
  $ 16,121,304     $ 12,296,404     $ 3,824,900       31.1 %
Percentage of revenues
    15.9 %     22.3 %                

General and administrative expenses consist primarily of executive, administrative, operations and product support compensation (including stock-based compensation), facilities costs, insurance, depreciation, professional fees, investor relations fees and bad debt expense.   The increase is general and administrative expenses is primarily attributable to our headcount expansion, expenditures necessary to support interclick’s increased business, such as rent, depreciation and insurance, and a net cease-use charge of approximately $432,000 relating to the Company’s expansion into a larger headquarters space.  While overall general and administrative expenses increased year-over-year, they decreased significantly as a percentage of revenue due to the Company’s substantial growth in our revenues, which significantly outpaced the growth of our general and administrative expenses. The Company expects general and administrative expenses as a percentage of revenue to decline further as the business expands, despite legal litigation costs which are currently expected to range between $750,000 and $1.5 million in 2011.
 
Sales and Marketing

   
2010
   
2009
   
Year-over-
Year $ Change
   
Year-over-
Year % Change
 
                         
Sales and marketing
  $ 13,258,729     $ 8,747,337     $ 4,511,392       51.6 %
Percentage of revenues
    13.1 %     15.8 %                

Sales and marketing expenses consist primarily of compensation (including stock-based compensation) for sales and marketing and related support resources, sales commissions and industry event expenses.  The increase in our sales and marketing expenses is primarily attributable in part to our headcount expansion, as well as costs incurred in connection with the Company’s re-branding and advertising initiatives.  While sales and marketing expenses increased year-over-year, they decreased as a percentage of revenue on a year-over-year basis primarily due to the very strong growth in our revenues.  The Company expects to continue its advertising efforts for the foreseeable future.
 
 
10

 
Technology Support

   
2010
   
2009
   
Year-over-
Year $ Change
   
Year-over-
Year % Change
 
                         
Technology support
  $ 5,847,340     $ 3,238,693     $ 2,608,647       80.5 %
Percentage of revenues
    5.8 %     5.9 %                
 
Technology support consists primarily of compensation (including stock-based compensation) of technology support and related resources. Technology support and related resources have been directed primarily towards continued development and enhancement of our OSM ad serving platform, including the integration of third party data providers, and ongoing maintenance and improvement of our technology infrastructure.  The increase in our technology support expenses is primarily attributable to our headcount expansion and expenditures necessary to support interclick’s increased business and our development and continued enhancements of OSM. 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 in 2011.
 
Amortization of Intangible Assets

   
2010
   
2009
   
Year-over-
Year $ Change
   
Year-over-
Year % Change
 
                         
Amortization of intangible assets
  $ 158,000     $ 188,780     $ (30,780 )     -16.3 %
Percentage of revenues
    0.2 %     0.3 %                

Amortization of intangible assets includes amortization of customer relationships, developed technology and a domain name acquired through the Desktop acquisition in 2007.   The decrease in amortization of intangible assets expense is primarily attributable to the customer relationships being fully depreciated at December 31, 2009.  
 
Other Income (Expense)

   
2010
   
2009
   
Year-over-
Year $ Change
   
Year-over-
Year % Change
 
                         
Other income (expense)
  $ (909,223 )   $ (2,351,964 )   $ 1,442,741       -61.3 %
Percentage of revenues
    -0.9 %     -4.3 %                
 
Other income (expense) consists of interest expense, interest income, other than temporary impairment of available-for-sale securities, a warrant derivative liability income (expense), and loss on sale of available-for-sale securities.  The decrease in our interest expense from $589,624 in 2009 to $291,737 in 2010 is primarily attributable to a decreased reliance on borrowings under our former and current line of credit agreements, coupled with better borrowing rates on our current line of credit.  This decrease was partially offset with increased interest expense incurred on capitalized leases for computer equipment purchased in 2009 and 2010. The decrease in the loss on other than temporary impairment of available-for-sale securities from $1,042,470 in 2009 to $584,618 in 2010 is attributable to a significant decrease in the market price of the securities in 2009 that management assessed was other than temporary.  The impairment recognized in 2009 significantly lowered the basis for the securities thus resulting in reduced cost basis against which the other-than temporary impairment taken in 2010 was based.  During 2010 we sold approximately 7,000,000 shares of the available-for-sale securities resulting in a loss of $82,293 and reducing the carrying value of the available-for-sale securities to $609 at December 31, 2010.  Accordingly, no material impairments or loss on these available-for-sale securities is expected to occur in future periods.   Lastly we had recorded a warrant derivative liability associated with price protections on certain warrant grants in 2008 and 2009.  In accordance with accounting principles generally accepted in the United States of America, these warrants were classified as a liability and the associated warrant derivative liability expense of $665,690 was recorded to the consolidated statement of operations for the year ended December 31, 2009.  During 2009 and 2010, the price protection on these warrants expired and the associated liability was reclassified to additional paid-in capital.  The warrant derivative liability income recognized in 2010 is attributable to an adjustment to the fair value of those warrants with price protections prior to their expiration in 2010.

 
11

 
Income Tax (Expense) Benefit

   
2010
   
2009
   
Year-over-
Year $ Change
   
Year-over-
Year % Change
 
                         
Income tax (expense) benefit
  $ (3,370,565 )   $ 2,139,640     $ (5,510,205 )     -257.5 %
Percentage of revenues
    -3.3 %     3.9 %                

Income tax expense for the year ended December 31, 2010 is attributable to the increased taxable income generated by the Company in 2010 over 2009.  During 2010 the Company utilized the remainder of its federal net operating losses, which partially reduced, but did not eliminate, taxable income, whereas in 2009 the Company was able to offset 100% of its taxable income with its federal net operating losses.  In addition, due to the expected growth of the Company and the prospect of future taxable income, management determined that it was more likely-than not that it would recognize the majority of its deferred tax assets.  Accordingly in 2009 the valuation allowance that had been previously established against the deferred tax assets was significantly reduced, resulting in an income tax benefit for the year ended December 31, 2009.  The income tax benefit recognized in 2009 was partially offset by the warrant derivative liability expense recognized in the consolidated statement of operations for the year ended December 31, 2009, as this expense was not deductible for income tax purposes.  The Company’s effective tax rate for the year ended December 31, 2010 was 45.2%.  The Company currently estimates that its effective tax rate will be in the low 40th percentile range in the near-term.
 
Net Income

   
2010
   
2009
   
Year-over-
Year $ Change
   
Year-over-
Year % Change
 
                         
Net income
  $ 4,078,347     $ 501,831     $ 3,576,516       712.7 %
Percentage of revenues
    4.0 %     0.9 %                
 
The increase in net income was primarily attributable to strong revenue growth, operating expenses growing at a slower pace than revenues, a lower warrant derivative liability expense, a lower impairment on available-for-sale securities and reduced interest expense due to less reliance on the bank borrowings for working capital needs.  The increase in net income was partially offset by the recognition of income tax expense, due to the Company’s generating taxable income.
 
 
12

 
Reconciliation of GAAP to Non-GAAP Measure
 
   
For the
Year Ended
December 31, 2010
   
For the
Year Ended
December 31, 2009
 
             
GAAP net income
  $ 4,078,347     $ 501,831  
                 
Loss from discontinued operations
    -       706  
                 
Income from continuing operations
    4,078,347       502,537  
                 
Income tax expense (benefit)
    3,370,565       (2,139,640 )
                 
Income before income taxes
    7,448,912       (1,637,103 )
                 
Interest expense
    291,737       589,624  
Interest income
    (28,012 )     (1,053 )
Warrant derivative liability income (expense)
    (21,413 )     665,690  
Loss on sale of available-for-sale securities
    82,293       55,233  
Other than temporary impairment of available-for sale securities
    584,618       1,042,470  
                 
Operating income from continuing operations
    8,358,135       714,861  
                 
Stock-based compensation
    3,833,653       3,394,299  
Amortization of intangible assets
    158,000       188,780  
Depreciation
    665,116       314,798  
                 
EBITDA
  $ 13,014,904     $ 4,612,738  
 
Liquidity and Capital Resources

Net cash used in operating activities during the year ended December 31, 2010 totaled $2,678,059 and resulted primarily from net income of $4,078,347, adjusted for non-cash items, including stock-based compensation of $3,833,653, an other than temporary impairment of available-for-sale securities of $584,618, depreciation and amortization expense of $823,116, bad debt expense of $318,287 and a deferred tax expense of $259,499.  These adjustments were offset in large part by a significant increase in accounts receivable of $23,204,417, due to the substantial growth in our revenues.   In addition, the decrease in cash from operations was partially attributable to a decrease in income taxes payable of $515,306, due to the Company’s additional income tax obligations offset by quarterly estimated income tax payments made during 2010.  These decreases to cash flows from operations were offset by increases in accounts payable of $9,248,681, accrued expenses of $1,570,644, and deferred rent of $549,048.  The increase in accounts payable, accrued expenses and deferred rent are primarily a result of the growth in our business, the increase in our headcount and the recording of a net cease-use charge of approximately $432,000 relating to the Company’s expansion into a larger headquarters space.

Net cash used in operating activities during the year ended December 31, 2009 totaled $3,099,810 and resulted primarily from net income from continuing operations of $502,537, adjusted for non-cash items, including stock-based compensation of $3,394,299, an other than temporary impairment of available-for-sale securities of $1,042,470, depreciation and amortization expense of $503,578, bad debt expense of $193,752 and a deferred tax benefit of $2,654,946.  These adjustments were offset in large part by an increase in accounts receivable of $14,704,746, due to the substantial growth in our revenues.   This decrease in cash flows from operations was offset by increases in accounts payable of $5,645,429, accrued expenses of $2,843,387, and income taxes payable of $515,306.  The increase in accounts payable, accrued expenses and income taxes payable are primarily a result of the growth in our business, the increase in our headcount and the Company generating taxable income for the first time in 2009.

 
13


Net cash used in investing activities during the year ended December 31, 2010 totaled $2,051,859 and resulted primarily from a $796,998 increase in restricted cash (utilized to secure a letter of credit and a credit line with a vendor), the purchase of a short-term investment in the form of a certificate of deposit in the amount of $498,132, and $804,818 used for purchases of property and equipment, which were necessary as we continue to build out our technology infrastructure and deploy OSM.

Net cash used in investing activities during the year ended December 31, 2009 totaled $181,384 and resulted primarily from $215,777 of purchases of property and equipment.

Net cash provided by financing activities during the year ended December 31, 2010 was $4,526,610 and resulted primarily from proceeds of $8,500,000 received under the new Silicon Valley Bank (“SVB”) line of credit and proceeds of $618,624 received from the exercise of stock options and warrants.  These increases to cash flows from financing activities were offset by net repayments of $4,208,667 under the former Crestmark Commercial Capital Lending, LLC (“Crestmark”) line of credit and $192,306 of payments made on the capitalized leases for property and equipment acquired.

Net cash provided by financing activities during the year ended December 31, 2009 was $16,001,281 and resulted primarily from net proceeds of $13,776,670 from sales of common stock and warrants and net proceeds of $1,657,947 received under our former Crestmark line of credit.  These increases to cash flows from financing activities were offset primarily by the repayment of $400,000 of notes payable and $10,615 of payments made on capitalized leases for property and equipment acquired.

During year ended December 31, 2010, we acquired $83,070 in capital assets, including through conventional capital leases and $1,107,838 through leasehold improvements provided by a landlord and accounted for as deferred rent.  These additions further enhance the features and scale of our technology assets, which are necessary to support both the realization of growth objectives as well as to advance interclick’s present competitive position.  For the year ended December 31, 2011, we expect to acquire approximately $3,000,000 in additional capital assets, a portion of which will likely be financed through capital leases.

On September 10, 2010, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with 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 accounts receivable.  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 second tier are due and payable on the earliest of (i) the date on which payment is received of the accounts 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 December 31, 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 (the “Maturity Date”).  In the event the Loan Agreement is terminated, by SVB for cause or by the Company, prior to the Maturity Date the Company shall pay a termination fee to SVB equal to $300,000 if terminated prior to September 10, 2011 and $150,000 if terminated after September 10, 2011.  All borrowings under the Loan Agreement in 2010 were made under the first tier borrowing provisions.

