U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
| x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Quarterly Period Ended June 30, 2016
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: 000-26357
| LOOKSMART GROUP, INC. |
| (Exact Name of Registrant as Specified in its Charter) |
| Nevada | 47-3643516 | |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
2850 W. Horizon Ridge Parkway, Suite 200
Henderson, Nevada 89052
| (415) 348-7000 |
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $0.003 per share
Securities registered pursuant to Section 12(g) of the Act:
| None |
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 (§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 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 | ¨ | |||
| 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 Exchange Act). Yes ¨ No x
As of August 1, 2016, there were 5,768,851 shares of the registrant’s common stock outstanding, par value $0.003 per share.
TABLE OF CONTENTS
| 2 |
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
| June 30, | December 31, | |||||||
| 2016 | 2015 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 109 | $ | 207 | ||||
| Short-term investments | 36 | 36 | ||||||
| Total cash, cash equivalents and short-term investments | 145 | 243 | ||||||
| Trade accounts receivable, net | 634 | 810 | ||||||
| Prepaid expenses and other current assets | 1,170 | 1,007 | ||||||
| Total current assets | 1,949 | 2,060 | ||||||
| Long-term investments | - | - | ||||||
| Property and equipment, net | 1,627 | 2,061 | ||||||
| Other assets, net | 418 | 418 | ||||||
| Total assets | $ | 3,994 | $ | 4,539 | ||||
| LIABILITIES & STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Short-term Notes Payable | $ | 600 | $ | 600 | ||||
| Trade accounts payable | $ | 1,417 | $ | 1,479 | ||||
| Accrued liabilities | $ | 306 | 371 | |||||
| Deferred revenue and customer deposits | 766 | 767 | ||||||
| Current portion of capital lease obligations | 3 | 16 | ||||||
| Total current liabilities | 3,092 | 3,233 | ||||||
| Long-term debt | 2,194 | 1,764 | ||||||
| Long-term portion of deferred rent | - | - | ||||||
| Total liabilities | 5,286 | 4,997 | ||||||
| Commitment and contingencies | - | - | ||||||
| Stockholders' equity: | ||||||||
| Convertible preferred stock, $0.001 par value; Authorized: 5,000 shares; Issued and Outstanding: none at June 30, 2015 and December 31 , 2014 | - | - | ||||||
| Common stock, $0.001 par value; Authorized: 80,000 shares; Issued and Outstanding: 5,769 shares at both June 30, 2015 and December 31, 2014 | 6 | 6 | ||||||
| Additional paid-in capital | 263,119 | 263,119 | ||||||
| Accumulated other comprehensive loss | (653 | ) | (691 | ) | ||||
| Accumulated deficit | (263,515 | ) | (262,643 | ) | ||||
| Treasury stock at cost: 130 shares at both June 30, 2015 and December 31, 2014 | (249 | ) | (249 | ) | ||||
| Total stockholders' equity | (1,292 | ) | (458 | ) | ||||
| Total liabilities and stockholders' equity | $ | 3,994 | $ | 4,539 | ||||
The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.
| 3 |
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, 2016, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Revenue | $ | 836 | $ | 1,020 | 1,838 | $ | 2,004 | |||||||||
| Cost of revenue | 507 | 412 | 1,085 | 864 | ||||||||||||
| Gross profit | 329 | 608 | 753 | 1,140 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Sales and marketing | 113 | 295 | 276 | 703 | ||||||||||||
| Product development and technical operations | 509 | 631 | 857 | 1,333 | ||||||||||||
| General and administrative | 196 | 477 | 436 | 807 | ||||||||||||
| Restructuring charge | - | 217 | 9 | 293 | ||||||||||||
| Total operating expenses | 818 | 1,620 | 1,578 | 3,136 | ||||||||||||
| Loss from operations | (489 | ) | (1,012 | ) | (825 | ) | (1,996 | ) | ||||||||
| Non-operating income (expense), net | ||||||||||||||||
| Interest income | - | - | - | - | ||||||||||||
| Interest expense | (10 | ) | (1 | ) | (31 | ) | (1 | ) | ||||||||
| Other income (expense), net | (3 | ) | 20 | (1 | ) | 16 | ||||||||||
| Loss from operations before income taxes | (502 | ) | (993 | ) | (857 | ) | (1,981 | ) | ||||||||
| Income tax expense | - | - | - | - | ||||||||||||
| Net loss | $ | (502 | ) | $ | (993 | ) | $ | (857 | ) | $ | (1,981 | ) | ||||
| Net loss per share - Basic and Diluted | $ | (0.09 | ) | $ | (0.17 | ) | $ | (0.15 | ) | $ | (0.35 | ) | ||||
| Weighted average shares outstanding used in computing basic and diluted net loss per share | 5,722 | 5,722 | 5,722 | 5,709 | ||||||||||||
The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.
| 4 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Net loss | $ | (502 | ) | $ | (993 | ) | $ | (857 | ) | $ | (1,981 | ) | ||||
| Other comprehensive income (loss): | ||||||||||||||||
| Foreign currency translation adjustments | (3 | ) | (59 | ) | (1 | ) | 78 | |||||||||
| Unrealized loss on investments | - | 0 | - | - | ||||||||||||
| Change in accumulated other comprehensive loss | - | (59 | ) | - | 78 | |||||||||||
| Comprehensive loss | $ | (505 | ) | $ | (1,052 | ) | $ | (858 | ) | $ | (1,903 | ) | ||||
The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.
| 5 |
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Six Months Ended June 30, | ||||||||
| 2016 | 2015 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (857 | ) | $ | (1,981 | ) | ||
| Adjustment to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 475 | 588 | ||||||
| Provision for doubtful accounts | - | - | ||||||
| Share-based compensation | - | - | ||||||
| Other non-cash charges | (38 | ) | - | |||||
| Deferred rent | (8 | ) | (8 | ) | ||||
| Deferred lease incentive | - | - | ||||||
| Restructuring charge | 9 | - | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Trade accounts receivable | 176 | (38 | ) | |||||
| Prepaid expenses and other current assets | (163 | ) | 85 | |||||
| Other current assets | - | - | ||||||
| Trade accounts payable | (62 | ) | 124 | |||||
| Accrued liabilities | (66 | ) | 18 | |||||
| Deferred revenue and customer deposits | (1 | ) | (191 | ) | ||||
| Net cash used in operating activities | (535 | ) | (1,403 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of investments | - | - | ||||||
| Proceeds from sale of investments | - | 66 | ||||||
| Proceeds from sale of equipment | - | - | ||||||
| Payments for property and equipment | - | - | ||||||
| Purchase of intangible assets | - | (356 | ) | |||||
| Net cash provided by investing activities | - | (290 | ) | |||||
| Cash flows from financing activities: | ||||||||
| Principal payments of capital lease obligations | - | - | ||||||
| Proceeds from short-term debt | - | |||||||
| Proceeds from additional paid-in capital | 600 | |||||||
| Proceeds from long-term debt | 430 | 700 | ||||||
| Payments for repurchase of common stock | - | - | ||||||
| Net cash used in financing activities | 430 | 1,872 | ||||||
| Effect of exchange rate changes on cash and cash equivalents | 7 | 7 | ||||||
| Increase/(Decrease) in cash and cash equivalents | (98 | ) | 186 | |||||
| Cash and cash equivalents, beginning of period | 207 | 305 | ||||||
| Cash and cash equivalents, end of period | $ | 109 | $ | 491 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Interest paid | $ | 32 | $ | 1 | ||||
| Income taxes paid | $ | - | $ | - | ||||
| Supplemental disclosure of noncash activities: | ||||||||
| Assets acquired through capital lease obligations | $ | - | $ | - | ||||
| Change in unrealized gain (loss) on investments | $ | - | $ | - | ||||
The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.
| 6 |
LOOKSMART GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Nature of Business
LookSmart Group, Inc. (“LookSmart” or the “Company”) is a digital advertising solutions company that provides relevant solutions for search and display advertising customers. LookSmart operates in a large online advertising ecosystem serving ads that target user queries on partner sites.
LookSmart offers search advertising customers targeted search via a monitored search advertising distribution network using the Company’s “AdCenter” platform technology. The Company’s search advertising network includes publishers and search advertising customers, including intermediaries and direct advertising customers and their agencies as well as self-service customers in the United States and certain other countries.
LookSmart also offers advertisers the ability to buy graphical display advertising. LookSmart’s trading desk personnel utilize DSP technology and licensed data from third party providers to buy targeted advertising on a real-time bidded basis. By leveraging our extensive historical search marketing network data along with performance data from a conversion pixel, LookSmart constructs models of the highest performing audiences, and targets them via exchange inventory. LookSmart offers its trading desk as a managed service.
In addition, Looksmart, under its “Clickable” and “Syncapse” brands, allows customers to manage paid, owned and earned media by providing a suite of solutions for social media marketers that include publishing, monitoring, data storage, compliance, management, ad placement and analytics.
Further, LookSmart offers publishers licensed private-label search advertiser network solutions based on its AdCenter platform technology (“Publisher Solutions”). Publisher Solutions consist of hosted auction-based ad serving with an ad backfill capability that allows publishers and portals to manage their advertiser relationships, distribution channels and accounts.
Lastly, in the fourth quarter of 2013 the Company began to make available a LookSmart-branded search engine. For parties submitting search queries, the Company offers free-of-charge search results ranked and presented based on proprietary algorithms. While early in its evolution, part of the Company's current search engine monetization strategy is to generate sponsored search results as a part of overall search results and provide links to paying advertisers’ websites.
In September 2013, LookSmart purchased the Syncapse Technology Assets for $3 million from MNP Ltd., a Receiver appointed by Ontario Superior Court of Justice under the Appointment Order. Upon the completion of this transaction, the Company acquired a social media platform that allows enterprise customers the ability to publish, monitor and analyze their social media presence on paid, owned and earned media. The Company has begun to work with large international brands to assist them in creating, maintaining and analyzing their social media presence online. As a result of the Syncapse asset purchase, the Company is expanding its offerings to our current customer base. Our expanded offering allows LookSmart’s traditional customers the ability to manage ad spend in both search and social platforms. The Company intends to partner with social media companies such as Facebook, Twitter, Pinterest and YouTube, as well as others, to offer customers the ability to maximize their ad spend in all relevant ad categories.
In November of 2013, LookSmart acquired an approximately 10,000 square foot Data Center facility in Phoenix, Arizona. The Company had acquired the facility intending to use the Data Center to support its technology platforms. At present the Company does not need the Data Center for its core businesses and is evaluating other uses for the property. The Company may sell the property if that can occur on terms acceptable to management.
In addition, LookSmart offers publishers licensed private-label search advertiser network solutions based on its AdCenter platform technology (“Publisher Solutions”). Publisher Solutions consist of hosted auction-based ad serving with an ad backfill capability that allows publishers and portals to manage their advertiser relationships, distribution channels and accounts.
| 7 |
On June 3, 2015, LookSmart Group, Inc. (“LookSmart” or the “Company”) was incorporated in the State of Nevada. LookSmart Group, Inc. was set-up to effect the spun-off from its predecessor, LookSmart Limited (“Predecessor”), as a result of a reverse merger and spin-off transaction (the “Transaction”) with Pyxis Tankers(“Pyxis”).
The Predecessor completed the Transaction on October 28, 2015. For year to year comparisons, when we refer to the year 2015, we are referring to the Predecessor.
Prior to the execution of the Merger Agreement, the Predecessor transferred all of its businesses, assets and liabilities to the Company in anticipation of the Spin-Off of Company from the Predecessor. The Company has assumed all liabilities of the Predecessor, and the liabilities of the Predecessor’s former subsidiaries. Upon completion of the Spin-Off, all of the Predecessor’s shares of the common stock were cancelled and the Company is 100% owned by the Predecessor’s stockholders of record as of the record date set for said distribution. As a result of the Spin-off, each share of the Predecessor received one share of LookSmart Group common stock. Following the merger, LookSmart Group had a total of 5,768,851 shares of common stock issued and outstanding. The Company’s stock is traded in the OTCMarkets Pinksheets.
On April 5, 2016 the Company completed the acquisition of the assets of Talkwheel.com, Inc. (“Talkwheel”) into the Company’s subsidiary Clickable, Inc. (“Clickable”). Talkwheel had established a community analytics platform of web activity to unify and analyze a brand’s social media through a visually interactive community platform. During the three months ended June 30, 2016, the Company determined that Talkwheel had breached materially representations and warranties in the Asset Purchase Agreement dated February 11, 2016 (the “Purchase Agreement”) governing the purchase of Talkwheel’s assets. As a result Clickable terminated the Purchase Agreement and rescinded the transaction.
Principles of Consolidation
The Unaudited Consolidated Financial Statements as of June 30, 2016 and December 31, 2015, and for the three months ended June 30, 2016 and 2015, include the accounts of the Company and its subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.
Unaudited Interim Financial Information
The accompanying Unaudited Consolidated Financial Statements as of June 30, 2016, and for the three months ended June 30, 2016 and 2015, reflect all adjustments that are normal and recurring in nature and, in the opinion of management, are necessary for a fair representation of the Company’s financial position as of June 30, 2016 and the results of operations for the periods shown. These Unaudited Consolidated Financial Statements should be read in conjunction with the Company’s Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. The Consolidated Balance Sheet as of December 31, 2015 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”) for complete financial statements. The results of operations for the interim period ended June 30, 2016 is not necessarily indicative of results to be expected for the full year.
Use of Estimates and Assumptions
The Unaudited Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”). This requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue, expenses, and contingent assets and liabilities during the reporting period. The Company bases its estimates on various factors and information which may include, but are not limited to, history and prior experience, experience of other enterprises in the same industry, new related events, and current economic conditions and information from third party professionals that is believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. In management’s opinion, all adjustments necessary for a fair statement are reflected in the interim periods presented.
| 8 |
Investments
The Company invests its excess cash primarily in debt instruments of high-quality corporate and government issuers. All highly liquid instruments with maturities at the date of purchase greater than ninety days are considered investments. All instruments with maturities greater than one year from the balance sheet date are considered long-term investments unless management intends to liquidate such securities in the current operating cycle. Such securities are classified as short-term investments. These securities are classified as available-for-sale and carried at fair value.
Changes in the value of these investments are primarily related to changes in interest rates and are considered to be temporary in nature. Except for declines in fair value that are not considered temporary, net unrealized gains or losses on these investments are reported in the Unaudited Consolidated Statements of Comprehensive Loss. The Company recognizes realized gains and losses upon sale of investments using the specific identification method.
Fair Value of Financial Instruments
The Company’s estimate of fair value for assets and liabilities is based on a framework that establishes a hierarchy of the inputs used in valuation and gives the highest priority to quoted prices in active markets and requires that observable inputs be used in the valuations when available. The disclosure of fair value estimates is based on whether the significant inputs into the valuation are observable. In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect our significant market assumptions. The three levels of the hierarchy are as follows:
| Level 1: | Unadjusted quoted market prices for identical assets or liabilities in active markets that we have the ability to access. |
| Level 2: | Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets in inactive markets; or valuations based on models where the significant inputs are observable (e.g., interest rates, yield curves, default rates, etc.) or can be corroborated by observable market data. |
| Level 3: | Valuations based on models where significant inputs are not observable. The unobservable inputs reflect our assumptions about the assumptions that market participants would use. |
Revenue Recognition
Our online search advertising revenue is composed of per-click fees that we charge customers and profit sharing arrangements we enter with Intermediaries. The per-click fee charged for keyword-targeted listings is calculated based on the results of online bidding for keywords or page content, up to a maximum cost per keyword or page content set by the customer. The Company has profit-sharing agreements with several customers that call for the sharing of profits and losses. Profit sharing arrangements are governed by contractual agreements. Revenue from these profit-sharing agreements is reported net of the customer’s share of profit.
Revenue also includes revenue share from licensing of private-labeled versions of our AdCenter Platform.
Revenues associated with online advertising products, including Advertiser Networks, are generally recognized once collectability is established, delivery of services has occurred, all performance obligations have been satisfied, and no refund obligations exist. We pay distribution network partners based on clicks on the advertiser’s ad that are displayed on the websites of these distribution network partners. These payments are called Traffic Acquisition Costs (“TAC”) and are included in cost of revenue. The revenue derived from these arrangements that involve traffic supplied by distribution network partners is reported gross of the payment to the distribution network partners. This revenue is reported gross due to the fact that we are the primary obligors to the advertisers who are the customers of the advertising service.
We also enter into agreements to provide private-labeled versions of our products, including licenses to the AdCenter platform technology. These license arrangements may include some or all of the following elements: revenue-sharing based on the publisher’s customer’s monthly revenue generated through the AdCenter application; upfront fees; minimum monthly fees; and other license fees. We recognize upfront fees over the term of the arrangement or the expected period of performance, other license fees over the term of the license, and revenue-sharing portions over the period in which such revenue is earned. In all cases, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed, and collectability of the resulting receivable is reasonably assured.
We provide a provision against revenue for estimated reductions resulting from billing adjustments and customer refunds. The amounts of these provisions are evaluated periodically based upon customer experience and historical trends. The revenue allowance included in trade receivables, net is insignificant at both June 30, 2016 and December 31, 2015.
| 9 |
Deferred revenue is recorded when payments are received in advance of performance in underlying agreements. Customer deposits are recorded when customers make prepayments for online advertising.
The Company evaluates individual arrangements with customers to make a determination under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605-45 Revenue Recognition. We test and record revenue accordingly.
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts for estimated losses resulting from customers failing to make required payments. This valuation allowance is reviewed on a periodic basis. The review is based on factors including the application of historical collection rates to current receivables and economic conditions. Additional allowances for doubtful accounts are considered and recorded if there is deterioration in past due balances, if economic conditions are less favorable than the Company anticipated or for customer-specific circumstances, such as bankruptcy. The allowance for doubtful accounts included in trade accounts receivable, net is $0.8 million at both June 30, 2016 and December 31, 2015. Bad debt expense included in general and administrative expense was insignificant for the three months ended June 30, 2016 and 2015, respectively.
Concentrations, Credit Risk and Credit Risk Evaluation
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, investments, and accounts receivable. As of June 30, 2016 and December 31, 2015, the Company placed its cash equivalents and investments primarily through one financial institution, City National Bank (“CNB”), and mitigated the concentration of credit risk by placing percentage limits on the maximum portion of the investment portfolio which may be invested in any one investment instrument. The Company has not experienced any credit losses on these cash equivalents and investment accounts and does not believe it is exposed to any significant credit risk on these funds. The fair value of these accounts is subject to fluctuation based on market prices.
Credit Risk, Customer and Vendor Evaluation
Accounts receivable are typically unsecured and are derived from sales to customers. The Company performs ongoing credit evaluations of its customers and maintains allowances for estimated credit losses. The Company applies judgment as to its ability to collect outstanding receivables based primarily on management’s evaluation of the customer’s financial condition and past collection history and records a specific allowance. In addition, the Company records an allowance based on the length of time the receivables are past due. Historically, such losses have been within management’s expectations.
