Planet Payment Inc.
Planet Payment Inc (Form: 10-Q, Received: 11/03/2016 06:12:24)

Table of Contents

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 


 

FORM 10-Q

 

(Mark One)

 

 

 

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

 

For the quarterly period ended September 30, 2016

 

OR

 

 

 

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

 

For the transition period from               to              

 

Commission file number 001-35699

 

PLANET PAYMENT, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

 

Delaware

 

13-4084693

(State or Other Jurisdiction of Incorporation or Organization)

 

(I.R.S. Employer Identification No.)

 

 

 

 

670 Long Beach Boulevard
Long Beach, New York

 

11561

(Address of Principal Executive Offices)

 

(Zip Code)

 

(516) 670-3200

(Registrant’s Telephone Number, Including Area Code)

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ☒ No ☐

 

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

 

 

 

 

Large Accelerated Filer ☐

 

Accelerated Filer ☒

 

 

 

Non-Accelerated Filer ☐

 

Smaller Reporting Company ☐

(Do not check if smaller reporting company)

 

 

 

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

 

As of October 31, 2016 ,   there were 48,902,496 shares of the registrant’s common stock outstanding.

 

 

 

 


 

Table of Contents

Planet Payment, Inc.

Report on Form 10-Q

For the Quarterly Period Ended September 30, 2016

 

Table of Contents

 

 

 

 

 

 

Page

 

 

 

Part I.  

Financial Information

 

 

 

Item 1.  

Financial Statements

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2016 (unaudited) and December 31, 201 5

 

 

 

 

Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2016 and 2015 (unaudited)

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2016 and 2015 (unaudited)

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015 (unaudited)

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

 

 

Item 2.  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17 

 

 

 

Item 3.  

Quantitative and Qualitative Disclosures About Market Risk

31 

 

 

 

Item 4.  

Controls and Procedures

32 

 

 

 

Part II.  

Other Information

32 

 

 

 

Item 1.  

Legal Proceedings

32 

 

 

 

Item 1A.  

Risk Factors

32 

 

 

 

Item 2.  

Unregistered Sales of Equity Securities and Use of Proceeds

33 

 

 

 

Item 6.  

Exhibits

34 

 

 

 

Signatures  

 

35 

 

Planet Payment®, iPAY® and Pay in Your Currency®, as well as our logo, are registered trademarks of Planet Payment, and Multi-Currency Pricing™ is an additional trademark of Planet Payment. All other service marks, trademarks and trade names appearing in this report are the property of their respective owners.

 

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Table of Contents

PART  I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Planet Payment, Inc.

Condensed Consolidated Balance Sheet s

 

 

 

 

 

 

 

 

 

As of

 

As of

 

 

September 30,

 

December 31,

 

 

2016

 

2015

 

 

 

(unaudited)

 

 

 

Current assets:

 

 

    

    

 

    

Cash and cash equivalents

 

$

7,440,864

 

$

14,675,515

Restricted cash

 

 

3,887,288

 

 

5,050,147

Accounts receivable, net of allowances of $0.1 million as of September 30, 2016 and December 31, 2015

 

 

6,641,993

 

 

6,406,496

Prepaid expenses and other assets

 

 

1,761,184

 

 

1,800,566

Total current assets

 

 

19,731,329

 

 

27,932,724

Other assets:

 

 

 

 

 

 

Restricted cash

 

 

551,054

 

 

551,917

Property and equipment, net

 

 

1,321,342

 

 

1,811,619

Software development costs, net

 

 

4,177,879

 

 

3,964,454

Intangible assets, net

 

 

981,279

 

 

1,378,264

Goodwill

 

 

294,844

 

 

286,852

Deferred tax asset and other long-term assets

 

 

8,270,540

 

 

8,581,082

Total other assets

 

 

15,596,938

 

 

16,574,188

Total assets

 

$

35,328,267

 

$

44,506,912

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

446,946

 

$

306,520

Accrued expenses

 

 

4,459,360

 

 

6,438,600

Due to merchants

 

 

4,068,506

 

 

5,240,427

Current portion of capital leases

 

 

206,873

 

 

290,911

Total current liabilities

 

 

9,181,685

 

 

12,276,458

Long-term liabilities:

 

 

 

 

 

 

Long-term debt

 

 

9,916,000

 

 

 —

Other long-term liabilities

 

 

1,107,982

 

 

1,666,938

Total long-term liabilities

 

 

11,023,982

 

 

1,666,938

Total liabilities

 

 

20,205,667

 

 

13,943,396

Commitments and contingencies (Note 8)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Convertible preferred stock—10,000,000 shares authorized as of September 30, 2016 and December 31, 2015, $0.01 par value: Series A—2,243,750 issued and 1,535,398 outstanding as of September 30, 2016 and 2,243,750 issued and outstanding as of December 31, 2015; $6,141,592 and $8,975,000 aggregate liquidation preference as of September 30, 2016 and December 31, 2015, respectively

 

 

15,354

 

 

22,438

Common stock—250,000,000 shares authorized as of September 30, 2016 and December 31, 2015, $0.01 par value, and 59,230,684 issued and 48,855,330 shares outstanding as of September 30, 2016, and 56,191,389 issued and 52,585,503 shares outstanding as of December 31, 2015

 

 

592,307

 

 

561,914

Treasury stock, at cost, 10,375,354 shares and 3,605,886 shares as of September 30, 2016 and December 31, 2015, respectively

 

 

(31,726,486)

 

 

(7,883,012)

Additional paid-in capital

 

 

109,870,586

 

 

106,741,026

Accumulated other comprehensive loss

 

 

(529,197)

 

 

(510,445)

Accumulated deficit

 

 

(63,099,964)

 

 

(68,368,405)

Total stockholders’ equity

 

 

15,122,600

 

 

30,563,516

Total liabilities and stockholders’ equity

 

$

35,328,267

 

$

44,506,912

 

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

 

 

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Planet Payment, Inc.

