Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2017 | Nov. 13, 2017 | |
Document and Entity Information [Abstract] | ||
Entity Registrant Name | Propel Media, Inc. | |
Entity Central Index Key | 1,622,822 | |
Amendment Flag | false | |
Trading Symbol | PROM | |
Current Fiscal Year End Date | --12-31 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2017 | |
Document Fiscal Year Focus | 2,017 | |
Document Fiscal Period Focus | Q3 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 250,010,162 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets - USD ($) | Sep. 30, 2017 | Dec. 31, 2016 |
Current assets | ||
Cash | $ 2,556,000 | $ 2,823,000 |
Accounts receivable, net | 10,520,000 | 6,595,000 |
Prepaid expenses & other current assets | 826,000 | 564,000 |
Total current assets | 13,902,000 | 9,982,000 |
Property and equipment, net | 1,387,000 | 1,594,000 |
Intangible assets | 1,267,000 | 20,000 |
Goodwill | 6,057,000 | 2,869,000 |
Deferred tax assets, net | 30,697,000 | 31,691,000 |
Other assets | 65,000 | 89,000 |
Total assets | 53,375,000 | 46,245,000 |
Current liabilities | ||
Accounts payable | 3,937,000 | 1,861,000 |
Accrued expenses | 4,108,000 | 3,914,000 |
Advertiser deposits | 1,295,000 | 1,832,000 |
Current portion of long-term debt | 6,158,000 | 6,089,000 |
Total current liabilities | 15,498,000 | 13,696,000 |
Long-term debt, less current portion, net | 61,522,000 | 65,999,000 |
Obligations to transferors | 15,038,000 | 14,569,000 |
Other non-current liabilities | 142,000 | |
Total liabilities | 92,058,000 | 94,406,000 |
Stockholders' Deficit | ||
Preferred Stock, $0.0001 par value, authorized 1,000,000 shares, no shares issued or outstanding | ||
Common Stock, $0.0001 par value, authorized 500,000,000 shares, issued and outstanding 250,010,162 at September 30, 2017 and December 31, 2016 | 25,000 | 25,000 |
Additional paid-in capital | 3,474,000 | 2,757,000 |
Accumulated deficit | (42,182,000) | (50,943,000) |
Total stockholders' deficit | (38,683,000) | (48,161,000) |
Total liabilities and stockholders' deficit | $ 53,375,000 | $ 46,245,000 |
Condensed Consolidated Balance3
Condensed Consolidated Balance Sheets (Parenthetical) (Unaudited) - $ / shares | Sep. 30, 2017 | Dec. 31, 2016 |
Statement of Financial Position [Abstract] | ||
Preferred stock, par value | $ 0.0001 | $ 0.0001 |
Preferred stock, shares authorized | 1,000,000 | 1,000,000 |
Preferred stock, shares issued | ||
Preferred stock, shares outstanding | ||
Common stock, par value | $ 0.0001 | $ 0.0001 |
Common stock, shares authorized | 500,000,000 | 500,000,000 |
Common stock, shares issued | 250,010,162 | 250,010,162 |
Common stock, shares outstanding | 250,010,162 | 250,010,162 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
Income Statement [Abstract] | ||||
Revenues | $ 22,207,000 | $ 13,687,000 | $ 62,354,000 | $ 44,589,000 |
Cost of revenues | 8,218,000 | 3,826,000 | 22,574,000 | 16,430,000 |
Gross profit | 13,989,000 | 9,861,000 | 39,780,000 | 28,159,000 |
Operating expenses: | ||||
Salaries, commissions, benefits and related expenses | 3,891,000 | 2,581,000 | 10,311,000 | 10,501,000 |
Technology, development and maintenance | 1,021,000 | 883,000 | 2,655,000 | 3,086,000 |
Marketing and promotional | 32,000 | 20,000 | 61,000 | 69,000 |
General and administrative | 710,000 | 233,000 | 1,387,000 | 1,233,000 |
Professional services | 279,000 | 416,000 | 878,000 | 996,000 |
Depreciation and amortization | 438,000 | 525,000 | 1,210,000 | 1,723,000 |
Impairment of software and video library | 20,000 | 183,000 | ||
Operating expenses | 6,371,000 | 4,658,000 | 16,522,000 | 17,791,000 |
Operating income | 7,618,000 | 5,203,000 | 23,258,000 | 10,368,000 |
Other income (expense): | ||||
Interest expense, net | (2,813,000) | (3,095,000) | (9,335,000) | (9,284,000) |
Gain from extinguishment of debt | 106,000 | |||
Other income (expense) | (1,000) | 18,000 | ||
Total other expenses | (2,813,000) | (3,095,000) | (9,336,000) | (9,160,000) |
Income before income tax expense | 4,805,000 | 2,108,000 | 13,922,000 | 1,208,000 |
Income tax expense | (1,797,000) | (2,250,000) | (5,161,000) | (1,887,000) |
Net income (loss) | $ 3,008,000 | $ (142,000) | $ 8,761,000 | $ (679,000) |
Net income (loss) per common share | $ 0.01 | $ 0 | $ 0.04 | $ 0 |
Weighted average number of shares outstanding - basic and diluted | 250,010,162 | 250,010,162 | 250,010,162 | 250,010,162 |
Condensed Consolidated Stateme5
Condensed Consolidated Statement of Stockholders' Deficit (Unaudited) - 9 months ended Sep. 30, 2017 - USD ($) | Total | Common stock | Additional Paid - In Capital | Accumulated Deficit |
Balance at Dec. 31, 2016 | $ (48,161,000) | $ 25,000 | $ 2,757,000 | $ (50,943,000) |
Balance (in shares) at Dec. 31, 2016 | 250,010,162 | |||
Stock based compensation - amortization of stock options | 717,000 | 717,000 | ||
Net income | 8,761,000 | 8,761,000 | ||
Balance at Sep. 30, 2017 | $ (38,683,000) | $ 25,000 | $ 3,474,000 | $ (42,182,000) |
Balance (in shares) at Sep. 30, 2017 | 250,010,162 |
Condensed Consolidated Stateme6
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) | 9 Months Ended | |
Sep. 30, 2017 | Sep. 30, 2016 | |
Cash Flows From Operating Activities | ||
Net income (loss) | $ 8,761,000 | $ (679,000) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||
Bad debt expense | 304,000 | 69,000 |
Stock-based compensation | 717,000 | 1,412,000 |
Depreciation and amortization | 1,210,000 | 1,723,000 |
Gain on sale of Health Guru | (51,000) | |
Gain from extinguishment of debt | (106,000) | |
Accretion of debt premium | 2,301,000 | 2,431,000 |
Amortization of debt discount | 524,000 | 577,000 |
Amortization of debt issuance costs | 166,000 | 184,000 |
Interest accrued on amount due to Transferors | 469,000 | 493,000 |
Impairment of intangible assets and software | 20,000 | 183,000 |
Deferred income taxes | 543,000 | 1,658,000 |
Changes in assets and liabilities: | ||
Accounts receivable | (3,866,000) | 1,665,000 |
Prepaid expenses and other current assets | (262,000) | (32,000) |
Other assets | 29,000 | |
Accounts payable | 1,969,000 | (1,328,000) |
Accrued expenses | (38,000) | 129,000 |
Advertiser deposits | (537,000) | (597,000) |
Other non-current liabilities | (143,000) | (236,000) |
Net cash provided by operating activities | 12,167,000 | 7,495,000 |
Cash Flows From Investing Activities | ||
Restricted cash | 94,000 | |
Purchase of property and equipment | (951,000) | (943,000) |
Acquisition of DeepIntent (See Note 3) | (4,084,000) | |
Net cash used in investing activities | (5,035,000) | (849,000) |
Cash Flows From Financing Activities | ||
Repayment of long-term debt | (7,399,000) | (5,250,000) |
Repayment under line of credit | (58,215,000) | (54,964,000) |
Borrowing under line of credit | 58,215,000 | 53,202,000 |
Net cash used in financing activities | (7,399,000) | (7,012,000) |
Net decrease in cash | (267,000) | (366,000) |
Cash | ||
Beginning of period | 2,823,000 | 1,629,000 |
End of period | 2,556,000 | 1,263,000 |
Cash paid during the period for: | ||
Interest | 5,112,000 | 5,604,000 |
Income taxes | 6,171,000 | 239,000 |
Non-cash consideration consisted of: | ||
Obligation for holdback from purchase price | 50,000 | |
Fair value of earnout obligation | $ 62,000 |
Organization and Description of
Organization and Description of Business | 9 Months Ended |
Sep. 30, 2017 | |
Organization and Description of Business [Abstract] | |
Organization and Description of Business | Note 1 – Organization and Description of Business Propel Media, Inc. (“Propel”), a Delaware corporation, is a diversified online advertising company. Propel generates revenues through the sale of advertising for advertisers who want to reach consumers in the United States and internationally to promote their products and services. Propel is a holding company for Propel Media LLC (“Propel Media”), a California limited liability company, Kitara Media Corp. (“Kitara”), a Delaware corporation, and DeepIntent Technologies, Inc. (“DeepIntent”), a Delaware corporation. Propel, Propel Media, Kitara, DeepIntent and their respective subsidiaries are collectively referred to herein as the “Company”. Propel delivers advertising via its real-time, bid-based, online advertising platform called Propel Media Platform. This technology platform allows advertisers to target users and deliver video, display and text based advertising. Propel and its Propel Media Platform provide advertisers with an effective way to serve, manage and maximize the performance of their online advertising purchasing. Propel offers both a self-serve platform and a managed services option that give advertisers diverse solutions to reach online users and acquire customers. As of September 30, 2017, Propel has more than 1,100 advertiser customers and serves millions of ads per day. Propel primarily serves its advertising to users who are part of its owned and operated member-based network or the member-based networks of its third party application partners. Propel provides its user base with access to its premium content for free and obtains the users’ permission to serve advertising to them while they peruse content on the web. In the owned and operated model, advertising units are served directly to users through a browser extension or other software installed on the user’s computer. Under the third party application model, Propel serves advertising through its partners who are providing a variety of applications free of charge in exchange for the ability to serve ads to their users. Through the technology of DeepIntent, which the Company acquired in June 2017 as described below, Propel’s offerings to its advertising customers will increasingly be able to leverage DeepIntent’s integrated data and programmatic buying platform. This platform provides a data-driven approach to programmatic advertising that integrates into its data management platform traditional first-party data (such as client CRM data) and cookie-based third-party user data in order to build an enriched profile of a brand’s target audiences. Leveraging DeepIntent’s artificial intelligence tools, these profiles are supplemented with real-time consumer interest data using DeepIntent’s proprietary Natural Language Processing (NLP) algorithms. With a holistic view of each user’s interests and behaviors, DeepIntent’s demand side platform provides tools to accurately price the value of each user with respect to the goals of the advertiser while simultaneously providing brands with the confidence that their ads will appear in a “brand safe” environment. Additionally, this acquisition gives the Company the ability to offer its advertisers programmatic inventory across all screens, including desktop, mobile, tablet and connected TV. Propel also provides solutions to advertisers through its publisher business model with a channel of direct publishers, networks and exchanges. These supply channels expand the Company’s ability to serve advertising. In this model, the advertising units are served to users through a website, and the Company serves advertising units to the user in coordination with the publisher, network or exchange. On June 21, 2017 (“DeepIntent Closing Date”), pursuant to a stock purchase agreement (“DeepIntent Acquisition Agreement”) with the former stockholders of DeepIntent, Propel purchased 100% of the equity interests of DeepIntent, consisting of the issued and outstanding shares of Class A common stock, Class B common stock and Class C common stock of DeepIntent. The purchase price, which is subject to an adjustment for working capital, consisted of $4,000,000 paid at closing, $500,000 payable upon the six month anniversary of the DeepIntent Closing Date and, $500,000 payable upon the one year anniversary of the DeepIntent Closing Date (collectively, the “Deferred Payments”). In addition, the sellers may earn up to an aggregate of $3,000,000 of additional consideration upon the achievement of certain performance levels during the years ending December 31, 2018, 2019 and 2020 (collectively, the “Earnouts”) (See Note 3). |
Liquidity and Capital Resources
Liquidity and Capital Resources | 9 Months Ended |
Sep. 30, 2017 | |
Liquidity and Capital Resources [Abstract] | |
