OII 10012664 UNITED STATES 2URITIES AND EXCHANGE COMMISSIQN Washington D.C 20549 Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15d OF SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31 2009 LI TRANSITION SECURITIES EXCHANGE ACT OF 1934 REPORT PURSUANT TO SECTION 13 OR 15d OF THE For the transition period from to Commission file number 1-33472 TechTarget Where Serious Technology Buyers Decide TechTarget Inc Exact name of Registrant as Specified in Its Charter Delaware State or Other Jurisdiction of Incorporation or Organization 275 Grove Street Newton Massachusetts Address of Principal Executive Offices 04-3483216 I.R.S Employer Identification No 02466 Zip Code Registrants telephone number including area code 617 431-9200 Securities registered pursuant to Section 12b of the Exchange Act None Securities registered pursuant to Section 12g of the Exchange Act Common Stock $0.001 Par Value if the registrant is well-known seasoned issuer as defined in Rule 405 of the Securities if the registrant is not required to file reports pursuant to Section 13 or Section 15d of the Exchange Indicate Act Yes Indicate Act Yes by check mark No by check mark No Indicate by check mark whether the registrant has filed all reports required to be filed by Section 13 or 15d of the Securities Exchange Act of 1934 during the preceding shorter period that the registrant was required to file such reports and has been subject to such filing requirements past 90 days Yes No LI 12 months or for such for the Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site if any every Interactive Data File required to be submitted preŁeding 12 months or for such shorter period and posted the that pursuant to Rule 405 of Regulation S-T 232.405 of registrant was required to submit and post such files this chapter Yes LI No LI during the Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained to the best of registrants knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K LI Indicate by check mark whether the registrant is large accelerated filer an accelerated filer non-accelerated filer or smaller reporting company See the definitions of the Exchange Act Check One large accelerated filer accelerated filer and smaller reporting company in Rule 12b-2 of Large Accelerated Filer LI Accelerated Filer Non-Accelerated Do not check if Filer LI smaller reporting company Smaller Reporting Company LI Indicate by check mark whether the registrant is shell company as defined in Rule 12b-2 of the Exchange Act Yes LI No The aggregate market value of the registrants common stock held by non-affiliates of the registrant was approximately $51.3 million as of June 30 2009 based on In determining the market value of non-affiliate closing price common stock of $4.00 per share as quoted by the Nasdaq Global Market as of such date shares of the registrants common stock beneficially owned by officers directors and affiliates have been excluded The determination of affiliate status is not necessarily conclusive determination for other purposes The registrant had 42285769 shares of Common Stock $0001 par value per share outstanding as of February 26 2010 Part III of this Annual Report incorporates by reference certain information from the registrants definitive proxy statement for the 2010 annual meeting of shareholders DOCUMENTS INCORPORATED BY REFERENCE PART TABLE OF CONTENTS Business Item Item 1A Item lB Unresolved Risk Factors Staff Comments Item Item PART II Properties Legal Proceedings Item Market for Registrants Common Equity Related Stockholder Matters and Issuer Item Item Purchases of Equity Securities Selected Consolidated Financial Data Managements Discussion and Analysis of Financial Condition and Results Item 7A Quantitative and Qualitative Disclosures About Market Risk of Operations Item Item Item 9A Item 9B PART III Item 10 Item 11 Item 12 Item 13 Item 14 PART 1V Item 15 Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information Directors Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions and Director Independence Principal Accounting Fees and Services Exhibits and Financial Statement Schedules Signatures Exhibit Index 18 33 33 33 34 38 41 59 60 95 95 102 102 102 102 102 102 103 104 105 This Annual Report on Form 10-K contains forward-looking statements that are based on the beliefs of management and assumptions made by and information anticipate believe may estimate intend and similar expressions are intended currently available to them The words expect to identify such forward-looking statements including those described Forward-looking statements in Risk Factors which could involve risks uncertainties and assumptions cause our actual results to be materially different from results expressed or implied by such forward-looking statements Item Business Overview PART TechTarget Inc was incorporated in Delaware on September of specialized online content that brings together buyers and sellers 14 1999 We are of corporate leading provider IT products We sell customized marketing programs that enable IT vendors to reach corporate IT decision makers who are actively researching specific IT purchases We operate network of over 60 websites each of which focuses on specific IT sector such as storage security or networking IT professionals rely on our websites for key decision support information tailored to their specific areas of responsibility We complement our online offerings with targeted in-person events that enable for IT purchases We advertisers to engage buyers at critical stages of their decision-making process work with our advertiser customers to develop customized marketing programs often providing them with multiple offerings in order to more effectively target their desired audience Our service offerings address both lead generation and branding objectives of our advertising customers The majority of our 2009 revenues are associated with lead generation advertising campaigns As IT professionals have become increasingly specialized they have come to rely on our sector- specific websites for purchasing decision support Our content strategy enables IT professionals to navigate the complex and rapidly changing IT landscape where purchasing decisions can have significant financial and operational consequences Our content strategy includes three primary sources of content which IT professionals use to assist them in their pre-purchase research independent vendor generated content content over 100 full-time editors who create original and user generated content As of December 31 2009 we employed content tailored for specific audiences which we complement with content our independent content accessing vendor content through our association with outside registered members are able to conduct such as white papers webcasts our network of websites Our network of websites industry experts In addition to utilizing their pre-purchase research by and podcasts also allows users to seamlessly interact and virtual events videocasts across contribute content which is highly valued by IT professionals during their research process We have large and growing base of registered members which totaled approximately 8.5 million as of December 31 2009 The targeted nature of our user base enables IT vendors to reach specialized audience efficiently because our content is highly segmented and aligned with the IT vendors specific products Since our founding in 1999 we have developed broad customer base During 2009 we delivered advertising campaigns for approximately 1100 customers No one customer represented more than renewal rate of our top 100 customers has exceeded 90% We generated revenues of approximately $86.5 million in 2009 down from revenues and the quarterly 10% of consistently approximately $104.5 million in 2008 Over approximately $21 million in 2008 to approximately $14 million in 2009 the same period our Adjusted EBITDA decreased from Available Information Our website address is www.techtarget.com We make available free of charge through our website our Annual Reports on Form 10-K Quarterly Reports on Form 10-Q and Current Reports on Foim 8-k and amendments uk such material with or murnmsh these reports as soon as reasonably practicable such material time Securities Our reports filed with the SEC are also available at the SECs website and Exchange after we electronically Commission SEC at www.sec.gov Our Code of Conduct and Ethics any amendments to our Code of Business and Board Committee Charters are also available on our website Business Conduct and Ethics and Corporate Governance Guidelines We are not including the information contained on our website as part of or incorporating it by reference into this Annual Report on Form 10-K The public may read and copy any materials file with the SEC at the SECs Public Reading Reference Room at 100 Street NE Washington that we DC 20549 and the public may obtain calling the SEC at l-800SEC-0330 information on the operation of the Public Reference Room by Industry Background The ongoing the media business shift that from traditional print and broad-based has been experiencing continues advertising to targeted to accelerate We believe the three major online advertising trends driving this shift continue to be Targeted Content Channels Lead to Greater Efficiency for Advertisers The desire of advertisers to reach customers efficiently has led to the development and proliferation of market-specific content channels throughout all forms of media Targeted content channels increase advertising efficiency by enabling advertisers to market specifically to the audience they are trying to reach Content providers are finding new ways such as specialized cable television channels magazines and events to offer increasingly targeted content to their audience and advertisers The Internet has enabled even more market-specific content offerings and the proliferation of market-specific websites provides advertisers with efficient and targeted media to reach their customers The Internet Improves Advertisers Ability to Increase and Measure Return on Investment Advertisers are increasingly focused on measuring and improving their return on investment or ROl Before the advent of Internet-based marketing there were limited tools for accurately measuring the results of marketing campaigns individual users and their responses in timely fashion The Internet has enabled advertisers to track to their marketing programs With the appropriate technology vendors now have the ability to assess and benchmark the efficacy of their online advertising campaigns cost-effectively and in real-time As result advertisers are now increasingly demanding measurable ROT across all forms of media The Internet Is Increasingly Critical in Researching Large Complex and Costly Purchases The Internet has improved the efficiency and effectiveness of researching purchases The vast quantity of information available on the Internet together with search engines and directories that facilitate information discovery enables potential purchasers to draw information from many sources including independent experts peers and vendors in an efficient manner These benefits are most apparent in the research of complex and costly purchases which require information from variety of sources By improving the efficiency of product research the Internet enables potential purchasers to save significant time and review wider range of product selections Corporate IT Purchasing The trends toward targeted content channels increased focus on ROT by advertisers and Internet- based product research are evident in the corporate IT market Over the past two decades corporate IT purchases large sectors have grown in size and complexity The corporate such as storage security and networking Each of IT market is comprised of multiple sectors can in turn be further these divided into sub-sectors that contain products addressing the areas of specialization within an enterprises IT environment For example within the multi-billion dollar storage sector there are numerous sub-sectors such as storage area networks storage management software and backup software Furthermore the products in each sub-sector may service entirely independent markets For example backup use in Linux environments software for use in Windows environments can be distinct from that designed for In view of the complexities high cost and importance of IT decision-making corporate IT purchasing decisions are increasingly being researched by teams of functional experts with specialized knowledge information officer The corporate in their particular areas rather than by one central IT professional such as chief IT purchasing process typically requires lengthy goes through when deciding sales cycle typically consist of customer sales cycle The to purchase sales cycle is the sequence of stages product or service from particular that typical customer vendor Key stages of recognizing or identifying need identifying possible solutions and vendors through research and evaluation and finally making decision to purchase the product or service Through various stages of this sales cycle IT professionals rely upon multiple inputs from independent experts peers and IT vendors Although there is vast amount of information available the aggregation and validation of these inputs from various sources can be difficult and time-consuming The long sales cycle for corporate IT purchases as well as the need for information support requires substantial investment on the part of IT vendors which drives the significant marketing expenditures in the corporate IT market In addition technology changes at an accelerated pace and there are often multiple solutions to particular IT need With each new product or product enhancement IT vendors implement new advertising campaigns and IT professionals must research new technologies The Opportunity Corporate IT professionals increasingly are demanding specialized websites and events tailored to the sub-sectors of IT solutions that they purchase Prior to widespread Internet adoption corporate IT buyers researching purchases and large industry publications become much more specialized relied largely on traditional IT media consisting of broad print trade shows As technology vendors and IT professionals have all the Internet has emerged as preferred purchase research medium that has drastically reduced and improved research time Despite this most traditional IT media remains general in nature and disproportionately oriented towards print Consequently IT professionals continue to expend time searching inefficiently for information that is appropriate to their more specialized IT purchase requirements IT advertisers seek IT buyers that align with the solutions revenue models service high-ROT marketing platforms that provide access they sell Traditional IT media companies with print-based large circulation with broad content This minimizes the likelihood of that researching the purchase of solution buyer while he or she is actively falls to the specific sectors of vendor reaching within the vendors particular market sector Although the Internet now offers means to reach IT buyers while they are conducting research the web properties advertisers superior operated by these traditional IT media companies offer online content and audiences that are in many cases derivative of their existing print efforts Without more targeted marketing platform oriented to IT professionals for decision support need difficulty meeting the ROT needs of for specialized IT marketers IT purchases traditional IT media companies have faced Our Solution Our specialized content strategy enables IT vendors to reach corporate IT professionals who are actively researching purchases in specific IT sectors Our online network of websites is complemented by conferences limited number of highly seminars and other in-person events Prior to December 2008 we also published targeted print magazines in which IT vendors could reach IT professionals As of Deceniber 2008 we discontinued publishing ad print magazines and do no anticipate publishing any punt oiagaii tailored to their specific purchasing needs Our solution ics ei Ii pioiessiouiais rely on our platform lie no or decisiofl support information benefits from the following competitive advantages Large and Growing Community of Registered Members We have built database with detailed December 31 2009 We have collected our registered members which allows us to provide information detailed business business advertisers with highly targeted audiences and sales leads on approximately 8.5 million IT professionals as of and technology profiles with respect to them with more specialized registered member Strong Advertise base that now comprises approximately 1100 active advertisers our top 100 customers has consistently exceeded 90% Relationships Since our founding in 1999 we have developed and the quarterly renewal rate of content and our broad customer Substantial Experience in Online Media We have over ten years of experience in developing our online media content with focus on providing targeted information to IT professionals and targeted audience to vendors Our experience enables us to develop new online properties rapidly and professionals to acquire and efficiently We have also developed integrate select properties that further serve IT an expertise in implementing integrated targeted marketing campaigns designed to maximize the measurability of and improvement in ROI Significant Brand Recognition Among Advertisers and IT Professionals Our brand is well-recognized by advertisers who value our integrated marketing capabilities and high-ROT advertising programs At the same time our sector-specific websites command brand recognition among IT professionals content who rely on these websites because of their specificity and depth of Favorable Search Engine Rankings Due to our long history of using targeted approach toward online publishing our network of websites has produced large repository of archived content that allows us to appear on search result pages when users perform targeted searches on search engines such as Google We are successful turn increases our registered membership in attracting traffic from search engines which in Proprietay IT vendors Lead Management Technology Our proprietary to prioritize and manage efficiently technology enables the leads we provide improving the efficacy of lead management their sales teams and optimizing the ROT on their marketing expenditures with us Our solution increases efficiency for both IT professionals and IT vendors It facilitates the ability of IT professionals to find specific to reach IT buyers that are actively information vendors related to their purchase decisions while enabling IT researching specific solutions related to vendors products and services Set forth below are several ways our solution benefits IT professionals and IT vendors Benefits to IT Professionals Provides Access to Integrated Sector-Specific Content Our websites provide IT professionals with sector-specific content from the three fundamental sources they value in researching IT purchasing decisions industry experts peers and vendors Our staff of editors creates content specific to the sectors we serve and the key sub-sectors within them This content is integrated with other content generated by our network of third-party industry experts member-generated content and content from IT vendors The reliability breadth and depth and accessibility of our content offering enable IT professionals to make more informed purchases Increases Efficiency of Purchasing Decisions By accessing IT professionals are able to research important purchasing decisions more effectively Our targeted and specialized information integrated content maximizes the time available for consuming quality content Furthermore offering minimizes the time spent searching for and evaluating content we provide this specialized targeted content through variety of media that together address critical stages the purchase decision process and of Benefits to IT Vendors Targets Active Buyers Efficiently that are actively researching able to target further those Our highly targeted content attracts specific targeted audiences purchasing decisions registered members most likely to be of value Using our to IT vendors registered member database we are Advertising to targeted audience minimizes advertiser expenditures on irrelevant audiences increasing advertising efficiency Generates Measurable High ROl Our targeted online content offerings enable us to generate and collect valuable This information is provided business customized to advertisers needs to support their advertising programs by users prior to accessing specific content and can be further As users access information about each user and his or her technology preferences sponsored leads in real-time As content we register and process this information and deliver qualified actionable result our advertisers are able to measure and improve the ROI on their advertising expenditures with us Generates and Prioritizes QualifIed Sales Leads Our IT vendors also use our detailed member database and integrated advertising to identify and market the highest potential value Once the leads have campaigns to have they consider proprietary lead management technology enables customers to categorize more effectively to these leads to the audience members been delivered our prioritize and market Maximizes Awareness and Shortens IT white papers webcasts opportunity to educate IT professionals videocasts the Sales Cycle As leading distributor of vendor-provided virtual events and podcasts we offer IT vendors the during the research process prior to any direct interaction with vendor salespeople By distributing proprietary content and reaching their target audiences via our platform IT vendors can educate audiences demonstrate their product capabilities and proactively brand themselves as specific product leaders As result an IT is knowledgeable professional she engages with the vendor which reduces about the vendors specifications and product by the time he or time and cost expended by the vendors sales force Reaches IT Professionals at Critical Stages of the Purchase Decision Process Because our content platform includes online and event offerings IT vendors can market to IT professionals at critical stages of the purchase decision process through multiple touch points In addition to targeting IT professionals have face-to-face as they conduct purchase research on our website IT vendors can interactions with qualified buyers seeking to finalize purchase decisions at our in-person events Our Strategy Our goal is to deliver superior performance by enhancing our position as leading provider of specialized we serve In order to achieve content that connects IT professionals this goal we intend to with IT vendors in the sectors and sub-sectors that Continue to Develop Our Content Platform and Service Offerings We intend to continue additional websites in order to capitalize on the ongoing shift and our platform develop to launch from traditional broad-based media toward more focused online content that increases the efficiency of advertising spending We intend to capture additional revenues from existing and new customers by continuing to develop our content and to segment it to deliver an increasingly specialized audience to the IT vendors who advertise across our media We also intend to continue to deliver highly engaged and growing audience to advertisers and to develop innovative marketing programs Expand into Complementaiy Sectors We intend to complement our current offerings by continuing to expand our business adjacent or new sectors that we believe to be well-suited in order to capitalize on strategic opportunities to our business model and core on our experience we believe we are able to capitalize rapidly and in existing competencies cost-effectively on new market opportunities Based Expand Our International Presence We intend to increase our presence in countries websites outside foreign markets further by directly launching and India and in additional in the United Kingdom in 2008 and in India and Spain in 2009 we expect foreign markets as well as by licensing our content additional sector specific websites to penetrate in the UK Spain in new foreign to expand our addressable the United States Having market by continuing launched our own territories and if deemed appropriate making strategic acquisitions and investments in overseas entities During 2009 less than 5% of our revenues were derived from international We believe many of also are occurring in international markets and therefore trends contributing the current future to our domestic online revenue opportunity customers present revenue opportunity Selectively Acquire or Partner with Complementaiy Businesses means of rapidly expanding members Historically our content and service We have used acquisitions and registered offerings web traffic as our acquisitions can be classified into three categories content-rich blogs or other individually published sites typically generating less than one million dollars in revenues early stage revenue sites typically generating between one and five million dollars in annual revenues and later stage revenue sites typically generating greater than five million dollars in annual revenues We intend to continue to pursue selected acquisition or partnership opportunities in our core markets and in adjacent markets for products with similar characteristics Platform Content Our integrated content platform consists of network of websites targeted in-person meet IT professionals events At critical stages of the purchase needs for expert peer and IT vendor decision process information and provide which IT vendors can launch targeted marketing campaigns that generate measurable platform on high ROT that we complement with these content offerings The diagram below provides representation of the media services provided by our platform and the media groups we currently use to categorize our content offerings The Most Targeted IT Media Where Serious Technology Buyers Decide Sponsorship and Banners Video Coiitexitsctl AdaertiSing Whsn Papers Wekrcastv Pod SOoty Optdrs IT Resources CtQ/IT Strowgy Sea rchCIO.corn ITKeornledgesxchange.corn xtj SearchC O-Midrnarket.corn Virtaa/ nents List Psondssls 5000 go Search Storage.corn ea rch Datat acku corn Software Corn parisons Whatis.corn SearchHealth T.corn SearchSMtStorage.corn titpipe.corn Sea rd Corn plian ce corn Search DsasterRecovrry.corn KnowledgeStorrn.corn 0- SearchC On Sea rch Stura co ge ea rch Sto rage es Vertical Software aoaonoftwore.com Construction Accounting Manufactu ring Mtdjcob HR Enterprise Applications SearchCtM.corn Data Center/Platforms SeorchDataCenter corn SearchEnterpriseLirtux.corn Search WtedowsServer.corn Sea rch Win IT corn Search EnterprseDesktop.corn Search400.corn Search DataCenter.in SearchaatoManagernent.com 0- SearchSAP.corn SearchManufacturingERP.corn SearchOracle.corn SearchSQLServer.corn Searchtnchange.corn __ SeorchDornino.corn Application Development SearchSOA.corn ebizQ.net Sea rch oftwo reQ lit0 co rn TheServerStde.com The Se rverSid ET Ajaxta scorn SearchWinoeveloprnent corn Security SearchSecurity.corn SearchFinancialSecurity corn SearchMiderarketSecurity.cOrn 0- SearchSecurity.co UK SearchSecurity iv Sea rch ITChan eel corn SeorchStorageChaonel.cOrn Sea rch Sec rityCh eel corn Sea rc Sys tern sChae eel corn Sea rch etwo rki gCha eel corn Networking Search Networking.corn SearchEeterpriseWAN.corn SearchUoifiedCornrnunications.corn It SearchMobileCornputeg.corn SearchTelecorn corn Virtuolization Sea rch Se rverVtrtu at to co Cd SearchVMware.corn SearchC ouclCornputiog.corn SearchV rtua Desktop.corn BriarMadden corn SearchVrtualDataCentre co.U Product Reviews oteboo Review co re DesktopReview.corn PrinterCornparson.corn Tablet PC Revi ew corn trighthand corn DgtalCarneraReview.corn I i Media Groups Based upon the logical clustering of our users respective job responsibilities and the marketing focus of the products that our customers are advertising we currently categorize our content offerings across ten distinct media groups Each of these media groups services wide range of IT vendor sectors and sub-sectors and is driven by the key areas of IT professionals interests described below Security Every aspect of enterprise computing now depends on secure connectivity data and applications The security sector is constantly growing to adapt to new forms of threats and to secure new technologies such as mobile devices and wireless networks Compliance regulations along with highly publicized identity and intellectual property thefts are driving interest and investment in increasingly sophisticated security solutions that supplement common perimeter security solutions such as firewalls and antivirus software Our online properties in this sector SearchSecurity.com SearchFinancialSecurity.com SearchMidMarketSecurity.com and SearchSecurity.co.UK offer navigable and structured guides on IT vendor and technology solutions in key sub-sectors such as network authentication data and application security intrusion defense security and security information management software identity management and Our annual Security Decisions conference seminars on issues such as compliance monitoring and data protection anchors calendar of topically-focused regional Networking Broadly defined the networking market includes the hardware software and services involved in the infrastructure and management of both Enterprise and Carrier voice and data networks As new sub-sectors of networking have emerged and grown in importance networking professionals in such technologies Our online and mobile computing and telecommunication VoIP wireless their investments increasingly focused have technologies IT as properties in this sector SearchNetworking.com SearchEnterpriseWAN.com SearchUnifiedCommunications.com SearchMobileComputing.com and SearchTelecom.com aim to address the specialized needs of these IT networking professionals by offering content targeted specifically to these emerging security and access control application growth areas visibility and performance monitoring WAN acceleration as well as key initiatives such as network and optimization voice/data/video convergence and remote office management and connectivity Storage The storage sector consists of the market for disk storage systems and tape hardware and software that store and manage data Growth is fueled by trends inherent such as to maintain and supplement the ongoing stores need data in the industry and by external factors such as expanded compliance regulations and increased focus on disaster recovery solutions These latter trends have driven overall storage growth and led to new specialized solutions such as remote replication software and information life cycle management solutions At the same time established storage sub-sectors such as backup and SANs have been invigorated by new technologies such as disk-based backup continuous data protection and storage virtualization Our online properties in this sector SearchStorage.com SearchSMBStorage.com SearchDisasterRecovery.com SearchDataBackup.com and SearchStorage.co.UK address IT professionals NAS backup seeking solutions in key sub-sectors such as fibre channel SANs IP iSCSI SANs hardware and software and storage management software The audiences at our in-person Storage Decision conferences are comprised almost exclusively of storage decision makers from within IT organizations These events are supplemented by regional seminars on topics such as backup and disaster recovery Data Center and Virtualization Technologies Data centers house the systems and components such as servers storage devices routers and switches utilized in large-scale mission-critical computing center as environments variety of trends and new technologies have reinvigorated the data priority among IT professionals Technologies such as blade servers and server virtualization have driven renewed investment in data center-class computing solutions Server consolidation is now focus driven by the decline in large-scale computing prices relative to 10 distributed computing models These trends have put pressure on existing data center infrastructure and are driving demand for solutions that address this For example the deployment of high-density data centers Power and cooling have servers has led to increased heat output and energy consumption in thus become significant cost in IT budgets making data center energy efficiency information on the IT vendors priority Our key online properties technologies and solutions in this sector provide targeted sub-sectors Our these serve that properties in this sector cooling mainframe and UNIX servers SearchEnterpriseLinux.com include SearchDataCenter.com covering disaster recovery power and systems management focused on Linux migration and and server consolidation infrastructures Search400.com covering mid-range computing SearchServervirtualization.com covers the decision points and alternatives for implementing server virtualization while SearchVMware.com and RTFM-ed.co.uk focus on managing and building out virtual environments on the most widely- installed server virtualization platform The Transforming your Data Center seminar series hosts key decision makers from large data cloud computing vs co-location centers and covers key issues such as server virtualization and data center transformation and re-architecture We also cover servers application environments The dominant platform Windows and desktop solutions deployed in distributed computing no longer environment with its own areas of represents an offering of discrete operating systems but rather diverse computing specialization servers have become more stable and scalable around IT functions such as database administration and security As Windows they have taken share in data centers and currently represent market we have segmented our Windows-focused media based on IT professionals one of the largest server sub-sectors Given the breadth of the Windows infrastructure responsibilities and purchasing focus Our online properties in this sector include SearchWinServer.com covering servers storage and systems management SearchSQLServer.com targeted toward senior management for distributed computing and advice SearchDomino.com SearchExchange.com to IT professionals sites provides resources topics as Windows backup SearchEnterpriseDesktop.com LabMice.net all focus on the deployment and management of end-user computing and storage server consolidation and upgrade planning SearchDesktopVirtualization.cOm BrianMadden.com and pursuing solutions related to such and SearchWinlT.com each environments This network of environments Combined with our two properties that focus on server virtualization SearchDesktopVirtualization.com and BrianMadden.com each focusing on desktop virtualization gives us comprehensive offering addressing the in fast-growing area of virtualization regional seminars Our BriForum conference technologies Our online offerings in this sector focuses are supplemented on desktop virtualization and related by in-person technologies ClOuT Strategy Media Group Our ClOuT Strategy media group provides Chief or CIOs and senior Information Officers IT executives enabling them to make informed content targeted at IT purchases throughout the critical stages of the purchase decision process CIOs areas of interest focused generally align with the major sectors of on the alignment between IT and their businesses operations the IT market however CIOs increasingly Because businesses are IT strategies vary significantly providing specific guidance Data center consolidation based upon company size we have to CIOs of large enterprises mid-market segmented the ClO market by enterprises and SMBs compliance ITIL IT service management disaster recovery/business continuity computing risk management and outsourcing of have all drawn the attention including software-as-a-service and cloud IT executives who need to understand the operational and strategic implications of these issues and technologies Accordingly our targeted information resources for senior IT executives on their businesses on ROl focus implementation to these initiatives Our online properties strategies best practices and comparative assessment of vendor solutions related in this sector include SearchClO.com which provides 11 Lu jp WLlI SeaichlO-Midmrk un whicti dgR iufuituctuuu 1argtt iT managers touseu on citucal purdilasing to inediumsized at small decisions businesses and SearchCompliarice.com which provides advice on IT-focused regulations and standards to IT and business executives and other senior IT managers The ClO/IT Strategy Group also includes online resources and events targeted to IT decision makers in prominent vertical industries SearchHealthli.com