Condensed Consolidated Statements of Income (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

2016

 

2015

 

2016

    

2015

Revenue:

    

 

    

    

 

    

    

 

    

 

 

    

Net revenue

 

$

13,621,239

 

$

12,618,413

 

$

40,409,128

 

$

37,434,542

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Payment processing service fees

 

 

2,781,289

 

 

2,692,090

 

 

8,207,202

 

 

7,871,179

Processing and service costs

 

 

2,878,088

 

 

3,776,232

 

 

9,902,879

 

 

10,399,830

Total cost of revenue

 

 

5,659,377

 

 

6,468,322

 

 

18,110,081

 

 

18,271,009

Selling, general and administrative expenses

 

 

5,222,560

 

 

5,657,740

 

 

15,908,166

 

 

14,840,844

Restructuring charges

 

 

229,121

 

 

283,726

 

 

354,389

 

 

283,726

Total operating expenses

 

 

11,111,058

 

 

12,409,788

 

 

34,372,636

 

 

33,395,579

Income from operations

 

 

2,510,181

 

 

208,625

 

 

6,036,492

 

 

4,038,963

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(88,669)

 

 

(10,372)

 

 

(186,366)

 

 

(38,815)

Interest income

 

 

428

 

 

392

 

 

1,250

 

 

1,183

Other income

 

 

93,016

 

 

 —

 

 

93,016

 

 

 —

Total other income (expense), net

 

 

4,775

 

 

(9,980)

 

 

(92,100)

 

 

(37,632)

Income from operations before provision for income taxes

 

 

2,514,956

 

 

198,645

 

 

5,944,392

 

 

4,001,331

Provision for income taxes

 

 

(289,543)

 

 

(92,674)

 

 

(675,951)

 

 

(308,406)

Net income

 

$

2,225,413

 

$

105,971

 

$

5,268,441

 

$

3,692,925

Basic net income per share applicable to common stockholders

 

$

0.04

 

$

0.00

 

$

0.10

 

$

0.06

Diluted net income per share applicable to common stockholders

 

$

0.04

 

$

0.00

 

$

0.09

 

$

0.06

Weighted-average common stock outstanding (basic)

 

 

49,179,596

 

 

51,360,758

 

 

49,848,634

 

 

52,985,106

Weighted-average common stock outstanding (diluted)

 

 

51,254,223

 

 

52,384,391

 

 

52,002,249

 

 

53,611,968

 

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

 

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Planet Payment, Inc.

Condensed Consolidated Statements of Comprehensive Income (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

2016

 

2015

 

2016

 

2015

Net income

  

$

2,225,413

  

$

105,971

  

$

5,268,441

  

$

3,692,925

Foreign currency translation adjustment

 

 

(11,530)

 

 

(65,265)

 

 

(18,752)

 

 

(262,084)

Total comprehensive income

 

$

2,213,883

 

$

40,706

 

$

5,249,689

 

$

3,430,841

 

 

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

 

 

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Planet Payment, Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30,

 

 

2016

 

2015

Cash flows from operating activities:

    

 

    

    

 

    

Net income

 

$

5,268,441

 

$

3,692,925

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Stock-based compensation expense

 

 

1,498,358

 

 

1,197,741

Depreciation and amortization expense

 

 

2,083,655

 

 

2,175,220

Provision for doubtful accounts

 

 

62,675

 

 

7,403

Disposal of property and equipment

 

 

500

 

 

 —

Gain on insurance settlement

 

 

 —

 

 

(517,930)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Decrease (increase) in settlement assets

 

 

1,160,869

 

 

(322,982)

(Increase) decrease in accounts receivables, prepaid expenses and other current assets

 

 

(258,790)

 

 

1,184,851

Decrease (increase) in other long-term assets

 

 

310,542

 

 

(131,588)

(Decrease) increase in accounts payable and accrued expenses

 

 

(3,062,995)

 

 

559,792

(Decrease) increase in due to merchants

 

 

(1,169,931)

 

 

323,105

Other

 

 

(44,740)

 

 

(133,242)

Net cash provided by operating activities

 

 

5,848,584

 

 

8,035,295

Cash flows from investing activities:

 

 

 

 

 

 

Decrease (increase) in restricted cash

 

 

2,853

 

 

(27,651)

Decrease in merchant reserves

 

 

(1,990)

 

 

(92,169)

Purchase of property and equipment

 

 

(156,165)

 

 

(175,570)

Capitalized software development

 

 

(999,733)

 

 

(828,393)

Purchase of intangible assets

 

 

(16,299)

 

 

(16,500)

Net cash used for investing activities

 

 

(1,171,334)

 

 

(1,140,283)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from issuance of common stock

 

 

2,287,990

 

 

1,203,750

Principal payments on capital lease obligations

 

 

(272,417)

 

 

(404,884)

Borrowings under credit facility

 

 

13,916,000

 

 

 —

Repayments under credit facility

 

 

(4,000,000)

 

 

 —

Purchase of treasury stock

 

 

(23,843,474)

 

 

(4,567,501)

Net cash used for financing activities

 

 

(11,911,901)

 

 

(3,768,635)

Effect of exchange rate changes on cash and cash equivalents(*)

 

 

 —

 

 

