UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For The Quarterly Period Ended March 31, 2013
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: 000-51032
Market Leader, Inc.
(Exact name of registrant as specified in its charter)
Washington | 91-1982679 | |
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) | |
11332 NE 122nd Way, Suite 200 Kirkland, WA |
98034 | |
(Address of principal executive offices) | (Zip Code) |
(425) 952-5500
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | x | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of May 3, 2013, there were outstanding 27,020,520 shares of the registrants common stock, $0.001 par value, which is the only class of common stock of the registrant.
Market Leader, Inc.
FORM 10-Q
2
PART I FINANCIAL INFORMATION
Item 1. | Condensed Consolidated Financial Statements |
Market Leader, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
Three months ended March 31, |
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2013 | 2012 | |||||||
Revenues |
$ | 12,924 | $ | 10,186 | ||||
Expenses: |
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Sales and marketing (1) |
8,845 | 7,028 | ||||||
Technology and product development (1) |
2,942 | 2,339 | ||||||
General and administrative (1) |
2,303 | 1,855 | ||||||
Depreciation and amortization of property and equipment (2) |
827 | 644 | ||||||
Amortization of acquired intangible assets |
787 | 823 | ||||||
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Total expenses |
15,704 | 12,689 | ||||||
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Loss from operations |
(2,780 | ) | (2,503 | ) | ||||
Interest income and expense, net |
6 | 9 | ||||||
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Loss before income tax expense |
(2,774 | ) | (2,494 | ) | ||||
Income tax expense |
7 | 28 | ||||||
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Net loss |
(2,781 | ) | $ | (2,522 | ) | |||
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Net loss per share basic and diluted |
$ | (0.10 | ) | $ | (0.10 | ) | ||
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(1) Stock-based compensation is included in the expense line items above in the following amounts: |
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2013 | 2012 | |||||||
Sales and marketing |
$ | 373 | $ | 355 | ||||
Technology and product development |
438 | 50 | ||||||
General and administrative |
558 | 228 | ||||||
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$ | 1,369 | $ | 633 | |||||
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(2) Depreciation and amortization of property and equipment is allocated as follows: |
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2013 | 2012 | |||||||
Technology and product development |
$ | 713 | $ | 567 | ||||
General and administrative |
114 | 77 | ||||||
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$ | 827 | $ | 644 | |||||
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See accompanying notes to condensed consolidated financial statements.
3
Market Leader, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(unaudited)
March 31, 2013 |
December 31, 2012 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
$ | 10,982 | $ | 11,165 | ||||
Short-term investments |
11,007 | 11,034 | ||||||
Trade accounts receivable, net of allowance of $41 and $14, respectively |
1,053 | 854 | ||||||
Prepaid expenses and other current assets |
1,164 | 999 | ||||||
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Total current assets |
24,206 | 24,052 | ||||||
Property and equipment, net of accumulated depreciation of $16,375 and $15,941, respectively |
5,764 | 5,486 | ||||||
Acquired intangible assets, net of accumulated amortization of $14,035 and $13,307, respectively |
6,952 | 7,672 | ||||||
Goodwill |
1,861 | 1,861 | ||||||
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Total assets |
$ | 38,783 | $ | 39,071 | ||||
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Liabilities and Shareholders Equity |
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Current liabilities: |
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Accounts payable |
$ | 1,385 | $ | 978 | ||||
Accrued compensation and benefits |
3,115 | 3,194 | ||||||
Accrued expenses and other current liabilities |
1,399 | 1,195 | ||||||
Deferred rent, current portion |
109 | 177 | ||||||
Deferred revenue |
1,070 | 1,126 | ||||||
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Total current liabilities |
7,078 | 6,670 | ||||||
Stock appreciation right liability |
1,917 | 1,044 | ||||||
Other noncurrent liabilities |
72 | 56 | ||||||
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Total liabilities |
9,067 | 7,770 | ||||||
Shareholders equity: |
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Preferred stock, par value $0.001 per share, authorized 30,000,000 shares; none issued and outstanding at March 31, 2013 and December 31, 2012, respectively |
| | ||||||
Common stock, par value $0.001 per share, stated at amounts paid in; authorized 120,000,000 shares; issued and outstanding 26,998,840 and 26,634,447 shares at March 31, 2013 and December 31, 2012, respectively |
79,236 | 78,040 | ||||||
Accumulated deficit |
(49,520 | ) | (46,739 | ) | ||||
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Total shareholders equity |
29,716 | 31,301 | ||||||
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Total liabilities and shareholders equity |
$ | 38,783 | $ | 39,071 | ||||
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See accompanying notes to condensed consolidated financial statements.
4
Market Leader, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(In thousands, except share data)
Common Stock | Accumulated Deficit |
Total Shareholders Equity |
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Shares | Amount | |||||||||||||||
Balance at December 31, 2012 |
26,634,447 | $ | 78,040 | $ | (46,739 | ) | $ | 31,301 | ||||||||
Stock award exercises and vesting of restricted stock |
392,585 | 961 | | 961 | ||||||||||||
Stock-based compensation |
| 417 | | 417 | ||||||||||||
Value of equity awards withheld for tax liability and award exercises |
(28,192 | ) | (182 | ) | | (182 | ) | |||||||||
Net loss |
| | (2,781 | ) | (2,781 | ) | ||||||||||
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Balance at March 31, 2013 |
26,998,840 | $ | 79,236 | $ | (49,520 | ) | $ | 29,716 | ||||||||
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See accompanying notes to condensed consolidated financial statements.
5
Market Leader, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Three months ended March 31, |
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2013 | 2012 | |||||||
Cash flows from operating activities: |
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Net loss |
$ | (2,781 | ) | $ | (2,522 | ) | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
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Depreciation and amortization of property and equipment |
827 | 644 | ||||||
Amortization of acquired intangible assets |
787 | 823 | ||||||
Stock-based compensation |
1,369 | 633 | ||||||
Changes in certain assets and liabilities: |
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Trade accounts receivable |
(199 | ) | (135 | ) | ||||
Prepaid expenses and other current assets |
(139 | ) | 387 | |||||
Accounts payable |
318 | (239 | ) | |||||
Accrued compensation and benefits |
(79 | ) | (271 | ) | ||||
Accrued expenses and other current liabilities |
199 | (797 | ) | |||||
Deferred rent |
(50 | ) | (79 | ) | ||||
Deferred revenue |
(56 | ) | 247 | |||||
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Net cash provided by (used in) operating activities |
196 | (1,309 | ) | |||||
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Cash flows from investing activities: |
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Purchases of short-term investments |
(2,999 | ) | (2,998 | ) | ||||
Maturities of short-term investments |
3,000 | 4,958 | ||||||
Purchases of property and equipment |
(1,042 | ) | (1,229 | ) | ||||
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Net cash (used in) provided by investing activities |
(1,041 | ) | 731 | |||||
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Cash flows from financing activities: |
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Value of equity awards withheld for tax liability and award exercises |
(182 | ) | (90 | ) | ||||
Proceeds from exercises of stock options |
844 | 259 | ||||||
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Net cash provided by financing activities |
662 | 169 | ||||||
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Net decrease in cash and cash equivalents |
(183 | ) | (409 | ) | ||||
Cash and cash equivalents at beginning of period |
11,165 | 7,958 | ||||||
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Cash and cash equivalents at end of period |
$ | 10,982 | $ | 7,549 | ||||
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See accompanying notes to condensed consolidated financial statements.
