Filed Pursuant to Rule 424(b)(4)
Registration No. 333-156414
Per Share |
Total |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Initial
public offering price |
$ | 10.00 | $ | 50.0 | million | |||||
Underwriting
discounts and commissions(1) |
$ | 0.725 | $ | 3.6 | million | |||||
Proceeds to
us |
$ | 9.275 | $ | 46.4 | million |
(1) |
In addition, we have agreed to reimburse the underwriters for certain expenses in connection with this offering. See the section entitled Underwriting. |
Imperial Capital |
Ladenburg Thalmann & Co. Inc. |
Page |
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---|---|---|---|---|---|---|
Prospectus
Summary |
1 | |||||
Risk Factors
|
14 | |||||
Forward-Looking Statements |
38 | |||||
Market and
Industry Data |
40 | |||||
Use of
Proceeds |
41 | |||||
Dividend
Policy |
42 | |||||
Capitalization |
43 | |||||
Dilution
|
45 | |||||
Selected
Consolidated Financial Data |
46 | |||||
Managements Discussion and Analysis of Financial Condition and Results of Operations |
49 | |||||
Our Industry
|
78 | |||||
Business
|
81 | |||||
Management
|
99 | |||||
Principal
Stockholders |
123 | |||||
Certain
Relationships and Related Party Transactions |
127 | |||||
Description
of Capital Stock |
137 | |||||
Description
of Indebtedness |
143 | |||||
Shares
Eligible for Future Sale |
155 | |||||
Material U.S.
Tax Considerations |
157 | |||||
Underwriting
|
159 | |||||
Legal Matters
|
165 | |||||
Independent
Registered Public Accounting Firm |
165 | |||||
Where You Can
Find More Information |
165 | |||||
Index to
Consolidated Financial Statements |
F-1 |
|
Social Networking. Approximately 70% of our total net revenues for the year ended December 31, 2010 were generated through our targeted social networking technology platform. Our social networking technology platform provides users who register or purchase subscriptions to one or more of our websites with the ability to communicate and to establish new connections with other users via our personal chat rooms, instant messaging and e-mail applications and to create, post and view content of interest. We have been able to rapidly create and seamlessly maintain multiple websites tailored to specific categories or genres and designed to cater to targeted audiences with mutual interests. We believe that our ability to create and operate a diverse network of specific interest websites with unique, user-generated content in a cost-effective manner is a significant competitive differentiator that allows us to implement a subscription-fee based revenue model while many other popular social networking websites rely primarily upon free-access, advertising-based revenue models. |
|
Live Interactive Video. Approximately 22% of our total net revenues for the year ended December 31, 2010 were generated through our live interactive video technology platform. Our live interactive video technology platform is a live video broadcast platform that enables models to broadcast from independent studios throughout the world and interact with our users via instant messaging and video. We believe our live interactive video platform provides a unique offering including bi-directional and omni-directional video and interactive features that allow models to communicate with and attract users through a variety of mediums including blogs, newsletters and video. In addition, we believe the reliability of our live interactive video technology platform, which had approximately 99.1% uptime during 2010, is a key factor allowing us to maintain a large base of users. |
|
Visitors. Visitors are users who visit our websites but do not necessarily register. We believe we achieve large numbers of unique visitors because of our focus on continuously enhancing the user experience and expanding the breadth of our services. We had more than 196 million unique worldwide visitors in the month of December 2010, according to comScore. |
|
Registrants. Registrants are visitors who complete a free registration form on one of our websites by giving basic identification information and submitting their e-mail address. For the year ended December 31, 2010, we averaged more than 6.4 million new registrations on our websites each month. Some of our registrants are also members, as described below. |
|
Members. Members are registrants who log into one of our websites and make use of our free products and services. For the year ended December 31, 2010, we averaged more than 3.9 million new members on our websites each month. |
|
Subscribers. Subscribers are members who purchase daily, three-day, weekly, monthly, quarterly, annual or lifetime subscriptions for one or more of our websites. Subscribers have full access to our websites and may access special features. For the year ended December 31, 2010, we had a monthly average of approximately 1.0 million paying subscribers. |
|
Paid Users. Paid users are members who purchase products or services on a pay-by-usage basis. For the year ended December 31, 2010, we averaged approximately 1.6 million purchased minutes by paid users each month. |
|
Average Revenue per Subscriber. We calculate average revenue per subscriber, or ARPU, by dividing net revenue for the period by the average number of subscribers in the period and by the number of months in the period. As such, our ARPU is a monthly calculation. For the year ended December 31, 2010, our average monthly revenue per subscriber was $20.49. |
|
Churn. Churn is calculated by dividing terminations of subscriptions during the period by the total number of subscribers at the beginning of that period. Our average monthly churn rate, which measures the rate of loss of subscribers, decreased from approximately 16.3% per month for the year ended December 31, 2009 to approximately 16.1% per month for the year ended December 31, 2010. |
|
Cost Per Gross Addition. Cost per gross addition, or CPGA, is calculated by adding affiliate commission expense plus ad buy expenses and dividing by new subscribers during the measurement period. Our CPGA increased from $46.89 for the year ended December 31, 2009 to $47.25 for the year ended December 31, 2010. |
|
Average Lifetime Net Revenue Per Subscriber. Average Lifetime Net Revenue Per Subscriber is calculated by multiplying the average lifetime (in months) of a subscriber by ARPU for the measurement period and then subtracting the CPGA for the measurement period. Our Average Lifetime Net Revenue Per Subscriber increased from $79.34 for the year ended December 31, 2009 to $80.17 for the year ended December 31, 2010. While we monitor many statistics in the overall management of our business, we believe that Average Lifetime Net Revenue Per Subscriber and the number of subscribers are particularly helpful metrics for gaining a meaningful understanding of our business as they provide an indication of total revenue and profit |
generated from our base of subscribers inclusive of affiliate commissions and advertising costs required to generate new subscriptions. |
|
Proprietary and Scalable Technology Platform. Our robust, proprietary and highly scalable technology platform supports our social networking, live interactive video and premium content websites. We are able to use our customized back-end interface to quickly and affordably generate new websites, launch new features and target new audiences at a relatively low incremental cost. We believe that our ability to create new websites and provide new features is crucial to cost-effectively maintaining our relationships with existing users and attracting new users. |
|
Paid Subscriber-Based Model. We operate social networking websites that allow our members to make connections with other members with whom they share common interests. Our paid subscriber-based model of social networking websites is distinctly different from the business models of other free social networking websites whose users access the websites to remain connected to their pre-existing friends and interest groups. |
|
Large and Diverse User Base. We operate some of the most heavily visited social networking websites in the world, currently adding on average more than 6.4 million new registrants and more than 3.9 million new members each month. Our websites are designed to appeal to individuals with a diversity of interests and backgrounds. We believe potential members are attracted to the opportunity to interact with other individuals by having access to our large, diverse user base. |
|
Large and Difficult to Replicate Affiliate Network and Significant Marketing Spend. Our marketing affiliates are companies that market our services on their websites, allowing us to market our brand beyond our established user base. As of December 31, 2010, we had more than 250,000 participants in our marketing affiliate program from which we derive a substantial portion of our new members and approximately 45% of our net revenues. We believe that the difficulty in building an affiliate network of this large size, together with our combined affiliate and advertising spend of approximately $103.5 million for the year ended December 31, 2010, presents a significant barrier to entry for potential competitors. |
|
Convert Visitors, Registrants and Members into Subscribers or Paid Users. We continually seek to convert visitors, registrants and members into subscribers or paid users. We do this by constantly evaluating, adding and enhancing features on our websites to improve our users experience. |
|
Create Additional Websites and Diversify Offerings. We are constantly seeking to identify groups of sufficient size who share a common interest in order to create a website intended to appeal to their interests. Our extensive user database serves as an existing source of potential members and subscribers for new websites we create. |
|
Expand into and Monetize Current Foreign Markets. In 2010, nearly 71% of our members were outside the United States, but non-U.S. users accounted for less than half of our total net revenues. We seek to expand in selected geographic markets, including Southeast Europe, South America and Asia. |
|
Pursue Targeted Acquisitions. We intend to expand our business by acquiring and integrating additional social networking websites, technology platforms, owners, creators and distributors of content and payment processing and advertising businesses. Our management team possesses significant mergers and acquisitions and integration expertise and regularly screens the marketplace for strategic acquisition opportunities. |
|
Generate Online Advertising Revenue. To date, online advertising revenue has represented less than 0.1% of our net revenue, averaging approximately $9,000 per month in the year ended December 31, 2010. With continued worldwide growth in this advertising segment, we see this as a significant growth opportunity. We believe that our broad and diverse user base represents a valuable asset that will provide opportunities for us to offer targeted online advertising to specific demographic groups. We intend to focus our advertising efforts on our general audience social networking websites and maintain our subscription-based model for our adult social networking websites. |
Common stock
offered by us |
5,000,000 shares |
|||||
Common stock
outstanding before this offering (as of May 9, 2011) |
6,517,746 shares |
|||||
Common stock to
be outstanding after this offering |
26,724,598 shares |
|||||
Common stock
underlying Excluded Securities (as defined below) after this offering |
12,662,905 shares |
|||||
Dividend policy
|
We do
not anticipate paying cash dividends for the foreseeable future. |
|||||
Over-allotment
option |
We
have granted the underwriters an option to purchase up to 750,000 additional shares of our common stock at the public offering price less the
underwriting discount to cover any over-allotment. |
|||||
Use of proceeds
|
Our
net proceeds from this offering will be approximately $44.9 million, based upon an initial offering price of $10.00 per share of common stock, after
deducting underwriting discounts and estimated offering expenses payable by us. We intend to use all of the net proceeds to repay a portion of our New
First Lien Notes and our Cash Pay Second Lien Notes on the terms as further described under the section entitled Use of Proceeds. After
this offering, we will still have outstanding debt. |
|||||
Risk factors
|
You should read the section entitled Risk Factors beginning on page 14 for a discussion of factors you should consider
carefully before deciding whether to purchase shares of our common stock. |
|||||
Nasdaq Global
Market |
FFN |
|
8,444,853 shares of common stock issuable upon the conversion of all of the 8,444,853 outstanding shares of our Series B Convertible Preferred Stock (the holders of which have notified us in writing that they intend to exercise their option to convert effective upon the consummation of this offering); |
|
1,806,860 shares of common stock issuable upon the exchange of 1,806,860 outstanding shares of our Series B common stock (the holders of which have notified us in writing that they intend to exercise their option to exchange) |
|
428,668 shares of common stock issuable upon conversion of the 378,579 outstanding shares of our Series A Convertible Preferred stock (the holders of which have notified us in writing that they intend to exercise their option to convert); and |
|
4,526,471 shares of common stock underlying 4,003,898 outstanding warrants with an exercise price of $0.0002 per share, which if not exercised will expire upon the closing of this offering; |
|
32,965 shares of common stock issuable upon the exchange of 32,965 outstanding shares of our Series B common stock; |
|
1,571,784 shares of common stock issuable upon conversion of the 1,388,124 outstanding shares of our Series A Convertible Preferred Stock; |
|
1,319,833 shares of common stock underlying 1,373,859 outstanding warrants with an exercise price of $0.0002 per share (assuming such warrants are exercised for cash) which, to the extent not exercised, will not expire upon the closing of this offering; |
|
457,832 shares of common stock underlying all of the 476,573 outstanding warrants with an exercise price of $6.20 per share (assuming such warrants are exercised for cash); |
|
24,103 shares of common stock underlying all of the 25,090 outstanding warrants with an exercise price of $10.25 per share (assuming such warrants are exercised for cash); |
|
8,310,763 shares of common stock issuable solely upon the holders election to convert their Non-Cash Pay Second Lien Notes commencing with the consummation of this offering (based upon an initial offering price of $10.00 per share of common stock), and provided that such conversion shall be limited to approximately 21.1% of our fully diluted equity; |
|
551,750 shares of common stock issuable upon the exercise of options that have been issued under our FriendFinder Networks Inc. 2008 Stock Option Plan, or our 2008 Stock Option Plan; |
|
a number of shares equal to up to one percent of our fully diluted equity following this offering of common stock (estimated to be 393,875 shares based on the assumptions set forth herein) reserved for future issuance under our FriendFinder Networks Inc. 2009 Restricted Stock Plan, or our 2009 Restricted Stock Plan; and |
|
750,000 shares of common stock the underwriters may purchase upon the exercise of the underwriters over-allotment option. |
|
the amendment and restatement of the certificate of designation of our Series A Convertible Preferred Stock; |
|
the 1-for-20 reverse split of our authorized Series A Convertible Preferred Stock, including a corresponding and proportionate decrease in the number of outstanding shares of Series A Convertible Preferred Stock; |
|
the amendment and restatement of the certificate of designation of the Series B Convertible Preferred Stock; |
|
the 1-for-20 reverse split of our authorized Series B Convertible Preferred Stock, including a corresponding and proportionate decrease in the number of outstanding shares of Series B Convertible Preferred Stock; and |
|
the 1-for-20 reverse split of each series of our authorized common stock, including a corresponding and proportionate decrease in the number of outstanding shares of such series. |
Consolidated Data |
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---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Year Ended December 31, |
|||||||||||||||
2010 |
2009 |
2008(1) |
|||||||||||||
(in thousands, except per share
amounts) |
|||||||||||||||
Statements
of Operations and Per Share Data: |
|||||||||||||||
Net revenue
|
$ | 345,997 | $ | 327,692 | $ | 331,017 | |||||||||
Cost of
revenue |
110,490 | 91,697 | 96,514 | ||||||||||||
Gross profit
|
235,507 | 235,995 | 234,503 | ||||||||||||
Operating
expenses: |
|||||||||||||||
Product
development |
12,834 | 13,500 | 14,553 | ||||||||||||
Selling and
marketing |
37,258 | 42,902 | 59,281 | ||||||||||||
General and
administrative |
79,855 | 76,863 | 88,280 | ||||||||||||
Amortization
of acquired intangibles and software |
24,461 | 35,454 | 36,347 | ||||||||||||
Depreciation
and other amortization |
4,704 | 4,881 | 4,502 | ||||||||||||
Impairment of
goodwill |
| | 9,571 | ||||||||||||
Impairment of
other intangible assets |
4,660 | 4,000 | 14,860 | ||||||||||||
Total
operating expenses |
163,772 | 177,600 | 227,394 | ||||||||||||
Income from
operations |
71,735 | 58,395 | 7,109 | ||||||||||||
Interest and
other non-operating expense, net(2) |
115,374 | 104,943 | 71,251 | ||||||||||||
Loss before
income tax (benefit) |
(43,639 | ) | (46,548 | ) | (64,142 | ) | |||||||||
Income tax
(benefit) |
(486 | ) | (5,332 | ) | (18,176 | ) | |||||||||
Net loss
|
(43,153 | ) | (41,216 | ) | (45,966 | ) | |||||||||
Net loss per
common share basic and diluted(3) |
$ | (3.14 | ) | $ | (3.00 | ) | $ | (3.35 | ) | ||||||
Weighted
average common shares outstanding basic and diluted(3) |
13,735 | 13,735 | 13,735 |
Consolidated Data |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
As of December 31, |
|||||||||||
2010 |
2009 |
||||||||||
(in thousands) |
|||||||||||
Consolidated Balance Sheet Data (at period end): |
|||||||||||
Cash and
restricted cash |
$ | 41,970 | $ | 28,895 | |||||||
Total assets
|
532,817 | 551,881 | |||||||||
Long-term
debt, net |
510,551 | 432,028 | |||||||||
Deferred
revenue |
48,302 | 46,046 | |||||||||
Total
liabilities |
682,597 | 657,523 | |||||||||
Redeemable
preferred stock |
| 26,000 | |||||||||
Accumulated
deficit |
(230,621 | ) | (187,468 | ) | |||||||
Total
stockholders deficiency |
(149,780 | ) | (131,642 | ) |
Year Ended December 31, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
||||||||||
(in thousands) | |||||||||||
Consolidated Statements of Cash Flows Data: |
|||||||||||
Net cash
provided by operating activities |
$ | 42,640 | $ | 39,679 | |||||||
Net cash
(used in) provided by investing activities |
(1,250 | ) | 4,204 | ||||||||
Net cash used
in financing activities |
(29,405 | ) | (44,987 | ) |
(1) |
Net revenue for the year ended December 31, 2008 does not reflect $19.2 million due to a non-recurring purchase accounting adjustment that required the deferred revenue at the date of the acquisition of Various, Inc., or Various, to be recorded at fair value. Management believes that it is appropriate to add back the deferred revenue adjustment because the average renewal rate of the subscriptions that were the basis for the deferred revenue was approximately 63%. The renewal rate on subscriptions that had already been renewed at least one time since the acquisition was 78%. Therefore, management believes that historical results of Various are reflective of our future results, including those revenues that were added back to the adjusted net revenue. Please refer to the table contained in the Prospectus Summary below entitled Reconciliation of GAAP Net Loss to EBITDA and Adjusted EBITDA. |
(2) |
Includes interest expense, net of interest income, other finance expenses, interest and penalties related to value added tax, or VAT, net loss on extinguishment and modification of debt, foreign exchange gain, principally related to VAT not charged to customers, gain on settlement of VAT liability not charged to customers, gain on liability related to warrants and other non-operating (expense) income, net. |
(3) |
Basic and diluted loss per share is based on the weighted average number of shares of common stock and Series B common stock outstanding and includes shares underlying common stock purchase warrants which are exercisable at the nominal price of $0.0002 per share. For information regarding the computation of per share amounts, refer to Note C(25), Summary of Significant Accounting Policies Per share data of our consolidated financial statements included elsewhere in this prospectus. |
Consolidated Data |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Year Ended December 31, |
|||||||||||||||
2010 |
2009 |
2008 |
|||||||||||||
(in thousands) |
|||||||||||||||
GAAP net loss
|
$ | (43,153 | ) | $ | (41,216 | ) | $ | (45,966 | ) | ||||||
Add: Interest
expense, net |
88,508 | 92,139 | 80,510 | ||||||||||||
Subtract:
Income tax benefit |
(486 | ) | (5,332 | ) | (18,176 | ) | |||||||||
Add:
Amortization of acquired intangible assets and software |
24,461 | 35,454 | 36,347 | ||||||||||||
Add:
Depreciation and other amortization |
4,704 | 4,881 | 4,502 | ||||||||||||
EBITDA
|
$ | 74,034 | $ | 85,926 | $ | 57,217 | |||||||||
Add: Deferred
revenue purchase accounting adjustment(1) |
| | 19,200 | ||||||||||||
Add:
Impairment of goodwill |
| | 9,571 | ||||||||||||
Add:
Impairment of other intangible assets |
4,660 | 4,000 | 14,860 | ||||||||||||
Add:
Broadstream arbitration provision |
13,000 | | | ||||||||||||
Add
(subtract): Loss (gain) related to VAT liability not charged to customers |
1,683 | 7,942 | (9,456 | ) | |||||||||||
Add: Net Loss
on extinguishment and modification of debt |
7,457 | 7,240 | | ||||||||||||
Add: Other
finance expenses |
4,562 | | | ||||||||||||
Subtract:
Non-recurring refund by former owner of litigation costs for legacy patent case |
| (2,685 | ) | | |||||||||||
Adjusted
EBITDA(2) |
$ | 105,396 | $ | 102,423 | $ | 91,392 |
(1) |
Net revenue for the year ended December 31, 2008 does not reflect $19.2 million due to a non-recurring purchase accounting adjustment that required the deferred revenue at the date of the acquisition of Various to be recorded at fair value. Management believes that it is appropriate to add back the deferred revenue adjustment because the average renewal rate of the subscriptions that were the basis for the deferred revenue was approximately 63%. The renewal rate on subscriptions that had already been renewed at least one time since the acquisition was 78%. Therefore, management believes that historical results of Various are reflective of our future results, including those revenues that were added back to adjusted EBITDA. |
(2) |
For the year ended December 31, 2008 and for the quarters ended March 31, 2008, June 30, 2008, September 30, 2008, March 31, 2009 and June 30, 2009, we failed to satisfy our EBITDA covenants with respect to our 2006 Notes and 2005 Notes because of operating performance. For the quarters ended March 31, 2008, June 30, 2008 and September 30, 2008 we failed to satisfy our EBITDA covenants with respect to the First Lien Senior Secured Notes and the Second Lien Subordinated Secured Notes due to the liability related to VAT not charged to customers and the purchase accounting adjustment due to the required reduction of the deferred revenue liability to fair value. On October 8, 2009, these events of default were cured. For the quarter ended September 30, 2009, we met our EBITDA covenants with respect to our 2006 Notes and 2005 Notes, each as amended. For the year ended December 31, 2009 and the quarters ended March 31, 2010, June 30, 2010 and September 30, 2010, we met our EBITDA covenants with respect to the First Lien Senior Secured Notes and the Second Lien Subordinated Secured Notes. For more information regarding this and other events of default under our note agreements, see the section entitled Description of Indebtedness. The above mentioned debt was paid off with the proceeds of the New Financing. Our new note agreements contain material debt covenants based on our maintaining specified levels of EBITDA (as it is defined in the particular agreement as noted below). Specifically, we are required to maintain the following EBITDA levels for our outstanding debt: |
|
For each of the fiscal quarters ending through September 30,
2011, September 30, 2012 and September 30, 2013, our EBITDA (as defined) on a consolidated basis for the four consecutive fiscal quarters ending on
such date needs to be greater than $85 million, $90 million and $95 million, respectively. Our EBITDA for the four quarters ended December 31, 2010, as
defined in the relevant documents, was $105.4 million. We met our EBITDA covenant requirements for the quarter and year ended December 31, 2010. |