The Loan Agreement is secured by a first priority perfected security interest in 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 December 31, 2010.

 
14


As of December 31, 2010, the balance outstanding on the SVB line of credit was $8,500,000.  As of December 31, 2010, the Company had $6,500,000 of borrowing capacity available under the SVB line of credit based on the availability of eligible accounts receivable.

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  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, to $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, which effective September 10, 2010.

As of December 31, 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.

As of December 31, 2010, the Company has an outstanding standby letter of credit in the amount of $294,700 for the benefit of the landlord of the Company’s New York office facilities.  This letter of credit is secured by a certificate of deposit, which at December 31, 2010 is classified as restricted cash, a non-current asset.

At December 31, 2010, interclick had working capital of $25,195,244 including $12,450,650 in cash and cash equivalents,  $498,132 in short-term investments, and $500,388 in near-term restricted cash.  interclick’s working capital is impacted by the seasonal nature of its business, whereby revenue and receivables are typically weakest in the first quarter and strongest in the fourth quarter.  As of March 11, 2011, interclick had approximately $12,536,000 of cash and cash equivalents and $797,000 in total restricted cash.  Due to this cash position, full use of the line of credit has recently not been necessary.  As our business has grown, interclick has delivered positive EBITDA for the last nine quarters. We discuss this non-GAAP financial measure and its limitations under Company Overview above.  interclick continues to expand and had year-over-year revenue growth in each quarter of 2010 and 2009.  Management anticipates that revenues will continue to increase for the foreseeable future.   For all of these reasons, interclick expects that it has sufficient cash and borrowing capacity to meet its working capital needs for at least the next 12 months.

Related Party Transactions

No related party transactions had a material impact on our operating results.

New Accounting Pronouncements

See Note 2 to our consolidated financial statements included in this report for discussion of recent accounting pronouncements.
 
Critical Accounting Policies and Estimates

Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to the accounts receivable and allowance for doubtful accounts, fair values of financial instruments, 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.

 
15


In response to the SEC’s financial reporting release, FR-60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies”, the Company has selected a more subjective accounting estimation processes for purposes of explaining the methodology used in calculating estimates, in addition to the inherent uncertainties pertaining to the estimate and the possible effects on interclick’s financial condition. The accounting estimates are discussed below. These estimates involve certain assumptions that if incorrect could create a material adverse impact on the interclick’s results of operations and financial condition.

Allowance for Doubtful Accounts

Management is particularly attentive to the length of accounts receivable collection cycles and the related possibility of an increase in bad debts.    Management continuously monitors the credit worthiness of our customers and the aging of accounts receivable to identify accounts receivable balances which may be deemed uncollectible and to establish an appropriate allowance based upon historical collection and write-off experience.  The Company’s bad debt reserve was $563,512, or approximately 1.25% of gross accounts receivable as of December 31, 2010, as compared to $383,188, or 1.7% of gross accounts receivable, as of December 31, 2009.

Revenue Recognition

Revenues consist of amounts charged to customers, net of discounts, credits and amounts paid 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.  Additionally, the Company recognizes revenue as a principal on a gross basis.

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.
 
Stock-Based Compensation

Our stock-based compensation expense is estimated at the grant date based on the award’s fair value as calculated by the Black-Scholes option pricing model and is recognized as expense over the requisite service period. The Black-Scholes option pricing model requires various highly judgmental assumptions including expected volatility and expected term. If any of the assumptions used in the Black-Scholes option pricing model changes significantly, stock-based compensation expense may differ materially in the future from that recorded in the current period. In addition, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. We estimate the forfeiture rate based on historical experience. To the extent our actual forfeiture rate is different from our estimated rate, stock-based compensation expense is adjusted accordingly.

Impairment of Marketable Securities

We periodically review our available-for-sale securities for impairment.  If we conclude that any of these investments are impaired, we determine whether such impairment is other-than-temporary. Factors we consider to make such determination include the duration and severity of the impairment, the reason for the decline in value, the potential recovery period, and our intent to sell.  If any impairment is considered other-than-temporary, we will write down the asset to its fair value and take a corresponding charge to our consolidated statements of operations.  For the years ended December 31, 2010 and 2009, we recorded other-than-temporary impairments on our investment in OPMG of $584,618 and $1,042,470, respectively, due to management’s evaluation of the decline in the value of OPMG’s stock, coupled with a lack of trading volume in the shares.

 
16


Cautionary Note Regarding Forward-Looking Statements

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including anticipated revenues, expected increases in our advertising customer base, expected gross margins, expected hiring of new employees, having sufficient cash and borrowing capacity to meet its working capital for at least the next 12 months and expectations regarding acquiring additional capital assets.  Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “projects,” “seeks,” “believes,” “estimates,” “expects” and similar references to future periods.

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you therefore against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements include the impact of intense competition, the continuation or worsening of current economic conditions, a potential decrease in corporate advertising spending, a potential decrease in consumer spending and the condition of the domestic and global credit and capital markets.

Any forward-looking statement made by us in this report speaks only as of the date on which it is made.  Factors or events that could cause our actual results to differ may emerge from time-to-time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.
 
RISK FACTORS

There are numerous and varied risks, known and unknown, that may prevent us from achieving our goals.  If any of these risks actually occur, our business, financial condition or results of operations may be materially adversely affected.  In such case, the trading price of our common stock could decline and investors could lose all or part of their investment.
 
Because government regulation of the Internet may subject us to additional operating restrictions and regulations, our business and operating results may be adversely affected.
 
Companies engaging in online advertising, commerce and related businesses face uncertainty related to future government regulation of the Internet.  Due to the rapid growth and widespread use of the Internet, federal and state governments are enacting and considering various laws and regulations relating to the Internet.  Furthermore, the application of existing laws and regulations to Internet companies remains somewhat unclear.  Our business and operating results may be negatively affected by new laws, and such existing or new regulations may expose us to substantial compliance costs and liabilities and may impede the growth in use of the Internet.  Additionally, our third party data suppliers may be adversely affected by any new or existing laws. The application of these statutes and others to the Internet advertising industry is not entirely settled.  Further, several existing and proposed federal laws could have an impact on our business and our third party publisher websites or data suppliers’ business.

With respect to the subject matter of each of these laws, courts may apply these laws in unintended and unexpected ways. As a company that provides services over the Internet, we may be subject to an action brought under any of these or future laws governing online services.  We may also be subject to costs and liabilities with respect to privacy issues.  Several Internet companies have incurred costs and paid penalties for violating their privacy policies.  Further, it is anticipated that new legislation may be adopted by federal and state governments with respect to user privacy.  Additionally, foreign governments may pass laws which could negatively impact our business or may prosecute us for our products and services based upon existing laws.  The restrictions imposed by and cost of complying with, current and possible future laws and regulations related to our business could harm our business and operating results. Further, any such laws that affect our third party data or publisher websites suppliers could indirectly harm our business and operating results.

 
17


If we are subject to legal claims, and/or government enforcement actions and held liable for our or our customers’ failure to comply with federal, state and foreign laws, regulations or policies governing consumer privacy, it could materially harm our business and damage our reputation.

Recent growing public concern regarding privacy and the collection, distribution and use of information about Internet users has led to increased federal, state and foreign scrutiny and legislative and regulatory activity concerning data collection and use practices.  Any failure by us to comply with applicable federal, state and foreign laws and the requirements of regulatory authorities may result in, among other things, indemnification liability to the advertising agencies and advertisers we work with, administrative enforcement actions and fines, class action lawsuits, cease and desist orders, and civil and criminal liability.  Recently, class action lawsuits have been filed alleging violations of privacy laws by advertising networks and Internet service providers.   Our failure to comply with federal, state or foreign laws could result in liability and materially harm our business.

In addition to government activity, privacy advocacy groups and the technology and direct marketing industries are considering various new, additional or different self-regulatory standards.  This focus, and any legislation, regulations or standards promulgated, may impact us adversely.  Governments, trade associations and industry self-regulatory groups may enact more burdensome laws, regulations and guidelines, including consumer privacy laws, affecting our customers and us.  Since many of the proposed laws or regulations are just being developed, and a consensus on privacy and data usage has not been reached, we cannot yet determine the impact these proposed laws or regulations may have on our business.  However, if the gathering of targeting information were to be curtailed, Internet advertising would be less effective, which would reduce demand for Internet advertising and harm our business.

Third parties have and may continue to bring class action lawsuits against us relating to online privacy and data collection.  On or about December 8, 2010, plaintiff Sonal Bose commenced a putative class action in the United States District Court for the Southern District of New York alleging that interclick engaged in demographic profiling of internet users for advertising purposes, and that such alleged conduct violates laws relating to electronic privacy and computer use. The plaintiff seeks compensatory damages, statutory damages, restitution, punitive damages, litigation expenses and attorneys’ fees, all in unspecified amounts.  The plaintiff also seeks injunctive and declaratory relief. We believe that the allegations are wholly without merit and intend to vigorously defend its technology and practices. See “Item 3 – Legal Proceedings” above for more detail.
 
We disclose our information collection and dissemination policies, and we may be subject to claims if we act or are perceived to act inconsistently with these published policies.  Any claims or inquiries could be costly and divert management's attention, and the outcome of such claims could harm our reputation and our business.

Our customers and publisher and data suppliers are also subject to various federal and state laws concerning the collection and use of information regarding individuals, as well as other laws that govern the collection and use of consumer credit information.  We can make no assurances that our customers and suppliers are currently in compliance, or will remain in compliance, with these laws and their own privacy policies.  We may be held liable if our customers use our technologies in a manner that is not in compliance with these laws or their own stated privacy policies.

If the technology that we currently use to target the delivery of online advertisements and to prevent fraud on our network is restricted or becomes subject to regulation, our expenses could increase and we could lose customers or advertising inventory.

The FTC and Department of Commerce has issued guidelines recommending that Internet advertising firms that engage in audience targeting implement industry-wide self-regulation in order to protect the privacy of consumers who use the Internet.  In December 2010, the FTC issued a preliminary staff report that proposes a framework to balance the privacy interests of consumers with innovation that relies on consumer information to develop beneficial new products and services, and suggests the implementation of a “do not track” mechanism so consumers can choose whether the collection of data regarding their online searching and browsing activities.  If, notwithstanding these reports, the government and / or industry associations were in the future to issue regulations, such as a “do not track” list and blocking, or targeting opt-out mechanisms, it may adversely affect what we perceive to be a competitive advantage.  This could increase our costs and reduce our future revenues.

 
18


If we cannot manage our growth effectively, we may not maintain profitability.

Businesses which grow rapidly often have difficulty managing their growth.  If our business continues to grow as rapidly as we have since August 2007, and as we anticipate, we will need to expand our organization by continuing to recruit and employ experienced executives and key employees capable of providing the necessary support and leadership.

We can make no assurances that our management will be able to manage our growth effectively or successfully.  Our failure to meet these challenges could cause us to lose money, which will reduce our stock price.

Because of lingering effects of the global economic recession, our customers may delay in paying us or not pay us at all.  This would have a material and adverse effect on our future operating results and financial condition.

One of the lingering effects of the global economic recession is that businesses are tending to maintain their cash resources and delay in paying their creditors whenever possible.  As a trade creditor, we lack leverage unlike secured lenders and providers of essential services.  Should the economy further deteriorate, we may find that either agencies, advertisers, or both may delay in paying us.  Additionally, we may find that advertisers will reduce Internet advertising which would reduce our future revenues.  These events would result in a number of adverse effects upon us including increasing our borrowing costs, reducing our gross profit margins, reducing our ability to borrow under our line of credit, and reducing our ability to grow our business.  These events would have a material and adverse effect upon us.

We face intense competition and if we cannot successfully compete with them it will have a negative impact on our results of operations.

Our current and potential competitors range from large and established companies to emerging start-ups. Established companies have longer operating histories and more established relationships with customers, and they can use their experience and resources against us in a variety of competitive ways, including by making strategic acquisitions, investing aggressively in research and development, and competing aggressively for customers and publishers. Emerging start-ups may be able to innovate and provide products and services faster than we can. If our competitors are more successful than we are in developing compelling products or in attracting and retaining users, advertisers, and content providers, our revenues and growth rates could decline.

Because we expect to need additional capital to fund our growing operations, we may not be able to obtain sufficient capital and may be forced to limit the scope of our operations.