Liquidity and Capital Resources | Note 2 – Liquidity and Capital Resources As of September 30, 2017, the Company’s cash on hand was $2,556,000. The Company had working capital deficits of $1,596,000 and $3,714,000 as of September 30, 2017 and December 31, 2016, respectively. The Company recorded net income of $3,008,000 and $8,761,000 for the three and nine months ended September 30, 2017, respectively. The Company has historically met its liquidity requirements through operations. As of September 30, 2017, the borrowing base and outstanding balance under the Revolving Loan (as defined in Note 6) were approximately $6,516,000 and $0, respectively, leaving $6,516,000 available to be drawn under the arrangement. Cash flows used in financing activities for the nine months ended September 30, 2017 consisted of $7,399,000 in principal repayments on the Company’s Term Loan, consisting of $5,250,000 representing scheduled quarterly principal repayments and $2,149,000 paid pursuant to an annual excess cash flow sweep as provided for under the Financing Agreement (See Note 6). Pursuant to the Financing Agreement, the Company is subject to a leverage ratio requirement as of the end of each calendar quarter. The Company was in compliance with such leverage ratio requirement as of September 30, 2017. Management believes that the Company’s cash balances on hand, cash flows expected to be generated from operations and borrowings available under the Company’s Revolving Loan will be sufficient to fund the Company’s net cash requirements through November 2018. |
Acquisition of DeepIntent
Acquisition of DeepIntent | 9 Months Ended |
Sep. 30, 2017 | |
Acquisition of DeepIntent [Abstract] | |
Acquisition of DeepIntent | Note 3 – Acquisition of DeepIntent On June 21, 2017, Propel purchased 100% of the equity interests of DeepIntent. The purchase price, which is subject to a working capital an adjustment, consisted of $4,000,000 paid at closing, the Deferred Payments and the Earnouts. Propel entered into employment agreements for the period from the DeepIntent Closing Date through December 31, 2020 and restrictive covenant agreements through June 20, 2021 with DeepIntent’s founders and former principal shareholders. Propel’s obligation to remit the Deferred Payments is contingent upon the continued employment of both of DeepIntent’s founders through the date that any such Deferred Payment is required to be made. The Company accounted for the acquisition of DeepIntent as a business combination. The contingent Deferred Payments shall be accounted for as compensation for financial reporting purposes and is accreted ratably over the deferred period. During the three and nine months ended September 30, 2017, accretion of this Deferred Payment was $238,000 and $264,000, respectively, and is reflected within salaries, commissions, benefits and related expenses within the condensed consolidated statements of operations. As of September 30, 2017, $264,000 of accrued Deferred Payment obligation was included in accrued expenses in the condensed consolidated balance sheets. The aggregate purchase price was $4,196,000, consisting of a $4,000,000 purchase price, an estimated working capital adjustment of $134,000 and the fair value of the Earnout of $62,000. The Company prepared forecasts of expected results for DeepIntent under expected, less than expected and greater than expected scenarios for the Earnout years of 2018, 2019 and 2020. These scenarios were analyzed and then weighted in order to determine the fair value of the Earnouts. On October 23, 2017, the Company paid $69,000 to the sellers representing an installment toward the working capital adjustment. The assets and liabilities of DeepIntent have been recorded in the Company’s condensed consolidated balance sheet at their fair values at the date of acquisition. As part of the purchase of DeepIntent, the Company acquired an identifiable intangible asset representing developed technology. This intangible asset was assigned a fair value of $1,320,000, has a definite life and will be amortized over a period of five years. The following details the preliminary allocation of the purchase price for the acquisition of DeepIntent: Fair Value Accounts receivable $ 362,000 Security deposit 4,000 Intangible asset – developed technology 1,320,000 Goodwill 3,188,000 Accounts payable (107,000 ) Accrued expenses (121,000 ) Deferred tax liability, net (450,000 ) Net fair values assigned to assets acquired and liabilities assumed $ 4,196,000 The following presents a summary of the purchase price consideration for the purchase of DeepIntent: Cash $ 4,084,000 Working capital holdback adjustment 50,000 Fair value of earnout 62,000 Total Purchase Price Consideration $ 4,196,000 The results of operations for DeepIntent for the period June 21, 2017 through September 30, 2017 are reflected in the Company’s results for the three and nine months ended September 30, 2017 in the accompanying condensed consolidated statements of operations. The goodwill acquired will not be deductible for income tax purposes. The Company cited the following reasons for the acquisition of DeepIntent: DeepIntent provides a technology platform and experience in data science and algorithms that enables Propel to provide an innovative additional advertising solution to its suite of solutions, and offer these solutions to its existing customers, and to new advertisers, as well as to leading brand advertisers and their advertising agencies. The DeepIntent acquisition also provides the Company with the tools to supplement its current offerings with programmatic inventory, as well as provides diversification and leverage to the business that is expected to be accretive to long-term enterprise value. Unaudited Pro Forma Information The following table provides unaudited pro forma information as if DeepIntent had been acquired as of January 1, 2016. The pro forma results do not include any anticipated cost synergies or other effects of the integration of DeepIntent or recognition of compensation expense or fair value of the Earnouts. Pro forma amounts are not necessarily indicative of the results that actually would have occurred had the acquisition been completed on the dates indicated, nor is it indicative of the future operating results of the combined company. For the Three Months Ended For the Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Pro forma revenues $ 22,207,000 $ 13,747,000 $ 62,822,000 $ 45,135,000 Pro forma net income (loss) $ 3,008,000 $ (354,000 ) $ 8,194,000 $ (683,000 ) Pro forma net income (loss) per share $ 0.01 $ (0.00 ) $ 0.03 $ (0.00 ) |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 9 Months Ended |
Sep. 30, 2017 | |
Summary of Significant Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies | Note 4 – Summary of Significant Accounting Policies Basis of Presentation The accompanying unaudited interim condensed consolidated financial statements and footnotes have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding unaudited interim financial information. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s condensed consolidated balance sheets, statements of operations and cash flows for the interim periods presented. Operating results for the interim periods presented are not necessarily indicative of the results of operations to be expected for the full year due to seasonal and other factors. Certain information and footnote disclosures normally included in the condensed consolidated financial statements in accordance with US GAAP have been omitted in accordance with the rules and regulations of the SEC. Accordingly, these unaudited interim condensed consolidated financial statements and footnotes should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto for the year ended December 31, 2016, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 30, 2017. Principles of Consolidation The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company balances and transactions have been eliminated in the accompanying unaudited condensed consolidated financial statements. Use of Estimates The Company’s unaudited condensed consolidated financial statements are prepared in conformity with US GAAP, which requires management to make estimates and assumptions that affect the amounts reported and disclosed in the condensed consolidated financial statements and the accompanying notes. Actual results could differ materially from these estimates. The Company’s most significant estimates relate to the accounts receivable allowance, the forfeiture of customer deposits, the valuation allowance on deferred tax assets, valuation of goodwill and intangibles, recognition of revenue, and the valuation of stock options. Accounts Receivable Accounts receivable are stated at a gross invoice amount less an allowance for doubtful accounts. The Company estimates its allowance for doubtful accounts by evaluating specific accounts where information indicates the Company’s customers may have an inability to meet financial obligations, such as customer payment history, credit worthiness and receivable amounts outstanding for an extended period beyond contractual terms. The Company uses assumptions and judgment, based on the best available facts and circumstances, to record an allowance to reduce the receivable to the amount expected to be collected. These allowances are re-evaluated and adjusted as additional information is received. The allowance for doubtful accounts as of September 30, 2017 and December 31, 2016 was $527,000 and $266,000, respectively. Property and Equipment Property and equipment are stated at historical cost less accumulated depreciation and amortization. Depreciation and amortization expense are computed using the straight-line method over the estimated useful lives of the assets, generally, three years for computer equipment and purchased software, three to five years for furniture and equipment, the shorter of the useful life and the term of the lease for leasehold improvements. Depreciation expense for the three months ended September 30, 2017 and 2016 was $372,000 and $525,000, respectively, and $1,137,000 and $1,684,000 for the nine months ended September 30, 2017 and 2016, respectively. Intangible Assets The Company’s long-lived intangible assets, other than goodwill, are assessed for impairment when events or circumstances indicate there may be an impairment. These assets were initially recorded at their estimated fair value at the time of acquisition and assets not acquired in acquisitions were recorded at historical cost. However, if their estimated fair value is less than the carrying amount, other intangible assets with indefinite life are reduced to their estimated fair value through an impairment charge to our condensed consolidated statements of operations. On June 21, 2017, the Company recorded an intangible asset representing the patent, and other intellectual property acquired in connection with the DeepIntent acquisition. This intangible asset was recorded at its fair value on the DeepIntent Closing Date. Intangible assets as of September 30, 2017 and December 31, 2016 were $1,267,000 and $20,000, respectively. Intangible assets at September 30, 2017 consisted of the DeepIntent intellectual property of $1,320,000 net of accumulated amortization of $73,000 and the Propel Media trade name at a cost of $20,000. Amortization expense was $66,000 and $0 for the three months ended September 30, 2017 and 2016, respectively, and $73,000 and $39,000 for the nine months ended September 30, 2017 and 2016, respectively. Capitalization of Internally Developed Software The Company capitalizes certain costs related to its software developed or obtained for internal use in accordance with ASC 350-40. Costs related to preliminary project activities and post-implementation activities are expensed as incurred. Internal and external costs incurred during the application development stage, including upgrades and enhancements representing modifications that will result in significant additional functionality, are capitalized. Software maintenance and training costs are expensed as incurred. Capitalized costs are recorded as part of property and equipment and are amortized on a straightline basis over the software’s estimated useful life ranging from 12 months to 36 months. The Company evaluates these assets for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. Based upon management’s assessment of capitalized software, the Company recorded impairment charges of $0 and $20,000 for the three and nine months ended September 30, 2017, respectively, to write off the book value of certain internally developed capitalized software. Revenue Recognition Propel generates revenue from advertisers by serving their ads to a user base consisting of the Company’s owned and operated network, users of our third party application partners’ properties and users from our publisher driven traffic, as well as from advertising sold through the Company’s demand-side platform. In all cases, the Company’s revenue is generated when an advertisement is served by the Company