Non-Financial Operating Data |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Year Ended December 31, |
|||||||||||||||
2010 |
2009 |
2008 |
|||||||||||||
Historical
Operating Data: |
|||||||||||||||
Adult
Social Networking Websites |
|||||||||||||||
Subscribers
(as of the end of the period) |
928,314 | 916,005 | 896,211 | ||||||||||||
Churn(1) |
16.0 | % | 16.3 | % | 17.8 | % | |||||||||
ARPU (2) |
$ | 20.47 | $ | 20.73 | $ | 22.28 | |||||||||
CPGA(3) |
$ | 48.43 | $ | 47.24 | $ | 51.26 | |||||||||
Average
Lifetime Net Revenue Per Subscriber(4) |
$ | 79.45 | $ | 79.64 | $ | 74.22 | |||||||||
General
Audience Social Networking Websites |
|||||||||||||||
Subscribers
(as of the end of the period) |
53,198 | 57,431 | 68,647 | ||||||||||||
Churn(1) |
17.3 | % | 15.5 | % | 18.6 | % | |||||||||
ARPU(2) |
$ | 20.72 | $ | 18.05 | $ | 19.21 | |||||||||
CPGA(3) |
$ | 29.04 | $ | 41.61 | $ | 36.68 | |||||||||
Average
Lifetime Net Revenue Per Subscriber(4) |
$ | 91.02 | $ | 74.71 | $ | 66.70 | |||||||||
Live
Interactive Video Websites |
|||||||||||||||
Average
Revenue Per Minute |
$ | 3.90 | $ | 3.49 | $ | 2.87 | |||||||||
Cams
Minutes(5) |
19,566,551 |
17,293,702 |
19,101,202 |
(1) |
Churn is calculated by dividing terminations of subscriptions during the period by the total number of subscribers at the beginning of that period and by the number of months in the period. |
(2) |
ARPU is calculated by dividing net revenue for the period by the average number of subscribers in the period and by the number of months in the period. To provide meaningful comparisons between the years, net revenue for the year ended December 31, 2008 includes the add back of $19.2 million due to a non-recurring purchase accounting adjustment that required the deferred revenue at the date of the acquisition of Various to be recorded at fair value. For more information regarding our revenue adjusted for purchase price accounting, see the section entitled Managements Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Year Ended December 31, 2009 as Compared to the Year Ended December 31, 2008. |
(3) |
CPGA is calculated by adding affiliate commission expense plus ad buy expenses and dividing by new subscribers during the measurement period. |
(4) |
Average Lifetime Net Revenue Per Subscriber is calculated by multiplying the average lifetime (in months) of a subscriber by ARPU for the measurement period and then subtracting the CPGA for the measurement period. |
(5) |
Users purchase minutes in advance of their use and draw down on the available funds as the minutes are used. |
Three Months Ended March 31, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2011 |
2010 |
||||||||||
(unaudited) | |||||||||||
(in thousands) | |||||||||||
Net Revenue
|
$ | 83,520 | $ | 86,205 | |||||||
Gross profit
|
$ | 56,759 | $ | 56,563 | |||||||
Income from
operations |
$ | 19,675 | $ | 12,974 | |||||||
GAAP Net loss
|
$ | (4,031 | ) | $ | (8,361 | ) | |||||
Add: Interest
Expense, net |
21,950 | 22,837 | |||||||||
Add:
Amortization of acquired intangible assets and software |
3,924 | 6,264 | |||||||||
Add:
Depreciation and other amortization |
1,136 | 1,208 | |||||||||
EBITDA
|
22,979 | 21,948 | |||||||||
Add:
Broadstream arbitration costs |
1,016 | | |||||||||
Add
(subtract): Loss (gain) related to VAT liability not charged to customers |
3,111 | (1,482 | ) | ||||||||
Adjusted
EBITDA |
$ | 27,106 | $ | 20,466 |
|
if we experience excessive chargebacks and/or credits; |
|
if we experience excessive fraud ratios; |
|
if there is an adverse change in policy of the acquiring banks and/or card associations with respect to the processing of credit card charges for adult-related content; |
|
if there is an increase in the number of European and U.S. banks that will not accept accounts selling adult-related content; |
|
if there is a breach of our security resulting in the theft of credit card data; |
|
if there is continued tightening of credit card association chargeback regulations in international commerce; |
|
if there are association requirements for new technologies that consumers are less likely to use; and |
|
if negative global economic conditions result in credit card companies denying more transactions. |
|
cause our customers to lose confidence in our services; |
|
deter consumers from using our services; |
|
harm our reputation; |
|
require that we expend significant additional resources related to our information security systems and result in a disruption of our operations; |
|
expose us to liability; |
|
subject us to unfavorable regulatory restrictions and requirements imposed by the Federal Trade Commission or similar authority; |
|
cause us to incur expenses related to remediation costs; and |
|
decrease market acceptance of the use of e-commerce transactions. |
|
Internet. Several U.S. governmental agencies are considering a number of legislative and regulatory proposals that may lead to laws or regulations concerning different aspects of the internet, including social networking, online content, intellectual property rights, e-mail, user privacy, taxation, access charges, liability for third-party activities and personal jurisdiction. New Jersey enacted the Internet Dating Safety Act in 2008, which requires online dating services to disclose whether they perform criminal background screening practices and to offer safer dating tips on their websites. Other states have enacted or considered enacting similar legislation. While online dating and social networking websites are not currently required to verify the age or identity of their members or to run criminal background checks on them, any such requirements could increase our cost of operations or discourage use of our services. The Childrens Online Privacy Protection Act (COPPA) restricts the ability of online services to collect information from minors. The Protection of Children from Sexual Predators Act of 1998 requires online service providers to report evidence of violations of federal child pornography laws under certain circumstances. |
In the area of data protection, many states have passed laws requiring notification to users when there is a security breach for personal data, such as Californias Information Practices Act. Congress, the FTC and at least thirty-seven states have promulgated laws and regulations regarding email advertising and the application of such laws and the extent of federal preemptions is still evolving. Under U.S. law, the Digital Millennium Copyright Act has provisions which limit, but do not eliminate, our liability to list or link to third-party websites that include materials that infringe copyrights, so long as we comply with the statutory requirements of this act. Furthermore, the Communications Decency Act (CDA), under certain circumstances, immunizes computer service providers from liability for certain non-intellectual property claims for content created by third parties. The interpretation of the extent of CDA immunity is evolving and we run the risk that in certain instances we may not qualify for such immunity. We face similar risks in international markets where our products and services are offered and may be subject to additional regulations and balkanized laws. The interpretation and application of data protection laws in the United States, Europe and elsewhere are still uncertain and in flux. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our data practices. If so, in addition to the possibility of fines and other monetary remedies, this could result in an order requiring that we change our data practices. In 2008, Nevada enacted a law prohibiting businesses from transferring a customers personal information through an electronic transmission, unless that information is encrypted. In practice, the law requires businesses operating in Nevada to purchase and implement data encryption software in order to send any electronic transmission (including e-mail) that contains a customers personal information. |
More recently, Massachusetts has adopted regulations, which, like the Nevada law, require businesses to encrypt data sent over the internet. However, these Massachusetts regulations also require encryption of data on laptops and flash drives or other portable devices, and apply to anyone who owns, licenses, stores, or maintains personal information about the states residents. Any failure on our part to comply with these regulations may subject us to additional liabilities. |
Regulation of the internet could materially adversely affect our business, financial condition and results of operations by reducing the overall use of the internet, reducing the demand for our services or increasing our cost of doing business. Proposed legislation concerning data protection is currently pending at the U.S. federal and state level as well as in certain foreign jurisdictions. Complying with these laws could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business. |
|
Commercial advertising. We receive a significant portion of our print publications advertising revenue from companies that sell tobacco products. Significant limitations on the ability of those companies to advertise in our publications or on our websites because of legislative, regulatory or court action could materially adversely affect our business, financial condition and results of operations. |
|
Adult content. Regulation, investigations and prosecutions of adult content could prevent us from making such content available in certain jurisdictions or otherwise have a material adverse effect on our business, financial condition and results of operations. Government officials may also place additional restrictions on adult content affecting the way people interact on the internet. The governments of some countries, such as China and India, have sought to limit the influence of other cultures by restricting the distribution of products deemed to represent foreign or immoral influences. Regulation aimed at limiting minors access to adult content both in the United States and abroad could also increase our cost of operations and introduce technological challenges by requiring development and implementation of age verification systems. U.S. government officials could amend or construe and seek to enforce more broadly or aggressively the adult content recordkeeping and labeling requirements set forth in 18 U.S.C. Section 2257 and its implementing regulations in a manner that is unfavorable to our business. Court rulings may place additional restrictions on adult content affecting how people interact on the internet, such as mandatory web labeling. |
|
unforeseen operating difficulties and expenditures arising from the process of integrating any acquired business, product or technology, including related personnel, and maintaining uniform standards, controls, procedures and policies; |
|
diversion of a significant amount of managements attention from the ongoing development of our business; |
|
dilution of existing stockholders ownership interests; |
|
incurrence of additional debt; |
|
exposure to additional operational risks and liabilities, including risks and liabilities arising from the operating history of any acquired businesses; |
|
negative effects on reported results of operations from acquisition-related charges and amortization of acquired intangibles; |
|
entry into markets and geographic areas where we have limited or no experience; |
|
the potential inability to retain and motivate key employees of acquired businesses; |
|
adverse effects on our relationships with suppliers and customers; and |
|
adverse effects on the existing relationships of any acquired companies, including suppliers and customers. |
|
competition from pre-existing competitors with significantly stronger brand recognition in the markets we enter; |
|
our erroneous evaluations of the potential of such markets; |
|
diversion of capital and other valuable resources away from our core business; |
|
foregoing opportunities that are potentially more profitable; and |
|
weakening our current brands by over expansion into too many new markets. |
|
challenges caused by distance, language and cultural differences; |
|
local competitors with substantially greater brand recognition, more users and more traffic than we have; |
|
challenges associated with creating and increasing our brand recognition, improving our marketing efforts internationally and building strong relationships with local affiliates; |
|
longer payment cycles in some countries; |
|
credit risk and higher levels of payment fraud in some countries; |
|
different legal and regulatory restrictions among jurisdictions; |
|
political, social and economic instability; |
|
potentially adverse tax consequences; and |
|
higher costs associated with doing business internationally. |
|
we may be unable to obtain additional financing for working capital, capital expenditures, acquisitions, repayment of debt at maturity and other general corporate purposes; |
|
a significant portion of our cash flow from operations must be dedicated to debt service, which reduces the amount of cash we have available for other purposes; |
|
we may be disadvantaged as compared to our competitors, such as in our ability to adjust to changing market conditions, as a result of the amount of debt we owe; |
|
we may be restricted in our ability to make strategic acquisitions and to exploit business opportunities; and |
|
additional dilution of stockholders may be required to service our debt. |
|
incur or guarantee additional indebtedness; |
|
repurchase capital stock; |
|
make loans and investments; |
|
enter into agreements restricting our subsidiaries abilities to pay dividends; |
|
grant liens on assets; |
|
sell or otherwise dispose of assets; |
|
enter new lines of business; |
|
merge or consolidate with other entities; and |
|
engage in transactions with affiliates. |
|
Quarterly variations in our results of operations or those of our competitors. |
|
Announcements by us or our competitors of acquisitions, new products, significant contracts, commercial relationships or capital commitments. |
|
Disruption to our operations or those of our marketing affiliates. |
|
The emergence of new sales channels in which we are unable to compete effectively. |
|
Our ability to develop and market new and enhanced products on a timely basis. |
|
Commencement of, or our involvement in, litigation. |
|
Any major change in our board or management. |
|
Changes in governmental regulations or in the status of our regulatory approvals. |
|
Changes in earnings estimates or recommendations by securities analysts. |
|
General economic conditions and slow or negative growth of related markets. |
|
establish advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings; |
|
authorize our board of directors to issue blank check preferred stock to increase the number of outstanding shares and thwart a takeover attempt; |
|
require the written request of at least 75% of the voting power of our capital stock in order to compel management to call a special meeting of the stockholders; and |
|
prohibit stockholder action by written consent and require that all stockholder actions be taken at a meeting of our stockholders, unless otherwise specifically required by our articles of incorporation or the Nevada Revised Statutes. |
|
our history of significant operating losses and the risk of incurring additional net losses in the future; |
|
our reliance on subscribers to our websites for most of our revenue; |
|
competition from other social networking, internet personals and adult-oriented websites; |
|
our reliance on our affiliate network to drive traffic to our websites; |
|
increased subscriber churn or subscriber upgrade and retention costs impact on our financial performance; |
|
our ability to generate significant revenue from internet advertising; |
|
our ability to maintain and enhance our brands; |
|
unfavorable economic and market conditions; |
|
our reliance on credit cards as a form of payment; |
|
our ability to keep up with new technologies and remain competitive; |
|
we may be held secondarily liable for the actions of our affiliates; |
|
our history of breaching certain covenants in our note agreements and the risk of future breaches; |
|
our reliance on member-generated content to our websites; |
|
security breaches may cause harm to our subscribers or our systems; |
|
we may be subject to liability arising from our media content; |
|
our ability to safeguard the privacy of the users of our websites; |
|
our ability to enforce and protect our intellectual property rights; |
|
we may be subject to claims that we have violated the intellectual property rights of others; |
|
our ability to obtain or maintain key website addresses; |
|
our ability to scale and adapt our network infrastructure; |
|
the loss of our main data center or backup data center or other parts of our infrastructure; |
|
systems failures and interruptions in our ability to provide access to our websites and content; |
|
companies providing products and services on which we rely may refuse to do business with us; |
|
changes in government laws affecting our business; |
|
we may be liable if one of our members or subscribers harms another or misuses our websites; |
|
risks associated with additional taxes being imposed by any states or countries; |
|
we may have unforeseen liabilities from our acquisition of Various and our recourse may be limited; |
|
we may not be successful in integrating any future acquisitions we make; |
|
risks of international expansion; |
|
any debt outstanding after the consummation of this offering could restrict the way we do business; |
|
failure to maintain financial ratios; |
|
our reliance on key personnel; |
|
our ability to attract internet traffic to our websites; |
|
risks associated with currency fluctuations; and |
|
risks associated with our litigation and legal proceedings. |
|
on an actual, historical basis; |
|
on a pro forma basis reflecting (i) the issuance of 428,668 shares of common stock upon the conversion of 378,579 outstanding shares of our Series A Preferred Stock (the holders of which have notified us in writing that they intend to exercise their option to convert effective upon the consummation of this offering), (ii) the issuance of 8,444,853 shares of common stock upon the conversion of all of the outstanding shares of our Series B Convertible Preferred Stock (the holders of which have notified us in writing that they intend to exercise their option to convert effective upon the consummation of this offering), (iii) the issuance of 1,806,860 shares of common stock upon the exchange of 1,806,860 outstanding shares of our Series B common stock (the holders of which have notified us in writing that they intend to exercise their option to exchange), (iv) the issuance of 4,526,471 shares of common stock underlying 4,003,898 outstanding warrants with an exercise price of $0.0002 per share, which if not exercised will expire upon the closing of this offering (collectively, the Conversions); and (v) the principal repayment on our New First Lien Notes and our Cash Pay Second Lien Notes of $14.1 million and $0.6 million respectively in the first fiscal quarter of 2011 from excess cash flows of $15 million and the resultant approximately $1.6 million expense on repayment of debt including, a 2% repayment premium writeoff of deferred debt costs and discount, net of related deferred tax effect; and |
|
on a pro forma as adjusted basis reflecting (i) all of the foregoing pro forma adjustments, (ii) the sale of 5,000,000 shares of our common stock in this offering at the initial offering price of $10.00 per share after deducting underwriting discounts and commissions of $3.6 million and related estimated offering expenses of $14.8 million (including $13.3 million incurred as of and paid at December 31, 2010) and giving effect to the receipt of the estimated proceeds of $44.9 million (which, is net of underwriting discount of $3.6 million and estimated offering expenses incurred since our new financing of $1.5 million), (iii) recognition of the contingent embedded beneficial conversion feature contained in the Non-Cash Pay Second Lien Notes of approximately $13.0 million with the resultant increase in capital in excess of par value and decrease in the carrying value of the Non-Cash Pay Second Lien Notes, (iv) the repayment of principal on our New First Lien Notes and our Cash Pay Second Lien Notes of $39.0 million and $1.8 million, respectively, and the resultant $7.8 million loss on extinguishment of debt (which include a 10% repayment premium as well as writeoff of deferred debt costs and discount), net of related deferred tax effect, and (v) $2.0 million of cumulative compensation expense and related increase in capital in excess of par value related to stock options deemed granted upon the completion of an IPO based on an assumed initial offering price of $10.00 per share. |
As of December 31, 2010 |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Actual |
Pro Forma |
Pro Forma as Adjusted |
|||||||||||||
(unaudited) (dollars in thousands except share data) |
|||||||||||||||
Cash
|
$ | 34,585 | $ | 19,537 | $ | 19,537 | |||||||||
New First
Lien Notes, net of unamortized discount of $10,974, $10,466 pro forma and $9,062 pro forma as adjusted |
294,026 | 280,418 | 242,790 | ||||||||||||
Cash Pay
Second Lien Notes, net of unamortized discount of $262, $250 pro forma and $216 pro forma as adjusted |
13,516 | 12,890 | 11,160 | ||||||||||||
Non-Cash Pay
Second Lien Notes, net of unamortized discount of $20,986, $20,986 pro forma and $33,954 pro forma as adjusted |
216,225 | 216,225 | 203,257 | ||||||||||||
Other, net of
unamortized discount of $457 |
1,793 | 1,793 | 1,793 | ||||||||||||
Total
Indebtedness |
525,560 | 511,326 | 459,000 |
As of December 31, 2010 |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Actual |
Pro Forma |
Pro Forma as Adjusted | |||||||||||||
(unaudited) (dollars in thousands except share data) |
|||||||||||||||
Stockholders Deficiency |
|||||||||||||||
Preferred
stock, $0.001 par value authorized 22,500,000 shares; issued and outstanding 10,211,556, 1,388,124 pro forma and pro forma as adjusted
|
|||||||||||||||
Series A
Convertible Preferred Stock, $0.001 per share authorized 2,500,000 shares; issued and outstanding 1,766,703, 1,388,124 pro forma and pro forma
as adjusted (liquidation preference $21,000 actual, $16,500 pro forma and pro forma as adjusted) |
2 | 1 | 1 | ||||||||||||
Series B
Convertible Preferred Stock, $0.001 per share authorized 10,000,000 shares; issued and outstanding 8,444,853 (liquidation preference $5,000),
none pro forma and none pro forma as adjusted |
8 | | | ||||||||||||
Common stock,
$0.001 par value authorized 125,000,000 shares |
|||||||||||||||
Common stock
voting authorized 112,500,000 shares, issued and outstanding 6,517,746, 21,724,598 shares pro forma and 26,724,598 pro forma as adjusted
|
6 | 22 | 27 | ||||||||||||
Series B
common stock non-voting authorized 12,500,000 shares; issued and outstanding 1,839,825 shares, 32,965 pro forma and pro forma as adjusted
|
2 | | | ||||||||||||
Capital in
excess of par value |
80,823 | 80,819 | 127,364 | ||||||||||||
Accumulated
deficit |
(230,621 | ) | (232,254 | ) | (242,007 | ) | |||||||||
Total
stockholders deficiency |
(149,780 | ) | (151,412 | ) | (114,615 | ) | |||||||||
Total
Capitalization |
$ | 375,780 | $ | 359,914 | $ | 344,385 |
Initial
public offering price per share |
$ | 10.00 | ||||||||
Net tangible
book value deficiency per share as of December 31, 2010 |
$ | (28.92 | ) | |||||||
Decrease in
net tangible book value deficiency attributable to new investors |
$ | 7.39 | ||||||||
Adjusted net
tangible book value deficiency per share after this offering |
$ | (21.53 | ) | |||||||
Dilution per
share to new investors |
$ | (31.53 | ) |
Shares Purchased |
Total Consideration |
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Amount |
Percent |
Amount |
Percent |
Average price per share |
||||||||||||||||||
(in thousands, except per share data) | ||||||||||||||||||||||
Existing
stockholders |
21,724 | 81 | % | $ | 22,842 | 31 | % | $ | 1.05 | |||||||||||||
Investors in
this offering |
5,000 | 19 | % | 50,000 | 69 | % | $ | 10.00 | ||||||||||||||
Total
|
26,724 | 100 | % | $ | 72,842 | 100 | % |
Consolidated Data |
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Year Ended December 31, |
|||||||||||||||||||||||
2010 |
2009 |
2008(1) |
2007(1) |
2006 |
|||||||||||||||||||
(in thousands, except per share data) |
|||||||||||||||||||||||
Statements
of Operations and Per Share Data: |
|||||||||||||||||||||||
Net revenue
|
$ | 345,997 | $ | 327,692 | $ | 331,017 | $ | 48,073 | $ | 29,965 | |||||||||||||
Cost of
revenue |
110,490 | 91,697 | 96,514 | 23,330 | 15,927 | ||||||||||||||||||
Gross profit
|
235,507 | 235,995 | 234,503 | 24,743 | 14,038 | ||||||||||||||||||
Operating
expenses |
|||||||||||||||||||||||
Product
development |
12,834 | 13,500 | 14,553 | 1,002 | | ||||||||||||||||||
