UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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FOR THE QUARTERLY PERIOD ENDED September 30, 2008 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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FOR THE TRANSITION PERIOD FROM TO |
Commission File Number: 000-30063
ARTISTdirect, Inc.
(Exact name of registrant as specified in its charter)
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Delaware |
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95-4760230 |
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(State or other jurisdiction of |
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(I.R.S. Employer |
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incorporation or organization) |
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Identification Number) |
1601 Cloverfield Boulevard, Suite 400 South
Santa Monica, California 90404
(Address of principal executive offices) (Zip Code)
(310) 956-3300
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).
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Large accelerated filer o |
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Accelerated filer o |
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Non-accelerated filer o |
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Smaller reporting company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of October 31, 2008, the Company had 10,344,666 shares of common stock, par value $0.01 per share, issued and outstanding.
Documents incorporated by reference: None.
ARTISTDIRECT, INC. AND SUBSIDIARIES
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PAGE |
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PART I. FINANCIAL INFORMATION |
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ITEM 1. |
FINANCIAL STATEMENTS |
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CONDENSED CONSOLIDATED BALANCE SHEETS – SEPTEMBER 30, 2008 (UNAUDITED) AND DECEMBER 31, 2007 |
3 |
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5 |
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6 |
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7 |
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9 |
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
40 |
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60 |
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ITEM 4T. |
CONTROLS AND PROCEDURES |
60 |
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61 |
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61 |
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61 |
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61 |
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61 |
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In addition to historical information, this Quarterly Report on Form 10-Q (“Quarterly Report”) for ARTISTdirect, Inc. (“ARTISTdirect” or the “Company”) contains “forward-looking” statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, including statements that include the words “may,” “will,” “believes,” “expects,” “anticipates,” or similar expressions. These forward-looking statements may include, among others, statements concerning the Company’s expectations regarding its business, growth prospects, revenue trends, operating costs, accounting, working capital requirements, competition, results of operations, financing needs and constraints, impairment of assets, and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. The forward-looking statements in this Quarterly Report involve known and unknown risks, uncertainties and other factors that could cause the Company’s actual results, performance or achievements to differ materially from those expressed or implied by the forward-looking statements contained herein.
Each forward-looking statement should be read in context with, and with an understanding of, the various disclosures concerning the Company’s business made elsewhere in this Quarterly Report, as well as other public reports filed by the Company with the United States Securities and Exchange Commission. Investors should not place undue reliance on any forward-looking statement as a prediction of actual results or developments. Except as required by applicable law or regulation, the Company undertakes no obligation to update or revise any forward-looking statement contained in this Quarterly Report.
2
ARTISTdirect, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(amounts in thousands, except for share and per share data)
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September 30,
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December 31,
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(Unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
2,470 |
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$ |
4,268 |
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Restricted cash |
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267 |
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280 |
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Accounts receivable, net of allowance for doubtful accounts of $409 at September 30, 2008 and $418 at December 31, 2007 |
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3,218 |
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8,168 |
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Income taxes refundable |
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887 |
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1,147 |
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Prepaid expenses and other current assets |
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290 |
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351 |
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Total current assets |
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7,132 |
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14,214 |
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Property and equipment |
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4,710 |
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4,452 |
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Less accumulated depreciation and amortization |
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(3,357 |
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(2,614 |
) |
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Property and equipment, net |
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1,353 |
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1,838 |
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Other assets: |
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Intangible assets: |
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Customer relationships, net |
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— |
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440 |
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Proprietary technology, net |
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— |
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1,478 |
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Non-competition agreements, net |
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219 |
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416 |