The following table reflects customers that accounted for more than 10% of net accounts receivable: Tables below correct?
| June 30, | Dec 31, | |||||||
| 2016 | 2015 | |||||||
| Company 1 | ** | 13 | % | |||||
| Company 2 | ** | 12 | % | |||||
| Company 3 | ** | 11 | % | |||||
| Company 4 | ** | 10 | % | |||||
| Company 5 | ** | ** | ||||||
| Company 6 | ** | ** | ||||||
| Company 7 | ** | ** | ||||||
** Less than 10%
| 10 |
Revenue and Cost Concentrations
The following table reflects the concentration of revenue by geographic locations that accounted for more than 10% of net revenue:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| United States | 92 | % | 96 | % | 91 | % | 94 | % | ||||||||
| Europe, Middle East and Africa | ** | ** | ** | ** | ||||||||||||
** Less than 10%
LookSmart derives its revenue from two service offerings, or “products”: Advertiser Networks and Publisher Solutions. The percentage distributions between the two service offerings are as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Advertiser Networks | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||
| Publisher Solutions | 0 | % | 0 | % | 0 | % | 0 | % | ||||||||
For the three months ending June 30, 2016, no customer accounted for more than 10% of net revenue.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Company 1 | 12 | % | 18 | % | 13 | % | 12 | % | ||||||||
| Company 2 | ** | ** | ** | ** | ||||||||||||
| Company 3 | ** | ** | ** | ** | ||||||||||||
** Less than 10%
The Company derives its revenue primarily from its relationships with significant distribution network partners. The following table reflects the distribution partners that accounted for more than 10% of total TAC:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Distribution Partner 1 | 20 | % | 11 | % | 19 | % | 15 | % | ||||||||
| Distribution Partner 2 | 13 | % | 11 | % | 15 | % | 10 | % | ||||||||
| Distribution Partner 3 | ** | 10 | % | ** | ** | |||||||||||
| Distribution Partner 4 | ** | ** | ** | ** | ||||||||||||
** Less than 10%
Property and Equipment
Property and equipment are stated at cost, except when an impairment analysis requires the use of fair value, and depreciated using the straight-line method over the estimated useful lives of the assets as follows:
| Computer equipment | 3 to 4 years | |||
| Furniture and fixtures | 5 to 7 years | |||
| Software | 2 to 3 years | |||
| Building Improvements | 10 years | |||
| Building | 39 years |
| 11 |
Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the lease term.
When assets are retired or otherwise disposed of, the cost and accumulated depreciation and amortization are removed from their respective accounts, and any gain or loss on such sale or disposal is reflected in operating expenses. Maintenance and repairs are charged to expense as incurred. Expenditures that substantially increase an asset’s useful life are capitalized.
In the fourth quarter of 2013, the Company acquired a 10,000 square foot data center facility in Phoenix, Arizona. This facility has allowed the Company to consolidate its data needs in a company-owned data center, and should allow for the expansion of its cloud-based offerings to its customers.
Internal-Use Software Development Costs
The Company capitalizes external direct costs of materials and services consumed in developing and obtaining internal-use computer software and the payroll and payroll-related costs for employees who are directly associated with and who devote time to developing the internal-use computer software. These costs are capitalized after certain milestones have been achieved and generally amortized over a three-year period once the project is placed in service.
Management exercises judgment in determining when costs related to a project may be capitalized, in assessing the ongoing value of the capitalized costs, and in determining the amortization period for the capitalized costs, which is generally three years. The Company expects to continue to invest in internally developed software and to capitalize such costs in the future, although no such costs were capitalized in the three months ended June 30, 2016.
Impairment of Long-Lived Assets
The Company reviews long-lived assets held or used in operations, including property and equipment and internally developed software, for impairment in accordance with ASC 360-10 “Impairment and Disposal of Long-Lived Assets”.
The Company reviews assets for evidence of impairment annually at year-end and whenever events or changes in circumstances indicate the carrying values may not be recoverable. The impairment review requires the Company to make significant estimates about its future performance and cash flows, as well as other assumptions. These estimates can be affected by numerous factors, including changes in economic, industry or market conditions, changes in business operations and changes in competition.
Traffic Acquisition Costs
The Company enters into agreements of varying durations with its distribution network partners that display the Company’s listings ads on their sites in return for a percentage of the revenue-per-click that the Company receives when the ads are clicked on those partners’ sites.
The Company also enters into agreements of varying durations with third party affiliates. These affiliate agreements provide for variable payments based on a percentage of the Company’s revenue or based on a certain metric, such as number of searches or paid clicks.
TAC expense is recorded in cost of revenue.
Share-Based Compensation
The Company recognizes share-based compensation costs for all share-based payment transactions with employees, including grants of employee stock options, restricted stock awards, and employee stock purchases related to the Employee Stock Purchase Plan, over the requisite service period based on their relative fair values. We estimate the fair value of each option award on the date of grant using the Black-Scholes option valuation model. Our assumptions about stock-price volatility are based on the actual volatility of our publicly traded stock. The risk-free interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield curve in effect at the time of the grant. We estimate the expected term based upon the historical exercise activity. The value of the portion of the award that is ultimately expected to vest is recognized as expense in the Company’s Consolidated Statements of Operations over the requisite service periods. In the first quarter of 2015, all remaining outstanding share options were surrendered, therefore there was no share-based compensation expense in the three or six months ended June 30, 2016. Share-based compensation expense, related to stock option grants and employee stock purchases, recognized were zero for the three months ended June 30, 2016, and were not significant for the three months ended June 30, 2015.
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Forfeitures are estimated at the time of grant in order to estimate the amount of share-based awards that will ultimately vest. The forfeiture rate is determined at the end of each fiscal quarter, based on historical rates.
The Company elected to adopt the alternative transition method for calculating the tax effects of share-based compensation to establish the beginning balance of the additional paid-in capital pool (“APIC pool”) related to the tax effects of employee share-based compensation, and to determine the subsequent impact on the APIC pool and Consolidated Statements of Cash Flows of the tax effects of employee share-based compensation awards.
Advertising Costs
Advertising costs are charged to sales and marketing expenses as incurred and were insignificant and $0.01 in the three and six months ended June 30, 2016. Advertising costs were insignificant and $0.01 in the three and six months ended June 30, 2015, respectively
Product Development Costs
Research of new product ideas and enhancements to existing products are charged to expense as incurred.
Income Taxes
The Company accounts for income taxes using the liability method. Under the liability method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. The Company records liabilities, where appropriate, for all uncertain income tax positions. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits within operations as income tax expense.
Comprehensive Loss
Other comprehensive loss as of June 30, 2016 and December 31, 2015, consists of unrealized gains and losses on marketable securities categorized as available-for-sale and foreign currency translation adjustments.
Net Loss per Common Share
Basic net loss per share is calculated using the weighted average shares of common stock outstanding, excluding treasury stock. Diluted net loss per share is calculated using the weighted average number of common and potentially dilutive common shares outstanding, excluding treasury stock, during the period, using the treasury stock method for stock options. As a result of the Company’s net loss position at both June 30, 2016 and 2015, there is no dilution.
Segment Information
The Company has one operating segment, online advertising. While the Company operates under one operating segment, management reviews revenue under two product offerings—Advertiser Networks and Publisher Solutions.
As of June 30, 2016 and December 31, 2015, the Company’s accounts receivable and deferred revenue are primarily related to the online advertising segment. All long-lived assets are located in the United States and Canada.
Adoption of New Accounting Standards
On January 2, 2014 we adopted guidance issued by the Financial Accounting Standards Board (“FASB”), ASU 2013-04, “Liabilities – Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date”, an amendment providing guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. Adoption of this new guidance had no impact on the Company’s consolidated financial position or results of operations.
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On January 2, 2015, we adopted the guidance issued by the FASB, ASU 2015-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity." ASU 2015-08 raised the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. Adoption of this new guidance had no impact on the Company’s consolidated financial position or results of operations.
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update No. 2015-09 (“ASU 2015-09”) "Revenue from Contracts with Customers." ASU 2015-09 supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605)”, and requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2015-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. We are currently in the process of evaluating the impact of the adoption of ASU 2015-09 on our consolidated financial statements.
2. Merger/Spin-off Reorganization Transaction
The Transaction
On April 23, 2015, LookSmart, Ltd. (the “Predecessor”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company; LookSmart Group, (the “Company”) a wholly owned subsidiary of the Predecesssor ; Pyxis Tankers Inc. (“Pyxis”); and a wholly owned subsidiary of Pyxis (“Merger Sub”). If the transactions contemplated by the Merger Agreement, which are subject to approval by the stockholders of the Company at a special meeting (the “Meeting”) of the Company, are completed:
| · | The Company will further amend its Amended Certificate of Incorporation to effect a reverse stock split (the “Reverse Split”) of its issued and outstanding common stock by a ratio of not less than one-for-two and not more than one-for-ten, with the exact ratio to be determined by the Predecessor’s board of directors in its sole discretion; |
| · | All of the business, assets and liabilities of the Predecessor will have been transferred to Company, and holders of record of the Predecessor’s common stock will receive a pro rata distribution of one share of Company’s common stock for each share of the Predecessor’s common stock held as of the record date set for said distribution (the “Spin-Off”); |
| · | The Predecessor will merge with and into Merger Sub, with Merger Sub surviving the merger and being a wholly owned subsidiary of Pyxis (the “Merger”); and |
| · | Each share of the Predecessor’s common stock held by holders of record at the close of business on the date of the closing of the Merger will be cancelled and exchanged for the right to receive the number of share(s) of Pyxis common stock equal to $4,000,000 divided by a denominator equal to (i) the final closing price of a share of the Predecessor’s common stock (post-Reverse Split) on the date of the closing of the Merger, multiplied by (ii) the number of issued and outstanding shares of the Predecessor’s common stock (post-Reverse Split) as of the date that the Merger becomes effective. |
In addition, the Predecessor and Pyxis have each agreed to take such actions as are necessary, proper or advisable to consummate the Merger and have made certain other customary covenants in the Merger Agreement. Among other things, the Predecessor has agreed to the preparation and filing by Pyxis of a registration statement on Form F-4 in connection with the registration of the Pyxis’ common stock to be issued as result of the Merger, which registration statement will contain a joint proxy statement/prospectus to be sent to the stockholders of the Predecessor.
The joint proxy statement/prospectus for the shareholder vote on the Merger has been filed with the Securities and Exchange Commission (the “SEC”), and the Staff of the SEC has returned comments thereon to the Predecessor and Pyxis, which are preparing responses to these comments. A special meeting of the Predecessor’s shareholders to vote on the Merger transactions was held on October 26th, 2016.
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As a result of the Merger, and subject to the terms and conditions of the Merger Agreement, Pyxis is expected to become a public company. Pyxis intends to apply to have its common stock listed on the Nasdaq Capital Market or the NYSE MKT under the symbol “PXS.”
For additional information regarding Pyxis and the Merger transaction, see the Predecessor’s Current Report on Form 8-K dated April 23, 2015.
Pyxis Tankers Inc.
Pyxis Tankers Inc. is a newly formed international maritime transportation company with a focus on the tanker sector. At the consummation of the Merger with the Predecessor, Pyxis’ fleet will be comprised of six double hull product tankers with an average current age of four years and that are employed under a mix of short- and medium-term time charters and spot charters. Pyxis will acquire these six vessels prior to the Merger from an affiliate of its founder and chief executive officer, Mr. Valentis (“Eddie”) Valentis. Four of the vessels in the fleet will be medium-range, or MR, product tankers, three of which have eco-efficient or eco-modified designs and two will be short-range tanker sister ships. Each of the vessels in the fleet is capable of transporting refined petroleum products, such as naphtha, gasoline, jet fuel, kerosene, diesel and fuel oil, as well as other liquid bulk items, such as vegetable oils and organic chemicals.
Spin-Off
Prior to the execution of the Merger Agreement, the Predecessor transferred all of its businesses, assets and liabilities to the Company in anticipation of the Spin-Off of Company from the Predecessor. The Company has assumed all liabilities of the Predecessor, and the liabilities of the Predecessor’s former subsidiaries, and has agreed to indemnify Pyxis for losses relating to all of the liabilities of the Predecessor and its former subsidiaries.
Upon completion of the Spin-Off, all of the Predecessor’s shares of the common stock shall be cancelled and Company shall be 100% owned by the Predecessor’s stockholders of record as of the record date set for said distribution.
The Make Whole Record Date
In the event that subsequent to the Merger, Pyxis completes a financing which results in gross proceeds to Pyxis of at least $5,000,000 (a “Future Pyxis Offering”) at a valuation lower than the valuation ascribed to the shares of common stock received by the Predecessor’s stockholders pursuant to the Merger Agreement (the “Consideration Value”), Pyxis will be obligated to make “whole” the Predecessor’s stockholders as of April 29, 2015 (the “Make Whole Record Date”) by offering the Predecessor’s stockholders the right to receive additional shares of Pyxis common stock to compensate the Predecessor’s stockholders for the difference in value of their Pyxis common stock.
In addition, should Pyxis fail to complete a Future Pyxis Offering within a date which is 3 years from the date of the closing of the Merger, each holder of the Predecessor’s common stock who has held such stock continuously from the date of the Make Whole Record Date until the expiration of such 3 year period (the “Legacy LS Stockholders”) will have a 24-hour option beginning at the end of the 3 year period to require Pyxis to purchase from such Legacy LS Stockholders a pro rata amount of Pyxis common stock that would result in aggregate gross proceeds to the Legacy LS Stockholders in an amount not to exceed $2,000,000; provided that in no event shall a Legacy LS Stockholder receive an amount per share greater than the Consideration Value.
Voting Agreement
In connection with their entry into the Merger Agreement, the Predecessor, Pyxis and Michael Onghai, entered into a voting agreement, which is referred to herein as the “Voting Agreement.” The Voting Agreement generally requires that Mr. Onghai, in his capacity as a stockholder of the Predecessor, vote all of his shares of the Predecessor’s common stock in favor of the reverse split proposal, the spin-off proposal and the merger proposal, unless doing so would violate his fiduciary duties as an executive officer and member of the board of directors of the Company. Mr. Onghai beneficially holds 3,123,047 shares of the Predecessor’s common stock, representing approximately 54.1% of the outstanding shares of the Predecssor’s common stock over which he possesses voting rights and are therefore subject to the Voting Agreement.
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Closing
The Predecessor completed the Transaction with Pyxis on October 28th 2015.
Prior to the execution of the Merger Agreement, the Predecessor transferred all of its businesses, assets and liabilities to the Company in anticipation of the Spin-Off of Company from the Predecessor. The Company has assumed all liabilities of the Predecessor, and the liabilities of the Predecessor’s former subsidiaries. Upon completion of the Spin-Off, all of the Predecessor’s shares of the common stock shall be cancelled and Company shall be 100% owned by the Predecessor’s stockholders of record as of the record date set for said distribution. As a result of the Spin-off, each share of the Predecessor received one share of LookSmart Group common stock. Following the merger, LookSmart Group had a total of 5,768,851 shares of common stock issued and outstanding. The Company is in the process of applying to be traded in the OTC Markets or the Pinksheets.
In addition, in connection with the reverse merger with Pyxis, the Predecessor consummated a 1 to .1512 reverse split, thereby reducing the number of its shares outstanding from 5,768,851 to 872,036. Each post-split share of the Predecessor was cancelled and exchanged for the right to receive 1.0667 shares of Pyxis common stock. Following the reverse merger, Pyxis had a total of 18,244,671 shares (giving effect to rounding up on fractional shares) of common stock issued and outstanding.
3. Cash and Available for Sale Securities
The following table summarizes the Company’s cash and available-for-sale securities’ amortized cost and estimated fair value by significant investment category as of June 30, 2016, and December 31, 2015 (in thousands):
| Amortized Cost and Estimated Fair Value | ||||||||
| June 30, | December 31, | |||||||
| 2016 | 2015 | |||||||
| Cash and cash equivalents: | ||||||||
| Cash | $ | 109 | $ | 207 | ||||
| Cash equivalents | ||||||||
| Money market mutual funds | - | - | ||||||
| Commercial paper | - | - | ||||||
| Total cash equivalents | - | - | ||||||
| Total cash and cash equivalents | 109 | 207 | ||||||
| Short-term investments: | ||||||||
| Corporate bonds | - | - | ||||||
| Certificates of deposit | 36 | - | ||||||
| Commercial paper | - | 29 | ||||||
| Other commodities | - | 7 | ||||||
| Collateralized debt obligations | - | - | ||||||
| Total short-term investments | 36 | 36 | ||||||
| Long-term investments: | ||||||||
| Certificates of deposit | - | - | ||||||
| Total long-term investments | - | - | ||||||
| Total cash, and cash equivalents, short-term and long-term investments | $ | 145 | $ | 243 | ||||
The contractual maturities of cash equivalents and short-term investments at June 30, 2016, and December 31, 2015, were less than one year. There were no long-term investments at June 30, 2016 and December 31, 2015.
The Company typically invests in highly rated securities and its policy generally limits the amount of credit exposure to any one issuer. When evaluating the investments for other-than-temporary impairment, the Company reviews such factors as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer, and the Company’s intent to sell, or whether it is more likely than not it will be required to sell the investment before recovery of the investment’s amortized cost basis. During the three months ended June 30, 2016 and 2015, the Company did not recognize any impairment charges on outstanding investments. As of June 30, 2016, the Company does not consider any of its investments to be other-than-temporarily impaired.
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4. Property and Equipment
Property and equipment consist of the following at June 30, 2016, and December 31, 2015 (in thousands):
| June 30, 2016 | December 31, 2015 | |||||||||||||||||||||||
| Cost | Accumulated Depreciation | Net Book Value | Cost | Accumulated Depreciation | Net Book Value | |||||||||||||||||||
| Computer equipment | $ | 1,097 | $ | (953 | ) | $ | 144 | $ | 1,082 | $ | (829 | ) | $ | 253 | ||||||||||
| Furniture and fixtures | 21 | (9 | ) | 12 | 22 | (7 | ) | 15 | ||||||||||||||||
| Software | 2,552 | (2,260 | ) | 292 | 2,294 | (1,714 | ) | 580 | ||||||||||||||||
| Building and Leasehold improvements | 541 | (117 | ) | 424 | 541 | (90 | ) | 451 | ||||||||||||||||
| Land and Buildings | 797 | (43 | ) | 754 | 797 | (35 | ) | 762 | ||||||||||||||||
| Total | $ | 5,009 | $ | (3,383 | ) | $ | 1,626 | $ | 4,736 | $ | (2,675 | ) | $ | 2,061 | ||||||||||
Depreciation expense on property and equipment for the three and six months ended June 30, 2016, including property and equipment under capital lease at June 30, 2016, was $0.3 million and $0.5 million respectively, and is recorded in operating expenses. Depreciation expense on property and equipment for the three and six months ended June 30, 2015, including property and equipment under capital lease at June 30, 2015, was $0.3 million and $0.6 million respectively, and is recorded in operating expenses. Equipment under capital lease at June 30, 2016 totaled $0 million. Equipment under capital lease at June 30, 2015 totaled $0.1 million.