or when a user action occurs based on the advertisement the Company served (i.e., a view, a click, a conversion action, etc.). There is a specific transaction that triggers a billable instance. The Company recognizes revenue in accordance with ASC Topic 605, “Revenue Recognition” (“ASC 605”). Accordingly, the Company recognizes revenue when the following criteria have been met: persuasive evidence of an arrangement exists, no significant Company obligations remain, collection of the related receivable is reasonably assured and the amounts are fixed and determinable. The gross advertising campaign revenue is recognized in the period that the advertising impressions, clicks or actions occur, provided that all other revenue recognition criteria have been met. The Company’s agreements do not require a guaranteed minimum number of impressions, clicks or actions. With respect to advertising campaign activities, the Company acts as a principal in that it is the primary obligor to the advertiser customer. The amounts on deposit from customers are recorded as an advertiser deposit liability in the accompanying unaudited condensed consolidated balance sheets. Cost of Revenues Costs of revenue consists of marketing expenses to obtain new users for the Company’s owned and operated properties, publisher costs of third-party networks and properties, transaction costs and revenue-sharing costs to third party application developer partners, as well as costs of advertising purchased through the Company’s demand-side platform. Concentration of Credit Risk and Significant Customers The Company’s concentration of credit risk includes its concentrations from key customers and vendors. The details of these significant customers and vendors are presented in the following table for the three and nine months ended September 30, 2017 and 2016: For the Three Months Ended For the Nine Months Ended 2017 2016 2017 2016 The Company’s largest customers are presented below as a percentage of the Company’s aggregate: Revenue None over 10% None over 10% None over 10% None over 10% Accounts receivable None over 10% None over 10% None over 10% None over 10% The Company’s largest vendors are presented below as a percentage of the Company’s aggregate: The Company’s largest vendors reported in cost of revenues are presented as a percentage of the Company’s aggregate cost of revenues 22% and 18% of cost of revenues, or 40% of cost of revenues in the aggregate 14% and 14% of cost of revenue, or 28% of cost of revenues in the aggregate 20% and 16% of cost of revenues, or 36% of cost of revenues in the aggregate 17%, 15%, and 14% of cost of revenue, or 46% of cost of revenues in the aggregate The Company’s largest vendors reported as a percentage of accounts payable 23% of accounts payable to one vendor None over 10% 23% of accounts payable to one vendor None over 10% Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and accounts receivable. Cash is deposited with a limited number of financial institutions. The balances held at any one financial institution The Company extends credit to customers based on an evaluation of their financial condition and other factors. The Company generally does not require collateral or other security to support accounts receivable. The Company performs ongoing credit evaluations of its customers and maintains an allowance for doubtful accounts and sales credits. Net Income (Loss) per Share Earnings (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options and warrants. For the three and nine months ended September 30, 2017, the Company excluded potential common shares resulting from the exercise of stock options (21,230,000 potential common shares) and of warrants (6,363,636 potential common shares) as their inclusion would be anti-dilutive. For the three and nine months ended September 30, 2016, the Company excluded potential common shares resulting from the exercise of stock options (23,517,500 potential common shares) and of warrants (6,363,636 potential common shares) as their inclusion would be anti-dilutive. Subsequent events The Company has evaluated events that occurred subsequent to September 30, 2017 through the date these condensed consolidated financial statements were issued. Management has concluded that, other than as disclosed in Notes 3 and 6, there were no subsequent events that required disclosure in these condensed consolidated financial statements. Recent Accounting Pronouncements On March 30, 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718). This update requires that all excess tax benefits and tax deficiencies arising from share-based payment awards should be recognized as income tax expense or benefit on the condensed consolidated statements of operations. The amendment also states that excess tax benefits should be classified along with other income tax cash flows as an operating activity. In addition, an entity can make an entity-wide accounting policy election to either estimate the number of awards expected to vest or account for forfeitures as they occur. The provisions of this update are effective for annual and interim periods beginning or after December 15, 2016. The Company has adopted ASU 2015-16 effective January 1, 2017 and such adoption did not have a material impact on the Company’s condensed consolidated financial position and results of operations. In April 2016, the FASB issued ASU No. 2016-10 Revenue from Contracts with Customers (Topic 606), “Identifying Performance Obligations and Licensing” (“ASU 2016-10”). ASU 2016-10 clarifies the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. ASU 2016-10 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2017, with early application permitted. Based upon the Company’s preliminary assessment, the adoption of this new standard is not expected to have a material impact on the Company’s condensed consolidated financial statements. In May 2016, the FASB issued ASU No. 2016-12 “Revenue from Contracts with Customers (Topic 606)”, “Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”). The core principal of ASU 2016-12 is the recognition of 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 provisions of this update are effective for annual and interim periods beginning after December 15, 2017, with early application permitted. Based upon the Company’s preliminary assessment, the adoption of this new standard is not expected to have a material impact on the Company’s condensed consolidated financial statements. Recent Accounting Pronouncements, continued In January 2017, the FASB issued ASU No. 2017-04 “Intangibles-Goodwill and other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2014-04”). To simplify the subsequent measurement of goodwill, the Board eliminated Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The Board also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. Therefore, the same impairment assessment applies to all reporting units. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The provisions of this update are effective for annual and interim periods beginning after December 15, 2019, with early application permitted after January 1, 2017. The Company is currently evaluating the impact the adoption of this standard will have on its condensed consolidated financial statements. In December 2016, the FASB issued ASU No. 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers”, (“ASU 2016-20”). The purpose of ASU 2016-20 is to amend certain narrow aspects of the guidance issued in ASU 2014-09 including guidance related to the disclosure of remaining performance obligations and prior-period performance obligations, as well as other amendments to the guidance on loan guarantee fees, contract costs, refund liabilities, advertising costs and the clarification of certain examples. The Company is currently evaluating the impact the adoption of this standard will have on its condensed consolidated financial statements. In May 2017, the FASB issued ASU No. 2017-09 “Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting” (“ASU 2017-09”). The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. An entity should account for the effects of a modification unless all of the following are met: The fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified, the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified and the classification of the modified award an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The provisions of this update are effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the impact the adoption of this standard will have on its condensed consolidated financial statements. In July 2017, the FASB issued ASU 2017-11 “Earnings per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815)” (“ASU 2017-11”) to address narrow issues identified as a result of the complexity associated with applying generally accepted accounting principles (GAAP) for certain financial instruments with characteristics of liabilities and equity. Part I of the amendment changes the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. The amendments also clarify existing disclosure requirements for equity-classified instruments. Part II of the update re-characterizes the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. Part I of ASU 2017-11 is effective for public business entities for fiscal years, and interim period within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact the adoption of this standard will have on its condensed consolidated financial statements. |
Reverse Merger and Obligations
Reverse Merger and Obligations to Transferors | 9 Months Ended |
Sep. 30, 2017 | |
Reverse Merger and Obligations to Transferors [Abstract] | |
Reverse Merger and Obligations to Transferors | Note 5 – Reverse Merger and Obligations to Transferors On January 28, 2015, Propel consummated the “reverse merger” (the “Reverse Merger” or the “Transactions”) as contemplated by (i) the Agreement and Plan of Reorganization (the “Merger Agreement”), dated as of October 10, 2014, by and among Kitara, Propel, which was previously a wholly-owned subsidiary of Kitara, and Kitara Merger Sub, Inc. (“Merger Sub”), which was previously a wholly-owned subsidiary of Propel, and (ii) the Unit Exchange Agreement (the “Exchange Agreement”), dated as of October 10, 2014 and amended as of December 23, 2014, April 29, 2015 and January 26, 2016 by and among Kitara, Propel, Propel Media and the former members of Propel Media (“Transferors”). Pursuant to the Exchange Agreement, the Company incurred a deferred payment obligation of (i) $10,000,000 to the Transferors (“Deferred Obligation”), which is payable in cash and/or stock not later than, June 30, 2019 and (ii) $6,000,000 payable in cash immediately after the payment of certain fees to the Lenders on or about January 28, 2019, (the “Deferred Payment”). The Company can pay the Deferred Obligation from an equity financing or from available working capital. The Company is required to use its reasonable best efforts to complete equity financings that would raise sufficient net proceeds to pay the $10,000,000 Deferred Obligation in cash to the Transferors on or before June 30, 2019 (the “Equity Financing Period”). In addition, the Company’s board of directors, at least two times per year during the Equity Financing Period, is obligated to determine, in its sole and absolute discretion, the amount, if any, of the Company’s working capital available to be used to pay all or a portion of the $10,000,000 Deferred Obligation in cash, taking into account such factors as it may deem relevant. If the Company’s board of directors determines that there is available working capital to pay all or a portion of the $10,000,000 Deferred Obligation, the Company must use its reasonable best efforts to promptly obtain any required lender consent and, if such consent is obtained, must promptly pay to the Transferors an amount in cash equal to such available working capital. Finally, Jared Pobre, one of the former members of Propel Media, on behalf of the Transferors, is permitted to elect, during the ten day period following each December 31st during the Equity Financing Period, commencing December 31, 2016, to receive any unpaid amount of the $10,000,000 Deferred Obligation in shares of the Company’s common stock. For such issuance, each share of the Company’s common stock will be valued at the closing market price of the Company’s common stock as reported on NASDAQ or such other national securities exchange on which the Company’s Common Stock is listed (or if not so listed, the bid price on the OTC Pink Market) on the date prior to the date on which such shares are issued to the Transferors. The following represents the outstanding obligations to the Transferors under the Exchange Agreement: As of, September 30, December 31, Amount due on or before September 30, 2019 $ 10,000,000 $ 10,000,000 Amount due January 28, 2019 6,000,000 6,000,000 Total, gross 16,000,000 16,000,000 Less: discount (962,000 ) (1,431,000 ) Total, net $ 15,038,000 $ 14,569,000 During the three months ended September 30, 2017 and 2016, the Company recorded discount amortization of $161,000 and $148,000, respectively. For the nine months ended September 30, 2017 and 2016, the Company recorded discount amortization of $469,000 and $493,000, respectively. The unamortized discount was $962,000 as of September 30, 2017 and $1,431,000 as of December 31, 2016. |