We expect that as our business continues to grow we will need additional working capital. In addition to the proceeds we received from our 2009 registered public offering, we have available a $15,000,000 line of credit with a commercial lender.  We have the right to terminate the line of credit with three (3) days prior written notice to the lender, and the lender can terminate the line of credit due to a default by us under the provisions of the line of credit.  Both instances of termination subject us to any early termination fee.   As of March 11, 2011, neither party has informed the other one of their intent to terminate the agreement.   We may be adversely affected in our ability to replace this line of credit or increase the amount we can borrow.  The slowdown in the global economy and the tightening of the credit markets may adversely affect our ability to raise capital.  If adequate additional debt and/or equity financing is not available on reasonable terms or at all, we may not be able to continue to expand our business, and we will have to modify our business plans accordingly.  These factors would have a material and adverse effect on our future operating results and our financial condition.

Even if we secure additional working capital, we may not be able to negotiate terms and conditions for receiving the additional capital that are acceptable to us.  Any future equity capital financings will dilute existing shareholders.  In addition, new equity or convertible debt securities issued by us to obtain financing could have rights, preferences and privileges senior to our common stock.  We cannot provide any assurance that any additional financing will be available to us, or if available, will be on terms favorable to us.

 
19


If we fail to manage our supply of display advertising impressions (also referred to as “publishing inventory”) and third party data arrangements effectively, our profit margins could decline and should we fail to acquire additional publishing inventory our growth could be impeded.
 
Our success depends in part on our ability to effectively manage our existing publishing inventory and third party data arrangements.  Our publishers are not bound by long-term contracts that ensure us a consistent supply of display advertising space, which we refer to as inventory.  In addition, publishers can change the amount of inventory they make available to us at any time.  If a publisher decides not to make publishing inventory from its websites available to us, or if the quality of a publisher’s inventory declines, we may not be able to replace this inventory with that from other publishers with comparable traffic patterns and user demographics quickly enough to fulfill our advertisers’ requests, thus resulting in a potential loss of revenues.  Additionally, if a third-party data provider stopped offering their data to us, or if the quality of proprietary data declines, we may not be able to replace this data with another data provider of equal or better effectiveness.  Our ability to maintain our existing data arrangements, as well as attract new data suppliers, will depend on various factors, some of which are beyond our control.

We expect that our advertiser customers’ requirements will become more sophisticated as the Internet continues to mature as an advertising medium.  If we fail to manage our existing publisher inventory and third party data effectively to meet our advertiser customers’ changing requirements, our revenues could decline.  Our growth depends in large part on our ability to expand our publisher inventory and third party data.  To attract new customers, we must maintain a consistent supply of attractive publisher inventory and third party data.  We intend to expand our inventory and third party data by selectively adding to our network quality publishers and third party data suppliers.  Our ability both to retain current as well as to attract new publishers and data providers to our network will depend on various factors, some of which are beyond our control.  These factors include, but are not limited to, our ability to introduce new and innovative services, our efficiency in managing our existing publisher inventory and our pricing practices.  We can make no assurances that the size of our publisher inventory and data supply will increase or remain constant in the future.

If advertising on the Internet loses its appeal, our revenue could decline.

Our business model may not continue to be effective in the future for a number of reasons, including the following: click and conversion rates have always been low and may decline as the number of advertisements and ad formats on the Internet increases; companies may prefer other forms of Internet advertising we currently do not offer, including certain forms of search, and mobile advertising placements; companies may reject or discontinue the use of certain forms of online promotions that may conflict with their brand objectives; companies may not utilize online advertising and regulatory and self-regulatory actions may negatively impact certain business practices that we currently rely on to generate a portion of our revenue and profitability.  If the number of companies who purchase online advertising from us does not continue to grow, we may experience difficulty in attracting publishers, and our revenue could decline.

It may be difficult to predict our financial performance because our quarterly operating results may fluctuate.

Our revenues, operating results and valuations of certain assets and liabilities may vary significantly from quarter-to quarter-due to a variety of factors, many of which are beyond our control.   Period-to-period comparisons of our results of operations should not be relied on as an indication of our future performance.  Our results of operations may fall below the expectations of market analysts and our own forecasts.  If this happens, the market price of our common stock may fall significantly.  The factors that may affect our quarterly operating results and valuations of certain assets and liabilities include the following:

 
fluctuations in demand for our advertising solutions or changes in customer contracts;
 
fluctuations in the amount of available advertising space on our network;
 
the timing and amount of sales and marketing expenses incurred to attract new advertisers;
 
the impact of our increases in headcount to meet expected increases in revenue;
 
fluctuations in our average ad rates (i.e., the amount of advertising sold at higher rates rather than lower rates);
 
fluctuations in the cost of online advertising and in the cost and/or amount of data available for audience targeting campaigns;
 
seasonal patterns in Internet advertisers’ spending;
 
worsening economic conditions which cause advertisers to reduce Internet spending and consumers to reduce their purchases;

 
20


 
increases in our investment in new technology and service offerings;
 
changes in the regulatory environment, including regulation of advertising or the Internet, that may negatively impact our marketing practices;
 
the timing and amount of expenses associated with litigation, regulatory investigations or restructuring activities, including settlement costs and regulatory penalties assessed related to government enforcement actions;
 
any changes we make in our Critical Accounting Estimates described in Management’s Discussion and Analysis of Financial Condition and Results of Operations;
 
the adoption of new accounting pronouncements, or new interpretations of existing accounting pronouncements, that impact the manner in which we account for, measure or disclose our results of operations, financial position or other financial measures; and
 
costs related to acquisitions of technologies or businesses.

Expenditures by advertisers also tend to be cyclical, reflecting overall economic conditions as well as budgeting and buying patterns.  Any decline in the economic prospects of advertisers or the economy generally may alter advertisers’ current or prospective spending priorities, or may increase the time it takes us to close sales with agencies, and could materially and adversely affect our business, results of operations and financial condition.

We rely on highly skilled personnel and, if we are unable to retain or motivate key personnel, hire qualified personnel, or maintain our corporate culture, we may not be able to grow effectively.

Our performance largely depends on the talents and efforts of highly skilled individuals. Our future success depends on our continuing ability to identify, hire, develop, motivate, and retain highly skilled personnel for all areas of our organization. In particular, Michael Katz, President and Chief Executive Officer, Roger Clark, Chief Financial Officer, Andrew Katz, Chief Technology Officer, Jason Lynn, Chief Strategy Officer, and Dave Myers, Executive Vice President of Operations are important to the management of our business and operations and the development of our strategic direction.  The loss of the services of Messrs. Michael Katz, Andrew Katz, Clark, Lynn and Myers and the process to replace any of them would involve significant time and expense and may significantly delay or prevent the achievement of our business objectives.

Competition in our industry for qualified employees is intense, and certain of our competitors have directly targeted our employees. In addition, our compensation arrangements, such as our incentive and equity award programs, may not always be successful in attracting new employees and retaining and motivating our existing employees. Our continued ability to compete effectively depends on our ability to attract new employees and to retain and motivate our existing employees.

In addition, we believe that our corporate culture fosters innovation, creativity, and teamwork. As our organization grows, and we are required to implement more complex organizational management structures, we may find it increasingly difficult to maintain the beneficial aspects of our corporate culture. This could negatively impact our future success.

If we make acquisitions, it could divert management’s attention, cause ownership dilution to our shareholders and be difficult to integrate.

Following our acquisition of Desktop in August 2007, we have grown rapidly.  We expect to continue to evaluate and consider future acquisitions.  Acquisitions generally involve significant risks, including difficulties in the assimilation of operations, personnel, services, technologies, and corporate culture of the acquired companies, diversion of management's attention from other business concerns, overvaluation of the acquired companies, and the acceptance of the acquired companies’ products and services by our customers.  Acquisitions may not be successful, which can have a number of adverse effects upon us including adverse financial effects and may seriously disrupt our management’s time.  The integration of acquired operations, products and personnel may place a significant burden on management and our internal resources.  The diversion of management’s attention and any difficulties encountered in the integration process could adversely affect our business.

If we are not able to protect our intellectual property from unauthorized use, it could diminish the value of our products and services, weaken our competitive position and reduce our revenues.

Our success depends in large part on our proprietary demographic, behavioral, contextual, geographic and retargeting technologies.   We may be required to spend significant resources to monitor and police our intellectual property rights.  If we fail to successfully enforce our intellectual property rights, the value of our products and services could be diminished and our competitive position may suffer.

 
21


We rely on a combination of trade secret laws, confidentiality procedures and licensing arrangements to establish and protect our proprietary rights.  Third-party software providers could copy or otherwise obtain and use our technologies without authorization or develop similar technologies independently, which may infringe upon our proprietary rights.  We may not be able to detect infringement and may lose competitive position in the market before we do so.  In addition, competitors may design around our technologies or develop competing technologies.  Intellectual property protection may also be unavailable or limited in some foreign countries.

We generally enter into confidentiality or license agreements with our employees, consultants, vendors, customers, and corporate partners, and generally control access to and distribution of our technologies, documentation and other proprietary information.  Despite these efforts, unauthorized parties may attempt to disclose, obtain or use our products, services or technologies.  Our precautions may not prevent misappropriation of our products, services or technologies, particularly in foreign countries where laws or law enforcement practices may not protect our proprietary rights as fully as in the United States.

If we become involved in lawsuits relating to our intellectual property rights, it could be expensive and time consuming, and an adverse result could result in significant damages and/or force us to make changes to our business.

We rely on trade secrets to protect our intellectual property rights. If we are sued by a third party which alleges we are violating its intellectual property rights or if we sue a third party for violating our rights, intellectual property litigation is very expensive and can divert our limited resources.  We may not prevail in any litigation.  An adverse determination of any litigation brought by us or against us could materially and adversely affect our future results of operations by either reducing future revenues or increasing future costs.  Additionally, an adverse award of money damages could affect our financial condition.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.  In addition, during the course of this kind of litigation, there could be public announcements of the results of hearings, motions or other interim proceedings or developments in the litigation.  If securities analysts or investors perceive these results to be negative, it could have an adverse effect on the trading price of our common stock.

If we are not able to respond to the rapid technological change characteristics of our industry, our services may not be competitive.

The market for our services is characterized by rapid change in business models and technological infrastructure, and we will need to constantly adapt to changing markets and technologies to provide competitive services.  We believe that our future success will depend, in part, upon our ability to develop our services for both our target market and for applications in new markets.  We may not, however, be able to successfully do so, and our competitors may develop innovations that render our services uncompetitive.

If our computer systems fail to operate effectively in the future, we may incur significant costs to remedy these failures and may sustain reduced revenues.

Our success depends on the continuing and uninterrupted performance of our computer systems. System failures that interrupt our ability to provide services to customers, including failures affecting our ability to deliver advertisements quickly and accurately and to process visitors’ responses to advertisements, could reduce significantly the attractiveness of our solutions to advertisers and publishers.  Our business, results of operations and financial condition could also be materially and adversely affected by any systems damage or failure that impacts data integrity or interrupts or delays our operations.  Our computer systems are vulnerable to damage from a variety of sources, including telecommunications failures, power outages and malicious or accidental human acts.  Any of the above factors could substantially harm our business resulting in increased costs.  Moreover, despite network security measures, our servers are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems in part because we cannot control the maintenance and operation of our third-party data centers.  Any of these occurrences could cause material interruptions or delays in our business, result in the loss of data, render us unable to provide services to our customers, and expose us to material risk of loss or litigation and liability.  If we fail to address these issues in a timely manner, they could materially damage our reputation and business, causing our revenues to decline.

 
22

 
Computer viruses could damage our business.

Computer viruses, worms and similar programs may cause our systems to incur delays or other service interruptions and could damage our reputation and ability to provide our services and expose us to legal liability, all of which could have a material adverse effect on our business, results of operations, financial condition and the trading price of our common stock.
 
 
Because a portion of our third-party servers are located in Northern California, in the event of an earthquake our operations could be adversely affected.

We have servers located in Northern California, which are housed at a third-party data center which will be opening in the first half of 2011.  Because Northern California is in an earthquake-sensitive area, we are susceptible to the risk of damage to our servers.  This damage can interrupt our ability to provide services.  If damage caused to our servers were to cause them to be inoperable for any amount of time, we would be forced rely solely on our servers located in the Washington DC area.  We are not insured against any losses or expenses that arise from a disruption or any short-term outages to our business due to earthquakes.