6
Market Leader, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(unaudited)
Note 1: Summary of Significant Accounting Policies
Nature of Operations
Market Leader, founded in 1999, provides innovative online technology and marketing solutions for real estate professionals across the United States and Canada. The company serves more than 135,000 real estate agents, brokerages and franchisors, offering complete end-to-end solutions that enable them to grow and manage their businesses. Market Leaders subscription-based real estate marketing software and services helps customers generate a steady stream of prospects, plus provides the systems and training they need to convert those prospects into clients. In addition, the companys national consumer real estate sites, including www.realestate.com, give its customers access to millions of future home buyers and sellers, while providing consumers with free access to the information they seek.
Basis of Presentation
The accompanying unaudited consolidated financial statements should be read in conjunction with the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2012. All adjustments that are, in the opinion of management, necessary for the fair presentation of our results of operations, financial position and cash flows have been included and are of a normal, recurring nature. Operating results for the three months ended March 31, 2013 are not necessarily indicative of results to be expected for the full year.
Consolidation The consolidated financial statements include the financial statements of Market Leader and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Business segments We operate a single business segment, representing marketing services provided to real estate professionals. Substantially all of our business comes from customers and operations located within the United States, and we do not have any assets located in foreign countries.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the amounts reported and disclosed in the condensed consolidated financial statements and the accompanying notes. Actual results could differ materially from these estimates.
On an ongoing basis, we evaluate our estimates, including those related to the fair value of acquired intangible assets, the useful lives and potential impairment of intangible assets and property and equipment, the value of common stock options and stock appreciation rights for the purpose of determining stock-based compensation, liabilities and valuation allowances, and certain tax liabilities among others. We base our estimates on historical experience and other factors, including the current economic environment that we believe to be appropriate under the circumstances. We adjust our estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Any changes in the estimates we used to prepare these financial statements will be reflected in the financial statements in future periods.
Revenue Recognition
We generate the majority of our revenues from the services we provide to real estate professionals. We generally charge a one-time set-up fee and a monthly fixed fee for a monthly bundle of services. While some of the components may be sold on a standalone basis, all monthly services are provided in total over the term of the agreement and all are included in the monthly fee. All initial set-up fees are recognized as revenue on a straight-line basis over the estimated customer life or the life of the contract, whichever is longer.
We recognize revenue when persuasive evidence of an agreement exists, delivery has occurred, the sales price is fixed or determinable, and collectability is reasonably assured. Revenue is recognized on a gross basis because we are the primary obligor for the services we provide to our customers, have latitude in establishing price, and have discretion in supplier selection. Payments received in advance of services being rendered are recorded as deferred revenue and recognized on a straight-line basis over the service period. We provide software-as-a-service based products, where the customer does not have the contractual right to take possession of the software during the subscription period, and therefore software revenue recognition guidance is not applicable. We recognize revenue for our arrangements with multiple elements by determining whether each element can be separated into a unit of accounting based on the following criteria: (1) the delivered item(s) have value to the customer on a stand-alone basis; and (2) if the
7
arrangement includes a right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) that is probable and within our control. If the criteria are not met, elements included in an arrangement are accounted for as a single unit of accounting. If the criteria for separation are met resulting in two or more units of accounting, we use the relative selling price method to allocate arrangement consideration to the individual units of accounting, subject to a limitation that the amount allocable to the delivered unit or units of accounting is limited to the amount that is not contingent on the delivery of additional items or meeting other specified performance conditions.
Concentration of risk
Two customers accounted for 80% and 91% of the Companys total accounts receivable balance as of March 31, 2013 and December 31, 2012, respectively.
Fair Value Measurements
Fair value is the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. We use a fair value hierarchy to prioritize the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
| Level 1 Valuation is based upon quoted prices for identical instruments traded in active markets. |
| Level 2 Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. |
| Level 3 Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques. |
Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. We had $5,512 and $7,116 in money market funds as of March 31, 2013 and December 31, 2012 respectively, which were classified within the fair value hierarchy as Level 1 assets and accounted for at fair value.
The carrying amounts of accounts receivable, accounts payable and other current liabilities approximate fair value because of their short-term maturities.
Commitments and Contingencies
From time to time, we may become involved in litigation relating to claims arising from the ordinary course of our business, including actions relating to employment issues. While the results of such litigation cannot be predicted with certainty, the Company believes that the final outcome of such matters will not have a material adverse effect on the consolidated balance sheets or statements of operations.
Note 2: Loss per Share
Basic loss per share is computed using the weighted average number of shares outstanding during the period. Diluted loss per share uses the weighted average common shares outstanding plus dilutive stock options and unvested restricted stock units using the treasury stock method. Because we have reported losses for the periods presented, none of our stock options, unvested restricted stock units, or stock appreciation rights are included in the diluted per share calculations.
Stock options and unvested restricted stock units are excluded from the dilutive earnings per share calculation when their impact is antidilutive. Prior to satisfaction of all conditions of vesting, unvested restricted stock units are considered contingently issuable and are excluded from weighted average common shares outstanding.
8
The following table sets forth the computation of basic and diluted loss per share:
Shares in thousands |
Three months ended March 31, |
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2013 | 2012 | |||||||
Net loss |
$ | (2,781 | ) | $ | (2,522 | ) | ||
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Weighted average common shares outstanding |
26,734 | 25,447 | ||||||
Dilutive effect of equity-based awards |
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Diluted Shares |
26,734 | 25,447 | ||||||
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Net loss per sharebasic and diluted |
$ | (0.10 | ) | $ | (0.10 | ) | ||
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Antidilutive equity-based awards |
6,033 | 6,705 | ||||||
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Unvested restricted stock units |
599 | 580 | ||||||
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Note 3: Cash, Cash Equivalents and Short-Term Investments
At March 31, 2013, cash, cash equivalents, and short-term investments consisted of the following:
Amortized Cost |
Gross Unrealized Gains |
Estimated Fair Value |
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Cash |
$ | 5,470 | $ | | $ | 5,470 | ||||||
Money market account |
5,512 | | 5,512 | |||||||||
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Cash and cash equivalents |
$ | 10,982 | $ | | $ | 10,982 | ||||||
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Amortized Cost |
Gross Unrealized Gains |
Estimated Fair Value |
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U.S. Treasury bills |
$ | 11,007 | $ | 1 | $ | 11,008 | ||||||
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Short-Term investments |
$ | 11,007 | $ | 1 | $ | 11,008 | ||||||
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At December 31, 2012, cash, cash equivalents, and short-term investments consisted of the following:
Amortized Cost |
Gross Unrealized Gains |
Estimated Fair Value |
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Cash |
$ | 4,049 | $ | | $ | 4,049 | ||||||
Money market account |
7,116 | | 7,116 | |||||||||
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Cash and cash equivalents |
$ | 11,165 | $ | | $ | 11,165 | ||||||
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Amortized Cost |
Gross Unrealized Gains |
Estimated Fair Value |
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U.S. Treasury bills |
$ | 11,034 | $ | 3 | $ | 11,037 | ||||||
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Short-Term investments |
$ | 11,034 | $ | 3 | $ | 11,037 | ||||||
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Our U.S. Treasury bills are classified as held-to-maturity and are carried at amortized cost. The estimated fair value of the U.S. Treasury bills is based on quoted market prices for identical investments. All of our investments have a contractual maturity of one year or less.