provides strategic IT purchasing information and advice to senior IT and clinical professionals in hospitals medical centers university health centers and other care delivery organizations as well as organizations in the life sciences sector Enterprise Applications software for mid-sized Our Enterprise and large companies Applications media group focuses on mission critical such as databases and data management applications enterprise resource planning and customer facing applications such as CRM software Because these applications are critical to the overall success of the businesses that use them there is high demand for specialized information by IT and business professionals involved in their purchase implementation and ongoing support Our properties in this sector include SearchCRM.com SearchDataManagement.com SearchOracle.com SearchSAP.com and SearchManufacturingERpcom which are leading online resources that provide this specialized information to support mission critical business applications intelligence data management sales force automation databases They cover CRM business and ERP software Vertical Software The SMB market supports high degree of specialization by software vendors as applications are offered that address the business requirements of specific industry verticals such as construction manufacturing extensive up-front research requires and many others The purchase of these applications highly specialized large or IT staffs Our web site 2O2Osoftware.com helps decision-makers from small in many cases may not have by companies that to mid-sized companies evaluate specialized business applications by providing side-by-side comparisons of the leading software providers in categories such as manufacturing human resources financial and accounting and construction software Users of the site can request further information and trial software simplifying their research process downloads from multiple vendors in single transaction Application Development The application development of tools and languages that enable developers architects sector is comprised of and project managers broad landscape to build customize and integrate software for their businesses Our application development online properties .NET Java focus on development and XML as well as related in enterprise environments the underlying languages such as application development tools and integrated development and are driving growth The desire for more flexible environments or IDEs Several trends have had profound impact on this sector and interoperable applications architecture continues to propel interest in SOA BPM and web services technologies Application integration application testing and security as well as AJAX and rich Internet applications are also key areas of continuing focus for vendors sector include TheServerSide.com and TheServerSide.NET and developers Our online properties which host independent in this communities of developers and architects using Java and .NET respectively Ajaxian.com serves web developers developers application of rich internet applications who use the .Net platform SearchSoftwareQuality.com offers content testing and quality assurance and SearchWinDevelopment.com serves Windows while SearchSOA.com and eBizQ.net serve Architects focused on IT Managers architectures supplemented and Line of Business BPM and working with related by conferences on enterprise Executives who are interested in building out service oriented technologies Our online properties are application development technologies Channel Our Channel properties address the information needs of channel companies classified as resellers value added resellers solution providers systems integrators managed service providers and consultantsin the IT market As IT professionals have become more 12 specialized IT vendors actively have sought resellers with specific expertise in the vendors sub-sectors Like IT professionals channel solution technical content in order to operate successfully channel are well-suited to our integrated targeted providers now require more focused in their sectors The resulting dynamics strategy Our online properties content in the in this sector include SearchlTchannel.com SearchStorageChannel.com SearchSecurityChannel.com SearchNetworkingChannel.com service and support hardware and SearchSystemsChannel.com As channel companies resell software and services from vendors in particular IT sector the key areas of focus tend to parallel those for the sub-sectors addressed by our IT-focused properties channel SANs NAS IP SANs for security for storage backup storage virtualization and network storage solutions such as fibre intrusion defense compliance and identity management for networking wireless network security and VoIP for systems blade servers consolidation and server virtualization Techno1oyGuide.com operates portfolio of Internet content sites that provide product reviews price comparisons smartphones TabletPCReview.comT and user forums for technology products such as laptops desktops and including NotebookReview.com Brighthand.cornT covering smartphones and PrinterComparison.com DesktopReview corn and DigitalCameraReview.corn These sites represent an ideal complement to our enterprise-IT-focused TechTarget laptops desktops smartphones complementary in-depth content sites because IT professionals purchase large volume of and mobile computing for our IT audience devices Thus these sites offer additional as well as access for our advertisers to the broader audiences that visit these sites for information User Generated Content and Vendor Content ITKnowledgeExchange.com is site devoted entirely to user generated content and our most concerted effort to date to facilitate Question and Answer section The site incorporates peer to peer interaction number of the use of tag-based navigation that allows users to self-classify represents amongst our users via blogs and important Web 2.0 features such as and wiki-based QA content functionality that allows them to collaborate with each other to respond to technical questions and product recommendations submitted by other users Bitpipe.com and KnowledgeStorm.com are sites that we operate and that host vendor-provided content such as white papers software downloads videocasts collections of this vendor content helps our users conduct and webcasts Maintaining centralized research more easily and pre-purchase allows us to maximize the ability of relevant inclusion of vendor content our network Media Offerings this content from Bitpipe.com and KnowledgeStorm.com to be found by search engines We provide contextually in on the other sites We use the following online and event offerings to provide IT vendors with numerous touch points to reach key IT decision makers multiple forms of media We are experienced in assisting advertisers and to provide IT professionals with highly specialized content across to develop custom advertising that maximize branding and ROT The following is description of the services we offer programs Online Our network of websites forms the core of our content platform Our websites provide IT professionals with comprehensive decision support information tailored to their specific areas of responsibility and purchasing decisions media offerings to connect IT vendors Through our websites we offer variety of online to IT professionals Our lead generation offerings allow IT vendors to maximize ROI by capturing qualified sales leads from the distribution and promotion of content to our audience of IT professionals Our branding offerings provide IT vendors exposure related to their product to targeted and audiences of IT professionals actively researching information services Our branding offerings include banners and c-newsletters Banner advertising can be purchased on specific websites ability to advertise in c-newsletters focused on key site sub-topics vendors the ability to increase their brand awareness to highly 13 within our network We also offer the These offerings give IT IT sectors specialized supply their The Oui kad geliei aLuio ufferings include Lne following White Papers White papers are technical or technical problems which are addressed documents created by IT vendors to describe business by the vendors products or services IT vendors pay us to have their white papers distributed to our users and receive targeted promotion on our relevant websites Prior to viewing white papers our registered members and visitors corporate contact information and agree to receive further information from the vendor corporate contact and other qualification information for these leads are supplied to the vendor in real time through our proprietary lead management software Webcasts Podcasts and Videocasts and videocasts of podcasts that bring informational and in the case directly to their mobile devices As is the case with white papers our users supply IT vendors pay us to sponsor and host webcasts sessions directly to attendees desktops podcasts their corporate contact and qualification information to the webcast podcast or videocast sponsor when they view or download information and visibility before during and after the event the content Sponsorship includes access to the registrant Software Package Comparisons Through our 2O2Osoftware.com website IT vendors pay us to post information and specifications about their software packages typically organized by application trial software category Users can request from multiple software further providers information which may include downloadable in sectors such as CRM accounting software and business analytics IT vendors their information in turn receive qualified leads based upon the users who request Promotional E-mails IT vendors pay us to further webcasts or downloadable trial software podcasts target the promotion of their white papers by including their content in our periodic e-mail updates to registered users of our websites Users who have voluntarily registered on our websites receive an e-mail update from us when vendor content directly related to their interests is listed on our sites List Rentals We also offer IT vendors the ability to message relevant registered members on topics related members using specific criteria to their interests IT vendors can rent our e-mail such as company size geography and postal lists of registered or job title Contextual Advertising Our contextual advertising programs associate IT vendor white papers webcasts or other content on particular topic with our related sector-specific content IT vendors have category the option to purchase exclusive sponsorship of content related to their product or Third Party Revenue Sharing Arrangements We have arrangements with certain third parties including email subscribers for the licensing of our online content and for which advertising for the renting of our database of opted-in third parties is made from customers of certain available to our website visitors In each of these arrangements we are paid share of the resulting revenue Events Our in-person events bring together to talk to IT vendors about key topics of are free to IT professionals events and interest sponsored IT professionals to hear from industry experts and in the sectors we serve The majority of our by IT vendors Attendees are pre-screened based on event-specific criteria such as sector-specific budget size company size or job title Our to meet with an audience of qualified IT decision makers who all have sponsors been pre-screened to determine the ability value purchase decision We offer three types of events multi-day conferences seminars and custom high level of buying interest and the ability to execute events Multi-day conferences vendors provide independent expert content for our attendees and allow to purchase exhibit space and other sponsorship offerings that enable interaction with the attendees We also hold single-day seminars on various topics in major cities These seminars 14 provide independent content on key sub-topics attendees and offer multiple vendors the ability in the sectors we serve are free to qualified to interact with specific targeted audiences actively focused on buying decisions Our custom events differ from our seminars in that they are exclusively sponsored by single IT vendor and the content is driven primarily by the sole sponsor Customers We market to IT vendors targeting specific audience within an IT sector or sub-sector We maintain multiple points of contact with our customers in order organization and during critical stages of the sales cycle As result to provide support throughout given individual customers often run multiple advertising programs with us in order to reach discrete portions of our targeted audience Our services are generally delivered under program typically less than months customer customer base that now comprises approximately represented more than 10% of revenues customers has consistently exceeded 90% Sales and Marketing short-term contracts in length Since our run for the length of that founding in 1999 we have developed 1100 active advertisers During 2009 no one given advertising broad and the quarterly renewal rate of our top 100 access targeted highly groups that we operate as well as believe that our sector-specific Since our in 1999 we have maintained an internal direct sales department closely with existing and potential customers to develop customized marketing programs inception that works that provide media to IT professionals We organize the sales force by the sector-specific national accounts team that works with our largest advertisers We allows our sales personnel to develop high level of expertise create effective marketing programs 2009 our sales and marketing staff consisted our Newton Massachusetts sales organization and integrated approach to our service offerings in the specific sectors they cover and to tailored to the customers specific objectives As of December 31 of 195 people The majority of our sales staff is located in headquarters and our office in San Francisco California We pursue variety of marketing initiatives designed awareness of our brand to IT vendors and positioning to support our sales activities leader thought as ourselves by building in ROI-based marketing These initiatives include purchasing target the technology advertising market as well as engaging in direct communications we have built since inception Examples contacts database of advertising of our direct communications with the online and event sponsorships in media vehicles that include selected direct mail updates on new product launches in-person events videocasts and white papers for technology best practices on the latest marketers entitled My Educated Guess which we use as ideas and viewpoints on myriad of online subjects in the field of online marketing Additionally and initiatives We also produce marketers where we provide information we publish blog for thought leadership vehicle to promote our Online User Acquisition Our primary source of traffic to our websites is through non-paid traffic sources such as our existing registered member base and organic the primary source of new registered members for our sites Because engine search traffic Organic search engine traffic is also our sites focus on specific sectors of traffic the IT market our content targeted and is an effective means for attracting search and resulting members We also make user-focused marketing expenditures designed to and registered members We employ and our non-paid traffic is highly variety of online marketing rentals of opt-in list targeted on the major search engines vehicles such as keyword advertising supplement engine e-mail subscribers from variety of targeted media sources 15 Technological Infrastrncturc We have developed an expandable operations infrastructure using hardware and software from established IT vendors to maintain our websites co-located at an offsite data center All of the critical and online offerings Our system hardware components the system are redundant of is systems allowing Our us to withstand unexpected component failure and to undergo maintenance and upgrades infrastructure is scalable enabling us to make incremental additions that fit into the existing environment as our system requirements grow based on traffic copied to backup tapes daily which are sent to an off-site and member growth Our critical data is storage facility We maintain quality connectivity We have assurance process to monitor constantly our servers processes and network implemented these various redundancies and backup systems in order to minimize the risk associated with damage from fire power events beyond our control We believe that continued development loss telecommunications failure break-ins computer viruses and other of our technological to continue to make technological infrastructure improvements is critical to our success We have made and expect in this infrastructure to improve our ability to service our users and customers Competition We compete for potential advertisers with number of different types of companies including broad-based media outlets such as television newspapers reach wide audience general purpose portals and search engines and offline and business periodicals that are designed to and online offerings of media companies that produce content specifically for IT professionals The market for advertisers is highly competitive and in each of the sectors we serve as well as across the services we offer our primary competitors are the media companies Our four primary competitors for advertisers are United Business Media International online market we generally information content of use of our websites sales leads generated for advertisers Our events compete ease that produce content specifically for IT professionals each of which possess substantial resources to compete Data Group CNet and Ziff Davis Enterprise Inc In the on the basis of target audience for IT professionals quality and and the quality and quantity uniqueness of of generally compete on the basis of the quality and integrity of our content offerings the quality of our attendees and the ability to provide events that meet the needs of particular sector segments As with the competition for advertisers we compete for the users who comprise our target audiences primarily with the media companies specifically Ziff Davis for IT professionals Enterprise Inc such as United Business Media International that produce content Data Group CNet and User Privacy We gather in-depth business information about our registered members who elect to provide us information through one or more of through tracking certain behavioral the online registration forms displayed on our websites as well as activity of users of our sites We post our privacy policy on our websites so that our users can access and understand the terms and conditions applicable to the collection and use of that information Our privacy policy also discloses the types of information we gather how we use it and how user can correct explains the circumstances under which we share for our websites have the option of indicating specific receive offers via e-mail or postal mail party IT vendor customers To protect our disclosures this information Our privacy policy also or change this information and with whom Users who register in which areas of interest they are willing to these offers contain content created either by us or our third- and obligations to our users we impose constraints consistent with our commitments to whom we provide user data Additionally when we provide lists to third parties including to our user community that are generally to our on the customers advertiser customers it is under contractual terms that are generally consistent with our obligations to our users and with applicable laws and regulations 16 Consumer Protection Regulation General Advertising and promotional activities presented to visitors to federal and state consumer protection laws that regulate unfair and deceptive subject to various other federal and state consumer protection laws including on our websites are subject practices We are also the ones described below CAN-SPAM Act Effective January 2004 the Controlling the Assault of Non-Solicited Pornography Act regulates and Marketing Act of 2003 or the CAN-SPAM Act became effective the recipient commercial e-mails right on the part of and provides The CAN-SPAM to request the sender to stop sending messages and establishes penalties for the sending of e-mail messages that are intended to deceive commercial e-mails and other persons who initiate the recipient as to source or content Under the CAN-SPAM Act senders of to make sure that those e-mails are required those e-mails do not contain false or misleading transmission information Commercial e-mails are required to include valid return e-mail address and other subject heading information so that the sender and the Internet be furnished with an electronic method of from which the message location has been sent are accurately identified Recipients must informing the sender of the recipients decision not to receive further commercial e-mails In addition the e-mail must include postal address of the sender and notice that that our websites distribute to registered members and to some of our other commercial e-mail on May 12 2008 the FTC issued additional The CAN-SPAM Act may apply to the e-newsletters is an advertisement regulations the e-mail to the related communications However CAN-SPAM Act including distribute to our registered members would be exempt Act At this time we are applying interpretations of the Act that indicate that e-newsletters from most of the provisions such as those we of the CAN-SPAM the CAN-SPAM requirements to these e-mail communications and believe that our e-mail practices comply with the requirements of the CAN-SPAM Act Other Consumer Protection Regulation federal and state consumer protection laws The FTC and many state attorneys the online collection that to require general are applying use and dissemination of data and the presentation of Web site content comply with certain standards for notice choice security and access Courts may also adopt these developing standards In many cases the specific limitations authorities imposed by these In addition on December 20 2007 the FTC published are subject standards for public comment proposed to interpretation by courts and other governmental principles to address consumer privacy issues that may arise from so-called behavioral targeting users online activities in order to deliver advertising tailored to his or her of i.e the tracking interests and to encourage the FTC released Although the FTC excluded advertising with respect potentially sensitive such as through programs self-regulatory that apply to us but not meet businesses New interpretations these standards restrict our business operations industry Staff Report with its self-regulation On February 12 2009 following public revised principles for self-regulation of behavioral comment targeting and contextual from the principles both first-party behavioral advertising to other types of behavioral targeting data or that collects information outside of that include the storage the traditional Web site context of more and mobile device or by an ISP the FTC has stated that it will continue to evaluate We believe determination by that we are in compliance with the consumer protection standards do that any of our practices state or federal agency or court could create liability to us result in adverse of these standards could also require publicity and affect negatively our us to incur additional costs and In addition several Kingdom and Canada have obtained from their citizens some of which we may be subject foreign governmental bodies including dealing with the collection regulations the European Union the United and use of personal information to as result of the expansion of our business internationally We believe that we are in compliance with the regulations that apply to us however such laws may be modified and new laws may be enacted in the future Any such developments or developments from enactment or modification stemming of other laws or the failure to anticipate accurately the application or interpretation in adverse publicity and affect negatively our businesses of these laws could create liability to us result 17 httellectnai Property We regard our copyrights domain names trademarks trade secrets and similar intellectual property as critical to our success and rely upon copyright trademark and trade secrets laws as well as confidentiality agreements with our employees and others and protective contractual provisions to of our material protect the proprietary technologies and content trademarks in the United States and elsewhere Currently our TechTarget and logos are registered other marks certain and that we have developed We pursue the registration trademark federally in and logo as well as the KnowledgeStorm the United States and selected foreign jurisdictions and we have applied for U.S and foreign registrations for various other marks In addition we have registered over 1000 domain names that are to our business including www.techtarget.com www.knowledgestorm.com those the search prefix used in the or may be relevant www.bitpipe.com www.technologyguide.com and branding of many of our websites We also our technology platform pursuant to relevant incorporate open source We use third-party software leveraging number of licenses Some of this software is proprietary and some is to maintain and enhance among other things the content third-party software products into generation and delivery and support our technology infrastructure We are not substantially dependent upon these third-party software licenses and we believe the licensed software is generally replaceable by either licensing or purchasing similar software from another vendor or building the software functions ourselves Employees As of December 31 2009 we had represented by labor union and are not the subject of collective bargaining that we have good relationship with our employees Item 1A Risk Factors approximately 530 employees Our current employees are not agreement We believe The following share price These discussion highlights certain are the risks and uncertainties risks which may affect we believe are most future operating results and important for our existing and potential stockholders to consider Additional risks and uncertainties not presently known to us which we currently deem immaterial or which are similar to those faced by other companies in our industry or business in general may also impair our business uncertainties actually occurs our business financial condition operating results would likely suffer operations If any of and the following risks or Risks Relating to Our Business Because we4epend on ur ability to generate revenues from the sale of advertising fluctuations in advertising spending could have an adverse effect on our operating results The primary source accounted of our revenues is the sale of advertising for approximately 98% of our total revenues to our customers Our advertising for the year ended December 31 spending on the Internet as in traditional media fluctuates variety of factors many of which are outside of our control These factors revenues 2009 We believe that advertising significantly as result of include variations in expenditures by advertisers due to budgetary constraints the cancellation or delay of projects by advertisers the cyclical and discretionary nature of advertising spending general economic conditions as well as economic conditions specific to the Internet and online and offline media industry and the occurrence of extraordinary events such as natural disasters international or domestic terrorist attacks or armed conflict 18 Because all of our customers are in the IT industry our revenues are subject to characteristics of the IT industry that can affect advertising spending by IT vendors The IT industry is characterized by among other things volatile quarterly results uneven sales patterns short product life cycles rapid technological developments and frequent new product introductions and enhancements As result our customers advertising budgets which are often viewed as discretionary expenditures may increase or decrease significantly over short period of time In addition the advertising budgets of our customers may fluctuate as result of weakness in corporate IT spending resulting in decline in IT advertising spending increased concentration in the IT industry as result of consolidations leading to decrease in the number of current and prospective customers as well as an overall reduction in advertising spending by combined entities following such consolidations the timing of advertising campaigns around new product introductions and initiatives and economic conditions specific to the IT industry The ongoing economic recession and general economic business or industry conditions may continue to adversely affect the business of the Company as well as our ability to forecast financial results The domestic and international economies continue to experience an ongoing recession This recession has been magnified by factors including changes in the availability of credit decreased business and consumer confidence and continuing high unemployment These and other macro economic conditions have contributed to increased volatility and diminished expectations for the global economy abroad does not and expectations of future global economic growth If the economic climate in the U.S and improve or deteriorates further our customers or potential customers could reduce or delay their purchases of our offerings which would adversely impact our revenues and our ability to sell our offerings collect customer receivables and ultimately our profitability Additionally future economic conditions currently continue to have high degree of inherent uncertainty As result it continues to be difficult to estimate the level of growth or contraction well as for the various sectors of the economy such as the IT market Because budgeting demand for our offerings the prevailing forecasting are dependent and upon estimates of growth or contraction economic uncertainties continue for the economy as whole as of our all components in the IT market and to render accurate estimates of future income and expenditures very difficult to make We cannot predict the effect or duration of this economic slowdown or the timing or strength of subsequent economic recovery worldwide or in the IT industry Further adverse changes may occur as result of soft global domestic or regional economic conditions wavering consumer confidence unemployment declines in stock markets or other factors affecting economic conditions generally These changes may negatively affect the sales of our offerings increase exposure to losses from bad debts increase the cost and decrease the availability of financing or increase the risk of loss on investments Lingering effects of financial market instability and continued uncertain conditions in the United States and global economies have in the past and could in the future adversely affect our revenues and operating results We believe that the lingering effects of the instability affecting the financial markets and further deterioration in the current business climate within the United States and/or other geographic regions in which we do business have had and could continue to have negative impact on our revenue and operating intrinsically results Because all of our clients are in the IT industry the success of our business is linked to the health and subject to market conditions of the IT industry Regional domestic and global economic weakness and uncertainty and the limited access to sources of traditional capital and/or debt have resulted in some companies reassessing their spending including for technology projects In turn many of our customers have reassessed and will for the foreseeable 19 tuture be likely to continue to scrutinize their spending on advertising campaigns Prior market downturns in the JT industry have resulted in declines in advertising spending which can cause longer sales cycles deferral or delay of purchases advertising advertising and related services from our customers We believe that demand revenues services Our by IT vendors and generally and profitability depend reduced expenditures for on the overall demand for for our offerings has been in the past and could be in the future disproportionately affected by fluctuations disruptions instability or downturns in the economy and the IT industry which may cause customers and potential customers to exit the industry or delay cancel or reduce any planned expenditures for our advertising offerings Furthermore competitors may respond to market conditions by lowering prices and attempting to lure away our customers and of new IT companies prospects to lower cost offerings In addition the slowdown in the formation and the decline in the growth of existing IT companies may continue to cause decline in demand for our offerings Our quarterly operating results are subject to fluctuations and these fluctuations may adversely affect the trading price of our common stock We have experienced and expect to continue to experience fluctuations in our quarterly revenues and operating results Our quarterly revenues and operating results may fluctuate from quarter to quarter due to number of factors many of which are outside of our control In addition to the factors described elsewhere in this Risk Factors section these factors include the spending priorities and advertising budget cycles of specific advertisers the addition or loss of advertisers the addition of new sites and services by us or our competitors and seasonal fluctuations in advertising spending Due to such risks you should not rely on quarter-to-quarter comparisons of our results of operations results of operations as an indicator of our future factors in one or more quarters may fall below the expectations results Due to the foregoing it is also possible that our of investors and/or securities analysts In such an event the trading price of our common stock is likely to decline Our revenues are primarily derived from short-term contracts that may not be renewed The primary source of our revenues is the sale of advertising to our customers and we expect that this will continue to be the case for the foreseeable future Our advertising contracts are primarily short.terrntypically less than months and are generally subject to termination without substantial penalty by the customer that our current customers will at any time generally with minimal notice requirements We cannot under fulfill their obligations their existing contracts continue to assure you participate in our existing programs beyond the terms of their existing contracts or enter into any additional contracts for new programs that we offer If significant number of advertisers or few large advertisers decided not to continue advertising on our websites or conducting or sponsoring events we could experience rapid decline in our revenues over relatively short period of time If we are unable to deliver content and services that attract and retain users our ability to attract advertisers may be affected which could in turn have an adverse affect on our revenues Our future success depends on our ability to deliver original and compelling content and services to attract and retain users Our user base is comprised of corporate IT professionals who demand specialized websites and events tailored to the sectors of and that to attract advertisers they purchase Our content and generate and services may not be attractive to the IT products for which they are responsible sufficient number of users revenues consistent with our estimates We also may not develop 20 new content or services in timely or cost-effective manner Our ability to develop and produce this specialized content successfully is subject to numerous uncertainties including our ability to anticipate and respond successfully to rapidly changing IT developments and preferences to ensure that our content remains timely and interesting to our users attract and retain qualified editors writers and technical personnel fund new development for our programs and other offerings successfully expand our content offerings into new platform and delivery mechanisms and promote and strengthen the brands of our websites and our name If we are not successful in maintaining and growing our user base our ability to retain and attract advertisers may be affected which could in turn have an adverse affect on our revenues Our inability to sustain our historical advertising rates could adversely affect our operating results The market for advertising has fluctuated over the past few years If we are unable to