Since we rely on third-party co-location providers, a failure of service by these providers could adversely affect our business and reputation.

We rely upon third party co-location providers to host our main servers.  In the event that these providers experience any interruption in operations or cease operations for any reason or if we are unable to agree on satisfactory terms for continued hosting relationships, we would be forced to enter into a relationship with other service providers or assume hosting responsibilities ourselves.  If we are forced to switch hosting facilities, we may not be successful in finding an alternative service provider on acceptable terms or in hosting the computer servers ourselves.  We may also be limited in our remedies against these providers in the event of a failure of service. In the past, short-term outages have occurred in the service maintained by co-location providers which could recur.  In the first quarter of 2010, we added a fully-redundant co-location facility in the Washington D.C. area to mitigate the single point of failure risk. Additionally in the fourth quarter of 2010 we closed our co-location facility in the Miami area and will be opening a new co-location facility in San Jose, CA in the first half of 2011.  We also rely on third-party providers for components of our technology platform.  A failure or limitation of service or available capacity by any of these third-party providers could adversely affect our business and reputation.

 If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud and our business may be harmed and our stock price may be adversely impacted.

Effective internal controls are necessary for us to provide reliable financial reports and to effectively prevent fraud and the misappropriation of the assets of the Company. Any inability to provide reliable financial reports or to prevent fraud could harm our business.  The Sarbanes-Oxley Act of 2002 requires management to evaluate and assess the effectiveness of our internal control over financial reporting.  We have determined that our internal control over financial reporting was effective as of December 31, 2010 (See Item 9A of this filing for Management’s Report on Internal Control Over Financial Reporting).  In order to continue to comply with the requirements of the Sarbanes-Oxley Act, we are required to continuously evaluate and, where appropriate, enhance our policies, procedures and internal controls.  If we fail to maintain the adequacy of our internal controls, we could be subject to litigation or regulatory scrutiny and investors could lose confidence in the accuracy and completeness of our financial reports.  We can make no absolute assurances that in the future we will be able to fully comply with the requirements of the Sarbanes-Oxley Act or that management will conclude that our internal control over financial reporting is effective.  If we fail to fully comply with the requirements of the Sarbanes-Oxley Act, our business may be harmed and our stock price may decline.

 
23


Risks Related to Our Common Stock

Due to factors beyond our control, our stock price may be volatile.

Any of the following factors could affect the market price of our common stock:

 
·
Actual or anticipated variations in our quarterly results of operations;

 
·
Our failure to meet financial analysts’ performance expectations;

 
·
Our failure to meet or exceed our own publicly-disclosed forecasts;

 
·
Our failure to achieve and maintain profitability;

 
·
Short selling activities;

 
·
The loss of major advertisers, publishers or data providers;

 
·
Announcements by us or our competitors of significant contracts, new products, acquisitions, commercial relationships, joint ventures or capital commitments;

 
·
The departure of key personnel;

 
·
Regulatory and self-regulatory developments;

 
·
Changes in market valuations of similar companies; or

 
·
The sale of a large amount of common stock by shareholders owning large positions.

In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted.  A securities class action suit against us could result in substantial costs and divert our management’s time and attention, which would otherwise be used to benefit our business.

Because almost all of our outstanding shares are freely tradable, sales of these shares could cause the market price of our common stock to drop significantly, even if our business is performing well.

As of March 11, 2011, we had outstanding 24,108,943 shares of common stock of which our directors and executive officers own 1,464,788 shares that are subject to the limitations of Rule 144 under the Securities Act of 1933, or the Securities Act.  All of the remaining outstanding shares are freely tradable. The restricted shares, not held by our directors or executive officers, will be eligible for sale under Rule 144 on various dates through September 2011.

In general, Rule 144 provides that any non-affiliate of ours, who has held restricted common stock for at least six-months, is entitled to sell their restricted stock freely, provided that we stay current in our filings with the Securities and Exchange Commission, or the SEC.

An affiliate of ours may sell after six months with the following restrictions:

 
(i)
we are current in our filings,
 
(ii)
certain manner of sale provisions,
 
(iii)
filing of Form 144, and
 
(iv)
volume limitations limiting the sale of shares within any three-month period to a number of shares that does not exceed the greater of 1% of the total number of outstanding shares or, the average weekly trading volume during the four calendar weeks preceding the filing of a notice of sale.

 
24


Because almost all of our outstanding shares are freely tradable and the shares held by our affiliates may be freely sold (subject to the Rule 144 limitations), sales of these shares could cause the market price of our common stock to drop significantly, even if our business is performing well.
 
Delaware law contains anti-takeover provisions that could deter takeover attempts that could be beneficial to our stockholders.

Provisions of Delaware law could make it more difficult for a third-party to acquire us, even if doing so would be beneficial to our stockholders. Section 203 of the Delaware General Corporation Law may make the acquisition of the Company and the removal of incumbent officers and directors more difficult by prohibiting stockholders holding 15% or more of our outstanding voting stock from acquiring the Company, without our Board of Directors' consent, for at least three years from the date they first hold 15% or more of the voting stock.

We have not and do not anticipate paying any dividends on our common stock.

We have paid no dividends on our common stock to date and it is not anticipated that any dividends will be paid to holders of our common stock in the foreseeable future. While our future dividend policy will be based on the operating results and capital needs of the business, it is currently anticipated that any earnings will be retained to finance our future expansion and for the implementation of our business plan.  Investors should take note of the fact that a lack of a dividend can further affect the market value of our stock, and could significantly affect the value of any investment in our Company.

Our Board of Directors has the authority, without stockholder approval, to issue preferred stock with terms that may not be beneficial to common stock holders.

Our certificate of incorporation authorize the issuance of preferred shares which may be issued with dividend, liquidation, voting and redemption rights senior to our common stock without prior approval by the stockholders. The preferred stock may be issued for such consideration as may be fixed from time-to-time by the Board of Directors. The Board of Directors may issue such shares of preferred stock in one or more series, with such designations, preferences and rights or qualifications, limitations or restrictions thereof as shall be stated in the resolution of resolutions.
 
The issuance of preferred stock could adversely affect the voting power and other rights of the holders of common stock. Preferred stock may be issued quickly with terms calculated to discourage, make more difficult, delay or prevent a change in control of our Company or make removal of management more difficult. As a result, the Board of Directors’ ability to issue preferred stock may discourage the potential hostile acquirer, possibly resulting in beneficial negotiations. Negotiating with an unfriendly acquirer may result in, among other things, terms more favorable to us and our stockholders. Conversely, the issuance of preferred stock may adversely affect any market price of, and the voting and other rights of the holders of the common stock. We presently have no plans to issue any preferred stock.
 
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.

Not required for smaller reporting companies.
 
Item 8.
Financial Statements and Supplementary Data.
 
See pages F-1 through F-32.

Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
 
None

 
25


Item 9A.
Controls and Procedures.
 
 
(a)
Evaluation of Disclosure Controls and Procedures

We carried out an evaluation required by Rule 13a-15 under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as such term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”).
 
Disclosure controls and procedures are designed with the objective of ensuring that (i) information required to be disclosed in an issuer's reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and, (ii) information is accumulated and communicated to management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

The evaluation of our disclosure controls and procedures included a review of our objectives and processes and effect on the information generated for use in this report.  This type of evaluation is done quarterly so that the conclusions concerning the effectiveness of these controls can be reported in our periodic reports filed with the SEC.  We intend to maintain these controls as processes that may be appropriately modified as circumstances warrant.

Based on their evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures are effective at timely alerting them to material information which is required to be included in our periodic reports filed with the SEC as of the end of the period covered by this Annual Report on Form 10-K.
 
 
(b)
Management’s Annual Report on Internal Control Over Financial Reporting
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).  Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2010 based on the criteria set forth in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the criteria set forth in Internal Control — Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2010.

However, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Management necessarily applied its judgment in assessing the benefits of controls relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and may not be detected.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permanently exempts smaller reporting companies.

 
(c)
Changes in Internal Control over Financial Reporting
 
There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 
26


Item 9B.
Other Information.

None.

PART III

Item 10.
Directors, Executive Officers and Corporate Governance.

The following is a list of our executive officers and directors. All directors serve one-year terms or until each of their successors are duly qualified and elected. The officers are elected by the Board of Directors.

Name
 
Age
 
Position
Michael Brauser
 
55
 
Co-Chairman
Barry Honig
 
39
 
Co-Chairman
Brett Cravatt
 
37
 
Director
David Hills
 
55
 
Director
Frank Cotroneo
 
52
 
Director
William Wise
 
39
 
Director
Michael Mathews
 
49
 
Director
Michael Katz
 
32
 
Chief Executive Officer and Director
Roger Clark
 
42
 
Chief Financial Officer, Treasurer and Secretary
Andrew Katz
 
30
 
Chief Technology Officer
Jason Lynn
 
38
 
Chief Strategy Officer
Dave Myers
 
41
 
Executive Vice President, Operations

Director Biographies

Michael Brauser has served as Co-Chairman since August 2007.    Mr. Brauser has been the manager of Marlin Capital Partners, LLC, a private investment company, since 2003.  From 1999 through 2002, he served as President and Chief Executive Officer of Naviant, Inc. (eDirect, Inc.), an Internet marketing company.  He also was the founder of Seisant Inc. (eData.com, Inc.).  Between May 2010 and March 2011, Mr. Brauser served on the Board of Directors of Chromadex Corp., a publicly-traded developer of phytochemical and botanical reference standards.  Between October 2005 and November 2006, he served as Chairman of the Board of Directors of SendTec, Inc., a publicly-traded customer acquisition ad agency. Mr. Brauser was selected as a director due to his significant experience in the Internet industry as well as his extensive business and management expertise from his background as an executive officer of a number of public companies.  Mr. Brauser has extensive knowledge of Internet marketing companies, accounting and finance expertise.  He also is a large shareholder.
 
Barry Honig has served as Co-Chairman since August 2007. Since January 2004, Mr. Honig has been the President of GRQ Consultants, an investor and consultant to early stage companies. He also serves on the board of The Empire Sports and Entertainment Holdings Co., a publicly-traded promoter of entertainment and sports events.  Mr. Honig was selected to serve as a director on our Board due to his success as an investor, extensive knowledge of the capital markets, his judgment in assessing business strategies taking into account accompanying risks, and his knowledge of the marketing industry.

Brett Cravatt has served as a director since June 2009. Since 2006, Mr. Cravatt has been the Chief Executive Officer and founder of WebYES! LLC., an online media and marketing services company.  During this same time period, Mr. Cravatt co-founded and now serves as Chairman of Achieve Financial Services, one of the fastest growing general purpose reloadable debit card businesses. Prior to WebYES! and Achieve Financial Services, Mr. Cravatt served as the Chief Operating Officer and Chief Product Officer of Vendare Media, now part of Epic Advertising. Mr. Cravatt joined Vendare Media in March 2001 via the acquisition of SportSkill.com, a fantasy sports software company co-founded by Mr. Cravatt. Prior to SportSkill.com, Mr. Cravatt was a corporate securities attorney for Loeb & Loeb, LLP, where he handled various corporate matters for start-up companies and Fortune 1000 clients. Mr. Cravatt holds a Bachelor's degree in Political Science from U. C. Berkeley and a J. D. from Stanford Law School.  Mr. Cravatt was selected to serve as a director on our Board due to his valuable financial and legal expertise and his extensive experience with Internet marketing companies.

 
27

 
David Hills has served as a director since July 2010.  Since January 2011, Mr. Hills is the Chief Executive Officer of Buzz Logic, a marketing services company.  Before joining BuzzLogic, from January 2008 to December 2010 Dave was a General Partner with KPG Ventures,  a venture capital firm specializing in seed-stage, consumer internet technology companies.  From November 2004 to July 2007, Dave was President, Chief Executive Officer and Director of LookSmart, Ltd, a publicly-traded online advertising and technology company.  From July 2003 to October 2004, Mr. Hills served as President, Media Solutions at 24/7 Real Media, a leading global digital marketing company which was acquired by WPP in 2007. From 1980 to 2001 he served in various sales leadership capacities culminating in the role of Chief Operating Officer and President of Sales at About, Inc., a network of topic-specific Web sites.  Mr. Hills was selected to serve as a director on our Board due to his extensive senior executive management and public company experience and his in-depth knowledge of the Internet marketing industry.