Selling and
marketing |
37,258 | 42,902 | 59,281 | 7,595 | 1,430 | ||||||||||||||||||
General and
administrative |
79,855 | 76,863 | 88,280 | 24,466 | 24,354 | ||||||||||||||||||
Amortization
of acquired intangibles and software |
24,461 | 35,454 | 36,347 | 2,262 | | ||||||||||||||||||
Depreciation
and other amortization |
4,704 | 4,881 | 4,502 | 2,829 | 3,322 | ||||||||||||||||||
Impairment of
goodwill |
| | 9,571 | 925 | 22,824 | ||||||||||||||||||
Impairment of
other intangible assets |
4,660 | 4,000 | 14,860 | 5,131 | | ||||||||||||||||||
Total
operating expenses |
163,772 | 177,600 | 227,394 | 44,210 | 51,930 | ||||||||||||||||||
Income (loss)
from operations. |
71,735 | 58,395 | 7,109 | (19,467 | ) | (37,892 | ) | ||||||||||||||||
Interest
expense, net of interest income |
(88,508 | ) | (92,139 | ) | (80,510 | ) | (15,953 | ) | (7,918 | ) | |||||||||||||
Other finance
expenses |
(4,562 | ) | | | | | |||||||||||||||||
Interest and
penalties related to VAT liability not charged to customers |
(2,293 | ) | (4,205 | ) | (8,429 | ) | (1,592 | ) | | ||||||||||||||
Net loss on
extinguishment and modification of debt |
(7,457 | ) | (7,240 | ) | | | (3,799 | ) | |||||||||||||||
Foreign
exchange gain (loss) principally related to VAT liability not charged to customers |
610 | (5,530 | ) | 15,195 | 546 | | |||||||||||||||||
Gain on
elimination of liability for United Kingdom VAT not charged to customers |
| 1,561 | | | | ||||||||||||||||||
Gain on
settlement of VAT liability not charged to customers |
| 232 | 2,690 | | | ||||||||||||||||||
Gain on
liability related to warrants |
38 | 2,744 | | | | ||||||||||||||||||
Other
non-operating (expense) income, net |
(13,202 | ) | (366 | ) | (197 | ) | 119 | (332 | ) | ||||||||||||||
Loss before
income tax benefit |
(43,639 | ) | (46,548 | ) | (64,142 | ) | (36,347 | ) | (49,941 | ) | |||||||||||||
Income tax
benefit |
486 | 5,332 | 18,176 | 6,430 | | ||||||||||||||||||
Net loss
|
(43,153 | ) | (41,216 | ) | (45,966 | ) | (29,917 | ) | (49,941 | ) |
Consolidated Data |
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Year Ended December 31, |
|||||||||||||||||||||||
2010 |
2009 |
2008(1) |
2007(1) |
2006 | |||||||||||||||||||
(in thousands, except per share data) |
|||||||||||||||||||||||
Non-cash
dividends on convertible preferred stock |
| | | (4,396 | ) | | |||||||||||||||||
Net loss
attributable to common stock |
$ | (43,153 | ) | $ | (41,216 | ) | $ | (45,966 | ) | $ | (34,313 | ) | $ | (49,941 | ) | ||||||||
Net loss per
common share basic and diluted(2) |
$ | (3.14 | ) | $ | (3.00 | ) | $ | (3.35 | ) | $ | (5.19 | ) | $ | (8.99 | ) | ||||||||
Weighted
average common shares outstanding basic and diluted(2) |
13,735 | 13,735 | 13,735 | 6,610 | 5,554 | ||||||||||||||||||
Pro forma net
loss per common share basic and diluted(3) |
$ | (1.37 | ) | ||||||||||||||||||||
Pro forma
weighted average common shares outstanding basic and diluted(3) |
27,703 |
Consolidated Data(1) |
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
As of December 31, |
|||||||||||||||||||||||
2010 |
2009 |
2008(2) |
2007(2) |
2006 |
|||||||||||||||||||
(in thousands) | |||||||||||||||||||||||
Consolidated Balance Sheet Data (at period end): |
|||||||||||||||||||||||
Cash and
restricted cash |
$ | 41,970 | $ | 28,895 | $ | 31,565 | $ | 23,722 | $ | 2,998 | |||||||||||||
Total assets
|
532,817 | 551,881 | 599,913 | 649,868 | 70,770 | ||||||||||||||||||
Long-term
debt classified as current due to events of default, net of unamortized discount(4)
|
| | 415,606 | 417,310 | | ||||||||||||||||||
Long-term
debt, net of unamortized discount |
510,551 | 432,028 | 38,768 | 35,379 | 63,166 | ||||||||||||||||||
Deferred
revenue |
48,302 | 46,046 | 42,814 | 27,214 | 6,974 | ||||||||||||||||||
Total
liabilities |
682,597 | 657,523 | 657,998 | 661,987 | 91,516 | ||||||||||||||||||
Redeemable
preferred stock |
| 26,000 | 26,000 | 26,000 | 21,000 | ||||||||||||||||||
Accumulated
deficit |
(230,621 | ) | (187,468 | ) | (144,667 | ) | (98,701 | ) | (68,784 | ) | |||||||||||||
Total
stockholders deficiency |
(149,780 | ) | (131,642 | ) | (84,085 | ) | (38,119 | ) | (41,746 | ) |
Consolidated Data |
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Year Ended December 31, |
|||||||||||||||||||||||
2010 |
2009 |
2008(1) |
2007(1) |
2006 |
|||||||||||||||||||
(in thousands) | |||||||||||||||||||||||
Other
Data |
|||||||||||||||||||||||
Net cash
provided by (used in) operating activities |
$ | 42,640 | $ | 39,679 | $ | 50,948 | $ | 4,744 | $ | (16,600 | ) | ||||||||||||
Net cash
provided by (used in) investing activities |
(1,250 | ) | 4,204 | (9,289 | ) | (149,322 | ) | (3,414 | ) | ||||||||||||||
Net cash
provided by (used in) financing activities |
(29,405 | ) | (44,987 | ) | (25,336 | ) | 148,961 | 10,569 |
(1) |
Net revenue for the years ended December 31, 2008 and 2007 does not reflect $19.2 million and $8.5 million, respectively, due to a non-recurring purchase accounting adjustment that required the deferred revenue at the date of the acquisition of Various to be recorded at fair value. Management believes that it is appropriate to add back the deferred revenue adjustment because the average renewal rate of the subscriptions that were the basis for the deferred revenue was approximately 63%. The renewal rate on subscriptions that had already been renewed at least one time since the acquisition was 78%. Therefore, management believes that historical results of Various are reflective, including those revenues that were added back to the adjusted net revenue, of our future results. Please refer to the table contained in the Prospectus Summary above entitled Reconciliation of GAAP Net Loss to EBITDA and Adjusted EBITDA. |
(2) |
Basic and diluted loss per share is based on the weighted average number of shares of common stock outstanding, including Series B common stock, and shares underlying common stock purchase warrants which are exercisable at the nominal price of $0.0002 per share |
and which if not exercised will expire upon closing of this offering. For information regarding the computation of per share amounts, refer to Note C(25), Summary of Significant Accounting Policies Per share data of our consolidated financial statements included elsewhere in this prospectus. |
(3) |
The following pro forma information reflects the following transactions as if they occurred on January 1, 2010: (i) the sale of 5,000,000 shares of our common stock at an initial offering price of $10.00 per share and the receipt of net proceeds of $44.9 million, (ii) the repayment of principal of $40.8 million on outstanding notes, (iii) the issuance of 8,444,853 shares of common stock upon the conversion of the outstanding shares of Series B convertible preferred stock and (iv) the issuance of 4,526,471 shares of common stock underlying 4,003,898 warrants with an exercise price of $0.0002 per share which if not exercised will expire upon the closing of the offering. |
Net loss as
reported |
$ | (43,153 | ) | |||
Pro forma
adjustments: |
||||||
1.A reduction
in interest expense resulting from the repayment of a portion of the New First Lien Notes and Second Lien Notes using a weighted average effective
interest rate of 20.3% |
8,300 | |||||
2.Amortization of the $13.0 million beneficial conversion feature in the Non-Cash Pay Second Lien Notes which mature on April 30,
2014 |
(3,200 | ) | ||||
Pro forma net
loss |
$ | (38,053 | )(a) | |||
Weighted
average common shares outstanding basic and diluted |
13,735 | |||||
Pro forma
adjustments: |
||||||
1.Issuance of
common stock upon the conversion of all of the outstanding shares of Series B Convertible Preferred Stock (the holders of which have notified us in
writing that they intend to exercise their option to convert effective upon the consummation of this offering) |
8,445 | |||||
2.An increase
in the shares of common stock underlying certain of our warrants resulting from the anti-dilution provisions of such warrants |
523 | |||||
3.The sale of
common stock in this offering |
5,000 | |||||
Pro forma
weighted average shares outstanding |
27,703 | |||||
Pro forma net
loss per common share basic and diluted |
$ | (1.37 | )(a) |
(a) |
The pro forma net loss per common share excludes (i) loss on extinguishment of our New First Lien Notes and Cash Pay Second Lien Notes of $7.8 million and (ii) $2.0 million of cumulative compensation expense related to stock options deemed granted upon the completion of an IPO, representing non-recurring charges directly attributable to this offering. |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 |
|||||||||||||
Percentage of
revenue contributed by affiliates |
45 | % | 44 | % | 43 | % | |||||||||
Compensation
to affiliates (in millions) |
$ | 71.2 | $ | 56.7 | $ | 62.3 |
|
valuation of goodwill, identified intangibles and other long-lived assets, including business combinations; and |
|
legal contingencies. |
|
a significant decline in actual or projected revenue; |
|
a significant decline in performance of certain acquired companies relative to our original projections; |
|
an excess of our net book value over our market value; |
|
a significant decline in our operating results relative to our operating forecasts; |
|
a significant change in the manner of our use of acquired assets or the strategy for our overall business; |
|
a significant decrease in the market value of an asset; |
|
a shift in technology demands and development; and |
|
a significant turnover in key management or other personnel. |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 |
|||||||||||||
(in thousands) | |||||||||||||||
Net
revenue |
|||||||||||||||
Internet |
$ | 321,605 | $ | 306,213 | $ | 306,129 | |||||||||
Entertainment |
24,392 | 21,479 | 24,888 | ||||||||||||
Total |
345,997 | 327,692 | 331,017 | ||||||||||||
Cost of
revenue |
|||||||||||||||
Internet |
97,959 | 78,627 | 81,815 | ||||||||||||
Entertainment |
12,531 | 13,070 | 14,699 | ||||||||||||
Total |
110,490 | 91,697 | 96,514 | ||||||||||||
Gross
profit |
|||||||||||||||
Internet |
223,646 | 227,586 | 224,314 | ||||||||||||
Entertainment |
11,861 | 8,409 | 10,189 | ||||||||||||
Total |
235,507 | 235,995 | 234,503 | ||||||||||||
Income (loss)
from operations |
|||||||||||||||
Internet |
76,142 | 64,962 | 34,345 | ||||||||||||
Entertainment |
1,140 | (439 | ) | (17,748 | ) | ||||||||||
Unallocated
corporate |
(5,547 | ) | (6,128 | ) | (9,488 | ) | |||||||||
Total |
$ | 71,735 | $ | 58,395 | $ | 7,109 |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 |
|||||||||||||
Adult
Social Networking Websites |
|||||||||||||||
New
members |
38,216,689 | 22,461,322 | 20,738,807 | ||||||||||||
Beginning
subscribers |
916,005 | 896,211 | 919,146 | ||||||||||||
New
subscribers(1) |
1,771,837 | 1,776,916 | 1,935,533 | ||||||||||||
Terminations |
1,759,528 | 1,757,122 | 1,958,468 | ||||||||||||
Ending
subscribers |
928,314 | 916,005 | 896,211 | ||||||||||||
Conversion of
members to subscribers |
4.6 | % | 7.9 | % | 9.3 | % | |||||||||
Churn |
16.0 | % | 16.3 | % | 17.8 | % | |||||||||
ARPU |
$ | 20.47 | $ | 20.73 | $ | 22.28 | |||||||||
CPGA |
$ | 48.43 | $ | 47.24 | $ | 51.26 | |||||||||
Average
lifetime net revenue per subscriber |
$ | 79.45 | $ | 79.64 | $ | 74.22 | |||||||||
Net
revenue(2) (in millions) |
$ | 226.6 | $ | 225.4 | $ | 242.7 |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 | |||||||||||||
General
Audience Social Networking Websites |
|||||||||||||||
New members
|
8,985,965 | 8,994,757 | 11,221,993 | ||||||||||||
Beginning
subscribers |
57,431 | 68,647 | 85,893 | ||||||||||||
New
subscribers(1) |
114,709 | 116,608 | 174,290 | ||||||||||||
Terminations
|
118,942 | 127,824 | 191,536 | ||||||||||||
Ending
subscribers |
53,198 | 57,431 | 68,647 | ||||||||||||
Conversion of
members to subscribers |
1.3 | % | 1.3 | % | 1.6 | % | |||||||||
Churn
|
17.3 | % | 15.5 | % | 18.6 | % | |||||||||
ARPU
|
$ | 20.72 | $ | 18.05 | $ | 19.21 | |||||||||
CPGA
|
$ | 29.04 | $ | 41.61 | $ | 36.68 | |||||||||
Average
lifetime net revenue per subscriber |
$ | 91.02 | $ | 74.71 | $ | 66.70 | |||||||||
Net
revenue(2) (in millions) |
$ | 13.8 | $ | 13.7 | $ | 17.8 | |||||||||
Live
Interactive Video Websites |
|||||||||||||||
Total minutes
|
19,566,551 | 17,293,702 | 19,101,202 | ||||||||||||
Average
revenue per minute |
$ | 3.90 | $ | 3.49 | $ | 2.87 | |||||||||
Net
revenue(2) (in millions) |
$ | 76.3 | $ | 60.4 | $ | 54.9 |
(1) |
New subscribers are subscribers who have paid subscription fees to one of our websites during the period indicated in the table but who were not subscribers in the immediately prior period. Members who previously were subscribers, but discontinued their subscriptions either by notifying us of their decisions to discontinue or allowing their subscriptions to lapse by failing to pay their subscription fees, are considered new subscribers when they become subscribers again at any point after their previous subscriptions ended. If a current subscriber to one of our websites becomes a subscriber to another one of our websites, such new subscription would also be counted as a new subscriber since such subscriber would be paying the full subscription fee for each subscription. |
(2) |
Net revenue for the year ended December 31, 2008 includes the adding back of $19.2 million due to a non-recurring purchase accounting adjustment that required deferred revenue at the date of acquisition of Various to be recorded at fair value. To provide meaningful comparisons between the years shown, management believes that the historical results of Various are reflective of our future results. |
|
our consolidated results of operations for the year ended December 31, 2010 compared to the year ended December 31, 2009; |
|
our consolidated results of operations for the year ended December 31, 2009 compared to the year ended December 31, 2008. |
|
an analysis of internet segment operating data which are key to an understanding of our operating results and strategies for the year ended December 31, 2010 as compared to the year ended December 31, 2009, and for the year ended December 31, 2009 as compared to the year ended December 31, 2008. |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 |
|||||||||||||
Net revenue
|
100.0 | % | 100.0 | % | 100.0 | % | |||||||||
Cost of
revenue |
31.9 | 28.0 | 29.2 | ||||||||||||
Gross profit
|
68.1 | 72.0 | 70.8 | ||||||||||||
Operating
expenses: |
|||||||||||||||
Product
development |
3.7 | 4.1 | 4.4 | ||||||||||||
Selling and
marketing |
10.8 | 13.1 | 17.9 | ||||||||||||
General and
administrative |
23.1 | 23.5 | 26.7 | ||||||||||||
Amortization
of acquired intangibles and software |
7.1 | 10.8 | 11.0 | ||||||||||||
Depreciation
and other amortization |
1.3 | 1.5 | 1.3 | ||||||||||||
Impairment of
goodwill |
| | 2.9 | ||||||||||||
Impairment of
other intangible assets |
1.4 | 1.2 | 4.5 | ||||||||||||
Total
operating expenses |
47.4 | 54.2 | 68.7 |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 | |||||||||||||
Income from
operations |
20.7 | 17.8 | 2.1 | ||||||||||||
Interest
expense, net of interest income |
(25.6 | ) | (28.1 | ) | (24.3 | ) | |||||||||
Other finance
expenses |
(1.3 | ) | | | |||||||||||
Interest and
penalty related to VAT liability not charged to customers |
(0.7 | ) | (1.3 | ) | (2.5 | ) | |||||||||
Net loss on
extinguishment and modification of debt |
(2.1 | ) | (2.2 | ) | | ||||||||||
Foreign
exchange (gain) loss principally related to VAT liability not charged to customers |
0.2 | (1.7 | ) | 4.6 | |||||||||||
Gain on
elimination of liability for United Kingdom VAT not charged to customers |
| 0.5 | | ||||||||||||
Gain on
settlement of liability related to VAT not charged to customers |
| 0.1 | 0.8 | ||||||||||||
Gain on
liability related to warrants |
0.0 | 0.8 | | ||||||||||||
Other
non-operating expense net |
(3.8 | ) | (0.1 | ) | (0.1 | ) | |||||||||
Loss before
income tax benefit |
(12.6 | ) | (14.2 | ) | (19.4 | ) | |||||||||
Income tax
benefit |
0.1 | 1.6 | 5.5 | ||||||||||||
Net loss
|
(12.5 | )% | (12.6 | )% | (13.9 | )% |
Year Ended December 31, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
($in millions) |
2009 |
2008 |
|||||||||
Net revenue
|
$ | 327.7 | $ | 331.0 | |||||||
Purchase
accounting adjustment |
| 19.2 | |||||||||
Adjusted
revenue |
$ | 327.7 | $ | 350.2 | |||||||
Internet
revenue |
$ | 306.2 | $ | 306.1 | |||||||
Purchase
accounting adjustment |
| 19.2 | |||||||||
Adjusted net
internet revenue |
306.2 | 325.3 | |||||||||
Entertainment
revenue |
21.5 | 24.9 | |||||||||
Total
adjusted revenue |
$ | 327.7 | $ | 350.2 |
|
For the last four quarters for any period ended through September 30, 2011, September 30, 2012 and September 30, 2013, our EBITDA on a consolidated basis for the year ended on such date needs to be greater than $85.0 million, $90.0 million and $95.0 million, respectively. Our EBITDA for the four quarters ended December 31, 2010, as defined in the relevant documents, was $105.4 million. |
Payments due by period |
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Total |
Less Than 1 Year |
1-3 Years |
3-5 Years |
More Than 5 Years |
|||||||||||||||||||
($in thousands) |
|||||||||||||||||||||||
Long-term
Notes Payable, including current portion: |
|||||||||||||||||||||||
New First
Lien Notes(1) |
$ | 305,000 | $ | 14,115 | $ | 290,885 | $ | | $ | | |||||||||||||
Cash Pay
Second Lien Notes(1) |
13,778 | 638 | 13,140 | | |||||||||||||||||||
Non-Cash Pay
Second Lien Notes(1) |
237,210 | | | 237,210 | | ||||||||||||||||||
Seller
Agreements(2) |
2,250 | 1,000 | 1,250 | | | ||||||||||||||||||
Capital Lease
Obligations and |
|||||||||||||||||||||||
Miscellaneous
Notes(3) |
$ | 13 | $ | 13 | $ | | $ | | $ | | |||||||||||||
Operating
Leases(4) |
12,413 | 2,076 | 6,320 | 4,017 | |||||||||||||||||||
Other(5) |
6,069 | 5,271 | 798 | | | ||||||||||||||||||
Total(6) |
$ | 576,733 | $ | 23,113 | $ | 312,393 | $ | 241,227 | $ | |
(1) |
We are required to use the net cash proceeds from an initial public offering of our common stock to repay a portion of the New First Lien Notes and Cash Pay Second Lien Notes pro rata at a redemption price of 110%, plus accrued and unpaid interest. The First Lien and Cash Pay Second Lien Notes mature on September 30, 2013. The Non-Cash Pay Second Lien Notes mature on April 30, 2014. |
(2) |
Please refer to the section entitled Certain Relationships and Related Party Transactions Confirmation of Certain Consent and Exchange Fees. |
(3) |
Represents our contractual commitments for lease payments on computer hardware equipment. |
(4) |
Represents our minimum rental commitments for non-cancellable operating leases of office space. |
(5) |
Other commitments and obligations are comprised of contracts with software licensing, communications, computer hosting, and marketing service providers. These amounts totaled $5.3 million for less than one year and $0.8 million between one and three years. Contracts with other service providers are for 30 day terms or less. |
(6) |
Interest expense has been excluded from the Contractual Obligations table above. As of December 31, 2010 the Company had $305 million and $13.8 million of New First Lien Notes and Cash Pay Second Lien Notes, respectively, which would result in an annual cash interest expense obligation of $44.6 million before giving effect to required quarterly principal reductions from excess cash flow. No cash interest payments are payable in respect of the Non-Cash Pay Second Lien Notes. |
|
internet penetration, particularly broadband penetration, continues to grow, expanding our potential client base and permitting us to offer more services and a better user experience to our customers; |
|
online social networking continues to expand rapidly, as social networking interactions become increasingly mobile, media-rich and content-driven, and social networking by adult users remains relatively underpenetrated; |
|
the usage of credit cards and other online payment mechanisms in emerging markets continues to increase, facilitating online user transactions; and |
|
worldwide internet advertising spending is expected to increase given the internets interactive nature, reach and ability to target niche audiences. |
Global Broadband Penetration (as a
percentage of population) |
||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2014a |
2013a |
2012a |
2011a |
2010a |
2009b |
|||||||||||||||||||||||
Broadband
subscriptions (m) |
668.7 | 636.3 | 600.8 | 556.9 | 506.6 | 453.1 | ||||||||||||||||||||||
Broadband subscriptions (per 100 people) |
12.4 | 11.9 | 11.4 | 10.6 | 9.8 | 8.8 |
United States Online Social Networking by
Adult Users |
||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2014 |
2013 |
2012 |
2011 |
2010 |
2009 |
|||||||||||||||||||||||
Number of
adult social networking users (in millions) |
139.6 | 133.5 | 126.7 | 117.7 | 105.8 | 89.6 | ||||||||||||||||||||||
Percentage of adult internet users |
69.3 | % | 67.9 | % | 66.3 | % | 63.6 | % | 59.2 | % | 52.4 | % |
Emerging Market Credit Card Circulation
Growth (in millions) |
||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2009 |
2008 |
2007 |
2006 |
|||||||||||||||||
China
|
185.3 | 142.1 | 90.3 | 49.6 | ||||||||||||||||
Growth %
|
30.3 | % | 57.5 | % | 82.1 | % | 22.6 | % | ||||||||||||
Brazil
|
175.0 | 164.6 | 138.0 | 109.2 | ||||||||||||||||
Growth %
|
6.3 | % | 19.2 | % | 26.4 | % | 17.8 | % | ||||||||||||
Mexico
|
23.9 | 26.5 | 24.2 | 19.6 | ||||||||||||||||
Growth %
|
(9.9 | %) | 9.5 | % | 23.4 | % | 41.9 | % | ||||||||||||
India
|
20.7 | 26.1 | 26.2 | 21.6 | ||||||||||||||||
Growth %
|
(20.4 | %) | (0.6 | %) | 21.5 | % | 24.5 | % | ||||||||||||
United States
|
632.5 | 695.8 | 739.1 | 701.2 | ||||||||||||||||
Growth % |
(9.1 | %) | (5.9 | %) | 5.4 | % | 5.5 | % |
Worldwide Advertising Spending (Growth in
millions of dollars) |
||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2013 |
2012 |
2011 |
2010 |
2009 |
||||||||||||||||||||
Print
|
134,208 | 134,672 | 135,663 | 137,383 | 141,081 | |||||||||||||||||||
Growth %
|
(0.3 | %) | (0.7 | %) | (1.3 | %) | (2.6 | %) | ||||||||||||||||
Television
|
213,878 | 202,380 | 191,198 | 180,280 | 165,260 | |||||||||||||||||||
Growth %
|
5.7 | % | 5.8 | % | 6.1 | % | 9.1 | % | ||||||||||||||||
Radio
|
35,054 | 33,815 | 32,580 | 31,979 | 31,855 | |||||||||||||||||||
Growth %
|
3.7 | % | 3.8 | % | 1.9 | % | 0.4 | % | ||||||||||||||||
Cinema
|
2,681 | 2,538 | 2,393 | 2,258 | 2,104 | |||||||||||||||||||
Growth %
|
5.6 | % | 6.1 | % | 6.0 | % | 7.3 | % | ||||||||||||||||
Outdoor
|
34,554 | 32,821 | 30,945 | 29,319 | 28,120 | |||||||||||||||||||
Growth %
|
5.3 | % | 6.1 | % | 5.5 | % | 4.3 | % | ||||||||||||||||
Internet
|
91,516 | 80,672 | 70,518 | 61,884 | 54,209 | |||||||||||||||||||
Growth % |
13.4 | % | 14.4 | % | 14.0 | % | 14.2 | % | ||||||||||||||||
Total
|
511,891 | 486,898 | 463,297 | 443,102 | 422,629 | |||||||||||||||||||
Growth % |
5.1 | % | 5.1 | % | 4.6 | % | 4.8 | % |
Worldwide Online Advertising Spending |
||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2013 |
2012 |
2011 |
2010 |
2009 |
||||||||||||||||||||
Print
|
26.2 | % | 27.7 | % | 29.3 | % | 31.0 | % | 33.4 | % | ||||||||||||||
Television
|
41.8 | % | 41.6 | % | 41.3 | % | 40.7 | % | 39.1 | % | ||||||||||||||
Radio
|
6.8 | % | 6.9 | % | 7.0 | % | 7.2 | % | 7.5 | % | ||||||||||||||
Cinema
|
0.5 | % | 0.5 | % | 0.5 | % | 0.5 | % | 0.5 | % | ||||||||||||||
Outdoor
|
6.8 | % | 6.7 | % | 6.7 | % | 6.6 | % | 6.7 | % | ||||||||||||||
Internet |
17.9 | % | 16.6 | % | 15.2 | % | 14.0 | % | 12.8 | % |
|
Social Networking. Approximately 70% of our total net revenues for the year ended December 31, 2010 were generated through our targeted social networking technology platform. Our social networking technology platform provides users who register or purchase subscriptions to one or more of our websites with the ability to communicate and to establish new connections with other users via our personal chat rooms, instant messaging and e-mail applications and to create, post and view content of interest. The content on our social networking sites is generated by our users for our users. Our social networking technology platform is extremely scalable and requires limited incremental cost to add additional users or to create new websites catering to additional unique audiences. As a result, we have been able to rapidly create and seamlessly maintain multiple websites tailored to specific categories or genres and designed to cater to targeted audiences with mutual interests. We believe that our ability to create and operate a diverse network of specific interest websites with unique, user-generated content in a cost-effective manner is a significant competitive differentiator that allows us to implement a subscription-fee based revenue model while many other popular social networking websites rely primarily upon free-access, advertising-based revenue models. |
|