 —

Net (decrease) increase in cash and cash equivalents

 

 

(7,234,651)

 

 

3,126,377

Cash and cash equivalents at beginning of period

 

 

14,675,515

 

 

9,837,791

Cash and cash equivalents at end of period

 

$

7,440,864

 

$

12,964,168

Supplemental disclosure:

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

Interest

 

$

165,252

 

$

36,585

Income taxes

 

 

744,911

 

 

539,520

Non-cash investing and financing activities:

 

 

 

 

 

 

Common stock issued for preferred stock conversion

 

 

21,629

 

 

 —

Common stock issued for stock options exercised

 

 

98

 

 

 —

Assets acquired under capital leases

 

 

122,630

 

 

156,129

Accrued capitalized hardware, software and fixed assets

 

 

75,870

 

 

39,158

Capitalized stock-based compensation

 

 

21,625

 

 

27,245

 

(*) For the nine months ended September 30, 2016 and 2015, the effect of exchange rate changes on cash and cash equivalents was immaterial.

 

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

 

 

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Planet Payment, Inc.

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

1. Business description and basis of presentation

 

Business description

 

Planet Payment, Inc. together with its wholly-owned subsidiaries (“Planet Payment,” the “Company,” “we,” or “our”) is a provider of international payment and transaction processing and multi­currency processing services. The Company provides its services to approximately 197,000 active merchant locations in 23 countries and territories across the Asia- Pacific region, the Americas, the Middle East, Africa and Europe, primarily through its acquiring bank and processor customers, as well as through its own direct sales force. The Company provides banks and their merchants with innovative services to accept, process and reconcile electronic payments. The Company’s point-of-sale multi-currency payment processing services are designed for merchants in the retail, restaurant, and hospitality environments. We also provide payment services for e-commerce and mail and telephone order merchants. Our point-of-sale and e-commerce services help merchants sell more goods and services to consumers, and are integrated within the payment card transaction process enabling its acquiring customers to process and reconcile payment transactions in multiple currencies, geographies and channels. The Company’s ATM services provide its acquirers with additional processing capabilities to help them increase revenue and improve customer satisfaction. The Company also offers non-financial transaction processing services that allow merchants to offer a range of commercial services including pre-paid mobile phone top-up and bill payments using the same point-of-sale devices deployed to accept payment cards. The Company is a registered third party processor with the major card associations and operates in accordance with industry standards, including the Payment Card Industry, or PCI, Security Council’s Data Security Standards.

 

Basis of presentation

 

The unaudited condensed consolidated interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

 

The accompanying unaudited condensed consolidated interim financial statements include the accounts of Planet Payment, Inc. and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated.

 

Unaudited condensed consolidated interim financial information

 

The accompanying unaudited condensed consolidated interim financial statements as of September 30, 2016 and for the periods ended September 30, 2016 and 2015 have been prepared on the same basis as the annual consolidated financial statements. In the opinion of management, the unaudited financial information for the interim periods presented reflects all adjustments, which are normal and recurring, necessary for a fair presentation of the statement of operations, financial position and cash flows. The accompanying unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. Operating results for the interim period ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.  The December 31, 2015 balance sheet information has been derived from the audited financial statements at that date. Certain information and disclosures normally included in annual consolidated financial statements have been omitted pursuant to the rules and regulation of the Securities and Exchange Commission (“SEC”).

 

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2. Recent accounting pronouncements

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance.  The new guidance includes a cohesive set of disclosure requirements intended to provide users of financial statements with comprehensive information about the nature, amount, timing and uncertainty of revenue and cash flows arising from a company’s contracts with customers.  The original effective date of ASU 2014-09 of January 1, 2017 has been delayed until January 1, 2018.  Early adoption is not permitted before the original effective date.  The standard allows for either retrospective application to each reporting period presented or retrospective application with the cumulative effect of initially applying this update recognized at the date of initial application.  The Company is currently evaluating the effect ASU 2014-09 will have on the Company’s condensed consolidated financial statements and disclosures.

 

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (“ASU No. 2016-02”).  The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application of the amendments in ASU No. 2016-02 is permitted for all entities.  A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the effect ASU 2016-02 will have on the Company’s condensed consolidated financial statements and disclosures.

 

In March 2016, the FASB issued Accounting Standards Update No. 2016-08, Revenue from Contracts with Customers (Topic 606) (“ASU 2016-08”). The amendments in ASU 2016-08 do not change the core principle of the guidance. The amendments clarify the implementation guidance on principal versus agent considerations.   The update suggests that entities recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  The effective date and transition requirements for the amendments in ASU 2016-08 are the same as the effective date and transition requirements of ASU 2014-09.  We do not expect a material impact on our financial condition, results of operations or cash flows from the adoption of this guidance.

 

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation—Stock Compensation (Topic 718) (“ASU No. 2016-09”).  This update is part of the FASB’s Simplification Initiative, which simplifies the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The new standard is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any entity in any interim or annual period. We do not expect a material impact on our financial condition, results of operations or cash flows from the adoption of this guidance.

 

In April 2016, the FASB issued Accounting Standards Update No. 2016-10, Revenue from Contracts with Customers (Topic 606) (“ASU 2016-10”). The amendments in this update do not change the core principle of the guidance. The amendments in this update clarify the identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas.  The amendments in this update clarify that contractual provisions that, explicitly or implicitly, require an entity to transfer control of additional goods or services to a customer should be distinguished from contractual provisions that, explicitly or implicitly, define the attributes of a single promised license.  The effective date and transition requirements for the amendments in this update are the same as the effective date and transition requirements of update ASU 2014-09.  The Company is currently evaluating the effect ASU 2016-10 will have on the Company’s condensed consolidated financial statements and disclosures.