Frank Cotroneo has served as a director since July 2010 and currently serves as chairman of the Audit Committee.  Mr. Cotroneo is the Founder and Chief Executive Officer of Core Business Consulting, LLC, a consulting firm specializing in business strategy, leadership development, business process reengineering and financial management advisory services.  Mr. Cotroneo previously served as Chief Operating Officer and Chief Financial Officer of Net Spend Corporation, one of the largest providers of general purpose reloadable debit cards and related services in the US from 2008 to 2009.  He is the former Chief Financial Officer of Axciom Corporation; from 2006 to 2007, former CFO of H&R Block; from 2000 to 2003 and former CFO of MasterCard International; from 1996 to 2000.  Mr. Cotroneo was selected to serve as a director on our Board due to his extensive senior executive management experience and financial expertise.

William Wise has served as a director since January 2011.  Mr. Wise is the Chief Executive Officer of MediaBank, a leading operating system for the advertising industry.  Mr. Wise joined MediaBank from Yahoo, where he oversaw the Company’s advertising platforms business, including the Right Media Exchange and APT by Yahoo, Yahoo’s intelligent media planning and buying platform.  Prior to this role, Mr. Wise served as President of Right Media, before its acquisition by Yahoo. He has also held various executive positions with DoubleClick from 1997 to 2003.  Mr. Wise was selected to serve as a director on our Board due to his extensive knowledge of the Internet marketing industry and management expertise.

Michael Mathews has served as a director since August 2007, and was our Chief Executive Officer from June 2007 until January 2011. Mr. Mathews also serves on the board of 5to1, Inc. a publicly-traded publisher-controlled online advertising alliance.  Prior to interclick, from 2004 to 2007, Mr. Mathews served as the senior vice-president of marketing and publisher services for World Avenue U.S.A., LLC, an Internet promotional marketing company. Mr. Mathews graduated from San Francisco State University with a degree in Marketing and holds a Masters in Business Administration from Golden Gate University. Mr. Mathews was selected to serve as a director on our Board due to his depth of knowledge of interclick, including its operations, its strategies, and his extensive knowledge of the Internet marketing industry.

Michael Katz has served as a director since August 2007, and has been our Chief Executive Officer since February 1, 2011.  Previously, Mr. Katz was our President since August 2007.  From 2003 until we acquired Desktop on August 31, 2007, Mr. Katz was the founder, Chief Executive Officer, and President of Desktop. Mr. Katz graduated from Syracuse University with a degree in Finance and Economics.  Mr. Katz was selected to serve as a director on our Board due to his depth of knowledge of interclick, including its operations, his extensive knowledge of the Internet marketing industry and his position as Chief Executive Officer of interclick.

Directorships
 
Except as otherwise reported above, none of our directors have held directorships in other reporting companies and registered investment companies at any time during the past five years.

Executive Officer Biographies

See Michael Katz’s biography above.

Roger Clark has served as our Chief Financial Officer since August 2009.  From 1994 until August 2009, Mr. Clark was an executive with IAC/InterActiveCorp. which operated more than 50 Internet businesses worldwide. From 2006 until 2009, Mr. Clark was Vice President, Finance at IAC Advertising Solutions and in 2009 served in the Office of the Chief Financial Officer at IAC Search & Media. From 2002 to 2006, Mr. Clark was the Vice President, Investor Relations and Finance at IAC/InterActiveCorp. Mr. Clark was an auditor with Ernst & Young, LLP from 1991 until 1994, and became a Certified Public Accountant in 1994; his current CPA status is not practicing.

 
28


Andrew Katz has served as our Chief Technology Officer since August 2007. From 2004 until we acquired Desktop on August 31, 2007, Mr. Katz was the Chief Technology Officer of Desktop. From February 2004 until July 1, 2008, Mr. Katz also served as the Chief Executive Officer of mStyle, LLC. Prior to mStyle, he served as the Senior Software Engineer for Jenzabar, Inc.

Jason Lynn has served as our Chief Strategy Officer since March 2010 and previously was our Vice President of Product Development from June 2008 until March 2010. From July 2007 through July 2008, Mr. Lynn was the Director of Solutions Engineering at Right Media, LLC, a wholly-owned subsidiary of Yahoo! Inc. From August 2006 through July 2007, Mr. Lynn was the Product Manager at TACODA Systems, Inc., a provider of behavioral targeting solutions to web publishers. From June 2004 until July 2006, he was self-employed as an IT Systems Consultant.   Previously, he spent seven years in the Internet technology space in positions with Intel, UUnet, and Navisite.

Dave Myers has served as our Executive Vice President, Operations since March 2010 and previously was our Vice President of Operations from April 2009 until March 2010. From 2006 until joining interclick, Mr. Myers worked for Yahoo! Inc. and Right Media (which was acquired by Yahoo! Inc. in July 2007) as a Senior Director of Advertiser Marketplaces Operations and Senior Director of Right Media Client Services, respectively. From 2004 to 2006, Mr. Myers was an Enterprise Services Engagement Manager at Microsoft Corporation.
 
Family Relationships
 
Michael Katz, our Chief Executive Officer and Director, is the brother of Andrew Katz, our Chief Technology Officer. Except for the foregoing, there are no other family relationships among our directors and executive officers. There is no arrangement or understanding between or among our executive officers and directors pursuant to which any director or officer was or is to be selected as a director or officer.
 
Involvement in Certain legal Proceedings
To our knowledge, during the last ten years, none of our directors and executive officers (including those of our subsidiaries) has:
 
 
·
Had a bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time.
 
 
·
Been convicted in a criminal proceeding or been subject to a pending criminal proceeding, excluding traffic violations and other minor offenses.
 
 
·
Been subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities.
 
 
·
Been found by a court of competent jurisdiction (in a civil action), the SEC, or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
 
 
·
Been the subject to, or a party to, any sanction or order, not subsequently reverse, suspended or vacated, of any self-regulatory organization, any registered entity, or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
 
 
29

 
Corporate Governance

Board Responsibilities and Structure
 
The Board oversees, counsels, and directs management in the long-term interest of interclick and its shareholders. The Board’s responsibilities include:
 
 
·
Establishing broad corporate policies and
 
 
·
Reviewing the overall performance of interclick.

The Board is not, however, involved in the operating details on a day-to-day basis.
 
Board Committees and Charters

The Board and its Committees meet throughout the year and act by written consent from time to time as appropriate. The Board has formed Audit, Compensation and Nominating Committees. Committees regularly report on their activities and actions to the Board. The Board appoints members to its: Audit Committee, Compensation Committee and Nominating Committee. The Audit Committee and the Nominating Committee each have a written charter approved by the Board.

The following table identifies the independent and non-independent current Board and Committee members:

Name
 
Independent
   
Audit
   
Compensation
   
Nominating
 
 
                               
Michael Brauser
    P               P       P  
Barry Honig
    P       P               P  
Brett Cravatt
    P       P       P       P  
David Hills
    P       P       P       P  
Frank Cotroneo
    P       P       P          
William Wise
    P       P       P       P  
Michael Mathews
                               
Michael Katz
                               
 
Director Independence
 
Our Board has determined that Messrs. Cravatt, Brauser, Honig, Cotroneo, Hills and Wise are independent under the NASDAQ Stock Market Listing Rules.

Audit Committee
 
The Audit Committee’s primary role is to review our accounting policies and any issues which may arise in the course of the audit of our financial statements. The Audit Committee selects our independent registered public accounting firm, approves all audit and non-audit services, and reviews the independence of our independent registered public accounting firm. The Audit Committee also reviews the audit and non-audit fees of the auditors. Our Audit Committee is also responsible for certain corporate governance and legal compliance matters including internal and disclosure controls and Sarbanes-Oxley compliance. The members of the Audit Committee are Frank Cotroneo (Chairman), Brett Cravatt, Barry Honig, Dave Hills and Bill Wise. Our Board has determined that Messrs. Cravatt and Cotroneo are each qualified as an Audit Committee Financial Expert, as that term is defined by the rules of the SEC and in compliance with the Sarbanes-Oxley Act of 2002. The Board has determined that Messrs. Cravatt, Honig, Cotroneo, Hills and Wise are independent in accordance with the NASDAQ Stock Market independence standards for audit committees.

 
30


Compensation Committee

The function of the Compensation Committee is to review and recommend the compensation of benefits payable to our officers, review general policies relating to employee compensation and benefits and administer our various stock option plans. The members of the Compensation Committee are Messrs. Brauser, Cravatt, Cotroneo, Hills (Chairman) and Wise.

Nominating Committee

The purpose and responsibilities of the Nominating Committee include the identification of individuals qualified to become Board members, the selection or recommendation to the Board of nominees to stand for election as directors, the oversight of the evaluations of the Board and management, and review with the Board from time to time the appropriate skills and characteristics required of Board members in the context of the current make-up of the Board, including issues of diversity, age, skills such as understanding of technology, finance and marketing. The members of the Nominating Committee are Messrs. Cravatt, Brauser (Chairman), Honig, Hills and Wise.
 
Code of Ethics
 
Our Board of Directors has adopted a Code of Ethics that applies to all of our employees, including our Chief Executive Officer and Chief Financial Officer. Although not required, the Code of Ethics also applies to our directors. The Code of Ethics provides written standards that we believe are reasonably designed to deter wrongdoing and promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships, full, fair, accurate, timely and understandable disclosure and compliance with laws, rules and regulations, including insider trading, corporate opportunities and whistle-blowing or the prompt reporting of illegal or unethical behavior. A request for a copy, free of charge, can be made in writing to interclick, inc., 11 West 19th Street, 10th Floor, New York, NY 10011 Attention: Mr. Roger Clark.

Board Diversity

While we do not have a formal policy on diversity, our Board considers diversity to include the skill set, background, reputation, type and length of business experience of our Board members as well as a particular nominee’s contributions to that mix.  Although there are many other factors, the Board seeks individuals with experience on public company boards as well as experience with Internet marketing, legal and accounting skills.

Board Assessment of Risk

Our risk management function is overseen by our Board.  Through our policies, our Code of Ethics and our Board committees’ review of financial and other risks, our management keeps our Board apprised of material risks and provides our directors access to all information necessary for them to understand and evaluate how these risks interrelate, how they affect interclick, and how management addresses those risks.  Mr. Katz, a director and Chief Executive Officer, and Mr. Clark, our Chief Financial Officer, work closely together with the Board once material risks are identified on how to best address such risk.  If the identified risk poses an actual or potential conflict with management, our independent directors may conduct the assessment. Presently, the primary risks affecting interclick include our ability to continue increasing market share in an intensely competitive online advertising market, successfully execute  our business strategy and deploy a differentiated technology solution, and effectively raise sufficient capital as we scale our business. The Board focuses on these key risks and interfaces with management on seeking solutions.

Board Structure
 
Since we acquired Desktop in August 2007, our Board has separated the positions of Chairman of the Board and Chief Executive Officer.  Since that time, Messrs. Michael Brauser and Barry Honig have acted as our Co-Chairmen and Mr. Michael Mathews has acted as our Chief Executive Officer.  Separating these positions allows Mr. Katz to focus on our day-to-day business while allowing the Co-Chairmen of the Board to lead the Board in its fundamental role of providing advice to management and acting as an independent oversight of management.  Because of our rapid growth, we believe that this leadership structure is appropriate for us. While our Bylaws and corporate governance guidelines do not require that our Chairman and Chief Executive Officer positions be separate, the Board believes having these separate positions and having two independent outside directors serve as Co-Chairmen is the appropriate leadership structure for interclick at this time and demonstrates our commitment to good corporate governance.

 
31


Shareholder Communications
 
Although we do not have a formal policy regarding communications with the Board of Directors, shareholders may communicate with the Board by writing to interclick, inc., 11 West 19th Street, 10th Floor, New York, NY 10011 Attention: Mr. Roger Clark, or by facsimile (646) 395-1777. Shareholders who would like their submission directed to a member of the Board may so specify, and the communication will be forwarded, as appropriate.