Live Interactive Video. Approximately 22% of our total net revenues for the year ended December 31, 2010 were generated through our live interactive video technology platform. Our live interactive video technology platform is a live video broadcast platform that enables models to broadcast from independent studios throughout the world and interact with our users via instant messaging and video. Users are charged on a per-minute basis to interact with models. We pay a percentage of the revenues we generate to the studios that employ the models. We believe our live interactive video platform provides a unique offering including bi-directional and omni-directional video and interactive features that allow models to communicate with and attract users through a variety of mediums including blogs, newsletters and video. As a result, many studios and their models prefer our platform given our audience size and international reach, and our users prefer our platform as a result of the quality and variety of our models, the reliability of our network and the diversity of interactive features our platform provides. In addition, we believe the reliability of our live interactive video technology platform, which had approximately 99.1% uptime during 2010, is a key factor allowing us to maintain a large base of users. |
|
Visitors. Visitors are users who visit our websites but do not necessarily register. Visitors come to our websites through a number of channels, including by being directed from affiliate websites, keyword searches through standard search engines and by word of mouth. We believe we achieve large numbers of unique visitors because of our focus on continuously enhancing the user experience and expanding the breadth of our services. We had more than 196 million unique worldwide visitors in the month of December 2010, representing a growth of more than 300% from our approximately 46.9 million unique worldwide visitors in January 2009, according to comScore. |
|
Registrants. Registrants are visitors who complete a free registration form on one of our websites by giving basic identification information and submitting their e-mail address. For the year ended December 31, 2010, we averaged more than 6.4 million new registrations on our websites each month. Some of our registrants are also members, as described below. |
|
Members. Members are registrants who log into one of our websites and make use of our free products and services. Members are able to complete their personal profile and access our searchable database of members but do not have the same full-access rights as subscribers. For the year ended December 31, 2010, we averaged more than 3.9 million new members on our websites each month. |
|
Subscribers. Subscribers are members who purchase daily, three-day, weekly, monthly, quarterly, annual or lifetime subscriptions for one or more of our websites. Subscribers have full access to our websites and may access special features. For the year ended December 31, 2010, we had a monthly average of approximately 1.0 million paying subscribers. |
|
Paid Users. Paid users are members who purchase products or services on a pay-by-usage basis. For the year ended December 31, 2010, we averaged approximately 1.6 million purchased minutes by paid users each month. |
|
Average Revenue per Subscriber. We calculate average revenue per subscriber, or ARPU, by dividing net revenue for the period by the average number of subscribers in the period and by the number of months in the period. As such, our ARPU is a monthly calculation. For the year ended December 31, 2010, our average monthly revenue per subscriber was $20.49. For more information regarding our revenue, see the sections entitled Financial Results and Managements Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Year Ended December 31, 2010 as Compared to Year Ended December 31, 2009. |
|
Churn. Churn is calculated by dividing terminations of subscriptions during the period by the total number of subscribers at the beginning of that period. Our average monthly churn rate, which measures the rate of loss of subscribers, decreased from approximately 16.3% per month for the year ended December 31, 2009 to approximately 16.1% per month for the year ended December 31, 2010. |
|
Cost Per Gross Addition. Cost per gross addition, or CPGA, is calculated by adding affiliate commission expense plus ad buy expenses and dividing by new subscribers during the measurement period. Our CPGA |
increased from $46.89 for the year ended December 31, 2009 to $47.25 for the year ended December 31, 2010. |
|
Average Lifetime Net Revenue Per Subscriber. Average Lifetime Net Revenue Per Subscriber is calculated by multiplying the average lifetime (in months) of a subscriber by ARPU for the measurement period and then subtracting the CPGA for the measurement period. Our Average Lifetime Net Revenue Per Subscriber increased from $79.34 for the year ended December 31, 2009 to $80.17 for the year ended December 31, 2010. |
|
While we monitor many statistics in the overall management of our business, we believe that Average Lifetime Net Revenue Per Subscriber and the number of subscribers are particularly helpful metrics for gaining a meaningful understanding of our business as they provide an indication of total revenue and profit generated from our base of subscribers inclusive of affiliate commissions and advertising costs required to generate new subscriptions. |
|
Proprietary and Scalable Technology Platform. |
|
Paid Subscriber-Based Model. |
|
Large and Diverse User Base. |
|
Large and Difficult to Replicate Affiliate Network and Significant Marketing Spend. |
|
Convert Visitors, Registrants and Members into Subscribers or Paid Users. |
|
Create Additional Websites and Diversify Offerings. |
|
Expand into and Monetize Current Foreign Markets. |
|
Pursue Targeted Acquisitions. |
|
Generate Online Advertising Revenue. |
English |
German |
Portuguese |
||||||||
Chinese |
Italian |
Spanish |
||||||||
Dutch |
Japanese |
Swedish |
||||||||
French |
Korean |
Tagalog |
|
Blogs Blogs are a simple way to create a regularly updated home page where members can express themselves, learn about others, get more noticed and attract new friends. There are numerous blogs, grouped by subject. |
|
Chatrooms Chatrooms are areas where members can discuss a specific topic or join rooms established by region. A private chatroom lets a member host a chat party by invitation only. |
|
Contests Contests are a means of engaging our members by offering rewards for member-generated content. Examples include Best Holiday Greeting Card, Silly Photos with Clever Captions and many more. Prizes include upgraded memberships, free points, DVDs, T-shirts and mugs. |
|
Cupid Reports Once a member has described an ideal match, the member is automatically notified by e-mail when a person matching that description becomes a member. |
|
Friends Network A member can invite specified members into a personal group, keep track of them, share private photos and send personalized bulletins. |
|
Get Local Websites list local events that are geographically targeted according to a members location. |
|
Groups Groups are the place to find people who share interests and to develop new friendships. Members search for groups by topics, names or keywords and correspond, exchanging ideas. All groups have their own discussion boards and chatrooms, which facilitate communication and relationship building. Popular groups include Single again? Lets get together!, Dancing and Adventures, Romantic Getaways. |
|
Instant Messaging Two different types of our instant messaging system are available: a standard service and a faster Flash system, which offers extra options such as live video and sound. |
|
Loyalty Program Our point based loyalty program is designed to increase participation in our websites membership activities, such as participating in blogs and online magazines and creating video introductions as members are awarded points for participating in these activities. Points can be redeemed for other membership services such as upgraded memberships or more prominence of member profiles in online searches. |
|
Newsletters Our most popular websites periodically send newsletters to members, including photos and brief descriptions of other members, advice on enhancing ones profile to attract more responses from other members and practical tips on dating and relationships. |
|
Online Magazine At magazine pages, members can participate in many ways: read articles with expert advice on dating and relationships, enjoy fiction serials, submit their own articles, vote and comment on their reading, post original polls they have created, give advice and exchange opinions on various subjects, and view archives of articles. |
|
Photo, Video and Voice Sharing Members can post their photographs and create webcam video introductions and voice introductions of themselves, which generates member-to-member contact. |
|
Posting Profiles Members include personal details, such as city of residence and birthday, physical information, such as height and hair color, personal information, such as education, and occupation as well as other information. They describe themselves, specifying hobbies, the type of person they are seeking for a friend or for dating and can present up to 20 photographs. Members are encouraged to make their profiles as unique as possible by including personal details. |
|
Search Members can conduct searches for compatible members according to a substantial list of criteria, including gender, geographical proximity, availability of photos and interests. Search criteria can be saved for repeated use. |
Website |
Description |
Registrants Since Inception |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
AdultFriendFinder.com |
Our
most popular adult social networking and dating website. |
223,841,919 | ||||||||
Amigos.com
|
Spanish version of FriendFinder.com, translated into Spanish, Portuguese and English. |
53,441,861 |
Website |
Description |
Registrants Since Inception | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
AsiaFriendFinder.com |
Chinese version of FriendFinder.com, features traditional and simplified Chinese character sets as well as an English
interface. |
44,578,026 | ||||||||
Cams.com
|
Adult
content live interactive video website where members pay per minute to chat with models who broadcast on the website via their
webcams. |
43,418,308 | ||||||||
FriendFinder.com
|
Website targeted toward singles looking for love, romance and marriage. Also includes many social networking aspects. |
16,943,386 | ||||||||
ALT.com
|
Alternative lifestyle personals website, catering to users with fetish, role-playing and other alternative sexuality
interests. |
15,313,082 | ||||||||
GetItOn.com
|
Adult
social networking and personals website where members from around the world log on to chat and view each other via their webcams. |
11,547,167 | ||||||||
OutPersonals.com
|
Adult-oriented dating website for gay men. |
7,614,319 | ||||||||
Penthouse.com
|
Premium content-based website with varying levels of access to Penthouse pictorials, articles, videos and live webcams shows with Penthouse
Pets. |
3,731,220 | ||||||||
GradFinder.com
|
Alumni directory where members can contact friends from elementary school through college. |
3,448,476 | ||||||||
IndianFriendFinder.com |
Indian version of FriendFinder.com, where users can narrow their searches by specific criteria, including language, religion, diet, and
caste. |
3,147,442 | ||||||||
BigChurch.com
|
Christian dating website with searchable bible passages and daily bible chapter e-mails. |
2,440,245 | ||||||||
SeniorFriendFinder.com |
Website targeted toward people over 40 years of age. |
2,283,198 | ||||||||
FrenchFriendFinder.com |
French version of FriendFinder.com, translated into French and English. |
2,000,401 | ||||||||
FilipinoFriendFinder.com |
Filipino version of FriendFinder.com, translated into Tagalog and English. |
1,980,696 | ||||||||
GermanFriendFinder.com |
German version of FriendFinder.com, translated into German and English. |
1,458,489 | ||||||||
FastCupid.com
|
Social networking and personals website for dating, romance and friendship. |
1,267,947 | ||||||||
Bondage.com
|
Worlds largest BDSM community |
1,246,649 | ||||||||
GayFriendFinder.com |
Dating website for gay men. |
1,165,758 | ||||||||
ItalianFriendFinder.com |
Italian version of FriendFinder.com, translated into Italian and English. |
1,134,947 | ||||||||
KoreanFriendFinder.com |
Korean version of FriendFinder.com, translated into Korean and English. |
1,031,095 | ||||||||
Millionairemate.com |
Dating website targeted toward like-minded people who understand that intelligence, success and drive are key elements to
attraction. |
872,132 | ||||||||
JewishFriendFinder.com |
Jewish dating website. |
620,897 |
Website |
Description |
Registrants Since Inception | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
AllPersonals.com
|
Allows users to join multiple top personal sites at one time |
300,704 | ||||||||
Slim.com
|
Health and wellness website. |
145,686 | ||||||||
icams.com
|
Cams
site dedicated to amateur videos |
140,585 | ||||||||
HotBox.com
|
Premium content-based website that allows members to search a database of adult movies by favorite actor or by category of
movie. |
115,572 | ||||||||
stripshow.com
|
Low
cost cams site which offers group viewing |
100,608 |
|
Notice. Users are provided meaningful notice about the information collected and used for internet related advertising. Users visiting our websites are provided notice via links to our privacy policies usually located on every one of our web pages and other methods of the types of individual information collected for advertising purposes, the technologies employed to collect such information, and how such information is used, including if applicable that other companies operate on the website and may collect such information. |
|
Choice. Users are provided with a choice on how certain information is used. We provide for an opt-out mechanism for e-mail advertising and members of our social networking websites have access to a control panel that allows them to make choices on the type of data that is stored on our servers or made available to the public or other members using our websites. |
|
Security. We strive to provide reasonable security for consumer data. Our security methods are based on the sensitivity of the data, the nature of the services provided, the types of risks related to such data and the reasonable protections available to us for practical implementation. We require our business service providers, such as credit card processors, to contractually maintain appropriate information security procedures based upon the sensitivity of the data and industry practices. We also ask registrants and members to provide their age and we review all member-generated content prior to its appearing on our websites. |
|
Responsiveness. Users have a readily accessible means to contact us to express concerns and complaints regarding privacy matters and we have a team associated with handling such concerns and complaints. Most of our web pages have a link directly to a web based form for providing complaints to us for processing. |
number of users |
number of registrants completing registration |
|||||
number of paid subscriptions |
number of messages sent |
|||||
number of images uploaded |
number of customer service requests |
|||||
number of blogs created |
number of videos uploaded and viewed |
referring link/domain |
referring affiliate/ad buy/traffic source |
|||||
country |
language |
|||||
gender |
email domain |
number of requests served |
time spent per request |
|||||
central processing unit utilization |
memory utilization |
|||||
disc utilization |
|
a percentage of revenue generated and collected; |
|
per registrant or member; and |
|
per subscriber. |
|
Social Networking Websites Unlike most other social networking websites which are free, we have a paid subscription-based business model, which we believe is a significant competitive advantage. Our adult-themed community websites from which the majority of our revenue and earnings are derived, including AdultFriendFinder.com, do not directly compete with other general interest social networking websites because of the adult nature of the content. Our general audience websites, which contribute substantially less of our revenue and earnings, compete with other companies offering social networking websites such as MySpace, Inc., Facebook, Inc. and Friendster, Inc. Our general audience websites provide a wide range of social networking tools including blogs, chatrooms and messaging similar to our competitors. We also believe that a significant advantage to our websites is the ease with which members meet other members who were not known to them prior to joining our network. |
|
Internet Personals Websites We compete with certain elements of the internet personals business provided by companies including Match.com, L.L.C., Yahoo!Personals, a website owned and operated by Yahoo! Inc., Windows Live Profile, run by Microsoft Corporation, eHarmony, Inc., Lavalife Corp., Plentyoffish Media Inc. and Spark Networks Limited websites, including jdate.com, americansingles.com and relationships.com, as well as companies offering adult-oriented internet personals websites such as Cytek Ltd., the operator of SexSearch.com, and Fling Incorporated. |
|
Adult Audience Websites We compete with many adult-oriented and live interactive video websites, such as RedTube.com, Pornhub.com, YouPorn.com, Playboy.com and LiveJasmin.com. These websites |
are largely distinguished by the quality of the video and the quantity and caliber of the video content. We continue to seek to be at the forefront of video technology by seeking to offer our users the best available experience. As adult content receives wider mainstream acceptance, we expect our websites to benefit from an increased volume of member-generated content that will enhance our large library of adult content which is frequently updated and refreshed. |
|
Adult Entertainment Providers We compete with other publishers of branded mens lifestyle magazines, such as Maxim and Playboy, and we compete with other producers of adult pictorial and video content, such as Playboy Enterprises Inc., tmc Content Group AG and Total Media Agency. |
Location/Principal Use |
Square Feet |
Lease Expiration Date |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
Sunnyvale,
California internet |
50,112 | October
31, 2015 |
||||||||
Los Angeles,
California entertainment |
35,400 | April
30, 2014 |
||||||||
New York, New
York entertainment |
16,431 | January
31, 2019 |
||||||||
Boca Raton,
Florida corporate administrative offices |
8,533 | December
31, 2015 |
||||||||
Las Vegas,
Nevada internet |
6,976 | December
31, 2012 |
Name |
Age |
Position |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
Marc H. Bell
|
43 | Chief
Executive Officer, President and Director |
||||||||
Daniel C. Staton
|
58 | Chairman of the Board and Treasurer |
||||||||
Ezra Shashoua
|
56 | Chief
Financial Officer |
||||||||
Anthony Previte
|
46 | Chief
Operating Officer |
||||||||
Robert Brackett
|
33 | President, internet group |
||||||||
Robert B. Bell
|
71 | Director |
||||||||
Barry W.
Florescue |
67 | Director |
||||||||
James
Jim LaChance |
46 | Director |
||||||||
Toby E. Lazarus
|
43 | Director |
||||||||
Jason Smith
|
38 | Director |
|
appointing, replacing and overseeing the work of the registered independent public accounting firm, including compensation and any fees paid to such accounting firm in relation to its services; |
|
appointing an internal audit officer to handle the internal audit function of the Company, and reviewing such appointment as necessary; |
|
reviewing and discussing with management, the internal audit officer and the registered independent accounting firm our quarterly and annual financial statements and discussing with management our earnings releases; |
|
pre-approving all auditing services and permissible non-audit services provided by our registered independent public accounting firm; |
|
engaging in a dialogue with the registered independent public accounting firm regarding relationships that may adversely affect the independence of the registered independent public accounting firm and, based on such review, assessing the independence of the registered independent public accounting firm; |
|
taking appropriate steps to confirm the independence of the independent public accounting firm, including recommending to the board of directors to take appropriate action to oversee the independence of the independent public accounting firm; |
|
providing the audit committee report to be filed with the SEC in our annual proxy statement; |
|
establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters, including the confidential anonymous submission by our employees of concerns regarding questionable accounting or auditing matters; |
|
reviewing and discussing with our Chief Executive Officer, Chief Financial Officer, management, internal audit officer and registered independent accounting firm, managements annual assessment of the effectiveness of the internal controls; |
|
reviewing and discussing with our Chief Executive Officer, Chief Financial Officer, management, internal audit officer and registered independent accounting firm the adequacy and effectiveness of our internal controls over our financial reporting including any significant deficiencies in the design or operation of our internal controls or material weaknesses and the adequacy and effectiveness of our disclosure controls and procedures; |
|
reviewing and approving related party transactions in accordance with our related party transaction policy; |
|
reporting on its activities in our annual proxy statement; and |
|
reviewing and assessing annually the adequacy of the audit committee charter. |
|
reviewing and determining the compensation of our executive officers; |
|
recommending to the Board the cash compensation of the Companys directors; |
|
granting equity and other incentive awards to executive officers, directors and other eligible individuals under our equity plans and determining the terms and conditions of such awards; |
|
making recommendations to the board of directors with respect to amendments to our equity plans and changes in the number of shares reserved for issuance thereunder; |
|
duplicative of issuing a report on executive compensation in accordance with applicable rules and regulations of the SEC for inclusion in our annual proxy statement; |
|
evaluating the performance of our Chairman of the Board and Chief Executive Officer (and such other executive officers as it deems appropriate) in light of the our current business environment and our strategic objectives; |
|
evaluating the need for, and provisions of, employment agreements or severance arrangements for the executive officers or, if so directed, our board of directors or other officers; |
|
reviewing trends in executive compensation, overseeing the development of new compensation plans, and, when necessary, approving the revision of existing executive compensation plans; and |
|
reviewing and assessing annually the compensation committees performance. |
|
leading the search for and recommending qualified candidates or nominees for the board of directors to be proposed for election by the shareholders and individuals to be considered by the board of directors to fill vacancies; |
|
reviewing periodically the criteria for the selection of new directors and recommending any proposed changes to our board of directors; |
|
developing and recommending to our board of directors a set of corporate governance principles applicable to us; |
|
monitoring and overseeing matters of corporate governance, including the evaluation of board performance and processes and the independence of directors; and |
|
reviewing and assessing annually the performance of the nominating and corporate governance committee. |
|
Marc H. Bell, Chief Executive Officer and President |
|
Daniel C. Staton, Chairman of the Board and Treasurer |
|
Ezra Shashoua, Chief Financial Officer |
|
Anthony Previte, Chief Operating Officer |
|
Robert Brackett, President, internet group |
|
base salary; |
|
bonuses; |
|
long-term equity incentive compensation in the form of stock options under our 2008 Stock Option Plan and, subject to the approval of our compensation committee, restricted stock following the consummation of this offering; and |
|
retirement benefits. |
|
the executive officers total compensation package, both individually and relative to other executive officers; and |
|
the individual performance of the executive officer. |
Name and Principal Position |
Year |
Salary ($) |
Bonus ($) |
All Other Compensation ($) |
Total ($) |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Marc H. Bell,
|
2010 | 291,666 | (1) | | 22,582 | (2) | 314,248 | |||||||||||||||
Chief Executive
Officer and President |
2009 | 250,000 | (1) | | 15,634 | (2) | 265,634 | |||||||||||||||
2008 | 250,000 | (1) | | 5,404 | (2) | 255,404 | ||||||||||||||||
Daniel C.