Financing Agreement
Financing Agreement | 9 Months Ended |
Sep. 30, 2017 | |
Financing Agreement [Abstract] | |
Financing Agreement | Note 6 – Financing Agreement On January 28, 2015, in connection with the closing of the Reverse Merger, Propel, Kitara and Propel Media as “Borrowers” and certain of their subsidiaries as “Guarantors” entered into a financing agreement (“Financing Agreement”) with certain financial institutions as “Lenders.” The Financing Agreement provided the Borrowers with (a) a term loan in the aggregate principal amount of $81,000,000 (the “Term Loan”) and (b) a revolving credit facility in an aggregate principal amount not to exceed $15,000,000 at any time outstanding (the “Revolving Loan” and, together with the Term Loan, the “Loans”). The Loans will mature on January 28, 2019 (“Final Maturity Date”). The Financing Agreement provided for certain fees to be paid, including (i) a closing fee of $2,880,000 which was withheld from the proceeds of the Term Loan and was accounted for as an original issue discount and is being amortized to interest expense using the interest method over the term of the Term Loan and (ii) a (“Deferred Fee”) of $12,500,000 payable to the Lenders and due upon the fourth anniversary of the inception of the Term Loan. On May 30, 2017, the Company and the parties to the Financing Agreement had agreed that, subject to certain conditions, if the amounts owed under the Financing Agreement are repaid in full at any time through and including September 30, 2017, the Deferred Fee would have been reduced to an amount equal to 5.0% times the aggregate principal amount of the loans repaid on said date. The Company did not repay such amounts by September 30, 2017. On November 10, 2017, the Company and the parties to the Financing Agreement entered into a new agreement which, subject to certain conditions, provides that if the amounts owed under the Financing Agreement are repaid in full at any time through and including January 15, 2018, the Deferred Fee would be reduced to an amount equal to 5.0% times the aggregate principal amount of the loans repaid on said date. Otherwise, the Deferred Fee will continue to be due as originally contemplated ($12,500,000 to be paid on the fourth anniversary of the closing date of the Financing Agreement). The Company is accreting the Deferred Fee of $12,500,000 as a finance charge over the full term of the Term Loan. The Company recorded amortization of the closing fee as interest expense of $172,000 and $190,000, for the three months ended September 30, 2017 and 2016, respectively, and $524,000 and $577,000 for the nine months ended September 30, 2017 and 2016, respectively. The balance of the closing fee original issue discount was $836,000 and $1,360,000 as of September 30, 2017 and December 31, 2016, respectively, and is reflected within the Term Loan obligations on the condensed consolidated balance sheets. The Company recorded as interest expense accretion of the Deferred Fee of $765,000 and $806,000, for the three months ended September 30, 2017 and 2016, respectively, and $2,301,000 and $2,431,000 for the nine months ended September 30, 2017 and 2016, respectively. The balance of the accreted Deferred Fee as of September 30, 2017 and December 31, 2016 was $8,646,000 and $6,344,000, respectively, and is reflected within the Term Loan obligations on the condensed consolidated balance sheets. In addition, the Company incurred debt issuance costs of $916,000 in connection with the Loans which has been accounted for as debt discount and is being amortized using the effective interest method over the term of the Term Loan. The Company recorded as interest expense amortization of the debt issuance costs of $54,000 and $60,000 for the three months ended September 30, 2017 and 2016, respectively, and $166,000 and $184,000 for the nine months ended September 30, 2017 and 2016, respectively. The balance of the unamortized debt issuance costs of $262,000 and $428,000, respectively, is reflected within the Term Loan obligations on the condensed consolidated balance sheets as of September 30, 2017 and December 31, 2016, respectively. On June 21, 2017, the Borrowers entered into an amendment to the Financing Agreement (“Amendment No. 2”), the purpose of which was to allow for the Company’s consummation of the DeepIntent Acquisition Agreement. The Company paid an amendment fee (“Amendment Fee”) of approximately $752,000 on October 2, 2017, in connection with this Amendment No. 2. The Amendment Fee was accrued on June 21, 2017 and was subsequently paid on October 2, 2017. The amendment fee has been reflected as interest expense, net, within the condensed consolidated statement of operations. The Financing Agreement and other loan documents contain customary representations and warranties and affirmative and negative covenants, including covenants that restrict the Borrowers’ ability to, among other things, create certain liens, make certain types of borrowings and engage in certain mergers, acquisitions, consolidations, asset sales and affiliate transactions. The Company is also subject to a leverage ratio requirement as of the end of each calendar quarter. The Financing Agreement provides for customary events of default, including, among other things, if a change of control of Propel occurs. The Loans may be accelerated upon the occurrence of an event of default. As of September 30, 2017, the Company was in compliance with the covenants and the leverage ratio requirement under the Finance Agreement. Term Loan The outstanding principal amount of the Term Loan shall be repayable in consecutive quarterly installments in equal amounts of $1,750,000 on the last day of each March, June, September and December. The Company is subject to an annual excess cash flow sweep requirement (See Note 2). The remainder of the Term Loan is due and payable on the maturity date, except in certain limited circumstances. Subject to the terms of the Financing Agreement, the Term Loan or any portion thereof shall bear interest on the principal amount thereof from time to time outstanding, from the date of the Term Loan until repaid, at a rate per annum equal to 9.00% plus either (i) the London Interbank Offered Rate (“LIBOR”) (but not less than 1% and not more than 3%) for the interest period in effect for the Term Loan (or such portion thereof), or (ii) the bank’s reference rate. For each interest period, the Company may choose to pay interest under either the LIBOR or reference rate method. During the three and nine months ended September 30, 2017, interest on the Term Loan bore an effective interest rate of approximately 10.2% and 10.0%, respectively, per annum. The following represents the obligations outstanding under the Term Loan: As of September 30, December 31, Principal $ 60,132,000 $ 67,531,000 Discounts (1,097,000 ) (1,787,000 ) Accreted value of the Deferred Fee ($12,500,000) 8,645,000 6,344,000 Net 67,680,000 72,088,000 Less: Current portion (6,158,000 ) (6,089,000 ) Long-term portion $ 61,522,000 $ 65,999,000 The future minimum payments on the Company’s Term Loan are as follows: For the years ended December 31, Term Loan 2017 (three months) 1,750,000 2018 7,000,000 2019 51,382,000 Total, gross 60,132,000 Less: debt discount (1,097,000 ) Plus: accreted value through September 30, 2017 of the Deferred Fee ($12,500,000) 8,645,000 Total, net 67,680,000 Less: current portion (6,158,000 ) Long-term debt $ 61,522,000 Revolving Loan As of September 30, 2017, the outstanding balance of the Revolving Loan was $0, and $6,516,000 was available for future borrowing under the Revolving Loan. Subject to the terms of the Financing Agreement, the Company may have multiple revolving loans under the revolving loan arrangement. Each revolving loan shall bear interest on the principal amount thereof from time to time outstanding, from the date of such Loan until repaid, at a rate per annum equal to 6.00% plus either (i) the LIBOR for the interest period in effect for such Loan (but LIBOR may not be less than 1%) (the total rate per annum for LIBOR borrowings was approximately 7.0% during the nine months ended September 30, 2017), or (ii) the bank’s reference rate (the reference rate was approximately 10.25% during the nine months ended September 30, 2017). For each revolving loan, the Company can choose to borrow either at the LIBOR or the reference rate. As of September 30, 2017, the Company was in compliance with all covenants under the Financing Agreement and other loan documents. |
Related-Party Transactions
Related-Party Transactions | 9 Months Ended |
Sep. 30, 2017 | |
Related-Party Transactions [Abstract] | |
Related-Party Transactions | Note 7 – Related-Party Transactions The Company has outsourced technology development services and other administrative services to a technology company in Eastern Europe (“Technology Vendor”). The Technology Vendor is owned by an individual who is affiliated with a trust, which is a shareholder of the Company. The technology development services and other administrative services provided to the Company by the Technology Vendor during the three months ended September 30, 2017 and 2016, totaled $955,000 and $838,000 respectively, and $2,701,000 and $2,353,000 during the nine month ended September 30, 2017 and 2016, respectively. These amounts were included in property and equipment and operating expenses, as applicable, in the accompanying condensed consolidated balance sheets and condensed consolidated statements of operations. Certain of the costs incurred for the technology development services described above were for the development of internal-use software, which were capitalized and amortized over the estimated useful life. In addition, the Company had amounts due to this entity of $5,000 and $7,000 as of September 30, 2017 and December 31, 2016, respectively, which are reported within accrued expenses in the condensed consolidated balance sheets. During the three months ended September 30, 2017 and 2016, the Company has incurred a total of $45,000 and $47,000, respectively, and during the nine months ended September 30, 2017 and 2016, the Company has incurred a total of $135,000 and $149,000, respectively, to a firm owned by the Company’s Interim Chief Financial Officer for financial advisory and accounting services provided to the Company. There was no balance due to this firm as of September 30, 2017 and December 31, 2016. |
Commitments and Contingencies
Commitments and Contingencies | 9 Months Ended |
Sep. 30, 2017 | |
Commitments and Contingencies [Abstract] | |