 

In May 2016, the FASB issued Accounting Standards Update No. 2016-12, Revenue from Contracts with Customers (Topic 606) (“ASU 2016-12”), in which the FASB finalized the guidance in the new revenue standard on collectibility, noncash consideration, presentation of sales tax, and transition.  The amendments are intended to address implementation issues that were raised by stakeholders and discussed by the Revenue Recognition Transition Resource Group, and

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provide additional practical expedients.  The effective date and transition requirements for the amendments in this update are the same as the effective date and transition requirements of update ASU 2014-09.  We do not expect a material impact on our financial condition, results of operations or cash flows from the adoption of this guidance.

 

In August 2016, the FASB issued Accounting Standards Update No. 2016-15,   Statement of Cash Flows (Topic 230) (“ASU 2016-15”), which intends to reduce diversity in practice in how certain cash receipts and cash payments are presented in the statement of cash flows.  ASU 2016-15 clarifies that the classification of cash activity relates to debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate and bank-owned life insurance policies, distributions received from equity-method investments and beneficial interests in securitization transactions.  The new standard is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted, provided that all of the amendments are adopted in the same period.  The early adoption of the provisions of ASU No. 2016-15 did not materially impact the Company's financial condition, results of operations or cash flows.

 

 

3. Concentration of credit risk

 

The Company’s assets that are exposed to concentrations of credit risk consist primarily of cash, cash equivalents, restricted cash and receivables from clients. The Company places some of its cash, cash equivalents, and restricted cash with financial banking institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. The Company also maintains cash balances at foreign banking institutions, which are not insured by the FDIC.

 

The Company maintains an allowance for uncollectible accounts receivable based on expected collectability and performs ongoing credit evaluations of customers’ financial condition.

 

The Company’s accounts receivable concentrations of 10% and greater are as follows:

 

 

 

 

 

 

 

 

 

As of

 

As of

 

 

 

September 30,

 

December 31,

 

 

 

2016

 

2015

 

Customer A

    

16

%  

15

%

Customer B

 

13

 

*

 

Customer C

 

12

 

*

 

Customer H

 

*

 

11

 

 

* Less than 10% accounts receivable concentration.

 

 

The Company’s revenue concentrations of 10% and greater are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

  

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2016

 

2015

 

2016

 

2015

 

Customer A

    

16

%  

17

%  

16

%  

19

%

Customer G

 

14

 

*

 

12

 

*

 

Customer H

 

*

 

13

 

*

 

*

 

 

* Less than 10% revenue concentration.

 

a

 

4. Net income per share

 

The Company computes net income per share in accordance with ASC 260, Earnings per Share (“ASC topic 260”). Under ASC topic 260, securities that contain rights to receive non-forfeitable dividends (whether paid or unpaid) are participating securities and should be included in the two-class method of computing earnings per share. The Company’s preferred stockholders are entitled to participate in dividends and earnings when, and if, dividends are declared on the common stock. As such, the Company calculates net income per share using the two-class method. The two-class

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method is an earnings formula that treats a participating security as having rights to dividends that otherwise would have been available to common and preferred stockholders based on their respective rights to receive dividends. Losses are not allocated to the preferred stockholders for computing net loss per share under the two-class method because the preferred stockholders do not have contractual obligations to share in the losses of the Company.

 

Basic earnings per share is calculated by dividing net income, adjusted for amounts allocated to participating securities under the two-class method, if applicable, by the weighted average number of common stock outstanding during the period.

 

Diluted earnings per share is calculated by dividing net income by the weighted average number of shares of the Company’s common stock outstanding, assuming dilution, during the period. The diluted earnings per share calculation assumes (i) all stock options and warrants which are in the money are exercised at the beginning of the period and (ii) each issue or series of issues of potential common stock are considered in sequence from the most dilutive to the least dilutive. That is, dilutive potential common stock with the lowest “earnings add-back per incremental share” shall be included in dilutive earnings per share before those shares with higher earnings add back per incremental share.

 

The following table sets forth the computation of basic and diluted net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

  

Nine Months Ended

 

 

September 30,

 

September 30,

 

    

2016

    

2015

    

2016

    

2015

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

2,225,413

 

$

105,971

 

$

5,268,441

 

$

3,692,925

Amounts allocated to participating preferred stockholders under the two-class method

 

 

(196,868)

 

 

(12,284)

 

 

(466,065)

 

 

(428,090)

Net income applicable to common stockholders (basic and dilutive)

 

$

2,028,545

 

$

93,687

 

$

4,802,376

 

$

3,264,835

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common stock outstanding (basic)

 

 

49,179,596

 

 

51,360,758

 

 

49,848,634

 

 

52,985,106

Common equivalent shares from options and warrants to purchase common stock

 

 

2,074,627

 

 

1,023,633

 

 

2,153,615

 

 

626,862

Weighted-average common stock outstanding (diluted)(1)

 

 

51,254,223

 

 

52,384,391

 

 

52,002,249

 

 

53,611,968

Basic net income per share applicable to common stockholders

 

$

0.04

 

$

0.00

 

$

0.10

 

$

0.06

Diluted net income per share applicable to common stockholders(1)

 

$

0.04

 

$

0.00

 

$

0.09

 

$

0.06

 

(1)

In accordance with ASC 260-10-45-48, for the three and nine months ended September 30, 2016 and 2015, the Company excluded 396,500 and 1,446,500, respectively, of contingently-issued restricted shares from diluted weighted average common stock outstanding as the contingencies were neither (a) satisfied at the reporting date nor (b) would have been satisfied if the reporting date was at the end of the contingency period.