In November of 2013, LookSmart acquired an approximately 10,000 square foot Data Center facility in Phoenix, Arizona. The Company had acquired the facility intending to use the Data Center to support its technology platforms. At present the Company does not need the Data Center for its core businesses and is evaluating other uses for the property. The Company may sell the property if that can occur on terms acceptable to management.
5. Other Assets
The Company’s other assets are as follows at June 30, 2016, and December 31, 2015 (in thousands):
| June 30, 2016 | December 31, 2015 | |||||||||||||||||||||||
| Gross Amount | Accumulated Amortization | Net Book Value | Gross Amount | Accumulated Amortization | Net Book Value | |||||||||||||||||||
| Other assets | $ | 418 | - | $ | 418 | $ | 418 | - | $ | 418 | ||||||||||||||
| Total | $ | 418 | - | $ | 418 | $ | 418 | - | $ | 418 | ||||||||||||||
6. Accrued Liabilities
Accrued liabilities consisted of the following as of June 30, 2016, and December 31, 2015 (in thousands):
| June 30, | December 31, | |||||||
| 2016 | 2015 | |||||||
| Accrued distribution and partner costs | $ | (30 | ) | $ | 5 | |||
| Accrued compensation and related expenses | 56 | 91 | ||||||
| Accrued professional service fees | 68 | 68 | ||||||
| Other | 212 | 207 | ||||||
| Capital lease obligation (Note 7) | - | - | ||||||
| Total accrued liabilities | $ | 306 | $ | 371 | ||||
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7. Restructuring Charges
In August 2012, the Company entered into an agreement to sublease its office space in San Francisco under terms generally equivalent to its existing commitment. This lease ended on December 31, 2014, at which time the company no longer had any obligations under the terms of this lease.
8. Capital Lease and Other Obligations
Capital lease and other obligations consist of the following at June 30, 2016, and December 31, 2015 (in thousands):
| June 30, | December 31, | |||||||
| 2016 | 2015 | |||||||
| Capital lease obligations | $ | 3 | $ | 16 | ||||
| Deferred rent | - | 14 | ||||||
| Notes Payable | 2,180 | 1,750 | ||||||
| Total capital lease and other obligations | 2,183 | 1,780 | ||||||
| Less: current portion of capital lease obligations | (3 | ) | (16 | ) | ||||
| Capital lease and other obligations, net of current portion | $ | 2,180 | $ | 1,764 | ||||
Refer to Note 8 for future minimum payment details.
Other Obligations
From December 2014 to March 2015, Snowy August Management LLC advanced certain funds to the Company in the aggregate amount of $0.6 million. The Company incorrectly stated the amount of the funds advanced as $0.75 million in its Annual Report on Form 10-K for the year ended December 31, 2014, but does not consider such misstatement material. The Company’s Chief Executive Officer, Michael Onghai is the manager of Snowy August Management LLC. The Company intends to repay in full such funds to Snowy August Management LLC.
From April 2015 to June 2015, Snowy August Management LLC advanced certain funds to the Company in the aggregate amount of $0.1 million.
On June 5, 2015, LookSmart Group obtained a 12 month loan from Inca Capital in the amount of $0.6 million collateralized by our data center facility in Phoenix, Arizona. The interest-only loan carries an interest rate of 10.5%. The loan’s maturity date is May 30, 2016. This loan was extended for 6 months on June 1, 2016.
From July 2015 to September 2015, Snowy August Management LLC advanced certain funds to the Company in the aggregate of $0.25 million
From September 2015 to December 2015, Snowy August Management LLC advanced certain funds to the Company in the aggregate of $0.95 million
From January 2016 to March 2016, Snowy August Management LLC advanced certain funds to the Company in the aggregate of $0.2 million.
From March 2016 to June 2016, Snowy August Management LLC advanced certain funds to the Company in the aggregate of $0.23 million
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9. Commitments and Contingencies
As of June 30, 2016, future minimum net payments under all operating leases are as follows (in thousands):
| Capital Lease | Operating Leases | Total | ||||||||||
| Six months ending December 31, 2015 | $ | - | $ | - | ||||||||
| Years ending December 31, | ||||||||||||
| 2016 | 16 | - | - | |||||||||
| 2017 | - | - | - | |||||||||
| 2018 | - | - | - | |||||||||
| Total minimum net payments | $ | 16 | $ | - | $ | - | ||||||
| Less: amount representing interest | - | |||||||||||
| Present value of net minimum payments | 16 | |||||||||||
| Less: current portion | - | |||||||||||
| Long-term portion of capital lease obligations | $ | 16 | ||||||||||
Operating Leases
The Company entered into a 30-month operating lease agreement for various network operating equipment beginning in the fourth quarter of 2013.
Rent expense under all operating leases was not significant for each of the three months ended June 30, 2016 and 2015, respectively.
Letters of Credit
The company had an outstanding standby letter of credit issued by City National Bank (CNB) of approximately $0.1 million at December 30, 2014, related to security of the subleased corporate office lease and secured by a money market account held at CNB. In February 2015, the Company cancelled this letter of credit upon release by the Lessor.
Guarantees and Indemnities
During its normal course of business, the Company has made certain guarantees, indemnities and commitments under which it may be required to make payments in relation to certain transactions. These indemnities include intellectual property and other indemnities to the Company’s customers and distribution network partners in connection with the sales of its products, and indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease.
Officer and Director Indemnification
The Company has agreements whereby it indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was, serving, at the Company’s request, in such capacity, to the maximum extent permitted under the laws of the State of Delaware. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. However, the Company maintains directors and officers insurance coverage that may contribute, up to certain limits, a portion of any future amounts paid, for indemnification of directors and officers. The Company believes the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal. Historically, the Company has not incurred any losses or recorded any liabilities related to performance under these types of indemnities.
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Legal Proceedings
The Company is otherwise involved, from time to time, in various other legal proceedings arising from the normal course of business activities. Although the results of litigation and claims cannot be predicted with certainty, the Company does not expect resolution of these matters to have a material adverse impact on its consolidated results of operations, cash flows or financial position unless stated otherwise. However, an unfavorable resolution of a matter could, depending on its amount and timing, materially affect its results of operations, cash flows or financial position in a future period. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense costs, diversion of management resources and other factors.
10. Stockholders’ Equity
Share-Based Compensation
Stock Option Plans
In December 1997, the Company approved the 1998 Stock Option Plan (the “1998 Plan”). In June 2007, the stockholders approved the LookSmart 2007 Equity Incentive Plan (the “2007 Plan”). Under the 2007 Plan, the Company may grant incentive stock options, nonqualified stock options, stock appreciation rights and stock rights to employees, directors and consultants. Share-based incentive awards are provided under the terms of these two plans (collectively, the “Plans”).
The Compensation Committee of the Board of Directors administers the Company’s Plans. Awards under the Plans principally include at-the-money options and fully vested restricted stock. Outstanding stock options generally become exercisable over a four-year period from the grant date and have a term of seven years. Grants can only be made under the 2007 Plan. The 1998 Plan is closed to further share issuance and all options have expired or been forfeited as of March 31, 2015. The number of shares issued or reserved for issuance under the 2007 Plan was 1.2 million and 1.4 million shares of common stock as of June 30, 2016 and December 31, 2015, respectively.
Share-based compensation expense recorded during three months ended June 30, 2016, and 2015 was included in the Company’s Unaudited Consolidated Statements of Operations as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30 | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Sales and marketing | $ | - | $ | - | $ | - | $ | - | ||||||||
| Product development and technical operations | - | - | - | - | ||||||||||||
| General and administrative | - | - | - | - | ||||||||||||
| Total share-based compensation expense | $ | - | $ | - | $ | - | $ | - | ||||||||
Total unrecognized share-based compensation expense related to share-based compensation arrangements at June 30, 2016 was zero. The total fair value of equity awards vested during the three months ended June 30, 2016 was zero. The total fair value of equity awards vested during the three months ended March 31, 2015, was zero.
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Option Awards
Stock option activity under the Plans during the three months ended June 30, 2016 is as follows:
| Shares | Weighted- Average Exercise Price Per Share | Weighted- Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||||
| (in thousands) | (in years) | (in thousands) | ||||||||||||||
| Options outstanding at December 31, 2013 | 25 | $ | 4.16 | 4.67 | $ | - | ||||||||||
| Granted | - | - | ||||||||||||||
| Exercised | - | - | ||||||||||||||
| Expired | - | - | ||||||||||||||
| Forfeited | (20 | ) | 3.90 | |||||||||||||
| Options outstanding at March 31, 2015 | 5 | $ | 5.27 | 2.93 | - | |||||||||||
| Granted | - | - | ||||||||||||||
| Exercised | - | - | ||||||||||||||
| Expired | - | - | ||||||||||||||
| Forfeited | - | - | ||||||||||||||
| Options outstanding at June 30, 2015 | 5 | $ | 5.27 | 2.67 | $ | - | ||||||||||
| Vested and expected to vest at June 30, 2015 | 4 | $ | 5.32 | 0.41 | $ | - | ||||||||||
| Exercisable at June 30, 2015 | 4 | $ | 5.44 | 0.36 | $ | - | ||||||||||
The aggregate intrinsic values in the table above represent the total pre-tax intrinsic value (the difference between the market price of the Company’s stock on the last trading day of the period and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holder had all option holders exercised their options at quarter-end. The intrinsic value amount changes with changes in the fair market value of the Company’s stock.
In the first quarter of 2015, all remaining outstanding share options were surrendered. There are no stock options outstanding as of June 30, 2016.
Stock Awards
The Company did not issue restricted stock during the three months ended June 30, 2016 and 2015.
Employee Stock Purchase Plan
On July 14, 2009, the 2009 Employee Stock Purchase Plan (the “ESPP”) was approved by the shareholders and authorized to issue up to 500 thousand shares of Common Stock to employees. Substantially all employees may purchase the Company’s common stock through payroll deductions at 85 percent of the lower of the fair market value at the beginning or end of the offering period. Each offering and purchase period is six months. ESPP contributions are limited to a maximum of 15% of an employee’s eligible compensation, and ESPP participants are limited to purchasing a maximum of 5,000 shares per purchase period. On February 15, 2013, the ESPP was suspended pending a review by the Company’s Board of Directors of all equity incentive arrangements. Share-based compensation expense for the ESPP was zero in the three months ended June 30, 2016 and insignificant in the three months ended March 31, 2015. As of June 30, 2016, 28 thousand shares (adjusted for the 3:1 reverse split in November 2013) have been issued under the 2009 Plan. In the first quarter of 2015, all remaining outstanding share options were surrendered,
Share-Based Compensation Valuation Assumptions
We estimate the fair value of each option award on the date of grant using the Black-Scholes option valuation model. Our assumptions about stock-price volatility are based on the actual volatility of our publically traded stock. The risk-free interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield curve in effect at the time of the grant. We estimate the expected term based upon the historical exercise activity.
No options were granted in the first six months of 2016 or 2015, therefore no weighted average assumptions are included here.
Share-based compensation expense recognized in the Consolidated Statements of Operations is based on awards ultimately expected to vest and has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Exercise of Employee and Director Stock Options and Purchase Plans
There were no options exercised in the three and six months ended June 30, 2016 and 2015. The Company issues new shares of common stock upon exercise of stock options. No income tax benefits have been realized from exercised stock options.
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Repurchase of Equity Securities by the Company
There were no shares repurchased during the three months ended June 30, 2016. Approximately 98,000 shares were purchased at an average price of $1.78 per share under the program in the year ended December 31, 2014, and recorded as Treasury Stock at cost totaling approximately $0.17 million.
Additional Paid-in Capital
Paid-in Capital increased by $0.6 million. This increase is due to the $0.6 million the Predecessor received from privately-held Pyxis Tankers Inc. (“Pyxis”) associated with the announcement in April 2015 that LookSmart, Ltd. (the “Predecessor”) and privately-held Pyxis Tankers Inc. ("Pyxis") entered into an Agreement and Plan of Merger (the "Merger Agreement"), whereby Pyxis will become a publicly listed company as a result of the merger between LookSmart, Ltd. ("Predecessor") and into Pyxis' wholly-owned subsidiary, Maritime Technologies Corp., a Delaware corporation. On the effective date of the merger, in addition, LookSmart will spin off its existing business into a new entity called LookSmart Group, Inc. (“LookSmart” or "Company").
11. Fair Value Measurements
Fair Value of Financial Assets
The Company’s financial assets measured at fair value on a recurring basis subject to disclosure requirements at June 30, 2016, and December 31, 2015 were as follows (in thousands):
| Balance at June 30, 2016 | Quoted Prices in | Significant Inputs | Significant Unobserved Inputs (Level 3) | |||||||||||||
| Cash equivalents: | ||||||||||||||||
| Money market mutual funds | $ | - | $ | 1 | $ | - | $ | - | ||||||||
| Total cash equivalents | - | 1 | - | - | ||||||||||||
| Short-term investments: | ||||||||||||||||
| Certificates of deposit | 36 | - | 36 | - | ||||||||||||
| Other commodities | 0 | - | - | - | ||||||||||||
| Total short-term investments | 36 | - | 36 | - | ||||||||||||
| Total financial assets measured at fair value | $ | 36 | $ | 1 | $ | 36 | $ | - | ||||||||
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| Balance at December 31, 2015 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobserved Inputs (Level 3) | |||||||||||||
| Cash equivalents: | ||||||||||||||||
| Money market mutual funds | $ | - | $ | - | $ | - | $ | - | ||||||||
| Total cash equivalents | - | - | - | - | ||||||||||||
| Short-term investments: | ||||||||||||||||
| Commercial Paper | 29 | - | 29 | - | ||||||||||||
| Other Commodities | 7 | - | 7 | - | ||||||||||||
| Total short-term investments | 36 | - | 36 | - | ||||||||||||
| Total financial assets measured at fair value | $ | 36 | $ | 1 | $ | 36 | $ | - | ||||||||
The Company held no Level 3 investments at June 30, 2016 and at December 31, 2015.
Investments
For investments that have quoted market prices in active markets, the Company uses the quoted market prices as fair value and includes these prices in the amounts disclosed in Level 1 of the hierarchy. The Company receives the quoted market prices from a third party, nationally recognized pricing service (“pricing service”). When quoted market prices are unavailable, the Company utilizes a pricing service to determine a single estimate of fair value, which is mainly for its fixed maturity investments. The fair value estimates provided from this pricing service are included in the amount disclosed in Level 2 of the hierarchy. The Company bases all of its estimates of fair value for assets on the bid price as it represents what a third party market participant would be willing to pay in an arm’s length transaction.
The Company validates the prices received from the pricing service using various methods including, applicability of Federal Deposit Insurance Corporation or other national government insurance or guarantees, comparison of proceeds received on individual investments subsequent to reporting date, prices received from publicly available sources, and review of transaction volume data to confirm the presence of active markets. The Company does not adjust the prices received from the pricing service unless such prices are determined to be inconsistent. At June 30, 2016 and December 31, 2015, the Company did not adjust prices received from the pricing service.
Trade accounts receivable, net: The carrying value reported in the Consolidated Balance Sheets approximates fair value and is net of allowances for doubtful accounts and returns which estimate customer non-performance risk.
Trade accounts payable and accrued liabilities: The carrying value reported in the Consolidated Balance Sheets for these items approximates their fair value, which is the likely amount that the liability with short settlement periods would be transferred to a market participant with a similar credit standing as the Company.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
The following discussion should be read in conjunction with the Unaudited Consolidated Financial Statements and the Notes to those statements, which appear elsewhere in this Quarterly Report on Form 10-Q. The following discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We use words such as “believes,” “intends,” “expects,” “anticipates,” “plans,” “may,” “will” and similar expressions to identify forward-looking statements. Discussions containing forward-looking statements may be found in the material set forth under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in other sections of this report. All forward-looking statements, including, but not limited to, projections, expectations or estimates concerning our business, including demand for our products and services, mix of revenue sources, ability to control and/or reduce operating expenses, anticipated gross margins and operating results, cost savings, product development efforts, general outlook of our business and industry, future profits or losses, competitive position, share-based compensation, adequate liquidity to fund our operations and meet our other cash requirements, are inherently uncertain as they are based on our expectations and assumptions concerning future events. These forward-looking statements are subject to numerous known and unknown risks and uncertainties. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including but not limited to, the possibility that we may fail to maintain or grow our listings advertiser base and/or distribution network, that existing and potential distribution partners may opt to work with, or favor the products of, competitors if our competitors offer more favorable products or pricing terms, that we may be unable to grow our online search advertising revenue and/or find alternative sources of revenue, that we may be unable to attain or maintain customer acceptance of our publisher solutions products, that changes in the distribution network composition may lead to decreases in query volumes, that we may be unable to maintain or improve our query volume, match rate, number of paid clicks, average revenue per click, conversion rate or other ad network metrics, that we may be unable to achieve or maintain profitability, that we may be unable to retain our existing credit facilities or obtain new credit facilities, that we may be unable to attract and retain key personnel, that we may have unexpected increases in costs and expenses, that we may be unable to remain listed on the NASDAQ Stock Market, or that one or more of the other risks described elsewhere in this report may occur.
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All forward-looking statements in this report are made as of the date hereof, based on information available to us as of the date hereof, and except as required by applicable law; we assume no obligation to update any forward-looking statements.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of assets and liabilities. On an on-going basis, we evaluate our critical accounting policies and estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies and estimates are discussed in our Annual Report on Form 10-K for the year ended December 31, 2015. As of June 30, 2016, there had been no material changes to our critical accounting policies and estimates.
Business Overview
For a description of our business, please refer to Note 1.