Commitments and Contingencies | Note 8 – Commitments and Contingencies Operating leases Rent expense totaled $122,000 and $106,000 during the three months ended September 30, 2017 and 2016, respectively, and $334,000 and $323,000 for the nine months ended September 30, 2017 and 2016, respectively. The following is an annual schedule of approximate future minimum rental payments required under the operating lease agreement for the Company’s Irvine, California lease location: Years Ending December 31, Amount 2017 (three months) $ 153,000 2018 458,000 $ 611,000 Litigation From time to time, the Company may be involved in litigation relating to claims arising out of our operations in the normal course of business. Other than as set forth below, at September 30, 2017, there were no material pending legal proceedings to which the Company was a party or to which any of its property was subject that were expected, individually or in the aggregate, to have a material adverse effect on us. In December 2013, an action entitled Intrepid Investments, LLC (“Intrepid”) v. Selling Source, LLC (“Selling Source”), et al., Index No. 65429/2013 was filed in the Supreme Court of the State of New York, County of New York. This is an action commenced by Intrepid against Selling Source and a number of other defendants, including Kitara Media LLC (“Kitara Media”), one of the Company’s subsidiaries, to collect on a Junior Secured Promissory Note signed by Selling Source in the original principal sum of $28,700,000 (the “Note”). Kitara Media was a subsidiary of Selling Source at the time the Note was issued. Kitara Media is not a signatory to the Note, but like all of the subsidiaries of Selling Source at such time, on August 31, 2010 Kitara Media pledged all of its assets as collateral for all of the indebtedness of Selling Source, including the Note, which is the most junior obligation in Selling Source's capital structure. In connection with the merger of Kitara Media into a subsidiary of Kitara, with Kitara Media surviving as a wholly owned subsidiary of Kitara, the senior lenders of Selling Source exercised their authority to release all liens on the assets of Kitara Media, including the liens associated with the Note. Litigation, continued In the action, Intrepid seeks to foreclose on the security interest. Both Selling Source’s and Kitara Media’s obligations to Intrepid under the Note and Security Agreement were subordinate to obligations Selling Source had to two groups of prior lenders (“Senior Lenders”). The right of Intrepid to compel payments under the Note and/or foreclose the lien created by the Security Agreement was subject to an Intercreditor Agreement by and between the Senior Lenders and Intrepid. Under the terms of the Intercreditor Agreement, Intrepid could not take steps to compel Selling Source to make payment on the Note or foreclose the Security Agreement so long as the obligations to the Senior Lenders remained outstanding. In addition, under the terms of the Intercreditor Agreement, the Senior Lenders had the right to have the lien released on any of the collateral pledged as security under the Security Agreement. In the New York action, Intrepid has challenged the Senior Lenders’ authority to release the lien and also challenged the enforceability of the Intercreditor Agreement generally. The Court has not yet ruled on the merits of that challenge. In addition, Selling Source’s obligations to the Senior Lenders remains outstanding. The second matter is Intrepid Investments, LLC v. Selling Source, LLC et al., Index No. 654309/2013, which was filed in the Supreme Court of the State of New York, County of New York. This matter was originally limited to claims asserted by Intrepid against Selling Source regarding an earn-out calculation entered into between it and Selling Source, and confirmed by an arbitrator. In August, 2014, Intrepid amended its complaint to include various breach of contractor claims against a variety of those defendants, including Kitara. The new defendants, including Kitara, answered the amended complaint on November 7, 2014, denying liability for all claims. On February 19, 2015, the Court entered an order granting Selling Source’s motion to affirm the arbitration results. On March 3, 2015, Selling Source filed a motion for partial summary judgment seeking dismissal of eleven of Intrepid’s remaining claims, and, in September 2015, the New York Supreme Court granted this motion for summary judgment. The claims asserted against Kitara were not among those addressed in Selling Source’s motion. Based on these facts, Propel believes Intrepid’s claims are without merit and intend to defend them vigorously. In any event, Selling Source has acknowledged an obligation to indemnify and defend Kitara Media from any liability to Intrepid arising out of the Note and Security Agreement. The parties have exchanged pleadings and Selling Source has provided documents and written interrogating responses to Intrepid. Selling Source owns 22.5 million shares of the common stock of Propel and one of the directors of Propel is also a director of Selling Source. |
Defined Contributions Plans
Defined Contributions Plans | 9 Months Ended |
Sep. 30, 2017 | |
Defined Contributions Plans [Abstract] | |
Defined Contributions Plans | Note 9 – Defined Contributions Plans The Company maintains a defined contribution plan under Section 401(k) of the Internal Revenue Code (the “Plan”). Participating employees may defer a percentage of their eligible pre-tax earnings up to the Internal Revenue Service’s annual contribution limit. All full-time employees of the Company are eligible to participate in the Plan. The Plan does not permit investment of participant contributions in the Company’s common stock. The Company’s matching contributions to the Plan are discretionary. The Company recorded contribution expense of $59,000 and $41,000 during the three months ended September 30, 2017 and 2016, respectively, and $207,000 and $178,000 during the nine months ended September 30, 2017 and 2016, respectively, which is recorded in salaries, commissions, benefits and related expenses on the condensed consolidated statements of operations. |
Income Taxes
Income Taxes | 9 Months Ended |
Sep. 30, 2017 | |
Income Taxes [Abstract] | |
Income Taxes | Note 10 – Income Taxes The Company’s income tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter the Company updates its estimate of the annual effective tax rate and, if the Company’s estimated tax rate changes, it makes a cumulative adjustment in that period. The effective income tax rate for the nine months ended September 30, 2017 and 2016 was 37.4% for each period, resulting in $5,161,000 and $1,887,000 of income tax expense, respectively. The income tax expense for the nine months ended September 30, 2017 and 2016 differs from the amount that would be expected after applying the statutory U.S. federal income tax rate primarily due to the effect of state income taxes, which can differ from period to period. |
Stock-Based Compensation
Stock-Based Compensation | 9 Months Ended |
Sep. 30, 2017 | |
Stock-Based Compensation [Abstract] | |
Stock-Based Compensation | Note 11 – Stock-Based Compensation Equity Incentive Plans 2014 Long-Term Incentive Equity Plan On October 9, 2014, Propel and its then sole stockholder approved the 2014 Long-Term Incentive Plan (“2014 Plan”), pursuant to which a total of nine percent of the fully-diluted shares of the Company’s common stock outstanding as of the closing of the Transactions (or 26,172,326 shares) became available for awards under the plan upon such closing. Kitara’s stockholders approved the plan as of January 26, 2015. 2012 and 2013 Long-Term Incentive Equity Plans On May 14, 2012 and December 3, 2013, Kitara adopted the 2012 Long-Term Incentive Equity Plan (“2012 Plan”) and the 2013 Long-Term Incentive Equity Plan (“2013 Plan”). The 2012 Plan and 2013 Plan provide for the grant of stock options, stock appreciation rights, restricted stock and other stock-based awards to, among others, the officers, directors, employees and consultants of the Company. Effective January 28, 2015, Propel assumed the 2012 Plan and 2013 Plan, and all outstanding stock options thereunder. Propel amended the plans so that no further awards may be issued under such plans after the closing of the Reverse Merger. Stock Option Award Activity The following table is a summary of stock option awards: Number of Options Weighted Average Exercise Price Weighted Average Grant Date Fair Value Weighted Average Remaining Contractual Life Aggregate Intrinsic Value Outstanding at December 31, 2016 23,351,875 $ 0.49 $ 0.27 6.9 $ - Granted - - - - - Exercised - - - - Forfeited, expired or canceled 2,121,875 0.55 0.29 - Outstanding at September 30, 2017 21,230,000 $ 0.49 $ 0.27 5.99 $ - Exercisable at September 30, 2017 14,969,066 $ 0.46 $ 0.25 5.37 $ - The aggregate intrinsic value is calculated as the difference between the weighted average exercise price of the underlying outstanding stock options and the fair value of the Company’s common stock, based upon the closing price of the Company’s common stock as reported on the OTC Pink Market on September 30, 2017. The Black-Scholes method option pricing model was used to estimate the fair value of the option awards using the following range of assumptions. The simplified method was used to determine the expected life of grants to employees, as these granted options were determined to be “plain-vanilla” options. The full term was used for the expected life for options granted to consultants. The fair value of stock options is amortized on a straight line basis over the requisite service periods of the respective awards. Stock based compensation expense related to stock options was $262,000 and $240,000 for the three months ended September 30, 2017 and 2016, respectively and $717,000 and $1,412,000 for the nine months ended September 30, 2017 and 2016, respectively. The expense was reflected in selling, general and administrative expenses on the accompanying condensed consolidated statements of operations. As of September 30, 2017, the unamortized value of stock options was $1,462,000, including the effect of the mark-to-market adjustment for unvested awards granted to consultants. As of September 30, 2017, the unamortized portion will be expensed through November 2019 and the weighted average remaining amortization period was 1.2 years. |
Executive Bonus Plan
Executive Bonus Plan | 9 Months Ended |
Sep. 30, 2017 | |
Executive Bonus Plan [Abstract] | |
Executive Bonus Plan | Note 12 – Executive Bonus Plan Effective January 1, 2016, the Propel Media Executive Bonus Plan (the “Executive Bonus Plan”) became effective for certain employees of the Company. The Executive Bonus Plan provides for bonuses based on the performance of the Company. Bonus expense for earned bonuses under the Executive Bonus Plan amounted to $482,000 and $237,000 for the three months ended September 30, 2017 and 2016, respectively, and $1,254,000 and $600,000 for the nine months ended September 30, 2017 and 2016, respectively. The bonuses are included in salaries, commissions, benefits and related expenses within the Company’s condensed consolidated statements of operations. At September 30, 2017 and December 31, 2016, the accrued executive bonuses were $480,000 and $268,000, respectively, and the amounts were included in accrued expenses within the condensed consolidated balance sheets. |
Summary of Significant Accoun19
Summary of Significant Accounting Policies (Policies) | 9 Months Ended |
Sep. 30, 2017 | |
Summary of Significant Accounting Policies [Abstract] | |
Basis of Presentation | Basis of Presentation The accompanying unaudited interim condensed consolidated financial statements and footnotes have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding unaudited interim financial information. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s condensed consolidated balance sheets, statements of operations and cash flows for the interim periods presented. Operating results for the interim periods presented are not necessarily indicative of the results of operations to be expected for the full year due to seasonal and other factors. Certain information and footnote disclosures normally included in the condensed consolidated financial statements in accordance with US GAAP have been omitted in accordance with the rules and regulations of the SEC. Accordingly, these unaudited interim condensed consolidated financial statements and footnotes should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto for the year ended December 31, 2016, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 30, 2017. |
Principles of Consolidation | Principles of Consolidation The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company balances and transactions have been eliminated in the accompanying unaudited condensed consolidated financial statements. |
Use of Estimates | Use of Estimates The Company’s unaudited condensed consolidated financial statements are prepared in conformity with US GAAP, which requires management to make estimates and assumptions that affect the amounts reported and disclosed in the condensed consolidated financial statements and the accompanying notes. Actual results could differ materially from these estimates. The Company’s most significant estimates relate to the accounts receivable allowance, the forfeiture of customer deposits, the valuation allowance on deferred tax assets, valuation of goodwill and intangibles, recognition of revenue, and the valuation of stock options. |