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Goodwill |
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— |
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31,085 |
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Total intangible assets, net |
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219 |
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33,419 |
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Deferred financing costs, net |
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605 |
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1,243 |
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Deposits |
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5 |
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20 |
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Total other assets |
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829 |
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34,682 |
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$ |
9,314 |
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$ |
50,734 |
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(continued)
3
ARTISTdirect, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (continued)
(amounts in thousands, except for share and per share data)
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September 30,
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December 31,
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(Unaudited) |
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Liabilities and Stockholders’ Equity (Deficiency) |
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Current liabilities: |
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Accounts payable |
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$ |
544 |
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$ |
1,539 |
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Accrued expenses |
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781 |
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1,885 |
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Accrued interest payable |
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5,979 |
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3,352 |
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Deferred revenue |
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186 |
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230 |
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Income taxes payable |
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200 |
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200 |
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Liquidated damages payable under registration rights agreements, net of payments |
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1,972 |
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2,382 |
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Warrant liability |
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34 |
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164 |
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Derivative liability |
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26 |
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313 |
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Senior secured notes payable, net of discount of $292 at September 30, 2008 and $651 at December 31, 2007 (in default) |
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12,703 |
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12,656 |
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Subordinated convertible notes payable, net of discount of $1,922 at September 30, 2008 and $3,892 at December 31, 2007 (in default) |
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25,736 |
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23,766 |
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Total current liabilities |
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48,161 |
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46,487 |
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Long-term liabilities: |
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Deferred rent |
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166 |
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186 |
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Financing agreements |
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— |
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19 |
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Total long-term liabilities |
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166 |
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205 |
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Commitments and contingencies |
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Stockholders’ equity (deficiency): |
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Common stock, $0.01 par value - Authorized – 60,000,000 shares Issued and outstanding - 10,344,666 shares at September 30, 2008 and 10,338,896 shares at December 31, 2007 |
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103 |
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103 |
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Additional paid-in-capital |
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236,320 |
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235,407 |
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Accumulated deficit |
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(275,436 |
) |
(231,468 |
) |
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Total stockholders’ equity (deficiency) |
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(39,013 |
) |
4,042 |
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$ |
9,314 |
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$ |
50,734 |
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See accompanying notes to condensed consolidated financial statements.
4
ARTIST direct, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(amounts in thousands, except for share and per share data)
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Three Months Ended
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Nine Months Ended
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2008 |
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2007 |
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2008 |
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2007 |
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Net revenue: |
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E-commerce |
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$ |
71 |
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$ |
337 |
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$ |
269 |
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$ |
1,340 |
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Media |
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938 |
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1,974 |
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3,225 |
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5,139 |
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Anti-piracy and file-sharing marketing services |