maintain historical pricing levels for advertising on our websites and for sponsorships at our events our revenues could be adversely affected Competition for advertisers is intense and we may not compete successfully which could result in material reduction in our market share the number of our advertisers and our revenues We compete for potential advertisers with number of different types of offerings and companies including broad-based media outlets such as television newspapers and business periodicals that are designed offerings International to reach wide audience general purpose portals and search engines and offline and online of media companies content specifically for IT professionals Data Group United Business Media CNet and Ziff Davis Enterprise that produce including Advertisers may choose our competitors over us not only because they prefer our competitors online and events offerings to ours but also because advertisers prefer to utilize other forms of advertising offered by our competitors December 31 2009 were derived from advertisers that are not offered by us Although less than 5% of our revenues for the year ended located outside of North America as we continue to as we did in 2008 by operating our own websites expand internationally 2009 in India and Spain we expect as with established media companies these foreign-based media companies will be larger than we are and will have with local advertisers Many of our current larger customer resources than we have As bases greater brand recognition to compete with many of result we could lose market and significantly greater based in particular and potential competitors countries share in the United Kingdom and in the competitors mentioned above as well or geographical regions Many of established relationships have longer operating histories financial marketing and other to our competitors in one or more of our businesses and our revenues could decline We depend and if we were upon Internet search engines to attract significant portion of the users who visit our websites listed less prominently in search result listings our business and operating results would be harmed We derive significant content through Internet portion from users who search search engines such as Google MSN Bing and Yahoo of our website traffic for IT purchasing critical factor in attracting users to our websites is whether we are prominently displayed in response to an Internet search relating to IT content Search result listings are determined and displayed in accordance with set of formulas or algorithms developed by the particular Internet search engine The algorithms determine the order of the listing of results in response to the users Internet search From time to time search engines revise their algorithms In some instances these modifications may cause our 21 websites to be listed less prominently result in decreased traffic users to our websites Our websites may also become listed less prominenliy in results which will in unpaid search from search engine unpaid search results for other reasons such as search engine technical difficulties search engine technical practices changes and of some companies changes we make to our websites In addition search engines have deemed the to be inconsistent with search engine guidelines and have decided not to list their websites in search result listings at all If we are listed less prominently or not at all in search result listings for any reason the traffic to our websites likely will decline which could harm our operating results If we decide to attempt to replace this traffic we may be required to increase our marketing expenditures which also could harm our operating results We may not innovate at successful pace which could harm our operating results Our industry is rapidly adopting new technologies and standards to create and satisfy the demands of users and advertisers It is critical that we continue to innovate by anticipating and adapting to these changes to ensure that our content-delivery platforms and services remain effective and interesting to our users advertisers and partners In addition we may discover that we must make significant expenditures to achieve these goals If we fail to accomplish these goals we may lose users and the advertisers that seek to reach those users which could harm our operating results We may be unable and cause our revenues to decline to continue to build awareness of our brands which could negatively impact our business Building and maintaining recognition of our brands is critical to attracting and expanding our online user base and attendance at our events We intend introduce new brands that will resonate with our targeted order to promote these brands in response to competitive audiences to continue to build existing brands and but we may not be successful pressures or otherwise we may find it In necessary otherwise to increase our marketing budget increase our financial commitment to creating hire additional marketing and public relations personnel or and maintaining brand loyalty among our clients If we fail to promote and maintain our brands effectively or incur excessive expenses attempting to promote and maintain our brands our business and financial results may suffer Given the tenure and experience of our Chief Executive Officer and President and their guiding roles in developing our business and growth strategy since our inception our growth may be inhibited or our operations may be impaired if we were to lose the services of either of them Our growth and success depends to significant extent on our ability to retain Greg Strakosch our ChiefExecutive Officer and Don Hawk our President who founded engineered and stewarded the growth and operation of our business the company and have developed the inception The loss of since its services of either of these persons could inhibit our growth or impair our operations and cause our stock price to decline We may not be able to attract hire and retain qualified personnel cost-effectively which could impact the quality of our content and services and the effectiveness and efficiency of our management resulting in increased costs and losses in revenues Our success depends on our ability to attract hire and retain at commercially reasonable rates editorial sales and marketing customer qualified technical other managerial personnel The competition for personnel intense Our personnel may terminate may also result personnel or retain and motivate our current costs for replacement hiring and their employment in increased effectively or efficiently serve our customers properly support financial and accounting legal and in the industries in which we operate is at any time for any reason Loss of personnel training If we fail to attract and hire new personnel we may not be able to operate our businesses or maintain the quality of our content and 22 services In particular our success depends in significant part on maintaining and growing an effective sales force This dependence involves number of challenges including the need to hire integrate motivate and retain additional sales and sales support personnel the need to train new sales personnel many of whom lack sales experience when they are hired and competition from other companies in hiring and retaining sales personnel We may fail otherwise enhance to identify or successfully acquire and integrate businesses products and technologies that would our service offerings to our customers and users and as result our revenues may decline or fail to grow We have acquired and in the future may acquire or invest numerous and investments involve or technologies Acquisitions in complementary businesses products risks including difficulty in assimilating the operations and personnel of acquired businesses potential disruption of our ongoing businesses and distraction of our management and the management of acquired companies difficulty in incorporating acquired technology and rights into our offerings and services unanticipated expenses related to technology and other integration failure to achieve potential marketing of the combined additional sales and enhance our customer bases through cross companys services to new and existing customers potential detrimental business with common impact to our pricing based on the historical pricing of any acquired clients and the market generally potential litigation resulting from our business combinations or acquisition activities and potential unknown liabilities associated with the acquired businesses Our inability to integrate any acquired business successfully or the failure to achieve any expected synergies could As result in increased expenses and reduction in expected revenues or revenue growth result our stock price could fluctuate or decline In addition we cannot assure you that we will be successful in expanding into complementary sectors in the future which could harm our business operating results and financial condition The costs associated with potential acquisitions or strategic partnerships could dilute your investment or adversely affect our results of operations In order to finance acquisitions investments or strategic partnerships we may use equity securities debt cash or combination of the foregoing Any issuance of equity securities or securities convertible into equity may result our common stock or both Any debt could have in substantial an adverse impact on our business financing dilution to our existing stockholders reduce the market price of is likely to have if we do not achieve financial and other covenants that our projected results In addition the related increases in expenses could adversely affect our results of operations We have limited protection of our intellectual property and could be subject to infringement claims that may result in costly litigation the payment of damages or the need to revise the way we conduct our business Our success and ability to compete are dependent in part on the strength of our proprietary rights on the goodwill associated with our trademarks trade names and service marks and on our ability to use U.S and foreign laws to protect them Our intellectual property includes among other things our 23 litigation the need original content our editorial features logos brands domain names the technology that we use to deliver our services the various databases of information that we maintain and make available by license and the appearances of our websites We claim common law protection on certain names and marks that we have used in connection with our business obtained registration of many of our marks business we have not been some cases due to prior registration or use by third parties employing similar marks In addition U.S and foreign registration of all of our key marks activities Although we have applied laws we rely on confidentiality able to obtain the United States where we do jurisdictions in countries outside in such of in to and third parties and for and agreements with our employees our intellectual property Policing our intellectual protective contractual provisions to safeguard property rights worldwide is difficult task and we may not be able to identify infringing users We cannot be certain that third party licensees of our content will always take actions to protect the value of our proprietary rights and reputation Intellectual property laws and our agreements may not be sufficient to prevent others from copying or otherwise obtaining and using our content or technologies In addition others may develop non-infringing technologies that are similar or superior to ours In seeking to protect our marks copyrights domain names and other proprietary rights or in defending ourselves against claims of and the diversion infringement that may be with or without merit we could of our managements attention and resources These face costly claims could result in to develop alternative trademarks content or technology or to enter into costly royalty or licensing agreements which could have material adverse effect on our business results of operations and financial condition We may not have in all cases conducted formal evaluations to confirm that our technology and services do not or will not infringe upon the intellectual property parties As result we cannot that our technology offerings be certain services or online rights of third content do not or will not infringed on reputation could infringe upon the intellectual property rights of third parties If we were found to have third partys intellectual property rights the value and our business be impaired suffer could of our brands and our business Our business could be harmed if we are unable to correspond with existing and potential users by e-mail We use e-mail as significant means of communicating with our existing users The laws and regulations governing the use of e-mail for marketing purposes continue to evolve and the growth and development of the market for commerce over the Internet may lead to the adoption of additional legislation and/or changes to existing laws If new laws or regulations are adopted or existing laws and regulations are interpreted and/or amended or modified to impose additional to send e-mail to our users or potential users we may not be able to communicate restrictions on our ability with them in cost-effective manner In addition to legal restrictions on the use of e-mail Internet service providers and others typically spam If an Internet could be placed on attempt to block the transmission of unsolicited e-mail commonly known as service provider or software program identifies e-mail from us as spam we restricted list that would block our e-mail to users or potential users who maintain e-mail accounts with these Internet service providers or who use these software programs If we are unable to communicate by e-mail with our users and potential users as result of legislation blockage or otherwise our business operating results and financial condition could be harmed Changes in laws and standards relating to data collection and use and the privacy of Internet users and other data could impair our efforts to maintain and grow our audience and thereby decrease our advertising revenue We collect surveys Subject information from our users who register on our websites to to each users permission or right to decline which we refer to as an opt-out we for services respond or or may use this information to inform our users of services that have We may also share elected to receive additional this information with our advertising clients promotional materials for information with third parties The U.S federal and have granted us permission to share have adopted state governments and various their or indicated may be of registered members who have interest to them 24 proposed limitations on the collection Several foreign jurisdictions including distribution and use of personal the European Union the United Kingdom and Canada have information of Internet users adopted legislation including directives or regulations that may increase the requirements for collecting or limit our collection addition growing public concern and use of about privacy data security information from Internet users in these jurisdictions In and the collection distribution and use of personal information has led to self-regulation of these practices marketing industry and to increased federal and state regulation by the Internet Because many of or regulations are in their early stages we cannot yet determine the impact advertising and direct the proposed these regulations may have laws federal and state on our business over laws and regulations time Although to date our efforts to comply with applicable have not hurt our business additional more burdensome laws or regulations including consumer privacy and data security laws could be enacted or applied to us or our customers Such laws or regulations could impair our ability to collect user information that helps us to provide more targeted advertising to our users thereby impairing our ability to maintain and grow our audience the US Federal Trade and maximize advertising revenue from our advertising clients Additionally Commission the FTC and many state attorneys protection laws to require that the online collection general are applying federal and state consumer use and dissemination of data and the of Web site content comply with certain standards for notice choice security and access presentation Courts may also adopt these standards these developing standards In many cases the specific limitations imposed by are subject to interpretation by courts and other governmental authorities In addition on December 20 2007 the FTC published for public comment proposed principles to address targeting i.e the tracking consumer issues that may arise from so-called behavioral privacy of users online activities in order to deliver advertising tailored to his or her interests and to encourage self-regulation On February 12 2009 following industry Report with its revised principles for self-regulation of behavioral public comment targeting the FTC released Staff Although the FTC currently appears to be less concerned with first-party behavioral and contextual advertising than other types of behavioral targeting that include the storage of more potentially sensitive data or that collects information outside of the traditional Web site context such as through mobile device or by an ISP the FTC has stated that it will continue to evaluate self-regulatory programs In the event of additional legislation in this area our ability to effectively target our users may be limited We believe that we are in compliance with the consumer protection standards determination by state or federal agency or court that any of our practices do not meet that apply to us but these standards could create liability to us result in adverse publicity and affect negatively our businesses New interpretations of these standards could also require us to incur additional costs and restrict our operations business the United Kingdom and Canada have information obtained from their citizens some of which we may be subject dealing with the collection foreign governmental bodies including In addition several regulations the European Union and use of personal to as result of the expansion of our business that apply to us however such laws may be modified and new laws may be enacted such developments or developments stemming from enactment internationally We believe that we are in compliance or modification of other in the future Any laws or the with the regulations failure to anticipate accurately the application or interpretation us result in adverse publicity and affect negatively our businesses of these laws could create liability to There are number of risks associated with expansion of our business internationally that could adversely affect our business We have license and other arrangements in various countries and maintain direct presences in the United Kingdom and India In addition to facing many of the same challenges we face domestically there are additional risks and costs inherent in expanding our business in international markets including limitations on our activities in foreign countries where we have granted rights to existing business partners the adaptation of our websites and advertising programs to meet local needs and to comply with local legal regulatory requirements 25 vancu uiIiainiiiu anU niLIea legal nid iegulaioiy resLrictions as well as unforeseen changes in C1E gu tLth more restrictive data protection regulation which may vary by country difficulties in staffing and managing multinational operations difficulties in finding appropiiate foreign licensees or joint venture partners distance language and cultural differences in doing business with foreign entities foreign political and economic uncertainty less extensive adoption of the Internet as an information source and increased restriction on the content of websites currency exchange-rate fluctuations and potential adverse tax requirements As internationally result we may face difficulties if we attempt and even and unforeseen expenses in expanding to do so we may be unsuccessful which could harm our our business business operating results and financial condition Changes in regulations could adversely affect our business and results of operations It is possible that new laws and regulations or new interpretations of existing laws and regulations in the United States and elsewhere will be adopted covering issues affecting our business including privacy data security and use of personally identifiable information copyrights trademarks and domain names and marketing practices such as e-mail or direct marketing Increased government regulation or the application of existing laws to online activities could decrease the growth rate of the Internet reduce our revenues increase our operating expenses or expose us to significant liabilities Furthermore the relationship between regulations trademarks and similar proprietary third parties from trademarks and other proprietary cause our stock price to decline We cannot acquiring domain names that protecting rights is still evolving Therefore we might be unable to prevent governing domain names and laws infringe or otherwise decrease the value of our rights Any impairment in the value of these important assets could be sure what effect any future material noncompliance by us with these laws and regulations or any material changes in these laws and regulations could have on our business operating results and financial condition 26 As creator and distributor of content over the Internet we face potential liability for legal claims based on the nature and content of the materials that we create or distribute Due to the nature of content published on our online network including content placed on our online network by third parties face potential liability based on trademark infringement information Such variety of legal theories based on the nature creation including theories defamation negligence copyright or or distribution of this or other claims may also include among others claims that by providing hypertext links to and as creator and distributor of original content and research we websites operated by third parties we are liable for wrongful actions by those been brought and sometimes successfully these websites Similar claims have third parties through asserted against online It is also possible services on information provided on our networks posted to our with material Internet that our users could make claims against us for losses incurred in reliance In addition we could be exposed to liability in connection sites by third parties For example many of our sites offer users an opportunity infringe on third party to post unmoderated comments intellectual property and opinions Some of this user-generated rights or may otherwise rights or privacy content may be subject to challenge divert management under copyright laws Such time and attention claims whether brought away from our business in the United States or abroad could and result in significant cost to of the merit of these claims In addition if we become subject to investigate and defend regardless in our defense we may be forced to pay substantial protect us against these claims The filing of these claims these types of claims and are not successful insurance may not adequately damages Our may also damage our reputation as high quality provider of unbiased timely analysis and result in client cancellations or overall decreased demand for our services We may be liable if third parties or our employees misappropriate our users confidential business information We currently retain confidential Although we observe security measures information relating to our users in secure database servers throughout our operations we cannot assure you that we will be able to prevent individuals from gaining unauthorized access to our servers or abuse user information If confidential information unauthorized access to these database servers Any could result by our employees is compromised we could lose customers or become in the theft of confidential subject to liability or litigation and our reputation could be harmed any of which could materially and adversely affect our business and results of operations Our business which is dependent on centrally located communications and computer hardware systems is vulnerable to natural disasters telecommunication and systems failures terrorism and other problems which could reduce traffic on our networks or websites and result in decreased capacity for advertising space Our operations are dependent on our communications which are located in data centers operated by third parties systems and These systems computer hardware all of could be damaged by fire floods earthquakes power loss telecommunication failures and similar events Our insurance policies have limited coverage levels for loss or damages for any losses that may occur In addition terrorist in these events and may not adequately compensate us acts or acts of war may cause harm to our employees or damage our facilities postpone or cancel or result in dramatically our clients our clients customers and vendors attendance at our events which could reduced or cause us to adversely impact our revenues costs and expenses and financial position We are predominantly losses and interruptions to our systems of events caused by terrorist or cancellations uninsured for acts and acts of war 27 Our systems may be subject our revenues to slower response times and system disruptions that could adversely affrct Our ability to attract and maintain relationships with users advertisers and strategic partners will depend on the satisfactory performance Internet advertising revenues of our relate directly to the number of advertisements availability reliability and Internet infrastructure Our and other marketing opportunities delivered to our users System interruptions or delays that result in the unavailability of Internet sites or slower response times for users would reduce the number of advertising impressions and leads delivered This could reduce our revenues as the attractiveness of our sites to users and advertisers decreases Our insurance policies provide only limited coverage for service interruptions and may not adequately compensate our systems Further we do not have multiple site capacity such occurrence us for any losses that may occur due to any failures or interruptions for all of our services in the event of any in We may experience service disruptions for the following reasons occasional scheduled maintenance equipment failure volumes of visits to our websites that exceed our infrastructures capacity and natural disasters telecommunications failures power failures other system failures maintenance viruses hacking or other events outside of our control In addition our networks and websites must accommodate high volume of traffic and deliver frequently updated information They have experienced in the past and may experience in the future slower response times or decreased traffic for variety of reasons There have been instances where our online networks as whole or our websites individually have been inaccessible Also slower response times which have occurred more frequently can result from general Internet problems routing and equipment problems involving third party Internet access providers problems with third party advertising servers increased traffic to our servers viruses and other security which problems are out of our control In addition our users depend on Internet breaches many of service providers and online service providers for access to our online networks or websites Those providers have experienced outages and delays in the past and may experience Moreover our Internet infrastructure might not be able to support outages or delays in the future continued growth of our online networks or websites Any of these problems could result in less traffic to our networks or websites or harm the perception of our networks networks and websites or periodic or websites as reliable sources of information Less traffic on our interruptions in service could have the effect of reducing demand for advertising on our networks or websites thereby reducing our advertising revenues Our networks may be vulnerable which could result our websites less attractive in the theft of our proprietary and reliable to unauthorized persons accessing our systems viruses and other disruptions information and/or disrupt our Internet operations making for our users and advertisers Internet usage could decline if any well-publicized compromise involves efforts to gain unauthorized access to information or systems of security occurs Hacking to cause intentional or malfunctions or loss or corruption of data software hardware or other computer if successful be required networks could misappropriate proprietary to expend capital and other could also be affected by computer information or cause disruptions equipment Hackers in our service We may resources to protect our websites against hackers Our online viruses or other similar disruptive problems and we could inadvertently transmit viruses across our networks to our users or other third parties Any of these occurrences could harm our business or give rise to cause of action against us Providing unimpeded access to our online networks is critical to servicing our customers and providing superior customer service Our inability to provide continuous access to our online networks could cause some of our 28 customers to discontinue users from accessing purchasing advertising our networks Our activities programs and services and/or prevent or deter our and the activities of third party contractors involve the storage and transmission of proprietary expose us to risk of loss or litigation provisions attempting to limit our liability in these and personal and possible liability We cannot information Accordingly assure that contractual security breaches could areas will be successful or enforceable or that other parties will accept such contractual provisions as part of our agreements We will continue to incur significant costs as result of operating as public company and our management will be required to devote substantial time to new compliance initiatives We will continue to incur significant legal accounting and other expenses as public company The Sarbanes-Oxley Act of 2002 as well as rules subsequently implemented Nasdaq Stock Market or Nasdaq has imposed including requiring changes in corporate governance various new requirements on public companies amount of time to these practices Our management and other personnel initiatives Moreover compliance will need to continue to devote substantial by the SEC and the these rules and regulations have increased our legal and financial compliance costs and will make some activities more time-consuming and costly For example these incur substantial costs to maintain the same or similar director rules and regulations may require and officer liability insurance coverage us to In addition the Sarbanes-Oxley Act requires among other controls and disclosure internal controls for financial reporting things that we maintain effective and procedures In particular although completed we have reporting to allow management and our independent financial of our internal controls our system and process effectiveness over evaluation and testing of our internal controls over financial registered public accounting firm to report on the reporting as required by Section 404 of the Sarbanes-Oxley Act ongoing compliance with Section 404 requires that we continue to incur substantial expense and expend significant management efforts We currently do not have an internal engaged outside accounting and advisory services with appropriate public accounting audit group and have company efforts If we or our independent experience and technical accounting knowledge to assist with these ongoing compliance registered public accounting firm identifies future deficiencies in our controls internal for the year-end audits of 2008 and over financial reporting subject to sanctions or investigations that are deemed to be material weaknesses as was the case the market price of our stock 2009 by Nasdaq the SEC or other could decline and we could be regulatory authorities which would require additional financial and management resources We have received two deficiency letters from The Nasdaq Stock Market within the past year relating to our failure to maintain compliance with Nasdaqs Listing Rule 5520c as result of our failure to timely file Securities and Exchange Commission reports Nasdaq granted us an exception from the rule in each of these cases but if we fail to comply with Nasdaqs listing rules in the future Nasdaq may decide not to grant an additional exception If we are unable grant an exception we may be delisted to comply with Nasdaqs listing rules in the future and they do not by Nasdaq which would have material adverse effect on the trading volume of our stock and likely our stock price On May 14 2009 we received Nasdaq Staff Deficiency letter with the filing requirement under Nasdaq Marketplace compliance to timely file our Quarterly Report on Form 10-Q for the fiscal quarter November second Nasdaq Staff Deficiency 13 2009 we received with the filing requirement under Nasdaq Marketplace compliance to timely file our Quarterly Report on Form l0-Q for the fiscal quarter letter that we were not in indicating Rule 4310c14 due to our failure ended March 31 2009 On indicating that we were not in Rule 5250c1 due to our failure ended September 30 2009 Nasdaq granted us an exception become current with our compliance from the rule in each these We are now current with our SEC reporting cases and gave of us the opportunity requirements to and are in compliance with the relevant listing rule 29 However if we fail grant us additional the future to comply with Nasdaqs listing rules in the luture Nasdaq may decide to listing rules If we are unable to comply with Nasdaqs listing and they do not grant us an exception we may be delisted by Nasdaq which would exceptions not to rules in have material market effect adverse on the trading for our common shares may limit your ability volume of our stock and likely our stock price limited public to sell your shares and may also result in other negative implications including the potential employees and loss of institutional investor loss of confidence by customers strategic partners interest in our common stock and We have identified material weaknesses in our internal controls over financial reporting which have not been fully remediated In addition we may experience additional material weaknesses in the future Any material weaknesses in our internal control over financial reporting or our failure to remediate such material weaknesses could result in material misstatement in our financial statements not being prevented or detected and could adversely affect well as our stock price investor confidence in the accuracy and completeness of our financial statements as We have identified material weaknesses accounting for aging customer credits and unallocated general in our internal control over financial relating to accrual accounting and accounting for reporting certain complex transactions involving revenue and stock-based compensation These material weaknesses and our remediation plans are described Form 10-K Material weaknesses in our internal control over financial further in Item 9A in this Annual Report on reporting could result in material misstatements in our financial statements not being prevented or detected Although we have implemented Sarbanes-Oxley Remediation Plan we may experience difficulties or delays in achieving goals under this plan and completing remediation material weaknesses at all Any material confidence in the accuracy and completeness weakness or may nOt be able to successfully or unsuccessful remediation could harm investor remediate of our financial statements which in turn could harm our business and have an adverse effect on our stock price and our ability to raise additional funds Our prior restatements and the delay in our filing of several of our Periodic Reports costs and the possibility has had and may of legal or continue to have an adverse impact on us including increased administrative proceedings In June 2009 we restated number of our previously error in the manner in which we recognized certain online revenue filed financial statements result of an In November 2009 we identified as an improper accounting practice related to certain customer credits being improperly removed as liabilities from our balance sheet and Form 10-Q for the quarter accounting legal and other advisory as result delayed the filing of our Quarterly Report on ended