Accounts Receivable | Accounts Receivable Accounts receivable are stated at a gross invoice amount less an allowance for doubtful accounts. The Company estimates its allowance for doubtful accounts by evaluating specific accounts where information indicates the Company’s customers may have an inability to meet financial obligations, such as customer payment history, credit worthiness and receivable amounts outstanding for an extended period beyond contractual terms. The Company uses assumptions and judgment, based on the best available facts and circumstances, to record an allowance to reduce the receivable to the amount expected to be collected. These allowances are re-evaluated and adjusted as additional information is received. The allowance for doubtful accounts as of September 30, 2017 and December 31, 2016 was $527,000 and $266,000, respectively. |
Property and Equipment | Property and Equipment Property and equipment are stated at historical cost less accumulated depreciation and amortization. Depreciation and amortization expense are computed using the straight-line method over the estimated useful lives of the assets, generally, three years for computer equipment and purchased software, three to five years for furniture and equipment, the shorter of the useful life and the term of the lease for leasehold improvements. Depreciation expense for the three months ended September 30, 2017 and 2016 was $372,000 and $525,000, respectively, and $1,137,000 and $1,684,000 for the nine months ended September 30, 2017 and 2016, respectively. |
Intangible Assets | Intangible Assets The Company’s long-lived intangible assets, other than goodwill, are assessed for impairment when events or circumstances indicate there may be an impairment. These assets were initially recorded at their estimated fair value at the time of acquisition and assets not acquired in acquisitions were recorded at historical cost. However, if their estimated fair value is less than the carrying amount, other intangible assets with indefinite life are reduced to their estimated fair value through an impairment charge to our condensed consolidated statements of operations. On June 21, 2017, the Company recorded an intangible asset representing the patent, and other intellectual property acquired in connection with the DeepIntent acquisition. This intangible asset was recorded at its fair value on the DeepIntent Closing Date. Intangible assets as of September 30, 2017 and December 31, 2016 were $1,267,000 and $20,000, respectively. Intangible assets at September 30, 2017 consisted of the DeepIntent intellectual property of $1,320,000 net of accumulated amortization of $73,000 and the Propel Media trade name at a cost of $20,000. Amortization expense was $66,000 and $0 for the three months ended September 30, 2017 and 2016, respectively, and $73,000 and $39,000 for the nine months ended September 30, 2017 and 2016, respectively. |
Capitalization of Internally Developed Software | Capitalization of Internally Developed Software The Company capitalizes certain costs related to its software developed or obtained for internal use in accordance with ASC 350-40. Costs related to preliminary project activities and post-implementation activities are expensed as incurred. Internal and external costs incurred during the application development stage, including upgrades and enhancements representing modifications that will result in significant additional functionality, are capitalized. Software maintenance and training costs are expensed as incurred. Capitalized costs are recorded as part of property and equipment and are amortized on a straightline basis over the software’s estimated useful life ranging from 12 months to 36 months. The Company evaluates these assets for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. Based upon management’s assessment of capitalized software, the Company recorded impairment charges of $0 and $20,000 for the three and nine months ended September 30, 2017, respectively, to write off the book value of certain internally developed capitalized software. |
Revenue Recognition | Revenue Recognition Propel generates revenue from advertisers by serving their ads to a user base consisting of the Company’s owned and operated network, users of our third party application partners’ properties and users from our publisher driven traffic, as well as from advertising sold through the Company’s demand-side platform. In all cases, the Company’s revenue is generated when an advertisement is served by the Company or when a user action occurs based on the advertisement the Company served (i.e., a view, a click, a conversion action, etc.). There is a specific transaction that triggers a billable instance. The Company recognizes revenue in accordance with ASC Topic 605, “Revenue Recognition” (“ASC 605”). Accordingly, the Company recognizes revenue when the following criteria have been met: persuasive evidence of an arrangement exists, no significant Company obligations remain, collection of the related receivable is reasonably assured and the amounts are fixed and determinable. The gross advertising campaign revenue is recognized in the period that the advertising impressions, clicks or actions occur, provided that all other revenue recognition criteria have been met. The Company’s agreements do not require a guaranteed minimum number of impressions, clicks or actions. With respect to advertising campaign activities, the Company acts as a principal in that it is the primary obligor to the advertiser customer. The amounts on deposit from customers are recorded as an advertiser deposit liability in the accompanying unaudited condensed consolidated balance sheets. |
Cost of Revenues | Cost of Revenues Costs of revenue consists of marketing expenses to obtain new users for the Company’s owned and operated properties, publisher costs of third-party networks and properties, transaction costs and revenue-sharing costs to third party application developer partners, as well as costs of advertising purchased through the Company’s demand-side platform. |
Concentration of Credit Risk and Significant Customers | Concentration of Credit Risk and Significant Customers The Company’s concentration of credit risk includes its concentrations from key customers and vendors. The details of these significant customers and vendors are presented in the following table for the three and nine months ended September 30, 2017 and 2016: For the Three Months Ended For the Nine Months Ended 2017 2016 2017 2016 The Company’s largest customers are presented below as a percentage of the Company’s aggregate: Revenue None over 10% None over 10% None over 10% None over 10% Accounts receivable None over 10% None over 10% None over 10% None over 10% The Company’s largest vendors are presented below as a percentage of the Company’s aggregate: The Company’s largest vendors reported in cost of revenues are presented as a percentage of the Company’s aggregate cost of revenues 22% and 18% of cost of revenues, or 40% of cost of revenues in the aggregate 14% and 14% of cost of revenue, or 28% of cost of revenues in the aggregate 20% and 16% of cost of revenues, or 36% of cost of revenues in the aggregate 17%, 15%, and 14% of cost of revenue, or 46% of cost of revenues in the aggregate The Company’s largest vendors reported as a percentage of accounts payable 23% of accounts payable to one vendor None over 10% 23% of accounts payable to one vendor None over 10% Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and accounts receivable. Cash is deposited with a limited number of financial institutions. The balances held at any one financial institution may be in excess of Federal Deposit Insurance Corporation (“FDIC”) insurance limits. Accounts are insured by the FDIC up to $250,000. As of September 30, 2017 and December 31, 2016, the Company held cash balances in excess of federally insured limits. The Company extends credit to customers based on an evaluation of their financial condition and other factors. The Company generally does not require collateral or other security to support accounts receivable. The Company performs ongoing credit evaluations of its customers and maintains an allowance for doubtful accounts and sales credits. |
Net Income (Loss) per Share | Net Income (Loss) per Share Earnings (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options and warrants. For the three and nine months ended September 30, 2017, the Company excluded potential common shares resulting from the exercise of stock options (21,230,000 potential common shares) and of warrants (6,363,636 potential common shares) as their inclusion would be anti-dilutive. For the three and nine months ended September 30, 2016, the Company excluded potential common shares resulting from the exercise of stock options (23,517,500 potential common shares) and of warrants (6,363,636 potential common shares) as their inclusion would be anti-dilutive. |
Subsequent events | Subsequent events The Company has evaluated events that occurred subsequent to September 30, 2017 through the date these condensed consolidated financial statements were issued. Management has concluded that, other than as disclosed in Notes 3 and 6, there were no subsequent events that required disclosure in these condensed consolidated financial statements. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements On March 30, 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718). This update requires that all excess tax benefits and tax deficiencies arising from share-based payment awards should be recognized as income tax expense or benefit on the condensed consolidated statements of operations. The amendment also states that excess tax benefits should be classified along with other income tax cash flows as an operating activity. In addition, an entity can make an entity-wide accounting policy election to either estimate the number of awards expected to vest or account for forfeitures as they occur. The provisions of this update are effective for annual and interim periods beginning or after December 15, 2016. The Company has adopted ASU 2015-16 effective January 1, 2017 and such adoption did not have a material impact on the Company’s condensed consolidated financial position and results of operations. In April 2016, the FASB issued ASU No. 2016-10 Revenue from Contracts with Customers (Topic 606), “Identifying Performance Obligations and Licensing” (“ASU 2016-10”). ASU 2016-10 clarifies the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. ASU 2016-10 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2017, with early application permitted. Based upon the Company’s preliminary assessment, the adoption of this new standard is not expected to have a material impact on the Company’s condensed consolidated financial statements. In May 2016, the FASB issued ASU No. 2016-12 “Revenue from Contracts with Customers (Topic 606)”, “Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”). The core principal of ASU 2016-12 is the recognition of 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 provisions of this update are effective for annual and interim periods beginning after December 15, 2017, with early application permitted. Based upon the Company’s preliminary assessment, the adoption of this new standard is not expected to have a material impact on the Company’s condensed consolidated financial statements. In January 2017, the FASB issued ASU No. 2017-04 “Intangibles-Goodwill and other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2014-04”). To simplify the subsequent measurement of goodwill, the Board eliminated Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The Board also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. Therefore, the same impairment assessment applies to all reporting units. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The provisions of this update are effective for annual and interim periods beginning after December 15, 2019, with early application permitted after January 1, 2017. The Company is currently evaluating the impact the adoption of this standard will have on its condensed consolidated financial statements. In December 2016, the FASB issued ASU No. 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers”, (“ASU 2016-20”). The purpose of ASU 2016-20 is to amend certain narrow aspects of the guidance issued in ASU 2014-09 including guidance related to the disclosure of remaining performance obligations and prior-period performance obligations, as well as other amendments to the guidance on loan guarantee fees, contract costs, refund liabilities, advertising costs and the clarification of certain examples. The Company is currently evaluating the impact the adoption of this standard will have on its condensed consolidated financial statements. In May 2017, the FASB issued ASU No. 2017-09 “Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting” (“ASU 2017-09”). The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. An entity should account for the effects of a modification unless all of the following are met: The fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified, the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified and the classification of the modified award an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The provisions of this update are effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the impact the adoption of this standard will have on its condensed consolidated financial statements. In July 2017, the FASB issued ASU 2017-11 “Earnings per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815)” (“ASU 2017-11”) to address narrow issues identified as a result of the complexity associated with applying generally accepted accounting principles (GAAP) for certain financial instruments with characteristics of liabilities and equity. Part I of the amendment changes the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. The amendments also clarify existing disclosure requirements for equity-classified instruments. Part II of the update re-characterizes the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. Part I of ASU 2017-11 is effective for public business entities for fiscal years, and interim period within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact the adoption of this standard will have on its condensed consolidated financial statements. |