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1,879 |
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3,627 |
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6,315 |
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11,498 |
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Total net revenue |
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2,888 |
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5,938 |
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9,809 |
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17,977 |
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Cost of revenue: |
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E-commerce |
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70 |
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353 |
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255 |
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1,378 |
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Media |
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659 |
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969 |
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2,043 |
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2,562 |
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Anti-piracy and file-sharing marketing services |
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1,513 |
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2,414 |
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6,288 |
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6,928 |
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Total cost of revenue |
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2,242 |
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3,736 |
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8,586 |
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10,868 |
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Gross profit |
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646 |
|
2,202 |
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1,223 |
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7,109 |
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Operating expenses: |
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Sales and marketing |
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372 |
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553 |
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1,343 |
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1,439 |
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General and administrative, including stock-based compensation of $108 and $702 for the three months ended September 30, 2008 and 2007, respectively, and $913 and $1,690 for the nine months ended September 30, 2008 and 2007, respectively |
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1,545 |
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2,982 |
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5,961 |
|
8,490 |
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Development and engineering |
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|
112 |
|
106 |
|
346 |
|
419 |
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Goodwill impairment |
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5,500 |
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— |
|
31,085 |
|
— |
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Write-off of fixed assets |
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— |
|
— |
|
— |
|
97 |
|
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Total operating costs |
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7,529 |
|
3,641 |
|
38,735 |
|
10,445 |
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Loss from operations |
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|
(6,883 |
) |
(1,439 |
) |
(37,512 |
) |
(3,336 |
) |
||||
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Other income (expense): |
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|
|
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|
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|
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Interest income |
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6 |
|
59 |
|
48 |
|
160 |
|
||||
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Interest expense |
|
|
(2,214 |
) |
(1,805 |
) |
(6,524 |
) |
(5,733 |
) |
||||
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Loss on foreign currency transactions |
|
|
(4 |
) |
— |
|
(4 |
) |
(14 |
) |
||||
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Other income (expense) |
|
|
(15 |
) |
— |
|
255 |
|
— |
|
||||
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Reduction in liquidated damages payable under registration rights agreements |
|
|
— |
|
— |
|
— |
|
719 |
|
||||
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Change in fair value of warrant liability |
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|
30 |
|
512 |
|
130 |
|
1,643 |
|
||||
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Change in fair value of derivative liability |
|
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(1 |
) |
2,702 |
|
287 |
|
7,056 |
|
||||
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Amortization of deferred financing costs |
|
|
(211 |
) |
(212 |
) |
(630 |
) |
(629 |
) |
||||
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Write-off of unamortized discount on debt and deferred financing costs resulting from principal payments on senior secured notes payable |
|
|
— |
|
— |
|
(26 |
) |
— |
|
||||
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Loss before income taxes |
|
|
(9,292 |
) |
(183 |
) |
(43,976 |
) |
(134 |
) |
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Provision for (benefit from) income taxes |
|
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— |
|
— |
|
(8 |
) |
— |
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Net loss |
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|
$ |
(9,292 |
) |
$ |
(183 |
) |
$ |
(43,968 |
) |
$ |
(134 |
) |
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Net loss per common share: |
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Basic |
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$ |
(0.90 |
) |
$ |
(0.02 |
) |
$ |
(4.25 |
) |
$ |
(0.01 |
) |
|
Diluted |
|
|
$ |
(0.90 |
) |
$ |
(0.02 |
) |
$ |
(4.25 |
) |
$ |
(0.01 |
) |
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|
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Weighted average common shares outstanding: |
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|
|
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Basic |
|
|
10,344,666 |
|
10,292,611 |
|
10,344,666 |
|
10,228,904 |
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Diluted |
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|
10,344,666 |
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10,292,611 |
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10,344,666 |
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10,228,904 |
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See accompanying notes to condensed consolidated financial statements.
5