September 30 2009 We incurred substantial unanticipated costs for fees in 2009 and 2010 in connection with these matters and although the these matters are now resolved we may incur additional related costs The Securities and Exchange for the period ended September 30 2009 we have to be complete the SEC may have Commission However has commented on our Quarterly Report on Form 10-Q responded in manner we believe further comments on that Report or others we may file to all questions including attention this Annual Report on Form 10-K which may divert more of our managements time and and cause us to incur additional or other costs Similarly in the event litigation is pursued relief is sought by persons asserting claims for damages allegedly resulting from or based on these matters or events related thereto we may incur additional defense costs beyond our insurance coverage regardless of their outcome Likewise such events might cause diversion of our managements time and attention If we do not prevail in any such actions we could be required to pay substantial damages or settlement costs 30 Our ability to raise capital in the future may be limited Our business and operations may consume resources faster than we anticipate In the future we may need or to make acquisitions Additional to raise additional funds to expand our sales and marketing and service development efforts financing may not be available on favorable terms if at all If terms we may be unable to fund the expansion of our on acceptable adequate funds are not available sales and marketing and research opportunities which could seriously harm our business holders would have rights senior of any debt could restrict our operations Furthermore if we issue additional and development including to common stockholders efforts equity securities could have rights senior or take advantage of acquisition or other and operating results If we incur debt the debt to make claims on our assets and the terms our ability to pay dividends on our common stock equity securities stockholders will experience to those of our common stock Because dilution and the new our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control we cannot predict or estimate the amount timing or nature of our future offerings Thus our future securities offerings reducing the market price of our common stockholders bear the risk of our stock and diluting their interest The impairment of significant amount of goodwill and intangible assets on our balance sheet could result in decrease in earnings and as result our stock price could decline In the course of our operating history we have acquired assets and businesses Some of our acquisitions have resulted in the recording of on our financial of December 31 2009 The goodwill statements We had approximately significant amount of goodwill $101 million of goodwill and/or intangible assets and net intangible assets as and/or intangible assets were recorded because the fair value of the goodwill and/or indefinite useful lives the net tangible assets acquired was less than the purchase price We may not realize the goodwill and other intangible assets As such we evaluate intangible full value of assets with for impairment on an annual basis or more frequently if events or circumstances suggest that the asset may be impaired We evaluate other intangible assets subject to amortization whenever events or changes in circumstances be recoverable If goodwill or other intangible indicate that the carrying amount of those assets may not assets are determined to be impaired we will write off the unrecoverable future as we intend to do we may record additional portion charge as to our earnings If we acquire new assets and businesses in the goodwill and/or intangible assets The possible write-off of the goodwill and/or intangible assets could negatively result the market price of our common stock could decline impact our future earnings and as We will record substantial expenses related to our issuance of stock-based compensation which may have material negative impact on our operating results for the foreseeable future Our stock-based compensation expenses are expected to be significant in future periods which will have an adverse impact on our operating income and net income We use highly subjective assumptions including the options expected Changes in the subjective input assumptions life and the price volatility of the underlying stock can materially affect the amount of our stock-based compensation expense employees could result In addition an increase in the competitiveness in an increased use of stock-based compensation result in increased stock-based compensation expense in future periods of the market awards which in turn would for qualified The trading value of our common stock may be volatile and decline substantially The trading price of our common stock is likely to be volatile and could be subject to wide fluctuations factors discussed in this Risk Factors section and elsewhere in this prospectus these factors in response some of which are beyond our control to various In addition to the factors include our operating performance and the operating performance of similar companies the overall performance of the equity markets 31 announcements relationships by us or our competitors of acquisitions business plans or commercial threatened or actual litigation changes in laws or regulations relating to the provision of Internet content any major change in our board of directors or management publication of research reports about us our competitors or our industry or positive or negative recommendations or withdrawal of research coverage by securities analysts our sale of common stock or other securities in the future large volumes of sales of our shares of common stock by existing stockholders and general political and economic conditions In addition the stock market in general and historically the market for Internet-related companies in particular has experienced extreme price and volume fluctuations that have often been unrelated disproportionate to the operating performance of those companies Securities class action litigation or has often been instituted against companies following periods of volatility in the overall market and in the market price of companys securities This litigation if instituted against us could result in substantial costs divert our managements attention and resources and harm our business operating results and financial condition Provisions of our certificate of incorporation bylaws and Delaware law could deter takeover attempts Various provisions in our certificate of incorporation and bylaws could delay prevent or make of control Our stockholders might view more difficult merger tender offer proxy contest or change of any transaction stock price than the then-current market price for our common stock Among other this type as being in their best interest since the transaction things our could result in higher certificate of incorporation and bylaws authorize our board of directors to issue preferred stock with the terms of each series to be fixed by our board of directors which could be used to institute poison pill that would work to dilute the share ownership of that have not been approved by our board potential hostile acquirer effectively preventing acquisitions divide our board of directors into three classes that oniy approximately one-third number of directors is elected each year of the total permit directors to be removed only for cause prohibit action by less than unanimous written consent of our stockholders and advance notice requirements for stockholder specify addition with some exceptions the Delaware General Corporation Law restricts mergers and other business combinations between us and any stockholder proposals and director nominations In or delays that acquires 15% or more of our voting stock Future sales of shares of our common stock by existing stockholders common stock could depress the market price of our If our existing stockholders sell or indicate an intent to sell substantial amounts of our common stock in the public market the trading price of our common stock could decline significantly large portion of our outstanding shares of common stock are held by our officers directors and affiliates Two of our affiliates are venture capital funds which are typically structured to have finite life As 32 the life of the fund their decision to sell or hold our investment merits of our stock but also on the these venture capital stock may be based not only on the underlying their internal funds approach or pass of requirements fund structure Our directors executive officers and affiliates beneficially own approximately 27 million shares of our common stock which represents 65% of our shares outstanding as of December 31 2009 If these additional shares are sold or if it is perceived that they will be sold in the public market the trading price of our common stock could decline substantially limited number of stockholders will have the ability to influence the outcome of director elections and other matters requiring stockholder approval Our directors executive officers and affiliates beneficially own approximately 65% of our outstanding common stock These stockholders if they act together could exert substantial influence over matters requiring approval by our stockholders including the election of directors the amendment of our certificate of incorporation and bylaws and the approval of mergers or other business This concentration transactions combination in control of our company which could deprive our stockholders of an opportunity premium for actions may be taken even sale of our company and might if they are opposed by other stockholders their stock as part of of ownership may discourage delay or prevent reduce our stock price to receive change These Item lB Unresolved Staff Comments None Item Properties In the first quarter of 2010 our corporate headquarters were relocated from Needham Massachusetts to Newton Massachusetts for which the Company entered into an agreement to lease approximately 87875 square of 10 years We also have feet of office leases for 12995 expires January 2013 and 7339 square feet addition we have lease for 25762 square currently sublease real property We believe that our leased adequate for our current third party operations to space The lease commenced feet of office space in February 2010 and has term in San Francisco California which square in Alpharetta Georgia which expires in January 2011 in Mpharetta Georgia which we feet of office space In The lease and sublease expire in November 2010 We do not own any facilities are in general in good operating and that additional leased space can be obtained condition and if needed Item Legal Proceedings \Ve are not currently party to any material pending or threatened litigation against us that could have legal proceedings and we are not aware of any adverse material effect on our business operating results or financial condition 33 PART Item Market for Registrants Common Equity Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is listed on the Nasdaq Global Market under the trading symbol TTGT The following table sets forth the high and low sales prices of our common stock as reported by the Nasdaq Global Market for each quarterly period in 2009 and 2008 Fiscal 2009 Quarter ended March 31 2009 Quarter ended June 30 2009 Quarter ended September 30 2009 Quarter ended December 31 2009 Fiscal 2008 Quarter ended March 31 2008 Quarter ended June 30 2008 Quarter ended September 30 2008 Quarter ended December 31 2008 High Low 4.99 5.38 8.00 6.94 2.30 2.13 3.98 5.20 $15.23 $10.49 $15.11 $10.56 $10.45 6.67 6.00 2.31 The closing sale price of our common stock as reported by the Nasdaq Global Market was $5.23 on February 26 2010 Holders As of February 26 2010 there were approximately 150 stockholders of record of our common stock based on the records of our transfer agent Dividends We did not declare or pay any cash fiscal years We currently intend business and do not anticipate dividends on our common stock during the three most recent to retain earnings if any to fund the development and growth of our paying other cash dividends on our common stock in the foreseeable future Our payment taking into account growth plans of any future dividends will be at the discretion of our board of directors after various factors including our financial condition operating results cash needs and Recent Sales of Unregistered Securities Since January 2006 we have issued the following securities that were not registered under the Securities Act Issuances of Capital Stock As of November 2006 there were outstanding options to purchase 17456 shares of our common stock at an exercise price of $2.36 per share the issuance exempt from registration or certain qualification requirements under of which may not have been federal or state securities laws To address this issue we made rescission offer that was completed in December 2006 to all holders of these options pursuant to which we offered to repurchase these options for cash or shares of our common stock In connection with the completion of the rescission offer we issued 10726 shares and paid out $6561 in cash which included statutory interest The sales of securities to the rescission offer were made in reliance upon the exemption from registration pursuant provided by Section 3b of the Securities Act of 1933 for transactions by an issuer not involving 34 public offering All of Securities Act the foregoing securities are deemed restricted securities for purposes of the Grants and Exercises of Stock Options During 2009 and 2008 pursuant to our 2007 Stock Option and Incentive plan we granted shares of common stock of 755000 and 1127295 respectively with stock options to purchase average exercise price per share of $5.82 weighted options exercised were 304349 and 463082 respectively and $5.24 respectively During 2009 and 2008 During 2009 and 2008 we granted restricted stock awards of 1962954 and 55667 respectively with weighted average grant date fair value of $4.03 and $7.83 respectively During 2007 prior to our initial public offering we granted stock shares of our common stock with an exercise price of $13.00 per share options to purchase 75000 to director During 2007 prior to our initial public offering pursuant to our 1999 Stock Option Plan we issued and sold 333636 shares of our common stock upon the exercise of stock options for aggregate consideration of $0.2 million During 2006 pursuant to our 1999 Stock Option Plan we granted stock options to purchase of common stock with 4243500 shares employees During 2006 371634 options were exercised for aggregate $0.5 million average weighted exercise price of $7.36 per share consideration of to our to The issuance of common stock upon exercise of the options was exempt either pursuant Rule 701 as transaction pursuant to compensatory benefit plan or pursuant transaction by an issuer not involving public offering to Section 42 as Exercises of Warrants During 2008 we issued 6886 shares warrants We did not receive any consideration of our common stock upon the cashless exercises apart from the cashless exercise of from the surrender of the underlying warrants During 2007 we issued 52764 shares of our common stock upon the cashless exercise of warrants We did not receive any consideration from the cashless exercises apart from the surrender of the underlying warrants The issuances of common stock upon the exercise of the exemption from registration proved by Section 42 of issuer not the foregoing involving public offering All of the Securities Act securities for purposes of the warrants were made in reliance upon by an the Securities Act for transactions securities are deemed restricted Use of Proceeds from Public Offering of Common Stock In May 2007 we completed on Form 5-1 File No 333-140503 registration statement we registered common stock $0.001 par value of which 6427152 shares were sold by the Company were sold by certain the offering and sale of an aggregate the shares of common stock stockholders All of that was declared initial public offering IPO pursuant effective selling our to of 7700000 shares of our and 1272848 issued pursuant to the by the SEC on May 16 2007 Under the registration statement registration statement including public of $13.00 per share the shares sold by the selling stockholders were sold at price to the As result of the IPO we raised total of $83.2 million in net proceeds after deducting underwriting approximately discounts and commissions of approximately $6.4 million and offering expenses of $2.3 million In May 2007 we repaid $12.0 million that we had borrowed against our revolving credit facility in conjunction with the acquisition of TechnologyGuide.com in April 2007 In 35 November 2007 we acquired KnowledgeStorm Inc for approximately $58 million consisting of approximately $52 million in cash valued at $6.0 million In November 2008 we acquired The Brian Madden Company LLC for approximately $1.3 million in cash of unregistered and 359820 shares common stock of TechTarget We have applied purposes We have the remaining net proceeds no current agreements corporate acquisitions We have investments in accordance with our investment policy the remaining net proceeds invested None of from the IPO to our working capital for general or commitments with respect in cash cash equivalents to any material and short-term the remaining net proceeds were paid ten percent Jr more of our equity securities directly or indireci ly to directors officers persons owning or any of our other affiliates plans under which our equity securities are authorized of Certain Beneficial Owners and Management for and Equity Compensation Plan Information Information relating to compensation issuance is set forth under Security Ownership Related Stockholder Matters in Item 12 below 36 Stock Performance Graph The following graph compares the cumulative total return to stockholders of our common stock for the period from May 16 2007 the date of our cumulative total return of the Russell 2000 Index and the SP 500 Media Industry initial public offering to December 31 2009 to the Index for the same period Russell 2000 This graph assumes the investment of $100.00 Index and the SP 500 Media Industry on May 16 2007 in our common stock the Index and assumes are reinvested any dividends COMPARATIVE STOCK PERFORMANCE Among TechTarget Inc The Russell 2000 Index and The SP 500 Media Industry Index COMPARISON OF 32 MONTH CUMULATiVE TOTAL RETURN Among TechTarget mc The Russell And SP 500 Media Industry 2000 Index $140 $120 $100 $80 $60 $40 $20 $0 5/16/07 6/30/07 9/30/07 12/31/07 3/31/08 6/30/08 9/30/08 12/31/08 3/31/09 6/30/09 9/30/09 12/31/09 tl--TechTarget Inc Russell 2000 O-SP500 Media Industry $100 invested on 5/16/07 in stock or index including reinvestment of dividends Fiscal year ending December 31 TechTarget Inc Russell 2000 SP 500 Media Industry 5/16/07 6/30/07 9/30/07 12/31/07 3/31/08 6/30/08 9/30/08 12/31/08 3/31/09 6/30/09 9/30/09 12/31/09 100.00 98.85 130.00 113.69 109.00 100.00 101.82 98.67 94.15 84.83 81.23 85.33 53.85 84.38 33.23 62.34 18.46 53.02 30.77 63.99 43.85 76.32 43.31 79.28 100.00 99.00 91.26 82.87 77.06 74.30 68.14 52.85 45.21 55.97 67.50 75.33 The information included under the heading Stock Performance Graph in Item of this Annual Report on Form 10-K is furnished and not filed and shall not be deemed to be soliciting to Regulation 14A shall not be deemed filed for purposes of Section 18 of the material or subject Securities Act of 1934 as amended deemed Securities Act of 1934 as amended by reference incorporated or otherwise subject to the liabilities of that section nor shall it be in any filing under the Securities Act of 1933 as amended or the 37 Item Selected Consolidated Financial Data The information set forth below is not necessarily indicative of results of future operations and should be read in conjunction with Item Managements Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and related notes thereto included in Item of this Form 10-K to fully understand factors that may affect the comparability of the information presented below Years Ended December 31 2009 2008 2007 2006 2005 in thousands except share and per share data Consolidated Statement of Operations Data Revenues Online Events Print Total revenues Cost of revenues Online1 Events1 Print Total cost of revenues Gross profit Operating expenses Selling and marketing Product development1 General and administrative Depreciation Amortization of intangible assets Restructuring charge Total operating expenses Operating loss income Interest income expense net Loss income-before benefit from provision for income taxes Benefit from provision for income taxes Net loss income Net loss income per common share2 Basic Diluted Weighted average common shares outstanding Basic Diluted Other Data Adjusted EBITDA unaudited3 72345 14152 __________ 77373 22786 4385 86497 104544 61353 24254 6643 92250 51372 19708 8119 79199 43715 14595 8501 66811 10476 6202 5322 22000 44811 15575 12988 8611 3788 6493 5339 27974 24820 64276 54379 28048 7320 12592 1610 4740 54310 9966 1831 20305 18174 6295 8756 1144 5029 41529 12850 321 5756 7617 1792 5172 38511 6300 30 11797 13171 6270 5252 6545 0.09 0.08 5658 7513 0.42 0.42 4036 10306 0.04 0.04 19378 5600 __________ 24978 61519 32002 8664 19527 2219 4714 67126 5607 267 5340 224 5116 0.12 0.12 21404 9531 2156 33091 71453 33481 10995 14663 2406 5306 1494 68345 3108 1440 4548 2784 1764 0.04 0.04 41864789 41424920 28384303 7824374 7370680 41864789 43439619 31346738 7824374 7370680 13949 $20985 22150 20273 13342 38 Consolidated Balance Sheet Data Cash cash equivalents and investments Total assets Total liabilities Total redeemable convertible preferred stock Total stockholders equity deficit 2009 2008 2007 2006 2005 As of December 31 in thousands 82557 $214063 $16199 69568 62001 $210012 $202488 $19075 25155 $197864 $190937 $177334 30830 94156 24309 46879 96516 36269 $136766 66919 $126004 65756 Amounts include stock-based compensation expense as follows Cost of online revenue Cost of events revenue Cost of print revenue Selling and marketing Product development General and administrative Total Basic and diluted net income Years Ended December 2009 2008 2007 in thousands 31 2006 2005 454 94 407 91 189 53 15 5342 _535 6198 4813 2999 473 334 2881 2244 87 31 12 606 90 424 $12623 $8671 $5834 $1250 78 78 loss applicable common shares to common stockholders loss per common share is computed by the basic and diluted weighted-average by dividing the net income number of outstanding for the fiscal period See Note of our Notes to Consolidated Financial Statements The following and is unaudited table reconciles net loss income to Adjusted EBITDA for the periods presented Net loss income Interest income expense net Benefit from provision for income taxes Depreciation Amortization of intangible assets EBITDA Stock-based compensation Restructuring charge Adjusted EBITDA Years Ended December 2009 2008 2007 in thousands 31 2006 2005 $5116 267 224 2219 4714 1326 12623 $1764 1440 2784 2406 5306 6545 1831 5252 1610 4740 7513 321 5658 1144 5029 10820 16316 19023 8671 1494 5834 1250 $10306 30 4036 1792 5172 13264 78 $13949 $20985 $22150 $20273 $13342 Adjusted EBITDA is metric income represents net loss before interest taxes depreciation and amortization used by management to measure operating performance EBITDA income expense net provision for benefit from income Adjusted EBITDA represents EBITDA as further adjusted charges We present Adjusted EBITDA as to exclude stock-based compensation and restructuring supplemental from period to period and company to company by backing performance measure because we believe it facilitates operating performance comparisons out potential differences caused by 39 variations in capital structures affecting interest expense tax positions such as the impact on periods or companies of changes in effective tax rates or net operating losses the age and book depreciation of fixed assets affecting relative depreciation expense and the impact of non-cash stock-based compensation expense costs Because Adjusted EBITDA facilitates internal comparisons of operating on more consistent performance relative to that of our competitors We also use Adjusted EBITDA in connection with our senior management Adjusted EBITDA is not under GAAP and should not be considered as an basis we also use Adjusted EBITDA in measuring our performance of our financial performance of our executive compensation measurement officers and alternative to net with GAAP or as an alternative or liquidity We understand that although Adjusted EBITDA is frequently or any other performance flow from operating income operating income to cash activities measures derived in accordance as measure of our profitability used by securities analysts lenders and others in their evaluation of companies Adjusted EBITDA has limitations as an analytical tool and you should not consider reported under GAAE Some of it in isolation or as substitute for analysis of our results as these limitations are Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments Adjusted EBITDA does not needs reflect changes in or cash requirements for our working capital Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our debts Although depreciation and amortization amortized will often have to be replaced are non-cash the assets being depreciated in the future and Adjusted EBITDA does not charges and reflect any cash requirements for such replacements and Other companies in our industry may calculate Adjusted EBITDA differently than we do limiting its usefulness as comparative measure 40 Item Managements Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be in conjunction with the consolidated read in this Annual Report on Form 10-K This discussion and analysis contains financial statements and accompanying notes included elsewhere forward-looking statements that involve risks uncertainties and assumptions Our actual results could differ materially from those anticipated in these forward-looking statements as result of various factors elsewhere in this Annual Report on Form 10-K particularly under Overview Background those discussed including the heading Risk Factors below and We are leading provider of specialized online content that brings together buyers and sellers of corporate corporate IT products We sell customized marketing programs IT decision makers who are actively researching specific IT purchases that enable IT vendors to reach Our integrated content platform consists of the critical in-person events Throughout targeted IT professionals offerings meet platform on which IT vendors ROl As IT professionals specific websites for purchasing decision support Our content needs for expert peer and have become increasingly specialized can launch targeted marketing campaigns that generate measurable high they have come to rely on our sector- enables IT professionals to navigate the network of websites that we complement with stages of the purchase decision process our content IT vendor information and provide complex and rapidly changing IT landscape where purchasing decisions can have significant financial and operational consequences Based upon and the marketing focus responsibilities categorize our content offerings across ClOuT Strategy Data Center and Virtualization Storage TechnologyGuide.com and Vertical Software of the logical clustering the products that our customers are advertising of our users respective job we currently ten distinct media groups Application Development Channel Enterprise Applications Networking Security On November 2009 we filed Form 8-K disclosing that we were delaying the filing of our Quarterly Report on Form 10-Q for the third quarter identified an improper accounting on our balance sheet As eliminated as liabilities practice relating to certain customer credits that were improperly result our Audit Committee conducted an of 2009 We further disclosed that we had investigation into this matter The Audit Committee has completed its investigation and found no other improper conduct in connection with any other accounting practices Total professional fees related to the investigation 2009 with the remaining amount to be included are approximately $1.5 million of which approximately $1.2 million was recorded in there were certain that in 2010 We have concluded errors in our previously reported financial statements To correct the customer credit errors we recorded net adjustment which increased accounts payable by $967000 and decreased income before provision for income taxes by $967000 in 2009 The aggregate $362000 net adjustment accumulated from 2007 $561000 from 2008 and $13000 from 2009 over several years and includes $57000 from 2004 to 2006 In addition to the customer credit matter mentioned above we disclosed in our Quarterly Report on Form 10-0 for the first quarter amount of $284000 related of 2008 Whereas the error was previously to interest of 2009 that we corrected income which should have in the first quarter of 2009 an error in the been recorded in the fourth quarter corrected in Qi 2009 the $284000 adjustment is not included in the adjustments described above We assessed the materiality of the adjustments that financial statements for 2009 see Note 16 of Notes to Consolidated Financial Statements are not material these errors both quantitatively and qualitatively to the prior annual financial statements or to the interim and concluded 41 lJuIIIlg lJcccnibei U0u in response uncertainties we iinJlfl1iItLd an expense to tue tilen-Lurient and anticipated edu tion piogiam thaL included future economic reduction in worktorce reduction in certain office lease the elimination of our two print publications and continuation of strict controls on discretionaiy spending During the twenty-four month period the announced workforce reduction we had hired approximately 150 employees immediately preceding to support existing and anticipated growth The reduction in workforce resulted in decrease of our employees by approximately 76 full-time positions representing approximately 12% of our total workforce As result of the expense reduction program we incurred pre-tax charge of $1.5 million in the fourth quarter of 2008 Sources of Revenues We sell advertising programs to IT vendors targeting specific audience within particular IT sector or sub-sector We maintain multiple points of contact with our customers to provide support throughout their organizations and the sales cycle As result our customers often run multiple advertising programs with us in order to reach discrete portions of our targeted audience There are multiple factors that can impact our customers advertising objectives and spending with us including but not limited to product launches increases or decreases to their advertising budgets the timing of key industry marketing events responses to competitor activities and efforts to address specific marketing objectives such as creating brand awareness or generating sales leads Our services are generally delivered under short-term contracts that typically less than months in length run for the length of given advertising program We generate substantially all of our revenues from the sale of we deliver via our network of websites events and print publications targeted advertising campaigns that Online The majority of our revenue is derived from the delivery of our online offerings from our groups Online revenue represented 84% 74% and 67% of media December 31 2009 2008 and 2007 respectively We expect through the delivery of online offerings for the foreseeable and preferences the specific allocation total revenues for the years ended the majority of our revenues to be derived future As result of our customers of online advertising offerings sold and advertising objectives delivered by us on period by period basis can fluctuate Through our websites we sell IT professionals Our lead generation variety of online media offerings to connect IT vendors to offerings allow IT vendors to capture qualified sales leads from the distribution and promotion of content provide IT vendors to targeted exposure related to their products and services to our audience of IT professionals Our branding offerings audiences of IT professionals actively researching information Our branding offerings include banners and e-newsletters within our network We also offer the ability specific websites Banner advertising can be purchased on to advertise in e-newsletters focused on key site sub-topics across our portfolio of websites These offerings give IT vendors the ability to increase their brand awareness to highly specialized IT sectors Our lead generation offerings include the following White Papers White papers are technical documents created by IT vendors to describe business or technical problems that are addressed by the vendors to have their white papers distributed to our users and products or services IT vendors pay us receive targeted promotions on our relevant websites Prior to viewing white papers our registered members and visitors supply their corporate contact and qualification information and agree to receive further information from the vendor The corporate contact and other qualification information for these leads are supplied to the vendor in real time through our proprietary lead management software 42 Webcasts videocasts podcasts Podcasts and Videocasts that bring informational directly to their mobile devices As is IT vendors pay us to sponsor and host webcasts sessions directly to attendees desktops and in the case of podcasts and the case with white papers our users supply their podcast or videocast sponsor access to the registrant contact and qualification corporate when they view or download information and visibility before during and after the event the content Sponsorship includes information to the webcast Software Package Comparisons Through our 202Osoftware.com website IT vendors pay us to post information and specifications about their software packages typically organized by category Users can request application trial software from multiple software management or CRM accounting and business leads based upon the users who request providers further their information information which may include downloadable in sectors such as customer relationship analytics IT vendors in turn receive qualified Promotional E-mails IT vendors pay us to further target the promotion of their white papers webcasts videocasts podcasts or downloadable trial software by including their content in our periodic e-mail updates to registered users of our websites Users who have voluntarily registered on our websites receive an e-mail update from us when vendor content directly related to their interests is listed on our sites List Rentals We also offer topics related to their interests IT vendors members using specific IT vendors criteria the ability to message relevant registered members on can rent our e-mail and postal lists of registered such as company size geography or job title Contextual Advertising Our contextual advertising programs associate IT vendor white papers webcasts podcasts or other content on particular topic with our related sector-specific content IT vendors have the option to purchase exclusive sponsorship of content related to their product or category Third Party Revenue Sharing Arrangements We have arrangements with certain third parties including for the licensing of our online content email subscribers and for which advertising available to our website visitors In each of resulting revenue for the renting of our database of opted-in from customers of certain third parties is made share of the these arrangements we are paid Events Events revenue represented 16% 22% and 26% of total revenues for the years ended December 31 2009 2008 and 2007 respectively Most of our media groups operate events The majority of our events are free to IT professionals and are sponsored by IT vendors revenue generating Attendees are pre-screened size or job title We offer three types based on event-specific criteria such as sector-specific of events multi-day conferences events Multi-day conferences provide independent expert content exhibit space to purchase We also hold single-day content on key sub-topics and other sponsorship seminars on various offerings that enable topics in major cities These in the sectors we serve are free to qualified attendees and offer multiple vendors the ability to interact with specific targeted audiences actively focused on buying decisions Our custom events differ from our conferences and seminars in that they are exclusively sponsored by single IT vendor and the content is driven primarily by the sole sponsor Print Print revenue represented 0% 4% and 7% of total revenues December 31 2009 2008 and 2007 respectively During certain