 

The following table sets forth the weighted average securities outstanding that have been excluded from the diluted net income per share calculation because the effect would have been anti-dilutive:

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

  

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

2016

    

2015

 

2016

    

2015

Stock options

 

 —

 

3,588,862

 

581,665

 

5,096,019

Restricted stock awards

 

 —

 

 —

 

23,574

 

98,147

Convertible preferred stock(1)

 

4,688,237

 

6,851,144

 

5,493,407

 

6,851,144

Total anti-dilutive securities

 

4,688,237

 

10,440,006

 

6,098,646

 

12,045,310

 

(1)

Diluted net income per share increases when convertible preferred stock is included in the required sequence in the diluted earnings per share computation. As such, convertible preferred stock is excluded from the computation of diluted earnings per share for the three and nine months ended September 30, 2016 and 2015.

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5. Stock-based compensation expense

 

Stock-based compensation expense is measured at the grant date based on fair value, and recognized as an expense over the requisite service period, net of an estimated forfeiture rate.

 

During the first quarter of 2016, 0.8 million stock options were granted to certain employees of the Company, with a grant fair value of $0.7 million. The actual number of shares that will be issued upon exercise of the options is subject to the achievement of service-based vesting conditions.  Stock-based compensation expense is recorded on a straight line basis from the date of the grant over the requisite service period of 36 months. 

 

During the second quarter of 2016, 0.1 million restricted stock awards with a grant fair value of $0.2 million were granted to certain members of the Company’s Board of Directors.  The final number of vested shares is subject to service-based vesting conditions.  Stock-based compensation expense is recorded on a straight line basis from the date of the grant over the requisite service period of 12 months.

 

During the second quarter of 2016, 0.5 million shares of the 2015 restricted stock awards granted to certain officers of the Company vested.  The market condition was achieved as the Company’s volume weighted average price on NASDAQ was greater than or equal to $3.50 per share for seven consecutive trading days, or any ten trading days over a consecutive thirty-five day period. The market condition was valued at $0.7 million, of which $0.5 million was expensed as of March 31, 2016 and an additional $0.2 million was expensed during the three months ended June 30, 2016.

 

The following summarizes stock-based compensation expense recognized by income statement classification:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

    

2016

    

2015

    

2016

    

2015

Processing and service costs

 

$

35,051

 

$

43,030

 

$

134,112

 

$

143,611

Selling, general and administrative expenses

 

 

282,408

 

 

656,197

 

 

1,364,246

 

 

1,017,206

Restructuring charges

 

 

 —

 

 

36,924

 

 

 —

 

 

36,924

Total stock-based compensation expense

 

$

317,459

 

$

736,151

 

$

1,498,358

 

$

1,197,741

 

The following summarizes stock-based compensation expense recognized by type:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

2016

    

2015

    

2016

    

2015

Stock options

 

$

217,537

 

$

528,249

 

$

766,766

 

$

783,954

Restricted stock awards

 

 

99,922

 

 

207,902

 

 

731,592

 

 

413,787

Total stock-based compensation expense

 

$

317,459

 

$

736,151

 

$

1,498,358

 

$

1,197,741

 

 

6. Property and equipment

 

Property and equipment, net consist of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated

 

As of

 

As of

 

 

useful life

 

September 30,

 

December 31,

 

 

(in years)

 

2016

 

2015

Equipment

 

2

-

7

 

$

1,008,798

    

$

958,175

Computer hardware

 

3

-

5

 

 

3,409,750

 

 

3,266,233

Furniture and fixtures

 

5

-

7

 

 

227,851

 

 

192,565

Leasehold improvements

 

3

-

10

 

 

786,637

 

 

746,336

Total property and equipment, gross

 

 

 

 

 

 

5,433,036

 

 

5,163,309

Less: Accumulated depreciation and amortization

 

 

 

 

 

 

(4,111,694)

 

 

(3,351,690)

Property and equipment, net

 

 

 

 

 

$

1,321,342

 

$

1,811,619

 

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Property and equipment depreciation and amortization expense is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

2016

 

2015

    

2016

    

2015

Depreciation and amortization expense

 

$

328,181

    

$

164,538

 

$

768,740

 

$

489,010

 

 

 

 

 

 

 

 

Included in depreciation and amortization expense for the three and nine months ended September 30, 2016 is $0.2 million and $0.3 million, respectively, of expense related to the acceleration of amortization on certain assets due to exiting a floor in the Company’s corporate location before the end of the lease term.  The cease use date is  October 1, 2016.  For additional information on the Company’s restructuring charges disclosure, refer to Note 14.

 

 

 

 

 

7. Goodwill and intangible assets

 

The change in carrying amount of goodwill for the nine months ended September 30, 2016 is as follows:

 

 

 

 

 

Goodwill, gross, as of December 31, 2015

    

$

286,852

Impact of change in Euro exchange rate

 

 

7,992

Accumulated impairment losses as of September 30, 2016

 

 

 —

Goodwill, net, as of September 30, 2016

 

$

294,844

 

 

The entire goodwill balance is assigned to the payment processing services segment.

 

Intangible assets are recorded at estimated fair value and are amortized ratably over their estimated useful lives to processing and service costs, which are included in cost of revenue.