ARTISTdirect, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders’ Equity (Deficiency) (Unaudited)
(amounts in thousands, except for share and per share data)
|
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Common Stock,
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Additional
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Accumulated |
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Total
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Shares |
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Amount |
|
Capital |
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Deficit |
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Equity (Deficiency) |
|
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|
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Balance at January 1, 2008 |
|
10,338,896 |
|
$ |
103 |
|
$ |
235,407 |
|
$ |
(231,468 |
) |
$ |
4,042 |
|
|
Stock-based compensation |
|
— |
|
— |
|
894 |
|
— |
|
894 |
|
||||
|
Common stock issued for consulting services |
|
5,770 |
|
— |
|
19 |
|
— |
|
19 |
|
||||
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Net loss |
|
— |
|
— |
|
— |
|
(43,968 |
) |
(43,968 |
) |
||||
|
Balance at September 30, 2008 |
|
10,344,666 |
|
$ |
103 |
|
$ |
236,320 |
|
$ |
(275,436 |
) |
$ |
(39,013 |
) |
See accompanying notes to condensed consolidated financial statements.
6
ARTISTdirect, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(amounts in thousands)
|
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|
Nine Months Ended
|
|
|||||
|
|
|
2008 |
|
2007 |
|
|||
|
|
|
|
|
|
|
|||
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Cash flows from operating activities: |
|
|
|
|
|
|
||
|
Net loss |
|
|
$ |
(43,968 |
) |
$ |
(134 |
) |
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
||
|
Depreciation and amortization |
|
|
5,800 |
|
6,371 |
|
||
|
Write-off of unamortized discount on debt and deferred financing costs resulting from principal payments on senior secured notes payable |
|
|
26 |
|
— |
|
||
|
Provision for doubtful accounts |
|
|
(9 |
) |
10 |
|
||
|
Stock-based compensation |
|
|
913 |
|
1,690 |
|
||
|
Goodwill impairment |
|
|
31,085 |
|
— |
|
||
|
Change in fair value of warrant liability |
|
|
(130 |
) |
(1,643 |
) |
||
|
Change in fair value of derivative liability |
|
|
(287 |
) |
(7,056 |
) |
||
|
Reduction in liquidated damages payable under registration rights agreements |
|
|
— |
|
(719 |
) |
||
|
Write-off of fixed assets |
|
|
— |
|
97 |
|
||
|
Sub-total |
|
|
(6,570 |
) |
(1,384 |
) |
||
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
|
(Increase) decrease in - |
|
|
|
|
|
|
||
|
Accounts receivable |
|
|
4,959 |
|
278 |
|
||
|
Finished goods inventory |
|
|
— |
|
281 |
|
||
|
Prepaid expenses and other current assets |
|
|
61 |
|
(423 |
) |
||
|
Income taxes refundable |
|
|
260 |
|
(330 |
) |
||
|
Deposits |
|
|
15 |
|
1 |
|
||
|
Increase (decrease) in - |
|
|
|
|
|
|
||
|
Accounts payable |
|
|
(995 |
) |
(426 |
) |
||
|
Accrued expenses |
|
|
(1,104 |
) |
1,307 |
|
||
|
Accrued interest payable |
|
|
2,627 |
|
2,256 |
|
||
|
Deferred revenue |
|
|
(44 |
) |
259 |
|
||
|
Deferred rent |
|
|
(20 |
) |
(10 |
) |
||
|
Income taxes payable |
|
|
— |
|
(348 |
) |
||
|
Financing agreements |
|
|
(19 |
) |
— |
|
||
|
Liquidated damages payable under registration rights agreements |
|
|
(410 |
) |
(500 |
) |
||
|
Net cash provided by (used in) operating activities |
|
|
(1,240 |
) |
961 |
|
||
|
|
|
|
|
|
|
|
||
|
Cash flows from investing activities: |
|
|
|
|
|
|
||
|
Purchases of property and equipment |
|
|
(258 |
) |
(391 |
) |
||
|
Net cash used in investing activities |
|
|
(258 |
) |
(391 |
) |
||
|
|
|
|
|
|
|
|
||
|
Cash flows from financing activities: |
|
|
|
|
|
|
||
|
Proceeds from exercise of stock options |
|
|
— |
|
102 |
|
||
|
Principal payments on senior secured notes payable |
|
|
(313 |
) |
— |
|
||
|
Decrease in restricted cash |
|
|
13 |
|
86 |
|
||
|
Net cash provided by (used in) financing activities |
|
|
(300 |
) |
188 |
|
||
|
|
|
|
|
|
|
|
||
|
Cash and cash equivalents: |
|
|
|
|
|
|
||
|
Net increase (decrease) |
|
|
(1,798 |
) |
758 |
|
||
|
Balance at beginning of period |
|
|
4,268 |
|
5,602 |
|
||
|
Balance at end of period |
|
|
$ |
2,470 |
|
$ |
6,360 |
|
(continued)
7
ARTISTdirect, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited) (continued)
(amounts in thousands)
|
|
|
Nine Months Ended
|
|
||||
|
|
|
2008 |
|
2007 |
|
||
|
|
|
|
|
|
|
||
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
||
|
Cash paid for - |
|
|
|
|
|
||
|
Interest |
|
$ |
1,495 |
|
$ |
1,139 |
|
|
Income taxes |
|
$ |
— |
|
$ |
678 |
|
See accompanying notes to condensed consolidated financial statements.
8
ARTISTdirect, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Three Months and Nine Months Ended September 30, 2008 and 2007
1. ORGANIZATION AND BUSINESS ACTIVITIES
ARTISTdirect, Inc., a Delaware corporation, is a digital media entertainment company that, through its ARTISTdirect Internet Group, Inc. subsidiary, conducts its media and e-commerce business operations through an online music network and, through its MediaDefender, Inc. subsidiary, is a provider of anti-piracy solutions in the internet-piracy-protection (“IPP”) industry. The ARTISTdirect Network consists of the Company’s website (www.artistdirect.com) and a network of related music and entertainment websites appealing to music fans, artists and marketing partners that offers multi-media content, music news and information, communities organized around shared music interests, music-related specialty commerce, and digital music services. The Company is headquartered in Santa Monica, California. Unless the context indicates otherwise, ARTISTdirect, Inc. and its subsidiaries are referred to herein as the “Company”.
Going Concern:
As a result of communications with the Staff of the Securities and Exchange Commission in 2006, in particular regarding the application of accounting rules and interpretations related to embedded derivatives associated with the Company’s subordinated convertible notes payable issued in July 2005, the Company determined that it was necessary to restate certain previously issued financial statements.
As a result, in December 2006, the Company was required to suspend the use of its then effective registration statement for the holders of its senior and subordinated indebtedness. In addition to this initial default, the Company has since entered into other events of default which continue to be in effect as of September 30, 2008. During 2007 and 2008, the Company entered into a series of forbearance agreements with the investors in the senior notes with respect to these defaults.
As a result of the requirement to restate previously issued financial statements, which resulted in the recording of an embedded derivative liability, the reclassification of the senior and subordinated indebtedness to current liabilities, and the recording of liquidated damages payable under registration rights agreements, the Company was not in compliance with certain of its financial covenants under both the Senior Financing and the Sub-Debt Financing at December 31, 2006. Notwithstanding such developments, the Company would have been out of compliance with certain of its financial covenants at December 31, 2007 and subsequently.