portions for the years ended fiscal years 2008 of and 2007 we published monthly three controlled-circulation generated revenue solely based on advertising Information Security magazine in 2003 and ClO Decisions magazine 43 magazines that were free to subscribers and fees We began publishing Storage magazine in 2005 We discontinued in 2002 budget size company single-day seminars and custom and allow vendors for our attendees interaction with the attendees seminars provide independent puilishullg CO Decisions magazine in November 2007 anu both Storage and Information Security magazines in December 2008 Cost of Revenues Operating Expenses and Other Expenses consist of cost of revenues administrative depreciation amortization selling and marketing product development and restructuring charges Personnel-related general and costs are significant component of most of these expense categories Cost of Online Revenue Cost of online revenue consists primarily of salaries and related personnel costs member acquisition expenses primarily keyword purchases from leading Internet search sites freelance writer expenses website and list of webcast videocast delivery podcast hosting costs vendor expenses associated with the rental offerings and stock-based compensation expense Cost of Events Revenue Cost of events revenue consists primarily of facility expenses including food and beverages for the event attendees salaries and related personnel costs event speaker expenses and stock-based compensation expense Cost of Print Revenue Cost of print revenue mailing costs salaries and related personnel costs consists primarily of printing and graphics expenses freelance writer expenses acquisition subscriber expenses primarily telemarketing and stock-based compensation expense Selling and Marketing personnel costs sales commissions compensation expense Sales commissions Selling and marketing expense consists primarily of salaries and related and stock-based lodging are recorded as expense when earned by the employee out-of-pocket and other expenses travel Product Development Product development includes the creation and maintenance of our network of websites advertiser offerings and technical infrastructure Product development expense consists primarily of salaries and related personnel and vendor costs and stock-based compensation expense General and Administrative General and administrative expense consists primarily of salaries and related personnel costs facilities expenses accounting legal and other professional fees and stock-based compensation expense General and administrative expense may continue to increase as percentage of total revenue for the foreseeable future as we invest in infrastructure to support continued growth and incur additional expenses related to being publicly traded company including increased audit and legal fees costs of compliance with securities and other regulations investor relations expense and higher insurance premiums Depreciation Depreciation expense consists of the depreciation of our property and equipment Depreciation of property and equipment is calculated using the straight-line method over their estimated useful lives ranging from three to five years Amortization of Intangible Assets Amortization of intangible assets expense consists of the amortization of intangible assets recorded in connection with our acquisitions Separable intangible assets that are not deemed to have an indefinite life are amortized over their useful lives using the straight-line method over periods ranging from one to nine years Restructuring charges Restructuring charges consists of employee severance and associated termination costs costs associated with the reduction in certain office leases contract termination costs in connection with the elimination of our two print publications as well as accelerated rental charges and leasehold improvement write-offs associated with the exit of facilities Interest Income Expense Net Interest income expense net consists primarily of interest income earned on cash cash equivalent and investment balances less interest expense incurred on bank term 44 loan balances We historically have corporate debt securities municipal invested our cash in money market accounts bonds and auction rate securities commercial paper Application of Critical Accounting Policies and Use of Estimates The discussion of our financial condition and results of operations is based upon our consolidated financial statements which have accepted in the United States The preparation been prepared in accordance with accounting principles generally us to make financial statements requires these of estimates judgments and assumptions that affect and expenses and related disclosure of contingent the reported assets and liabilities On an ongoing basis we amount of assets liabilities revenues evaluate our estimates including those related to revenue long-lived assets the allowance for doubtful accounts certain stock-based compensation assets and liabilities on historical and income taxes We based our estimates of the carrying value of experience and on various other assumptions that we believe to be reasonable In many estimates In some cases period to period Our actual conditions cases we could reasonably changes in the accounting have used different accounting policies and estimates are reasonably likely to occur from results may differ from these estimates under different assumptions or We believe the following critical accounting policies affect our more significant judgments used in the preparation of our consolidated financial statements See the notes to our financial statements for information about these critical accounting policies as well as description of our other accounting policies Revenue Recognition We generate substantially all of our revenue from the sale of targeted advertising campaigns that we deliver via our network of websites events and prior to 2009 print publications revenue only when the price is fixed or determinable persuasive evidence In all cases we of an arrangement recognize exists the service is performed and collectability of the resulting receivable is reasonably assured Although each of our online media offerings can be sold separately most of our online media sales involve multiple online offerings Because elements in our bundled campaigns advertising objective evidence of fair value does not exist for all no allocation can be made and we recognize revenue on all services over the term of the arrangement Events We sell our events separately from our other service offerings and recognize event revenue in the period the event occurs Amounts collected or billed prior to satisfying the above revenue recognition criteria are recorded as deferred revenue Print When sold separately print advertising magazine was distributed When print advertising recognized revenue Amounts collected or billed prior to satisfying for all services in the advertising revenue was recognized at the time the applicable campaigns were sold with online media offerings we campaign over the term of the arrangement the above revenue recognition criteria were recorded as deferred revenue Online We recognize revenue from our specific online media offerings as follows when these items are sold separately White Papers We recognize white paper revenue ratably over the period in which the white paper is available on our websites Webcasts Podcasts and Videocasts We recognize webcast podcast and videocast revenue ratably over the period in which the webcast podcast or videocast is available on our websites 45 ucKac uontparzw/n hvh t\ arc information We ieeoguie soliwale package coinpanson revenue ratably ovei is available no OUI website Promotional Emails and E-newsletters We recognize promotional e-mail revenue latably over the period in which the related content asset is available on our websites because promotional emails do not have standalone value from the related content asset We recognize e-newsletter revenue in the period in which the c-newsletter is sent List Rentals We recognize of registered members list rental revenue in the period in which the e-mail is sent to the list Banners We recognize banner revenue in the period in which the banner impressions occur Third Party Revenue from third party revenue arrangements is recognized in the period in which the services are performed Sharing Arrangements Revenue sharing We offer customers the ability to purchase integrated ROl program offerings which can include any of our online media offerings packaged together to address the particular customers specific advertising requirements As part of these offerings we will guarantee minimum number of qualified sales leads to be delivered over the course of the advertising campaign We sometimes extend the scheduled end date of advertising campaigns to satisfy campaign based on delayed receipt of advertising media collateral lead guarantees or to fulfill all elements of the from the customer We estimate the revenue reserve necessary to properly defer revenue recognition for extended advertising campaigns estimates These are based on the Companys experience in managing ROl program offerings Shortfalls in fulfilling lead guarantees before an advertising are satisfied within and fulfilling these integrated the scheduled completion date of These campaign completion date integrated ROl program offerings represented approximately 49% 41% and 33% of our online an average of 42 days of such scheduled revenues and 41% 31% and 22% of our total revenues for the years ended December 31 2009 2008 and 2007 respectively Amounts collected or billed prior to satisfying the above revenue recognition criteria are recorded as deferred revenue Long-Lived Assets Our long-lived Goodwill and other assets consist of property and equipment goodwill and other intangible assets intangible assets have arisen principally from our acquisitions The amount assigned to intangible assets is subjective and based on our estimates of the future benefit of the intangible assets using accepted valuation Our assets other long-lived techniques such as discounted cash flow and replacement cost models than goodwill are amortized over their estimated useful lives which we determined based on the consideration of several factors including the period of time the asset is expected to remain in service range from one to nine years using methods of economic use We evaluate Intangible pattern assets are amortized over their estimated useful lives which of amortization that are expected to reflect the estimated the carrying value and remaining useful lives of long-lived assets other than goodwill whenever indicators of goodwill annually and whenever indicators impairment are present We evaluate are present We use impairment of the carrying value of discounted cash flow approach to determine the fair value of goodwill Fair Value of Financial Instruments Financial instruments consist of cash and cash equivalents short and long-term investments accounts receivable accounts payable term loan payable and an interest rate swap The carrying value of these instruments approximates their fair values The term loan was paid and interest rate swap terminated in December 2009 46 Allowance for Doubtful Accounts We offset gross accounts for doubtful is our best estimate of receivable We review our allowance accounts trade accounts receivable with an allowance for doubtful accounts The allowance the amount of probable credit losses in our existing for doubtful accounts on regular basis and all past due the allowance balances are reviewed individually for collectability Account balances are charged against after all means of collection have been exhausted and the potential for recovery is considered remote Provisions for allowance for doubtful accounts are recorded in general and administrative expense If our historical collection experience receivables our future provision does not reflect our future ability to collect outstanding accounts for doubtful accounts could be materially affected To date we have not incurred any write-offs of accounts receivable significantly different than the amounts reserved The allowance for doubtful accounts was $0.5 million and $0.6 million at December 31 2009 and 2008 respectively Stock-Based Compensation We measure stock-based compensation at the grant date based on the fair value of the award and recognize stock-based compensation in the statement of operations using the straight line method over the vesting period of the award or using the accelerated method if the award is contingent upon goals We use the Black-Scholes awards We calculated the fair values performance stock-based assumptions option pricing model to determine the fair value of of the options granted using the following Years Ended December 31 2009 2008 2007 75%79% 6.25 years 41%71% 47%50% 6.25 years 6.25 years 2.21%2.89% 1.71%3.15% 3.62%5.04% Expected volatility Expected term Risk-free interest rate Expected dividend yield Weighted-average grant date fair value share per $4.06 $3.28 $7.35 As there was no public market for our common stock prior to our initial public offering in May 2007 and there has been since the date of our limited historical information on the volatility of our common stock initial public offering we determined the volatility for options granted in 2009 and 2007 based on an analysis of 2008 with substantially similar terms The expected reported data for peer group of companies that issued options volatility of options granted has been determined using an average of the historical volatility measures of this peer group of companies for period equal to life of the expected simplified method The risk-free interest instrument whose term is consistent with the expected life of rate is based on the option The expected life of options has been determined utilizing the zero coupon United States treasury the stock options We have not paid and do not anticipate paying cash dividends on our shares of common stock therefore the expected dividend yield is assumed to be zero We applied an annual forfeiture rate based on our historical forfeiture experience of 2.00% 2.00% and 1.00% in determining the expense and 2007 respectively recorded in 2009 2008 Internal Use Software and Website Development Costs We capitalize costs of materials time to the development who devote consultants and compensation and related expenses of employees of internal-use software and website applications and infrastructure involving developing software to operate our websites However we expense as incurred website development costs for new features and functionalities since it is not probable that they will result in additional functionality until they are both developed and tested with confirmation that they are more effective than the current set of features and functionalities on our websites Our judgment is 47 required in determining the point at which various projects capitalized useful lives in assessing over which the costs are amortized which is generally the capitalized the ongoing value of enter the states at which costs may he costs and in determining the estimated three years To the extent that we change the manner in which we develop and test new features and functionalities websites assess the ongoing value of capitalized assets or determine the estimated related to our useful lives over which the costs are amortized the amount of website periods would be impacted We review future capitalized development costs we capitalize and amortize in internal use software and website development costs for recoverability whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable We would recognize an impairment loss only if the carrying amount of the asset is not recoverable and exceeds its fair value We capitalized internal-use software and website development costs of $1.5 million $0.5 million and $1.0 million for the years ended December 31 2009 2008 and 2007 respectively Income Taxes We are subject to income taxes in both the United States and foreign jurisdictions and we use estimates in determining our provision for income taxes We recognize deferred tax assets and liabilities based on temporary differences between the financial reporting and income tax bases of assets and liabilities using statutory rates Our deferred tax assets are comprised primarily of net operating of December 31 2009 we had U.S federal and state NOL carryforwards loss or NOL carryforwards As of approximately $7.0 million and $17.3 million respectively which may be used to offset future taxable income The NOL carryforwards Revenue expire through 2027 and are subject Service The Internal Revenue Code contains to review and possible adjustment by the Internal the NOL and tax credit provisions that limit carryforwards available to be used in any given year in the event of certain changes in the ownership interests of significant stockholders The federal NOL carryforwards December 31 2009 were acquired from KnowledgeStorm future years of $7.0 million available at and are subject to limitations on their use in Net Income Loss Per Share We calculate basic earnings per share EPS by dividing earnings available to common shareholders for the period by the weighted average number of common shares and vested restricted stock awards outstanding Because the holders of unvested restricted stock awards do not have nonforfeitable rights to dividends or dividend equivalents we do not consider these awards to be securities that should be included participating two-class method Diluted EPS is computed vested restricted stock awards outstanding in our computation- of earnings per share under the using the weighted-average number of common shares and during the period plus the dilutive effect of potential future issuances of common stock relating to stock option programs and other potentially dilutive securities using the computed under the stock method In calculating treasury using the average market price for the respective period In addition the assumed diluted EPS the dilutive effect of stock options is proceeds treasury stock method include the average unrecognized compensation expense and assumed tax benefit of stock options that are in-the-money This results in the assumed buyback of additional shares thereby reducing the dilutive impact of stock options 48 Results of Operations The following table sets forth our results of operations for the periods indicated Years Ended December 31 2009 2008 2007 in thousands $72345 84% 77373 74% $61353 14152 16 22786 22 4385 24254 6643 67% 26 86497 100 104544 100 92250 100 19378 23 5600 29 71 37 10 23 24978 61519 32002 8664 19527 2219 4714 21404 21 15575 17 9531 2156 33091 71453 33481 10995 14663 2406 5306 1494 32 68 32 11 14 8611 3788 27974 64276 30 70 28048 30 7320 12592 14 1610 4740 67126 78 68345 65 54310 3108 1440 9966 1831 59 11 5607 267 5340 224 $5116 4548 11797 13 2784 7% 1764 5252 6545 2% 7% Years Ended December 31 2009 2008 Increase Decrease Percent Change in thousands $72345 14152 77373 22786 4385 5028 8634 4385 $86497 $104544 $18047 6% 38 100 17% Revenues Online Events Print Total revenues Cost of revenues Online Events Print Total cost of revenues Gross profit Operating expenses Selling and marketing Product development General and administrative Depreciation Amortization of intangible assets Restructuring charge Total operating expenses Operating loss income Interest income net Loss income before benefit from provision for income taxes Benefit from provision for income taxes Net loss income Comparison of Fiscal Years Ended December 31 2009 and 2008 Revenues Revenues Online Events Print Total revenues 49 Untine Inc decrease in online revenue was primarily attributable to $7.5 million decrease in revenue from lead generation offerings due principally to sales volumes Additionally revenue contextual advertising arrangements decreased by approximately $1.8 million in 2009 were partially offset by sales volume $4.2 million increase in branding revenue decrease from third party as compared in white paper webcast and revenue sharing to 2008 These decreases primarily due to increased banner Events The decrease was attributable in part to $4.6 million decrease in seminar series and custom event revenue due to decrease in number of seminar series and custom events produced in 2009 as compared to 2008 The decrease was also attributable to $3.9 million decrease in revenue from multi-day conferences due to decrease in the number of conferences produced in 2009 as compared to 2008 Print We did not recognize any print revenue in 2009 because we discontinued publishing both of our print publications Storage and Information Security magazines in December 2008 Cost of Revenues and Gross Profit Cost of revenues Online Events Print Total cost of revenues Gross profit Gross profit percentage Years Ended December 31 2009 2008 Increase Decrease Percent Change in thousands $19378 $21404 5600 9531 2156 $24978 $33091 $61519 $71453 71% 68% $2026 3931 2156 $8113 $9934 9% 41 100 25 14% Cost of Online Revenue The decrease in cost of online revenue was attributable in part to $2.2 million decrease in member acquisition decrease also reflects $0.6 million decrease expenses primarily in production and hosting costs for online products due to related to keyword purchases The the decreased sales volume of online services in 2009 as compared to 2008 as well as decrease in consulting costs of $0.3 million The decrease was partially offset by $1.1 million increase in salaries and benefits Cost of Events Revenue The decrease in cost of events revenue was attributable in part to $1.6 million decrease in seminar series and custom event costs due to decrease in events produced in 2009 compared to 2008 The decrease was also attributable to $0.8 million decrease in multi-day conference also reflects costs due to decrease in conferences produced in 2009 compared to 2008 The decrease $1.2 million decrease in salaries and benefits due to decrease in headcount in our events organization resulting from the expense reduction program implemented in December 2008 as well as decrease of $0.3 million in travel and temporary help costs Cost of Print Revenue We did not recognize any cost of print revenue in 2009 because we discontinued publishing both Storage and Information Security magazines in December 2008 50 Gross Profit Our gross profit is equal to the difference between our revenues and our cost of revenues for the period The decrease in gross profit is attributable to $3.1 million decrease in online $4.7 million decrease in events gross profit gross profit profit Gross margin for 2009 was 71% as compared to 68% for 2008 primarily our online and having discontinued gross margins publishing events and due to an increase in both Storage and Information and $2.2 million decrease in print gross Security magazines fixed in nature we expect our gross profit to fluctuate in December 2008 Because the majority of our costs are labor-related and therefore from period to period depending on the total revenues for the period as well as the relative contribution of online and events revenue to our total revenues Operating Expenses and Other For the Years Ended December 31 2009 2008 Increase Decrease Percent Change in thousands $32002 $33481 8664 19527 2219 4714 10995 14663 2406 5306 1494 $1479 2331 4864 187 592 1494 $67126 $68345 $1219 4% 21 33 11 267 224 1440 $1173 81 2784 $3008 108% Operating expenses Selling and marketing Product development General and administrative Depreciation Amortization of intangible assets Restructuring charge Total operating expenses Interest income net Benefit from provision for income taxes Percentage is not meaningful Selling and Marketing The decrease in selling $1.7 million decrease in salaries commissions and marketing expense was attributable in part decrease in headcount due to bonuses and benefits to in in our sales and marketing organizations resulting from the expense December 2008 The decrease also reflects $0.5 million decrease reduction program implemented in travel costs The decrease is partially offset by an increase $0.4 million to increase accounts payable related to customer credit errors of $0.5 million in stock-based compensation and additional expense of Product Development The decrease in product development expense was attributable to $2.3 million decrease in salaries and benefits due to decrease in headcount in our product development December 2008 organization resulting from the expense reduction program implemented in General and Administrative The increase in general and administrative expense was attributable to in part based restricted stock awards $3.3 million increase in stock-based compensation due to expenses related to performance- issued in fiscal year 2009 The increase also reflects $1.4 increase in professional fees primarily as result of the investigation costs incurred in the fourth quarter of 2009 and $0.6 million increase in other employee compensation These increases were partially offset by $0.3 million decrease in various contracted services and $0.2 million decrease in bad debt expense Depreciation and Amortization of Intangible Assets primarily attributable to certain assets acquired The decrease in depreciation from KnowledgeStorm in November expense was 2007 being fully depreciated during 2009 The decrease in amortization of intangible assets expense was primarily 51 dLLIiiiULabk- Lii eriaiu inLangrnle assets relatcu to oui acquisitions of 007 and Knowk dgcStoim in Novrinlxj 00 beoining Fully amoi tized during 2009 lºchnologyGuide.com in May Restructuring Charges The decrease in 2008 related to employee to our expense reduction severance expense and $0.6 million related to non-cancelable restructuring charges program The restructuring was due to $1.5 million charge in charge included $0.9 million related lease and contract termination charges and the clated writc-off of fixed assets Interest Income Net The decrease in interest income net reflects an adjustment to interest income of $0.3 million in 2009 related to interest income recognized in error in the fourth quarter of 2008 as well as lower interest rates during 2009 compared to 2008 The decreases were partially offset by decrease in interest expense on our outstanding debt balance over that same period Benefit From Provision for Income Taxes Our effective tax rate was 4% and 61% for the years and 2008 respectively The decrease in the effective tax rate was primarily ended December 31 2009 due to pretax loss of $5.3 million in 2009 as compared to pretax income of $4.5 million in 2008 partially offset by an increase in nondeductible stock-based income from Federal taxation exempt compensation and decrease in interest Comparison of Fiscal Years Ended December 31 2008 and 2007 Revenues Revenues Online Events Print Total revenues Years Ended December 31 2008 2007 Increase Decrease Percent Change in thousands 77373 22786 4385 $61353 $16020 26% 24254 6643 1468 2258 34 13% $104544 $92250 $12294 Online The increase in online revenue was attributable to $10.9 million increase in revenue from lead generation White paper sales volume offerings due primarily to an increase in webcast increased in part due to our acquisition and white paper of KnowledgeStorm in November sales volumes 2007 The increase also reflects $4.6 million increase in branding revenue primarily due to increased banner sales volume Additionally revenue from third party revenue approximately $0.5 million in 2008 as compared to 2007 sharing arrangements increased by Events The decrease in events revenue was primarily attributable to $1.7 million decrease in conference multi-day The decrease was partially offset by revenue due revenue due compared to 2007 to fewer multi-day conferences held in 2008 as compared to 2007 $0.3 million increase in seminar series and custom events to an increase in the number of seminar series and custom events produced in 2008 as Print The decrease in print revenue was attributable to the continued shift of our customers budgets from print and towards online offerings Additionally we discontinued magazine in November 2007 and both Storage and Information Security advertising away publishing ClO Decisions magazines in December 2008 52 Cost of Revenues and Gross Profit Cost of revenues Online Events Print Total cost of revenues Gross profit Gross profit percentage Years Ended December 31 2008 2007 Increase in thousands $21404 $15575 9531 2156 8611 3788 $33091 $27974 5829 920 1632 5117 $71453 $64276 $7177 68% 70% Percent Change 37% 11 43 18 11% Cost of Online Revenue Approximately $2.4 million of the increase in cost of online revenue is attributable to employee salaries benefits and other compensation This increase is primarily due to an increase in headcount in our online editorial and operations organizations as well as increases to employee 2007 We increased headcount compensation In addition freelancer and freelancer expenditures to support the increase in online sales expenses increased $0.4 million in 2008 as compared to volume and to provide additional editorial content The increase in cost of online revenue was also attributable in part to $1.5 million increase in member acquisition expenses primarily related to keyword party production and hosting costs for online services due to the increased The increase in cost of online revenue also reflects $1.1 million of additional in 2008 sales volume purchases third as compared stock-based to 2007 The increase in cost of online revenue also reflects $0.2 million increase in compensation Cost of Events Revenue The increase in cost of events revenue was attributable in part to $0.6 million increase in salaries bonuses and benefits related to an increase in headcount in our events organization as well as increases to employee compensation growth in events revenue which did not occur The increase anticipated increase in seminar series and custom event costs due to an increase also reflects $0.4 million in the number of seminar series The increase in headcount was to support and custom events produced in 2008 as compared to 2007 The increase was partially offset by $0.1 million decrease in multi-day conference costs due to fewer multi-day conferences held in 2008 as compared to 2007 Cost of Print Revenue The decrease in cost of print revenue was attributable to our efforts to reduce production costs for our publications in response to our customers advertising budgets continuing publishing ClO Decisions to shift away from print and towards online offerings Additionally we discontinued magazine in November 2007 and both Storage and Information Security magazines in December 2008 Gross Profit Our gross profit is equal to the difference between our revenues and our cost of revenues for the period The increase in gross profit is primarily attributable to $10.2 million increase in online gross profit offset by $0.6 million in print gross profit Gross margin for 2008 was 68% as compared to 70% for 2007 Since are fixed in nature we expect our gross profit the majority of our costs are labor-related and therefore of $2.4 million in events gross profit and decrease decrease of to fluctuate from period to period depending on the total revenues for the period as well as the relative contribution of online and events revenue to our total revenues 53 Operating txpenses ana Other Operating expenses Selling and marketing ... Product development General and administrative Depreciation Amortization of intangible assets Restructuring charge Total operating expenses Interest income net Provision for income taxes Percentage is not meaningful For the Years Ended December 31 2008 2007 Increase Percent Decrease Change in thousands $33481 $28048 10995 14663 2406 5306 1494 7320 12592 1610 4740 5433 3675 2071 796 566 1494 $68345 $54310 $14035 $1440 1831 391 2784 5252 $2468 19% 50 16 49 12 26 21 47% Selling and Marketing The increase in selling and marketing expense was attributable in part to $2.9 million increase in salaries commissions bonuses and benefits resulting principally from an increase in headcount in our sales and marketing organizations as well as increases to employee compensation growth which did not occur The increase in The increase in headcount is result of actual growth in revenues as well as anticipated selling and marketing expense also reflects $1.8 million increase in stock-based compensation and $543000 increase in travel related costs Product Development The increase in product development expense was attributable to $3.1 million increase in salaries and benefits resulting principally from an increase in headcount in our product development organization as well as increases to employee compensation The increase in headcount was primarily result of additional acquisition of KnowledgeStorm acquired in November 2007 The increase in product development product development employees in the expense also reflects $343000 increase in hardware and software maintenance expenses General and Administrative The increase in general and administrative to $1.4 million increase in facilities expense due to leasing additional office MA headquarters beginning in July 2007 as well as office space November 2007 The increase in general increase in stock-based and administrative compensation offset by compensation legal insurance full year as well The increase is also due in part and other expenses attributable as an increase of $365000 in bad debt expense acquired with KnowledgeStorm in expense was also attributable to decrease of $1.5 million in other employee to an increase of $785000 in expense related primarily to our being publicly traded company for $637000 to audit expense was attributable in our Needham space Depreciation and Amortization of Intangible Assets primarily attributable to depreciation of assets acquired The increase in depreciation from KnowledgeStorm expense was in November 2007 The increase in amortization of intangible assets expense was primarily attributable to amortization of intangible assets related to our acquisitions of TechnologyGuide.com in April 2007 and KnowledgeStorm in November 2007 Restructuring Charge The increase in restructuring to our expense reduction program The restructuring charges was result of charge of $1.5 million charge included $0.9 million in 2008 related related to employee severance expense and $0.6 million related to non-cancelable lease and contract termination charges and the related write-off of fixed assets 54 Interest Income Net due to lower average cash compared to 2007 The decrease in interest income net reflects decrease in interest income and investment balances as well as lower interest rates during 2008 Provision for Income Taxes The provision for income taxes as percentage of income before taxes or our annual effective tax rate is due primarily to stock-based compensation tax rate was 61% in 2008 and 45% in 2007 The increase in our effective decrease in pretax income in 2008 and an increase in nondeductible Selected Quarterly Results of Operations The following table presents our unaudited quarterly consolidated results of operations of operations revenue percentage as of unaudited quarterly consolidated ended December 31 2009 The unaudited quarterly consolidated results information has been prepared on the for the eight quarters and our same basis as our audited consolidated financial statements You should read the following table presenting our quarterly consolidated results of operations in conjunction with our audited consolidated financial statements and the related notes included elsewhere in this Annual Report The operating results for any quarter are not necessarily indicative of the operating results for any future period Revenues Online Events Print Total revenues Cost of revenues Online Events Print Total cost of revenues Gross profit Operating Selling expenses and marketing Product development General and administrative Depreciation Amortization of intangible assets Restructuring charge Total operating expenses Operating loss income Interest expense income net Loss income before benefit provision for income taxes from provision for Benefit from income taxes For the Three Months Ended 2009 2008 Mar 31 Jun 30 Sep 30 Dec 31 Mar 31 Jun 30 Sep 30 Dec.31 in thousands except per share data $16282 $17801 $18191 $20071 $18210 $19071 $20420 $19672 2190 3936 4865 3161 3985 1068 7262 1282 5496 1080 6043 955 18472 21737 23056 23232 23263 27615 26996 26670 4880 1081 4776 1455 4789 1741 4933 1323 5169 1827 5481 2923 5462 2328 546 632 580 5961 6231 6530 6256 7542 9036 8370 5292 2453 398 8143 12511 15506 16526 16976 15721 18579 18626 18527 7516 2081 3919 8023 2194 4064 8644 2276 5486 536 498 510 1215 1181 1166 7819 2113 6058 675 1152 8444 2762 3795 724 8885 2890 3459 581 1480 1332 8161 2788 3662 579 1259 7991 2555 3747 522 1235 14 15267 15960 18082 17817 17205 17147 16449 17544 454 174 1556 130 841 73 1484 418 1432 268 2177 248 983 506 2756 110 2866 558 280 263 1426 12 768 59 827 