Staton, |
2010 | 291,666 | (3) | | 69,414 | (4) | 361,080 | |||||||||||||||
Chairman of the
Board and Treasurer |
2009 | 250,000 | (3) | | 72,296 | (4) | 322,296 | |||||||||||||||
2008 | 250,000 | (3) | | 16,316 | (4) | 266,316 | ||||||||||||||||
Ezra Shashoua,
|
2010 | 460,000 | 266,667 | (5) | | 726,667 | ||||||||||||||||
Chief Financial
Officer |
2009 | 400,000 | | | 400,000 | |||||||||||||||||
2008 | 300,000 | | | 300,000 | ||||||||||||||||||
Anthony Previte,
|
2010 | 574,999 | 150,000 | | 724,999 | |||||||||||||||||
Chief Operating
Officer |
2009 | 500,000 | | | 500,000 | |||||||||||||||||
2008 | 475,000 | (6) | | 39,149 | (7) | 514,149 | ||||||||||||||||
Robert Brackett,
|
2010 | 365,000 | 111,200 | | 477,200 | |||||||||||||||||
President,
internet group |
2009 | 337,917 | 288,667 | (8) | 626,584 | |||||||||||||||||
2008 | 328,326 | 413,167 | (9) | | 741,493 |
(1) |
This amount reflects the portion of the payment to Bell & Staton, Inc., pursuant to the management agreement, that is attributable to Mr. Bell. |
(2) |
This amount represents certain subsidies we provide Mr. Bell for the cost of healthcare coverage. |
(3) |
This amount reflects the portion of the payment to Bell & Staton, Inc., pursuant to the management agreement, that is attributable to Mr. Staton. |
(4) |
This amount represents reimbursement for car lease expenses and the amount of certain subsidies we provide Mr. Staton for the cost of healthcare coverage. |
(5) |
This amount includes cash compensation of $116,667 for Mr. Shashoua in 2010 pursuant to his amended and restated employment agreement, dated April 1, 2010, which provided for additional cash compensation of $233,333 in connection with his continued employment through the completion of this offering. The Company has determined that half of the compensation was earned in 2010 and the other half will be earned in 2011. |
(6) |
This amount reflects $50,000 in consulting fees paid under a consulting agreement pursuant to which Mr. Previte served as head of our entertainment group prior to becoming our Chief Operating Officer on February 26, 2008 as well as $425,000 in salary related to his service as our Chief Operating Officer. |
(7) |
This amount represents relocation expenses for Mr. Previte from Los Angeles, California to Sunnyvale, California. |
(8) |
This amount reflects $241,667 which is the second installment of Mr. Bracketts retention bonus and bonus payments with respect to the first, second and fourth fiscal quarters of 2009 as follows: $14,000 for the first quarter, $23,000 for the second quarter, $10,000 for the fourth quarter. |
(9) |
This amount reflects bonus payments with respect to each fiscal quarter of 2008 as follows: $43,750 for the first quarter, $48,125 for the second quarter, $48,125 for the third quarter and $31,500 for the fourth quarter, plus a $241,667 retention bonus. |
Termination |
Severance |
|||||
---|---|---|---|---|---|---|
Without
Cause/For Good Reason |
$ | 480,000 |
Termination |
Severance |
|||||
---|---|---|---|---|---|---|
Without Cause
|
$ | 1,800,000 |
Termination |
Severance |
|||||
---|---|---|---|---|---|---|
Without Cause
|
$ | 1,188,000 |
Option Awards |
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Number of Securities Underlying Unexercised Options |
|||||||||||||||||||||||
Name |
Exercisable |
Unexercisable |
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options |
Option Exercise Price(1) |
Option Expiration Date |
||||||||||||||||||
Marc H. Bell
|
50,000 | | | $ | 10.00 | 07/07/18 | |||||||||||||||||
Daniel C.
Staton |
50,000 | | | $ | 10.00 | 07/07/18 | |||||||||||||||||
Ezra Shashoua
|
50,000 | | | $ | 10.00 | 07/07/18 | |||||||||||||||||
Anthony
Previte |
37,500 | | | $ | 10.00 | 07/07/18 | |||||||||||||||||
Rob Bracket
|
25,000 | | | $ | 10.00 | 07/07/18 |
(1) |
Based upon an initial public offering price of $10.00 per share of common stock. |
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights |
Weighted-average exercise price of outstanding options, warrants and rights |
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(a) | (b) | (c) | ||||||||||||
Equity
compensation plans approved by security holders |
| | | |||||||||||
Equity
compensation plans not approved by security holders |
551,750 | (1) | $ | 10.00 | 1,186,122 | (1) | ||||||||
Total |
551,750 | (1) | $ | 10.00 | 1,186,122 | (1) |
(1) |
The information set forth above pertains to our 2008 Stock Option Plan and our 2009 Restricted Stock Plan as of December 31, 2010. For a discussion of our 2008 Stock Option Plan please refer to the section entitled Executive Compensation Executive Compensation Components Long Term Equity Incentive Compensation or refer to Note L, Stock Options of our consolidated financial statements included elsewhere in this prospectus. |
Name |
Fees Earned or Paid in Cash ($) |
Total ($) |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
Robert Bell
|
30,000 | 30,000 | ||||||||
Barry
Florescue |
30,000 | 30,000 | ||||||||
James
LaChance |
30,000 | 30,000 | ||||||||
Toby Lazarus
|
30,000 | 30,000 | ||||||||
Jason Smith
|
30,000 | 30,000 |
|
each person or entity who is known to beneficially own 5% or more of common stock and Series A Convertible Preferred Stock; |
|
each named executive officer; |
|
each director; and |
|
all of our named executive officers and directors as a group. |
Shares Beneficially Owned Prior to Offering |
Shares Beneficially Owned After Offering |
||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Common Stock |
Common Stock Issuable Upon Conversion of Series A Convertible Preferred Stock |
% Total Voting Power(1) |
Common Stock |
Common Stock Issuable Upon Conversion of Series A Convertible Preferred Stock |
% Total Voting Power(1) |
||||||||||||||||||||||||||||||||||||||
Name and Title of Beneficial Holder |
Shares |
% |
Shares |
% |
Shares |
% |
Shares |
% |
|||||||||||||||||||||||||||||||||||
Named
executive officers and directors: |
|||||||||||||||||||||||||||||||||||||||||||
Daniel C.
Staton, Chairman of the Board and Treasurer(2) |
6,548,651 | 56.33 | % | 565,536 | 28.27 | % | 58.36 | % | 6,554,598 | 24.43 | % | 565,536 | 35.98 | % | 25.99 | % |
Shares Beneficially Owned Prior to Offering |
Shares Beneficially Owned After Offering |
||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Common Stock |
Common Stock Issuable Upon Conversion of Series A Convertible Preferred Stock |
% Total Voting Power(1) |
Common Stock |
Common Stock Issuable Upon Conversion of Series A Convertible Preferred Stock |
% Total Voting Power(1) |
||||||||||||||||||||||||||||||||||||||
Name and Title of Beneficial Holder |
Shares |
% |
Shares |
% |
Shares |
% |
Shares |
% |
|||||||||||||||||||||||||||||||||||
Marc H. Bell,
Chief Executive Officer, President and Director(3) |
5,090,296 | 49.18 | % | 565,536 | 28.27 | % | 51.81 | % | 5,096,243 | 19.00 | % | 565,536 | 35.98 | % | 20.67 | % | |||||||||||||||||||||||||||
Robert
Brackett, President, Internet Group |
| | | | | | | | | | |||||||||||||||||||||||||||||||||
Anthony
Previte, Chief Operating Officer |
| | | | | | | | | | |||||||||||||||||||||||||||||||||
Ezra Shashoua,
Chief Financial Officer |
| | | | | | | | | | |||||||||||||||||||||||||||||||||
Robert B. Bell,
Director |
| | | | | | | | | | |||||||||||||||||||||||||||||||||
Barry
Florescue, Director(4) |
669,109 | 9.31 | % | 440,712 | 22.03 | % | 14.55 | % | 661,095 | 2.47 | % | 440,712 | 28.04 | % | 4.05 | % | |||||||||||||||||||||||||||
Jim LaChance,
Director |
| | | | | | | | | | |||||||||||||||||||||||||||||||||
Toby E.
Lazarus, Director |
| | | | | | | | | | |||||||||||||||||||||||||||||||||
Jason H. Smith,
Director |
| | | | | | | | | | |||||||||||||||||||||||||||||||||
All named
executive officers and directors as a group (11 persons) |
12,308,056 | 76.32 | % | 1,571,784 | 78.57 | % | 78.42 | % | 12,311,936 | 45.67 | % | 1,571,784 | 100.00 | % | 45.20 | % | |||||||||||||||||||||||||||
Five percent
stockholders: |
|||||||||||||||||||||||||||||||||||||||||||
Absolute Income
Fund, L.P.(5) |
1,563,035 | 20.32 | % | 428,668 | 21.43 | % | 24.52 | % | 1,991,703 | 7.45 | % | | | 7.45 | % | ||||||||||||||||||||||||||||
Andrew B.
Conru Trust Agreement(6) |
3,380,879 | 51.87 | % | | | 51.87 | % | 3,380,879 | 12.65 | % | | | 12.65 | % | |||||||||||||||||||||||||||||
CMI II LLC(7) |
428,555 | 6.17 | % | | | 6.17 | % | 428,555 | 1.60 | % | | | 1.60 | % | |||||||||||||||||||||||||||||
Del Mar Master
Fund, Ltd.(8) |
563,444 | 7.96 | % | | | 7.96 | % | 698,190 | 2.61 | % | | | 2.61 | % | |||||||||||||||||||||||||||||
Epic Distressed
Debt Opportunity Master Fund Ltd.(9) |
359,970 | 5.23 | % | | | 5.23 | % | 446,056 | 1.67 | % | | | 2.67 | % | |||||||||||||||||||||||||||||
Florescue
Family Corporation(10) |
669,109 | 9.31 | % | 154,922 | 7.74 | % | 11.22 | % | 661,095 | 2.47 | % | 154,922 | 9.86 | % | 3.03 | % | |||||||||||||||||||||||||||
Mapstead Trust,
created on April 16, 2002(11) |
512,992 | 7.87 | % | | | 7.87 | % | 512,992 | 1.92 | % | | | 1.92 | % | |||||||||||||||||||||||||||||
PET Capital
Partners II LLC(12) |
| | 904,970 | 45.24 | % | 12.19 | % | | | 904,970 | 57.58 | % | 3.28 | % | |||||||||||||||||||||||||||||
RockView
Trading, Ltd.(13) |
449,166 | 6.45 | % | | | 6.45 | % | 556,582 | 2.08 | % | | | 2.08 | % | |||||||||||||||||||||||||||||
Stonehill
Master Fund Ltd.(14) |
806,952 | 11.02 | % | | | 11.02 | % | 868,740 | 3.25 | % | | | 3.25 | % | |||||||||||||||||||||||||||||
Staton Family
Investments, Ltd.(15) |
4,709,686 | 47.65 | % | 565,536 | 28.27 | % | 50.48 | % | 4,715,633 | 17.58 | % | 565,536 | 35.98 | % | 17.26 | % | |||||||||||||||||||||||||||
Staton Family
Perpetual Trust(16) |
1,688,970 | 20.58 | % | | | 20.58 | % | 1,688,970 | 6.32 | % | | | 6.32 | % | |||||||||||||||||||||||||||||
Strategic Media
I LLC(17) |
1,274,165 | 16.35 | % | | | 16.35 | % | 1,274,165 | 4.77 | % | | | 4.77 | % |
(1) |
Percentage of total voting power represents voting power with respect to all shares of our common stock (including options and warrants currently exercisable or exercisable within 60 days of March 7, 2011, our Series B Convertible Preferred Stock and our Series B common stock) and Series A Convertible Preferred Stock, which vote together as a single class on all matters to be voted upon by our stockholders. Each share of Series A Convertible Preferred Stock is voted on an as-converted basis. As of April 25, 2011, each share of Series A Convertible Preferred Stock may be converted into 1.13 shares of common stock. |
(2) |
Shares of common stock beneficially owned include: 1,343,309 shares of common stock, 1,646,182 shares of common stock issuable upon conversion of Series B Convertible Preferred Stock and 446,030 shares of common stock issuable upon exercise of warrants (451,977 issuable on a pro forma basis pursuant to certain anti-dilution clauses triggered by this offering) owned by Staton Family Investments, Ltd.; 1,274,165 shares of common stock issuable upon the exchange of Series B common stock purchased from IBD over which Staton Family Investments, Ltd. holds sole dispositive and voting power; 97,925 shares of common stock and 52,070 shares of common stock |
issuable upon the exchange of Series B common stock owned by Staton Media LLC; and 1,688,970 shares of common stock issuable upon conversion of Series B Convertible Preferred Stock, owned by Staton Family Perpetual Trust. Shares of common stock issuable upon conversion of Series A Convertible Preferred Stock beneficially owned include 255,946 shares of common stock issuable upon conversion of Series A Convertible Preferred Stock owned by Staton Family Investments, Ltd. and 309,590 shares of common stock issuable upon conversion of Series A Convertible Preferred Stock owned by PET II of which Staton Family Investments, Ltd. is the beneficial owner. Mr. Staton is a member of Staton Family Investments, Ltd. and has voting and investment power over its shares. Mr. Staton is a member and the manager of Staton Media LLC and has voting and investment power over its shares. Mr. Staton is a member of PET II and has voting and investment power over his percentage interest in its shares. Mr. Staton disclaims beneficial ownership over the shares held by PET II for which he does not have voting and investment power. Mr. Staton is also the trustee of Staton Family Perpetual Trust and has voting and investment power over its shares, which are held in trust for the benefit of his minor children. Shares of common stock beneficially owned do not include shares of common stock issuable upon the conversion of its new Non-Cash Pay Second Lien Notes (notes issued in exchange for the Subordinated Convertible Notes in the New Financing). Shares of common stock beneficially owned do not include 764,298 shares of common stock to be sold to Andrew C. Conru Trust Agreement, effective upon the consummation of this offering, pursuant to Andrew C. Conru Trust Agreements exercise of such right to purchase in December 2009. |
(3) |
Shares of common stock beneficially owned include: 1,257,044 shares of common stock, 52,070 shares of common stock issuable upon conversion of Series B common stock, 3,335,152 shares of common stock issuable upon conversion of Series B Convertible Preferred Stock and 446,030 shares of common stock issuable upon exercise of warrants (451,977 issuable on a pro forma basis pursuant to certain anti-dilution clauses triggered by this offering). Shares of common stock issuable upon conversion of Series A Convertible Preferred Stock beneficially owned include 255,946 shares of common stock issuable upon conversion of Series A Convertible Preferred Stock owned by Marc H. Bell and 309,589 shares of common stock issuable upon conversion of Series A Convertible Preferred Stock owned by PET II. Mr. Bell is a member of PET II and has voting and investment power over his percentage interest in its shares. Mr. Bell disclaims beneficial ownership over the shares held by PET II for which he does not have voting and investment power. Shares of common stock beneficially owned do not include 184,190 shares of common stock held by the Bell Family 2003 Charitable Lead Annuity Trust for which Mr. Bell does not hold voting or dispositive power. Mr. Bell disclaims beneficial ownership over the shares held by the Bell Family 2003 Charitable Lead Annuity Trust. Shares of common stock beneficially owned do not include shares of common stock issuable upon the conversion of its new Non-Cash Pay Second Lien Notes (notes issued in exchange for the Subordinated Convertible Notes in the New Financing). Shares of common stock beneficially owned do not include 2,616,581 shares of common stock to be sold to Andrew C. Conru Trust Agreement, effective upon the consummation of this offering, pursuant to Andrew C. Conru Trust Agreements exercise of such right to purchase in December 2009. |
(4) |
Shares of common stock beneficially owned include 465,325 shares of common stock issuable upon conversion of Series B Convertible Preferred Stock and 203,784 shares of common stock issuable upon exercise of warrants (195,770 issuable on a pro forma basis pursuant to certain anti-dilution clauses triggered by this offering) owned by Florescue Family Corporation. Shares of common stock issuable upon conversion of Series A Convertible Preferred Stock beneficially owned include 154,921 shares of common stock issuable upon conversion of Series A Convertible Preferred Stock owned by Florescue Family Corporation and 285,790 shares of common stock issuable upon conversion of Series A Convertible Preferred Stock owned by PET II of which Florescue Family Corporation is the beneficial owner and Florescue Family Corporation is a member of PET II and has voting and investment power over its percentage interest in PET IIs shares. Mr. Florescue is President of Florescue Family Corporation and has voting and investment power over its shares. Mr. Florescue disclaims beneficial ownership over the shares held by PET II for which he does not have voting and investment power. |
(5) |
Shares of common stock beneficially owned include 387,760 shares of common stock and 1,175,275 shares of common stock issuable upon conversion of Series B Convertible Preferred Stock. Shares of common stock beneficially owned after this offering reflect the conversion of 378,579 shares of Series A Convertible Preferred Stock into 428,668 shares of common stock which was executed concurrently with this offering. Income Fund GP Limited (IFGPL) is the general partner of Absolute Income Fund, L.P. and has shared voting and dispositive power over the shares held by Absolute Income Fund, L.P. Ben Christian Rispoli is the sole director of IFGPL. Greymoor International Limited is the sole shareholder of IFGPL and is a wholly-owned subsidiary of Neville Holdings Group Limited. Olivier Claude Michel Bassou and Olivier Pierre Adam are the directors of Greymoor International Limited and Neville Holdings Group Limited. Mr. Rispoli, Mr. Bassou and Mr. Adam share voting and dispositive power over the shares held by Absolute Income Fund, L.P. The address of Absolute Income Fund, L.P. is Suite 4-213-4 Governors Square, PO Box 31298, Grand Cayman, KY1-1206, Cayman Islands. |
(6) |
Shares of common stock beneficially owned include 2,616,581 shares of common stock and 764,298 shares of common stock issuable upon exercise of its right to purchase shares from Marc H. Bell, Daniel C. Staton, and related entities. In December 2009, such stockholders exercised its right to purchase shares from Messrs. Bell and Staton and related entities such exercise to be effective immediately upon consummation of the offering. Shares of common stock beneficially owned do not include shares of common stock issuable upon the conversion of its new Non-Cash Pay Second Lien Notes (notes issued in exchange for the Subordinated Convertible Notes in the New Financing). To the best of our knowledge, Andrew Conru holds investment and voting power over the securities held by the Andrew B. Conru Trust Agreement. The address of the Andrew B. Conru Trust Agreement is 2125 1st Avenue #2904, Seattle, Washington 98121. |
(7) |
Shares of common stock beneficially owned consist of 428,555 shares of common stock issuable upon conversion of Series B common stock. CMI II, LLC is a wholly-owned subsidiary of Castlerigg Master Investments Ltd. Sandell Asset Management Corp. is the investment manager of Castlerigg Investments Ltd. Thomas Sandell is the controlling person of Sandell Asset Management Corp. and shares beneficial ownership of the shares beneficially owned by Castlerigg Master Investments Ltd. Castlerigg International Ltd. is the controlling shareholder of Castlerigg International Holdings Limited and Castlerigg GS Holdings, Ltd., who are together the beneficial owners of Castlerigg Offshore Holdings, Ltd. Castlerigg Offshore Holdings, Ltd. is the controlling shareholder of Castlerigg Master Investments Ltd. Each of Castlerigg International Holdings Limited, Castlerigg GS Holdings, Ltd., Castlerigg Offshore Holdings, Ltd. and Castlerigg International Ltd. shares beneficial ownership over the shares beneficially owned by Castlerigg Master Investments Ltd. Each of Sandell Asset Management Corp., Mr. Sandell, Castlerigg International Holdings Limited, Castlerigg GS Holdings, Ltd. The address of CMI II LLC is c/o Sandell Asset Management Corp., 40 West 57th Street, 26th Floor, New York, New York 10019. |
(8) |
Shares of common stock beneficially owned consist of 563,444 shares of common stock issuable upon exercise of warrants (698,190 issuable on a pro forma basis pursuant to certain anti-dilution clauses triggered by this offering). Del Mar Asset Management, LP is the advisor to Del Mar Master Fund, Ltd. The general partner of Del Mar Asset Management, LP is Del Mar Management, LLC. David Freelove is the president, chief executive officer and a managing member of Del Mar Management, LLC and has sole voting and dispositive power over the securities managed by Del Mar Asset Management, LP. The address of Del Mar Master Fund, Ltd. is c/o Del Mar Asset Management, LP, 711 Fifth Avenue, 5th Floor, New York, New York 10022. |
(9) |
Shares of common stock beneficially owned consist of 359,970 shares of common stock issuable upon exercise of warrants (446,056 issuable on a pro forma basis pursuant to certain anti-dilution clauses triggered by this offering). Epic Special Purpose Vehicle and CAI Distressed Debt Opportunity Master Fund, Ltd. are the beneficial owners of the shares held by Epic Distressed Debt Opportunity Master Fund, Ltd. through a participation agreement. Citigroup Alternative Investments LLC is the registered investment advisor to the above-listed funds and is the entity that directs voting and dispositive power over the shares held by Epic Distressed Debt Opportunity Master Fund, Ltd. The address of Epic Distressed Debt Opportunity Master Fund, Ltd. is c/o Citi Alternative Investments, 399 Park Avenue, 7th Floor, New York, New York 10022. |
(10) |
Shares of common stock beneficially owned include: 465,325 shares of common stock issuable upon conversion of Series B Convertible Preferred Stock and 203,784 shares of common stock issuable upon exercise of warrants (195,770 issuable on a pro forma basis pursuant to certain anti-dilution clauses triggered by this offering). Mr. Florescue is President of Florescue Family Corporation and has voting and investment power over its shares. The address of Florescue Family Corporation is 50 E. Sample Rd, Suite 400, Pompano Beach, Florida 30064. |
(11) |
Shares of common stock beneficially owned include 258,226 shares of common stock and 254,766 shares of common stock issuable upon exercise of its right to purchase shares from Marc H. Bell, Daniel C. Staton, or related entities. Shares of common stock beneficially owned do not include shares of common stock issuable upon the conversion of its new Non-Cash Pay Second Lien Notes (notes issued in exchange for the Subordinated Convertible Notes in the New Financing). In December 2009, such stockholder exercised its right to purchase shares from Marc H. Bell, Daniel C. Staton and related entities, such exercise to be effective immediately prior to the consummation of this offering. Lars Mapstead and Marin Mapstead are trustees of the Mapstead Trust, created on April 16, 2002 and hold voting and investment power over its shares. The address of Mapstead Trust, created on April 16, 2002 is c/o Lars Mapstead, 180 Horizon Way, Aptos, California 95003. |
(12) |
Messrs. Bell, Staton and Florescue each disclaim beneficial ownership of these shares except with respect to their or their affiliated entities percentage ownership of PET II. |
(13) |
Shares of common stock beneficially owned consist of 449,166 shares of common stock issuable upon exercise of warrants (556,582 issuable on a pro forma basis pursuant to certain anti-dilution clauses triggered by this offering). Kevin Schweitzer is the managing member of Zabak Capital, LLC and holds sole voting and dispositive power over the shares held by RockView Trading, Ltd. Zabak Capital, LLC is the managing member of RockView Management LLC, which is the investment manager to RockView Trading, Ltd. The address of RockView Trading, Ltd. is Metro Center, One Station Place, Stamford, Connecticut 06902. |