We have not realized any gains or losses on our short-term investments in the periods presented.
9
Note 4: Supplemental Disclosure of Cash Flow Information
Three months ended March 31, |
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2013 | 2012 | |||||||
Cash paid during the period for income taxes |
$ | 8 | $ | 12 | ||||
Non-cash investing and financing activities: |
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Increase in payables for property and equipment |
$ | 191 | $ | 46 | ||||
Equity issued in stock appreciation right exercises |
$ | 117 | $ | |
Note 5: Subsequent Events
On May 7, 2013 the Company entered into a definitive merger agreement (the Merger Agreement) whereby Trulia will acquire the Company in a merger transaction valued at approximately $355 million. The transaction requires the approval of the Companys shareholders and is subject to regulatory review and other customary closing conditions. The Company anticipates that the Merger will close during the third quarter of 2013.
The Merger Agreement contains certain termination rights for both Trulia and the Company, including if the Merger is not completed on or before October 31, 2013 or if the approval of the Merger Agreement by the Companys shareholders is not obtained. The Merger Agreement also provides that, upon termination of the Merger Agreement under certain circumstances, the Company may be required to pay Trulia a termination fee of $15 million. Under certain circumstances, the Company may be required to reimburse Trulia for its transaction expenses (up to a maximum of $1 million).
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Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
You should read the following discussion and analysis by our management of our financial condition and results of operations in conjunction with our unaudited consolidated financial statements and the accompanying notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion and other parts of this Quarterly Report on Form 10-Q contain forward looking statements relating to our anticipated plans, products, services, and financial performance. The words will, estimate, believe, expect, anticipate, intend and similar expressions identify forward-looking statements, but their absence does not mean the statement is not forward looking. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that could affect our actual results include, but are not limited to, those discussed under the heading Item 1A, Risk Factors below and in our Annual Report on Form 10-K for the year ended December 31, 2012 and in our other Securities and Exchange Commission filings. Given these risks and uncertainties, you should not place undue reliance on our forward-looking statements. The forward-looking statements are made as of the date of this report, and we assume no obligation to update any such statements to reflect events or circumstances after the date hereof.
Unless the context requires otherwise, the terms Market Leader, the Company, we, us and our refer to Market Leader, Inc. and its subsidiaries.
Overview
Our Business
Market Leader, founded in 1999, provides innovative online technology and marketing solutions for real estate professionals across the United States and Canada. The Company serves more than 135,000 real estate agents, brokerages and franchisors, offering complete end-to-end solutions that enable them to grow and manage their businesses. Market Leaders subscription-based real estate marketing software and services helps customers generate a steady stream of prospects, plus provides the systems and training they need to convert those prospects into clients. In addition, the Companys national consumer real estate sites, including www.realestate.com, give its customers access to millions of future home buyers and sellers, while providing consumers with free access to the information they seek.
Review of First Quarter 2013
We achieved our thirteenth consecutive quarter of revenue growth, driven by demand for our software-as-a-service products as well as the continued ability to leverage our relationships with our more than 135,000 customers to drive additional sales of premium services.
Our primary goal is to continue to drive revenue growth, which we believe requires continued investment in cost-effective customer acquisition. We sell directly to individual real estate brokerage offices and their agents, which has long been a core competency for us. We also have an effective strategy to build and maintain sales and marketing channel relationships with major franchise networks and large brokerage companies to sell from the top down. These strategic relationships enable us to tap into the influence, credibility, and existing sales and marketing infrastructure of these franchise networks to let us cost-effectively acquire high-value, premium customers.
We have built our first enterprise relationship over the past two years, and we recently launched additional enterprise rollouts from agreements we signed in 2012 with two more of the nations leading franchises. These rollouts will further enhance our access to real estate professionals and we believe will contribute to continued revenue growth in the future.
Under these strategic enterprise agreements, we typically provide a base level version of our software-as-a-service products to agents and brokers enterprise-wide in exchange for specified contractual revenue over a number of years. These enterprise customers have a business incentive to partner with us and drive broad platform adoption of our software-as-a-service solutions, because it helps foster success and performance improvements within their agent base. Our strategy is to leverage the resulting broad access to sell recurring subscriptions to our premium services, including both software upgrades and marketing services. This strategy has contributed to our strong revenue growth.
We believe our success in the enterprise space and our increasing access to real estate professionals is the result of providing an industry leading software solution that enhances our customers productivity. During 2013, we have continued to develop new features and enhance our software solution. Most notably, we have extended and enhanced our mobile platform as well as added functionality that allows listing agents to automatically create unique websites for each of their home listings. We remain focused on continuing to make enhancements to our software solution and delivering more value to our growing base of customers.
11
Results of Operations
Revenues
Three months ended March 31, |
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2013 | 2012 | |||||||
Revenues (in thousands) |
$ | 12,924 | $ | 10,186 | ||||
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Revenue for the first quarter of 2013 was $12.9 million, a 27% increase over the same period last year, driven by demand for our products at the professional and enterprise level, increased investment in customer acquisition, and upsells of our premium services to our broad customer base, supported by improved real estate market conditions.
Based upon our view of the business today, we expect annual revenue growth rate of over 30%, and that our strong year-over-year revenue growth rate will accelerate in each of the remaining quarters of 2013.
Sales and Marketing
Three months ended March 31, |
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2013 | 2012 | |||||||
Sales and marketing expense (in thousands) |
$ | 8,845 | $ | 7,028 | ||||
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Sales and marketing expense as a % of revenue |
68 | % | 69 | % | ||||
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Sales and marketing expense increased for the three months ended March 31, 2013 when compared to the same period in 2012 but decreased slightly as a percentage of revenue. Our customer acquisition costs increased due to investments in additional sales capacity and marketing programs to drive continued revenue growth. Our customer servicing costs increased slightly as we continue to grow our customer base.