1066 630 1700 648 2425 1718 1489 1048 436 1052 707 441 Net loss income $2308 543 $1438 Net loss income per share basic 0.06 0.01 0.03 0.02 0.01 Net loss income per share diluted 0.06 $0.01 0.03 0.02 0.01 0.03 0.02 0.02 0.01 0.02 $0.01 55 Seasonality timing of our revenues is affected by seasonal factors Our revenues are seasonal primarily as result of the annual budget approval process of many of our customers and the historical decrease in advertising activity in July and August Revenues are usually the lowest in the first quarter of each calendar year increase during the second quarter decrease during the third quarter and increase again during the fourth quarter Events which may vary expenses much of which does not vary directly with revenue revenue revenue may vary depending to previous periods The timing when compared marketing product development selling and and general on which quarters we produce the event of revenues in relation to our has an impact on the cost of online and administrative expenses as percentage of revenue in each calendar quarter during the year The majority of our expenses are personnel-related and include salaries stock-based compensation benefits and incentive-based compensation plan expenses As result we have not experienced significant seasonal fluctuations in the timing of our expenses period to period Liquidity and Capital Resources Resources Since 2003 we have May 2007 we completed funded our operations principally with cash flows generated by operations In our initial public offering of 8.9 million shares of our common stock of which 7.1 million shares were sold by us and price to the public of $13.00 per share We raised 1.8 million shares were sold by stockholders of ours all at total of $91.9 million in gross proceeds from the offering or $83.2 million in net proceeds $6.4 million and other offering costs of approximately $2.3 million We have used after deducting underwriting discounts and commissions of portion of these proceeds to repay $12.0 million that we had borrowed against our revolving credit facility in conjunction stockholders consideration from operating of TechnologyGuide.com with the acquisition of KnowledgeStorm Inc in that acquisition We believe that our existing cash bank and available activities approximately $52 million in November 2007 as partial in April 2007 and to pay to the selling and cash equivalents our cash flow borrowings will be sufficient to meet our anticipated cash needs for at least the next twelve months Our future working capital requirements will depend on many factors including the operations of our existing business our potential strategic expansion internationally future acquisitions businesses To the extent that our cash we might undertake and the expansion into complementary and cash and cash flow from operating equivalents activities are insufficient to fund our future activities we may need to raise additional funds through bank credit arrangements or public or private equity or debt financings We also may need to raise additional funds in the event we determine in the future to effect one or more additional acquisitions of businesses In the event additional funding is required we may not be able to obtain bank credit arrangements or affect an equity or debt financing on terms acceptable to us or at all Cash cash equivalents and investments Accounts receivable net Cash Cash Equivalents and Investments As of December 31 2009 2008 2007 in thousands $82557 $69568 $62001 $15816 $17622 $15198 Our cash cash equivalents and investments at December 31 2009 were held for working capital purposes and were invested primarily in money market accounts and municipal bonds We do not enter into investments for trading or speculative purposes 56 Accounts Receivable Net Our accounts receivable balance fluctuates operating activities The fluctuations vary depending from period to period which affects our cash on the timing of our service delivery and billing flow from activity cash collections and changes to our allowance for doubtful accounts We use days sales or DSO calculated outstanding receivables We define DSO as accounts multiplied by the number of days 60 days at December on monthly basis receivable in the applicable 31 2008 and 57 days at December 31 2007 as measurement of the quality and status of our divided by total revenue for the applicable period period DSO was 67 days at December 31 2009 Operating Activities Cash provided by operating activities Cash used in investing activities Cash used in provided by financing activities Cash used in investing and $51.3 million for the years ended December 31 2009 2008 investment shown net of activities activity For the Years Ended December 31 2009 2008 2007 in thousands $19733 $10746 2075 2997 3271 94 13315 $67884 85753 of $17.9 million $5.8 million and 2007 respectively Cash provided by operating activities primarily consists of net loss income adjusted for certain non-cash items including depreciation and amortization the provision for bad debt stock-based compensation deferred Cash provided by operating compared to $10.7 million and $13.3 million in the years ended December 31 2008 and 2007 for the year ended December 31 2009 was $19.7 million income taxes and the effect of changes activities in working capital and other activities The increase in cash provided by operations in 2009 compared to 2008 was primarily respectively result of net cash provided by changes in operating $9.0 million in 2008 Significant decrease in accounts components receivable of assets and liabilities of $4.5 million as compared to the changes in assets and liabilities included of $1.6 million in 2009 compared to an increase of $2.9 million in 2008 and decrease in prepaid expenses and other current assets of $2.7 million in 2009 compared to an increase of $3.0 million in 2008 The increase in cash provided by changes in operating assets and liabilities in 2009 was partially offset by $4.6 million decrease in net loss income adjusted for non-cash related items Investing Activities Cash used in investing activities primarily consists of purchases of property and equipment and acquisitions ended December 31 2009 was $2.1 million for the purchase Cash used in investing activities of businesses net of investment activity for the year of property and equipment as well as website development costs Cash used in investing activities net of investment activity for the year ended December 31 2008 was $3.3 million and consisted of $2.0 million for the purchase of property and equipment and $1.3 million for the acquisition of The Brian Madden Company Cash used in investing activities net of investment activity for the year ended December 31 2007 was $67.9 million and consisted of $64.2 million for the acquisitions of TechnologyGuide.com in April 2007 and KnowledgeStorm in November 2007 and equipment and $1.0 million to acquire certain net of cash acquired $2.7 million for the purchase of property assets of Ajaxian in February 2007 We expect to spend approximately $2.0 million in capital expenditures in 2010 primarily for leasehold improvements website development costs computer equipment and related software and internal-use software development costs We are not currently party to any purchase contracts related to future capital expenditures 57 Equity Financing Activities We received proceeds from the exercise of common stock options and warrants totaling $0.1 million $2.2 million and $2.5 million for the years ended December 31 2009 2008 and 2007 respectively stock of which 71 million shares were sold by us and 1.8 million shares were sold by stockholders our initial public offering of 8.9 million shares In May 2007 we completed of of our common ours all at price to the public of $13.00 per share We raised total of $91.9 million in gross proceeds from the offering or $83.2 million in net proceeds after deducting underwriting discounts and commissions of $6.4 million and other offering costs of approximately $2.3 million Term Loan and Credit Facility Borrowings On August 30 2006 we entered into credit agreement with Citizens Bank of Massachusetts which included $10.0 million term loan and $20.0 million revolving credit facility In December 2009 we reduced the revolving credit facility to $5.0 million We borrowed $12.0 million against our revolving credit facility in conjunction with the acquisition of TechnologyGuide.com May 2007 with proceeds August 30 2011 Unless earlier payment interest will be due and payable on August 30 2011 At our option the revolving in April 2007 The entire outstanding from our initial public offering Our revolving by an event of default is required credit facility matures on all principal and any unpaid credit facility bears balance of $12.0 million was repaid in the lenders prime rate less 1.00% or interest at either plus the applicable LIBOR margin The applicable LIBOR margin is based on the ratio of debt to EBITDA for the preceding four LIBOR margin was 1.25% fiscal quarters As of December 31 2009 the applicable the London Interbank Offered Rate or LIBOR funded total We are also required to pay an unused line fee on the daily unused amount of our revolving credit facility at per annum rate based on the ratio of total funded debt to EBITDA for the preceding four fiscal quarters As of December 31 2009 unused availability $5 million and the per annum unused line fee rate was 0.20% under our revolving credit facility totaled Our term loan requires the payment of 39 consecutive monthly installments of $250000 each plus interest the first such installment was due on September 30 2006 with final payment of the entire unpaid principal balance due on December 30 2009 In September 2006 we entered into an interest rate swap agreement 6.98% The remaining balance of terminated in December 2009 to mitigate interest rate fluctuation and fix the interest rate on the term loan at the term loan was paid and interest rate swap agreement was Borrowings under our credit agreements are collateralized by an interest in and lien on all of our assets and certain other guarantees and pledges Our credit agreements contain certain affirmative and negative covenants which require among other things that we meet certain financial ratio covenants and limit certain capital expenditures At December 31 2009 we were in compliance with all financial the credit agreement We were in violation of one the credit under covenants under loan covenant agreement with Citizens Bank We failed to file timely quarterly interim financial SEC We received from the bank waiver to extend delivery agreeing date statements with the of September 30 2009 when we filed the financial financial statements to February 26 2010 and compliance was satisfied statements in February 2010 Contractual Obligations and Commitments As of December 31 2009 our principal commitments consist of obligations under leases for office space The offices are leased under noncancelable operating lease agreements that expire through 2020 58 The following table sets forth our commitments to settle contractual obligations in cash net of minimum sublease payments of $0.3 million as of December 31 2009 Payments Due By Period Less than Total Year 13 Years 35 Years More than Years Operating leases $29008 $1329 $6298 $5758 $15623 Operating leases are net of minimum sublease payments of $0.3 million due under sublease agreement that expires in November 2010 At December 31 2009 we had an irrevocable standby letter of credit outstanding in the aggregate amount of $1.5 million This letter of credit supports the lease we entered into in 2009 for our new corporate headquarters This letter of credit extends notification of termination is received annually through February 28 2020 unless Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements Recent Accounting Pronouncements See Note of Notes to Consolidated Financial Statements for recent accounting pronouncements that could have an effect on us Item 7A Quantitative and Qualitative Disclosures About Market Risk Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates Our market risk exposure is primarily rates We do not hold or issue financial result of instruments fluctuations in foreign exchange rates and interest for trading purposes Foreign Currency Exchange Risk in London have been Our subsidiary TechTarget Limited was established in July 2006 and is located England As of December 31 2009 most of our international denominated in U.S dollars and aggregate foreign currency subsidiary have been less than $0.3 million during the year customer agreements payments made by us through this ended December 31 2009 We currently believe our exposure to foreign currency exchange rate fluctuations is financially immaterial and therefore have not entered into foreign currency hedging transactions We continue to review this issue and may consider hedging certain in the future Interest Rate Risk foreign exchange risks through the use of currency futures or options At December 31 2009 we had cash cash equivalents and investments totaling $82.6 million These amounts were invested primarily in money market accounts bonds The cash cash and equivalents investments were held for working capital purposes We do not government agency bonds and municipal enter into investments for trading or speculative purposes Due to the short-term nature of these investments we believe we do not have any material investment portfolio as result of changes in interest exposure to changes in the fair value of our rates Declines in interest rates however would reduce future investment income Our exposure to market risk also relates to the amount of interest expense we must pay under our revolving credit facility The advances under this credit facility bear variable rate of interest determined as function of the lenders prime rate or LIBOR At December 31 2009 there were no amounts outstanding under our revolving credit facility 59 Page 61 62 63 64 65 66 Item Financial Statements and Supplementary Data index to Consolidated Financial Statements Report of Independent Registered Consolidated Balance Sheets Public Accounting as of December 31 2009 and Firm 2008 Consolidated Statements of Operations for the Years Ended December 31 2009 2008 and 2007 Consolidated Statements of Redeemable Stock and Stockholders Equity 2007 Preferred for the Years Ended December 31 2009 2008 and Convertible Deficit Consolidated Statements of Cash Flows for the Years Ended December 31 2009 2008 Notes to Consolidated Financial Statements and 2007 60 Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders of TechTarget Inc We have audited the accompanying December 31 2009 and 2008 and the related convertible stockholders preferred stock and consolidated balance sheets of TechTarget Inc as of consolidated statements of operations redeemable equity and cash flows for each of the three years in the period ended December 31 2009 management Our audits These financial statements are the responsibility of the Companys responsibility is to express an opinion on these financial statements based on our We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board United States Those reasonable assurance about whether standards require that we plan and perform the audit to obtain the financial statements are free of material misstatement An audit includes examining on test basis evidence supporting the amounts and disclosures in the financial statements An audit estimates made by management as well believe that our audits provide also reasonable includes assessing the accounting principles used and significant as evaluating the overall financial statement presentation We basis for our opinion In our opinion the financial statements referred to above present fairly in all material respects the consolidated financial position of TechTarget Inc at December 31 2009 and 2008 and the consolidated December 31 2009 in conformity results of its operations and its cash flows for each of the three years in the period ended with U.S generally accepted accounting principles We also have audited in accordance with the standards of the Public Company Accounting Oversight Board United States TechTarget December 31 2009 based on criteria the Committee of Sponsoring Organizations March 16 2010 expressed an adverse opinion Inc.s internal control over financial reporting as of established in Internal Control-Integrated Framework issued by of the Treadway Commission and our report dated thereon Is Ernst Young LLP Boston Massachusetts March 16 2010 61 TechTarget Inc Consolidated Balance Sheets in thousands except share and per share data Assets Current assets Cash and cash equivalents Short-term investments Accounts receivable net of allowance for doubtful accounts of $483 and $642 as of December 31 2009 and 2008 respectively and other current assets Prepaid expenses Deferred tax assets Total current assets Property and equipment net Long-term investments Goodwill Intangible assets net of accumulated amortization Other assets Deferred tax assets Total assets Liabilities and Stockholders Equity Current liabilities Accounts payable Accrued expenses Accrued compensation expenses and other current liabilities Current portion of bank term loan payable Income taxes payable Deferred revenue Total current liabilities Long-term liabilities Other liabilities Total liabilities Commitments Note 10 Stockholders equity Preferred stock 5000000 shares authorized no shares issued or outstanding Common stock $0.001 par value per share 100000000 shares authorized 42109965 and 41616963 shares issued and outstanding at December 31 2009 and 2008 respectively Additional paid-in capital Warrants Accumulated other comprehensive income loss Accumulated deficit Total stockholders equity Total liabilities and stockholders equity See accompanying notes 62 December 31 2009 2008 20884 50496 24130 42863 15816 17622 2736 2399 6251 2959 92331 93825 3760 11177 88958 12528 127 5182 3904 2575 88958 17242 139 3369 $214063 $210012 3106 2910 808 398 8402 3404 2908 702 3000 8749 15624 18763 575 312 16199 19075 42 42 233555 221597 35743 77 30627 197864 190937 $214063 $210012 TechTarget Inc Consolidated Statements of Operations in thousands except share and per share data For the Years Ended December 31 2009 2008 2007 72345 14152 ________ 77373 22786 4385 86497 104544 19378 5600 ____________ 24978 61519 32002 8664 19527 2219 4714 67126 5607 267 5340 224 5116 0.12 0.12 21404 9531 2156 33091 71453 33481 10995 14663 2406 5306 1494 68345 3108 1440 4548 2784 1764 0.04 0.04 61353 24254 6643 92250 15575 8611 3788 27974 64276 28048 7320 12592 1610 4740 54310 9966 1831 11797 5252 6545 0.09 0.08 41864789 41424920 28384303 41864789 43439619 31346738 454 94 5342 535 6198 407 91 4813 473 2881 189 53 15 2999 334 2244 Revenues Online Events Print Total revenues Cost of revenues On1ine Events1 Print Total cost of revenues Gross profit Operating expenses Selling and marketing Product development General and administrative1 Depreciation Amortization of intangible assets Restructuring charge Total operating expenses Operating loss income Interest income net Loss income before provision Benefit from provision for income taxes for income taxes Net loss income Net loss income per common share Basic Diluted Weighted average common shares outstanding Basic Diluted Amounts include stock-based compensation expense as follows Cost of online revenue Cost of events revenue Cost of print revenue Selling and marketing Product development General and administrative See accompanying notes 63 4 6 8 7 9 1 $ 3 4 7 5 3 $ 5 5 5 3 3 2 $ 5 6 9 9 0 1 2 4 s e t o n i g n y n a p m o c c a e e S 3 1 6 2 4 3 7 9 3 1 1 6 1 3 8 6 6 4 2 0 0 0 6 2 2 2 3 0 5 4 3 8 5 6 4 5 4 6 9 9 4 6 2 9 4 2 2 3 5 0 3 5 4 5 6 6 4 4 3 3 7 7 1 $ 1 9 3 2 3 $ 2 0 1 5 9 3 9 4 0 2 2 1 7 6 8 6 2 0 1 1 1 4 6 7 1 9 8 7 1 4 6 7 1 6 2 0 1 1 1 6 5 3 8 9 3 0 5 3 1 1 1 3 1 6 2 2 9 4 2 4 5 1 3 8 2 2 8 8 0 1 2 6 8 2 0 0 0 6 2 2 2 3 4 3 8 5 9 3 9 4 1 2 2 1 7 6 8 3 3 1 8 7 7 0 32 2 6 2 1 7 7 2 1 6 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b x a t s s e c x E 8 0 0 2 1 3 r e b m e c e D e c n a a B l e m o c n i i e v s n e h e r p m o C 5 $ f o e s n e p x e x a t f o t e n s t n e m t s e v n i n o i n a g n o i t l a s n a r t y c n e r r u c i n g e r o f n o s s o l d e z i l a e r n U s s o l t e N d e z i l a e r n U p a w s e t a r t s e r e n t i f o e u a v l r i a f n i e g n a h C e s n e p x e n o i t a s n e p m o c d e s a b - k c o S t r e h t O s n o i t p o k c o t s - t i f e n e b x a t s s e c x E s s o l i e v s n e h e r p m o C 9 0 0 2 1 3 r e b m e c e D e c n a a B l s s o l i e v s n e h e r p m o C TechTarget Inc Consolidated Statements of Cash Flows in thousands Operating Activities Net loss income Adjustments activities to reconcile net loss income to net cash provided by operating Depreciation and amortization Provision for bad debt Amortization of investment premiums Stock-based compensation Non-cash interest expense Deferred tax benefit Excess tax benefitstock options Non-cash portion of restructuring charge Other non-cash items Changes in operating Accounts receivable assets and liabilities net of businesses acquired Prepaid expenses and other current assets Other assets Accounts Income Accrued Accrued payable taxes payable expenses and other current liabilities compensation expenses Deferred revenue Other liabilities Net cash provided by operating activities Investing activities Purchases of property and equipment and other assets Purchases of short-term investments Purchases of long-term investments Proceeds from sales and maturities of short-term investments Proceeds from sales and maturities of long-term investments Acquisition of assets Acquisition of businesses net of cash acquired Net cash used in provided by investing activities Financing activities from revolving Proceeds Payments made on revolving on bank Payments credit facility credit facility term loan payable Proceeds from initial public offering net of stock issuance costs Excess tax benefitstock options Proceeds from exercise of warrants and stock options Net cash used in provided by financing activities Net decrease increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental Cash paid for interest disclosure of cash flow information Cash refunded paid for income taxes Supplemental disclosure of non-cash investing activities Issuance of common stock in connection with KnowledgeStorm acquisition Accrual for cash paid in connection with The Brian Madden Company acquisition See accompanying notes 65 For the Years Ended December 2009 2008 31 2007 5116 1764 6545 6933 221 1668 12623 13 1253 130 20 1595 2737 296 398 106 347 340 7712 441 181 8671 1746 891 49 85 2871 3012 55 476 1330 305 1898 629 117 6350 78 13 5834 312 1715 3126 1985 2048 686 246 524 855 2729 2786 157 19733 10746 13315 2075 27927 31941 38211 3750 19982 3000 130 133 2997 3246 24130 20884 139 1942 2037 60284 17114 83189 77 50 1184 2597 3000 891 2203 94 13437 10693 24130 2709 354742 303421 1013 64162 119205 12000 12000 3000 83161 3126 2466 85753 20137 30830 10693 318 620 4561 4484 6000 131 TechTarget Inc Notes to Consolidated Financial Statements Years Ended December 31 2009 2008 and 2007 In thousands except share and per share data Organization and Operations TechTarget Inc the Company is buyers and sellers together customized marketing programs of corporate leading provider of specialized online content that brings information technology or IT products The Company sells that enable IT vendors to reach corporate IT decision makers who are actively researching specific IT purchases The Companys integrated content platform consists of network of websites that are complemented with targeted in-person events and until December 2008 specialized IT magazines Throughout the critical stages of the purchase decision process these content offerings meet IT professionals needs for expert peer and IT vendor information and provide platform on which IT can launch targeted marketing campaigns that generate measurable high return on investment have become increasingly specialized they have for purchasing decision support The Companys content come to rely on our sector- IT professionals to enables navigate the complex and rapidly changing significant financial and operational IT landscape where purchasing decisions Based upon the logical clustering can have of users respective consequences job responsibilities and the marketing focus of the products that the Companys customers are content advertising offerings are currently categorized Development Channel ClOuT Strategy Data Center and Virtualization Networking Storage TechnologyGuide.com Security across and Vertical Software ten distinct media groups Application Enterprise Applications On November 2009 the Company disclosed that it had identified an improper accounting practice relating to certain customer credits that were improperly eliminated as liabilities on its balance sheet As result the Companys Audit Committee conducted an investigation into this matter and found no other improper conduct fees related to the investigation in connection with accounting are approximately $1.5 million of which approximately $1.2 million was practices Total professional any other recorded in 2009 with the remaining amount there were certain errors in its previously reported financial statements to be included in 2010 The Company has concluded that vendors ROT As IT professionals specific websites To correct the customer credit errors the Company recorded accounts payable by $967 and decreased income before provision quarter includes ended September 30 2009 The aggregate $57 from 2004 to 2006 $362 from 2007 $561 net adjustment accumulated from 2008 and $13 from 2009 net adjustment which increased for income taxes by $967 during the several years and over In addition to the customer credit matter mentioned above the Company disclosed in its Quarterly Report on Form 10-0 for the first quarter 2009 an error in the amount of $284 related to interest of 2008 Whereas the error was previously income which should have been recorded in the corrected in 01 2009 the $284 adjustment is of 2009 that the Company corrected in the first quarter of fourth quarter not included in the adjustments described below The Company assessed the materiality of these errors both quantitatively and qualitatively and concluded that the adjustments are not material to the prior annual financial statements or to the interim financial statements for 2009 See Note 16 66 TechTarget Inc Notes to Consolidated Financial Statements Continued Years Ended December 31 2009 2008 and 2007 In thousands except share and per share data Summary of Significant Accounting Policies The accompanying consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in these notes to the consolidated financial statements Principles of Consolidation The accompanying consolidated financial include include KnowledgeStorm Inc Bitpipe Inc TechTarget the accounts statements Securities of the Company and its subsidiaries wholly owned Corporation and TechTarget Limited KnowledgeStorm Inc was acquired November leading online search providing and is resource 2007 which by the Company on vendor generated content targeted toward corporate IT professionals Bitpipe Inc is leading provider of in-depth IT content including white papers product literature and case studies from IT vendors TechTarget Securities Corporation is Massachusetts Securities Corporation incorporated in 2004 TechTarget Limited is subsidiary doing business principally in the United Kingdom All significant intercompany accounts and transactions have been eliminated in consolidation Use of Estimates The preparation of financial statements in conformity with U.S generally accepted accounting principles requires management assets and liabilities and disclosures to make estimates and assumptions that affect the reported amounts of of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period Actual results could differ from those estimates Revenue Recognition The Company generates substantially all of its revenue from the sale of targeted advertising campaigns that are delivered via its network of websites events and prior to 2009 print publications Revenue is recognized only when the price is fixed or determinable persuasive evidence of an arrangement assured exists the service is performed and collectability of the resulting receivable is reasonably Although each of the Companys online media offerings can be sold separately most of the Companys online media sales involve multiple online offerings Because objective evidence of fair value does not exist for all elements in the Companys bundled advertising campaigns no allocation can be made among the various elements and the Company the term of the arrangement recognizes revenue on all items ratably over Event Sponsorships Sponsorship revenue from events is recognized upon completion of the event in the period the event occurs The majority of the Companys events are free to qualified attendees however certain events are based on paid attendee model The Company recognizes revenue for paid attendee events upon completion of the event and receipt of payment from the attendee Amounts collected or billed prior to satisfying the above revenue recognition criteria are recorded as deferred revenue 67 Tech Target Inc Notes to Consolidated Financial Statements Continued Years Ended December 31 2009 2008 and 2007 In thousands except share and per share data Summary of Significant Accounting Policies Continued Print Publications When sold separately advertising revenues from print publications were recognized at the time the applicable publication was distributed When print advertising campaigns were sold with other services the term of the arrangement revenue was recognized for all services in the A_mounts collected or billed prior to satisfying the above revenue advertising campaign over recognition criteria were recorded as deferred revenue Online Media Revenue for online media offerings is recognized for specific online media offerings as follows when these items are sold separately White Papers White paper revenue is recognized ratably over the period in which the white paper is available on the Companys websites Webcasts Podcasts and Videocasts Webcast podcast and videocast revenue is recognized ratably over the period in which the webcast podcast or videocast is available on the Companys websites Software Package Comparisons Software package comparison revenue is recognized ratably over the period in which the software information is available on the Companys websites Promotional E-mails and E-newsletters Promotional e-mail revenue is recognized ratably over the period in which the related content asset is available on its websites because promotional emails do not have standalone value from the related content asset E-newsletter revenue is recognized in the period in which the e-newsletter is sent List Rentals List rental revenue is recognized in the period in which the e-mail is sent to the list of registered members Banners Banner revenue is recognized in the period in which the banner impressions occur Third Party Revenue party revenue arrangements is recognized in the period in which the services are performed Sharing Arrangements from third Revenue sharing The Company offers customers the ability to purchase can include any of its online media offerings packaged requirements As part of these offerings together specific advertising number of qualified sales leads to be delivered end dates of advertising campaigns are sometimes integrated ROl program offerings which the particular customers the Company will guarantee minimum to address over the course of the advertising campaign Scheduled extended to satisfy lead guarantees or fulfill all elements of the advertising campaign based on delayed receipt of advertising media collateral from the customer The Company estimates the revenue reserve necessary to properly defer revenue recognition for extended advertising campaigns These estimates are based on the Companys experience in managing and fulfilling these integrated ROl program offerings Shortfalls in fulfilling lead guarantees before the scheduled completion date of an advertising campaign are satisfied within an average of 42 days of such scheduled approximately 49% 41% and 33% of Companys total revenues completion date These the Companys online revenues integrated ROT program offerings represented and 41% 31% and 22% of the for the years ended December 31 2009 2008 and 2007 respectively 68 TechTarget Inc Notes to Consolidated Financial Statements Continued Years Ended December 31 2009 2008 and 2007 In thousands except share and per share data Summary of Significant Accounting Policies Continued Amounts collected or billed prior to satisfying the above revenue recognition criteria are recorded as deferred revenue Fair Value of Financial Instruments Financial instruments consist of cash accounts receivable accounts payable and cash equivalents term loan payable and an interest short and long-term investments rate swap The carrying value of these instruments approximates their estimated fair values Long-lived Assets Long-lived assets consist of property and equipment goodwill and other intangible assets specifically identified intangible asset must be recorded as the following two criteria is met the intangible asset acquired arises separate asset from goodwill from contractual if either of or other legal rights the intangible asset is separable Accordingly intangible assets consist of specifically identified intangible assets Goodwill is the excess of any purchase price over the estimated fair market value of net tangible assets acquired not allocated to specific intangible assets Goodwill and indefinite-lived intangible assets are not amortized but are reviewed annually for impairment deemed to have an indefinite life are amortized over their useful or more frequently if impairment indicators arise Separable intangible assets that are not of amortization that are expected for impairment when events years using methods use and are reviewed may not be recoverable The Company performs its annual December 31st of each year and whenever amount may not be recoverable Based dates presented none of balance sheet events to reflect lives which range from one to nine the estimated pattern of economic or changes in circumstances suggest that the assets test of impairment of goodwill on on this evaluation the Company or changes in circumstances the carrying believes that as of each of the suggest that the Companys goodwill or other long-lived assets was impaired Allowance for Doubtful Accounts The Company reduces gross trade accounts receivable by an allowance for doubtful accounts The allowance for doubtful accounts is the Companys best estimate of the amount of probable credit losses in the Companys existing accounts accounts on Account regular balances are charged off against receivable The Company reviews its allowance for doubtful basis and all past due balances are reviewed individually for collectability the allowance after all means of collection have been exhausted and the potential for recovery is considered remote Provisions for allowance for doubtful accounts are recorded in general and administrative expenses 69 lechlarget Inc Notes to Consolidated Financial Statements Continued Years Ended December 31 2009 2008 and 2007 In thousands except share and per share data Summary of Significant Accounting Policies Continued Below is summary of the changes in the Companys allowance for doubtful accounts for the years ended December 31 2009 2008 and 2007 Year ended December 31 2007 Year ended December 31 2008 Year ended December 31 2009 Properly and Equipment Balance at Beginning Write-offs net of Balance at End of of Period Provision recoveries Period $580 $424 $642 78 $441 $221 $234 $223 $380 $424 $642 $483 Property and equipment is stated at cost Property and equipment acquired through acquisitions of businesses are initially recorded at fair value Depreciation is calculated on the straight-line method based on the month the asset is placed in service over the following estimated useful lives Furniture and fixtures Computer equipment and software Internal-use software and website development costs Leasehold improvements Property and equipment consists of the following Estimated Useful Life years 23 years 34 years Shorter of useful life or life of lease Furniture and fixtures Computer equipment and software Leasehold improvements Internal-use software and website development costs Less Accumulated depreciation and amortization As of December 31 2009 2008 $1155 $1439 4868 1090 4515 5989 1168 3042 11628 7868 11638 7734 3760 3904 Depreciation expense was $2.2 million $2.4 million and $1.6 million for the years ended December 31 2009 2008 and 2007 respectively Repairs and maintenance charges that do not increase the useful life of the assets are charged to operations as