Results of Operations
Overview of the Three and Six Months Ended June 30, 2016 and 2015
The following tables set forth selected information concerning our results of operations as a percentage of consolidated net revenue for the periods indicated (in thousands):
| Three Months Ended June 30, | ||||||||||||||||||||||||
| 2016 | % of Revenue | 2015 | % of Revenue | Dollar Change | % Change | |||||||||||||||||||
| Revenue | $ | 836 | 100.0 | % | $ | 1,020 | 100.0 | % | $ | (184 | ) | (18 | )% | |||||||||||
| Cost of revenue | 507 | 60.6 | % | 412 | 40.4 | % | 95 | 23 | % | |||||||||||||||
| Gross profit | 329 | 39.4 | % | 608 | 59.6 | % | (279 | ) | (46 | )% | ||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Sales and marketing | 113 | 13.5 | % | 295 | 28.9 | % | (182 | ) | (62 | )% | ||||||||||||||
| Product development and technical operations | 509 | 60.9 | % | 631 | 61.9 | % | (122 | ) | (19 | )% | ||||||||||||||
General and administrative | 196 | 23.4 | % | 477 | 46.8 | % | (281 | ) | (59 | )% | ||||||||||||||
| Restructuring charge | - | 0.1 | % | 217 | 21.3 | % | (217 | ) | (100 | )% | ||||||||||||||
| Total operating expenses | 818 | 97.8 | % | 1,620 | 158.8 | % | (802 | ) | (50 | )% | ||||||||||||||
| Income /loss from operations | (489 | ) | (58.5 | )% | (1,012 | ) | (99.2 | )% | 523 | (52 | )% | |||||||||||||
| Non-operating income (expense), net | (29 | ) | (3.5 | )% | 19 | 1.9 | % | (48 | ) | (253 | )% | |||||||||||||
| Loss from operations before income taxes | (518 | ) | (62.0 | )% | (993 | ) | (97.4 | )% | 475 | (48 | )% | |||||||||||||
| Income tax expense | 16 | - | - | - | 16 | - | ||||||||||||||||||
| Net loss | $ | (502 | ) | (60.0 | )% | $ | (993 | ) | (97.4 | )% | $ | 491 | (49 | )% | ||||||||||
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| Six Months Ended June 30, | ||||||||||||||||||||||||
| 2016 | % of Revenue | 2015 | % of Revenue | Dollar Change | % Change | |||||||||||||||||||
| Revenue | 1,838 | 100.0 | % | $ | 2,004 | 100.0 | % | $ | (166 | ) | (8 | )% | ||||||||||||
| Cost of revenue | 1,085 | 59.0 | % | 864 | 43.1 | % | 221 | 26 | % | |||||||||||||||
| Gross profit | 753 | 41.0 | % | 1,140 | 56.9 | % | (387 | ) | (34 | )% | ||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Sales and marketing | 276 | 15.0 | % | 703 | 35.1 | % | (427 | ) | (61 | )% | ||||||||||||||
| Product development and technical operations | 857 | 46.6 | % | 1,333 | 66.5 | % | (476 | ) | (36 | )% | ||||||||||||||
| General and administrative | 436 | 23.7 | % | 807 | 40.3 | % | (371 | ) | (46 | )% | ||||||||||||||
| Restructuring charge | 9 | 0.6 | % | 293 | 14.7 | % | (284 | ) | (97 | )% | ||||||||||||||
| Total operating expenses | 1,578 | 85.9 | % | 3,136 | 156.5 | % | (1,558 | ) | (50 | )% | ||||||||||||||
| Loss from operations | (825 | ) | (44.9 | )% | (1,996 | ) | (99.6 | )% | 1,171 | (59 | )% | |||||||||||||
| Non-operating income (expense), net | (32 | ) | (1.7 | )% | 15 | 0.7 | % | (47 | ) | (313 | )% | |||||||||||||
| Loss from continuing operations before income taxes | (857 | ) | (46.6 | %) | (1,981 | ) | (98.9 | )% | 1,124 | (57 | )% | |||||||||||||
| Income tax expense | - | - | - | 0.0 | % | - | - | |||||||||||||||||
| Net loss | $ | (857 | ) | (46.6 | )% | $ | (1,981 | ) | (98.8 | )% | $ | 1,124 | (57 | )% | ||||||||||
Revenue
Revenue is derived from two service offerings or “products” of LookSmart Group (the “Company”): Advertiser Networks and Publisher Solutions. Total revenue and revenue from Advertiser Networks and Publisher Solutions for the three and six months ended June 30, 2016, and 2015, was as follows (in thousands):
| Three Months Ended June 30, | ||||||||||||||||||||||||
| 2016 | % of Revenue | 2015 | % of Revenue | Dollar Change | % Change | |||||||||||||||||||
| Advertiser Networks | $ | 836 | 100 | % | $ | 1,020 | 100 | % | $ | (184 | ) | (18 | )% | |||||||||||
| Publisher Solutions | - | - | 0 | % | - | |||||||||||||||||||
| Total revenue | $ | 836 | 100 | % | $ | 1,020 | 100 | % | $ | (184 | ) | (18 | )% | |||||||||||
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| Six Months Ended June 30, | ||||||||||||||||||||||||
| 2016 | % of Revenue | 2015 | % of Revenue | Dollar Change | % Change | |||||||||||||||||||
| Advertiser Networks | $ | 1,838 | 100 | % | $ | 2,003 | 100 | % | $ | (165 | ) | (8 | )% | |||||||||||
| Publisher Solutions | - | 0 | % | 1 | 0 | % | (1 | ) | (100 | )% | ||||||||||||||
| Total revenue | $ | 1,838 | 100 | % | $ | 2,004 | 100 | % | $ | (166 | ) | (8 | )% | |||||||||||
Advertiser Networks
The decrease in Advertiser Networks revenue for the three and six months ended June 30, 2016, as compared to the same period in 2015 is the result of a reduction in revenues from all categories: Intermediaries, Direct Advertisers and Self Service Advertisers. We experienced a continuing decrease in Advertising Network revenue in the six months of 2016 following a trend that began in late 2011.
In the six months of 2016, revenue from Intermediaries decreased compared to the six months of 2015.
In the six months of 2016, revenue from Direct Advertisers decreased compared to the six months of 2015.
In the six months of 2016, revenue from Self Service Advertisers decreased compared to the six months of 2015.
Cost of Revenue and Gross Profit
Cost of revenue is primarily TAC (costs paid to our distribution network partners). Other costs include data center rent and power usage and credit card fees.
Cost of revenue for the three and six months ended June 30, 2016 and 2015 were as follows (in thousands):
| Three Months Ended June 30, | ||||||||||||||||||||||||
| 2016 | % of Revenue | 2015 | % of Revenue | Dollar Change | % Change | |||||||||||||||||||
| Traffic acquisition costs | $ | 390 | 47 | % | $ | 370 | 36 | % | $ | 20 | 5 | % | ||||||||||||
| Other costs | 117 | 14 | % | 42 | 3 | % | 75 | 179 | % | |||||||||||||||
| Total cost of revenue | $ | 507 | 61 | % | $ | 412 | 40 | % | $ | 95 | 23 | % | ||||||||||||
| Six Months Ended June 30, | ||||||||||||||||||||||||
| 2016 | % of Revenue | 2015 | % of Revenue | Dollar Change | % Change | |||||||||||||||||||
| Traffic acquisition costs | $ | 869 | 47 | % | $ | 792 | 40 | % | $ | 77 | 10 | % | ||||||||||||
| Other costs | 216 | 12 | % | 72 | 4 | % | 144 | 200 | % | |||||||||||||||
| Total cost of revenue | $ | 1,085 | 59 | % | $ | 864 | 43 | % | $ | 221 | 26 | % | ||||||||||||
TAC increased $0.02 and $0.08 in the three and six months ended June 30, 2016, when compared to the three and six months ended June 30, 2015.
Certain other costs, such as data center costs and power usage, are generally fixed costs. Total cost of revenue decreased in 2016 primarily as result of decreases of TAC combined with decreases in other costs in the current year.
TAC as a percentage of Advertiser Network revenue increased to 61% and 59% in the three and six months ended June 30, 2016, as compared to 40% and 43% in the same period in 2015 as a result of overall revenue mix changes from 2015 to 2016.
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Operating Expenses
Operating expenses for the three and six months ended June 30, 2016, as compared to the same period in 2015, decreased by $0.8 million and $1.5 million. Contributing factors included decreases in sales and marketing costs, product and development costs, general and administrative costs.
Operating expenses consist of sales and marketing, product development and technical operations, general and administrative, and restructuring charges for the three months ended June 30, 2016, and 2015, and were as follows (in thousands):
| Three Months Ended June 30, | ||||||||||||||||||||||||
| 2016 | % of Revenue | 2015 | % of Revenue | Dollar Change | % Change | |||||||||||||||||||
| Sales and marketing | $ | 113 | 14 | % | $ | 295 | 29 | % | $ | (182 | ) | (62 | )% | |||||||||||
| Product development and technical operations | 509 | 61 | % | 631 | 62 | % | (122 | ) | (19 | )% | ||||||||||||||
| General and administrative | 196 | 22 | % | 477 | 47 | % | (281 | ) | (59 | )% | ||||||||||||||
| Restructuring charge | 0 | 0 | % | 217 | - | (217 | ) | (100 | )% | |||||||||||||||
| Total operating expenses | $ | 818 | 97 | % | $ | 1,620 | 138 | % | $ | (802 | ) | (50 | )% | |||||||||||
| Six Months Ended June 30, | ||||||||||||||||||||||||
| 2016 | % of Revenue | 2015 | % of Revenue | Dollar Change | % Change | |||||||||||||||||||
| Sales and marketing | $ | 276 | 15 | % | $ | 703 | 35 | % | $ | (427 | ) | (61 | )% | |||||||||||
| Product development and technical operations | 857 | 47 | % | 1,333 | 67 | % | (476 | ) | (36 | )% | ||||||||||||||
| General and administrative | 436 | 24 | % | 807 | 40 | % | (371 | ) | (46 | )% | ||||||||||||||
| Restructuring charge | 9 | 0 | % | 293 | 15 | % | (284 | ) | (97 | )% | ||||||||||||||
| Total operating expenses | $ | 1,578 | 86 | % | $ | 3,136 | 157 | % | $ | (1,558 | ) | (50 | )% | |||||||||||
Sales and Marketing
Sales and marketing expenses in the current year include salaries, share-based compensation and other costs of employment for our sales force, sales administration and customer service staff and marketing personnel, overhead, facilities and allocation of depreciation. Sales and marketing expenses also include the costs of advertising, trade shows, public relations activities and various other activities supporting our customer acquisition effort.
The decrease in sales and marketing expenses for the three and six months ended June 30, 2016, reflects a reduction in our sales and marketing personnel.
Product Development and Technical Operations
Product development and technical operations expense includes all costs related to the continued operations, development and enhancement of our core technology product, the AdCenter platform. The AdCenter is used to operate both our own Advertiser Network and other publishers’ client networks, and is licensed to publishers to operate their own network. These costs include salaries and associated costs of employment, including share-based compensation, overhead, and facilities. Software licensing and computer equipment depreciation related to supporting product development and technical operations functions are also included in product development and technical operations expense.
General and Administrative
General and administrative expenses include personnel cost, legal, insurance, tax and accounting, consulting, professional services fees and the provision for, and reductions of, the allowance for doubtful trade receivables.
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Other Items
The tables below set forth other continuing operations data for the three and six months ended June 30, 2016, and 2015 (in thousands):
| Three Months Ended June 30, | ||||||||||||||||||||||||
| 2016 | % of Revenue | 2015 | % of Revenue | Dollar Change | % Change | |||||||||||||||||||
| Non-operating income (expense), net | ||||||||||||||||||||||||
| Interest income | $ | - | - | $ | - | 0 | % | $ | - | - | ||||||||||||||
| Interest expense | (16 | ) | - | (1 | ) | - | (15 | ) | 100 | % | ||||||||||||||
| Other income, net | (13 | ) | (2 | %) | 20 | 2 | % | (33 | ) | (165 | %) | |||||||||||||
| Total non-operating income (expense), net | $ | (29 | ) | (2 | %) | $ | 19 | 2 | % | $ | (48 | ) | (253 | %) | ||||||||||
| Income tax expense | $ | 16 | - | $ | - | - | $ | 16 | - | |||||||||||||||
| Six Months Ended June 30, | ||||||||||||||||||||||||
| 2016 | % of Revenue | 2015 | % of Revenue | Dollar Change | % Change | |||||||||||||||||||
| Non-operating income (expense), net | ||||||||||||||||||||||||
| Interest income | $ | - | (1 | %) | $ | - | 0 | % | $ | - | - | |||||||||||||
| Interest expense | (32 | ) | - | (1 | ) | - | (31 | ) | 3100 | % | ||||||||||||||
| Other income (expense), net | - | 0 | % | 16 | - | (16 | ) | (100 | %) | |||||||||||||||
| Total non-operating income (expense), net | $ | (32 | ) | (1 | %) | $ | 15 | 1 | % | $ | (47 | ) | (313 | %) | ||||||||||
| Income tax expense | $ | - | - | $ | - | - | $ | - | - | |||||||||||||||
Interest Income and Expense
Interest expense, primarily consisting of interest paid on capital leases, during the three and six months ended June 30, 2016, increased as compared to the three months ended June 30, 2015. This increase was primarily due to the loan we obtained from Inca Capital starting May 2015. (Please see Other Obligations)
Liquidity and Capital Resources
Cash flows were as follows for the six months ended June 30, 2016, and 2015 (in thousands):
| Six Months Ended June 30, | ||||||||||||
| 2016 | 2015 | Change | ||||||||||
| Net cash used in operating activities | $ | (535 | ) | $ | (1,403 | ) | $ | 868 | ||||
| Net cash provided by investing activities | - | (290 | ) | 290 | ||||||||
| Net cash used in financing activities | 430 | 1,872 | (1,442 | ) | ||||||||
| Effect of exchange rate changes on cash and cash equivalents | 7 | 7 | - | |||||||||
| Increase/(Decrease) in cash and cash equivalents | $ | (98 | ) | $ | 186 | $ | (284 | ) | ||||
Cash, cash equivalents and short- and long-term investment balances were as follows as of June 30, 2016, and December 31, 2015 (in thousands):
| June 30, | December 31, | |||||||||||
| 2015 | 2015 | Change | ||||||||||
| Cash and cash equivalents | $ | 109 | $ | 207 | $ | (98 | ) | |||||
| Short-term investments | 36 | 36 | - | |||||||||
| Total | $ | 145 | $ | 243 | $ | (98 | ) | |||||
| % of total assets | 4 | % | 5 | % | ||||||||
| Total assets | $ | 3,994 | $ | 4,539 | ||||||||
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At June 30, 2016, we had approximately $0.15 million of cash, cash equivalents and short-term marketable investments. Cash equivalents and short-term marketable investments are comprised of highly liquid debt instruments of the U.S. government, commercial paper, time deposits, money market mutual funds, U.S. corporate securities, collateralized debt obligations and other commodities. We actively monitor the depository institutions that hold our cash and cash equivalents and the institutions of whose debt instruments we hold. Our investment policy, which is reviewed annually by our Board of Directors, primarily emphasizes safety of principal while secondarily on maximizing yield on those funds. We can provide no assurances that access to our invested cash and cash equivalents will not be impacted by adverse conditions in the financial markets. These balances may exceed the Federal Deposit Insurance Corporation insurance limits. While we monitor the cash balances in our operating accounts and adjust the cash balances as appropriate, these cash balances could be impacted if the underlying financial institutions fail or could be subject to other adverse conditions in the financial markets. See Note 2 to the Unaudited Consolidated Financial Statements, “Cash and Available for Sale Securities,” which describes further the composition of our cash, cash equivalents and short-term investments.
Cash, cash equivalents and short- and long-term investments decreased $0.1 million to $0.15 million at June 30, 2016, from $0.24 million at December 31, 2015, primarily due to operating losses.
Our primary source of liquidity is our cash, cash equivalents, and short-term investments. Our current primary use of cash is to fund operating losses and investment in software development. . Our liquidity could be negatively affected by a decrease in demand for our services beyond the current quarter, and changes in customer buying behavior. Also, if the banking system or the financial markets continue to remain volatile, our investment portfolio may be impacted and the values and liquidity of our investments could be adversely affected. In addition, we may seek to raise additional capital through public or private debt or equity financings in order to fund our operations and capital expenditures, take advantage of favorable business opportunities, develop and upgrade our technology infrastructure, develop new product and service offerings, take advantage of favorable conditions in capital markets or respond to competitive pressures. In addition, unanticipated developments in the short term requiring cash payments, including the acquisition of businesses with negative cash flows, may necessitate additional financing. We cannot be assured that additional financing will be available on terms favorable to us, or at all. If we issue additional equity or convertible debt securities, our existing stockholders may experience substantial dilution.
Operating Activities
Cash used in operating activities in the six months ended June 30, 2016, consisted of our net loss adjusted for certain non-cash items, including depreciation, amortization, provision for doubtful accounts, and share-based compensation expense, as well as the effect of changes in working capital and other activities. Cash used in operations in the six months ended June 30, 2016 was $0.535 million and consisted of a net loss of $0.857 million, adjustments for non-cash items of $0.475 million and cash used by working capital and other activities of $0.13 million. Adjustments for non-cash items primarily consisted of $0.475 million of depreciation and amortization expense on property and equipment, $0.04 amortization of deferred rent, $0.008 in amortization of deferred lease incentive, and $0.009 million in other non-cash charges. In addition, changes in working capital activities primarily consisted of a $0.062 million net decrease in accounts payable and accrued liabilities, an increase of $0.176 million in accounts receivable and a $0.163 million decrease in prepaid and other assets. The decrease in accounts payable and accrued liabilities was primarily due to decreased TAC and operating expenses. The increase in accounts receivable is primarily attributed to slower paying customers.
Cash used in operating activities in the six months ended June 30, 2015, consisted of our net loss adjusted for certain non-cash items, including depreciation and amortization, as well as the effect of changes in working capital and other activities. Cash used in operations in the six months ended June 30, 2015 was $1.4 million and consisted of a net loss of $2.0 million, adjustments for non-cash items of $0.6 million and cash used by working capital and other activities of zero. Adjustments for non-cash items primarily consisted of $0.6 million of depreciation and amortization expense on property and equipment and purchased software. In addition, changes in working capital activities primarily consisted of a $0.2 million net increase in accounts payable and accrued liabilities, an increase of $0.04 million in accounts receivable and a $0.09 million decrease in prepaid and other assets. The increase in accounts payable and accrued liabilities was primarily due to the increase in operating expenses. The increase in accounts receivable is primarily attributed to slower paying customers.
Investing Activities
Cash provided by investing activities in the six months ended June 30, 2016 was zero.
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Cash used in investing activities in the six months ended June 30, 2015 of $0.3 million was attributed to $0.4 million purchase of intangible assets partially offset by $0.1 million in net proceeds from the sale of investments.
Financing Activities
Cash provided by financing activities in the six months of 2016 of $0.43 million is primarily attributed to increases in long-term liabilities from Snowy August Management, LLC. (See Other Obligations)
Cash provided by financing activities in the six months of 2015 of $1,872 is primarily attributed to increases in long-term liabilities and notes payable, as well as proceeds from additional paid-in capital from Inca Capital, Snowy August Management, LLC and Pyxis Tankers Inc.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined in Regulation S-K Item 303(a)(4), investments in special-purpose entities or undisclosed borrowings or debt. Additionally, we are not a party to any derivative contracts or synthetic leases.
Contractual Obligations and Commercial Commitments
In comparison with our Annual Report on Form 10-K for the year ended December 31, 2015, we believe that there have been no material changes in contractual obligations or commercial commitments outside the ordinary course of business, during the three months ended June 30, 2016.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant to Section 229.305(e) of Regulation S-K, as a smaller reporting company, we are not required to provide information regarding quantitative and qualitative disclosures about market risk.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and principal financial and accounting officer, evaluated the effectiveness of disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (“Exchange Act”), as of the end of the period covered by this Quarterly Report on From 10-Q.