Overall, we expect sales and marketing expenses to increase in value, but decrease as a percentage of revenue. Customer servicing costs are expected to increase as we grow our customer base, but at a rate slower than our revenue growth as we continue to leverage operating efficiencies. We expect customer acquisition costs to remain relatively consistent but to decline as a percentage of revenue.
Technology and Product Development
Three months ended March 31, |
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2013 | 2012 | |||||||
Technology and product development expense (in thousands) |
$ | 2,942 | $ | 2,339 | ||||
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Technology and product development expense as a % of revenue |
23 | % | 23 | % | ||||
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Technology and product development expense increased 26% for the three month period ended March 31, 2013 compared to the same period in 2012. The increase reflects growth in the business and the pace of our product innovation. The increase is also due to an increase in stock compensation expense primarily resulting from our increased stock price.
We expect to continue to invest in technology and product development to support our existing customers, to deliver products to new enterprise customers and to develop new products to sell into our customer base. We expect our investment in technology and product development to remain fairly consistent as a percentage of revenue for 2013.
Technology expenses will fluctuate depending on the level of effort required to support our growing customer base and to develop new products, net of costs that are subject to capitalization.
12
General and Administrative
Three months ended March 31, |
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2013 | 2012 | |||||||
General and administrative expense (in thousands) |
$ | 2,303 | $ | 1,855 | ||||
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General and administrative expense as a % of revenue |
18 | % | 18 | % | ||||
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General and administrative expense increased for the three month period ended March 31, 2013 when compared to the same period in 2012, primarily due to increased stock compensation expense primarily resulting from our increased stock price as well as investment in additional office space capacity to support the growth in our business.
We expect quarterly general and administrative expenses to increase slightly during the year, but moderate as a percentage of revenue.
Stock-based Compensation
Stock-based compensation expense increased for the three month period ended March 31, 2013 compared to the same period in 2012 primarily due to the impact of our stock price increase on our liability-classified stock appreciation rights that are re-measured at the end of each reporting period. These awards were re-valued at the end of the first quarter when the share price used to re-measure the value of the liability awards was $8.90, an increase from $6.52 at the beginning of the quarter. At March 31, 2013 a one dollar change in our stock price would change stock-based compensation expense by approximately $300,000.
Depreciation and Amortization of Property and Equipment
Depreciation and amortization of property and equipment increased for the three month period ended March 31, 2013 compared to the same period in 2012 due to our ongoing additions to capitalized software development as we continue to deliver products to new enterprise customers and to develop new products.
Amortization of Acquired Intangible Assets
Amortization of intangible assets decreased slightly for the three month period ended March 31, 2013 compared to the same period in 2012, as intangible assets from prior year acquisitions became fully amortized.
Interest Income and Expense, net
Interest income remains immaterial as liquidity and security of principal continue to be core to our investment strategy, which results in low rates of return.
Income Tax Expense (Benefit)
Income tax expense (benefit) remains immaterial as we continue to record a full valuation allowance against our deferred tax assets.
13
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. We include a discussion of our critical accounting policies and estimates in our Annual Report on Form 10-K for the year ended December 31, 2012.
Quarterly Consolidated Statements of Income and Operational Data
The following table presents unaudited operational data pertaining to our operations for the five quarters ended March 31, 2013. This quarterly information has been prepared on the same basis as our audited consolidated financial statements and, in the opinion of our management, reflects all adjustments necessary for a fair representation of the information for the periods presented. This data should be read in conjunction with our audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the year ended December 31, 2012. Operating results for any quarter apply to that quarter only and are not necessarily indicative of results for any future period.
Mar 31, 2013 |
Dec. 31, 2012 |
Sept. 30, 2012 |
June 30, 2012 |
Mar. 31, 2012 |
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(in thousands) | ||||||||||||||||||||
Operations Data: |
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Revenues |
$ | 12,924 | $ | 12,037 | $ | 11,691 | $ | 11,074 | $ | 10,186 | ||||||||||
Expenses: |
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Sales and marketing |
8,845 | 7,263 | 7,699 | 6,999 | 7,028 | |||||||||||||||
Technology and product development |
2,942 | 2,347 | 2,265 | 2,762 | 2,339 | |||||||||||||||
General and administrative |
2,303 | 2,054 | 2,064 | 1,855 | 1,855 | |||||||||||||||
Depreciation and amortization of property and equipment |
827 | 735 | 754 | 768 | 644 | |||||||||||||||
Amortization of acquired intangible assets |
787 | 811 | 849 | 836 | 823 | |||||||||||||||
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Total expenses |
15,704 | 13,210 | 13,631 | 13,220 | 12,689 | |||||||||||||||
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Loss from operations |
(2,780 | ) | (1,173 | ) | (1,940 | ) | (2,146 | ) | (2,503 | ) | ||||||||||
Interest income and expense, net |
6 | 8 | 7 | 8 | 9 | |||||||||||||||
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Loss before income tax |
(2,774 | ) | (1,165 | ) | (1,933 | ) | (2,138 | ) | (2,494 | ) | ||||||||||
Income tax expense (benefit) |
7 | 8 | 10 | 8 | 28 | |||||||||||||||
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Net loss |
(2,781 | ) | (1,173 | ) | (1,943 | ) | (2,146 | ) | (2,522 | ) | ||||||||||
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Adjusted EBITDA |
$ | 203 | $ | 913 | $ | 937 | $ | 260 | $ | (403 | ) | |||||||||
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Adjusted EBITDA is a non-GAAP financial measure provided as a complement to results in accordance with accounting principles generally accepted in the US. Adjusted EBITDA is not a substitute for measures determined in accordance with GAAP, and may not be comparable to Adjusted EBITDA as reported by other companies. Our use of the term Adjusted EBITDA refers to a financial measure defined as earnings or loss before net interest, income taxes, depreciation, amortization, and stock-based compensation. We believe Adjusted EBITDA to be relevant and useful information to our investors as this measure is an integral part of our internal management reporting and planning process and is the primary measure used by our management to evaluate operating performance. See the table below for a reconciliation of Adjusted EBITDA to net loss, the most comparable GAAP measure.
Mar. 31, 2013 |
Dec. 31, 2012 |
Sept. 30, 2012 |
June 30, 2012 |
Mar. 31, 2012 |
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(in thousands) | ||||||||||||||||||||
Reconciliation of GAAP Measurement to Adjusted EBITDA: |
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Net loss |
$ | (2,781 | ) | $ | (1,173 | ) | $ | (1,943 | ) | $ | (2,146 | ) | $ | (2,522 | ) | |||||
Adjustments: |
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Stock-based compensation |
1,369 | 540 | 1,274 | 802 | 633 | |||||||||||||||
Depreciation and amortization of property and equipment |
827 | 735 | 754 | 768 | 644 | |||||||||||||||
Amortization of intangible assets |
787 | 811 | 849 | 836 | 823 | |||||||||||||||
Other expense (income) |
1 | | 3 | | 19 | |||||||||||||||
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Adjusted EBITDA |
$ | 203 | $ | 913 | $ | 937 | $ | 260 | $ | (403 | ) | |||||||||
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Liquidity and Capital Resources
Currently, our principal source of liquidity is our cash, cash equivalents and short-term investments as well as the cash flow that we may generate from our operations. At March 31, 2013, our cash, cash equivalents and short-term investments totaled $22 million.