 

The gross book value, accumulated amortization and amortization periods of intangible assets are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2016

 

As of December 31, 2015

 

Amortization

 

Gross book

 

Accumulated

 

Net book

 

Gross book

 

Accumulated

 

Net book

 

period

 

value

 

amortization

 

value

 

value

 

amortization

 

value

 

(in years)

Trademarks and patents

$

1,202,666

  

$

(538,214)

  

$

664,452

  

$

1,184,612

  

$

(472,914)

  

$

711,698

  

15

-

21

Technology

 

2,455,406

 

 

(2,138,579)

 

 

316,827

 

 

2,388,852

 

 

(1,722,286)

 

 

666,566

 

5

 

 

Intangible assets, net

$

3,658,072

 

$

(2,676,793)

 

$

981,279

 

$

3,573,464

 

$

(2,195,200)

 

$

1,378,264

 

 

 

 

 

Amortization expense related to intangible assets is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

    

2016

    

2015

    

2016

    

2015

Amortization expense

 

$

143,692

 

$

143,599

 

$

431,710

    

$

431,388

 

 

8. Commitments and contingencies

 

Employment agreements

 

Pursuant to employment agreements with certain employees, the Company had a commitment to pay severance of approximately $1.2 million as of September 30, 2016 and $0.9 million as of December 31, 2015, in the event of an involuntary termination, as defined in the employment agreements. Additionally, in the event of termination upon a change of control, as defined in the agreements, the Company had a commitment to pay severance of approximately $1.2 million as of September 30, 2016 and $1.1 million as of December 31, 2015.

 

Contingent liabilities

 

In instances where the Company is acting as the merchant acquirer, the Company bears a risk that a merchant may engage in fraud by submitting for payment certain credit card transactions that may have been manipulated, are fictitious, or are otherwise not bona fide . Similarly, the Company bears the risk that a merchant becomes insolvent, owing money

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to cardholders. To the extent that such fraud or insolvency occurs in circumstances where the Company is liable to make good on any resultant losses, this could affect the Company’s operating results and cash flows. The Company has required certain merchants to post cash reserves of approximately  $0.9  million with the sponsoring bank against such liabilities and has itself paid the acquirer a reserve of $0.3 million in connection therewith, which is included in long-term “Restricted cash” on the condensed consolidated balance sheets. In addition, the Company holds merchant reserves of approximately  $2.2 million. This reserve amount is included in “Restricted cash” with an offset in “Due to merchants.” Under FASB ASC 460, Guarantees , the Company evaluates its ultimate risk and records an estimate of potential loss for chargeback’s related to merchant fraud and processing errors based upon an assessment of actual historical fraud rates and errors in processing compared to recent bank card processing volume levels .  No contingent liability has been recorded as of September 30, 2016 and December 31, 2015, as the risk of material loss is considered remote. The Company monitors these contingent liabilities on a quarterly basis and will provide for a reserve if deemed necessary .

 

Outstanding litigation

 

From time to time, the Company’s operating entities may be involved in legal proceedings in the ordinary course of business. While any litigation contains an element of uncertainty, the Company has no reason to believe that the outcome of such proceedings or claims will have a material adverse effect on the financial condition or results of operations of the Company.

 

Acquiring bank sponsorship agreement

 

In order to offer merchant acquiring services for Visa and MasterCard transactions, the Company must be sponsored by a financial institution that is a principal member of the Visa and MasterCard networks.

 

The Company entered into a five-year agreement with a sponsoring bank effective September 1, 2013. The Company was required to pay minimum annual sponsorship transaction fees of $0.3 million in year one.  The minimum fees escalate each subsequent year with minimum fees of $0.5 million due in year five for total minimum fees of $1.8 million to be paid over the term of the agreement.  Sponsorship fees are recorded to payment processing service fees cost of sales with the total agreement minimum of $1.8 million recognized on a straight line basis over the term of the agreement.

 

Pursuant to the agreement, the Company is liable for all losses incurred by the sponsoring bank with respect to the activities of its merchants sponsored under the agreement.  No contingent liability has been recorded as of September 30, 2016 as the risk of material loss is considered remote based on historical information.  The Company monitors this contingent liability on a quarterly basis and will provide for a reserve if deemed necessary.   

 

9. Credit Facility

 

On June 10, 2015, the Company entered into a $10.0 million secured revolving credit facility (the “Credit Facility”) with Citizens Bank, N.A. (“Citizens”) pursuant to a Credit and Security Agreement by and among the Company, certain affiliates thereof as borrowers or guarantors, and Citizens (the “Credit Agreement”). 

 

On January 28, 2016, the Company entered into a Second Amendment to Credit and Security Agreement with Citizens and certain subsidiary affiliates of the Company as borrowers and/or guarantors (the “Amendment”). The Amendment amends the Credit Agreement and provides for an increase in the Company’s line of credit (the “Line of Credit”) with Citizens from $10.0 million to $20.0 million.  The Line of Credit is secured by substantially all of the Company’s personal property, including the Company’s intellectual property and that of its subsidiaries that are borrowers or guarantors.  The interest rate applicable to committed borrowings is tied to LIBOR plus a margin of 2.5%.  The Credit Agreement also provides for a letter of credit sub-facility of up to $2.0 million. The Credit Agreement contains customary affirmative and negative covenants, including, among others, financial covenants based on the Company’s leverage and fixed charge coverage ratios, as well as an obligation to maintain a minimum availability requirement of at least $5.0 million in the aggregate of cash and availability under the line of credit.  The Credit Facility will provide funds for general corporate purposes and repurchases of issued and outstanding capital stock of the Company.  The Credit Facility matures on December 31, 2020 and is payable in full upon maturity.     