(14) |
Shares of common stock beneficially owned consist of 806,952 shares of common stock issuable upon exercise of warrants (868,740 issuable on a pro forma basis pursuant to certain anti-dilution clauses triggered by this offering). Stonehill Capital Management LLC, a Delaware limited liability company (SCM), is the investment adviser of Stonehill Master Fund Ltd. (Stonehill Master). By virtue of such relationship, SCM may be deemed to have voting and dispositive power over the shares of common stock owned by Stonehill Master. Mr. John Motulsky, Mr. Christopher Wilson, Mr. Wayne Teetsel, Mr. Thomas Varkey, Mr. Jonathan Sacks, Mr. Peter Sisitsky, and Mr. Michael Thoyer (collectively, the Members) are the managing members of SCM, and may be deemed to have shared voting and dispositive power over the shares of common stock owned by Stonehill Master. |
(15) |
Shares of common stock beneficially owned include 1,343,309 shares of common stock and 1,646,182 shares of common stock issuable upon conversion of Series B Convertible Preferred Stock and 446,030 shares of common stock issuable upon exercise of warrants (451,977 issuable on a pro forma basis pursuant to certain anti-dilution clauses triggered by this offering); and 1,274,165 shares of common stock issuable upon the exchange of Series B common stock purchased by IBD over which Staton Family Investments, Ltd. holds sole dispositive and voting power. Shares of Series A Convertible Preferred Stock beneficially owned include 255,946 shares of common stock issuable upon conversion of Series A Convertible Preferred Stock owned by Staton Family Investments Ltd. and 309,590 shares of common stock issuable upon conversion of Series A Convertible Preferred Stock owned by PET II of which Staton Family Investments, Ltd. is the beneficial owner. Mr. Staton is a member of Staton Family Investments, Ltd. and has voting and investment power over its shares. |
(16) |
Shares of common stock beneficially owned consist of 1,688,970 shares of common stock issuable upon conversion of Series B Convertible Preferred Stock. Mr. Staton is the trustee of Staton Family Perpetual Trust and has voting and investment power over its shares, which are held in trust for the benefit of his minor children. |
(17) |
Shares of common stock beneficially owned consist of 1,274,165 shares of common stock issuable upon the exchange of Series B common stock. Staton Family Investments, Ltd. holds sole dispositive and voting power over the shares held by Strategic Media I LLC. Mr. Staton is a member of Staton Family Investments, Ltd. and has voting and investment power over its shares. |
|
the principals granted the sellers an option to purchase from time to time from the principals, shares of our common stock and Series B Convertible Preferred Stock at the exercise price of $0.20 per share, at any time until the consummation of an initial public offering. The option was subject to a vesting schedule pursuant to which the option vested in part immediately, and in part after each of six, nine and twelve months; |
|
in the event (i) there is a default under the letter agreement; (ii) the outstanding balance of the First Lien Senior Secured Notes held by the sellers is greater than or equal to $50.0 million, and there is an interest or principal payment default under the 2007 Securities Purchase Agreement, which is not cured at least two days prior to the applicable time frame within which cure is permitted under the 2007 Securities Purchase Agreement; (iii) the outstanding balance of the notes is less than $50.0 million, and there is an interest or principal payment default under the 2007 Securities Purchase Agreement that has been called for immediate payment by the Required Holders (as defined in the 2007 Securities Purchase Agreement) pursuant to the terms of the 2007 Securities Purchase Agreement; or (iv) the First Lien Senior Secured Notes are not paid in full within 3.5 years after issuance, the sellers shall have the right to require the principals to purchase their outstanding First Lien Senior Secured Notes, in whole or in part, together with the related warrants to purchase shares of our common stock that are then still outstanding, and the principals will purchase such First Lien Senior Secured Notes and related outstanding warrants, at a purchase price equal to the then outstanding principal amount of the First Lien Senior Secured Notes required to be purchased, plus accrued and unpaid interest on such First Lien Senior Secured Notes through the date of purchase; |
|
the principals granted the sellers a security interest in all our equity securities owned by the principals to secure the performance of the principals obligations referenced in the foregoing item; |
|
in the event that, at any time and from time to time, after the issuance of the First Lien Senior Secured Notes to sellers, any seller receives a bid price equal to or greater than 97% of par plus accrued and unpaid interest to purchase such sellers First Lien Senior Secured Notes and related outstanding warrants, in whole or in part, such seller shall sell its First Lien Senior Secured Notes and the related outstanding warrants pursuant to such bid; and (ii) each seller shall, at all times for so long as it owns any First Lien Senior Secured Notes, maintain with Imperial Capital, LLC and/or such other broker as the principals shall designate an offer price not greater than par plus accrued and unpaid interest to sell its First Lien Senior Secured Notes and related outstanding warrants; and |
|
for so long as any First Lien Senior Secured Notes owned by any seller remain outstanding, the principals are restricted from selling, transferring or otherwise disposing of their First Lien Senior Secured Notes except subject to certain exceptions. |
|
the principals no longer have an obligation to purchase the sellers First Lien Senior Secured Notes or to grant a security interest in any equity securities owned by the principals; |
|
the sellers no longer have an obligation to sell their First Lien Senior Secured Notes at a certain bid price; |
|
the principals granted the sellers an immediately exercisable option to purchase from time to time from the principals, an aggregate of approximately 1,000,000 shares of our common stock at the exercise price of $0.20 per share, at any time until the consummation of an initial public offering; |
|
the principals are no longer restricted from selling their First Lien Senior Secured Notes. Instead, until the consummation of an initial public offering, no principal may sell, transfer or otherwise dispose of any of our securities subject to the purchase option or permit them to become subject to any liens; and |
|
the letter agreement terminates upon the consummation of this offering and the completion of transfer of any equity securities required by the amendment to be transferred. |
Entity |
First Lien Notes |
Cash Pay Second Lien Notes |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
Marc H. Bell
|
$3.6 million |
$6.6
million |
||||||||
Staton Family
Investments Ltd. |
$3.6 million |
$6.6
million |
|
our consummation of a sale of all or substantially all of our assets or capital stock to any unaffiliated third party or, with certain exceptions, our merger, consolidation or combination with any third party, or |
|
our consummation of an underwritten initial public offering of securities or our reverse merger with or into a publicly traded company. |
|
restricting dividends on the common stock; |
|
diluting the voting power of the common stock; |
|
impairing the liquidation rights of the common stock; or |
|
delaying or preventing a change in control of us without further action by the stockholders. |
|
acquisition of us by means of a tender offer; |
|
acquisition of us by means of a proxy contest or otherwise; or |
|
removal of our incumbent officers and directors. |
$4.5 million in principal amount of 2005 Notes in payment of accrued interest on the outstanding notes. In December 2007, we also issued an additional approximately $0.9 million in principal amount of 2005 Notes pro rata to the holders of outstanding 2005 Notes in consideration for their waiver of certain defaults and consent to the incurrence of additional debt in connection with our acquisition of Various. In October 2009, we issued an additional approximately $1.5 million in principal amount of 2005 Notes pro rata to the holders of outstanding 2005 Notes equal to 4% of the principal amount then outstanding in consideration for their waiver of certain defaults and amendments to the 2005 Notes.
|
they were subordinated to the 2006 Notes, the 2005 Notes, the First Lien Senior Secured Notes and the Second Lien Subordinated Secured Notes; |
|
we could not redeem the Subordinated Term Loan Notes while the 2006 Notes, the 2005 Notes, the First Lien Senior Secured Notes and the Second Lien Subordinated Secured Notes remained outstanding; |
|
we were restricted from paying cash interest on the Subordinated Term Loan Notes until we had maintained consolidated EBITDA of at least $25.0 million for the prior four consecutive fiscal quarters and attain an interest coverage ratio of at least 3:1; and |
|
upon the occurrence of a change of control, the holders of the Subordinated Term Loan Notes would have the right to require us to concurrently purchase their notes at 100.0% of the face value thereof, plus accrued and unpaid interest, if any, provided, however, that such right could only be exercisable if the holders of the 2006 Notes and the 2005 Notes have exercised their repurchase right. |
|
102.0%, if redeemed on or before December 6, 2010; and |
|
100.0%, if redeemed after December 6, 2010. |
|
December 31, 2009, an installment amount of approximately $38.6 million; |
|
December 31, 2010, an installment amount of approximately $51.5 million; and |
|
June 30, 2011, an installment amount of approximately $141.5 million. |
Days After the Date of this Prospectus |
Additional Shares Eligible for Public Sale |
|||||
---|---|---|---|---|---|---|
On the date
of this prospectus |
0 | |||||
At various
times beginning more than 180 days after the date of this prospectus |
21,724,598 |
|
1.0% of the total number of shares of our common stock outstanding; or |
|
the average weekly reported trading volume of our common stock for the four calendar weeks prior to the sale. |
Underwriters |
Number of Shares |
|||||
---|---|---|---|---|---|---|
Imperial
Capital, LLC |
2,500,000 | |||||
Ladenburg
Thalmann & Co. Inc. |
2,500,000 | |||||
Total
|
5,000,000 |
Fee Per Share (1) |
Total Without Exercise of Over- Allotment |
Total With Exercise of Over- Allotment |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Public
offering price |
$ | 10.00 | $ | 50.0 | million | $ | 57.5 | million | ||||||
Discount
|
$ | 0.725 | $ | 3.6 | million | $ | 4.2 | million | ||||||
Proceeds
before expenses |
$ | 9.275 | $ | 46.4 | million | $ | 53.3 | million |
(1) |
The fees do not include the over-allotment option granted to the underwriters. |
|
the history and prospects of companies in our industry; |
|
prior offerings of those companies; |
|
our history and prospects, including our past and present financial performance and our prospects for future earnings; |
|
our capital structure; |
|
an assessment of our management and their experience; |
|
general conditions of the securities markets at the time of the offering; and |
|
other factors as were deemed relevant. |
|
Over-allotment involves sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any short position by either exercising their over-allotment option and/or purchasing shares in the open market. |
|
Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. |
|
Syndicate covering transactions involve purchases of securities in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of securities to close out the short position, the underwriters will consider, among other things, the price of securities available for purchase in the open market as compared to the price at which they may purchase securities through the over-allotment option. If the underwriters sell more securities than could be covered by the over-allotment option, creating a naked short position, the position can only be closed out by buying securities in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the securities in the open market after pricing that could adversely affect investors who purchase in the offering. |
|
Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when the security originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions. |
|
to any legal entity that is authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities; |
|
to any legal entity that has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than EUR43,000,000 and (3) an annual net turnover of more than EUR50,000,000, as shown in its last annual or consolidated accounts; |
|
to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the representatives; or |
|
in any other circumstances that do not require the publication of a prospectus pursuant to Article 3 of the Prospectus Directive, |
|
the purchaser is entitled under applicable provincial securities laws to purchase our securities without the benefit of a prospectus qualified under those securities laws; |
|
where required by law, that the purchaser is purchasing as principal and not as agent; |
|
the purchaser has reviewed the text above under Resale Restrictions; and |
|
the purchaser acknowledges and consents to the provision of specified information concerning its purchase of our securities to the regulatory authority that by law is entitled to collect the information. |
FriendFinder
Networks Inc. and Subsidiaries |
||||||
Audited
Financial Statements as of December 31, 2010 and 2009 and the years ended December 31, 2010, 2009 and 2008 |
||||||
Report of
Independent Registered Public Accounting Firm |
F-2 | |||||
Consolidated
Balance Sheets as of December 31, 2010 and 2009 |
F-3 | |||||
Consolidated
Statements of Operations for the years ended December 31, 2010, 2009 and 2008 |
F-4 | |||||
Consolidated
Statements of Changes in Redeemable Preferred Stock and Stockholders (Deficiency) for the years ended December 31, 2010, 2009 and 2008
|
F-5 | |||||
Consolidated
Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008 |
F-6 | |||||
Notes to
Consolidated Financial Statements |
F-8 |
December 31, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
||||||||||
ASSETS |
|||||||||||
Current
assets: |
|||||||||||
Cash
|
$ | 34,585 | $ | 22,600 | |||||||
Restricted
cash |
7,385 | 6,295 | |||||||||
Accounts
receivable, less allowance for doubtful accounts of $2,236 and $2,152, respectively |
9,886 | 12,142 | |||||||||
Inventories
|
1,028 | 1,339 | |||||||||
Prepaid
expenses |
4,534 | 7,980 | |||||||||
Deferred tax
asset |
5,522 | 11,366 | |||||||||
Total current
assets |
62,940 | 61,722 | |||||||||
Film costs,
net |
4,312 | 4,526 | |||||||||
Property and
equipment, net |
6,666 | 13,812 | |||||||||
Goodwill
|
326,540 | 326,540 | |||||||||
Domain names
|
55,890 | 55,491 | |||||||||
Trademarks
|
9,213 | 13,873 | |||||||||
Other
intangible assets, net |
29,134 | 48,183 | |||||||||
Deferred debt
costs, net |
22,336 | 12,318 | |||||||||
Deferred
offering costs |
13,267 | 9,050 | |||||||||
Receivable
from escrow fund |
| 2,679 | |||||||||
Other assets
|
2,519 | 3,687 | |||||||||
$ | 532,817 | $ | 551,881 | ||||||||
LIABILITIES |
|||||||||||
Current
liabilities: |
|||||||||||
Current
installment of long-term debt, net of unamortized discount of $744 and $1,931, respectively |
15,009 | 56,116 | |||||||||
Accounts
payable |
9,481 | 12,612 | |||||||||
Accrued
expenses and other liabilities |
65,420 | 69,727 | |||||||||
Deferred
revenue |
48,302 | 46,046 | |||||||||
Total current
liabilities |
138,212 | 184,501 | |||||||||
Deferred tax
liability |
30,275 | 37,397 | |||||||||
Long-term
debt, net of unamortized discount of $31,935 and $44,118, respectively |
510,551 | 432,028 | |||||||||
Liability
related to warrants |
3,559 | 3,597 | |||||||||
Total
liabilities |
682,597 | 657,523 | |||||||||
Commitments
and contingencies (Notes P and Q) |
|||||||||||
REDEEMABLE
PREFERRED STOCK |
|||||||||||
Series A
Convertible Preferred Stock, $0.001 per share authorized 2,500,000 shares; issued and outstanding 1,766,703 shares in 2009 (at liquidation preference) |
| 21,000 | |||||||||
Series B
Convertible Preferred Stock, $0.001 per share authorized 10,000,000 shares; issued and outstanding 8,444,853 shares in 2009 (at liquidation preference) |
| 5,000 | |||||||||
STOCKHOLDERS DEFICIENCY |
|||||||||||
Preferred
stock, $0.001 par value authorized 22,500,000 shares; issued and outstanding 10,211,556 shares in 2010 and redeemable shares in 2009, shown above; |
|||||||||||
Series A
Convertible Preferred Stock $0.001 per share authorized 2,500,000 shares; issued and outstanding 1,766,703 shares in 2010 (liquidation preference $21,000) |
2 | | |||||||||
Series B
Convertible Preferred Stock $0.001 per share authorized 10,000,000 shares; issued and outstanding 8,444,853 shares in 2010 (liquidation preference $5,000) |
8 | | |||||||||
Common stock,
$0.001 par value authorized 125,000,000 shares in 2010 and 2009 |
|||||||||||
Common stock
voting authorized 112,500,000 shares, issued and outstanding 6,517,746 in 2010 and 2009. |
6 | 6 | |||||||||
Series B
common stock non-voting authorized 12,500,000 shares; issued and outstanding 1,839,825 shares in 2010 and 2009 |
2 | 2 | |||||||||
Capital in
excess of par value |
80,823 | 55,818 | |||||||||
Accumulated
deficit |
(230,621 | ) | (187,468 | ) | |||||||
Total
stockholders deficiency |
(149,780 | ) | (131,642 | ) | |||||||
$ | 532,817 | $ | 551,881 |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 |
|||||||||||||
Net
revenue |
|||||||||||||||
Service
|
$ | 324,211 | $ | 309,033 | $ | 309,388 | |||||||||
Product
|
21,786 | 18,659 | 21,629 | ||||||||||||
Total
|
345,997 | 327,692 | 331,017 | ||||||||||||
Cost of
revenue |
|||||||||||||||
Service
|
97,959 | 78,627 | 81,815 | ||||||||||||
Product
|
12,531 | 13,070 | 14,699 | ||||||||||||
Total
|
110,490 | 91,697 | 96,514 | ||||||||||||
Gross profit
|
235,507 | 235,995 | 234,503 | ||||||||||||
Operating
expenses: |
|||||||||||||||
Product
development |
12,834 | 13,500 | 14,553 | ||||||||||||
Selling and
marketing |
37,258 | 42,902 | 59,281 | ||||||||||||
General and
administrative |
79,855 | 76,863 | 88,280 | ||||||||||||
Amortization
of acquired intangibles and software |
24,461 | 35,454 | 36,347 | ||||||||||||
Depreciation
and other amortization |
4,704 | 4,881 | 4,502 | ||||||||||||
Impairment of
goodwill |
| | 9,571 | ||||||||||||
Impairment of
other intangible assets |
4,660 | 4,000 | 14,860 | ||||||||||||
Total
operating expenses |
163,772 | 177,600 | 227,394 | ||||||||||||
Income from
operations |
71,735 | 58,395 | 7,109 | ||||||||||||
Interest
expense, net of interest income |
(88,508 | ) | (92,139 | ) | (80,510 | ) | |||||||||
Other finance
expenses |
(4,562 | ) | | | |||||||||||
Interest and
penalties related to VAT liability not charged to customers |
(2,293 | ) | (4,205 | ) | (8,429 | ) | |||||||||
Net loss on
extinguishment and modification of debt |
(7,457 | ) | (7,240 | ) | | ||||||||||
Foreign
exchange gain (loss), principally related to VAT liability not charged to customers |
610 | (5,530 | ) | 15,195 | |||||||||||
Gain on
settlement of VAT liability not charged to customers |
| 232 | 2,690 | ||||||||||||
Gain on
elimination of liability for United Kingdom VAT not charged to customers |
| 1,561 | | ||||||||||||
Gain on
liability related to warrants |
38 | 2,744 | | ||||||||||||
Other
non-operating expenses, net |
(13,202 | ) | (366 | ) | (197 | ) | |||||||||
Loss before
income tax benefit |
(43,639 | ) | (46,548 | ) | (64,142 | ) | |||||||||
Income tax
benefit |
(486 | ) | (5,332 | ) | (18,176 | ) | |||||||||
Net
loss |
$ | (43,153 | ) | $ | (41,216 | ) | $ | (45,966 | ) | ||||||
Net loss
per common share basic and diluted |
$ | (3.14 | ) | $ | (3.00 | ) | $ | (3.35 | ) | ||||||
Weighted
average shares outstanding basic and diluted |
13,735 | 13,735 | 13,735 |
Redeemable Preferred Stock |
Stockholders Deficiency |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Series A Convertible |
Series B Convertible |
Preferred Stock |
Common Stock |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Voting |
Series B Non-Voting |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Capital in Excess of Par Value |
Accumulated Deficit |
Total |
|||||||||||||||||||||||||||||||||||||||||||
Balance
at January 1, 2008 |
1,766,703 | $ | 21,000 | 8,444,853 | $ | 5,000 | 0 | $ | 0 | 3,561,127 | $ | 4 | 1,839,825 | $ | 2 | $ | 60,576 | $ | (98,701 | ) | $ | (38,119 | ) | ||||||||||||||||||||||||||||||||
Exercise of
warrants |
1,686,700 | 1 | (1 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss
|
(45,966 | ) | (45,966 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at
December 31, 2008 |
1,766,703 | 21,000 | 8,444,853 | 5,000 | 0 | 0 | 5,247,827 | 5 | 1,839,825 | 2 | 60,575 | (144,667 | ) | (84,085 | ) | ||||||||||||||||||||||||||||||||||||||||
Classification of warrants as a liability |
(4,756 | ) | (1,585 | ) | (6,341 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of
warrants |
1,269,919 | 1 | (1 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss
|
(41,216 | ) | (41,216 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at
December 31, 2009 |
1,766,703 | 21,000 | 8,444,853 | 5,000 | 0 | 0 | 6,517,746 | 6 | 1,839,825 | 2 | 55,818 | (187,468 | ) | (131,642 | ) | ||||||||||||||||||||||||||||||||||||||||
Transfer of
preferred stock from temporary equity to stockholders deficiency |
(1,766,703 | ) | (21,000 | ) | (8,444,853 | ) | (5,000 | ) | 10,211,556 | 10 | 25,990 | 26,000 | |||||||||||||||||||||||||||||||||||||||||||
Other
|
(985 | ) | (985 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss
|
(43,153 | ) | (43,153 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at
December 31, 2010 |
0 | $ | 0 | 0 | $ | 0 | 10,211,556 | $ | 10 | 6,517,746 | $ | 6 | 1,839,825 | $ | 2 | $ | 80,823 | $ | (230,621 | ) | $ | (149,780 | ) |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 |
|||||||||||||
Cash flows
from operating activities: |
|||||||||||||||
Net loss
|
$ | (43,153 | ) | $ | (41,216 | ) | $ | (45,966 | ) | ||||||
Adjustments
to reconcile net loss to net cash provided by operating activities: |
|||||||||||||||
Deferred
income tax benefit |
(1,278 | ) | (5,332 | ) | (18,550 | ) | |||||||||
Impairment of
intangibles |
4,660 | 4,000 | 24,431 | ||||||||||||
Net loss on
extinguishment and modification of debt |
7,457 | 7,240 | | ||||||||||||
Amortization
of acquired intangibles and software |
24,461 | 35,454 | 36,347 | ||||||||||||
Depreciation
and other amortization |
4,702 | 4,881 | 4,502 | ||||||||||||