incurred The Company wrote off approximately $0.6 million and $1.9 million of fully depreciated assets that were no longer in service during 2009 and 2008 respectively 70 TechTarget Inc Notes to Consolidated Financial Statements Continued Years Ended December 31 2009 2008 and 2007 In thousands except share and per share data Summary of Significant Accounting Policies Continued Internal Use Software and Website Development Costs The Company capitalizes costs incurred during the development of its website applications and infrastructure as well as certain costs relating to internal use software The estimated useful life of costs capitalized development is evaluated for each specific project Capitalized internal use software and website costs are reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable An impairment loss shall be recognized only if the carrying amount of the asset is not recoverable and exceeds its fair value The Company internal-use software and website development capitalized $1.0 million for the years ended December 31 2009 2008 and 2007 respectively costs of $1.5 million $0.5 million and Concentrations of Credit Risk and Off-Balance Sheet Risk Financial instruments that potentially expose the Company to concentrations of credit risk consist mainly of cash and cash equivalents equivalents principally in accredited and accounts receivable The Company maintains its cash and cash financial institutions of high credit standing The Company routinely assesses the credit worthiness of its customers The Company generally has not experienced any significant or area The Company losses related does not require to individual customers or groups of customers in any particular credit collateral Due to these factors no additional industry risk beyond amounts provided for collection Companys accounts receivable losses is believed by management to be probable in the No single customer and 2008 No single customer represented 10% or more of total accounts receivable at December 31 2009 accounted for more than 10% of revenue for the years ended December 31 2009 2008 and 2007 Derivative Instruments The Company records all derivative instruments on its balance sheet at their fair value In September 2006 the Company entered into an interest fluctuations on its variable rate bank term loan as further rate swap agreement in Note described to mitigate interest rate The interest rate swap agreement method Accordingly was deemed to be cash flow hedge and qualifies for hedge accounting using the shortcut changes in the fair value of the interest rate swap agreement are recorded in accumulated other comprehensive loss on the consolidated statements of redeemable convertible preferred stock and stockholders deficit The Company has no foreign exchange contracts option contracts or other hedging arrangements Income Taxes The Companys deferred between the financial reporting tax assets and liabilities are recognized based on temporary differences and income tax bases of assets and liabilities using statutory rates If required valuation allowance is established against net deferred evidence it is more likely than not that some or all of the deferred tax assets if based upon available tax assets will not be realized The Company recognizes any interest and penalties related to unrecognized tax benefits in income tax expense 71 TechTarget Inc Notes to Consolidated Financial Statements Continued Years Ended December 31 2009 2008 and 2007 In thousands except share and per share data Summary of Significant Accounting Policies Continued Stock-Based Compensation At December 31 2009 the Company had two stock-based employee compensation plans which are more fully fair value of described in Note 11 Stock-based is measured the award and is recognized in the statement of operations the award or using the accelerated compensation over the vesting period of at the grant date based on the line method using the straight attribution method if vesting of the award is contingent upon attaining performance goals The Company uses the Black-Scholes option pricing model to determine the fair value of stock-based awards Comprehensive Income Loss Comprehensive income loss is defined to include all changes in equity during period except those resulting from investments by stockholders and distributions to stockholders Other comprehensive income loss includes changes in the fair value of unrealized gains losses on available for sale securities and foreign currency Net Income Loss Per Share the Companys interest rate swap translation adjustments Basic earnings per share is computed based on the weighted average number of common shares and vested restricted stock awards outstanding during the period Because the holders of unvested restricted stock awards do not have nonforfeitable rights to dividends or dividend equivalents the Company does not consider these awards to be participating securities that should be included in its computation of earnings per share using the weighted average number of common shares during the period plus the dilutive effect of potential stock option programs under the two-class method Diluted earnings per share is computed and vested restricted stock awards outstanding future issuances of common stock relating to and other potentially dilutive securities using the treasury stock method In diluted earnings per share the dilutive effect of stock calculating market price for the respective period In addition the assumed method include the average unrecognized compensation options proceeds is computed using the average under stock the treasury expense and assumed tax benefit of stock options that are in-the-money This results in the assumed buyback of additional shares thereby reducing the dilutive impact of stock options reconciliation of the numerator and denominator used in the calculation of basic and diluted net income loss per share is as follows For the Years Ended December 2009 2008 31 2007 Numerator Net loss income Accretion of preferred stock dividends Total net income applicable to preferred stockholders 5116 1764 Net loss income applicable to common stockholders 5116 1764 6545 3948 3948 2597 72 TechTarget Inc Notes to Consolidated Financial Statements Continued Years Ended December 31 2009 2008 and 2007 In thousands except share and per share data Summary of Significant Accounting Policies Continued For the Years Ended December 2009 2008 31 2007 Denominator Basic Weighted average shares of common stock and vested restricted stock awards outstanding 41864789 41424920 28384303 Diluted Weighted average shares of common stock and vested restricted stock awards outstanding Effect of potentially dilutive shares Total weighted average shares of common stock and vested restricted stock awards outstanding Calculation of Net Income Per Common Share Basic 41864789 41424920 28384303 2014699 2962435 41864789 43439619 31346738 Net loss income applicable to common stockholders 5116 1764 2597 Weighted average shares of stock outstanding Net loss income per common share Diluted Net loss income applicable to common stockholders Weighted average shares of stock outstanding Net loss income per common share1 41864789 41424920 28384303 0.12 5116 0.04 0.09 1764 2597 41864789 43439619 31346738 0.12 0.04 0.08 In calculating diluted earnings per share shares related to outstanding restricted stock the effect of including awards and warrants were excluded for the year them would be anti-dilutive Diluted net stock options unvested ended December 31 2009 because loss income per common share does not include the weighted-average effect of anti-dilutive common equivalent shares from stock options outstanding of 1942258 and 59543 for 2008 and 2007 respectively Recent Accounting Pronouncements Effective January 2009 the Company adopted SFAS No 141 revised 2007 Business Combinations SFAS 141R which was primarily codified into FASB Accounting Standards Codification ASC 805 Business Combinations ASC 805 Under current guidance an entity is required to recognize the assets acquired liabilities assumed contractual contingencies and contingent consideration at their fair value on the acquisition date It further requires that acquisition-related costs be recognized separately from the acquisition and expensed as incurred that restructuring costs generally be expensed in periods subsequent to the acquisition date and that changes in accounting for deferred tax asset valuation allowances and acquired incOme tax uncertainties after the measurement period be recognized and development as component of provision for taxes In addition acquired in-process is capitalized as an intangible asset and amortized over its estimated useful research life The current guidance is effective on prospective basis for all business combinations for which the 73 IŁchThrget9 inc Notes to Consolidated Financial Statements Continued Years Ended December 31 2009 2008 and 2007 In thousands except share and per share data Summary of Significant Accounting Policies Continued acquisition date is on or after January 2009 with the exception of the accounting for valuation allowances on deferred taxes and acquired contingencies With the adoption of the current guidance any tax related adjustments associated recorded through income with acquisitions that closed prior to January 2009 will be tax expense whereas the previous accounting treatment would require any adjustment to be recognized through goodwill The adoption of the current guidance had no impact on the Companys consolidated financial position or results of operations Effective January No 160 Noncontrolling SFAS 160 which was primarily 2009 the Company implemented Statement of Financial Interests in Consolidated Financial Statements an amendment Accounting Standards to ARB No 51 codified into FASB ASC 810Consolidation ASC 810 This standard changed the accounting for and reporting of noncontrolling interest previously called minority interest in the consolidated financial statements The adoption on January 2009 did not have material effect on the Companys consolidated financial position or results of operations Effective January 2009 the Company adopted FASB Staff Position FSP No 142-3 of the Useful Life of Determination into FASB ASC 350 IntangiblesGoodwill factors considered in developing renewal or extension assumptions used to determine the useful disclosures when an and Other ASC 350 The current Assets FSP No 142-3 which was primarily codified asset The current recognized intangible guidance amends the also requires guidance enhanced Intangible life of intangible assets expected future cash flows are affected by an entitys intent and/or ability to renew or extend the arrangement The adoption did not have material impact on the Companys consolidated financial position or results of operations Effective April was primarily codified intended to establish 2009 the Company into FASB ASC 855Subsequent adopted SFAS No 165 Subsequent Events SFAS 165 which Events ASC 855 The current guidance is general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued It requires the disclosure that the Company has evaluated subsequent events through the date of this filing The adoption did not have material impact on the Companys financial position or results of operations Effective April 2009 the Company adopted Presentation of Other-Than-Temporary Impairments FSP 115-2 codified into FASB ASC 320InvestmentsDebt guidance provides new guidance on the recognition FSP No 115-2 and 124-2 Recognition and and 124-2 which was primarily and Equity Securities ASC 320 The current of an other-than-temporary and presentation impairments as well as extends certain annual disclosure requirements to interim periods The adoption did not have material impact on the Companys financial position or results of operations Effective September 30 2009 the Company adopted SFAS No 168 The FASB Accounting Standards Codification Codification and the Hierarchy of Generally Accepted Accounting Principles replacement of Financial Statement No 162 SFAS 168 which was primarily codified into FASB ASC 105Generally Accepted Accounting Principles Current guidance establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental in conformity with accepted accounting principles in the United States All other accounting literature not financial statements in preparation of entities generally 74 TechTarget Inc Notes to Consolidated Financial Statements Continued Years Ended December 31 2009 2008 and 2007 In thousands except share and per share data Summary of Significant Accounting Policies Continued included in the Codification is non-authoritive The adoption did not have material impact on the Companys consolidated financial position or results of operations In September 2009 the FASB ratified Accounting Standards Update ASU 2009-13 ASU Issues Task Force EITF Issue No 08-1 Revenue Arrangements with 2009-13 previously Emerging Multiple Deliverables EITF 08-1 which updates currently included guidance companies to allocate the overall consideration selling price of individual deliverables in Accounting evidence or other third-party evidence of the selling the existing multiple-element revenue arrangements Standards Codification 605-25 ASU 2009-13 will require to each deliverable by using best estimate of the in the arrangement in the absence of vendor-specific price ASU 2009-13 will be effective objective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after and early adoption will be permitted The Company June 15 2010 impact of the adoption of ASU 2009-13 on its consolidated results of operations and the Companys planned date of adoption is currently evaluating the potential and financial position Fair Value Measurements The Company measures certain financial assets at fair value on recurring basis including cash equivalents short and long-term investments and equity investments The fair value of these financial assets was determined based on three levels of input as follows Level Quoted prices in active markets for identical assets and liabilities Level Observable inputs other than quoted prices in active markets and Level Unobservable inputs The fair value hierarchy of the Companys financial assets and liabilities carried at fair value and measured on recurring basis is as follows Money market funds Short-term investments Long-term investments Total Fair Value Measurements at Reporting Date Using Quoted Prices in Active Significant Other Markets for Observable December 31 2009 Level Identical Assets 6271 50496 11177 $6271 Inputs Level 50496 11177 $67944 $6271 $61673 Significant Unobservable Inputs Level 75 TechTarget mc Notes to Consolidated Financial Statements Continued Years Ended December 31 2009 2008 and 2007 In thousands except share and per share data Fair Value Measurements Continued Money market funds Short-term investments Long-term investments Interest rate swap2 Total Fair Value Measurements at Reporting Date Using Quoted Prices in Active Markets for Identical Assets December 31 2008 Level $14280 $14280 42863 2575 77 Significant Other Observable Inputs Level Significant Unobservable Inputs Level 42863 2575 77 $59795 $14280 $45515 Included in cash equivalents on the accompanying consolidated balance sheet Included in other liabilities on the accompanying consolidated balance sheet Acquisitions The Brian Madden Company On November 19 2008 the Company acquired substantially all of the assets of The Brian Madden Company LLC BMC for $1315 remaining balance of $131 was paid on September BrianMadden.com and application virtualization an event The acquisition in cash of which $1184 was paid on November 19 2008 11 2009 BMC operates the topics of desktop virtualization terminal addressing website and the services and provides the Company with an opportunity for growth within segments and in other markets in which it currently does not have presence primarily desktop and application virtualization In connection with this acquisition the Company purchased $79 of property and equipment $40 of prepaid expenses recorded $636 of goodwill and recorded $560 of intangible assets related to customer relationships non-compete agreement and trade names with estimated useful lives ranging from three to five years The estimated fair value of $560 of acquired intangible assets is assigned as follows Customer relationship intangible asset Non-compete agreement Trade name intangible intangible asset asset Total intangible assets Useful Life Fair Value Estimated 48 months $227 36 months 60 months 198 135 $560 The Company engaged fair value of the acquired third party valuation assets of BMC To value was used specifically variation of specialist to assist management in determining the relationship asset the discounted cash-flow method The projected the customer an income approach net cash flows for 76 TechTarget Inc Notes to Consolidated Financial Statements Continued Years Ended December 31 2009 2008 and 2007 In thousands except share and per share data Acquisitions Continued BMC were tax affected 25% to calculate the value using an effective rate of 41% and then discounted using discount rate of of the customer relationship asset Additionally the present value of the sum of projected tax benefits was added to arrive at the total fair value of the customer relationship asset To value the non-compete agreement comparative business valuation method was used Based on non-compete term of 36 months management projected net cash flows for the Company with and without the non-compete agreement the net cash flows with and without in place The present value the non-compete agreement of the sum of the difference between in place was calculated based on discount rate of 25% To value the trade name intangible to estimate the pre-tax royalty savings to the Company asset from royalty method was used related to the BMC trade names The projected relief net cash flows from the pre-tax royalty savings were tax affected using an effective rate of 41% and then discounted using discount rate of 25% to calculate the value of the trade name intangible asset KnowledgeStorm Inc On November 2007 the Company acquired KnowledgeStorm Inc KnowledgeStorm which was privately held company based in Alpharetta Georgia for $51730 in cash and 359820 shares of unregistered common stock of TechTarget valued at $6000 as well as $230 in transaction costs KnowledgeStorm is leading online search resource providing vendor generated content addressing corporate branding IT professionals KnowledgeStorm offers IT marketers products with lead generation and focus to reach these corporate IT professionals throughout the purchasing decision process The acquisition of KnowledgeStorm strengthens the Companys industry leadership position and increases its scale customer penetration and product offerings for advertisers In connection with the acquisition the Company recorded $45101 of goodwill and $11620 of other intangible assets related to customer relationships technology trade name customer backlog and non-compete agreements with estimated useful lives recorded in conjunction with the acquisition none ranging from 12 to 108 months Of the goodwill for income tax purposes is deductible The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition Cash and cash equivalents Current assets Property and equipment net Other assets Deferred tax assets Intangible Goodwill assets Total assets acquired Total liabilities assumed Net assets acquired 77 As of November 2007 2813 1328 782 1797 11620 45101 63480 5520 $57960 TechTarget hw Notes to Consolidated Financial Statements Continued Years Ended December 31 2009 2008 and 2007 In thousands except share and per share data Acquisitions Continued Within approximately thirty days from the acquisition its reorganization plan to consolidate KnowledgeStorm date the Companys management completed assumed in the operations Liabilities acquisition employees operating include approximately $627 of through May 2008 as well as approximately $111 of costs associated leases on office space under noncancelable by KnowledgeStorm termination involuntary benefits leased payable to terminated with exiting certain leases that expire through December 2008 The estimated fair value of $11620 of acquired intangible assets is assigned as follows relationship intangible Customer Member database intangible Trade name intangible asset asset asset Customer order backlog SEO/SEM process intangible asset intangible asset Non-compete agreement intangible asset Total intangible assets Useful Life 108 months 60 months 84 months 12 months 36 months 12 months Estimated Fair Value 4770 4060 1100 940 690 60 $11620 The Company engaged third party valuation specialist to assist management in determining the fair value of the acquired assets of KnowledgeStorm To value the customer relationship and backlog intangible assets an income approach was used specifically variation of the discounted cash-flow method The projected cash 41% and then discounted using net flows for KnowledgeStorm were tax affected using an effective rate of discount rate of 20.6% Additionally the present value of the sum of projected tax benefits was added to arrive at the total fair value of the customer relationship and backlog intangible assets To value the member database intangible asset replacement cost methodology approach was used The replacement cost of the member database was determined by applying the actual costs incurred to register new member to the total number of registered members in the acquired database Additionally opportunity costs and the present value of the sum of projected tax benefits were added to arrive at the total fair value of the member database intangible asset To value the trade name intangible asset relief from royalty method was used to estimate the royalty savings to the Company related to the KnowledgeStorm trade name The projected pre-tax net cash flows from the pre-tax royalty savings were tax affected using an effective rate of 41% and then discounted using discount rate of 20.6% to calculate the value of the trade name intangible asset To value asset the Search Engine Optimization SEO/ Search Engine Marketing SEM process valuation method was used Based on an expected life of comparative business intangible three years management projected place The present SEO/SEM process value of the sum of projected process intangible asset net cash flows for the Company with and without the SEO/SEM process in value of the sum of the difference between the net in place was calculated using discount cash flows with and without rate of 20.6% Additionally the present fair value the total of the SEO/SEM the to arrive at tax benefits was added 78 TechTarget Inc Notes to Consolidated Financial Statements Continued Years Ended December 31 2009 2008 and 2007 In thousands except share and per share data Acquisitions Continued The following unaudited pro forma results of operations for the year ended December 31 2007 has been prepared as though the acquisition of KnowledgeStorm had occurred on January 2006 This forma unaudited financial information is not indicative of the results of operations that may occur pro in the future Total revenues Net income Net loss per common share Basic and diluted Year Ended December 31 2007 unaudited $108079 308 0.13 Results of operations for KnowledgeStorm have been included in the Companys results of operations since the acquisition date of November 2007 TechnologyGuide Inc On April 26 2007 the Company substantially all of privately-held company based in Cincinnati OH for $15000 acquired the assets of TechnologyGuide in cash plus Inc transaction costs TechGuide is network of five online websites which TechGuide which was related $15 in acquisition includes Notebookreview.com Brighthand.com TabletPCReview.com DigitalCameraReview.com and SpotStop.com The websites offer independent product reviews price comparisons and forum-based discussions for selected technology products The acquisition provides the Company with opportunities for growth within the laptop/notebook PC and smart phone markets in which it did not have material presence In connection with this acquisition the Company recorded $7035 of goodwill and $7980 of intangible assets related to developed websites customer relationships and non-compete agreements with estimated useful lives ranging from 36 to 72 months The estimated fair value of $7980 of acquired intangible assets is assigned as follows Developed websites intangible Customer relationship intangible asset asset Non-compete agreements intangible asset Total intangible assets Useful Life Fair Value Estimated 72 months $5400 60 months 36 months 1790 790 $7980 The Company engaged third party valuation specialist to assist management in determining the fair value of the acquired assets of TechGuide To value the websites and customer relationship 79 TechTarget Inc Notes to Consolidated Financial Statements Continued Years Ended December 31 2009 2008 and 2007 In thousands except share and per share data Acquisitions Continued intangible method For the websites assets an income asset expenses and income revenues attributable to the existing websites For the customer and income taxes were deducted from estimated intangible taxes were deducted from estimated relationship intangible revenues attributable to the existing customers The asset expenses approach was used specifically variation of the discounted cash-flow projected net cash flows for each were then tax affected using an effective rate of 41% and then discounted using discount rate of 22.3% to determine the value of the intangible assets respectively Additionally the present value of the sum of projected tax benefits was added to arrive at the total fair value of the intangible assets respectively To value the non-compete agreements comparative business valuation method was used Based projected net cash on non-compete flows for the Company with and without terms of 36 months management the non-compete agreements in place The present value of the sum of the difference between the net cash flows with and without the non-compete agreements in place was calculated based on discount rate of 22.3% Results of operations for TechGuide have been included in the Companys results of operations since the acquisition date of April 26 2007 Ajaxian.com On February 27 2007 the Company acquired substantially all of the assets of Ajaxian Inc Ajaxian for purchase price of $1013 in cash Ajaxian is provider of website and two events dedicated to providing information and support for the community of developers and XML web development technique for creating Asynchronous JavaScript applications for Ajax interactive web The Company did not acquire any tangible assets from Ajaxian The following table summarizes the estimated fair value of the intangible assets acquired by the Company at the date of acquisition Customer relationship intangible asset Non-compete agreement intangible asset Trade name intangible asset Total intangible assets Useful Life Fair Value Estimated 48 months 36 months 60 months 552 335 126 $1013 Restructuring Charges In December 2008 the Company implemented an expense reduction program that included reduction in workforce ii reduction publications implemented and iv continuation the cost reductions to lower in certain office leases iii the elimination on discretionary spending controls of strict of its two print The Company its operating expenses in order to align its costs with the current business conditions with the goal of maintaining its profitability and investing as appropriate to gain market share The Companys restructuring and associated termination costs costs associated charge is comprised principally of employee severance with reduction in certain office leases contract 80 TechTarget Inc Notes to Consolidated Financial Statements Continued Years Ended December 31 2009 2008 and 2007 In thousands except share and per share data Restructuring Charges Continued termination costs in connection with the elimination of its two print publications and write-offs of leasehold improvements associated with the exit of facilities The Company had no restructuring charges or reserves in 2009 and 2007 The activity in the Companys restructuring 2008 is summarized as follows in thousands accrual for the years ended December 31 2009 and Balance as of January 2008 Employee severance pay and related costs Non-cancelable lease contract termination and other charges Write-offs of tenant improvements furniture and fixed assets Restructuring charges Cash paid related to employee severance and other costs Write-off of tenant improvements furniture and fixed assets Balance as of December 31 2008 Cash paid related to employee severance and other costs Balance as of December 31 2009 Restructuring Charge 886 559 49 1494 331 49 1114 1114 As of December 31 2008 the Companys restructuring accrual balance of $1.1 million was included in the consolidated balance sheet in accrued expenses and other liabilities Cash Cash Equivalents and Investments Cash and cash equivalents consist of highly liquid investments with maturities of three months or less at date of purchase Cash equivalents value Cash and consisted cash equivalents Cash Money market funds Total cash and cash equivalents are carried at cost which approximates their fair market of the following As of December 31 2009 2008 $14613 6271 9850 14280 $20884 $24130 The Companys short and long-term investments are accounted for as available for sale securities These investments are recorded at fair value with the related unrealized gains and losses included in accumulated other comprehensive income loss component of stockholders equity net of tax The unrealized gain net of taxes was $6 and $10 as of December 31 2009 and 2008 respectively Realized gains and losses on the sale of method Realized gains totaled or losses in 2008 and 2007 these investments are determined using the specific identification $17 in the year ended December 31 2009 There were no realized gains 81 TechTarget Inc Notes to Consolidated Financial Statements Continued Years Ended December 31 2009 2008 and 2007 In thousands except share and per share data Cash Cash Equivalents and Investments Continued Short and long-term investments consisted of the following Short and long-term investments Government agency bonds bonds Municipal Total short and long-term investments Short and long-term investments Municipal bonds Total short and long-term investments December 31 2009 Gross Gross Unrealized Unrealized Estimated Cost Gains Losses Fair Value 8168 53495 $61663 42 $42 23 $32 8159 53514 $61673 December 31 2008 Gross Gross Unrealized Unrealized Estimated Cost Gains Losses Fair Value $45419 $45419 $22 $22 $3 $3 $45438 $45438 The Company had nineteen securities in an unrealized loss position at December 31 2009 All of these securities have been in such position for less than 12 months The unrealized loss on these securities was $32 and the fair value was $27.4 million As of December 31 2009 the Company does not consider these investments to be other-than-temporarily impaired Municipal bonds have contractual maturity dates within eighteen months All income generated from these investments is recorded as interest income Goodwill The changes in the carrying amount of goodwill for the years ended December 31 2009 and 2008 are as follows Balance as of beginning of period Goodwill acquired during the period Adjustments Balance as of end of period As of December 31 2009 2008 $88958 $88326 636 _______ $88958 $88958 82 TechTarget Inc Notes to Consolidated Financial Statements Continued Years Ended December 31 2009 2008 and 2007 In thousands except share and per share data Intangible Assets The following table summarizes the Companys intangible assets net Customer affiliate Developed websites technology and patents and advertiser relationships Trademark trade name and domain name Proprietary user information database and Internet traffic Non-compete agreements Total intangible assets Customer affiliate Developed websites technology and patents and advertiser relationships Trademark trade name and domain name Proprietary user information database and Internet traffic Non-compete agreements Total intangible assets As of December 31 2009 Estimated Gross Useful Lives Years Carrying Amount Accumulated Amortization 1-9 3-6 1-7 3-5 1-3 $11508 5400 2179 4750 1323 5619 2400 1261 2257 1095 Net 5889 3000 918 2493 228 $25160 $12632 $12528 As of December 31 2008 Estimated Gross Useful Lives Years Carrying Amount Accumulated Amortization 1-9 3-6 1-7 3-5 1-3 $12449 5400 2179 4750 1933 $4641 1500 912 1216 1200 Net 7808 3900 1267 3534 733 $26711 $9469 $17242 Intangible assets are amortized over their estimated useful lives which range from one to nine years using methods use The remaining amortization of amortization approximately 2.5 years years ended December 31 2009 2008 that are expected to reflect the estimated pattern of economic expense will be recognized over weighted-average period of Amortization expense was $4.7 million $5.3 million and $4.7 million for the and 2007 respectively The Company expects amortization expense of intangible assets to be as follows Years Ending December 31 2010 2011 2012 2013 2014 Thereafter 83 Amortization Expense 4202 3222 2462 1010 661 971 $12528 TechTarget Inc Notes to Consolidated Financial Statements Continued Years Ended December 31 2009 2008 and 2007 In thousands except share and per share data Bank Term Loan Payable In August 2006 the Company entered into credit agreement the Credit Agreement with commercial bank which included credit revolving August 2007 in December 2008 facility $10.0 million term loan the Term Loan and the Revolving Credit Facility The Credit Agreement was amended $20.0 million in and again in December 2009 The amendment in 2009 reduced the Revolving Credit Facility to $5.0 million The Revolving Credit Facility matures on August 30 2011 Unless earlier payment is required by an event of default all principal and unpaid interest will be due and payable on August 30 2011 At the Companys option the Revolving Credit Facility interest at either the Prime Rate less 1.00% or the LIBOR rate plus the applicable LIBOR margin The applicable LIBOR margin is based on the fiscal quarters As of December 31 2009 to EBITDA for the preceding four funded debt bears total ratio of the applicable LIBOR margin was 1.25% The Company is also required to pay an unused line fee on the daily unused amount of its Revolving Credit Facility the preceding four at per annum rate based on the ratio of fiscal quarters As of December 31 2009 unused availability total funded debt to EBITDA for under the Revolving Credit Facility totaled $5 million and the per annum unused line fee rate was 0.20% The Term Loan requires 39 consecutive monthly principal payments of $250 plus interest beginning on September 30 2006 through December 30 2009 The Company paid the remaining balance on the Term Loan in December 2009 In September 2006 the Company entered into an interest rate swap agreement with commercial bank to mitigate the interest rate fluctuations on the Term Loan With this interest rate swap agreement in place the Company has fixed the annual interest rate at 6.98% for the Term Loan The interest rate swap agreement terminated in December 2009 The Company deemed the interest rate swap agreement cash flow hedge which qualified for special accounting using the shortcut method Accordingly accumulated other changes in the fair value of the interest rate swap agreement were recorded in comprehensive loss on the consolidated statements of redeemable convertible preferred stock and stockholders equity deficit As of December 31 2009 and 2008 the fair value of the cash flow hedge was $0 and $77 respectively and is recorded in other liabilities The interest rate swap agreement was terminated in December 2009 Borrowings under the Credit Agreement are collateralized by the Company Covenants governing the Credit Agreement ratios At December 31 2009 the Company was in compliance with all financial covenants the maintenance interest security require in substantially all of certain assets of financial under the Credit Agreement The Company was in violation of one loan covenant Agreement The Company failed to file timely quarterly interim financial statements under the Credit with the SEC The Company received waiver from the bank agreeing to extend the delivery 2009 financial statements to February 26 2010 and compliance was satisfied date of the September when the Company 30 filed the financial statements in February 2010 84 TechTarget Inc Notes to Consolidated Financial Statements Continued Years Ended December 31 2009 2008 and 2007 In thousands except share and per share data 10 Commitments and Contingencies Operating Leases The Company conducts operating lease agreements into an agreement to lease approximately 87875 The lease commenced in February 2010 and has rent concessions the life of the lease over in leased