Changes in Nominating Process

There are no material changes to the procedures by which shareholders may recommend nominees to our board of directors.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our directors, executive officers, and persons who own more than 10% of our common stock to file reports of ownership and changes in ownership of our common stock with the SEC.  Based on the information available to us during 2010, we believe that all applicable Section 16(a) filing requirements were met on a timely basis.
 
Item 11.
Executive Compensation.

The following information is related to the compensation paid, distributed or accrued by us for 2010 and 2009 to our Chief Executive Officer (principal executive officer) and the three other most highly compensated executive officers serving at the end of the last fiscal year whose compensation exceeded $100,000 (the “Named Executive Officers”).

2010 Summary Compensation Table


Name and
Principal Position
(a)
   
Year
(b)
 
Salary
($)(c)
   
Bonus
($)(d)
   
Stock
Awards
($)(e)(1)
   
Option
Awards
($)(f)(1)
   
Non-Equity
Incentive Plan
Compensation
($)(g)(2)
   
Total
($)(j)
 
Michael Mathews (3) (4)
   
2010
    532,500             -       -       177,500       710,000  
Chief Executive Officer
   
2009
    347,618       -       -       124,000       177,500       649,118  
Michael Katz (5)
   
2010
    300,000               -       -       150,000       450,000  
President
   
2009
    295,833       60,000       -       763,000       90,000       1,208,833  
Andrew Katz
   
2010
    268,182               -       -       136,125       404,307  
Chief Technology Officer (6)
   
2009
    243,750       -       56,250       545,000       123,750       968,750  
Roger Clark
   
2010
    235,274               -       -       125,000       360,274  
Chief Financial Officer (7)
   
2009
    89,732       66,575       37,400       785,000       45,925       1,024,632  

 
(1)
The amounts in these columns represent the fair value of the award as of the grant date as computed in accordance with FASB ASC Topic 718 and the recently revised SEC disclosure rules. These rules also require prior year amounts to be recalculated in accordance with the rule.  These amounts represent awards that are paid in shares of common stock or options to purchase shares of our common stock and do not reflect the actual amounts that may be realized by the Named Executive Officers.

 
32


 
(2)
Represents a cash bonus based on the satisfaction of a performance target of which the outcome was substantially uncertain to occur at the time it was established. Under SEC rules, when a cash bonus is substantially uncertain, the bonus is disclosed in this column.
 
(3)
On November 1, 2010 the Company and Mr. Michael Mathews entered into a Separation Agreement (the “Separation Agreement”).  In connection with the Separation Agreement, Mr. Mathews’ employment as the Chief Executive Officer of the Company terminated on January 31, 2011.
 
(4)
In connection with the Separation Agreement, Mr. Mathews received a payment of $177,500, which is equal to six months of his base annual salary.
 
(5)
On November 2, 2010, the Board of Directors unanimously approved the appointment of Michael Katz as Chief Executive Officer of the Company, effective February 1, 2011.
 
(6)
Includes 28,125 shares of restricted common stock which vesting terms were modified to provide for vesting each calendar quarter from semi-annually.
 
(7)
Mr. Roger Clark has been our Chief Financial Officer since August 7, 2009.
 
Named Executive Officer Compensation

Michael Mathews . Effective on June 28, 2007, we entered into an employment agreement with Michael Mathews, to serve as our Chief Executive Officer. In accordance with the employment agreement, Mr. Matthews was paid a base salary of: (i) $325,000 in his first year of employment, (ii) $340,000 in his second year of employment, and (iii) received $355,000 in his third year of employment and through the date of his separation from the Company, effective January 31, 2011.  For 2010, Mr. Mathews received a $177,500 bonus of which 50% was paid in August 2010 and the remaining 50% was paid in February 2011.  For 2009, Mr. Mathews received a $177,500 bonus, of which $149,167 was paid in February 2010.  Additionally, we agreed in 2007 to (i) pay his former employer $100,000, (ii) pay a $50,000 relocation fee and (iii) guarantee a $50,000 minimum bonus payment. Also in 2007, Mr. Mathews received 700,000 shares of vested founders stock and was granted 725,000 stock options vesting in quarterly increments over three years exercisable at $2.00 per share.  In February 2009, Mr. Mathews received 100,000 fully-vested stock options, exercisable at $1.52 per share.  On November 1, 2010, we entered into a Separation Agreement (the “Separation Agreement”) with Michael Mathews. Under the terms of the Separation Agreement, effective January 31, 2011, Mr. Mathews’ employment agreement was terminated and he  no longer serves as Chief Executive Officer of the Company.

Michael Katz . On August 31, 2007, we entered into an employment agreement with Michael Katz, to serve as our President. Under the agreement, Mr. Katz received an annual base salary of $250,000. In February 2009, Mr. Katz’s base salary was increased to $300,000. In January 2011, Mr. Katz’s base salary was increased to $400,000. In March 2011, the Board approved the issuance of 75,000 restricted shares to Mr. Katz under the 2007 Incentive Stock Award and Award Plan (the "Plan").  These shares shall vest in one-third installments over three years from the date of grant. Under his agreement, he also received a $75,000 signing bonus and a bonus based on pre-established performance milestones half payable in stock and half in cash. If the performance milestone is met, it shall equal 30% of his base salary for that year.  In March 2010, the Board approved an amendment to his agreement increasing the target bonus to 50%.  In the event that the Board and Mr. Katz are unable to agree on a mutually acceptable performance milestone, Mr. Katz will receive a guaranteed annual bonus for such fiscal year of not less than 15% of his base salary. In his sole discretion, Mr. Katz may elect to receive such annual bonus in capital stock at the basis determined by our Board.  For 2010, Mr. Katz received a $150,000 bonus, 50% of which was paid in August 2010 and the remaining 50% was paid in February 2011.  For 2009, Mr. Katz received a $150,000 bonus, of which $90,000 was paid in March 2010.  Additionally on August 31, 2007, Mr. Katz was granted 150,000 stock options vesting annually over a four year period exercisable at $2.00 per share and which are now fully vested. On June 5, 2009, Mr. Katz was granted 350,000 stock options vesting quarterly over four years beginning June 30, 2009, exercisable at $2.60 per share.  As of the date of this filing, Mr. Katz and the Company are negotiating in good faith a new multi-year employment agreement.

Andrew Katz . Effective March 3, 2008, we entered into an employment agreement with Mr. Andrew Katz, our Chief Technology Officer. The original term of his agreement expired on March 3, 2011 but automatically renewed for an additional one-year period.  Under the agreement Mr. Katz was paid a base salary of $225,000.  In March 2009, Mr. Katz’s salary was increased to $247,500.  In March 2010, Mr. Katz’s salary was increased to $272,250.  In January 2011, Mr. Katz’s salary was increased to $285,000.  In March 2011, the Board approved the issuance of 30,000 restricted shares to Mr. Katz under the Plan. These shares shall vest in one-third installments over three years from the date of grant. Under his agreement, he is entitled to receive a bonus based on pre-established performance milestones of which at least half would be payable in cash and the remainder in interclick stock. If the performance milestone is met, it shall equal 50% of his base salary for that year. For 2008, Mr. Katz received a cash bonus of $56,250 paid in 2009 and 28,125 shares of restricted stock to vest semi-annually over four years.  On October 14, 2009, we agreed to modify the vesting of these shares from vesting semi-annually to vesting each calendar quarter.  For 2009, Mr. Katz received a $123,750 bonus which was paid in February 2010. For 2010, Mr. Katz received a $136,125 bonus, 50% of which was paid in August 2010 and the remaining 50% was paid in February 2011.  Mr. Katz was granted 50,000 stock options exercisable at $2.00 per share vesting annually over four years beginning September 21, 2008.  In 2008, Mr. Katz was granted 100,000 stock options exercisable at $5.90 per share vesting annually over four years beginning March 3, 2009. On September 24, 2008, these options were repriced at $2.62 per share. On June 5, 2009, Mr. Katz was granted 250,000 stock options vesting quarterly over four years beginning June 30, 2009, exercisable at $2.60 per share.  As of the date of this filing, Mr. Katz and the Company are negotiating in good faith a new multi-year employment agreement.

 
33


Roger Clark . Effective August 7, 2009, we entered into a three-year employment agreement with Roger Clark, to serve as our Chief Financial Officer.  Mr. Clark received a $225,000 base salary in his first year of employment and will receive at least a 10% increase each year thereafter. In August 2010 the Board of Directors approved an increase in Mr. Clark’s base salary to $250,000. In March 2011, the Board approved the issuance of 40,000 restricted shares to Mr. Clark under the Plan. These shares shall vest in one-third installments over three years from the date of grant. In addition to a base salary, Mr. Clark is eligible to receive an annual bonus based upon the achievement of pre-established annual individual and interclick performance goals. If the performance goals are met, Mr. Clark’s bonus will be equal to 50% of his base salary for the year the milestone is met and may be paid in any combination of cash and interclick stock that Mr. Clark determines.  For 2010, Mr. Clark received a $125,000 bonus, of which 50% was paid in August 2010 and the remaining 50% was paid in February 2011. For 2009, Mr. Clark received a $112,500 bonus, of which $25,000 was paid in September 2009, and $87,500 was paid in March 2010.  Mr. Clark also received 10,000 shares of common stock which vested six months after commencing employment.  Mr. Clark was granted 250,000 stock options vesting in quarterly increments over three years beginning September 30, 2009, exercisable at $3.20 per share.

As previously outlined, the Company’s employment agreements with Mssrs. Mathews, Michael Katz, Andrew Katz, and Clark (collectively, the Named Executive Officers) provide for payment of a bonus based on performance goals or financial measures determined by the Company’s Board of Directors,  subject to the terms of the agreements.  The Board previously adopted annual milestones for the Company under which bonuses for fiscal year 2010 would be paid to the Named Executive Officers.

The Board of Directors on August 4, 2010 awarded mid-year bonuses equal to one-half of the bonus amount that the Named Executive Officers would have earned if the full year milestones were met prior to meeting the previously established milestones on the basis of the Company’s mid-year performance.  As a condition to receipt of the mid-year bonus, each of the Named Executive Officers entered into a clawback agreement under which the Named Executive Officer will be required to repay the bonuses to the Company within ninety (90) days of notice from the Company that the Company issues a restatement within 2 years as a result of which the Company reports revised financial results in which the annual milestone is not met.

Termination Provisions

The table below describes the severance payments that our Named Executive Officers (with the exception of Mr. Mathews, whose employment with the Company terminated on January 31, 2011) are entitled to in connection with a termination of their employment upon death, disability, without cause, for Good Reason, change of control and the non-renewal of their employment at the discretion of interclick.  All of the termination provisions are intended to comply with Section 409A of the Internal Revenue Code of 1986 and the Regulations thereunder.
 
 
 
Roger Clark
 
Michael Katz
 
Andrew Katz
 
           
Death
 
None
 
12 months base salary
 
None
Total Disability
 
None
 
12 months base salary
 
None
Dismissal Without Cause
 
The greater of 12 months base salary or the remainder of the base salary due under the employment agreement and all stock options or shares of restricted stock immediately vest
 
The greater of 12 months base salary or the reminder of the base salary due under the employment agreement
 
Six months base salary
Resignation for Good
Reason (1)
 
12 months base salary and all stock options or shares of restricted stock scheduled to vest within one year immediately vest
 
The greater of 12 months base salary or the remainder of the base salary due under the employment agreement
 
Six months base salary
Change of Control
 
All stock options and restricted stock immediately vest
 
All stock options and restricted stock immediately vest
 
None
Expiration of Initial Term and interclick does not renew
 
None
 
The greater of 12 months base salary or the remainder of the base salary due under the employment agreement
 
None

 
34


 
(1)
Generally, Good Reason in the above agreements include the material diminution of the executives’ duties, any material reduction in base salary without consent, the relocation of the geographical location where the executive performs services or any other action that constitutes a material breach by interclick under the employment agreements.