Amortization
of film costs |
3,763 | 4,001 | 3,899 | ||||||||||||
Non-cash
interest, including amortization of discount |
45,148 | 47,139 | 30,725 | ||||||||||||
Provision for
doubtful accounts |
839 | 249 | 1,505 | ||||||||||||
Gain on
elimination of liability for United Kingdom VAT not charged to customers |
| (1,561 | ) | | |||||||||||
Gain on
settlement of VAT liability not charged to customers |
| (232 | ) | (2,690 | ) | ||||||||||
Gain on
warrant liability |
(38 | ) | (2,744 | ) | | ||||||||||
Other
|
504 | 209 | 32 | ||||||||||||
Changes in
operating assets and liabilities: |
|||||||||||||||
Restricted
cash |
(1,090 | ) | 1,566 | 8,480 | |||||||||||
Accounts
receivable |
1,417 | (3,050 | ) | 5,101 | |||||||||||
Inventories
|
311 | 288 | 88 | ||||||||||||
Prepaid
expenses |
3,446 | (1,652 | ) | (2,820 | ) | ||||||||||
Film costs
|
(3,549 | ) | (3,705 | ) | (4,461 | ) | |||||||||
Deferred debt
costs |
(4,265 | ) | (5,594 | ) | | ||||||||||
Deferred
offering costs |
(4,217 | ) | (6,974 | ) | (2,076 | ) | |||||||||
Other assets
|
1,169 | (1,133 | ) | (864 | ) | ||||||||||
Accounts
payable |
(3,132 | ) | 3,579 | (2,775 | ) | ||||||||||
Accrued
expenses and other liabilities |
3,230 | 1,034 | 440 | ||||||||||||
Deferred
revenue |
2,255 | 3,232 | 15,600 | ||||||||||||
Net cash
provided by operating activities |
42,640 | 39,679 | 50,948 | ||||||||||||
Cash flows
from investing activities: |
|||||||||||||||
Cash received
from escrow in connection with acquisition |
2,679 | 7,321 | | ||||||||||||
Purchases of
property and equipment |
(3,530 | ) | (3,542 | ) | (9,161 | ) | |||||||||
Reduction of
goodwill attributable to reimbursement from prior owners of Various |
| 915 | | ||||||||||||
Other
|
(399 | ) | (490 | ) | (128 | ) | |||||||||
Net cash
(used in) provided by investing activities |
(1,250 | ) | 4,204 | (9,289 | ) | ||||||||||
Cash flows
from financing activities: |
|||||||||||||||
Debt issuance
costs |
(5,834 | ) | | | |||||||||||
Repayment of
long-term debt |
(25,921 | ) | (44,987 | ) | (25,336 | ) | |||||||||
Redemption of
long-term debt |
(86,237 | ) | | | |||||||||||
Issuance of
New First and Second Lien Notes |
89,572 | | | ||||||||||||
Other
|
(985 | ) | | | |||||||||||
Net cash
(used in) financing activities |
(29,405 | ) | (44,987 | ) | (25,336 | ) | |||||||||
Net
increase (decrease) in cash |
11,985 | (1,104 | ) | 16,323 | |||||||||||
Cash at
beginning of period |
22,600 | 23,704 | 7,381 | ||||||||||||
Cash at
end of period |
$ | 34,585 | $ | 22,600 | $ | 23,704 |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 |
|||||||||||||
Supplemental disclosures of cash flow information: |
|||||||||||||||
Cash paid
for: |
|||||||||||||||
Interest paid
|
$ | 43,541 | $ | 45,531 | $ | 53,592 | |||||||||
Income
taxes |
| 1,343 | 17 | ||||||||||||
Non-cash
investing and financing activities: |
|||||||||||||||
Reduction of
Subordinated Convertible Notes and goodwill for bonus indemnification from former stockholders of Various |
| $ | 1,202 | $ | 1,074 | ||||||||||
Accrual and
issuance of notes for debt modification costs |
| $ | 6,041 | | |||||||||||
Effect of
elimination of United Kingdom VAT liability: |
|||||||||||||||
Reduction in
accrued expenses and other liabilities |
| $ | 39,520 | | |||||||||||
Increase in
Subordinated Convertible Notes payable |
| $ | 28,989 | | |||||||||||
Reduction of
goodwill |
| $ | 5,381 | | |||||||||||
Increase in
deferred tax liability |
| $ | 3,587 | | |||||||||||
Exchange of
New First Lien Notes for outstanding First ($126,124) and Second ($48,275) Lien Notes |
$ | 174,399 | | | |||||||||||
Issuance of
New First Lien Notes for commitment fees |
$ | 13,146 | | | |||||||||||
Exchange of
New First Lien Notes and Cash Pay Second Lien Notes for Senior Secured Notes |
$ | 28,053 | | | |||||||||||
Exchange of
Non-Cash Pay Second Lien Notes for outstanding Subordinated Convertible Notes ($161,560) plus $3,514 of accrued interest |
$ | 165,074 | | | |||||||||||
Exchange of
Non-Cash Pay Second Lien Notes for $42,811 of Subordinated Term Notes plus $5,949 of accrued interest |
$ | 45,726 | | |
1. |
Principles of consolidation: |
2. |
Stock splits: |
3. |
Use of estimates: |
4. |
Cash and cash equivalents: |
5. |
Restricted cash: |
6. |
Accounts receivable: |
7. |
Inventories: |
8. |
Property and equipment: |
9. |
Software costs: |
10. |
Film costs: |
11. |
Goodwill, trademarks and other intangibles: |
11. |
Goodwill, trademarks and other intangibles: (Continued) |
12. |
Deferred debt costs: |
13. |
Deferred offering costs: |
14. |
Revenue recognition: |
a) |
Internet: |
14. |
Revenue recognition: (Continued) |
b) |
Entertainment: |
15. |
Cost of revenue: |
16. |
Product development: |
17. |
Advertising: |
18. |
Loyalty program: |
19. |
Stock-based compensation: |
20. |
Income taxes: |
21. |
Value added taxes: |
22. |
Foreign currency transactions: |
23. |
Concentration of credit risk: |
24. |
Fair value of financial instruments: |
24. |
Fair value of financial instruments: (Continued) |
25. |
Per share data: |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 |
|||||||||||||
Common stock
|
6,518 | 6,518 | 5,248 | ||||||||||||
Series B
common stock |
1,840 | 1,840 | 1,840 | ||||||||||||
Common stock
purchase warrants |
5,377 | 5,377 | 6,647 | ||||||||||||
13,735 | 13,735 | 13,735 |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 |
|||||||||||||
Series A
Convertible Preferred Stock |
2,000 | 2,000 | 2,000 | ||||||||||||
Series B
Convertible Preferred Stock |
8,445 | 8,445 | 8,445 | ||||||||||||
Warrants
|
502 | 502 | 502 | ||||||||||||
Total common
shares issuable |
10,947 | 10,947 | 10,947 |
27. |
Reclassifications |
December 31, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
||||||||||
Paper and
printing costs |
$ | 693 | $ | 804 | |||||||
Editorials
and pictorials |
335 | 535 | |||||||||
$ | 1,028 | $ | 1,339 |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 |
|||||||||||||
Opening
balance |
$ | 4,526 | $ | 4,822 | $ | 4,260 | |||||||||
Content
produced |
3,549 | 3,705 | 4,461 | ||||||||||||
Amortization
|
(3,763 | ) | (4,001 | ) | (3,899 | ) | |||||||||
Ending
balance |
$ | 4,312 | $ | 4,526 | $ | 4,822 |
December 31, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
||||||||||
Property and
equipment: |
|||||||||||
Leasehold
improvements |
$ | 1,004 | $ | 757 | |||||||
Computer
hardware and software |
39,318 | 36,035 | |||||||||
40,322 | 36,792 | ||||||||||
Less
accumulated depreciation and amortization |
33,656 | 22,980 | |||||||||
$ | 6,666 | $ | 13,812 |
Internet |
Entertainment |
Total |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance as of
December 31, 2008 |
$ | 334,037 | $ | | $ | 334,037 | ||||||||
Reduction for
elimination of VAT liability (see Note J(f)) |
(5,380 | ) | (5,380 | ) | ||||||||||
Reduction for
reimbursement from sellers of Various |
(915 | ) | | (915 | ) | |||||||||
Reduction for
indemnification from sellers of Various (see Note J(f)) |
(1,202 | ) | | (1,202 | ) | |||||||||
Balance as of
December 31, 2009 and 2010 |
$ | 326,540 | $ | | $ | 326,540 |
December 31, |
||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
|||||||||||||||||||||
Gross Amount |
Accumulated Amortization |
Gross Amount |
Accumulated Amortization |
Estimated Useful Lives (Years) |
||||||||||||||||||
Amortizable
intangible assets: |
||||||||||||||||||||||
Non-compete
agreements |
$ | 10,600 | $ | 10,600 | $ | 10,600 | $ | 7,305 | 3 | |||||||||||||
Customer
lists |
23,626 | 23,280 | 28,666 | 27,988 | 24 | |||||||||||||||||
Service
contracts |
72,800 | 44,782 | 72,800 | 30,185 | 35 | |||||||||||||||||
Studio
contracts |
3,300 | 2,530 | 3,300 | 1,705 | 4 | |||||||||||||||||
Other
|
2,840 | 2,840 | 2,840 | 2,840 | 3 | |||||||||||||||||
$ | 113,166 | $ | 84,032 | $ | 118,206 | $ | 70,023 |
December 31, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
||||||||||
Accrued
liability related to VAT |
$ | 42,235 | $ | 45,719 | |||||||
Chargeback
reserve |
1,137 | 860 | |||||||||
Compensation
and benefits |
1,273 | 1,193 |
December 31, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 | ||||||||||
Accrued
marketing |
$ | 1,148 | $ | 1,328 | |||||||
Legal and
related expenses |
510 | 1,055 | |||||||||
Accrued
interest |
| 7,538 | |||||||||
Accrued
commissions to third party websites |
3,147 | 2,774 | |||||||||
Accrued
waiver fees |
| 2,613 | |||||||||
Accrued loss
related to claim in arbitration (see Note Q (a)) |
10,000 | | |||||||||
Other
|
5,970 | 6,647 | |||||||||
$ | 65,420 | $ | 69,727 |
December 31, |
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
||||||||||||||||||
Principal |
Unamortized Discount |
Principal |
Unamortized Discount |
||||||||||||||||
Debt issued
by FriendFinder and INI on October 27, 2010 (a): |
|||||||||||||||||||
First Lien
Notes due 20112013, including principal of $112,020 ($108,154 net of discount) issued to Companys stockholders (b)(e) |
$ | 305,000 | $ | 10,974 | | | |||||||||||||
Cash Pay
Second Lien Notes due 2013 issued to entities controlled by stockholders who are officers and directors (c)(e) |
13,778 | 262 | | | |||||||||||||||
Non-Cash Pay
Second Lien Notes, due 2014, including principal of $233,191 ($212,560 net of discount) issued to Company stockholders, including $45,310 ($41,302 net
of discount) to entities controlled by certain officers and directors(d)(e) |
237,211 | 20,986 | | | |||||||||||||||
Debt issued
by INI in connection with the acquisition of Various: |
|||||||||||||||||||
First Lien
Senior Secured Notes due 20092011, including principal of $75,722 ($70,715 net of discount) issued to selling stockholders (f) |
| | $ | 189,014 | $ | 12,497 | |||||||||||||
Second Lien
Subordinated Secured Notes due 2011 issued to selling stockholders (f) |
| | 80,000 | 3,300 | |||||||||||||||
Subordinated
Convertible Notes due 2011 issued to selling stockholders (g) |
| | 169,807 | 28,265 | |||||||||||||||
Other (h)
|
2,250 | 457 | 6,250 | 1,142 | |||||||||||||||
Senior
Secured Notes of FriendFinder due 2010 (i) |
| | 46,311 | 845 | |||||||||||||||
Subordinated
Term Notes of FriendFinder due 2011 (j) |
| | 42,811 | | |||||||||||||||
$ | 558,239 | $ | 32,679 | $ | 534,193 | $ | 46,049 | ||||||||||||
Less
unamortized discount |
(32,679 | ) | (46,049 | ) | |||||||||||||||
Less current
installment of long-term debt, net of unamortized discount of $744 and $1,931, respectively |
(15,009 | ) | (56,116 | ) | |||||||||||||||
$ | 510,551 | $ | 432,028 |
(a) |
On October 27, 2010, $305,000,000 principal amount of 14% Senior Secured Notes due 2013 were co-issued by FriendFinder and its wholly-owned subsidiary Interactive Network, Inc (INI), the parent of Various (the New First Lien Notes), of which (a) $200,185,000 was exchanged for $130,485,000 outstanding principal amount of First Lien Notes, $49,361,000 outstanding principal amount of Second Lien Notes and $14,551,000 outstanding principal amount of Senior Secured Notes, (b) $91,400,000 was issued for cash proceeds of $89,572,000 before payment of related fees and expenses of $5,834,000 and (c) $13,415,000 was issued to pay commitment fees to the holders of First Lien Notes and Second Lien Notes. Cash of $86,237,000 was used to redeem $36,608,000 outstanding principal amount of First Lien Notes at 102% of principal, $30,639,000 outstanding principal amount of Second Lien Notes (representing the remaining outstanding principal amounts of First Lien Notes and Second Lien Notes) and $18,258,000 outstanding principal amount |
of Senior Secured Notes. Cash was also used to pay $4,132,000 of accrued interest on the exchanged and redeemed notes, an $825,000 redemption premium on certain exchanged First Lien Notes and $435,000 in commitment fees to certain noteholders. |
(b) |
The New First Lien Notes, of which approximately $112,020,000 principal amount were issued to the Companys stockholders, including $7,460,000 to entities controlled by certain officers and directors, were issued with an original issue discount of $6,100,000, or 2.0%. The notes mature on September 30, 2013 and accrue interest at a rate per annum equal to 14.0%. Interest on the notes is payable quarterly on March 31, June 30, September 30 and December 31 of each year. Principal on the New First Lien Notes is payable quarterly to the extent of 75% of Excess Cash Flow, as defined, at 102% of principal, subject to pro-rata sharing with the Cash Pay Second Lien Notes. The New First Lien Notes are guaranteed by domestic subsidiaries of FriendFinder and |
INI and are collateralized by a first-priority lien on all of the Companys assets as well as a pledge of stock of subsidiaries. The New First Lien Notes are redeemable prior to maturity at the option of the Company, in whole but not in part, at 110% of principal, plus accrued and unpaid interest. In the event of an IPO, the net proceeds must be used to redeem the New First Lien Notes and Cash Pay Second Lien Notes pro-rata at 110% of principal plus accrued and unpaid interest. In addition, noteholders have the option of requiring the Company to repay the New First Lien Notes and Cash Pay Second Lien Notes in full upon a Change of Control, as defined, at 110% of principal. The Company shall also repay the New First Lien Notes and, in certain circumstances, the Cash Pay Second Lien Notes, with proceeds received from any debt or equity financing (including a secondary offering) and asset sales of more than $25 million at 110% of principal, and with proceeds from other asset sales, insurance claims, condemnation and other extraordinary cash receipts at principal, subject to certain exceptions. |
(c) |
The Cash Pay Second Lien Notes, all of which were issued to entities controlled by stockholders who are also officers and directors, were issued with an original issue discount of $276,000, or 2%, mature on September 30, 2013 and have identical terms to those of the New First Lien Notes, except as to matters regarding collateral, subordination, enforcement and voting. The Cash Pay Second Lien Notes are collateralized by a fully subordinated second lien on substantially all of the assets of the Company, pari passu with the Non-Cash Pay Second Lien Notes, and will vote with the New First Lien Notes on a dollar for dollar basis on all matters except for matters relating to collateral, liens and enforcement of rights and remedies. As to such matters, the Cash Pay Second Lien Notes will vote with the Non-Cash Pay Second Lien Notes. |
(d) |
The Non-Cash Pay Second Lien Notes, of which approximately $228,519,000 principal amount were issued to the Companys stockholders, including $44,402,000 to entities controlled by certain officers and directors, mature on April 30, 2014 and bear interest at 11.5%, payable semi-annually on June 30 and December 31, which may be paid in additional notes at the Companys option. While the New First Lien Notes are in place, interest must be paid with additional notes. During 2010, interest amounting to $4,752,000 was paid through the issuance of additional Non-Cash Pay Second Lien Notes. The Non-Cash Pay Second Lien Notes are guaranteed by the domestic subsidiaries of FriendFinder and INI and collateralized by a second priority lien on all of the Companys assets and a pledge of the stock of subsidiaries; however, such security interest is subordinate to the prior payment of the New First Lien Notes. The Non-Cash Pay Second Lien Notes are redeemable, at the option of the Company, in whole but not in part, at 100% of principal plus accrued and unpaid interest. Upon the payment in full of the New First Lien Notes, principal on the Non-Cash Pay Second Lien Notes is payable quarterly to the extent of 75% of Excess Cash Flow, as defined, at 102% of principal subject to pro-rata sharing with the Cash Pay Second Lien Notes. Upon an IPO, if the New First Lien Notes are paid in full, the net proceeds must be used to redeem the Non-Cash Pay Second Lien Notes and Cash Pay Second Lien Notes on a pro-rata basis at 110% of principal plus accrued and unpaid interest. In addition, noteholders have the option of requiring the Company to repay the Non-Cash Pay Second Lien Notes in full upon a Change of Control, as defined, at 110% of principal plus accrued and unpaid interest. If the New First Lien Notes are paid in full, the Company shall repay the Non-Cash Pay Second Lien Notes and Cash Pay Second Lien Notes on a pro-rata basis with proceeds received from any debt or equity financing (including a secondary offering), and asset sales of more than $25 million at 110% of principal plus accrued and unpaid interest and with proceeds of other asset sales, insurance claims, condemnation and other extraordinary cash receipts at principal, subject to certain exceptions. The Non-Cash Pay Second Lien Notes will become convertible into shares of the Companys common stock upon or after an IPO solely at the option of the holders. The conversion price of the notes will be at the per share offering price for the Companys common stock upon consummation of the IPO provided that such conversion option shall be limited to approximately 21.1% of the Companys fully diluted equity. |
(e) |
The New First Lien Notes, the Cash Pay Second Lien Notes and Non-Cash Pay Second Lien Notes (1) require the Company to maintain minimum specified levels of EBITDA and liquidity and financial ratios, including debt and coverage ratios, all as defined, (2) provides for certain limitations including limits on indebtedness, lease obligations, VAT payments and investments and (3) prohibits dividends and other payments with respect to the Companys equity securities. |
(f) |
The First Lien Senior Secured Notes (First Lien Notes), of which approximately $110,000,000 principal amount were issued to the Companys stockholders including $10,000,000 to entities controlled by certain officers and directors, were issued with an original issue discount of $7,720,000, or approximately 3.0%, were to mature on June 30, 2011, and accrued interest at a rate per annum equal to the sum of the greater of three month LIBOR (0.25% at December 31, 2009) or 4.5%, plus 8.0%. Interest on the notes was payable quarterly on March 31, June 30, September 30 and December 31 of each year. Principal on the First Lien Notes was payable quarterly to the extent of 90% of Excess Cash Flow, as defined, subject to minimum amounts. |
(g) |
The Subordinated Convertible Notes (Convertible Notes) were to mature on December 6, 2011 and bore interest at 6% which was paid in additional Convertible Notes at INIs option. The notes had been recorded at estimated fair value at the date of issuance, resulting in an effective interest rate of approximately 13% and discount of $24,977,000, which was being amortized as interest expense (by use of the interest method) over the term of the notes. During 2008, interest amounting to $6,892,000 was paid through issuance of additional Convertible Notes. The notes were the unsecured obligation of INI and were guaranteed by FriendFinder. The |
notes were subordinate in right of payment to the First Lien Notes and Second Lien Notes. The guarantee was subordinate to the prior payment of FriendFinders Senior Notes and the guarantee of the First Lien Notes and Second Lien Notes and pari passu in right of payment with FriendFinders Subordinated Term Notes. The notes which had an original principal amount of $170,000,000 were subject to reduction to the extent certain post-closing bonuses of up to $3.5 million were paid by Various over a three-year period and for a post-closing working capital adjustment. During 2009 and 2008, respectively, as a result of payment of $1.3 and $1.4 million in bonuses which were charged to expense, the principal amount of the notes was reduced and the carrying value of the notes was reduced by $1.1 and $1.1 million, respectively, with a corresponding reduction in goodwill. The post-closing working capital adjustment determined by the Company resulted in an indemnity claim which has been reflected as a reduction of $64,279,357 in the principal amount of the notes and a $10,000,000 receivable from an escrow fund set up in connection with the acquisition. |
(h) |
In connection with the acquisition of Various, INI issued a non-interest bearing obligation with a principal balance of $5.0 million to a former owner. In each of 2009 and 2008, $1.0 million of the notes were paid and 3.0 million was paid in 2010. The obligation was recorded at a present value of $3.6 million using a discount rate of 15%. |
(i) |
The Senior Secured Notes were scheduled to mature on July 31, 2010 and bore interest at 15% payable quarterly in cash. The notes were collateralized by a first-priority security interest in all of the Companys assets, other than those of INI and its subsidiaries for which a third-priority secured interest had been granted. |
(j) |
The Subordinated Term Notes, which were held by entities controlled by certain principal stockholders of the Company who are also officers and directors, were to mature on October 1, 2011 and bore interest at 13% |
payable annually principally through the issuance of additional subordinated notes. The Subordinated Term Notes were collateralized by a second priority security interest in all assets of the Company other than those held by INI and its subsidiaries and were subordinate to the notes issued by INI as well as the Senior Secured Notes issued by FriendFinder. |
Year |
Amount |
|||||
---|---|---|---|---|---|---|
2011
|
$ | 15,753 | ||||
2012
|
1,000 | |||||
2013
|
304,275 | |||||
2014
|
237,211 | |||||
$ | 558,239 |
Expiration Date(1) |
Exercise Price |
Number of Shares(2) |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
August 2015
|
$ | 6.20 | (4) | 476,573 | (4) | |||||
August 2015
|
$ | 10.25 | (4) | 25,090 | ||||||
August 2015
|
$ | 0.0002 | 243,287 | |||||||
August 2016
|
$ | 0.0002 | 441,474 | |||||||
December 2017
|
$ | 0.0002 | 4,692,996 | (3) | ||||||
5,879,420 |
(1) |
Except for warrants to purchase 1,373,859 shares of common stock at $0.0002 per share which were amended on October 8, 2009, warrants terminate if not exercised concurrently with the consummation of an IPO, if earlier than their stated expiration date. |
(2) |
The number of shares of common stock for which each warrant is exercisable will be decreased immediately prior to the closing of an IPO in the event that the Company has issued prior to such IPO fewer than 1,343,997 |
shares or options pursuant to an equity incentive or benefit plan except for the warrants exercisable at $10.25. The adjustment provision for such warrants is triggered if the Company has issued fewer than 588,890 shares or options pursuant to an equity incentive or benefit plan prior to the closing of an IPO. |
(3) |
With respect to warrants to acquire 2,441,989 common shares, in order to maintain the warrant holders percentage of fully diluted equity, the number of shares of common stock for which each such warrant is exercisable shall be increased immediately prior to the closing of an IPO based on the number of shares of common stock into which the Non-Cash Pay Second Lien Notes which were exchanged for Convertible Notes issued to selling stockholders in the acquisition of Various, will be convertible based on the IPO price. |