Liquidity and security of principal continue to be core to our investment strategy, which results in low rates of return. As of March 31, 2013, we have invested in cash equivalents consisting of money market funds that hold U.S. Treasury securities with short-term weighted average duration. Short-term investments are comprised of U.S. Treasury bills with terms of one year or less.
The following table presents summary cash flow data:
Three months Ended March 31, |
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2013 | 2012 | |||||||
(dollars in thousands) | ||||||||
Cash provided by (used in) operating activities |
$ | 196 | $ | (1,309 | ) | |||
Cash (used in) provided by investing activities |
(1,041 | ) | 731 | |||||
Cash provided by financing activities |
662 | 169 |
Operating Activities
Net cash provided by (used in) operating activities consists of our net loss adjusted for certain non-cash items, primarily depreciation, amortization, stock-based compensation, and the effects of changes in working capital. We generated $0.2 million in cash from operations during the first three months of 2013, an increase of $1.5 million compared to the same period in 2012. The increase was primarily due to changes in working capital and stock-based compensation.
Investing Activities
Cash used in investing activities for the first three months of 2013 was $1.0 million compared to cash provided by investing activities of $0.7 million for the same period in 2012, primarily due to timing of maturities of short term investments.
Financing Activities
Cash provided by financing activities during the first three months of 2013 increased compared to the same period last year primarily due to increased proceeds from the exercise of employee stock options.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of March 31, 2013.
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
The primary objective of our investment activities is to preserve principal and liquidity without incurring significant risk. Because of ongoing market uncertainties, we continue to evaluate the security of our investments and the institutions where we hold our investments. As of March 31, 2013, we invested in U.S. Treasury securities money market funds with short-term weighted average duration and directly in U.S. Treasury securities. A hypothetical 10% increase/decrease in interest rates would not significantly increase/decrease our annual interest income and cash flows.
Item 4. | Controls and Procedures |
(a) Evaluation of disclosure controls and procedures. With the participation of our Chief Executive Officer and Chief Financial Officer, our management evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of March 31, 2013. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2013.
(b) Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting during the first fiscal quarter of 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We intend to continue to refine our internal control over financial reporting on an ongoing basis as we deem appropriate with a view towards continuous improvement.
Item 1. | Legal Proceedings |
From time to time, we may become involved in litigation relating to claims arising from the ordinary course of our business, including actions relating to employment issues. We believe that there are no claims or actions pending or threatened against us, the ultimate disposition of which would have a material adverse effect on us.
Item 1A. | Risk Factors |
The risk factors set forth below are in addition to the risk factors previously disclosed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC on March 15, 2013, which includes a detailed discussion of risk factors that could materially effect on our business, financial condition and future results, and is herein incorporated by reference.
Risk Factors Related to the Proposed Merger with Trulia, Inc.
The Merger is subject to various closing conditions, including governmental approvals, and other uncertainties and there can be no assurances as to whether and when it may be completed
On May 7, 2013, we entered into the Agreement and Plan of Merger (the Merger Agreement) with Trulia, Inc. (Trulia) and Mariner Acquisition Corp, a wholly owned subsidiary of Trulia (Merger Sub). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Merger Sub will merge with and into the Company (the Merger), with the Company continuing as the surviving corporation and wholly owned subsidiary of Trulia. The consummation of the Merger is subject to customary closing conditions and a number of the conditions are not within our control, and may prevent, delay or otherwise materially adversely affect the completion of the transaction. These conditions include, among other things, (i) receiving the required approval of the Companys shareholders, (ii) the expiration or termination of the applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and any applicable waiting period or approvals under the other applicable competition and antitrust laws, (iii) the effectiveness of the registration statement on Form S-4 for the Trulia common stock to be issued in the Merger, and (iv) the approval of the listing on the New York Stock Exchange of the shares of Trulia common stock to be issued in the Merger. It also is possible that a change, event, fact, effect or circumstance could occur that could lead to a material adverse effect to the Company, which may give Trulia the ability to not complete the Merger. We cannot predict with certainty whether and when any of the required closing conditions will be satisfied or if another uncertainty may arise. If the Merger does not receive, or timely receive, the required regulatory approvals and clearances, or if another event occurs delaying or preventing the Merger, such delay or failure to complete the Merger may cause uncertainty or other negative consequences that may materially and adversely affect our sales, financial performance and operating results, and the price per share for our common stock and perceived acquisition value.
If the Merger Agreement is terminated, we may, under certain circumstances, be obligated to pay a termination fee or a break-up fee to Trulia. These costs could require us to use available cash that would have otherwise been available for general corporate purposes.
16
If the Merger Agreement is terminated, in certain circumstances, we would be required to reimburse Trulia for up to $1 million in transaction expenses. Also, in connection with the termination of the Merger Agreement under certain circumstances, and we could be required to pay a termination fee of $15 million. If the Merger Agreement is terminated, the expense reimbursement and the termination fee we may be required to pay, if any, under the Merger Agreement may require us to use available cash that would have otherwise been available for general corporate purposes. For these and other reasons, a failed Merger could materially and adversely affect our business, operating results or financial condition, which in turn would materially and adversely affect our business or financial condition, the price per share of our common stock or our perceived acquisition value.
While the Merger is pending, we are subject to business uncertainties and contractual restrictions that could materially adversely affect our operations and the future of our business or result in a loss of employees.
The Merger Agreement includes restrictions on the conduct of our business prior to the completion of the Merger, generally requiring us to conduct our business in the ordinary course and subjecting us to a variety of specified limitations absent Trulias prior written consent. We may find that these and other contractual arrangements in the Merger Agreement may delay or prevent us from or limit our ability to respond effectively to competitive pressures, industry developments and future business opportunities that may arise during such period, even if our management thinks they may be advisable. The pendency of the Merger may also divert managements attention and our resources from ongoing business and operations. Our employees, customers and suppliers may have uncertainties about the effects of the Merger. In connection with the pending Merger, it is possible that some customers, suppliers and other persons with whom we have a business relationship may delay or defer certain business decisions or might decide to seek to terminate, change or renegotiate their relationship with us as a result of the Merger. Similarly, current and prospective employees may experience uncertainty about their future roles with us following completion of the Merger, which may materially adversely affect our ability to attract and retain key employees. If any of these effects were to occur, it could materially and adversely impact our revenues, earnings and cash flows and other business results and financial condition, as well as the market price of our common stock and our perceived acquisition value, regardless of whether the Merger is completed. In addition, whether or not the Merger is completed, while it is pending we will continue to incur costs, fees, expenses and charges related to the proposed Merger, which may materially and adversely affect our business results and financial condition.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
In October 2006, our Board of Directors authorized a share repurchase program to purchase and retire up to two million shares of our common stock. We did not make any purchases pursuant to the share repurchase program during the first quarter of 2013. At March 31, 2013, 928,043 shares remain available for purchase under the share repurchase program.