Outstanding Equity Awards at 2010 Fiscal Year-End

Listed below is information with respect to unexercised options, stock that has not vested and equity incentive awards for each Named Executive Officer as of December 31, 2010:

   
OUTSTANDING EQUITY AWARDS AT 2010 FISCAL YEAR-END
 
   
OPTION AWARDS
   
STOCK AWARDS
 
Name
(a)
 
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
(b)
   
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
(c)
   
Option
Exercise
Price
($)
(e)
   
Option
Expiration
Date
(f)
   
Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)
(g)
   
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)
(h)
 
                                                 
Michael Mathews
    725,000       -       2.00    
8/28/12
                 
      125,000       -       2.00    
10/12/12
                 
      100,000       -       1.52    
2/6/14
                 
                                                 
Michael Katz
    150,000       -       2.00    
8/31/12
                 
      153,125       196,875 (1)     2.60    
6/5/14
                 
                                                 
Andrew Katz
    37,500       12,500 (2)     2.00    
9/21/12
                 
      66,667       33,333 (3)     2.62    
9/24/13
                 
      109,375       140,625 (1)     2.60    
6/5/14
                 
                                      14,064 (5)     75,524 (5)
                                                 
Roger Clark
    125,000       125,000 (4)     3.20    
8/7/14
                 
 
 
35

 
(1)
These options vest quarterly over a four year period. The remaining options vest on March 31, 2011, June 30, 2011, September 30, 2011, December 31, 2011, March 31, 2012, June 30, 2012, September 30, 2012, December 31, 2012 and March 31, 2013.
(2)
These options vest annually over a four year period.  The remaining options vest on September 21, 2011.
(3)
These options vest annually over a three year period.  During 2008, these options were repriced from $5.90 to $2.62.  The remaining options vest on September 24, 2011.
(4)
These options vest quarterly over a three year period and the remaining vesting dates are March 31, 2011, June 30, 2011, September 30, 2011, December 31, 2011, March 31, 2012 and June 30, 2012
(5)
These shares vest quarterly over a four year period and the remaining vesting dates are March 31, 2011, June 30, 2011, September 30, 2011, December 31, 2011, March 31, 2012, June 30, 2012, September 30, 2012 and December 31, 2012. The market value was calculated based on the product of the December 31, 2010 closing price of $5.37 and the number of shares remaining unvested at December 31, 2010.
 
Equity Compensation Plan Information

Our Board has adopted the 2007 Stock Incentive Plan (the “Equity Plan”) and the 2007 Incentive Stock and Award Plan (the “Incentive Plan) (collectively, the “Plans”).  The Equity Plan reserves 2,250,000 and the Incentive Plan provides for the grant of up to 4,512,500 stock options or shares of common stock to directors, officers, consultants, advisors or employees of interclick.    As of March 11, 2011, there were 986,359 shares available for grant under the Plans.
 
2010 Director Compensation

In 2010 our non-employee directors received $26,000 per year which was paid in equal installments each calendar quarter.  Directors who are employed by interclick are not compensated for their service on the Board.  Therefore, this table does not include Michael Mathews and Michael Katz.  The following table reflects compensation paid to the non-employee members of the Board for 2010 service:

Name
(a)
   
Fees
($) (1)
   
Option
Awards
($) (2)
 
               
Michael Brauser
      26,000        
Brett Cravatt
      26,000        
Barry Honig
      26,000        
Frank Cotroneo
      13,000       118,000  
Dave Hills
      13,000       118,000  
 
 
(1)
The amounts in this column represent cash paid to non-employee directors.
 
(2)
Represents 50,000 5-year options to purchase common stock exercisable at $2.36 per share granted for joining the Board for 2010.  The options vest in equal annual increments over a three year period with the first vesting date being July 7, 2011

Beginning in 2011 our non-employee directors will receive $25,000 per year which will be paid in equal installments each calendar month.  Directors who are employed by interclick are not compensated for their service on the Board.

 
36


In addition, non-employee members of our Board are compensated as follows for committee participation, committee chairmanships, and board attendance:

   
Fee
 
   
($)
 
Board Member
    25,000  
Committee Member
    2,500  
Vice Chairman
    12,500  
Audit Committee Chairman
    12,500  
Compensation Committee Chairman
    10,000  
Nominating Committee Chairman
    10,000  
Board Meeting - In Person*
    750  
Board Meeting - By Phone
    250  
Committee Meeting - In Person*
    750  
Committee Meeting - By Phone
    250  
 
* Plus reasonable travel expenses
 
In addition to the foregoing, in March 2011 the Board approved a grant of options to purchase 55,000 shares of the Company’s common stock under the Plan to each of Frank Cotroneo and David Hills, both of whom are non-employee directors.  These options (i) have an exercise price equivalent to the closing price per share of the Company’s common stock on the date before the date of grant, and (ii) vest in one-third installments over three years from the date of grant.
 
In March 2011, the Board also approved the grant of restricted shares (the “Shares”) of the Company under the Plan to the following directors in the following amounts:
 
Grantee
Number of Shares
Michael Brauser
40,000
Barry Honig
40,000
Brett Cravatt
12,500
Frank Cotroneo
10,000
Dave Hills
10,000
Bill Wise
50,000
Michael Mathews
10,000
Michael Katz
75,000
 
The Shares shall vest in one-third installments over three years from the date of grant.

Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table sets forth the number of shares of our common stock beneficially owned as of March 11, 2011 by (i) those persons known by us to be owners of more than 5% of our common stock, (ii) each director (iii) our Named Executive Officers, and (iv) our executive officers and directors as a group.

Title of Class
 
Name and
Address of Beneficial Owner
 
Amount of Beneficial
Ownership (1)
 
Percent
Beneficially
Owned (1)
             
Directors and Executive Officers:
           
             
Common Stock
 
Michael Katz
11 West 19th Street, 10th Floor
New York, NY 10011 (2)(3)(4)
 
1,082,500
 
4.4 %
Common Stock
 
Andrew Katz
     
 
   
4800 T-Rex Avenue Ste. 120
Boca Raton, FL 33431 (2)(5)
   
271,792
   
1.1 %
Common Stock
 
Roger Clark
     
 
   
11 West 19th Street, 10th Floor
New York, NY 10011(2)(6)
   
162,833
   
*
Common Stock
 
Michael Brauser
595 S. Federal Hwy., Suite 600
Boca Raton, FL 33432 (3)(7)
 
432,500
 
1.8 %
Common Stock
 
Barry Honig
595 S. Federal Hwy., Suite 600
Boca Raton, FL 33432 (3)(8)
 
62,500
 
*
Common Stock
 
Brett Cravatt
324  Bayview Drive
Hermosa Beach, CA 90254 (3)(9)
 
75,000
 
*
Common Stock
 
Michael Mathews
224 West 30th Street, Suite 604
New York, NY 10001 (2)(3)(10)
 
1,185,000
 
4.7 %

 
37


Common Stock
 
Frank Cotroneo
11709 High Drive
Leawood, KS 66211 (3)
 
-
 
*
Common Stock
 
Dave Hills
425 Brannan Street
San Francisco, CA 94107 (3)
    -  
*
Common Stock
 
Bill Wise
65 Circle Avenue
Larchmont, NY 10538 (3)
    -  
*
Common Stock
 
All directors and executive officers
as a group (12 persons)
 
3,560,621
 
13.6 %
5% Shareholders:
           
Common Stock
 
Gerald Unterman
610 Park Avenue, Apt. 16A
New York, NY 10065 (11) (12)
 
2,128,250
 
8.7 %
Common Stock
 
Penn Capital Management
3 Crescent Drive, Suite 400
Philadelphia, PA 19112 (12)
 
1,678,864
 
7.0 %
Common Stock
 
Palo Alto Investors
470 University Avenue
Palo Alto, CA 94301 (12)
 
1,537,772
 
6.4 %
Common Stock
 
Wellington Management
280 Congress Street
Boston, MA 02210 (12)
 
1,297,762
 
5.4 %

* Less than 1%

(1)
Applicable percentages are based on 24,108,943 shares outstanding adjusted as required by rules of the SEC. Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power with respect to securities. A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days whether upon the exercise of options or otherwise. Shares of common stock subject to options, warrants and convertible notes currently exercisable or convertible, or exercisable or convertible within 60 days after the date of this report are deemed outstanding for computing the percentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Unless otherwise indicated in the footnotes to this table, interclick believes that each of the shareholders named in the table has sole voting and investment power with respect to the shares of common stock indicated as beneficially owned by them.
(2)
A named executive officer.
(3)
A director.
(4)
Includes 287,500 shares issuable upon exercise of options that are exercisable within 60 days of the date of this report.
(5)
Includes 229,167 shares issuable upon exercise of options that are exercisable within 60 days of the date of this report.
(6)
Includes 145,833 shares issuable upon exercise of options that are exercisable within 60 days of the date of this report.
(7)
Includes 62,500 shares issuable upon exercise of options that are exercisable within 60 days of the date of this report. Also includes: (i) 106,750 shares held in a Partnership of which Mr. Brauser is the General Partner, (ii) 32,000 shares held jointly with his wife and (iii) 225,000 shares held by a trust whereby his wife is the trustee and beneficiary.
(8)
Includes 62,500 shares issuable upon exercise of options that are exercisable within 60 days of the date of this report. Does not include shares beneficially owned by Mr, Honig’s father, Alan Honig. Mr. Alan Honig beneficially owns less than 5% of our common stock for various accounts including as custodian for Mr. Barry Honig’s minor children. Mr. Barry Honig disclaims the beneficial ownership of any shares held by his father, Mr. Alan Honig.
(9)
Includes 75,000 shares issuable upon exercise of options that are exercisable within 60 days of the date of this report.
(10)
Includes 950,000 shares issuable upon exercise of options that are exercisable within 60 days of the date of this report.
(11)
Includes 250,000 shares issuable upon exercise of warrants.
(12)
Based on information in a Schedule 13G filed with the SEC which provided beneficial ownership as of December 31, 2010.

 
38


Item 13.
Certain Relationships and Related Transactions, and Director Independence.
 
On September 26, 2008, Barry Honig and GRQ Consultants, Inc. 401(k) (an entity controlled by Mr. Honig) loaned interclick a total of $1,300,000 and we issued to each $650,000 6% promissory notes.  The notes were secured by a first priority security interest in shares held by us in OPMG.  On November 26, 2008, we repaid the note issued to Mr. Honig.  On December 31, 2008, we repaid $250,000 of the principal amount owed to GRQ and extended the due date of the remaining $400,000 from December 31, 2008 to June 30, 2009.  On June 5, 2009, the Board of Directors approved an extension of the due date of $100,000 of the note from June 30, 2009 until December 31, 2009.  In addition, this $100,000 note which was previously not convertible was made convertible by replacing it with a 6% unsecured note, convertible at $2.00 per share, subject to adjustment for stock splits, stock dividends, combinations and similar events.  In consideration for extending the due date on the $100,000 note and in lieu of a cash payment for interest, we issued GRQ a total of 21,055 shares of common stock with a combined value of $25,266.  On June 22, 2009, we repaid $100,000 of the remaining $300,000 non-convertible note and extended the due date of this remaining $200,000 non-convertible note to December 31, 2009.  On August 19, 2009, we repaid all of the principal and interest owed under the $200,000 note.  On September 29, 2009, we repaid the remaining $100,000 note.
 
Procedures for Approval of Related Party Transactions
 
Our board of directors is charged with reviewing and approving all potential related party transactions.  All such related party transactions must then be reported under applicable SEC rules. We have not adopted other procedures for review, or standards for approval, of such transactions, but instead review them on a case-by-case basis.
 
Director Independence
 
Our Board has determined that Messrs. Cravatt, Brauser, Honig, Cotroneo, Hills and Wise are independent under the NASDAQ Stock Market Listing Rules.

Item 14.
Principal Accountant Fees and Services.

Our Audit Committee reviews and approves audit and permissible non-audit services performed by our independent registered public accounting firm J.H. Cohn LLP (“Cohn” or “principal accountant”) as well as the fees charged for such services. In its review of non-audit service and its appointment of Cohn as our independent registered public accounting firm, the Audit Committee considered whether the provision of such services is compatible with maintaining independence.  Salberg & Co., P.A. (“Salberg”) was our independent registered public accounting firm for 2008 and provided services in 2009 until Cohn was appointed.  Salberg’s services in 2009 consisted of the review of interclick's financial statements for the quarters ended March 31 and June 30, 2009 and review of the August 2009 registration statement, the fees for which totaled $86,000.