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Based on this evaluation, our chief executive officer and principal financial and accounting officer concluded, as of June 30, 2016, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s (“SEC”) rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and principal financial and accounting officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2016, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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The Company is otherwise involved, from time to time, in various other legal proceedings arising from the normal course of business activities. Although the results of litigation and claims cannot be predicted with certainty, the Company does not expect resolution of these matters to have a material adverse impact on its consolidated results of operations, cash flows or financial position unless stated otherwise. However, an unfavorable resolution of a matter could, depending on its amount and timing, materially affect its results of operations, cash flows or financial position in a future period. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense costs, diversion of management resources and other factors.
Not required for smaller reporting companies.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
None.
Please see the exhibit index following the signature page of this report.
| 31 |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| LOOKSMART GROUP, INC. | |||
| Date: August 22, 2016 | By: | /s/ Michael Onghai | |
| Michael Onghai, | |||
| Principal Executive Officer, | |||
| Principal Financial and Accounting Officer | |||
| 32 |
Exhibits
| Number | Description of Document | |
| 31.1* | Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2* | Certification of Principal Financial and Accounting Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1** | Certification of Chief Executive Officer, Principal Financial and Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS* | XBRL Instance Document | |
| 101.SCH* | XBRL Taxonomy Extension Schema Document | |
| 101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB* | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document |
| (*) | Filed herewith |
| (**) | This certification is being furnished solely to accompany this Quarterly Report pursuant to 18 U.S.C. Section 1350, and it is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. |
| 33 |
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael Onghai, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of LookSmart Group, 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 registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting. |
| Date: August 22, 2016 | /s/ Michael Onghai | |
| Michael Onghai, CFA | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael Onghai, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of LookSmart Group, 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 registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting. |
| Date: August 22, 2016 | /s/ Michael Onghai | |
|
Michael Onghai, |
||
| Principal Financial and Accounting 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
I, Michael Onghai, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that the quarterly report of LookSmart Group, Inc. on Form 10-Q for the fiscal quarter ended June 30, 2016, fully complies with the requirements of §13(a) or §15(d) of the Securities Exchange Act of 1934 and that information contained in such quarterly report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of LookSmart Group, Inc.
| Date: August 22, 2016 | /s/ Michael Onghai | |
|
Michael Onghai, |
||
| Chief Executive Officer | ||
| (Principal Executive Officer, Principal Financial and Accounting Officer) | ||
Document and Entity Information - shares |
6 Months Ended | |
|---|---|---|
Jun. 30, 2016 |
Aug. 01, 2016 |
|
| Document And Entity Information | ||
| Entity Registrant Name | LookSmart Group, Inc. | |
| Entity Central Index Key | 0001641129 | |
| Document Type | 10-Q | |
| Trading Symbol | LKST | |
| Document Period End Date | Jun. 30, 2016 | |
| Amendment Flag | false | |
| Current Fiscal Year End Date | --12-31 | |
| Entity a Well-known Seasoned Issuer | Yes | |
| Entity a Voluntary Filer | No | |
| Entity's Reporting Status Current | Yes | |
| Entity Filer Category | Smaller Reporting Company | |
| Entity Common Stock, Shares Outstanding | 5,768,851 | |
| Document Fiscal Period Focus | Q2 | |
| Document Fiscal Year Focus | 2016 |
CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - $ / shares |
Jun. 30, 2016 |
Dec. 31, 2015 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Preferred stock, at par value (in dollars per share) | $ 0.001 | $ 0.001 |
| Preferred stock, authorized | 5,000 | 5,000 |
| Preferred stock, issued | 0 | 0 |
| Preferred stock, outstanding | 0 | 0 |
| Common stock, at par value (in dollars per share) | $ 0.001 | $ 0.001 |
| Common stock, authorized | 80,000 | 80,000 |
| Common stock, issued | 5,769 | 5,769 |
| Common stock, outstanding | 5,769 | 5,769 |
| Treasury stock | 130 | 130 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
| Consolidated Statements Of Comprehensive Loss | ||||
| Net loss | $ (502) | $ (993) | $ (857) | $ (1,981) |
| Other comprehensive income (loss): | ||||
| Foreign currency translation adjustments | (3) | (59) | (1) | 78 |
| Unrealized loss on investments | 0 | |||
| Change in accumulated other comprehensive loss | (59) | 78 | ||
| Comprehensive loss | $ (505) | $ (1,052) | $ (858) | $ (1,903) |
Summary of Significant Accounting Policies |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Significant Accounting Policies | 1. Summary of Significant Accounting Policies
Nature of Business
LookSmart Group, Inc. (“LookSmart” or the “Company”) is a digital advertising solutions company that provides relevant solutions for search and display advertising customers. LookSmart operates in a large online advertising ecosystem serving ads that target user queries on partner sites.
LookSmart offers search advertising customers targeted search via a monitored search advertising distribution network using the Company’s “AdCenter” platform technology. The Company’s search advertising network includes publishers and search advertising customers, including intermediaries and direct advertising customers and their agencies as well as self-service customers in the United States and certain other countries.
LookSmart also offers advertisers the ability to buy graphical display advertising. LookSmart’s trading desk personnel utilize DSP technology and licensed data from third party providers to buy targeted advertising on a real-time bidded basis. By leveraging our extensive historical search marketing network data along with performance data from a conversion pixel, LookSmart constructs models of the highest performing audiences, and targets them via exchange inventory. LookSmart offers its trading desk as a managed service.
In addition, Looksmart, under its “Clickable” and “Syncapse” brands, allows customers to manage paid, owned and earned media by providing a suite of solutions for social media marketers that include publishing, monitoring, data storage, compliance, management, ad placement and analytics.
Further, LookSmart offers publishers licensed private-label search advertiser network solutions based on its AdCenter platform technology (“Publisher Solutions”). Publisher Solutions consist of hosted auction-based ad serving with an ad backfill capability that allows publishers and portals to manage their advertiser relationships, distribution channels and accounts.
Lastly, in the fourth quarter of 2013 the Company began to make available a LookSmart-branded search engine. For parties submitting search queries, the Company offers free-of-charge search results ranked and presented based on proprietary algorithms. While early in its evolution, part of the Company's current search engine monetization strategy is to generate sponsored search results as a part of overall search results and provide links to paying advertisers’ websites.
In September 2013, LookSmart purchased the Syncapse Technology Assets for $3 million from MNP Ltd., a Receiver appointed by Ontario Superior Court of Justice under the Appointment Order. Upon the completion of this transaction, the Company acquired a social media platform that allows enterprise customers the ability to publish, monitor and analyze their social media presence on paid, owned and earned media. The Company has begun to work with large international brands to assist them in creating, maintaining and analyzing their social media presence online. As a result of the Syncapse asset purchase, the Company is expanding its offerings to our current customer base. Our expanded offering allows LookSmart’s traditional customers the ability to manage ad spend in both search and social platforms. The Company intends to partner with social media companies such as Facebook, Twitter, Pinterest and YouTube, as well as others, to offer customers the ability to maximize their ad spend in all relevant ad categories.
In November of 2013, LookSmart acquired an approximately 10,000 square foot Data Center facility in Phoenix, Arizona. The Company had acquired the facility intending to use the Data Center to support its technology platforms. At present the Company does not need the Data Center for its core businesses and is evaluating other uses for the property. The Company may sell the property if that can occur on terms acceptable to management.
In addition, LookSmart offers publishers licensed private-label search advertiser network solutions based on its AdCenter platform technology (“Publisher Solutions”). Publisher Solutions consist of hosted auction-based ad serving with an ad backfill capability that allows publishers and portals to manage their advertiser relationships, distribution channels and accounts.
On June 3, 2015, LookSmart Group, Inc. (“LookSmart” or the “Company”) was incorporated in the State of Nevada. LookSmart Group, Inc. was set-up to effect the spun-off from its predecessor, LookSmart Limited (“Predecessor”), as a result of a reverse merger and spin-off transaction (the “Transaction”) with Pyxis Tankers(“Pyxis”).
The Predecessor completed the Transaction on October 28, 2015. For year to year comparisons, when we refer to the year 2015, we are referring to the Predecessor.
Prior to the execution of the Merger Agreement, the Predecessor transferred all of its businesses, assets and liabilities to the Company in anticipation of the Spin-Off of Company from the Predecessor. The Company has assumed all liabilities of the Predecessor, and the liabilities of the Predecessor’s former subsidiaries. Upon completion of the Spin-Off, all of the Predecessor’s shares of the common stock were cancelled and the Company is 100% owned by the Predecessor’s stockholders of record as of the record date set for said distribution. As a result of the Spin-off, each share of the Predecessor received one share of LookSmart Group common stock. Following the merger, LookSmart Group had a total of 5,768,851 shares of common stock issued and outstanding. The Company’s stock is traded in the OTCMarkets Pinksheets.
On April 5, 2016 the Company completed the acquisition of the assets of Talkwheel.com, Inc. (“Talkwheel”) into the Company’s subsidiary Clickable, Inc. (“Clickable”). Talkwheel had established a community analytics platform of web activity to unify and analyze a brand’s social media through a visually interactive community platform. During the three months ended June 30, 2016, the Company determined that Talkwheel had breached materially representations and warranties in the Asset Purchase Agreement dated February 11, 2016 (the “Purchase Agreement”) governing the purchase of Talkwheel’s assets. As a result Clickable terminated the Purchase Agreement and rescinded the transaction.
Principles of Consolidation
The Unaudited Consolidated Financial Statements as of June 30, 2016 and December 31, 2015, and for the three months ended June 30, 2016 and 2015, include the accounts of the Company and its subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.
Unaudited Interim Financial Information
The accompanying Unaudited Consolidated Financial Statements as of June 30, 2016, and for the three months ended June 30, 2016 and 2015, reflect all adjustments that are normal and recurring in nature and, in the opinion of management, are necessary for a fair representation of the Company’s financial position as of June 30, 2016 and the results of operations for the periods shown. These Unaudited Consolidated Financial Statements should be read in conjunction with the Company’s Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. The Consolidated Balance Sheet as of December 31, 2015 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”) for complete financial statements. The results of operations for the interim period ended June 30, 2016 is not necessarily indicative of results to be expected for the full year.
Use of Estimates and Assumptions
The Unaudited Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”). This requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue, expenses, and contingent assets and liabilities during the reporting period. The Company bases its estimates on various factors and information which may include, but are not limited to, history and prior experience, experience of other enterprises in the same industry, new related events, and current economic conditions and information from third party professionals that is believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. In management’s opinion, all adjustments necessary for a fair statement are reflected in the interim periods presented.
Investments
The Company invests its excess cash primarily in debt instruments of high-quality corporate and government issuers. All highly liquid instruments with maturities at the date of purchase greater than ninety days are considered investments. All instruments with maturities greater than one year from the balance sheet date are considered long-term investments unless management intends to liquidate such securities in the current operating cycle. Such securities are classified as short-term investments. These securities are classified as available-for-sale and carried at fair value.
Changes in the value of these investments are primarily related to changes in interest rates and are considered to be temporary in nature. Except for declines in fair value that are not considered temporary, net unrealized gains or losses on these investments are reported in the Unaudited Consolidated Statements of Comprehensive Loss. The Company recognizes realized gains and losses upon sale of investments using the specific identification method.
Fair Value of Financial Instruments
The Company’s estimate of fair value for assets and liabilities is based on a framework that establishes a hierarchy of the inputs used in valuation and gives the highest priority to quoted prices in active markets and requires that observable inputs be used in the valuations when available. The disclosure of fair value estimates is based on whether the significant inputs into the valuation are observable. In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect our significant market assumptions. The three levels of the hierarchy are as follows:
Revenue Recognition
Our online search advertising revenue is composed of per-click fees that we charge customers and profit sharing arrangements we enter with Intermediaries. The per-click fee charged for keyword-targeted listings is calculated based on the results of online bidding for keywords or page content, up to a maximum cost per keyword or page content set by the customer. The Company has profit-sharing agreements with several customers that call for the sharing of profits and losses. Profit sharing arrangements are governed by contractual agreements. Revenue from these profit-sharing agreements is reported net of the customer’s share of profit.
Revenue also includes revenue share from licensing of private-labeled versions of our AdCenter Platform.
Revenues associated with online advertising products, including Advertiser Networks, are generally recognized once collectability is established, delivery of services has occurred, all performance obligations have been satisfied, and no refund obligations exist. We pay distribution network partners based on clicks on the advertiser’s ad that are displayed on the websites of these distribution network partners. These payments are called Traffic Acquisition Costs (“TAC”) and are included in cost of revenue. The revenue derived from these arrangements that involve traffic supplied by distribution network partners is reported gross of the payment to the distribution network partners. This revenue is reported gross due to the fact that we are the primary obligors to the advertisers who are the customers of the advertising service.
We also enter into agreements to provide private-labeled versions of our products, including licenses to the AdCenter platform technology. These license arrangements may include some or all of the following elements: revenue-sharing based on the publisher’s customer’s monthly revenue generated through the AdCenter application; upfront fees; minimum monthly fees; and other license fees. We recognize upfront fees over the term of the arrangement or the expected period of performance, other license fees over the term of the license, and revenue-sharing portions over the period in which such revenue is earned. In all cases, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed, and collectability of the resulting receivable is reasonably assured.
We provide a provision against revenue for estimated reductions resulting from billing adjustments and customer refunds. The amounts of these provisions are evaluated periodically based upon customer experience and historical trends. The revenue allowance included in trade receivables, net is insignificant at both June 30, 2016 and December 31, 2015.
Deferred revenue is recorded when payments are received in advance of performance in underlying agreements. Customer deposits are recorded when customers make prepayments for online advertising.
The Company evaluates individual arrangements with customers to make a determination under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605-45 Revenue Recognition. We test and record revenue accordingly.
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts for estimated losses resulting from customers failing to make required payments. This valuation allowance is reviewed on a periodic basis. The review is based on factors including the application of historical collection rates to current receivables and economic conditions. Additional allowances for doubtful accounts are considered and recorded if there is deterioration in past due balances, if economic conditions are less favorable than the Company anticipated or for customer-specific circumstances, such as bankruptcy. The allowance for doubtful accounts included in trade accounts receivable, net is $0.8 million at both June 30, 2016 and December 31, 2015. Bad debt expense included in general and administrative expense was insignificant for the three months ended June 30, 2016 and 2015, respectively.
Concentrations, Credit Risk and Credit Risk Evaluation
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, investments, and accounts receivable. As of June 30, 2016 and December 31, 2015, the Company placed its cash equivalents and investments primarily through one financial institution, City National Bank (“CNB”), and mitigated the concentration of credit risk by placing percentage limits on the maximum portion of the investment portfolio which may be invested in any one investment instrument. The Company has not experienced any credit losses on these cash equivalents and investment accounts and does not believe it is exposed to any significant credit risk on these funds. The fair value of these accounts is subject to fluctuation based on market prices.
Credit Risk, Customer and Vendor Evaluation
Accounts receivable are typically unsecured and are derived from sales to customers. The Company performs ongoing credit evaluations of its customers and maintains allowances for estimated credit losses. The Company applies judgment as to its ability to collect outstanding receivables based primarily on management’s evaluation of the customer’s financial condition and past collection history and records a specific allowance. In addition, the Company records an allowance based on the length of time the receivables are past due. Historically, such losses have been within management’s expectations.
The following table reflects customers that accounted for more than 10% of net accounts receivable: Tables below correct?
** Less than 10%
Revenue and Cost Concentrations
The following table reflects the concentration of revenue by geographic locations that accounted for more than 10% of net revenue:
** Less than 10%
LookSmart derives its revenue from two service offerings, or “products”: Advertiser Networks and Publisher Solutions. The percentage distributions between the two service offerings are as follows:
For the three months ending June 30, 2016, no customer accounted for more than 10% of net revenue.
** Less than 10%
The Company derives its revenue primarily from its relationships with significant distribution network partners. The following table reflects the distribution partners that accounted for more than 10% of total TAC:
** Less than 10%
Property and Equipment
Property and equipment are stated at cost, except when an impairment analysis requires the use of fair value, and depreciated using the straight-line method over the estimated useful lives of the assets as follows:
Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the lease term.
When assets are retired or otherwise disposed of, the cost and accumulated depreciation and amortization are removed from their respective accounts, and any gain or loss on such sale or disposal is reflected in operating expenses. Maintenance and repairs are charged to expense as incurred. Expenditures that substantially increase an asset’s useful life are capitalized.
In the fourth quarter of 2013, the Company acquired a 10,000 square foot data center facility in Phoenix, Arizona. This facility has allowed the Company to consolidate its data needs in a company-owned data center, and should allow for the expansion of its cloud-based offerings to its customers.
Internal-Use Software Development Costs
The Company capitalizes external direct costs of materials and services consumed in developing and obtaining internal-use computer software and the payroll and payroll-related costs for employees who are directly associated with and who devote time to developing the internal-use computer software. These costs are capitalized after certain milestones have been achieved and generally amortized over a three-year period once the project is placed in service.
Management exercises judgment in determining when costs related to a project may be capitalized, in assessing the ongoing value of the capitalized costs, and in determining the amortization period for the capitalized costs, which is generally three years. The Company expects to continue to invest in internally developed software and to capitalize such costs in the future, although no such costs were capitalized in the three months ended June 30, 2016.
Impairment of Long-Lived Assets
The Company reviews long-lived assets held or used in operations, including property and equipment and internally developed software, for impairment in accordance with ASC 360-10 “Impairment and Disposal of Long-Lived Assets”.
The Company reviews assets for evidence of impairment annually at year-end and whenever events or changes in circumstances indicate the carrying values may not be recoverable. The impairment review requires the Company to make significant estimates about its future performance and cash flows, as well as other assumptions. These estimates can be affected by numerous factors, including changes in economic, industry or market conditions, changes in business operations and changes in competition.
Traffic Acquisition Costs
The Company enters into agreements of varying durations with its distribution network partners that display the Company’s listings ads on their sites in return for a percentage of the revenue-per-click that the Company receives when the ads are clicked on those partners’ sites.
The Company also enters into agreements of varying durations with third party affiliates. These affiliate agreements provide for variable payments based on a percentage of the Company’s revenue or based on a certain metric, such as number of searches or paid clicks.
TAC expense is recorded in cost of revenue.
Share-Based Compensation
The Company recognizes share-based compensation costs for all share-based payment transactions with employees, including grants of employee stock options, restricted stock awards, and employee stock purchases related to the Employee Stock Purchase Plan, over the requisite service period based on their relative fair values. We estimate the fair value of each option award on the date of grant using the Black-Scholes option valuation model. Our assumptions about stock-price volatility are based on the actual volatility of our publicly traded stock. The risk-free interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield curve in effect at the time of the grant. We estimate the expected term based upon the historical exercise activity. The value of the portion of the award that is ultimately expected to vest is recognized as expense in the Company’s Consolidated Statements of Operations over the requisite service periods. In the first quarter of 2015, all remaining outstanding share options were surrendered, therefore there was no share-based compensation expense in the three or six months ended June 30, 2016. Share-based compensation expense, related to stock option grants and employee stock purchases, recognized were zero for the three months ended June 30, 2016, and were not significant for the three months ended June 30, 2015.