Item 6. | Exhibits |
Exhibit Number |
Description of Document | |
10.1+ | Seventh Amendment to Lease, dated as of April 5, 2013, by and between MEPT Kirkland Office II LLC and Market Leader, Inc. | |
10.2+ | Form of Stock Appreciation Right Grant Notice/Agreement under the HouseValues, Inc. 2004 Equity Incentive Plan (replaces and supersedes that form originally filed with the Registrants Form 10-Q filed on November 14, 2011). | |
10.3+ | Amended Employment Agreement by and between the Registrant and Ian Morris, dated January 1, 2013. | |
31.1+ | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer | |
31.2+ | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer | |
32.1+ | Section 1350 Certification of Chief Executive Officer and Chief Financial Officer. | |
101 | The following financial statements from the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, formatted in XBRL: (i) Condensed Consolidated Statements of Operations for the three ended March 31, 2013 and 2012 (unaudited), (ii) Condensed Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012 (unaudited), (iii) Condensed Consolidated Statements of Shareholders Equity for the three months ended March 31, 2013 (unaudited), (iv) Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012 (unaudited), and (v) Notes to Consolidated Financial Statements (unaudited). |
+ | Filed herewith. |
17
Pursuant to the requirements 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.
MARKET LEADER, INC. | ||
By: | /S/ JACQUELINE DAVIDSON | |
Jacqueline Davidson | ||
Chief Financial Officer | ||
Authorized Officer and Principal Financial Officer and Principal Accounting Officer |
Date: May 10, 2013
18
Exhibit 10.1
SEVENTH AMENDMENT TO LEASE
THIS SEVENTH AMENDMENT TO LEASE (this Amendment) is made and entered into as of April 5, 2013, by and between LT KIRKLAND 405, LLC, a Delaware limited liability company (Landlord), and MARKET LEADER, LLC, a Washington limited liability company (Tenant).
RECITALS
A. | Landlord (as successor in interest to MEPT Kirkland Office II LLC, a Delaware limited liability company, as successor in interest to Multi-Employer Property Trust, a trust organized under 12 C.F.R. Section 9.18) and Tenant (formerly known as HouseValues, Inc., a Washington corporation) are parties to that certain Lease dated November 1, 2004 (the Original Lease), which Original Lease has been previously amended by that certain First Amendment to Lease dated as of May 26, 2005, that certain Second Amendment to Lease dated as of October 14, 2005 (the Second Amendment), that certain Third Amendment to Lease dated as of March 1, 2009, that certain Fourth Amendment to Lease dated as of May 26, 2009 and that certain Fifth Amendment to Lease dated as of November 9, 2012, and that certain Sixth Amendment to Lease, dated as of February 4, 2013 (collectively, the Lease). Pursuant to the Lease, Landlord has leased to Tenant space currently containing approximately 28,941 rentable square feet (the Premises) located on the first floor and the second floors of the building located at 11332 NE 122nd Way, Kirkland, Washington 98034 (the Building), commonly known as Building A-2. The legal description of the Building is attached hereto as Exhibit A. The Building is a part of the project commonly known as Kirkland 405 Corporate Center. |
B. | The Lease by its terms shall expire on August 31, 2013 (Prior Termination Date), and the parties desire to extend the Lease Term, all on the following terms and conditions. |
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows:
1. | Extension. The Lease Term is hereby extended for a period of four (4) months and shall expire on December 31, 2013 (Third Extended Termination Date), unless sooner terminated in accordance with the terms of the Lease. That portion of the Lease Term commencing the day immediately following the Prior Termination Date (Third Extension Date) and ending on the Third Extended Termination Date shall be referred to herein as the Third Extended Term. |
2. | Base Rent. As of the Third Extension Date, the schedule of Base Rent payable with respect to the Premises during the Third Extended Term is the following: |
Period |
Rentable Square
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Monthly Base Rent | ||||||||
8/1/13 12/31/13 | 28,941 | $46,505.72 |
All such Base Rent shall be payable by Tenant in accordance with the terms of the Lease, as amended hereby.
3. | Additional Security Deposit. No additional Security Deposit shall be required in connection with this Amendment. |
1
4. | Additional Rent. For the period commencing with the Third Extension Date and ending on the Third Extended Termination Date, Tenant shall pay all Additional Rent payable under the Lease, including Tenants Pro Rata Share of Operating Costs applicable to the Premises, in accordance with the terms of the Lease, as amended hereby. |
5. | Improvements to Premises. |
5.1 | Condition of Premises. Tenant is in possession of the Premises and accepts the same as is without any agreements, representations, understandings or obligations on the part of Landlord to perform any alterations, repairs or improvements, except as may be expressly provided otherwise in this Amendment. |
5.2 | Responsibility for Improvements to Premises. Any construction, alterations or improvements to the Premises shall be performed by Tenant at its sole cost and expense using contractors selected by Tenant and approved by Landlord and shall be governed in all respects by the terms of the Lease, as amended hereby. |
6. | Miscellaneous. |
6.1 | This Amendment sets forth the entire agreement between the parties with respect to the matters set forth herein. There have been no additional oral or written representations or agreements. Under no circumstances shall Tenant be entitled to any rent abatement, improvement allowance, leasehold improvements, or other work to the Premises, or any similar economic incentives that may have been provided Tenant in connection with entering into the Lease, unless specifically set forth in this Amendment. |
6.2 | Except as herein modified or amended, the provisions, conditions and terms of the Lease shall remain unchanged and in full force and effect. In the case of any inconsistency between the provisions of the Lease and this Amendment, the provisions of this Amendment shall govern and control. The capitalized terms used in this Amendment shall have the same definitions as set forth in the Lease to the extent that such capitalized terms are defined therein and not redefined in this Amendment. |
6.3 | Submission of this Amendment by Landlord is not an offer to enter into this Amendment but rather is a solicitation for such an offer by Tenant. Landlord shall not be bound by this Amendment until Landlord has executed and delivered the same to Tenant. |
6.4 | Tenant hereby represents to Landlord that Tenant has dealt with no broker other than Washington Partners in connection with this Amendment. Tenant agrees to indemnify and hold Landlord and its members, principals, beneficiaries, partners, officers, directors, employees, mortgagee(s) and agents, and the respective principals and members of any such agents harmless from all claims of any other brokers claiming to have represented Tenant in connection with this Amendment. |
6.5 | Each signatory of this Amendment represents hereby that he or she has the authority to execute and deliver the same on behalf of the party hereto for which such signatory is acting. Tenant hereby represents and warrants that neither Tenant, nor any persons or entities holding any legal or beneficial interest whatsoever in Tenant, are (i) the target of any sanctions program that is established by Executive Order of the President or published by |
2
the Office of Foreign Assets Control, U.S. Department of the Treasury (OFAC); (ii) designated by the President or OFAC pursuant to the Trading with the Enemy Act, 50 U.S.C. App. § 5, the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701-06, the Patriot Act, Public Law 107-56, Executive Order 13224 (September 23, 2001) or any Executive Order of the President issued pursuant to such statutes; or (iii) named on the following list that is published by OFAC: List of Specially Designated Nationals and Blocked Persons. If the foregoing representation is untrue at any time during the Third Extended Term, an Event of Default under the Lease will be deemed to have occurred, without the necessity of notice to Tenant. |
[SIGNATURE PAGE FOLLOWS]
3
IN WITNESS WHEREOF, Landlord and Tenant have entered into and executed this Amendment as of the date first written above.