All of the services provided and fees charged by Cohn and Salberg were approved by the Audit Committee. The following table shows the principal accountant fees for the years ended December 31, 2010 and 2009:

 
 
2010
   
2009
 
Audit Fees (1)
 
$
160,730
   
$
109,531
 
Audit Related Fees (2)
 
$
5,377
   
$
50,944
 
Tax Fees
 
$
60,036
   
$
-
 
All Other Fees
 
$
1,570
   
$
-
 

(1)
Audit fees – these fees relate to the audits of our annual consolidated financial statements and the reviews of our interim quarterly consolidated financial statements.
(2)
Audit related fees – The audit related fees for the years ended December 31, 2010 and 2009 were for professional services rendered for assistance with reviews of documents filed with the SEC.

 
39


PART IV


Item 15.
Exhibits, Financial Statement Schedules.
 
(a)
Documents filed as part of the report.
 
(1)
Financial Statements.  See Index to Consolidated Financial Statements, which appears on page F-1 hereof. The financial statements listed in the accompanying Index to Consolidated Financial Statements are filed herewith in response to this Item.

(2)
Financial Statements Schedules.  All schedules are omitted because they are not applicable or because the required information is contained in the consolidated financial statements or notes included in this report.

(3)
Exhibits.

Exhibit
     
Incorporated by Reference
 
Filed or
Furnished
#
 
Exhibit Description
 
Form
 
Date
 
Number
 
Herewith
 
                   
2.1
 
Customer Acquisition Network Agreement of Merger and Plan of Reorganization **
 
8-K
 
9/4/07
 
2.1
   
2.2
 
Desktop Agreement and Plan of Merger **
 
8-K
 
9/4/07
 
2.2
   
3.1
 
Amended and Restated Certificate of Incorporation
 
8-K
 
8/30/07
 
3.1
   
3.2
 
Certificate of Amendment to the Articles of Incorporation
 
8-K
 
7/1/08
 
3.1
   
3.3
 
Certificate of Amendment to the Articles of Incorporation
 
8-A12b
 
11/31/09
 
3.3
   
3.4
 
Bylaws
 
S-3/A
 
11/25/09
 
3.6
   
4.1
 
Form of Warrant dated June 22, 2009
 
10-Q
 
8/11/09
 
4.3
   
10.1
 
Michael Mathews Employment Agreement *
 
8-K
 
9/4/07
 
10.8
   
10.2
 
Amendment to Michael Mathews Employment Agreement *
             
Filed
10.3
 
Michael Katz Employment Agreement *
 
8-K
 
9/4/07
 
10.11
   
10.4
 
Amendment to Michael Katz Employment Agreement *
             
Filed
10.5
 
Andrew Katz Employment Agreement *
 
10-K
 
3/31/09
 
10.4
   
10.6
 
Roger Clark Employment Agreement *
 
8-K
 
8/13/09
 
10.1
   
10.7
 
David Garrity Consulting Agreement *
               
10.8
 
Crestmark Accounts Receivable Financing Agreement
 
10-K
 
3/31/09
 
10.23
   
10.9
 
Amendment to Crestmark Accounts Receivable Financing Agreement
 
10-K
 
3/31/09
 
10.24
   
10.10
 
Letter Agreement with Crestmark increasing Line of Credit dated February 3, 2009
 
10-K
 
3/31/09
 
10.25
   
10.11
 
Second Amendment to Crestmark Accounts Receivable Financing Agreement
 
10-K
 
3/31/09
 
10.26
   
10.12
 
Letter Agreement with Crestmark increasing Line of Credit dated August 31, 2009
 
10-Q
 
11/16/09
 
10.5
   

 
40


10.13
 
Third Amendment to Crestmark Accounts Receivable Financing Agreement
 
10-Q
 
11/16/09
 
10.6
   
10.14
 
Amended and Restated 2007 Equity Incentive Plan *
 
S-8
 
11/17/09
 
4.1
   
10.15
 
Amended and Restated 2007 Incentive Stock and Award Plan *
 
S-8
 
11/17/09
 
4.2
   
10.16
 
GRQ Promissory Note dated June 22, 2009
 
10-Q
 
8/11/09
 
4.2
   
10.17
 
Form of Subscription Agreement dated June 22, 2009
 
10-Q
 
8/11/09
 
10.7
   
10.18
 
Form of Clawback Agreement
 
8-K
 
8/4/10
 
99.2
   
10.19
 
Loan and Security Agreement dated September 10, 2010
 
8-K
 
9/16/10
 
10.1
   
10.20
 
Separation Agreement dated November 1, 2010*
 
8-K
 
11/3/10
 
10.1
   
10.21
 
Form of Indemnification Agreement
 
8-K
 
11/3/10
 
10.2
   
10.22   Form of Stock Option Agreement*               Filed
10.23    Form of Restricted Stock Agreement*               Filed
10.24
 
New York Lease Agreement
             
Filed
                     
 
List of Subsidiaries
             
Filed
 
Consent of J.H. Cohn LLP
             
Filed
                     
 
Certification of Principal Executive Officer (Section 302)
             
Filed
 
Certification of Principal Financial Officer (Section 302)
             
Filed
 
Certification of Principal Executive Officer and Principal Financial Officer (Section 906)
             
Furnished
 
* Management compensatory plan or arrangement

** The confidential disclosure schedules are not filed in accordance with SEC Staff policy, but will be provided to the Staff upon request.  Certain material agreements contain representations and warranties, which are qualified by the following factors:

 
a.
the representations and warranties contained in any agreements filed with this report were made for the purposes of allocating contractual risk between the parties and not as a means of establishing facts;
 
b.
the agreement may have different standards of materiality than standards of materiality under applicable securities laws;
 
c.
the representations are qualified by a confidential disclosure schedule that contains nonpublic information that is not material under applicable securities laws;
 
d.
facts may have changed since the date of the agreements; and
 
e.
only parties to the agreements and specified third-party beneficiaries have a right to enforce the agreements.

Notwithstanding the above, any information contained in a schedule that would cause a reasonable investor (or that a reasonable investor would consider important in making a decision) to buy or sell our common stock has been included. We have been further advised by our counsel that in all instances the standard of materiality under the federal securities laws will determine whether or not information has been omitted; in other words, any information that is not material under the federal securities laws may be omitted. Furthermore, information which may have a different standard of materiality will nonetheless be disclosed if material under the federal securities laws.
 
Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our shareholders who make a written request to interclick, inc., 11 West 19th Street, 10th Floor, New York, NY 10011 Attention: Mr. Michael Katz.

 
41


SIGNATURES
 
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: March 18, 2011
 
interclick, inc.
     
 
By:
/s/ Michael Katz
   
Michael Katz
   
Chief Executive Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature
 
Title
 
Date
         
/s/ Roger Clark
 
Chief Financial Officer (Principal Financial Officer and Chief Accounting Officer)
 
March 18, 2011
Roger Clark
       
         
/s/ Michael Brauser
 
Co-Chairman
 
March 18, 2011
Michael Brauser
       
       
 
/s/ Barry Honig
 
Co-Chairman
 
March 18, 2011
Barry Honig
       
         
/s/ Bret Cravatt
 
Director
 
March 18, 2011
Brett Cravatt
       
         
/s/ Michael Katz
 
Chief Executive Officer and Director (Principal Executive Officer)
 
March 18, 2011
Michael Katz
       
         
/s/ Michael Mathews
 
Director
 
March 18, 2011
Michael Mathews
       
         
/s/ Frank Cotroneo
 
Director
 
March 18, 2011
Frank Cotroneo
       
         
/s/ Dave Hills
 
Director
 
March 18, 2011
Dave Hills
       
         
/s/ Bill Wise
 
Director
 
March 18, 2011
Bill Wise
 
 
 
 

 
42


interclick, inc. and Subsidiary Index to Consolidated Financial Statements

   
Page
     
Report of Independent Registered Public Accounting Firm
 
F-2
Consolidated Balance Sheets – December 31, 2010 and 2009
 
F-3
Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2010 and 2009
 
F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2010 and 2009
 
F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2010 and 2009
 
F-6
Notes to Consolidated Financial Statements
 
F-8

 
F-1

 
Report of Independent Registered Public Accounting Firm


To the Board of Directors and Stockholders
interclick, inc.

We have audited the consolidated balance sheets of interclick, inc. and Subsidiary as of December 31, 2010 and 2009, and the related consolidated statements of operations and comprehensive income, changes in stockholders’ equity and cash flows for the years then ended.  These consolidated financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of interclick, inc. and Subsidiary as of December 31, 2010 and 2009, and their results of operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for certain of its warrants in the year ended December 31, 2009.


Roseland, New Jersey
March 21, 2011

 
F-2

 
INTERCLICK, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS


   
December 31, 2010
   
December 31, 2009
 
Assets
           
             
Current assets:
           
Cash and cash equivalents
  $ 12,450,650     $ 12,653,958  
Short-term investment
    498,132          
Restricted cash
    500,388       -  
Accounts receivable, net of allowance for doubtful accounts of $563,512 and $383,188, respectively
    44,517,434       21,631,305  
Line of credit reserve
    -       1,052,167  
Deferred taxes, current portion
    457,185       955,471  
Prepaid expenses and other current assets
    763,680       367,183  
Total current assets
    59,187,469       36,660,084  
                 
Restricted cash
    296,610       -  
Property and equipment, net of accumulated depreciation and amortization of $1,217,404 and $597,288, respectively
    2,283,721       988,899  
Intangible assets, net of accumulated amortization of $1,067,350 and $909,350, respectively
    263,333       421,333  
Goodwill
    7,909,571       7,909,571  
Investment in available-for-sale marketable securities
    609       715,608  
Deferred line of credit costs, net of accumulated amortization of $19,109 and $35,028, respectively
    106,732       4,972  
Deferred taxes, net of current portion
    2,715,655       2,579,568  
Other assets
    207,573       192,179  
                 
Total assets
  $ 72,971,273     $ 49,472,214  
Liabilities and Stockholders’ Equity
               
                 
Current liabilities:
               
Accounts payable
  $ 20,147,129     $ 10,934,236  
Accrued expenses (includes accrued compensation of $3,274,004 and $2,241,731, respectively)
    4,772,188       3,164,044  
Line of credit payable
    8,500,000       5,260,834  
Income taxes payable
    -       515,306  
Obligations under capital leases, current portion
    483,583       161,940  
Deferred rent, current portion (includes cease use liability of $78,193 at December 31, 2010)
    89,325       3,508  
Warrant derivative liability
    -       69,258  
Total current liabilities
    33,992,225       20,109,126  
                 
Obligations under capital leases, net of current portion
    932,451       338,562  
Deferred rent (includes cease use liability of $306,578 at December 31, 2010)
    630,124       83,823  
Total liabilities
    35,554,800       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, 24,065,611 and 23,632,707 issued and outstanding, respectively
    24,065       23,633  
Additional paid-in capital
    46,626,284       42,229,293  
Accumulated deficit
    (9,233,876 )     (13,312,223 )
Total stockholders’ equity
    37,416,473       28,940,703  
                 
Total liabilities and stockholders’ equity
  $ 72,971,273     $ 49,472,214  


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

 
F-3


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


   
For the
Year Ended
   
For the
Year Ended
 
   
December 31, 2010
   
December 31, 2009
 
             
Revenues
  $ 101,201,720     $ 55,258,703  
Cost of revenues
    57,458,212       30,072,627  
Gross profit
    43,743,508       25,186,076  
                 
Operating expenses:
               
General and administrative
    16,121,304       12,296,404  
Sales and marketing
    13,258,729       8,748,503  
Technology support
    5,847,340       3,237,528  
Amortization of intangible assets
    158,000       188,780  
Total operating expenses
    35,385,373       24,471,215  
                 
Operating income from continuing operations
    8,358,135       714,861  
                 
Other income (expense):
               
Interest income
    28,012       1,053  
Warrant derivative liability income (expense)
    21,413       (665,690 )
Loss on sale of available-for-sale securities
    (82,293 )     (55,233 )
Other than temporary impairment of available-for-sale securities
    (584,618 )     (1,042,470 )
Interest expense (including amortization of deferred line of credit costs of $24,081 in 2010 and debt discount of $12,000 in 2009)
    (291,737 )     (589,624 )
Total other expense, net
    (909,223 )     (2,351,964 )