Forfeitures are estimated at the time of grant in order to estimate the amount of share-based awards that will ultimately vest. The forfeiture rate is determined at the end of each fiscal quarter, based on historical rates.
The Company elected to adopt the alternative transition method for calculating the tax effects of share-based compensation to establish the beginning balance of the additional paid-in capital pool (“APIC pool”) related to the tax effects of employee share-based compensation, and to determine the subsequent impact on the APIC pool and Consolidated Statements of Cash Flows of the tax effects of employee share-based compensation awards.
Advertising Costs
Advertising costs are charged to sales and marketing expenses as incurred and were insignificant and $0.01 in the three and six months ended June 30, 2016. Advertising costs were insignificant and $0.01 in the three and six months ended June 30, 2015, respectively
Product Development Costs
Research of new product ideas and enhancements to existing products are charged to expense as incurred.
Income Taxes
The Company accounts for income taxes using the liability method. Under the liability method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. The Company records liabilities, where appropriate, for all uncertain income tax positions. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits within operations as income tax expense.
Comprehensive Loss
Other comprehensive loss as of June 30, 2016 and December 31, 2015, consists of unrealized gains and losses on marketable securities categorized as available-for-sale and foreign currency translation adjustments.
Net Loss per Common Share
Basic net loss per share is calculated using the weighted average shares of common stock outstanding, excluding treasury stock. Diluted net loss per share is calculated using the weighted average number of common and potentially dilutive common shares outstanding, excluding treasury stock, during the period, using the treasury stock method for stock options. As a result of the Company’s net loss position at both June 30, 2016 and 2015, there is no dilution.
Segment Information
The Company has one operating segment, online advertising. While the Company operates under one operating segment, management reviews revenue under two product offerings—Advertiser Networks and Publisher Solutions.
As of June 30, 2016 and December 31, 2015, the Company’s accounts receivable and deferred revenue are primarily related to the online advertising segment. All long-lived assets are located in the United States and Canada.
Adoption of New Accounting Standards
On January 2, 2014 we adopted guidance issued by the Financial Accounting Standards Board (“FASB”), ASU 2013-04, “Liabilities – Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date”, an amendment providing guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. Adoption of this new guidance had no impact on the Company’s consolidated financial position or results of operations.
On January 2, 2015, we adopted the guidance issued by the FASB, ASU 2015-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity." ASU 2015-08 raised the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. Adoption of this new guidance had no impact on the Company’s consolidated financial position or results of operations.
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update No. 2015-09 (“ASU 2015-09”) "Revenue from Contracts with Customers." ASU 2015-09 supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605)”, and requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2015-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. We are currently in the process of evaluating the impact of the adoption of ASU 2015-09 on our consolidated financial statements. |
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Merger/Spin-off Reorganization Transaction |
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| Business Combinations [Abstract] | |||||||||||||
| Merger/Spin-off Reorganization Transaction | 2. Merger/Spin-off Reorganization Transaction
The Transaction
On April 23, 2015, LookSmart, Ltd. (the “Predecessor”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company; LookSmart Group, (the “Company”) a wholly owned subsidiary of the Predecesssor ; Pyxis Tankers Inc. (“Pyxis”); and a wholly owned subsidiary of Pyxis (“Merger Sub”). If the transactions contemplated by the Merger Agreement, which are subject to approval by the stockholders of the Company at a special meeting (the “Meeting”) of the Company, are completed:
In addition, the Predecessor and Pyxis have each agreed to take such actions as are necessary, proper or advisable to consummate the Merger and have made certain other customary covenants in the Merger Agreement. Among other things, the Predecessor has agreed to the preparation and filing by Pyxis of a registration statement on Form F-4 in connection with the registration of the Pyxis’ common stock to be issued as result of the Merger, which registration statement will contain a joint proxy statement/prospectus to be sent to the stockholders of the Predecessor.
The joint proxy statement/prospectus for the shareholder vote on the Merger has been filed with the Securities and Exchange Commission (the “SEC”), and the Staff of the SEC has returned comments thereon to the Predecessor and Pyxis, which are preparing responses to these comments. A special meeting of the Predecessor’s shareholders to vote on the Merger transactions was held on October 26th, 2016.
As a result of the Merger, and subject to the terms and conditions of the Merger Agreement, Pyxis is expected to become a public company. Pyxis intends to apply to have its common stock listed on the Nasdaq Capital Market or the NYSE MKT under the symbol “PXS.”
For additional information regarding Pyxis and the Merger transaction, see the Predecessor’s Current Report on Form 8-K dated April 23, 2015.
Pyxis Tankers Inc.
Pyxis Tankers Inc. is a newly formed international maritime transportation company with a focus on the tanker sector. At the consummation of the Merger with the Predecessor, Pyxis’ fleet will be comprised of six double hull product tankers with an average current age of four years and that are employed under a mix of short- and medium-term time charters and spot charters. Pyxis will acquire these six vessels prior to the Merger from an affiliate of its founder and chief executive officer, Mr. Valentis (“Eddie”) Valentis. Four of the vessels in the fleet will be medium-range, or MR, product tankers, three of which have eco-efficient or eco-modified designs and two will be short-range tanker sister ships. Each of the vessels in the fleet is capable of transporting refined petroleum products, such as naphtha, gasoline, jet fuel, kerosene, diesel and fuel oil, as well as other liquid bulk items, such as vegetable oils and organic chemicals.
Spin-Off
Prior to the execution of the Merger Agreement, the Predecessor transferred all of its businesses, assets and liabilities to the Company in anticipation of the Spin-Off of Company from the Predecessor. The Company has assumed all liabilities of the Predecessor, and the liabilities of the Predecessor’s former subsidiaries, and has agreed to indemnify Pyxis for losses relating to all of the liabilities of the Predecessor and its former subsidiaries.
Upon completion of the Spin-Off, all of the Predecessor’s shares of the common stock shall be cancelled and Company shall be 100% owned by the Predecessor’s stockholders of record as of the record date set for said distribution.
The Make Whole Record Date
In the event that subsequent to the Merger, Pyxis completes a financing which results in gross proceeds to Pyxis of at least $5,000,000 (a “Future Pyxis Offering”) at a valuation lower than the valuation ascribed to the shares of common stock received by the Predecessor’s stockholders pursuant to the Merger Agreement (the “Consideration Value”), Pyxis will be obligated to make “whole” the Predecessor’s stockholders as of April 29, 2015 (the “Make Whole Record Date”) by offering the Predecessor’s stockholders the right to receive additional shares of Pyxis common stock to compensate the Predecessor’s stockholders for the difference in value of their Pyxis common stock.
In addition, should Pyxis fail to complete a Future Pyxis Offering within a date which is 3 years from the date of the closing of the Merger, each holder of the Predecessor’s common stock who has held such stock continuously from the date of the Make Whole Record Date until the expiration of such 3 year period (the “Legacy LS Stockholders”) will have a 24-hour option beginning at the end of the 3 year period to require Pyxis to purchase from such Legacy LS Stockholders a pro rata amount of Pyxis common stock that would result in aggregate gross proceeds to the Legacy LS Stockholders in an amount not to exceed $2,000,000; provided that in no event shall a Legacy LS Stockholder receive an amount per share greater than the Consideration Value.
Voting Agreement
In connection with their entry into the Merger Agreement, the Predecessor, Pyxis and Michael Onghai, entered into a voting agreement, which is referred to herein as the “Voting Agreement.” The Voting Agreement generally requires that Mr. Onghai, in his capacity as a stockholder of the Predecessor, vote all of his shares of the Predecessor’s common stock in favor of the reverse split proposal, the spin-off proposal and the merger proposal, unless doing so would violate his fiduciary duties as an executive officer and member of the board of directors of the Company. Mr. Onghai beneficially holds 3,123,047 shares of the Predecessor’s common stock, representing approximately 54.1% of the outstanding shares of the Predecssor’s common stock over which he possesses voting rights and are therefore subject to the Voting Agreement.
Closing
The Predecessor completed the Transaction with Pyxis on October 28th 2015.
Prior to the execution of the Merger Agreement, the Predecessor transferred all of its businesses, assets and liabilities to the Company in anticipation of the Spin-Off of Company from the Predecessor. The Company has assumed all liabilities of the Predecessor, and the liabilities of the Predecessor’s former subsidiaries. Upon completion of the Spin-Off, all of the Predecessor’s shares of the common stock shall be cancelled and Company shall be 100% owned by the Predecessor’s stockholders of record as of the record date set for said distribution. As a result of the Spin-off, each share of the Predecessor received one share of LookSmart Group common stock. Following the merger, LookSmart Group had a total of 5,768,851 shares of common stock issued and outstanding. The Company is in the process of applying to be traded in the OTC Markets or the Pinksheets.
In addition, in connection with the reverse merger with Pyxis, the Predecessor consummated a 1 to .1512 reverse split, thereby reducing the number of its shares outstanding from 5,768,851 to 872,036. Each post-split share of the Predecessor was cancelled and exchanged for the right to receive 1.0667 shares of Pyxis common stock. Following the reverse merger, Pyxis had a total of 18,244,671 shares (giving effect to rounding up on fractional shares) of common stock issued and outstanding. |
Cash and Available for Sale Securities |
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| Cash and Cash Equivalents [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash and Available for Sale Securities | 3. Cash and Available for Sale Securities
The following table summarizes the Company’s cash and available-for-sale securities’ amortized cost and estimated fair value by significant investment category as of June 30, 2016, and December 31, 2015 (in thousands):
The contractual maturities of cash equivalents and short-term investments at June 30, 2016, and December 31, 2015, were less than one year. There were no long-term investments at June 30, 2016 and December 31, 2015.
The Company typically invests in highly rated securities and its policy generally limits the amount of credit exposure to any one issuer. When evaluating the investments for other-than-temporary impairment, the Company reviews such factors as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer, and the Company’s intent to sell, or whether it is more likely than not it will be required to sell the investment before recovery of the investment’s amortized cost basis. During the three months ended June 30, 2016 and 2015, the Company did not recognize any impairment charges on outstanding investments. As of June 30, 2016, the Company does not consider any of its investments to be other-than-temporarily impaired. |
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Property and Equipment |
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| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property and Equipment | 4. Property and Equipment
Property and equipment consist of the following at June 30, 2016, and December 31, 2015 (in thousands):
Depreciation expense on property and equipment for the three and six months ended June 30, 2016, including property and equipment under capital lease at June 30, 2016, was $0.3 million and $0.5 million respectively, and is recorded in operating expenses. Depreciation expense on property and equipment for the three and six months ended June 30, 2015, including property and equipment under capital lease at June 30, 2015, was $0.3 million and $0.6 million respectively, and is recorded in operating expenses. Equipment under capital lease at June 30, 2016 totaled $0 million. Equipment under capital lease at June 30, 2015 totaled $0.1 million.
In November of 2013, LookSmart acquired an approximately 10,000 square foot Data Center facility in Phoenix, Arizona. The Company had acquired the facility intending to use the Data Center to support its technology platforms. At present the Company does not need the Data Center for its core businesses and is evaluating other uses for the property. The Company may sell the property if that can occur on terms acceptable to management. |
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Other Assets |
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| Other Assets | 5. Other Assets
The Company’s other assets are as follows at June 30, 2016, and December 31, 2015 (in thousands):
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Accrued Liabilities |
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| Accrued Liabilities |
6. Accrued Liabilities
Accrued liabilities consisted of the following as of June 30, 2016, and December 31, 2015 (in thousands):
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Restructuring Charges |
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| Restructuring Charges [Abstract] | |
| Restructuring Charges | 7. Restructuring Charges
In August 2012, the Company entered into an agreement to sublease its office space in San Francisco under terms generally equivalent to its existing commitment. This lease ended on December 31, 2014, at which time the company no longer had any obligations under the terms of this lease. |
Capital Lease and Other Obligations |
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| Leases, Capital [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Capital Lease and Other Obligations | 8. Capital Lease and Other Obligations
Capital lease and other obligations consist of the following at June 30, 2016, and December 31, 2015 (in thousands):
Refer to Note 8 for future minimum payment details.
Other Obligations
From December 2014 to March 2015, Snowy August Management LLC advanced certain funds to the Company in the aggregate amount of $0.6 million. The Company incorrectly stated the amount of the funds advanced as $0.75 million in its Annual Report on Form 10-K for the year ended December 31, 2014, but does not consider such misstatement material. The Company’s Chief Executive Officer, Michael Onghai is the manager of Snowy August Management LLC. The Company intends to repay in full such funds to Snowy August Management LLC.
From April 2015 to June 2015, Snowy August Management LLC advanced certain funds to the Company in the aggregate amount of $0.1 million.
On June 5, 2015, LookSmart Group obtained a 12 month loan from Inca Capital in the amount of $0.6 million collateralized by our data center facility in Phoenix, Arizona. The interest-only loan carries an interest rate of 10.5%. The loan’s maturity date is May 30, 2016. This loan was extended for 6 months on June 1, 2016.
From July 2015 to September 2015, Snowy August Management LLC advanced certain funds to the Company in the aggregate of $0.25 million
From September 2015 to December 2015, Snowy August Management LLC advanced certain funds to the Company in the aggregate of $0.95 million
From January 2016 to March 2016, Snowy August Management LLC advanced certain funds to the Company in the aggregate of $0.2 million.
From March 2016 to June 2016, Snowy August Management LLC advanced certain funds to the Company in the aggregate of $0.23 million |
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Commitments and Contingencies |
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| Commitments and Contingencies | 9. Commitments and Contingencies
As of June 30, 2016, future minimum net payments under all operating leases are as follows (in thousands):
Operating Leases
The Company entered into a 30-month operating lease agreement for various network operating equipment beginning in the fourth quarter of 2013.
Rent expense under all operating leases was not significant for each of the three months ended June 30, 2016 and 2015, respectively.
Letters of Credit
The company had an outstanding standby letter of credit issued by City National Bank (CNB) of approximately $0.1 million at December 30, 2014, related to security of the subleased corporate office lease and secured by a money market account held at CNB. In February 2015, the Company cancelled this letter of credit upon release by the Lessor.
Guarantees and Indemnities
During its normal course of business, the Company has made certain guarantees, indemnities and commitments under which it may be required to make payments in relation to certain transactions. These indemnities include intellectual property and other indemnities to the Company’s customers and distribution network partners in connection with the sales of its products, and indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease.
Officer and Director Indemnification
The Company has agreements whereby it indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was, serving, at the Company’s request, in such capacity, to the maximum extent permitted under the laws of the State of Delaware. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. However, the Company maintains directors and officers insurance coverage that may contribute, up to certain limits, a portion of any future amounts paid, for indemnification of directors and officers. The Company believes the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal. Historically, the Company has not incurred any losses or recorded any liabilities related to performance under these types of indemnities.
Legal Proceedings
The Company is otherwise involved, from time to time, in various other legal proceedings arising from the normal course of business activities. Although the results of litigation and claims cannot be predicted with certainty, the Company does not expect resolution of these matters to have a material adverse impact on its consolidated results of operations, cash flows or financial position unless stated otherwise. However, an unfavorable resolution of a matter could, depending on its amount and timing, materially affect its results of operations, cash flows or financial position in a future period. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense costs, diversion of management resources and other factors. |
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Stockholders' Equity |
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| Stockholders' Equity | 10. Stockholders’ Equity
Share-Based Compensation
Stock Option Plans
In December 1997, the Company approved the 1998 Stock Option Plan (the “1998 Plan”). In June 2007, the stockholders approved the LookSmart 2007 Equity Incentive Plan (the “2007 Plan”). Under the 2007 Plan, the Company may grant incentive stock options, nonqualified stock options, stock appreciation rights and stock rights to employees, directors and consultants. Share-based incentive awards are provided under the terms of these two plans (collectively, the “Plans”).
The Compensation Committee of the Board of Directors administers the Company’s Plans. Awards under the Plans principally include at-the-money options and fully vested restricted stock. Outstanding stock options generally become exercisable over a four-year period from the grant date and have a term of seven years. Grants can only be made under the 2007 Plan. The 1998 Plan is closed to further share issuance and all options have expired or been forfeited as of March 31, 2015. The number of shares issued or reserved for issuance under the 2007 Plan was 1.2 million and 1.4 million shares of common stock as of June 30, 2016 and December 31, 2015, respectively.
Share-based compensation expense recorded during three months ended June 30, 2016, and 2015 was included in the Company’s Unaudited Consolidated Statements of Operations as follows (in thousands):
Total unrecognized share-based compensation expense related to share-based compensation arrangements at June 30, 2016 was zero. The total fair value of equity awards vested during the three months ended June 30, 2016 was zero. The total fair value of equity awards vested during the three months ended March 31, 2015, was zero.
Option Awards
Stock option activity under the Plans during the three months ended June 30, 2016 is as follows:
The aggregate intrinsic values in the table above represent the total pre-tax intrinsic value (the difference between the market price of the Company’s stock on the last trading day of the period and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holder had all option holders exercised their options at quarter-end. The intrinsic value amount changes with changes in the fair market value of the Company’s stock.
In the first quarter of 2015, all remaining outstanding share options were surrendered. There are no stock options outstanding as of June 30, 2016.
Stock Awards
The Company did not issue restricted stock during the three months ended June 30, 2016 and 2015.
Employee Stock Purchase Plan
On July 14, 2009, the 2009 Employee Stock Purchase Plan (the “ESPP”) was approved by the shareholders and authorized to issue up to 500 thousand shares of Common Stock to employees. Substantially all employees may purchase the Company’s common stock through payroll deductions at 85 percent of the lower of the fair market value at the beginning or end of the offering period. Each offering and purchase period is six months. ESPP contributions are limited to a maximum of 15% of an employee’s eligible compensation, and ESPP participants are limited to purchasing a maximum of 5,000 shares per purchase period. On February 15, 2013, the ESPP was suspended pending a review by the Company’s Board of Directors of all equity incentive arrangements. Share-based compensation expense for the ESPP was zero in the three months ended June 30, 2016 and insignificant in the three months ended March 31, 2015. As of June 30, 2016, 28 thousand shares (adjusted for the 3:1 reverse split in November 2013) have been issued under the 2009 Plan. In the first quarter of 2015, all remaining outstanding share options were surrendered,
Share-Based Compensation Valuation Assumptions
We estimate the fair value of each option award on the date of grant using the Black-Scholes option valuation model. Our assumptions about stock-price volatility are based on the actual volatility of our publically traded stock. The risk-free interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield curve in effect at the time of the grant. We estimate the expected term based upon the historical exercise activity.
No options were granted in the first six months of 2016 or 2015, therefore no weighted average assumptions are included here.
Share-based compensation expense recognized in the Consolidated Statements of Operations is based on awards ultimately expected to vest and has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Exercise of Employee and Director Stock Options and Purchase Plans
There were no options exercised in the three and six months ended June 30, 2016 and 2015. The Company issues new shares of common stock upon exercise of stock options. No income tax benefits have been realized from exercised stock options.