LANDLORD: | TENANT: | |||||||||
LT KIRKLAND 405, LLC, a Delaware limited liability company |
MARKET LEADER, LLC, a Washington Limited Liability Company |
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By: | By: | |||||||||
Name: | Name: | |||||||||
Title: | Title: |
[NOTARY PAGE FOLLOWS]
4
LANDLORD ACKNOWLEDGEMENT
STATE OF |
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) |
) | ||||
COUNTY OF |
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)ss: |
On , 2013, before me, , Notary Public, personally appeared , who proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.
I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.
WITNESS my hand and official seal.
|
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Notary Public |
TENANT ACKNOWLEDGEMENT
STATE OF WASHINGTON | ) | |||
) | ss. | |||
COUNTY OF KING | ) |
I certify that I know or have satisfactory evidence that is the person who appeared before me, and said person acknowledged that he signed this instrument, on oath stated that he was authorized to execute the instrument and acknowledged it as the of MARKET LEADER, LLC, a Washington limited liability company to be the free and voluntary act of such party for the uses and purposes mentioned in the instrument.
Dated: |
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(Signature) | ||||||||||
(Seal or stamp)
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Title | ||||||||||
My appointment expires |
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5
EXHIBIT A - LEGAL DESCRIPTION
attached to and made a part of the Amendment dated as of April 5, 2013
LT KIRKLAND 405, LLC, a Delaware limited liability company, as Landlord and
MARKET LEADER, LLC, a Washington limited liability company, as Tenant
Lot 1-A-2 of Kirkland 405 Corporate Center, a binding site plan, as per plat recording in Volume 154 of Plats, pages 58 through 64, records of King County; Situated in the City of Kirkland, County of King, State of Washington.
A-1
Exhibit 10.2
Market Leader, Inc.
AMENDED AND RESTATED 2004 EQUITY INCENTIVE PLAN
STOCK APPRECIATION RIGHT GRANT NOTICE
Market Leader, Inc. (the Company) here by grants to Participant a Stock Appreciation Right (the SAR) with respect to shares of the Companys Common Stock. The SAR is subject to all the terms and conditions set forth in this Stock Appreciation Right Grant Notice (this Grant Notice) and in the Stock Appreciation Right Agreement and the Companys Amended and Restated 004 Equity Incentive Plan (the Plan), which are attached to and incorporated in to this Grant Notice in their entirety.
Participant: | <First_Name>< Last_Name> | |
Grant Date: | <award_date> | |
Vesting Commencement Date: | <award_date> | |
Number of Shares Subject to SAR: | <shares_awarded> | |
Grant Price (per Share): | <award_price> | |
SAR Expiration Date: | ||
<expire_Date> (subject to earlier termination in accordance with the terms of the Plan and the Stock Appreciation Right Agreement) | ||
Vesting and Exercisability Schedule: | [To Insert] |
Additional Terms/Acknowledgement: By clicking Accept below, I understand and agree to, this Grant Notice, the Stock Appreciation Right Agreement, the Plan summary, and the Plan. I further acknowledge that as of the Grant Date, the for going documents set forth the entire understanding between me and the Company regarding the SAR and supersede all prior oral and written agreement son the subject.
Market Leader, Inc.
AMENDED AND RESTATED 2004 EQUITY INCENTIVE PLAN
STOCK APPRECIATION RIGHT AGREEMENT
Pursuant to your Stock Appreciation Right Grant Notice (the Grant Notice) and this Stock Appreciation Right Agreement (this Agreement), Market Leader, Inc. has granted you a Stock Appreciation Right (the SAR) under its Amended and Restated 2004 Equity Incentive Plan (the Plan) with respect to the number of shares of the Companys Common Stock indicated in your Grant Notice (the Shares) at the grant price indicated in your Grant Notice. Capitalized terms not explicitly defined in this Agreement but defined in the Plan shall have the same definitions as in the Plan.
The details of the SAR are as follows:
1. Vesting and Exercisability. Subject to the limitations contained herein, the SAR will vest and become exercisable as provided in your Grant Notice, provided that vesting will cease upon your Termination of Service and the unvested portion of the SAR will terminate.
2. Securities Law Compliance. Notwithstanding any other provision of this Agreement, you may not exercise the SAR unless the Shares issuable upon exercise are registered under the Securities Actor, if such Shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. The exercise of the SAR must also comply with other applicable laws and regulations governing the SAR, and you may not exercise the SAR if the Company determines that such exercise would not be in material compliance with such laws and regulations.
3. Exercise of SAR. You may exercise the SAR by giving written notice to the Company, inform and substance satisfactory to the Company, which will state your election to exercise the SAR and the number of Shares for which you are exercising the SAR. Subject to Section 6 of this Agreement, following receipt of notice of exercise from you, the Company will make payment to you in one or a combination of the following methods, as determined in the Committees sole discretion: (a) a cash payment equal to the excess, if any, of the then Fair Market Value of one share of Common Stock over the Grant Price (per Share) of the SAR, multiplied by the number of Shares for which the SAR is exercised or (b) issuance of that number of shares of Common Stock determined by dividing (x) the excess, if any, of the then Fair Market Value of one share of Common Stock over the Grant Price (per Share) of the SAR, multiplied by the number of Shares for which the SAR is exercised by (y) the then Fair Market Value of one share of Common Stock (any fractional shares resulting from this calculation will be paid in cash).
4. Treatment Upon Termination of Employment or Service Relationship. The unvested portion of the SAR will terminate automatically and without further notice immediately upon your Termination of Service. You may exercise the vested portion of the SAR as follows:
(a) General Rule. You must exercise the vested portion of the SAR on or before the earlier of (i) three months after your Termination of Service and (ii) the SAR Expiration Date;
(b) Retirement or Disability. If your employment or service relationship terminates due to Retirement or Disability, you must exercise the vested portion of the SAR on or before the earlier of (i) one year after your Termination of Service and (ii) the SAR Expiration Date;
(c) Death. If your employment or service relationship terminates due to your death, the vested portion of the SAR must be exercise do nor before the earlier of (i) one year after your Termination of Service and (ii) the SAR Expiration Date. If you die after your Termination of Service but while the SAR is still exercisable, the vested portion of the SAR may be exercised until the earlier of (x) one year after the date of death and (y) the SAR Expiration Date; and
(d) Cause. The vested portion of the SAR will automatically expire at the time the Company first notifies you of your Termination of Service for Cause, unless the Committee determines otherwise. If your employment or service relationship is suspended pending an investigation of whether you will be terminated for Cause, all your rights under the SAR like wise will be suspended during the period of investigation. If any facts that would constitute termination for Cause are discovered after your Termination of Service, any SAR you then hold may be immediately terminated by the Committee.