Acquisition of DeepIntent (Tabl
Acquisition of DeepIntent (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
Acquisition of DeepIntent [Abstract] | |
Summary of purchase price for the acquisition of DeepIntent | Fair Value Accounts receivable $ 362,000 Security deposit 4,000 Intangible asset – developed technology 1,320,000 Goodwill 3,188,000 Accounts payable (107,000 ) Accrued expenses (121,000 ) Deferred tax liability, net (450,000 ) Net fair values assigned to assets acquired and liabilities assumed $ 4,196,000 |
Summary of the purchase price consideration for the purchase of DeepIntent | Cash $ 4,084,000 Working capital holdback adjustment 50,000 Fair value of earnout 62,000 Total Purchase Price Consideration $ 4,196,000 |
Summary of unaudited pro forma information | For the Three Months Ended For the Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Pro forma revenues $ 22,207,000 $ 13,747,000 $ 62,822,000 $ 45,135,000 Pro forma net income (loss) $ 3,008,000 $ (354,000 ) $ 8,194,000 $ (683,000 ) Pro forma net income (loss) per share $ 0.01 $ (0.00 ) $ 0.03 $ (0.00 ) |
Summary of Significant Accoun21
Summary of Significant Accounting Policies (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
Summary of Significant Accounting Policies [Abstract] | |
Summary of concentration of credit risk | For the Three Months Ended For the Nine Months Ended 2017 2016 2017 2016 The Company’s largest customers are presented below as a percentage of the Company’s aggregate: Revenue None over 10% None over 10% None over 10% None over 10% Accounts receivable None over 10% None over 10% None over 10% None over 10% The Company’s largest vendors are presented below as a percentage of the Company’s aggregate: The Company’s largest vendors reported in cost of revenues are presented as a percentage of the Company’s aggregate cost of revenues 22% and 18% of cost of revenues, or 40% of cost of revenues in the aggregate 14% and 14% of cost of revenue, or 28% of cost of revenues in the aggregate 20% and 16% of cost of revenues, or 36% of cost of revenues in the aggregate 17%, 15%, and 14% of cost of revenue, or 46% of cost of revenues in the aggregate The Company’s largest vendors reported as a percentage of accounts payable 23% of accounts payable to one vendor None over 10% 23% of accounts payable to one vendor None over 10% |
Reverse Merger and Obligation22
Reverse Merger and Obligations to Transferors (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
Reverse Merger and Obligations to Transferors [Abstract] | |
Schedule obligations to transferors outstanding under the exchange agreement | As of, September 30, December 31, Amount due on or before September 30, 2019 $ 10,000,000 $ 10,000,000 Amount due January 28, 2019 6,000,000 6,000,000 Total, gross 16,000,000 16,000,000 Less: discount (962,000 ) (1,431,000 ) Total, net $ 15,038,000 $ 14,569,000 |
Financing Agreement (Tables)
Financing Agreement (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
Financing Agreement [Abstract] | |
Schedule of obligations outstanding under term loan | As of September 30, December 31, Principal $ 60,132,000 $ 67,531,000 Discounts (1,097,000 ) (1,787,000 ) Accreted value of the Deferred Fee ($12,500,000) 8,645,000 6,344,000 Net 67,680,000 72,088,000 Less: Current portion (6,158,000 ) (6,089,000 ) Long-term portion $ 61,522,000 $ 65,999,000 |
Summary of future minimum payments | For the years ended December 31, Term Loan 2017 (three months) 1,750,000 2018 7,000,000 2019 51,382,000 Total, gross 60,132,000 Less: debt discount (1,097,000 ) Plus: accreted value through September 30, 2017 of the Deferred Fee ($12,500,000) 8,645,000 Total, net 67,680,000 Less: current portion (6,158,000 ) Long-term debt $ 61,522,000 |
Commitments and Contingencies (
Commitments and Contingencies (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
Commitments and Contingencies [Abstract] | |
Schedule of approximate future minimum rental payments under the operating lease agreement | Years Ending December 31, Amount 2017 (three months) $ 153,000 2018 458,000 $ 611,000 |
Stock-Based Compensation (Table
Stock-Based Compensation (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
Stock-Based Compensation [Abstract] | |
Summary of stock option awards | Number of Options Weighted Average Exercise Price Weighted Average Grant Date Fair Value Weighted Average Remaining Contractual Life Aggregate Intrinsic Value Outstanding at December 31, 2016 23,351,875 $ 0.49 $ 0.27 6.9 $ - Granted - - - - - Exercised - - - - Forfeited, expired or canceled 2,121,875 0.55 0.29 - Outstanding at September 30, 2017 21,230,000 $ 0.49 $ 0.27 5.99 $ - Exercisable at September 30, 2017 14,969,066 $ 0.46 $ 0.25 5.37 $ - |
Organization and Description 26
Organization and Description of Business (Details) | 1 Months Ended | 9 Months Ended |
Jun. 21, 2017USD ($) | Sep. 30, 2017USD ($)Customers | |
Organization and Description of Business (Textual) | ||
Advertiser customers | Customers | 1,100 | |
Purchase price subject to adjustment for working capital | $ 4,000,000 | |
DeepIntent [Member] | ||
Organization and Description of Business (Textual) | ||
Percentage of equity interests | 100.00% | |
Purchase price subject to adjustment for working capital | $ 4,000,000 | |
DeepIntent [Member] | Six Month Anniversary [Member] | ||
Organization and Description of Business (Textual) | ||
Deferred payments | 500,000 | |
DeepIntent [Member] | One Year Anniversary [Member] | ||
Organization and Description of Business (Textual) | ||
Deferred payments | 500,000 | |
DeepIntent [Member] | Additional Consideration [Member] | Achievement of Certain Performance Levels During the Years Ended December 31, 2018, 2019 and 2020 [Member] | ||
Organization and Description of Business (Textual) | ||
Earnouts | $ 3,000,000 |
Liquidity and Capital Resourc27
Liquidity and Capital Resources (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | Dec. 31, 2016 | Dec. 31, 2015 | |
Liquidity and Capital Resources (Textual) | ||||||
Cash on hand | $ 2,556,000 | $ 1,263,000 | $ 2,556,000 | $ 1,263,000 | $ 2,823,000 | $ 1,629,000 |
Working capital deficit | 1,596,000 | 1,596,000 | $ 3,714,000 | |||
Net income | 3,008,000 | $ (142,000) | 8,761,000 | (679,000) | ||
Revolving credit facility outstanding balance | 0 | 0 | ||||
Borrowing amount available under credit facility | 6,516,000 | 6,516,000 | ||||
Borrowing under revolving loan | 6,516,000 | 6,516,000 | ||||
Repayments under term loan | 7,399,000 | $ 5,250,000 | ||||
Financing Agreement [Member] | ||||||
Liquidity and Capital Resources (Textual) | ||||||
Net income | $ 3,008,000 | |||||
Repayments under term loan | $ 2,149,000 |
Acquisition of DeepIntent (Deta
Acquisition of DeepIntent (Details) | Sep. 30, 2017USD ($) |
Acquisition of DeepIntent [Abstract] | |
Accounts receivable | $ 362,000 |
Security deposit | 4,000 |
Intangible asset - developed technology | 1,320,000 |
Goodwill | 3,188,000 |
Accounts payable | (107,000) |
Accrued expenses | (121,000) |
Deferred tax liability, net | (450,000) |
Net fair values assigned to assets acquired and liabilities assumed | $ 4,196,000 |
Acquisition of DeepIntent (De29
Acquisition of DeepIntent (Details 1) - USD ($) | 9 Months Ended | |
Sep. 30, 2017 | Sep. 30, 2016 | |
Acquisition of DeepIntent [Abstract] | ||
Cash | $ 4,084,000 | |
Working capital holdback adjustment | 50,000 | |
Fair value of earnout | 62,000 | |
Total Purchase Price Consideration | $ 4,196,000 |
Acquisition of DeepIntent (De30
Acquisition of DeepIntent (Details 2) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
Business Acquisition [Line Items] | ||||
Pro forma revenues | $ 22,207,000 | $ 13,747,000 | $ 62,822,000 | $ 45,135,000 |
Pro forma net income (loss) | $ 3,008,000 | $ (354,000) | $ 8,194,000 | $ (683,000) |
Pro forma net income (loss) per share | $ 0.01 | $ 0 | $ 0.03 | $ 0 |
Acquisition of DeepIntent (De31
Acquisition of DeepIntent (Details Textual) - USD ($) | 1 Months Ended | 3 Months Ended | 9 Months Ended | |
Oct. 23, 2017 | Jun. 21, 2017 | Sep. 30, 2017 | Sep. 30, 2017 | |
Acquisition of DeepIntent (Textual) | ||||
Purchase price subject to adjustment for working capital | $ 4,000,000 | |||
Aggregate purchase price | $ 4,196,000 | 4,196,000 | ||
Fair value of earnout | 62,000 | 62,000 | ||
Estimated working capital adjustment | 134,000 | $ 134,000 | ||
DeepIntent [Member] | ||||
Acquisition of DeepIntent (Textual) | ||||
Purchase price subject to adjustment for working capital | $ 4,000,000 | |||
Percentage of equity interests | 100.00% | |||
Fair value of intangible asset, description | This intangible asset was assigned a fair value of $1,320,000, has a definite life and will be amortized over a period of five years. | |||
Deferred payments | 238,000 | $ 264,000 | ||
Accrued deferred payment | $ 264,000 | $ 264,000 | ||
DeepIntent [Member] | Subsequent Event [Member] | ||||
Acquisition of DeepIntent (Textual) | ||||
Working capital installment adjustment | $ 69,000 |
Summary of Significant Accoun32
Summary of Significant Accounting Policies (Details) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
Vendor [Member] | Accounts payable [Member] | ||||
Summary of concentration of credit risk | ||||
Concentration risk, description | 23% of accounts payable to one vendor | None over 10% | 23% of accounts payable to one vendor | None over 10% |
Revenue [Member] | Customer [Member] | ||||
Summary of concentration of credit risk | ||||
Concentration risk, description | None over 10% | None over 10% | None over 10% | None over 10% |
Accounts receivable [Member] | Customer [Member] | ||||
Summary of concentration of credit risk | ||||
Concentration risk, description | None over 10% | None over 10% | None over 10% | None over 10% |
Cost of revenues [Member] | Vendor [Member] | ||||
Summary of concentration of credit risk | ||||
Concentration risk, description | 22% and 18% of cost of revenues, or 40% of cost of revenues in the aggregate | 14% and 14% of cost of revenue, or 28% of cost of revenues in the aggregate | 20% and 16% of cost of revenues, or 36% of cost of revenues in the aggregate | 17%, 15%, and 14% of cost of revenue, or 46% of cost of revenues in the aggregate |
Summary of Significant Accoun33
Summary of Significant Accounting Policies (Details Textual) - USD ($) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | Dec. 31, 2016 | |
Summary of Significant Accounting Policies (Textual) | |||||
Allowance for doubtful accounts | $ 527,000 | $ 527,000 | $ 266,000 | ||
Impairment charges | 20,000 | $ 183,000 | |||
Intangible assets | 1,267,000 | 1,267,000 | 20,000 | ||
Amortization expense | 66,000 | 0 | 73,000 | 39,000 | |
FDIC insured amount | 250,000 | 250,000 | $ 250,000 | ||
Depreciation | 372,000 | $ 525,000 | 1,137,000 | $ 1,684,000 | |
DeepIntent Intellectual Property [Member] | |||||
Summary of Significant Accounting Policies (Textual) | |||||
Intangible assets | 1,320,000 | 1,320,000 | |||
Net of accumulated amortization | 73,000 | 73,000 | |||
Propel Media Trade Name [Member] | |||||
Summary of Significant Accounting Policies (Textual) | |||||
Intangible assets | $ 20,000 | $ 20,000 | |||
Computer Equipment and Purchased Software [Member] | |||||
Summary of Significant Accounting Policies (Textual) | |||||
Estimated useful life | 3 years | ||||
Warrant [Member] | |||||