Pursuant to a series of Forbearance and Consent Agreements with the investors in the Senior Financing, such investors agreed to forbear from the exercise of their rights and remedies under the Senior Financing documents as a result of the events of default which were then in existence during the period, from April 17, 2007 through February 20, 2008, in exchange for aggregate cash payments of $1,000,000 in 2007 and $494,423 in February 2008. The payments made by the Company under the Forbearance and Consent Agreements were credited against the registration delay cash penalties and interest on the penalties resulting from the Company’s default under the various agreements between the Company and the Senior Financing investors. On March 17, 2008, the Company entered into a Forbearance and Consent Agreement with the investors in the Company’s Senior Debt Financing, which was effective as of February 20, 2008, whereby the investors agreed to forbear from exercising any of their rights and remedies under the Senior Financing transaction documents through December 31, 2008 in exchange for an adjustment in the interest rate associated with the Senior Notes from 11.25% to 16.0% per annum.
In addition, as a result of a significant and unexpected deterioration in MediaDefender’s business operations and prospects beginning during the latter part of June 2008, including less than anticipated revenues in 2008 from MediaDefender’s new advertising initiatives and a significant further erosion of demand for MediaDefender’s core internet anti-piracy services by the entertainment industry, the Company’s operations and cash flows were materially and negatively impacted. Accordingly, at June 30, 2008, the Company recorded a non-cash charge to operations to reflect the impairment of MediaDefender goodwill of $25,585,000, based on the Company’s conclusion that the current carrying value of the MediaDefender segment goodwill of $31,085,000 was substantially and permanently impaired at June 30, 2008. At September 30, 2008, as a result of continuing deterioration in MediaDefender’s operations during the three months then ended, the Company evaluated the remaining $5,500,000 of MediaDefender goodwill and determined that the carrying value of the MediaDefender operating unit exceeded the implied fair value of the reporting unit. Accordingly, at September 30, 2008, the Company recorded an additional non-cash charge to operations of $5,500,000 to reflect the impairment of the remaining MediaDefender goodwill.
9
The registration delay penalties and ongoing default interest charges are continuing to have a significant and material negative impact on the Company’s operations and cash flows. The Company is exploring various alternatives to resolve the defaults under its senior and secured debt obligations, but is unable to predict the outcome of such negotiations. To the extent that the Company is unable to complete a sale or merger or restructure its senior and subordinated debt obligations in a satisfactory manner and/or the lenders begin to exercise additional remedies to enforce their rights, the Company will not have sufficient cash resources to maintain its operations. In such event, the Company may be required to consider a formal or informal restructuring or reorganization, including a filing under Chapter 11 of the United States Bankruptcy Code.
The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. As a result of the foregoing, the Company’s independent registered public accounting firm, in its report on the Company’s 2007 consolidated financial statements, expressed substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that could result from the outcome of this uncertainty.
2. BASIS OF PRESENTATION
Principles of Consolidation:
The accompanying condensed financial statements include the consolidated accounts of ADI and its subsidiaries in which it has controlling financial interests. All intercompany accounts and transactions have been eliminated for all periods presented.
Interim Financial Information:
The interim condensed consolidated financial statements are unaudited, but in the opinion of management of the Company, contain all adjustments, which include normal recurring adjustments, necessary to present fairly the financial position at September 30, 2008, the results of operations for the three months and nine months ended September 30, 2008 and 2007, and the cash flows for the nine months ended September 30, 2008 and 2007. The condensed consolidated balance sheet as of December 31, 2007 is derived from the Company’s audited financial statements as of that date.
Certain information and footnote disclosures normally included in financial statements that have been presented in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission with respect to interim financial statements, although management of the Company believes that the disclosures contained in these financial statements are adequate to make the information presented therein not misleading. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2007, as amended, as filed with the Securities and Exchange Commission.
The Company’s results of operations for the three months and nine months ended September 30, 2008 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2008.
Estimates:
In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Some of the more significant estimates include the allowance for bad debts, impairment of intangible assets and long-lived assets, stock-based compensation, income tax accruals, the valuation allowance on deferred tax assets, and the change in fair value of the warrant liability and derivative liability. Actual results could differ materially from those estimates.