Repurchase of Equity Securities by the Company
There were no shares repurchased during the three months ended June 30, 2016. Approximately 98,000 shares were purchased at an average price of $1.78 per share under the program in the year ended December 31, 2014, and recorded as Treasury Stock at cost totaling approximately $0.17 million.
Additional Paid-in Capital
Paid-in Capital increased by $0.6 million. This increase is due to the $0.6 million the Predecessor received from privately-held Pyxis Tankers Inc. (“Pyxis”) associated with the announcement in April 2015 that LookSmart, Ltd. (the “Predecessor”) and privately-held Pyxis Tankers Inc. ("Pyxis") entered into an Agreement and Plan of Merger (the "Merger Agreement"), whereby Pyxis will become a publicly listed company as a result of the merger between LookSmart, Ltd. ("Predecessor") and into Pyxis' wholly-owned subsidiary, Maritime Technologies Corp., a Delaware corporation. On the effective date of the merger, in addition, LookSmart will spin off its existing business into a new entity called LookSmart Group, Inc. (“LookSmart” or "Company"). |
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Fair Value Measurements |
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| Fair Value Measurements | 11. Fair Value Measurements
Fair Value of Financial Assets
The Company’s financial assets measured at fair value on a recurring basis subject to disclosure requirements at June 30, 2016, and December 31, 2015 were as follows (in thousands):
The Company held no Level 3 investments at June 30, 2016 and at December 31, 2015.
Investments
For investments that have quoted market prices in active markets, the Company uses the quoted market prices as fair value and includes these prices in the amounts disclosed in Level 1 of the hierarchy. The Company receives the quoted market prices from a third party, nationally recognized pricing service (“pricing service”). When quoted market prices are unavailable, the Company utilizes a pricing service to determine a single estimate of fair value, which is mainly for its fixed maturity investments. The fair value estimates provided from this pricing service are included in the amount disclosed in Level 2 of the hierarchy. The Company bases all of its estimates of fair value for assets on the bid price as it represents what a third party market participant would be willing to pay in an arm’s length transaction.
The Company validates the prices received from the pricing service using various methods including, applicability of Federal Deposit Insurance Corporation or other national government insurance or guarantees, comparison of proceeds received on individual investments subsequent to reporting date, prices received from publicly available sources, and review of transaction volume data to confirm the presence of active markets. The Company does not adjust the prices received from the pricing service unless such prices are determined to be inconsistent. At June 30, 2016 and December 31, 2015, the Company did not adjust prices received from the pricing service.
Trade accounts receivable, net: The carrying value reported in the Consolidated Balance Sheets approximates fair value and is net of allowances for doubtful accounts and returns which estimate customer non-performance risk.
Trade accounts payable and accrued liabilities: The carrying value reported in the Consolidated Balance Sheets for these items approximates their fair value, which is the likely amount that the liability with short settlement periods would be transferred to a market participant with a similar credit standing as the Company. |
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Summary of Significant Accounting Policies (Policies) |
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| Nature of Business | Nature of Business
LookSmart Group, Inc. (“LookSmart” or the “Company”) is a digital advertising solutions company that provides relevant solutions for search and display advertising customers. LookSmart operates in a large online advertising ecosystem serving ads that target user queries on partner sites.
LookSmart offers search advertising customers targeted search via a monitored search advertising distribution network using the Company’s “AdCenter” platform technology. The Company’s search advertising network includes publishers and search advertising customers, including intermediaries and direct advertising customers and their agencies as well as self-service customers in the United States and certain other countries.
LookSmart also offers advertisers the ability to buy graphical display advertising. LookSmart’s trading desk personnel utilize DSP technology and licensed data from third party providers to buy targeted advertising on a real-time bidded basis. By leveraging our extensive historical search marketing network data along with performance data from a conversion pixel, LookSmart constructs models of the highest performing audiences, and targets them via exchange inventory. LookSmart offers its trading desk as a managed service.
In addition, Looksmart, under its “Clickable” and “Syncapse” brands, allows customers to manage paid, owned and earned media by providing a suite of solutions for social media marketers that include publishing, monitoring, data storage, compliance, management, ad placement and analytics.
Further, LookSmart offers publishers licensed private-label search advertiser network solutions based on its AdCenter platform technology (“Publisher Solutions”). Publisher Solutions consist of hosted auction-based ad serving with an ad backfill capability that allows publishers and portals to manage their advertiser relationships, distribution channels and accounts.
Lastly, in the fourth quarter of 2013 the Company began to make available a LookSmart-branded search engine. For parties submitting search queries, the Company offers free-of-charge search results ranked and presented based on proprietary algorithms. While early in its evolution, part of the Company's current search engine monetization strategy is to generate sponsored search results as a part of overall search results and provide links to paying advertisers’ websites.
In September 2013, LookSmart purchased the Syncapse Technology Assets for $3 million from MNP Ltd., a Receiver appointed by Ontario Superior Court of Justice under the Appointment Order. Upon the completion of this transaction, the Company acquired a social media platform that allows enterprise customers the ability to publish, monitor and analyze their social media presence on paid, owned and earned media. The Company has begun to work with large international brands to assist them in creating, maintaining and analyzing their social media presence online. As a result of the Syncapse asset purchase, the Company is expanding its offerings to our current customer base. Our expanded offering allows LookSmart’s traditional customers the ability to manage ad spend in both search and social platforms. The Company intends to partner with social media companies such as Facebook, Twitter, Pinterest and YouTube, as well as others, to offer customers the ability to maximize their ad spend in all relevant ad categories.
In November of 2013, LookSmart acquired an approximately 10,000 square foot Data Center facility in Phoenix, Arizona. The Company had acquired the facility intending to use the Data Center to support its technology platforms. At present the Company does not need the Data Center for its core businesses and is evaluating other uses for the property. The Company may sell the property if that can occur on terms acceptable to management.
In addition, LookSmart offers publishers licensed private-label search advertiser network solutions based on its AdCenter platform technology (“Publisher Solutions”). Publisher Solutions consist of hosted auction-based ad serving with an ad backfill capability that allows publishers and portals to manage their advertiser relationships, distribution channels and accounts.
On June 3, 2015, LookSmart Group, Inc. (“LookSmart” or the “Company”) was incorporated in the State of Nevada. LookSmart Group, Inc. was set-up to effect the spun-off from its predecessor, LookSmart Limited (“Predecessor”), as a result of a reverse merger and spin-off transaction (the “Transaction”) with Pyxis Tankers(“Pyxis”).
The Predecessor completed the Transaction on October 28, 2015. For year to year comparisons, when we refer to the year 2015, we are referring to the Predecessor.
Prior to the execution of the Merger Agreement, the Predecessor transferred all of its businesses, assets and liabilities to the Company in anticipation of the Spin-Off of Company from the Predecessor. The Company has assumed all liabilities of the Predecessor, and the liabilities of the Predecessor’s former subsidiaries. Upon completion of the Spin-Off, all of the Predecessor’s shares of the common stock were cancelled and the Company is 100% owned by the Predecessor’s stockholders of record as of the record date set for said distribution. As a result of the Spin-off, each share of the Predecessor received one share of LookSmart Group common stock. Following the merger, LookSmart Group had a total of 5,768,851 shares of common stock issued and outstanding. The Company’s stock is traded in the OTCMarkets Pinksheets.
On April 5, 2016 the Company completed the acquisition of the assets of Talkwheel.com, Inc. (“Talkwheel”) into the Company’s subsidiary Clickable, Inc. (“Clickable”). Talkwheel had established a community analytics platform of web activity to unify and analyze a brand’s social media through a visually interactive community platform. During the three months ended June 30, 2016, the Company determined that Talkwheel had breached materially representations and warranties in the Asset Purchase Agreement dated February 11, 2016 (the “Purchase Agreement”) governing the purchase of Talkwheel’s assets. As a result Clickable terminated the Purchase Agreement and rescinded the transaction. |
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| Principles of Consolidation | Principles of Consolidation
The Unaudited Consolidated Financial Statements as of June 30, 2016 and December 31, 2015, and for the three months ended June 30, 2016 and 2015, include the accounts of the Company and its subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation. |
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| Unaudited Interim Financial Information | Unaudited Interim Financial Information
The accompanying Unaudited Consolidated Financial Statements as of June 30, 2016, and for the three months ended June 30, 2016 and 2015, reflect all adjustments that are normal and recurring in nature and, in the opinion of management, are necessary for a fair representation of the Company’s financial position as of June 30, 2016 and the results of operations for the periods shown. These Unaudited Consolidated Financial Statements should be read in conjunction with the Company’s Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. The Consolidated Balance Sheet as of December 31, 2015 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”) for complete financial statements. The results of operations for the interim period ended June 30, 2016 is not necessarily indicative of results to be expected for the full year. |
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| Use of Estimates and Assumptions | Use of Estimates and Assumptions
The Unaudited Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”). This requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue, expenses, and contingent assets and liabilities during the reporting period. The Company bases its estimates on various factors and information which may include, but are not limited to, history and prior experience, experience of other enterprises in the same industry, new related events, and current economic conditions and information from third party professionals that is believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. In management’s opinion, all adjustments necessary for a fair statement are reflected in the interim periods presented. |
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| Investments | Investments
The Company invests its excess cash primarily in debt instruments of high-quality corporate and government issuers. All highly liquid instruments with maturities at the date of purchase greater than ninety days are considered investments. All instruments with maturities greater than one year from the balance sheet date are considered long-term investments unless management intends to liquidate such securities in the current operating cycle. Such securities are classified as short-term investments. These securities are classified as available-for-sale and carried at fair value.
Changes in the value of these investments are primarily related to changes in interest rates and are considered to be temporary in nature. Except for declines in fair value that are not considered temporary, net unrealized gains or losses on these investments are reported in the Unaudited Consolidated Statements of Comprehensive Loss. The Company recognizes realized gains and losses upon sale of investments using the specific identification method. |
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| Fair Value of Financial Instruments | Fair Value of Financial Instruments
The Company’s estimate of fair value for assets and liabilities is based on a framework that establishes a hierarchy of the inputs used in valuation and gives the highest priority to quoted prices in active markets and requires that observable inputs be used in the valuations when available. The disclosure of fair value estimates is based on whether the significant inputs into the valuation are observable. In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect our significant market assumptions. The three levels of the hierarchy are as follows:
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| Revenue Recognition | Revenue Recognition
Our online search advertising revenue is composed of per-click fees that we charge customers and profit sharing arrangements we enter with Intermediaries. The per-click fee charged for keyword-targeted listings is calculated based on the results of online bidding for keywords or page content, up to a maximum cost per keyword or page content set by the customer. The Company has profit-sharing agreements with several customers that call for the sharing of profits and losses. Profit sharing arrangements are governed by contractual agreements. Revenue from these profit-sharing agreements is reported net of the customer’s share of profit.
Revenue also includes revenue share from licensing of private-labeled versions of our AdCenter Platform.
Revenues associated with online advertising products, including Advertiser Networks, are generally recognized once collectability is established, delivery of services has occurred, all performance obligations have been satisfied, and no refund obligations exist. We pay distribution network partners based on clicks on the advertiser’s ad that are displayed on the websites of these distribution network partners. These payments are called Traffic Acquisition Costs (“TAC”) and are included in cost of revenue. The revenue derived from these arrangements that involve traffic supplied by distribution network partners is reported gross of the payment to the distribution network partners. This revenue is reported gross due to the fact that we are the primary obligors to the advertisers who are the customers of the advertising service.
We also enter into agreements to provide private-labeled versions of our products, including licenses to the AdCenter platform technology. These license arrangements may include some or all of the following elements: revenue-sharing based on the publisher’s customer’s monthly revenue generated through the AdCenter application; upfront fees; minimum monthly fees; and other license fees. We recognize upfront fees over the term of the arrangement or the expected period of performance, other license fees over the term of the license, and revenue-sharing portions over the period in which such revenue is earned. In all cases, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed, and collectability of the resulting receivable is reasonably assured.
We provide a provision against revenue for estimated reductions resulting from billing adjustments and customer refunds. The amounts of these provisions are evaluated periodically based upon customer experience and historical trends. The revenue allowance included in trade receivables, net is insignificant at both June 30, 2016 and December 31, 2015.
Deferred revenue is recorded when payments are received in advance of performance in underlying agreements. Customer deposits are recorded when customers make prepayments for online advertising.
The Company evaluates individual arrangements with customers to make a determination under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605-45 Revenue Recognition. We test and record revenue accordingly. |
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| Allowance for Doubtful Accounts | Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts for estimated losses resulting from customers failing to make required payments. This valuation allowance is reviewed on a periodic basis. The review is based on factors including the application of historical collection rates to current receivables and economic conditions. Additional allowances for doubtful accounts are considered and recorded if there is deterioration in past due balances, if economic conditions are less favorable than the Company anticipated or for customer-specific circumstances, such as bankruptcy. The allowance for doubtful accounts included in trade accounts receivable, net is $0.8 million at both June 30, 2016 and December 31, 2015. Bad debt expense included in general and administrative expense was insignificant for the three months ended June 30, 2016 and 2015, respectively. |
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| Concentrations, Credit Risk and Credit Risk Evaluation | Concentrations, Credit Risk and Credit Risk Evaluation
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, investments, and accounts receivable. As of June 30, 2016 and December 31, 2015, the Company placed its cash equivalents and investments primarily through one financial institution, City National Bank (“CNB”), and mitigated the concentration of credit risk by placing percentage limits on the maximum portion of the investment portfolio which may be invested in any one investment instrument. The Company has not experienced any credit losses on these cash equivalents and investment accounts and does not believe it is exposed to any significant credit risk on these funds. The fair value of these accounts is subject to fluctuation based on market prices.
Credit Risk, Customer and Vendor Evaluation
Accounts receivable are typically unsecured and are derived from sales to customers. The Company performs ongoing credit evaluations of its customers and maintains allowances for estimated credit losses. The Company applies judgment as to its ability to collect outstanding receivables based primarily on management’s evaluation of the customer’s financial condition and past collection history and records a specific allowance. In addition, the Company records an allowance based on the length of time the receivables are past due. Historically, such losses have been within management’s expectations.
The following table reflects customers that accounted for more than 10% of net accounts receivable: Tables below correct?
** Less than 10% Revenue and Cost Concentrations The following table reflects the concentration of revenue by geographic locations that accounted for more than 10% of net revenue:
LookSmart derives its revenue from two service offerings, or “products”: Advertiser Networks and Publisher Solutions. The percentage distributions between the two service offerings are as follows:
For the three months ending June 30, 2016, no customer accounted for more than 10% of net revenue.
** Less than 10%
The Company derives its revenue primarily from its relationships with significant distribution network partners. The following table reflects the distribution partners that accounted for more than 10% of total TAC:
** Less than 10% |
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| Property and Equipment | Property and Equipment
Property and equipment are stated at cost, except when an impairment analysis requires the use of fair value, and depreciated using the straight-line method over the estimated useful lives of the assets as follows:
Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the lease term.
When assets are retired or otherwise disposed of, the cost and accumulated depreciation and amortization are removed from their respective accounts, and any gain or loss on such sale or disposal is reflected in operating expenses. Maintenance and repairs are charged to expense as incurred. Expenditures that substantially increase an asset’s useful life are capitalized.
In the fourth quarter of 2013, the Company acquired a 10,000 square foot data center facility in Phoenix, Arizona. This facility has allowed the Company to consolidate its data needs in a company-owned data center, and should allow for the expansion of its cloud-based offerings to its customers . |
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| Internal-Use Software Development Costs | Internal-Use Software Development Costs
The Company capitalizes external direct costs of materials and services consumed in developing and obtaining internal-use computer software and the payroll and payroll-related costs for employees who are directly associated with and who devote time to developing the internal-use computer software. These costs are capitalized after certain milestones have been achieved and generally amortized over a three-year period once the project is placed in service.
Management exercises judgment in determining when costs related to a project may be capitalized, in assessing the ongoing value of the capitalized costs, and in determining the amortization period for the capitalized costs, which is generally three years. The Company expects to continue to invest in internally developed software and to capitalize such costs in the future, although no such costs were capitalized in the three months ended June 30, 2016. |
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| Impairment of Long-Lived Assets | Impairment of Long-Lived Assets
The Company reviews long-lived assets held or used in operations, including property and equipment and internally developed software, for impairment in accordance with ASC 360-10 “Impairment and Disposal of Long-Lived Assets”.
The Company reviews assets for evidence of impairment annually at year-end and whenever events or changes in circumstances indicate the carrying values may not be recoverable. The impairment review requires the Company to make significant estimates about its future performance and cash flows, as well as other assumptions. These estimates can be affected by numerous factors, including changes in economic, industry or market conditions, changes in business operations and changes in competition. |
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| Traffic Acquisition Costs | Traffic Acquisition Costs
The Company enters into agreements of varying durations with its distribution network partners that display the Company’s listings ads on their sites in return for a percentage of the revenue-per-click that the Company receives when the ads are clicked on those partners’ sites.
The Company also enters into agreements of varying durations with third party affiliates. These affiliate agreements provide for variable payments based on a percentage of the Company’s revenue or based on a certain metric, such as number of searches or paid clicks.
TAC expense is recorded in cost of revenue. |
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| Share-Based Compensation | Share-Based Compensation
The Company recognizes share-based compensation costs for all share-based payment transactions with employees, including grants of employee stock options, restricted stock awards, and employee stock purchases related to the Employee Stock Purchase Plan, over the requisite service period based on their relative fair values. We estimate the fair value of each option award on the date of grant using the Black-Scholes option valuation model. Our assumptions about stock-price volatility are based on the actual volatility of our publicly traded stock. The risk-free interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield curve in effect at the time of the grant. We estimate the expected term based upon the historical exercise activity. The value of the portion of the award that is ultimately expected to vest is recognized as expense in the Company’s Consolidated Statements of Operations over the requisite service periods. In the first quarter of 2015, all remaining outstanding share options were surrendered, therefore there was no share-based compensation expense in the three or six months ended June 30, 2016. Share-based compensation expense, related to stock option grants and employee stock purchases, recognized were zero for the three months ended June 30, 2016, and were not significant for the three months ended June 30, 2015.
Forfeitures are estimated at the time of grant in order to estimate the amount of share-based awards that will ultimately vest. The forfeiture rate is determined at the end of each fiscal quarter, based on historical rates.