It is your responsibility to be aware of the date the SAR terminates.
5. Limited Transferability. During your lifetime only you can exercise the SAR. The SAR is not transferable except by will or by the applicable laws of descent and distribution. The Plan provides for exercise of the SAR by a beneficiary designated on a Company-approved form or the personal representative of you restate. Not with standing the foregoing, the Committee, in its sole discretion, may permit you to assign or transfer the SAR, subject to such term sand conditions as specified by the Committee.
6. Withholding Taxes. As a condition to the exercise of any portion of the SAR, you must make such arrangements as the Company may require for the satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in connection with such exercise.
7. SAR Not an Employment or Service Contract. Nothing in the Plan or any Award granted under the Plan will be deemed to constitute an employment contractor confer or be deemed to confer any right for you to continue in the employ of, or to continue any other relationship with, the Company or any Related Company or limit in any way the right of the Company or any Related Company to terminate your employment or other relationship at anytime, with or without Cause.
8. No Right to Damages. You will have no right to bring a claim or to receive damages if you are required to exercise the vested portion of the SAR within three months (one year in the case of Retirement, Disability or death) of your Termination of Service or if any portion of the SAR is cancelled or expires unexercised. The loss of existing or potential profit in Awards will not constitute an element of damages in the event of your Termination of Service for any reason even if the termination is in violation of an obligation of the Company or a Related Company to you.
9. Binding Effect. This Agreement will inure to the benefit of the successors and assigns of the Company and be binding upon you and your heirs, executors, administrators, successors and assigns.
10. Section 409A Compliance. Notwithstanding any provision in the Plan or this Agreement to the contrary, the Committee may, at any time and without your consent, modify the terms of the SAR as it determines appropriate to avoid the imposition of interest or penalties under Section 409A of the Code; provided, however, that the Committee makes no representations that the SAR shall be exempt from or comply with Section 409A of the Code and makes no undertaking to preclude Section 409A of the Code from applying to the SAR.
11. Accelerated Vesting. Notwithstanding anything set forth above or in the Plan:
(a) Termination of Employment. In the event (a) you terminate your employment for Good Reason (as defined in your Employment Agreement), 100% of the unvested portion of the Stock Appreciation Right (the SAR) will automatically become vested and exercisable immediately prior to termination, or (b) the Company terminates your employment other than for Cause (as defined in your Employment Agreement), the unvested portion of the SAR that would have been exercisable as of the fourth quarterly vesting following termination will automatically become vested and exercisable immediately prior to termination.
(b) Corporate Transaction. Upon a Company Transaction that is not a Related Party Transaction (as defined in the Plan), 50% of the unvested portion of the SAR will automatically become vested and exercisable and the remaining unvested portion of the SAR will vest in equal quarterly increments over the shorter of (i) two years immediately following such Company Transaction, or (ii) the amount of time remaining under the SARs original vesting schedule. This provision is in addition to, and not in lieu of, any other rights provided in the Plan concerning the effect of a Company Transaction on outstanding SARs.
-2-
Exhibit 10.3
AMENDMENT AGREEMENT
(Amendment No. 2 to Employment Agreement)
This Amendment Agreement (this Amendment) is made and entered into as of January 1, 2013, by and between Market Leader, Inc. (the Company) and Ian Morris (Executive).
Recital
The parties entered into an Employment Agreement dated April 2004 (the Agreement) and an Amendment Agreement dated December 30, 2008 (the Amendment Agreement), and now wish to amend the Agreement and the Amendment Agreement on the terms set forth below.
Amendment
1. | The following paragraph shall replace Section 3.1 of the Agreement in its entirety: |
3.1 | Base Salary |
Commencing the date hereof, Executive shall be paid an annual base salary (the Base Salary) of $388,000, before all customary payroll deductions. The Base Salary shall be paid in twenty four semi-annual installments in accordance with Employers ordinary payroll policies and procedures with respect to its management employees.
2. | The following paragraph shall replace 3.3 of the Agreement in its entirety: |
3.3 | Benefits |
Executive will be entitled, during the term of Executives employment, to vacation, health and other employee benefits (subject to applicable eligibility requirements) to the extent such benefits are offered by the Company to its other executives. Executive has been provided a summary of the benefits in place at this time.
3. | Section 3.5 of the Agreement is deleted in its entirety. |
4. | Section 18 of the Agreement is deleted in its entirety. |
Except as expressly set forth herein, the Agreement and the Amendment Agreement shall remain in full force and effect in accordance with their terms.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date set forth above.
MARKETLEADER, INC. | ||||||
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By (signature) | By (signature) | |||||
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Name (print) | Executive (print) | |||||
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Title | Title |
Exhibit 31.1
CERTIFICATION
I, Ian Morris, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Market Leader, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: May 10, 2013
/s/ IAN MORRIS |
Ian Morris |
Chief Executive Officer and President |
Exhibit 31.2
CERTIFICATION
I, Jacqueline Davidson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Market Leader, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: May 10, 2013
/s/ JACQUELINE DAVIDSON |
Jacqueline Davidson |
Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Market Leader, Inc. (the Company) on Form 10-Q for the quarterly period ended March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the Report), Ian Morris, Chief Executive Officer of the Company, and Jacqueline Davidson, Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (15 U.S.C. 78m or 78o(d)); and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 10, 2013
/s/ IAN MORRIS |
Ian Morris |
Chief Executive Officer and President |
/s/ JACQUELINE DAVIDSON |
Jacqueline Davidson |
Chief Financial Officer |
This certification accompanies this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.
Note 2 - Loss per Share
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Mar. 31, 2013
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Earnings Per Share [Text Block] |
Note
2: Loss per Share
Basic
loss per share is computed using the weighted average number
of shares outstanding during the period. Diluted loss per
share uses the weighted average common shares outstanding
plus dilutive stock options and unvested restricted stock
units using the treasury stock method. Because we have
reported losses for the periods presented, none of our stock
options, unvested restricted stock units, or stock
appreciation rightsare included in the diluted per share
calculations.
Stock
options and unvested restricted stock units are excluded from
the dilutive earnings per share calculation when their impact
is antidilutive. Prior to satisfaction of all conditions of
vesting, unvested restricted stock units are considered
contingently issuable and are excluded from weighted average
common shares outstanding.
The
following table sets forth the computation of basic and
diluted loss per share:
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