Reclassification:
Certain amounts have been reclassified from their presentation in 2007 to conform to the current year’s presentation. Such reclassifications did not have any effect on income (loss) from operations or net income (loss).
10
Net Income (Loss) Per Common Share:
T he Company calculates net income (loss) per common share in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 128, “Earnings Per Share” (“SFAS No. 128”), and EITF 03-6, “Participating Securities and the Two-Class Method under FASB Statement No. 128”. EITF 03-6 clarifies the use of the “two-class” method of calculating earnings per share as originally prescribed in SFAS No. 128 and provides guidance on how to determine whether a security should be considered a “participating security”.
The Company has determined that its convertible subordinated notes payable are a participating security, as each note holder is entitled to receive any dividends paid and distributions made to the common stockholders as if the note had been converted into common stock on the record date. The participatory shares are included in the weighted average shares outstanding as of the beginning of each period in calculating the basic weighted average shares outstanding.
Under the two-class method, basic income (loss) per common share is computed by dividing net income (loss) applicable to common stockholders by the weighted-average number of common shares outstanding for the reporting period. Diluted income (loss) per common share is computed using the more dilutive of the “two-class” method or the “if-converted” method. Net losses are not allocable to the holders of the subordinated convertible notes payable. Diluted income (loss) per share gives effect to all potentially dilutive securities, including stock options, senior and sub-debt warrants, and convertible subordinated notes payable, unless their effect is anti-dilutive.
The calculation of diluted weighted average common shares outstanding for the three months and nine months ended September 30, 2008 and 2007 excluded the effect from the conversion of subordinated convertible notes payable, the exercise of stock options and warrants, since their effect would have been anti-dilutive.
Issued but unvested shares of common stock are excluded from the calculation of basic earnings per share, but are included in the calculation of diluted earnings per share, to the extent that they are not anti-dilutive.
11
A reconciliation of the numerator and denominator used in the calculation of basic and diluted net loss per share for each period presented is as follows (amounts in thousands, except for share and per share data):
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
|
||||||||
|
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Numerator: |
|
|
|
|
|
|
|
|
|
||||
|
Net loss, as reported |
|
$ |
(9,292 |
) |
$ |
(183 |
) |
$ |
(43,968 |
) |
$ |
(134 |
) |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Allocation of net loss: |
|
|
|
|
|
|
|
|
|
||||
|
Basic: |
|
|
|
|
|
|
|
|
|
||||
|
Net loss applicable to common stockholders |
|
$ |
(9,292 |
) |
$ |
(183 |
) |
$ |
(43,968 |
) |
$ |
(134 |
) |
|
Net loss applicable to subordinated convertible notes payable |
|
— |
|
— |
|
— |
|
— |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net loss |
|
$ |
(9,292 |
) |
$ |
(183 |
) |
$ |
(43,968 |
) |
$ |
(134 |
) |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Diluted: |
|
|
|
|
|
|
|
|
|
||||
|
Net loss applicable to common stockholders |
|
$ |
(9,292 |
) |
$ |
(183 |
) |
$ |
(43,968 |
) |
$ |
(134 |
) |
|
Net loss applicable to subordinated convertible notes payable |
|
— |
|
— |
|
— |
|
— |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net loss |
|
$ |
(9,292 |
) |
$ |
(183 |
) |
$ |
(43,968 |
) |
$ |
(134 |
) |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Denominator: |
|
|
|
|
|
|
|
|
|
||||
|
Weighted average shares of common stock outstanding |
|
10,344,666 |
|
10,292,611 |
|
10,344,666 |
|
10,228,904 |
|
||||
|
Weighted average shares of common stock attributable to subordinated convertible notes payable |
|
— |
|
— |
|
— |
|
— |
|
||||
|
Weighted average shares of common stock used in calculating basic net loss per common share |
|
10,344,666 |
|
10,292,611 |
|
10,344,666 |
|
10,228,904 |
|
||||
|
Weighted average shares of common stock issuable upon exercise of outstanding stock options, based on the treasury stock method |
|
— |
|
— |
|
— |
|
— |
|
||||
|
Weighted average shares of common stock issuable upon exercise of subordinated convertible notes payable warrants, based on the treasury stock method |
|
— |
|
— |
|
— |
|
— |
|
||||
|
Weighted average shares of common stock used in computing diluted net loss per common share |
|
10,344,666 |
|
10,292,611 |
|
10,344,666 |
|
10,228,904 |
|
||||
12