 

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On April 12, 2016, the Company borrowed approximately $13.9 million under the Credit Facility. Subsequently, on April 26, 2016, the Company repaid $4.0 million on the Credit Facility. As of September 30, 2016, the Company had $9.9 million outstanding under the Credit Facility and was in compliance with all financial covenants contained in the Credit Agreement.

 

10. Convertible preferred stock

 

On April 11, 2016, 708,352 shares of Series A Preferred Stock were converted into 2,162,907 shares of common stock at a conversion ratio of approximately 3.05 shares of common stock per share of Series A Preferred Stock.  As of September 30, 2016, the remaining preferred stock consists of 1,535,398 shares designated (and issued) as Series A Preferred Stock, and 1,756,250 shares which are undesignated (and unissued). Each issued share of Series A Preferred Stock is convertible into approximately 3.05 shares of common stock, for a total of 4,688,237 shares of common stock.

 

For additional information on the Company’s convertible preferred stock disclosure, refer to Note 9 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

 

11. Accrued expenses

 

The following are the components of accrued expenses:

 

 

 

 

 

 

 

 

 

 

As of

 

As of

 

 

September 30,

 

December 31,

 

 

2016

 

2015

Bonus

    

$

307,292

    

$

710,739

Deferred revenue(*)

 

 

753,787

 

 

688,418

Deferred incentive(**)

 

 

600,000

 

 

950,000

Other(***)

 

 

2,798,281

 

 

4,089,443

Total accrued expenses

 

$

4,459,360

 

$

6,438,600

 

 

(*) Current deferred revenue will be recognized as revenue ratably over the next 12 months.  As of September 30, 2016, included in the balance sheet classification “Other long-term liabilities” is the non-current portion of deferred revenue in the amount of $0.7 million. The long-term portion of deferred revenue balance as of December 31, 2015 was approximately $0.6 million.

 

(**) As of September 30, 2016, the Company recorded approximately $0.6 million in short-term incentives in relation to future obligations under a contract. As of September 30, 2016 and December 31, 2015, included in the balance sheet classification “Other long-term liabilities” is the non‑current portion of these incentives of approximately $0.2 million and $0.7 million, respectively.    

 

(***) As of September 30, 2016 and December 31, 2015, included in “other” were third party referral commissions of approximately $0.5 million and $1.6 million, respectively. No other amount included in “Other” exceeded 10% of total current liabilities.

 

12. Segment information

 

General information

 

The segment and geographic information provided in the table below is being reported consistent with the Company’s method of internal reporting. Operating segments are defined as components of an enterprise for which separate financial information is available and which is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. The CODM reviews net revenue and gross profit by service by geographical region. The Company operates in two reportable segments: multi-currency processing services and payment processing services.

 

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Information about revenue, profit and assets

 

The CODM evaluates performance and allocates resources based on net revenue and gross profit of each segment. For purposes of analyzing segments, gross profit of the multi-currency processing services segment is equal to net revenue less multi-currency cost of sales of $0.5 million and $1.0 million, which is included in “processing and services costs” for the three months ended September 30, 2016 and 2015, respectively, and $1.9 million and $2.3 million for the nine months ended September 30, 2016 and 2015, respectively. The gross profit for the payment processing services segment includes net revenue of the segment less the cost of revenue component “payment processing services fees,” which includes interchange and card network fees and assessments. Net revenue and gross profit by geographical region is based upon where the transaction originated. Lastly, the Company does not evaluate performance or allocate resources using segment asset data. Long-lived assets are primarily located in the Americas and Europe and as of September 30, 2016 and December 31, 2015, long-lived asset amounts are $6.8 million and $7.4 million, respectively.

 

The Company conducts its business primarily in three geographical regions: Asia-Pacific (“APAC”); the Americas; and Europe, Middle East and Africa (“EMEA”). The following table provides revenue concentration by geographic region. Analysis of revenue by segment and geographical region and reconciliations to consolidated revenue, gross profit, and income before the provision for income taxes are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

    

2016

    

2015

    

2016

    

2015

Net Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

APAC

 

$

3,962,539

 

$

3,573,478

 

$

11,541,521

 

$

11,836,523

The Americas

 

 

2,634,887

 

 

1,870,722

 

 

7,264,448

 

 

5,114,772

EMEA

 

 

1,578,050

 

 

2,348,129

 

 

5,962,345

 

 

6,584,488

Total multi-currency processing services revenue

 

 

8,175,476

 

 

7,792,329

 

 

24,768,314

 

 

23,535,783

Payment processing services revenue

 

 

5,445,763

 

 

4,826,084

 

 

15,640,814

 

 

13,898,759

Net revenue

 

$

13,621,239

 

$

12,618,413

 

$

40,409,128

 

$

37,434,542

Gross Profit:

 

 

 

 

 

 

 

 

 

 

 

 

APAC

 

$

3,942,457

 

$

3,547,202

 

$

11,467,607

 

$

11,741,027

The Americas

 

 

2,470,294

 

 

1,761,686

 

 

6,766,889

 

 

4,799,928

EMEA

 

 

1,229,358

 

 

1,450,650

 

 

4,636,893

 

 

4,662,273

Total multi-currency processing services gross profit

 

 

7,642,109

 

 

6,759,538

 

 

22,871,389

 

 

21,203,228

Payment processing services gross profit

 

 

2,664,474

 

 

2,133,994

 

 

7,433,612

 

 

6,027,578

Total reportable segment gross profit

 

 

10,306,583

 

 

8,893,532

 

 

30,305,001

 

 

27,230,806

Corporate allocated cost of sales

 

 

2,344,721

 

 

2,743,441

 

 

8,005,954

 