Summary of Significant Accounting Policies (Textual) | |||||
Potential common shares | 6,363,636 | 6,363,636 | 6,363,636 | 6,363,636 | |
Stock Option [Member] | |||||
Summary of Significant Accounting Policies (Textual) | |||||
Potential common shares | 21,230,000 | 23,517,500 | 21,230,000 | 23,517,500 | |
Maximum [Member] | |||||
Summary of Significant Accounting Policies (Textual) | |||||
Estimated useful life | 36 months | ||||
Maximum [Member] | Furniture and Equipment [Member] | |||||
Summary of Significant Accounting Policies (Textual) | |||||
Estimated useful life | 5 years | ||||
Minimum [Member] | |||||
Summary of Significant Accounting Policies (Textual) | |||||
Estimated useful life | 12 months | ||||
Minimum [Member] | Furniture and Equipment [Member] | |||||
Summary of Significant Accounting Policies (Textual) | |||||
Estimated useful life | 3 years |
Reverse Merger and Obligation34
Reverse Merger and Obligations to Transferors (Details) - USD ($) | Sep. 30, 2017 | Dec. 31, 2016 |
Reverse Merger and Obligations to Transferors [Abstract] | ||
Amount due on or before September 30, 2019 | $ 10,000,000 | $ 10,000,000 |
Amount due January 28, 2019 | 6,000,000 | 6,000,000 |
Total, gross | 16,000,000 | 16,000,000 |
Less: discount | (962,000) | (1,431,000) |
Total, net | $ 15,038,000 | $ 14,569,000 |
Reverse Merger and Obligation35
Reverse Merger and Obligations to Transferors (Details Textual) - USD ($) | 1 Months Ended | 3 Months Ended | 9 Months Ended | |||
Jan. 26, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | Dec. 31, 2016 | |
Reverse Business Combination and Recapitalization (Textual) | ||||||
Deferred obligation payable in cash | $ 10,000,000 | |||||
Obligations to transferors | $ 10,000,000 | $ 10,000,000 | $ 10,000,000 | |||
Unpaid amount of deferred obligation received | 10,000,000 | 10,000,000 | ||||
Amortization of discount | 161,000 | $ 148,000 | 469,000 | $ 493,000 | ||
Unamortized discount | $ 962,000 | $ 962,000 | 1,431,000 | |||
Board of directors [Member] | ||||||
Reverse Business Combination and Recapitalization (Textual) | ||||||
Deferred obligation payable in cash | $ 10,000,000 | $ 10,000,000 | ||||
Propel Media LLC [Member] | ||||||
Reverse Business Combination and Recapitalization (Textual) | ||||||
Business combination description | (i) $10,000,000 to the Transferors ("Deferred Obligation"), which is payable in cash and/or stock not later than, June 30, 2019 and (ii) $6,000,000 payable in cash immediately after the payment of certain fees to the Lenders on or about January 28, 2019, (the "Deferred Payment"). | |||||
Deferred payment, description | Deferred Obligation from an equity financing or from available working capital. The Company is required to use its reasonable best efforts to complete equity financings that would raise sufficient net proceeds to pay the $10,000,000 Deferred Obligation in cash to the Transferors on or before June 30, 2019 (the "Equity Financing Period"). In addition, the Company's board of directors, at least two times per year during the Equity Financing Period, is obligated to determine, in its sole and absolute discretion, the amount, if any, of the Company's working capital available to be used to pay all or a portion of the $10,000,000 Deferred Obligation in cash, taking into account such factors as it may deem relevant. If the Company's board of directors determines that there is available working capital to pay all or a portion of the $10,000,000 Deferred Obligation, the Company must use its reasonable best efforts to promptly obtain any required lender consent and, if such consent is obtained, must promptly pay to the Transferors an amount in cash equal to such available working capital. Finally, Jared Pobre, one of the former members of Propel Media, on behalf of the Transferors, is permitted to elect, during the ten day period following each December 31st during the Equity Financing Period, commencing December 31, 2016, to receive any unpaid amount of the $10,000,000 Deferred Obligation in shares of the Company's common stock. |
Financing Agreement (Details)
Financing Agreement (Details) - USD ($) | Sep. 30, 2017 | Dec. 31, 2016 |
Debt Instrument [Line Items] | ||
Less: current portion | $ (6,158,000) | $ (6,089,000) |
Long-term portion | 61,522,000 | 65,999,000 |
Term Loan [Member] | ||
Debt Instrument [Line Items] | ||
Principal | 60,132,000 | 67,531,000 |
Less: debt discount | (1,097,000) | (1,787,000) |
Accreted value of the Deferred Fee ($12,500,000) | 8,645,000 | 6,344,000 |
Net | 67,680,000 | 72,088,000 |
Less: current portion | (6,158,000) | (6,089,000) |
Long-term portion | $ 61,522,000 | $ 65,999,000 |
Financing Agreement (Details 1)
Financing Agreement (Details 1) - USD ($) | Sep. 30, 2017 | Dec. 31, 2016 |
Debt Instrument [Line Items] | ||
Less: current portion | $ (6,158,000) | $ (6,089,000) |
Long-term debt | 61,522,000 | 65,999,000 |
Term Loan [Member] | ||
Debt Instrument [Line Items] | ||
2017 (three months) | 1,750,000 | |
2,018 | 7,000,000 | |
2,019 | 51,382,000 | |
Total, gross | 60,132,000 | |
Less: debt discount | (1,097,000) | |
Plus: accreted value through September 30, 2017 of the Deferred Fee ($12,500,000) | 8,645,000 | $ 6,344,000 |
Total, net | 67,680,000 | |
Less: current portion | (6,158,000) | |
Long-term debt | $ 61,522,000 |
Financing Agreement (Details Te
Financing Agreement (Details Textual) - USD ($) | 1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||||
Jun. 21, 2017 | May 30, 2017 | Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | Dec. 31, 2016 | Jan. 28, 2015 | |
Financing Agreement (Textual) | ||||||||
Amortization of the closing fee | $ 172,000 | $ 190,000 | $ 524,000 | $ 577,000 | ||||
Deferred fee | 12,500,000 | |||||||
Obligations to original issue discount | 836,000 | $ 1,360,000 | ||||||
Interest expense accretion of deferred fee | 765,000 | 806,000 | 2,301,000 | 2,431,000 | ||||
Revolving credit facility outstanding balance | 0 | 0 | ||||||
Amortization of debt issuance costs | 54,000 | $ 60,000 | 166,000 | 184,000 | ||||
Amortization of the closing fee | 524,000 | $ 577,000 | ||||||
Fee expense, description | The Company paid an amendment fee ("Amendment Fee") of approximately $752,000 on October 2, 2017, in connection with this Amendment No. 2. The Amendment Fee was accrued on June 21, 2017 and was subsequently paid on October 2, 2017. The amendment fee has been reflected as interest expense, net, within the condensed consolidated statement of operations. | |||||||
Borrowing under revolving loan | $ 6,516,000 | $ 6,516,000 | ||||||
Interest rate | 10.20% | 10.00% | ||||||
Term Loan [Member] | ||||||||
Financing Agreement (Textual) | ||||||||
Aggregate principal amount of term debt | $ 81,000,000 | $ 81,000,000 | $ 81,000,000 | |||||
Amortization of the closing fee | 2,880,000 | |||||||
Deferred fee | $ 12,500,000 | 12,500,000 | ||||||
Balance of accreted deferred fee | 8,645,000 | 8,645,000 | 6,344,000 | |||||
Payments of debt issuance costs | 916,000 | |||||||
Unamortized amortized debt issuance costs | $ 262,000 | 262,000 | $ 428,000 | |||||
Quarterly installments, principal amount | $ 1,750,000 | |||||||
Debt instrument, interest rate per annum equal to or less than to LIBOR | 9.00% | 9.00% | ||||||
Revolving Loan [Member] | ||||||||
Financing Agreement (Textual) | ||||||||
Revolving loan description | Each revolving loan shall bear interest on the principal amount thereof from time to time outstanding, from the date of such Loan until repaid, at a rate per annum equal to 6.00% plus either (i) the LIBOR for the interest period in effect for such Loan (but LIBOR may not be less than 1%) (the total rate per annum for LIBOR borrowings was approximately 7.0% during the nine months ended September 30, 2017), or (ii) the bank's reference rate (the reference rate was approximately 10.25% during the nine months ended September 30, 2017). For each revolving loan, the Company can choose to borrow either at the LIBOR or the reference rate. | |||||||
Revolving credit facility outstanding balance | $ 15,000,000 |
Related-Party Transactions (Det
Related-Party Transactions (Details) - USD ($) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | Dec. 31, 2016 | |
Related-Party Transactions (Textual) | |||||
Technology development services and other administrative services from technology vendor | $ 955,000 | $ 838,000 | $ 2,701,000 | $ 2,353,000 | |
Mr. Yeaton [Member] | |||||
Related-Party Transactions (Textual) | |||||
Due to related party | 5,000 | 5,000 | $ 7,000 | ||
Other financial advisory and accounting services | $ 45,000 | $ 47,000 | $ 135,000 | $ 149,000 |
Commitments and Contingencies40
Commitments and Contingencies (Details) | Sep. 30, 2017USD ($) |
Commitments and Contingencies [Abstract] | |
2017 (three months) | $ 153,000 |
2,018 | 458,000 |
Total | $ 611,000 |
Commitments and Contingencies41
Commitments and Contingencies (Details Textual) - USD ($) shares in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
Commitments and Contingencies (Textual) | ||||
Rent expense | $ 122,000 | $ 106,000 | $ 334,000 | $ 323,000 |
Common stock selling source | 22.5 | |||
Note [Member] | ||||
Commitments and Contingencies (Textual) | ||||
Aggregate principal amount | $ 28,700,000 | $ 28,700,000 |
Defined Contributions Plans (De
Defined Contributions Plans (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
Defined Contributions Plans (Textual) | ||||
Contribution expense | $ 59,000 | $ 41,000 | $ 207,000 | $ 178,000 |
Income Taxes (Details)
Income Taxes (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | |
Income Taxes (Textual) | ||||
Income tax (expense) benefit | $ 1,797,000 | $ 2,250,000 | $ 5,161,000 | $ 1,887,000 |
Effective income tax rate | 37.40% | 37.40% |
Stock-Based Compensation (Detai
Stock-Based Compensation (Details) - Stock Option [Member] | 9 Months Ended |
Sep. 30, 2017USD ($)$ / sharesshares | |
Number of Options | |
Number of Options, Outstanding, Beginning Balance | shares | 23,351,875 |
Number of Options, Granted | shares | |
Number of Options, Exercised | shares | |
Number of Options, Forfeited, expired or cancelled | shares | 2,121,875 |
Number of Options, Outstanding, Ending Balance | shares | 21,230,000 |
Number of Options, Exercisable | shares | 14,969,066 |
Weighted Average Exercise Price | |
Weighted Average Exercise Price, Outstanding, Beginning Balance | $ 0.49 |
Weighted Average Exercise Price, Granted | |
Weighted Average Exercise Price, Exercised | |
Weighted Average Exercise Price, Forfeited, expired or cancelled | 0.55 |
Weighted Average Exercise Price, Outstanding, Ending Balance | 0.49 |
Weighted Average Exercise Price, Exercisable | 0.46 |
Weighted Average Grant Date Fair Value | |
Weighted Average Grant Date Fair Value, Outstanding, Beginning Balance | 0.27 |
Weighted Average Grant Date Fair Value, Granted | |
Weighted Average Grant Date Fair Value, Exercised | |
Weighted Average Grant Date Fair Value, Forfeited, expired or cancelled | 0.29 |
Weighted Average Grant Date Fair Value, Outstanding, Ending Balance | 0.27 |
Weighted Average Grant Date Fair Value, Exercisable | $ 0.25 |
Weighted Average Remaining Contractual Life | |
Weighted Average Remaining Contractual Life, Outstanding | 6 years 10 months 25 days |
Weighted Average Remaining Contractual Life, Outstanding | 5 years 11 months 26 days |
Weighted Average Remaining Contractual Life, Exercisable | 5 years 4 months 13 days |
Aggregate Intrinsic Value | |
Aggregate Intrinsic Value, Outstanding, Beginning Balance | $ | |
Aggregate Intrinsic Value, Outstanding, Ending Balance | $ | |
Aggregate Intrinsic Value, Exercisable | $ |
Stock-Based Compensation (Det45
Stock-Based Compensation (Details Textual) - USD ($) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | Oct. 09, 2014 | |
Stock-Based Compensation (Textual) | |||||
Stock-based compensation expense | $ 262,000 | $ 240,000 | $ 717,000 | $ 1,412,000 | |
Unamortized value of options | $ 1,462,000 | ||||
Unamortized expected term of options | The unamortized portion will be expensed through November 2019. | ||||
Unamortized weighted average remaining period | 1 year 2 months 12 days | ||||
2014 Long-Term Incentive Equity Plan [Member] | |||||
Stock-Based Compensation (Textual) | |||||
Fully-diluted shares of the company's common stock outstanding | 26,172,326 |
Executive Bonus Plan (Details)
Executive Bonus Plan (Details) - USD ($) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2017 | Sep. 30, 2016 | Sep. 30, 2017 | Sep. 30, 2016 | Dec. 31, 2016 | |
Executive Bonus Plan (Textual) | |||||
Bonus expenses | $ 482,000 | $ 237,000 | $ 1,254,000 | $ 600,000 | |
Accrued executive bonuses | $ 480,000 | $ 480,000 | $ 268,000 |