(4) |
Adjusted for subsequent dilutive issuances of equity securities. |
2010 |
2009 |
2008 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Current: |
||||||||||||||
Federal
|
$ | 162 | $ | | $ | 374 | ||||||||
State
|
630 | | | |||||||||||
792 | | 374 | ||||||||||||
Deferred: |
||||||||||||||
Federal
|
(1,118 | ) | (4,688 | ) | (13,615 | ) | ||||||||
State
|
(160 | ) | (644 | ) | (4,935 | ) | ||||||||
(1,278 | ) | (5,332 | ) | (18,550 | ) | |||||||||
Total tax
benefit |
$ | (486 | ) | $ | (5,332 | ) | $ | (18,176 | ) |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 |
|||||||||||||
Tax benefit
at federal statutory rate (35%) |
$ | 15,274 | $ | 16,292 | $ | 22,450 | |||||||||
State taxes,
net of federal effect |
1,552 | 435 | 3,208 | ||||||||||||
Impairment of
goodwill |
| | (3,350 | ) | |||||||||||
Net operating
loss for which no tax benefit is recognized |
(16,679 | ) | (4,881 | ) | (4,842 | ) | |||||||||
Non-deductible penalties including related foreign exchange gain |
| 97 | 1,119 | ||||||||||||
Write off of
deferred tax asset related to United Kingdom VAT liability which was eliminated (see Note I) |
| (7,785 | ) | | |||||||||||
Gain on
warrant liability |
14 | 960 | |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 | |||||||||||||
Other
|
$ | 326 | $ | 214 | $ | (409 | ) | ||||||||
Tax benefit
|
$ | 486 | $ | 5,332 | $ | 18,176 |
December 31, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
||||||||||
Deferred tax
assets: |
|||||||||||
Net operating
loss carryforwards |
$ | 27,424 | $ | 30,430 | |||||||
Allowance for
doubtful accounts |
894 | 861 | |||||||||
Accrued
liability related to VAT |
12,264 | 13,733 | |||||||||
Accrued loss
related to claim in arbitration |
5,200 | | |||||||||
Other
|
590 | 427 | |||||||||
Gross
deferred tax assets |
46,372 | 45,451 | |||||||||
Less
valuation allowance |
(28,627 | ) | (11,948 | ) | |||||||
Net deferred
tax assets |
17,745 | 33,503 | |||||||||
Deferred tax
liabilities: |
|||||||||||
Trademarks
and domain names not subject to amortization |
(23,794 | ) | (25,644 | ) | |||||||
Intangible
assets subject to amortization |
(11,654 | ) | (19,273 | ) | |||||||
Long-term
debt |
(5,875 | ) | (10,634 | ) | |||||||
Property and
equipment, including software |
(217 | ) | (3,222 | ) | |||||||
Other
|
(958 | ) | (761 | ) | |||||||
(42,498 | ) | (59,534 | ) | ||||||||
Net deferred
tax liabilities |
$ | (24,753 | ) | $ | (26,031 | ) |
December 31, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
||||||||||
Deferred tax
asset current |
$ | 5,522 | $ | 11,366 | |||||||
Deferred tax
liability non-current |
(30,275 | ) | (37,397 | ) | |||||||
Net deferred
tax liability |
$ | (24,753 | ) | $ | (26,031 | ) |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 |
|||||||||||||
Assets: |
|||||||||||||||
Internet
|
$ | 506,297 | $ | 522,179 | $ | 568,999 | |||||||||
Entertainment
|
22,399 | 23,520 | 26,724 | ||||||||||||
Unallocated
corporate |
4,121 | 6,182 | 4,190 | ||||||||||||
Total
|
$ | 532,817 | $ | 551,881 | $ | 599,913 | |||||||||
Net revenue
from external customers: |
|||||||||||||||
Internet
|
$ | 321,605 | $ | 306,213 | $ | 306,129 | |||||||||
Entertainment
|
24,392 | 21,479 | 24,888 | ||||||||||||
Total
|
$ | 345,997 | $ | 327,692 | $ | 331,017 |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 | |||||||||||||
Income from
operations: |
|||||||||||||||
Internet
|
$ | 76,142 | $ | 64,962 | $ | 34,345 | |||||||||
Entertainment
|
1,140 | (439 | ) | (17,748 | ) | ||||||||||
Total segment
income from operations |
77,282 | 64,523 | 16,597 | ||||||||||||
Unallocated
corporate |
(5,547 | ) | (6,128 | ) | (9,488 | ) | |||||||||
Total
|
$ | 71,735 | $ | 58,395 | $ | 7,109 | |||||||||
Amortization
of acquired intangibles and software (included in income from operations): |
|||||||||||||||
Internet
|
$ | 24,461 | $ | 35,454 | $ | 36,347 | |||||||||
Entertainment
|
| | | ||||||||||||
Unallocated
corporate |
| | | ||||||||||||
Total
|
$ | 24,461 | $ | 35,454 | $ | 36,347 | |||||||||
Depreciation
and other amortization (included in income from operations): |
|||||||||||||||
Internet
|
$ | 4,527 | $ | 4,587 | $ | 4,052 | |||||||||
Entertainment
|
177 | 294 | 450 | ||||||||||||
Unallocated
corporate |
| | | ||||||||||||
Total
|
$ | 4,704 | $ | 4,881 | $ | 4,502 | |||||||||
Impairment of
goodwill and other assets (included in income from operations): |
|||||||||||||||
Internet
|
$ | | $ | | $ | 6,829 | |||||||||
Entertainment
|
4,660 | 4,000 | 17,602 | ||||||||||||
Total
|
$ | 4,660 | $ | 4,000 | $ | 24,431 |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 |
|||||||||||||
Internet: |
|||||||||||||||
Subscription
based service |
$ | 245,174 | $ | 245,015 | $ | 246,978 | |||||||||
Pay by usage
service |
76,321 | 60,434 | 56,729 | ||||||||||||
Advertising
|
110 | 764 | 2,422 | ||||||||||||
321,605 | 306,213 | 306,129 | |||||||||||||
Entertainment: |
|||||||||||||||
Magazine
|
10,894 | 12,218 | 15,581 | ||||||||||||
Video
entertainment |
10,892 | 6,441 | 6,048 | ||||||||||||
Licensing
|
2,606 | 2,820 | 3,259 | ||||||||||||
24,392 | 21,479 | 24,888 | |||||||||||||
Total
revenues |
$ | 345,997 | $ | 327,692 | $ | 331,017 |
Year Ended December 31, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 |
|||||||||||||
Net
revenue: |
|||||||||||||||
United States
|
$ | 178,873 | $ | 177,753 | $ | 192,102 | |||||||||
Europe
|
103,224 | 97,317 | 86,797 | ||||||||||||
Canada
|
17,200 | 15,364 | 16,381 | ||||||||||||
Other
|
46,700 | 37,258 | 35,737 | ||||||||||||
Total
|
$ | 345,997 | $ | 327,692 | $ | 331,017 |
Year |
Operating Leases |
|||||
---|---|---|---|---|---|---|
2011
|
$ | 2,076 | ||||
2012
|
2,125 | |||||
2013
|
2,125 | |||||
2014
|
2,070 | |||||
2015
|
1,800 | |||||
Thereafter
|
2,217 | |||||
Total
|
$ | 12,413 |
(a) |
On December 28, 2007, Broadstream Capital Partners, Inc. (Broadstream) filed a lawsuit against the Company in the State Superior Court of California, County of Los Angeles, Central District, and the Company subsequently removed the case to the Federal District Court for the Central District of California. The complaint alleged breach of contract, breach of covenant of good faith and fair dealing, breach of fiduciary duty and constructive fraud arising out of a document titled Non-Disclosure Agreement. The complaint alleged, among other things, that Broadstream entered into a Non-Disclosure Agreement with the Company that required Broadstreams prior written consent for the Company to knowingly acquire Various or any of its subsidiaries and that such consent was not obtained. On April 7, 2008, Broadstream filed its First Amended Complaint, which added a new cause of action for intentional interference with prospective economic advantage. On February 20, 2009, Broadstream filed its Third Amended Complaint, which dismisses the allegations of breach of fiduciary duty and constructive fraud. The complaint seeks damages which plaintiff alleges to be in excess of $20 million, plus interest, costs and punitive damages. Broadstream later asserted up to $557 million in damages plus punitive damages. On July 20, 2009, the Company entered into an agreement with Broadstream under which, without admitting liability, the Company agreed to pay Broadstream $3.0 million in $1.0 million installments due no later than July 2009, January 2010 and July 2010. Such payments were timely made. The agreement provides that upon the earlier of twelve months after the Company |
has securities registered under Section 12(b) of the Securities Exchange Act of 1934, as amended, or eighteen months after the effective date of the agreement, but not later than twelve months following such earlier date, Broadstream must choose either to (i) refile its complaint in Federal District Court provided that it first repay the Company the $3.0 million or (ii) demand arbitration. If Broadstream elects arbitration, the parties have agreed that there will be an arbitration award to Broadstream of at least $10.0 million but not more than $47.0 million. Giving consideration of the limitation of the arbitration award in relation to damages sought in litigation, management had not concluded that it was probable that Broadstream would demand arbitration. Accordingly, no loss had been provided for as a result of entering into the agreement. In the event that Broadstream elected arbitration, at such time the Company would recognize a loss in connection with the matter of $13.0 million to $50.0 million. |
(b) |
On December 23, 2005, Robert Guccione, our former president, filed an action against the Company and some of its officers, among other defendants, in New York State Court for breach of contract, fraud, unjust enrichment, promissory estoppel, failure to pay severance and conspiracy to defraud. The amount of damages requested in the complaint against the Company is approximately $9.0 million and against the officers is in excess of $10.0 million. Some of the counts in the complaint also demand an unspecified amount of damages. Guccione filed an amended complaint on June 5, 2007 to include additional claims relating to ownership of certain United Kingdom, Jersey and Guernsey trademarks and added as a party Penthouse Publications Limited, an entity with no current affiliation with the Company, as party plaintiff. Guccione agreed to dismiss the count for conspiracy to defraud only. Guccione filed a Second Amended Complaint on December 14, 2007 adding General Media International, Inc. (an entity with no current affiliation with the Company) as party plaintiff and a new claim for inducement to breach of contract. The Company filed its motion to dismiss the Second Amended Complaint on January 31, 2008, which was granted in part and denied in part. The court dismissed the claims for unjust enrichment and promissory estoppel. The Company filed its Answer and Affirmative Defenses to the Second Amended Complaint on June 25, 2009. On August 14, 2008, Guccione filed a voluntary petition for Chapter 7 Bankruptcy. Guccione filed a dismissal of the bankruptcy proceedings on November 4, 2009. The Court dismissed the bankruptcy action on November 9, 2009. The settlement agreement between Guccione and his judgment creditors assigns all rights to the New York state court action to his judgment creditors. On January 8, 2010, the Company filed an Amended Answer with counterclaims against Guccione and Penthouse Publications Limited for conversion, breach of fiduciary duty, declaratory relief and indemnification. No specific amount of damages has been requested in the counterclaims. On January 27, 2010, Plaintiffs filed a Reply to the Companys counterclaims. In January and February 2010, certain defendants filed Answers to Plaintiffs Second Amended Complaint with cross-claims against the Company for contribution and indemnification. No specific amount of damages has been requested. In February and March 2010, the Company filed its Answer and Affirmative Defenses to the cross-claims. On October 20, |
2010, Guccione passed away. As such, the case is stayed pending substitution of his estate as a party. The Company believes it has meritorious defenses to all claims and intends to vigorously defend the lawsuit. |
(c) |
On November 28, 2006, Antor Media Corporation (Antor) filed a complaint against the Company, its subsidiary, General Media Communications, Inc. (GMCI), and several non-affiliate media/entertainment defendants in the U.S. District Court for the Eastern District of Texas, Texarkana Division, for infringement of a Patent titled Method and Apparatus for Transmitting Information Recorded on Information Storage Means from a Central Server to Subscribers via a High Data Rate Digital Telecommunications Network. No specific amount of damages has been requested. Injunctive relief is also sought. The Company and its subsidiary filed an Answer, Affirmative Defenses and Counterclaims. The United States Patent and Trademark Office (USPTO) issued a non-final office action rejecting Antors patent claims. Antor filed a response to the office action which added 83 new claims to the original 29 rejected claims. In August 2008, the USPTO issued its final office action sustaining its rejection of the original 29 claims and rejecting the 83 new claims. Antor filed its Petition to Vacate Finality of Office Action on the grounds it introduced new grounds for the rejection. Based on the final office action, the Company, GMCI and all other defendants filed an expedited motion to stay the case. In December 2008, pursuant to an order granting a re-examination proceeding, the USPTO issued a non-final office action again rejecting the original 29 claims and the new 83 claims. In February 2009, Antor filed a response in which it agreed to cancel the 83 new claims previously proposed. On May 11, 2009, the Court entered an Order granting Defendants Motion to Stay as modified. On May 22, 2009, the defendants accepted the terms of the Courts proposed Stipulation regarding the use of prior art at trial and filed their Stipulation. On June 5, 2009, the USPTO issued a Final Office Action rejecting all of the Plaintiffs claims. Plaintiff filed an appeal on July 7, 2009 and an appellate brief on October 8, 2009. On February 18, 2010, the USPTO filed an answer brief. On October 21, 2010, the USPTO Board of Patent Appeals entered an order affirming the rejection of Antors claims. On December 21, 2010, Antor filed a request for rehearing which was denied in March 2011. The case will remain stayed pending the appeal. |
(d) |
On or about November 27, 2006, a claimant filed a consumer class action arbitration at Judicial Arbitration and Mediation Services, Inc. or JAMS in San Jose, California, alleging a nationwide class action against Various under a variety of legal theories related to, among other things, representations regarding the number of active users on its internet dating websites, causing the appearance of erroneous member profiles, and a failure to adequately remove or account for alleged erroneous member profiles. The claimant is seeking unspecified damages. Various disputes the claims and intends to defend the arbitration vigorously. |
(e) |
In or about March 2009, a complaint was filed against the Companys subsidiary FriendFinder California, Inc. and other defendants in the State Superior Court of California, County of Los Angeles in connection with their advertising on a free adult content website run by a third party known as Bright Imperial Limited. In April 2009, Various and the Company were added as defendants. The complaint alleges that the defendants aided and abetted Bright Imperial Limited in engaging in below cost competition and unlawful use of loss leaders in violation of California law by providing free, apparently professionally produced adult content. The plaintiff is seeking $10.0 million in damages, trebled to at least $30.0 million, plus injunctive relief and attorneys fees. On May 8, 2009, the Court denied the plaintiffs request for an Order to Show Cause concerning its request for preliminary injunction, citing insufficient evidence among other factors. On May 26, 2009, the Company filed an Anti-SLAPP Motion to Strike the Complaint along with a Motion to Dismiss the claims in the Complaint. On or about July 24, 2009, after the Court granted the Anti-SLAPP motion the plaintiff then stipulated to the form of an Order on the Anti-SLAPP motion that finds in favor of the Company, effectively terminating the case. On August 10, 2009, plaintiff filed his Notice of Appeal to the California Court of Appeal. On January 26, 2011, the California Appellate Court affirmed the trial courts ruling in the Companys favor. |
(f) |
On November 4, 2008, Balthaser Online, Inc. filed a lawsuit for patent infringement against the Company among other defendants, in the U.S. District Court for the Eastern District of Texas, Texarkana Division, seeking unspecified monetary damages as well as injunctive relief. The complaint alleged infringement of |
Patent titled Methods, Systems, and Processes for the Design and Creation of Rich-Media Applications via the Internet. The plaintiff filed a first amended complaint naming Various, Inc., FriendFinder California Inc. and Global Alphabet, Inc. as defendants on January 15, 2009. On or about August 28, 2009, pursuant to local rule, the Company served its invalidity contentions. On September 15, 2009, the Court granted the Companys motion to transfer the case to the U.S. District Court for the Northern District of California. The lawsuit was settled on November 30, 2010 for an immaterial amount and the action was dismissed with prejudice. |
(g) |
In or about December 2007, Spark Network Services, Inc. served Various with a complaint for patent infringement seeking unspecified monetary damages as well as injunctive relief. The complaint alleges infringement of a U.S. Patent titled System for Data Collection and Matching Compatible Profiles. Various moved for a stay of the federal case due to the USPTOs re-examination of the patent at issue and the Federal Court granted the stay. The USPTO issued a final rejection of the patent at issue on September 18, 2009, and the plaintiff filed a notice of appeal on December 17, 2009. In March 2010, the parties entered into a settlement agreement resolving the case and the Federal action was dismissed with prejudice. The settlement did not have a material effect on the Companys financial statements. |
(h) |
On November 5, 2009, Joao Control and Monitoring Systems of Texas, LLC filed a patent infringement lawsuit in the United States District Court for the Eastern District of Texas against the Company and its indirect wholly-owned subsidiary Streamray Inc., and a number of other unrelated adult entertainment companies, alleging infringement of a patent titled Monitoring Apparatus and Method and seeking unspecified monetary damages as well as injunctive relief. The lawsuit was served on the Company and Streamray Inc. on November 12, 2009. In or about June 2010 the Company filed a motion related to the propriety of the forum and Streamray Inc. answered the complaint. On or around July 2010, the parties entered into a settlement agreement resolving the case and the action was dismissed with prejudice. The settlement did not have a material effect on the Companys financial statements. |
(i) |
Effective July 1, 2008, Various registered in the European Union and on July 29, 2008, began separately charging VAT to its customers. For periods prior thereto, Various recorded a liability for VAT and related interest and penalties in connection with revenue from internet services derived from its customers in the various European Union countries. Various reduced its VAT liability for periods prior to July 1, 2008 in the countries where the liability was either paid in full or payments were made pursuant to settlement and payment plans or where determinations were made that payments were not due. Various continues to negotiate settlements of the liabilities or challenge the liability related to VAT for periods prior to July 1, 2008 (see Note I). |
(j) |
On May 19, 2009 representatives for Summit Trading Limited (Summit) sent a letter to the Companys outside legal counsel, alleging that the Company, Interactive Brand Development, Inc., (an owner of the Companys Series B Common Stock) and entities affiliated with two of the Companys principal stockholders defrauded Summit of financial compensation for services provided to the Companys predecessor entity, General Media, Inc. Among the claims, Summit asserted bad faith, breach of contract and fraud by the Companys management and the Company, and claimed that it is owed an equity interest in the Company, as well as compensatory, punitive and exemplary damages in excess of $500 million. Management believes that the allegations stated in the letter are vague and lack factual basis and merit. Summit has not taken any legal action against the Company. Should Summit take legal action, the Company would vigorously defend the lawsuit. |
(k) |
On November 16, 2010, Patent Harbor, LLC filed a Complaint for patent infringement against, among others, Penthouse Digital Media Productions Inc. (PDMP), in the United States District Court for the Eastern District of Texas. The Complaint alleges an infringement of a U.S. Patent titled Apparatus and Method for Assembling Content Addressable Video. No specific amount of damages has been requested. However, on November 16, 2010, the Company received a settlement demand from plaintiff in the amount of $800,000. Plaintiff later lowered its demand to $500,000. On January 28, 2011, the Company filed an Answer, Affirmative Defenses |
and Counterclaims. On February 25, 2011, plaintiff filed its Answer to the Counterclaims. The Company has no insurance coverage for patent infringement claims. The Company disputes the allegations and believes it has meritorious defenses, and plans to vigorously defend the allegations. |
(l) |
On April 13, 2011, Facebook, Inc., or Facebook, filed a complaint against the Company and certain of its subsidiaries in the U.S. District Court for the Northern District of California, alleging trademark infringement with regard to the use of the terms face book of sex. The Complaint contains causes of action for: trademark dilution, false designation of origin, trademark infringement, violation of the Anti-Cybersquatting Consumer Protection Act, and for unfair competition. The Complaint also seeks a declaratory judgment that Facebooks use of friend finder on its website is a descriptive fair use that does not infringe Various trademark rights in the FRIENDFINDER mark. No specific amount of damages has been sought. However, the Complaint requests monetary relief, injunctive relief, punitive damages, cancellation of the FRIENDFINDER marks, attorneys fees, other equitable relief, and costs among other things. The Company intends to vigorously defend the lawsuit. |
The Company currently is a party to other legal proceedings and claims. While management presently believes that the ultimate outcome of these proceedings, including the ones discussed above, individually and in the aggregate, will not have a material adverse effect on the Companys financial position, cash flows, or overall trends in results of operations, litigation and arbitration is subject to inherent uncertainties and unfavorable rulings could occur. An unfavorable ruling could include monetary damages or, in cases for which injunctive relief is sought, an injunction prohibiting the Company from selling one or more products or services. Were an unfavorable ruling to occur there exists the possibility of a material adverse impact on the business or results of operations for the period in which the ruling occurs or future periods. Other than as disclosed above, the Company is unable to estimate the possible loss or range of loss which may result from pending legal proceedings or claims. |
Imperial
Capital |
Ladenburg Thalmann & Co. Inc. |