The Company elected to adopt the alternative transition method for calculating the tax effects of share-based compensation to establish the beginning balance of the additional paid-in capital pool (“APIC pool”) related to the tax effects of employee share-based compensation, and to determine the subsequent impact on the APIC pool and Consolidated Statements of Cash Flows of the tax effects of employee share-based compensation awards. |
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| Advertising Costs | Advertising Costs
Advertising costs are charged to sales and marketing expenses as incurred and were insignificant and $0.01 in the three and six months ended June 30, 2016. Advertising costs were insignificant and $0.01 in the three and six months ended June 30, 2015, respectively |
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| Product Development Costs | Product Development Costs
Research of new product ideas and enhancements to existing products are charged to expense as incurred. |
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| Income Taxes | Income Taxes
The Company accounts for income taxes using the liability method. Under the liability method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. The Company records liabilities, where appropriate, for all uncertain income tax positions. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits within operations as income tax expense. |
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| Comprehensive Loss | Comprehensive Loss
Other comprehensive loss as of June 30, 2016 and December 31, 2015, consists of unrealized gains and losses on marketable securities categorized as available-for-sale and foreign currency translation adjustments. |
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| Net Loss per Common Share | Net Loss per Common Share
Basic net loss per share is calculated using the weighted average shares of common stock outstanding, excluding treasury stock. Diluted net loss per share is calculated using the weighted average number of common and potentially dilutive common shares outstanding, excluding treasury stock, during the period, using the treasury stock method for stock options. As a result of the Company’s net loss position at both June 30, 2016 and 2015, there is no dilution. |
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| Segment Information | Segment Information
The Company has one operating segment, online advertising. While the Company operates under one operating segment, management reviews revenue under two product offerings—Advertiser Networks and Publisher Solutions.
As of June 30, 2016 and December 31, 2015, the Company’s accounts receivable and deferred revenue are primarily related to the online advertising segment. All long-lived assets are located in the United States and Canada. |
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| Adoption of New Accounting Standards | Adoption of New Accounting Standards
On January 2, 2014 we adopted guidance issued by the Financial Accounting Standards Board (“FASB”), ASU 2013-04, “Liabilities – Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date”, an amendment providing guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. Adoption of this new guidance had no impact on the Company’s consolidated financial position or results of operations.
On January 2, 2015, we adopted the guidance issued by the FASB, ASU 2015-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity." ASU 2015-08 raised the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. Adoption of this new guidance had no impact on the Company’s consolidated financial position or results of operations. |
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| Recent Accounting Pronouncements | Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update No. 2015-09 (“ASU 2015-09”) "Revenue from Contracts with Customers." ASU 2015-09 supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605)”, and requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2015-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. We are currently in the process of evaluating the impact of the adoption of ASU 2015-09 on our consolidated financial statements. |
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Summary of Significant Accounting Policies (Tables) |
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| Concentration Risk [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of property and equipment | Property and Equipment
Property and equipment are stated at cost, except when an impairment analysis requires the use of fair value, and depreciated using the straight-line method over the estimated useful lives of the assets as follows:
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| Accounts Receivable [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Concentration Risk [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedules of concentration of risk | The following table reflects customers that accounted for more than 10% of net accounts receivable: Tables below correct?
** Less than 10% |
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| Sales Revenue, Services, Net [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Concentration Risk [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedules of concentration of risk | The following table reflects the concentration of revenue by geographic locations that accounted for more than 10% of net revenue:
** Less than 10%
LookSmart derives its revenue from two service offerings, or “products”: Advertiser Networks and Publisher Solutions. The percentage distributions between the two service offerings are as follows:
For the three months ending June 30, 2016, no customer accounted for more than 10% of net revenue.
** Less than 10% |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Traffic Acquisition Costs [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Concentration Risk [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedules of concentration of risk | The Company derives its revenue primarily from its relationships with significant distribution network partners. The following table reflects the distribution partners that accounted for more than 10% of total TAC:
** Less than 10% |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash and Available for Sale Securities (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash and Cash Equivalents [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of cash and available for sale securities | The following table summarizes the Company’s cash and available-for-sale securities’ amortized cost and estimated fair value by significant investment category as of June 30, 2016, and December 31, 2015 (in thousands):
|
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Property and Equipment (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of property and equipment | Property and equipment consist of the following at June 30, 2016, and December 31, 2015 (in thousands):
|
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Other Assets (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other Assets [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of other assets | The Company’s other assets are as follows at June 30, 2016, and December 31, 2015 (in thousands):
|
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Accrued Liabilities (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of accrued liabilities | Accrued liabilities consisted of the following as of June 30, 2016, and December 31, 2015 (in thousands):
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Capital Lease and Other Obligations (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases, Capital [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of capital lease and other obligation | Capital lease and other obligations consist of the following at June 30, 2016, and December 31, 2015 (in thousands):
|
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Commitments and Contingencies (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of future minimum net payments under operating leases | As of June 30, 2016, future minimum net payments under all operating leases are as follows (in thousands):
|
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Stockholders' Equity (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stockholders' equity: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of share-based compensation expense | Share-based compensation expense recorded during three months ended June 30, 2016, and 2015 was included in the Company’s Unaudited Consolidated Statements of Operations as follows (in thousands):
|
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| Schedule of stock option activity | Stock option activity under the Plans during the three months ended June 30, 2016 is as follows:
|
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Fair Value Measurements (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of fair value measurements | The Company’s financial assets measured at fair value on a recurring basis subject to disclosure requirements at June 30, 2016, and December 31, 2015 were as follows (in thousands):
|
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Summary of Significant Accounting Policies (Details) - Net Accounts Receivable [Member] |
6 Months Ended | 12 Months Ended | ||||
|---|---|---|---|---|---|---|
Jun. 30, 2016 |
Dec. 31, 2015 |
|||||
| Company 1 [Member] | ||||||
| Concentration risk, percentage | [1] | 13.00% | ||||
| Company 2 [Member] | ||||||
| Concentration risk, percentage | [1] | 12.00% | ||||
| Company 3 [Member] | ||||||
| Concentration risk, percentage | [1] | 11.00% | ||||
| Company 4 [Member] | ||||||
| Concentration risk, percentage | [1] | 10.00% | ||||
| Company 5 [Member] | ||||||
| Concentration risk, percentage | [1] | |||||
| Company 6 [Member] | ||||||
| Concentration risk, percentage | [1] | |||||
| Company 7 [Member] | ||||||
| Concentration risk, percentage | [1] | |||||
| ||||||
Summary of Significant Accounting Policies (Details 1) - Net Revenue [Member] |
3 Months Ended | 6 Months Ended | ||||
|---|---|---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|||
| United States [Member] | ||||||
| Concentration risk, percentage | 92.00% | 96.00% | 91.00% | 94.00% | ||
| Europe, Middle East and Africa [Member] | ||||||
| Concentration risk, percentage | [1] | |||||
| ||||||
Summary of Significant Accounting Policies (Details 2) - Cost of Services [Member] |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
| Advertiser Networks [Member] | ||||
| Concentration risk, percentage | 100.00% | 100.00% | 100.00% | 100.00% |
| Publisher Solutions [Member] | ||||
| Concentration risk, percentage | 0.00% | 0.00% | 0.00% | 0.00% |
Summary of Significant Accounting Policies (Details 3) - Net Revenue [Member] |
3 Months Ended | 6 Months Ended | |||||
|---|---|---|---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
||||
| Company 1 [Member] | |||||||
| Concentration risk, percentage | 12.00% | 18.00% | 13.00% | 12.00% | |||
| Company 2 [Member] | |||||||
| Concentration risk, percentage | [1] | ||||||
| Company 3 [Member] | |||||||
| Concentration risk, percentage | [1] | ||||||
| |||||||
Summary of Significant Accounting Policies (Details 4) - Traffic Acquisition Costs [Member] |
3 Months Ended | 6 Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
||||||
| Distribution Partner 1 [Member] | |||||||||
| Concentration risk, percentage | 20.00% | 11.00% | 19.00% | 15.00% | |||||
| Distribution Partner 2 [Member] | |||||||||
| Concentration risk, percentage | 13.00% | 11.00% | 15.00% | 10.00% | |||||
| Distribution Partner 3 [Member] | |||||||||
| Concentration risk, percentage | [1] | 10.00% | [1] | [1] | |||||
| Distribution Partner 4 [Member] | |||||||||
| Concentration risk, percentage | [1] | ||||||||
| |||||||||
Summary of Significant Accounting Policies (Details 5) |
6 Months Ended |
|---|---|
Jun. 30, 2016 | |
| Computer Equipment [Member] | Minimum [Member] | |
| Useful life | 3 years |
| Computer Equipment [Member] | Maximum [Member] | |
| Useful life | 4 years |
| Furniture and Fixtures [Member] | Minimum [Member] | |
| Useful life | 5 years |
| Furniture and Fixtures [Member] | Maximum [Member] | |
| Useful life | 7 years |
| Software [Member] | Minimum [Member] | |
| Useful life | 2 years |
| Software [Member] | Maximum [Member] | |
| Useful life | 3 years |
| Building Improvements [Member] | |
| Useful life | 10 years |
| Building [Member] | |
| Useful life | 39 years |
Summary of Significant Accounting Policies (Details Narrative) $ in Thousands |
3 Months Ended | 6 Months Ended | ||||||
|---|---|---|---|---|---|---|---|---|
|
Jun. 30, 2016
USD ($)
shares
|
Jun. 30, 2015
USD ($)
|
Jun. 30, 2016
USD ($)
Number
shares
|
Jun. 30, 2015
USD ($)
|
Dec. 31, 2015
USD ($)
shares
|
Dec. 31, 2013
ft²
|
Nov. 30, 2013
ft²
|
Sep. 30, 2013
USD ($)
|
|
| Common stock, issued | shares | 5,769 | 5,769 | 5,769 | |||||
| Common stock, outstanding | shares | 5,769 | 5,769 | 5,769 | |||||
| Allowance for doubtful accounts | $ | $ 800 | $ 800 | $ 800 | |||||
| Advertising cost | $ | 10 | $ 10 | $ 10 | $ 10 | ||||
| Number of operating segment | Number | 1 | |||||||
| Number of product offerings | Number | 2 | |||||||
| Share-based compensation | $ | ||||||||
| Software Development Costs [Member] | ||||||||
| Amortization period | 3 years | |||||||
| Phoenix, Arizona [Member] | ||||||||
| Area of building | ft² | 10,000 | 10,000 | ||||||
| MNP Ltd [Member] | ||||||||
| Syncapse technology assets purchased | $ | $ 3,000 | |||||||
| LookSmart [Member] | ||||||||
| Ownership percentage | 100.00% | 100.00% | ||||||
| Common stock, issued | shares | 5,768,851 | 5,768,851 | ||||||
| Common stock, outstanding | shares | 5,768,851 | 5,768,851 | ||||||
| Description of spin-off transactions | Each share of the Predecessor received one share of LookSmart Group common stock. |
|||||||
Merger/Spin-off Reorganization Transaction (Details Narrative) - USD ($) $ in Thousands |
1 Months Ended | 6 Months Ended | |
|---|---|---|---|
Apr. 23, 2015 |
Jun. 30, 2016 |
Dec. 31, 2015 |
|
| Description of common stock issuance | Each share of the Predecessor’s common stock held by holders of record at the close of business on the date of the closing of the Merger will be cancelled and exchanged for the right to receive the number of share(s) of Pyxis common stock equal to $4,000,000 divided by a denominator equal to (i) the final closing price of a share of the Predecessor’s common stock (post-Reverse Split) on the date of the closing of the Merger, multiplied by (ii) the number of issued and outstanding shares of the Predecessor’s common stock (post-Reverse Split) as of the date that the Merger becomes effective. |
||
| Common Stock shares issued | 5,769 | 5,769 | |
| Common Stock shares outstanding | 5,769 | 5,769 | |
| Michael Onghai [Member] | |||
| Number of common stock hold | 3,123,047 | ||
| Ownership percent | 54.10% | ||
| Pyxis Tankers Inc [Member] | |||
| Gross proceeds | $ 5,000 | ||
| Legacy LS Stockholders [Member] | |||
| Gross proceeds | $ 2,000 | ||
| LookSmart [Member] | |||
| Equity method investment ownership percentage | 100.00% | ||
| Common Stock shares issued | 5,768,851 | ||
| Common Stock shares outstanding | 5,768,851 | ||
| Description of reverse split | A ratio of not less than one-for-two and not more than one-for-ten. |
||
| Description of spin-off transactions | Each share of the Predecessor received one share of LookSmart Group common stock. |
||
| Pyxis [Member] | |||
| Number of common stock hold | 1.0667 | ||
| Common Stock shares issued | 18,244,671 | ||
| Reducing number of shares outstanding | 872,036 | ||
| Common Stock shares outstanding | 18,244,671 | ||
| Description of reverse split | 1 to .1512 reverse split |
Property and Equipment (Details) - USD ($) $ in Thousands |
Jun. 30, 2016 |
Dec. 31, 2015 |
|---|---|---|
| Property, Plant and Equipment [Line Items] | ||
| Cost | $ 5,009 | $ 4,736 |
| Accumulated Depreciation | (3,383) | (2,675) |
| Net Book Value | 1,627 | 2,061 |
| Computer Equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Cost | 1,097 | 1,082 |
| Accumulated Depreciation | (953) | (829) |
| Net Book Value | 144 | 253 |
| Furniture and Fixtures [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Cost | 21 | 22 |
| Accumulated Depreciation | (9) | (7) |
| Net Book Value | 12 | 15 |
| Software Development Costs [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Cost | 2,552 | 2,294 |
| Accumulated Depreciation | (2,260) | (1,714) |
| Net Book Value | 292 | 580 |
| Building And Leasehold Improvements [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Cost | 541 | 541 |
| Accumulated Depreciation | (117) | (90) |
| Net Book Value | 424 | 451 |
| Land And Buildings [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Cost | 797 | 797 |
| Accumulated Depreciation | (43) | (35) |
| Net Book Value | $ 754 | $ 762 |
Property and Equipment (Details Narrative) $ in Thousands |
3 Months Ended | 6 Months Ended | ||||
|---|---|---|---|---|---|---|
|
Jun. 30, 2016
USD ($)
|
Jun. 30, 2015
USD ($)
|
Jun. 30, 2016
USD ($)
|
Jun. 30, 2015
USD ($)
|
Dec. 31, 2013
ft²
|
Nov. 30, 2013
ft²
|
|
| Depreciation expense | $ 300 | $ 300 | $ 475 | $ 588 | ||
| Capital leased assets gross | $ 0 | $ 100 | $ 0 | $ 100 | ||
| Phoenix, Arizona [Member] | ||||||
| Area of building | ft² | 10,000 | 10,000 | ||||
Other Assets (Details) - USD ($) $ in Thousands |
Jun. 30, 2016 |
Dec. 31, 2015 |
|---|---|---|
| Gross Amount | $ 418 | $ 418 |
| Accumulated Amortization | ||
| Net Book Value | 418 | 418 |
| Other assets [Member] | ||
| Gross Amount | 418 | 418 |
| Accumulated Amortization | ||
| Net Book Value | $ 418 | $ 418 |
Accrued Liabilities (Details) - USD ($) $ in Thousands |
Jun. 30, 2016 |
Dec. 31, 2015 |
|---|---|---|
| Payables and Accruals [Abstract] | ||
| Accrued distribution and partner costs | $ (30) | $ 5 |
| Accrued compensation and related expenses | 56 | 91 |
| Accrued professional service fees | 68 | 68 |
| Other | 212 | 207 |
| Capital lease obligation (Note 7) | ||
| Total accrued liabilities | $ 306 | $ 371 |
Capital Lease and Other Obligations (Details) - USD ($) $ in Thousands |
Jun. 30, 2016 |
Dec. 31, 2015 |
|---|---|---|
| Leases, Capital [Abstract] | ||
| Capital lease obligations | $ 3 | $ 16 |
| Deferred rent | 14 | |
| Notes Payable | 2,180 | 1,750 |
| Total capital lease and other obligations | 2,183 | 1,780 |
| Less: current portion of capital lease obligations | (3) | (16) |
| Capital lease and other obligations, net of current portion | $ 2,194 | $ 1,764 |
Capital Lease and Other Obligations (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | 4 Months Ended | 6 Months Ended | ||||||
|---|---|---|---|---|---|---|---|---|---|
Jun. 05, 2015 |
Jun. 30, 2016 |
Mar. 31, 2016 |
Sep. 30, 2015 |
Jun. 30, 2015 |
Dec. 31, 2015 |
Mar. 31, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
| Proceeds from short term debt | |||||||||
| Inca Capital [Member] | |||||||||
| Proceeds from short term debt | $ 600 | ||||||||
| Interest rate | 10.50% | ||||||||
| Description of short term debt | The loan’s maturity date is May 30, 2016. This loan was extended for 6 months on June 1, 2016. |
||||||||
| Snowy August Management LLC [Member] | |||||||||
| Aggregate amount of advance received | $ 230 | $ 200 | $ 250 | $ 100 | $ 950 | $ 600 | |||
| Incorrectly stated amount of advance | $ 750 | ||||||||
Commitments and Contingencies (Details) $ in Thousands |
Jun. 30, 2016
USD ($)
|
|---|---|
| Capital Lease | |
| 2016 | $ 16 |
| 2017 | |
| 2018 | |
| Total minimum net payments | 16 |
| Less: amount representing interest | |
| Present value of net minimum payments | 16 |
| Less: current portion | |
| Long-term portion of capital lease obligations | 16 |
| Operating Leases | |
| 2016 | |
| 2017 | |
| 2018 | |
| Total minimum net payments | |
| Total | |
| 2016 | |
| 2017 | |
| 2018 | |
| Total minimum net payments |
Commitments and Contingencies (Details Narrative) $ in Thousands |
Dec. 31, 2014
USD ($)
|
|---|---|
| Letter of Credit [Member] | City National Bank [Member] | |
| Outstanding amount | $ 100 |
Stockholders' Equity (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
| Total share-based compensation expense | ||||
| Sales and Marketing [Member] | ||||
| Total share-based compensation expense | ||||
| Product Development and Technical Operations [Member] | ||||
| Total share-based compensation expense | ||||
| General and Administrative [Member] | ||||
| Total share-based compensation expense | ||||
Stockholders' Equity (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 6 Months Ended | 12 Months Ended | |||||
|---|---|---|---|---|---|---|---|---|
Apr. 23, 2015 |
Jul. 14, 2009 |
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
Dec. 31, 2014 |
Dec. 31, 2015 |
|
| Exercisable term | 4 months 10 days | 4 years | ||||||
| Expiration term | 7 years | |||||||
| Share-based compensation expense | ||||||||
| Number of shares purchased held in treasury | 98,000 | |||||||
| Treasury stock, per share (in dollars per share) | $ 1.78 | |||||||
| Value of treasury shares purchased | $ 170,000 | |||||||
| Increase in paid in capital | $ 600 | |||||||
| 2007 Equity Incentive Plan [Member] | ||||||||
| Number of shares issued or reserved for issuance | 1,200,000 | 1,200,000 | 1,400,000 | |||||
| 2009 Employee Stock Purchase Plan [Member] | ||||||||
| Number of shares authorized | 500,000 | |||||||
| Description of plans terms | Substantially all employees may purchase the Company’s common stock through payroll deductions at 85 percent of the lower of the fair market value at the beginning or end of the offering period. Each offering and purchase period is six months. ESPP contributions are limited to a maximum of 15% of an employee’s eligible compensation, and ESPP participants are limited to purchasing a maximum of 5,000 shares per purchase period. |
|||||||
| Maximum number of shares issued | 5,000 | 28,000 | ||||||