 

8,067,273

Total gross profit

 

$

7,961,862

 

$

6,150,091

 

$

22,299,047

 

$

19,163,533

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations before provision for income taxes:

 

 

 

 

 

 

 

 

 

 

 

 

Total gross profit

 

$

7,961,862

 

$

6,150,091

 

$

22,299,047

 

$

19,163,533

Selling, general and administrative expenses

 

 

5,222,560

 

 

5,657,740

 

 

15,908,166

 

 

14,840,844

Restructuring charges

 

 

229,121

 

 

283,726

 

 

354,389

 

 

283,726

Income from operations

 

 

2,510,181

 

 

208,625

 

 

6,036,492

 

 

4,038,963

Interest expense

 

 

(88,669)

 

 

(10,372)

 

 

(186,366)

 

 

(38,815)

Interest income

 

 

428

 

 

392

 

 

1,250

 

 

1,183

Other income

 

 

93,016

 

 

 —

 

 

93,016

 

 

 —

Total other income (expense), net

 

 

4,775

 

 

(9,980)

 

 

(92,100)

 

 

(37,632)

Income from operations before provision for income taxes

 

$

2,514,956

 

$

198,645

 

$

5,944,392

 

$

4,001,331

 

Payment processing services revenue and gross profit are the result of transactions that primarily originated in the Americas. For the three months ended September 30, 2016, Customer B and Customer G had revenue concentration of 14% and 35%, respectively, and for the nine months ended September 30, 2016, Customer B and Customer G had revenue concentration of 15% and 30%, respectively.  For the three months ended September 30, 2015, Customer B and Customer G had revenue concentration of 15% and 24%, respectively, and for the nine months ended September 30, 2015, Customer B and Customer G had revenue concentration of 15% and 22%, respectively.

 

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“Corporate allocated cost of sales” includes expenses of running its platform infrastructure including: Internet connectivity, hosting and data storage expenses, amortization expenses of capitalized software development costs, compensation and related benefits of its technology personnel and a portion of general overhead expenses.

 

Concentration of revenue by customer by geographical region:

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2016

 

2015

 

2016

 

2015

 

Multi-currency processing services revenue:

    

 

 

 

 

 

 

 

 

APAC:

 

 

 

 

 

 

 

 

 

Customer A

 

56

%  

59

%  

56

%  

59

%  

The Americas:

 

 

 

 

 

 

 

 

 

Customer D

 

22

 

*

 

22

 

10

 

Customer E

 

*

 

10

 

*

 

13

 

Customer F

 

*

 

19

 

*

 

19

 

Customer I

 

15

 

*

 

12

 

*

 

Customer J

 

15

 

*

 

11

 

*

 

EMEA:

 

 

 

 

 

 

 

 

 

Customer C

 

58

 

27

 

61

 

48

 

Customer H

 

37

 

72

 

37

 

52

 

 

(*) Less than 10% revenue concentration.

 

13. Stock Repurchases

 

Stock repurchase program

 

In 2014 and 2015, the Board of Directors authorized a total repurchase of $13.5 million of the Company’s outstanding shares of common stock.  

 

As of March 9, 2016, the total amount of common stock repurchased under the program was 4.9 million shares for an aggregate price of $11.5 million and $2.0 million remained available for repurchase under the program.  As of March 10, 2016, the stock repurchase program was suspended in connection with the tender offer. On August 2, 2016, the Board of Directors reinstated the Company’s share repurchase program and expanded the authorization by an incremental $4.0 million, bringing its total current authorization to $6.0 million.

 

From August 2, 2016 to September 30, 2016, the Company repurchased approximately 1.6 million shares of common stock for an aggregate price of $6.0 million.  As of September 30, 2016, the total amount of common stock repurchased under the program was 6.5 million shares for an aggregate price of $17.5 million and there is currently no availability under the program.     

 

Tender offer

 

On March 10, 2016, the Board of Directors authorized the Company to commence a modified “Dutch auction” tender offer to repurchase up to $15.0 million of its outstanding shares of common stock at a tender price of not less than $3.20 per share or greater than $3.60 per share. The tender offer commenced on March 14, 2016 and expired on April 11, 2016. On April 12, 2016, the Company paid $14.2 million, including transaction costs, to repurchase approximately 3.9 million shares at a tender price of $3.60 per share. The repurchased shares of common stock became treasury shares of the Company.  

 

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Table of Contents

14. Restructuring charges

 

During the second quarter of 2016, the Company incurred total restructuring charges of approximately $125,000, of which approximately $100,000 represents the accelerated amortization of certain assets due to exiting a floor in its corporate location before the end of the lease term.  The remaining amount represents the cash components of severance and benefits paid during the period.

 

During the third quarter of 2016, the Company incurred total restructuring charges of approximately $229,000, of which approximately $150,000 represents the accelerated amortization of certain assets due to exiting a floor in its corporate location before the end of the lease term. The cease use date is October 1, 2016. The remaining amount represents the cash components of severance and benefits paid during the period. 

 

 

15. Subsequent event

 

On November 1, 2016, the Company’s Board of Directors authorized the repurchase of up to $10.0 million of the Company’s outstanding shares of common stock. 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve substantial risks and uncertainties. The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, but not limited to, statements regarding our expectations, beliefs, intentions, strategies, future operations, future financial position, future revenue, projected expenses and plans and objectives of management. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “project,” “will,” “would,” “should,” “could,” “can,” “predict,” “potential,” “continue,” “objective,” or the negative of these terms, and similar expressions intended to identify forward-looking statements. However, not all forward-looking statements contain these identifying word