office facilities its operations that expire through March 2020 In August 2009 the Company entered square feet of office space in Newton Massachusetts certain term of 10 years The Company is receiving noncancelable under various Certain of the Companys operating leases include lease incentives and escalating payment amounts and are renewable on straight-line basis over for varying periods The Company the term of the lease taking is recognizing the related rent expense into account the lease incentives and escalating lease payments $1775 for the years ended December 31 2009 2008 rent expense under Total and 2007 respectively the Companys leases was approximately $3189 $2981 and Future minimum lease payments under noncancelable operating leases at December 31 2009 net of minimum sublease rental payments of $0.3 million are as follows Years Ending December 31 2010 2011 2012 2013 2014 Thereafter Minimum Lease Payments 1329 2885 3413 2868 2890 15623 $29008 standby letter of credit outstanding in the At December 31 2009 the Company aggregate amount of $1.5 million This letter 2009 for its new corporate headquarters This letter had an irrevocable of credit supports the lease the Company entered into in of credit extends annually thru February 28 2020 unless notification of termination is received Litigation From time to time and in the ordinary course of business the Company may be subject to various claims charges and litigation At December 31 2009 and 2008 the Company did not have any pending claims charges or litigation that it expects would have material adverse effect on its consolidated financial position results of operations or cash flows 11 Stock-based Compensation Stock Option Plans In September 1999 the Company approved stock option plan the 1999 Plan that provides for the issuance of up to 12384646 shares of common stock incentives The 1999 Plan provides for the granting of incentive stock options ISOs nonqualified stock options NSOs and stock grants These 85 grant Under TechTarget inc Notes to Consolidated Financial Statements Continued Years Ended December 31 2009 2008 and 2007 In thousands except share and per share data 11 Stock-based Compensation Continued incentives may be offered defined ISOs may be granted at no less than fair market value the Companys Board of Directors to the Companys employees the Board no less than 110% of officers directors on the date of grant as determined by fair market value on the date of consultants and advisors as grant for 10% or greater stockholders subject to limitations as defined Each option shall be exercisable at such times and subject to such terms as determined by the Board generally four years and shall expire within ten years of issuance In April 2007 the Board approved the 2007 Stock Option and Incentive Plan the 2007 Plan which was approved by the stockholders and became effective upon the consummation of the Companys IPO in May 2007 Effective made pursuant and will continue to be subject to the 1999 Plan but any outstanding awards under upon the consummation of the IPO no further awards will be remain in effect the 1999 Plan will to the terms of the 1999 Plan The 2007 Plan allows the Company to ISOs NSOs stock appreciation rights deferred stock awards restricted stock and other awards the 2007 Plan stock options may not be granted at less than fair market value year period Stock options granted under grant and grants generally vest over expire no later than ten years after the grant date The Company four has reserved for issuance an on the date of the 2007 Plan aggregate of 2911667 shares of common stock under the 2007 Plan plus an additional annual increase to be added automatically on January of 2% of the outstanding number of shares immediately preceding December 31 and of each year beginning on January of common stock on such lower number of shares 2008 equal to the lesser fully-diluted basis on the as may be determined by the Companys compensation committee The number of shares available for issuance under the 2007 Plan is subject to adjustment in the event of stock split stock dividend or other change in capitalization Generally shares that are forfeited or canceled from awards under the 2007 Plan also will be available for future awards In addition shares subject to stock options returned to the 1999 Plan as result of their expiration cancellation or termination are automatically made available for issuance under the 2007 Plan As of December 31 2009 total of 319129 shares were available for grant under the 2007 Plan Stock Options The Company uses the Black-Scholes option pricing model to calculate the grant-date fair value of an option award The Company calculated the fair values of the options granted using the following assumptions Expected volatility Expected term Risk-free interest rate Expected dividend yield Years Ended December 31 2009 2008 2007 75%-79% 41%-71% 47%-50% 6.25 years 6.25 years 6.25 years 2.21%-2.89% 1.71%-3.15% 3.62%-5.04% Weighted-average grant date fair value per share $4.06 $3.28 $7.35 As there was no public market for the Companys common stock prior to the Companys IPO in May 2007 and limited historical Companys IPO the Company information on the volatility of its common stock since the date of the determined the volatility for options granted in 2009 2008 and 2007 86 TechTarget Inc Notes to Consolidated Financial Statements Continued Years Ended December 31 2009 2008 and 2007 In thousands except share and per share data 11 Stock-based Compensation Continued based on an analysis of issued options with substantially similar terms The expected determined the Companys stock of using an average of the historical volatility to the expected life of period equal for and reported data for volatility the Companys stock the option The expected life of options and the peer group of has been peer group of companies of options granted has been that utilizing the simplified method The risk-free interest rate is based on zero coupon companies determined United States treasury The Company has not paid and does not anticipate stock therefore the expected dividend instrument yield is assumed whose term is consistent with the expected life of the stock options paying cash dividends on its shares of common to be zero The Company applied an estimated annual forfeiture rate based on its historical forfeiture experience of 2.00% 2.00% and 1.00% in determining the expense recorded in 2009 2008 and 2007 respectively summary of the stock option activity under the Companys stock option plan for the year ended December 31 2009 is presented below Options Outstanding Weighted-Average Exercise Price Per Share Weighted-Average Remaining Contractual Term in Years Aggregate Intrinsic Value Options outstanding at December 31 2008 7765578 $6.30 Options granted Options exercised Options forfeited Options canceled 755000 304349 131757 167593 Options outstanding at December 31 2009 7916879 Options exercisable at December 31 2009 5441557 5.82 0.44 8.93 7.66 $6.40 $6.14 Options vested or expected to vest at December 31 2009 7791167 $6.40 6.4 5.4 6.4 $6236 $5611 $6198 In addition to the vested options the Company expects portion of the unvested options to vest at some point rate to the unvested options in the future Options expected to vest is calculated by applying an estimated forfeiture During the years ended December 31 2009 2008 and 2007 the total intrinsic value of options exercised i.e the difference between the market price at exercise and the price paid by the employee to exercise the options was $1558 $3677 and $13760 respectively and the total amount of cash received by the Company total grant-date fair value from exercise of of stock options granted after the adoption of SFAS No 123R on these options was $133 $2203 and $2472 respectively The January $4189 and $6223 respectively 2006 that vested during the years ended December 31 2009 2008 and 2007 was $6146 Unrecognized stock-based compensation expected to be recognized using the straight expense of non-vested stock line method over options of $11.2 million is weighted-average period of 1.3 years 87 Techfarget tnc Notes to Consolidated Financial Statements Continued Years Ended December 31 2009 2008 and 2007 In thousands except share and per share data 11 Stock-based Compensation Continued Restricted Stock Awards Restricted stock awards are valued at the market price of share of the Companys common stock on the date of the grant summary of the restricted stock award activity under the Companys stock option plan for the year ended December 31 2009 is presented below Nonvested outstanding at December 31 2008 Granted Vested Forfeited Nonvested outstanding at December 31 2009 Weighted-Average Grant Date Fair Value Per Share Aggregate Intrinsic Value $14.48 4.03 12.76 14.29 5.37 $12481 Shares 464476 1962954 191905 18625 2216900 Nonvested restricted stock awards outstanding at December 31 2009 includes 1925000 awards with vesting schedules contingent upon the Company achieving performance achieved the performance goal during the year ended December 31 2009 awards will vest over four years goal The Company and the restricted stock The total grant-date fair value of restricted stock awards that vested during the years ended December 31 2009 and 2008 was $2449 and $2510 respectively None of the restricted stock awards vested during the year ended December 31 2007 Unrecognized stock-based compensation expense of non-vested restricted stock awards of $7.4 million is expected to be recognized over weighted-average period of 1.4 years 12 Stockholders Equity Deficit Shares Authorized In April 2007 the Board of Directors approved an amendment and restatement of the Companys Certificate of Incorporation to increase the authorized number of shares of common stock from 44344656 to 100000000 to authorize 5000000 shares of undesignated preferred $0.001 per share and to eliminate all reference to the designated Series Preferred stock par value Stock Stock Offering In May 2007 the Company completed its initial public offering IPO of 8855000 shares of its common stock of which 7072097 shares were sold by the Company and 1782903 shares were sold by certain of the Companys existing shareholders at price to the public of $13.00 per share The Company raised total of $91937 in gross proceeds from the offering or $83161 in net proceeds after deducting underwriting $2340 Upon the closing of the offering all shares and commissions discounts of $6436 and other offering costs of approximately of the Companys redeemable convertible preferred stock automatically converted into 24372953 shares of common stock 88 TechTarget Inc Notes to Consolidated Financial Statements Continued Years Ended December 31 2009 2008 and 2007 In thousands except share and per share data 12 Stockholders Equity Deficit Continued Reverse Stock Split On April 26 2007 the Companys board of directors approved 1-for-4 reverse stock split of the Companys outstanding common stock The reverse stock split became effective immediately and all common share and to the consolidated per share amounts financial statements have in the accompanying consolidated financial statements and notes been retroactively adjusted for all periods presented to give effect to the reverse stock split Warrants In connection with the Companys original Bank Term Loan agreement for the Bank Term Loan the Lender issued to the lender in July 2001 the Company fully exercisable warrant to purchase up to 74074 shares of series redeemable convertible preferred stock at $0.541 per share In connection with an amendment to the Bank Term Loan agreement in April 2002 the Company issued to the Lender an additional fully exercisable warrant to purchase 55443 shares of series redeemable convertible preferred stock at price of $0.5411 per share Upon the closing of the Companys IPO in May 2007 these warrants outstanding converted into warrants to purchase an aggregate of 32378 shares of the Companys common stock at an exercise price of $2.1644 per share In 2007 the Lender exercised their warrants to purchase 32378 shares of common stock using the conversion rights in the warrants As result of the exercise using the conversion rights the Company issued 26740 shares of common stock to the Lender and cancelled the 5638 shares received in lieu of payment of the exercise price In connection with an acquisition in May 2000 the Company issued to the seller warrant to purchase 40625 shares of common stock at price of $2.36 per share The warrant is exercisable immediately and expires shares of common stock using the conversion rights in the warrants As result of the exercise using the on May 10 2010 In 2007 the seller exercised warrants to purchase 30981 conversion rights the Company issued 26024 shares of common stock to the seller and cancelled the 4957 shares received in lieu of payment of the exercise price In 2008 the seller exercised additional warrants to purchase 8375 shares of common stock using the conversion rights in the warrants As result of the exercise using the conversion rights the Company the 1489 shares the seller and cancelled received in lieu of payment of the exercise price issued 6886 shares of common stock to At December 31 2009 and 2008 there were 1269 shares of the Companys common stock reserved for the exercise of all warrants Reserved Common Stock As of December 31 2009 the Company has reserved common stock for the following Options outstanding and available for grant under stock option plans Warrants Number of Shares 10588140 1262 10589409 89 rechTarget inc INotes to Consolidated Financial Statements Continued Years Ended December 31 2009 2008 and 2007 In thousands except share and per share data 13 Income Taxes As of December 31 2009 the Company had U.S federal and state net operating loss NOL carryforwards of approximately $7.0 million and $17.3 million respectively which may be used to offset future taxable income The NOL carryforwards possible adjustment by the Internal Revenue that the NOL and tax credit carryforwards limit expire through 2027 and are subject to review and Service The Internal Revenue Code contains provisions available to be used in any given year in the event of certain changes in the ownership interests of significant stockholders The federal NOL carryforwards of $7.0 million available at December 31 2009 were acquired from KnowledgeStorm and are subject to limitations on their use in future years The income tax provision for the years ended December 31 2009 2008 and 2007 consisted of the following Current Federal State Total current Deferred Federal State Total deferred Years Ended December 31 2009 2008 2007 465 1223 88 950 1688 1038 1314 598 1912 1782 36 1746 224 $2784 5321 1646 6967 1398 317 1715 5252 The income tax provision for the years ended December 31 2009 2008 and 2007 differs from the amounts computed by applying income taxes as follows before the statutory federal income tax rate consolidated income loss Provision Increase computed at statutory rate reduction resulting from Tax exempt Stock-based interest income compensation Other nondeductible expenses State income tax provision Change in deferred tax asset valuation reserve Other Provision for income taxes 90 Years Ended December 2009 2008 31 2007 $1869 $1592 $4129 133 440 1426 1012 136 197 28 137 581 98 712 792 208 752 83 224 $2784 $5252 TechTarget Inc Notes to Consolidated Financial Statements Continued Years Ended December 31 2009 2008 and 2007 In thousands except share and per share data 13 Income Taxes Continued Significant components of the Companys net deferred tax assets and liabilities are as follows Deferred tax assets Net operating loss carryforwards Deferred revenue Accruals and allowances Depreciation Stock-based compensation Deferred rent expense Gross deferred tax assets Less valuation allowance Total deferred tax assets Deferred tax liabilities Intangible asset amortization Depreciation Total deferred tax liabilities Net deferred tax assets As reported Current deferred tax assets Non-current deferred tax assets Total deferred tax assets As of December 31 2009 2008 2797 241 432 5904 191 9565 1020 4904 239 412 135 3272 97 9059 940 8545 8119 873 91 964 1791 1791 7581 6328 2399 5182 7581 2959 3369 6328 In evaluating the ability to realize the net deferred tax asset the Company considers all available evidence both positive and negative including past operating results the existence of cumulative losses recent in the most future taxable income In considering assumptions and judgments that are based on the plans and estimates fiscal years tax planning that are prudent strategies sources future of taxable income the Company makes certain that are used to manage the and feasible and forecasts of underlying business of the Company Changes in the Companys assumptions and estimates may income tax expense for the period The valuation materially impact $0.9 million at December 31 2009 and 2008 respectively from KnowledgeStorm the Company determined were not that allowance of $1.0 million and relates to state deferred tax assets acquired likely to be realized based on projections of future taxable income in Georgia To the extent realization of the state deferred tax assets becomes probable recognition of these acquired tax benefits would reduce income tax expense The Company may from time to time be assessed related interest and penalties interest or penalties by major tax jurisdictions to uncertain tax positions in income tax recognized interest and penalties totaling $5 and $17 in 2009 and 2008 The Company recognizes expense The Company respectively The Company did not recognize any interest and penalties in 2007 91 LchTarget Inc Notes to Consolidated Financial Statements Continued Years Ended December 31 2009 2008 and 2007 In thousands except share and per share data 13 Income Taxes Continued Tax years 2006 through 2009 are subject to examination by the federal and state taxing authorities The Internal Revenue Service completed an audit of our 2006 tax return without identifying any material adjustments There are no other income tax examinations currently in process 14 Segment Information The Company views its operations and manages its business as one operating segment based on factors such as how the Company manages its operations and how its chief operating decision making group which consists of results and makes reviews the Companys chief executive officer president and executive vice president decisions on how to allocate resources and assess performance Geographic Data Net sales to unaffiliated customers by geographic area were as follows United States and Canada International Total 15 401k Plan Years Ended December 31 2009 2008 2007 $83232 $101401 $90216 3264 3143 2034 $86497 $104544 $92250 The Company maintains 401k retirement savings plan the Plan whereby employees may elect to defer portion of their salary and contribute the deferred portion contributes an amount equal to 50% of the employees contribution to the Plan The Company to the Plan up to an annual limit of two thousand dollars The Company contributed $0.7 million $0.8 million and $0.6 million to the Plan for the Te(cid:228)sØnded DŁcdiæbŒr 31 2009 2008 the Companys matching contributions are invested and 2007 respectively in one or more collective Employee contributions and investment funds at the participants direction The Companys matching contributions vest 25% annually and are 100% vested after four consecutive years of service 92 TechTarget Inc Notes to Consolidated Financial Statements Continued Years Ended December 31 2009 2008 and 2007 In thousands except share and per share data 16 Quarterly Financial Data unaudited Total revenues Total cost of revenues Total gross profit Total operating expenses Operating loss income Net Net loss income loss income per common share Basic Diluted For the Three Months Ended 2009 2008 Mar 31 Jun 30 Sep 30 Dec 31 Mar 31 Jun 30 Sep.30 Dec 31 $18472 $21737 $23056 $23232 $23263 $27615 $26996 $26670 6231 6530 6256 7542 9036 8370 8143 5961 12511 15267 2756 $2308 15506 16526 16976 15721 15960 18082 17817 454 1556 543 $1438 841 827 17205 1484 1432 436 $1052 18579 17147 18626 18527 16449 17544 0.06 0.06 0.01 0.01 0.03 0.03 0.02 0.02 0.01 0.01 0.03 0.02 2177 707 0.02 0.02 983 441 0.01 0.01 Included in the first quarter of 2009 was the correction of an error in the amount of $284 related to interest income which should have been recorded in the fourth quarter of 2008 See note Included in the third quarter of 2009 was the entry to correct the customer credit errors See which increased Note taxes by $967 The aggregate 2004 to 2006 $362 from 2007 $561 from 2008 and $13 from 2009 net adjustment accumulated accounts payable by $967 and decreased over income before provision for income several years and includes $57 from Included in the third quarter of 2009 was the correction of an error totaling $1.1 million related to stock-based compensation expense that should have been recorded in the first and second quarters of 2009 The additional stock-based compensation expense relates to 1925000 restricted stock awards granted during the first quarter of 2009 The vesting for the restricted stock awards is contingent upon the Company achieving an annual financial performance goal The stock-based compensation expense related to the restricted stock awards was initially recognized on straight-line basis over the vesting period but should have been recognized using the accelerated attribution method Included in the fourth quarter of 2009 was the correction of an error totaling $291 related to an exit charge office space agreement that should have been recorded in the second quarter of 2009 The exit charge relates to that the Company through November 2010 exited in June 2009 but is obligated under noncancelable lease The Company assessed the materiality of the errors noted above both quantitatively and qualitatively and concluded that the adjustments are not material to the prior annual financial statements or to the interim financial statements for 2009 As result the Company recorded the correction of the errors in the quarters these errors in their assessment of in which they were realized see Item 9A internal controls In addition management noted Included in the fourth quarter of 2009 are professional fees related to the investigation of $1.2 million See note 93 1ech1iirget Inc Notes to Consolidated Financial Statements Continued Years Ended December 31 2009 2008 and 2007 In thousands except share and per share data 17 Subsequent Events On March 2010 the Company acquired certain assets of ebizQ.net for $0.5 million in cash plus future earn out potential ebizQnet IT decision makers focused on Business Architecture SOA ebizQ.net original editorial and independent webinars podcasts white papers is leading website and information Process Management BPM and Service-Oriented for business technology is an online community with more than 100000 members that provides content from leading and virtual events The addition industry analysts and experts via blogs of ebizQ.net to the TechTarget network of technology websites complements the Companys existing web properties providing one-stop shop for IT and Line of Business professionals researching new products and technologies around these disciplines and marketers trying to reach them 94 Item Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None Item 9A Controls and Procedures Disclosure Controls and Procedures term disclosure controls under the Securities Exchange designed to ensure that submits under the Securities Our management with the participation of our disclosure the effectiveness evaluated of our chief executive financial officer and procedures as of December 31 2009 The and procedures as defined in Rules 13a-15e and 15d-15e promulgated and other procedures of Act means controls company that are controls officer and chief information required to be disclosed by Exchange Act is recorded processed company in the reports that summarized and reported within it files or the time periods specified in the SECs rules and forms Disclosure controls and procedures include without limitation controls and procedures designed to ensure that disclosed by company in the reports that it files or submits under information required to be the Securities Exchange Act accumulated and communicated to the companys management including its principal executive is and principal financial officers as appropriate Management recognizes that any controls to allow timely decisions and procedures no matter how well designed regarding required disclosure and operated can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures Based on the evaluation of our disclosure controls and procedures as of December 31 2009 and due to the material weaknesses in our internal control over financial reporting described in our accompanying Managements Report on Internal Control over Financial Reporting below our chief executive officer and chief financial officer concluded that as of such date our disclosure controls and procedures were not effective at the reasonable assurance level As further discussed below under Remediation Plans management and procedures is implementing measures that we believe will address these deficiencies in our controls Managements Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting for our company Internal control over financial reporting is defined in and 15d-15f promulgated under Rule 13a-15f or under companys principal effected by the companys board of directors management and other personnel of the Securities Exchange the supervision and principal executive regarding the reliability of financial and the preparation assurance reporting of Act as process designed by financial officers and to provide reasonable financial statements for external purposes in accordance with generally accepted accounting principles Our internal control over financial reporting includes those policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the companys assets that could have material effect on the financial statements Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject 95 to risk that controls may Liecoine inadequate because ol changes in conditions or that the degree uoinpiiaiicc witl lie policies or pi occducs niay dctei 101 aLe Our management including our chief executive officer and chief financial officer assessed the effectiveness of our internal controls over financial reporting as of December 31 2009 In connection with this assessment we identified the following material weaknesses in internal control over financial reporting as of December 31 2009 material weakness is deficiency or combination of deficiencies in internal control over financial reporting such that there is reasonable possibility that material misstatement of the annual or interim financial statements will not be prevented or detected on timely basis In making this assessment our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal ControlIntegrated Framework Because of the material weaknesses described December 31 2009 our internal control over financial criteria below management believes was not effective reporting based on this that as of The independent registered public accounting firm Ernst Young LLP has audited our consolidated financial financial reporting statements and has issued an attestation as of December 31 2009 which is included on our internal controls over report herein Accounting for Certain Complex transactions involving revenue and stock-based compensation Online Service Revenue Transactions As result of review of our business processes pertaining to its online service revenue offerings and the related application of accounting policies and procedures to these business processes management identified material weaknesses in internal control over financial reporting related to the misapplication of generally accepted accounting principles on revenue arrangements involving certain online service offerings as well as our assessment of verifiable objective evidence of fair value for elements included in multiple element advertising campaigns This misapplication of generally accepted accounting principles led to the restatement of previously issued financial statements and other financial information during 2009 Performance Based Stock Awards We corrected an error totaling $1061000 during the third of 2009 related quarter first and second quarters restricted stock awards granted during the first quarter of 2009 The additional compensation to stock-based expense that should have been recorded in the stock-based compensation expense relates to 1925000 of 2009 The vesting for the restricted stock awards is contingent upon us achieving an annual financial performance goal The stock-based compensation expense related to the restricted stock awards was initially recognized on straight-line basis over the vesting period but should have been recognized using the accelerated attribution method Accounting for Aging Customer Credits and Certain Unallocated Accruals As result of an investigation conducted by our Audit Committee from November 2009 to January 2010 management identified material weaknesses in internal control over financial reporting related to the misapplication of generally accepted accounting principles to customer credits that were improperly eliminated as liabilities This misapplication of generally accepted accounting principles led us to record net adjustment which increased accounts payable by $967000 and decreased income before provision for income taxes by $967000 during the quarter ended September 30 2009 Management identified the following material weaknesses surrounding our internal controls over financial reporting Inadequate and ineffective controls over the accounting for certain complex transactions We did not have effective design or operational controls over the accounting for certain online service revenue transactions specifically our ability to apply generally accepted accounting principles as they relate to the recognition of revenue on transactions that include duration-based services and 96 multiple element advertising campaigns This material weakness resulted in the misstatement of revenue for certain service offerings and multiple element campaigns which required previously reported consolidated financial statements to be restated We also did not have effective design on operational controls over arrangements in accordance accepted accounting principles which resulted in adjustments being recorded in the the accounting for stock based compensation with generally quarter ended September 30 2009 Inadequate and ineffective controls over adequacy of staffing of accounting group Our controls related to ensuring the adequacy of staffing of our accounting and finance department were inadequate and ineffective This material weakness resulted in the misstatement of revenue for certain service offerings and multiple element campaigns which required previously consolidated reported errors in accounting for stock based compensation financial statements to be restated This material weakness also resulted in our aging customer credits and certain unallocated accruals which resulted in adjustments being recorded in the quarter ended September 30 2009 Insufficient and ineffective review and supervision by management of certain accounting policies and procedures Managements monitoring and controls as the business well process were inadequate and ineffective Managements timely and proper identification correction and review controls over certain accounting policies and procedures as surrounding certain complex online service revenue transactions oversight and related detective controls to ensure of errors for arrangements involving certain complex online service revenue transactions were inadequate and ineffective This material weakness resulted in the misstatement of revenue for certain required previously reported consolidated service offerings and multiple element campaigns which to be restated financial statements This material weakness also resulted in our errors in accounting for stock based compensation aging customer credits and certain unallocated accruals which resulted in adjustments being recorded in the quarter ended September 30 2009 Inadequate and ineffective accounting and reporting system for processing and reporting of certain complex service revenue transactions Our current accounting and financial reporting system and related internal controls are inadequate to carry out the volume and level of complexities associated with our online service revenue transactions This material weakness resulted in the misstatement of revenue for certain service offerings and multiple element campaigns which required previously reported consolidated financial statements to be restated Inadequate and ineffective controls over the use of debit memorandums to reclassify aged customer credits from the accounts receivable subsidiary ledger to an unallocated general accrual account We did not have effective design or operational controls to prevent the reclassification of customer liabilities from the accounts receivable subsidiary ledger to an unallocated general accrual account This material weakness resulted in the misstatement of customer liabilities which required an adjustment in the quarter ended September 30 2009 Inadequate education training and awareness accounting practices to finance management management of the process for reporting concerns with regard to and/or the Audit Committee We did not have effective employee education and training to ensure communication of any concerns related to accounting practices are brought to the appropriate personnel or governing body on timely manner 97 I7eange in Ihteinai CunInil oe Financial Reporting Set below are changes in internal control over financial reporting as defined in Rules 13a15f and 15d-15f September 30 2009 related under the Securities Exchange Act which occurred during the quarter ended to accounting for certain complex service revenue transactions that has materially affected or is reasonably likely to materially affect our internal control over financial reporting Communicated revised revenue recognition policies and procedures to appropriate accounting staff and trained them on their usage and application Ensured that financial management is actively involved in oversight and monitoring of the recording and reporting of complex service revenue recognition transactions Remediation Plans Management has identified the following measures to strengthen our internal control over financial reporting and to address the material weaknesses described above We began implementing certain of these measures prior to the filing of this Form 10-K but changes made to our internal controls have not yet been in place for sufficient time to have had significant effect Management expects to continue to develop remediation plans and implement additional changes to our internal control over financial reporting during 2010 described in detail hereafter We believe that the actions taken to date as well as our planned future actions will adequately address the material weaknesses In order to improve controls over the accounting for certain complex transactions we have initiated and intend to continue to Assess the expertise of our staff responsible for recording complex transactions and address any identified deficiencies in order to enhance and augment the depth of knowledge of our staff and reduce the risk of future accounting errors and financial statement misstatements Utilize specialized third party consultants to assist us in monitoring and ensuring the propriety of our revenue recognition policies procedures and activities on quarterly basis Communicate revised accounting policies and procedures to appropriate train them on their usage and application accounting staff and Ensure that finance management is heavily involved in oversight and monitoring of the recording and reporting of complex service revenue recognition transactions during current and future reporting periods Review the controls over revenue recognition to ensure procedures exist to properly account for any changes in operations In order to improve controls over ensuring the adequacy of staffing of the accounting group we have initiated and intend to continue to Assess the depth and expertise of our staff responsible for complex transactions and revenue recognition and address any identified deficiencies Work with our Human Resources department in aggressively accounting staff candidates We are currently recruiting for the positions identifying and recruiting future of capable technical Director positions of Sarbanes Oxley and in 2010 Director of Financial Reporting We expect to hire these Utilize specialized third party consultants to assist us in monitoring and ensuring the propriety of our revenue recognition policies procedures and activities on quarterly basis 98 Provide training to address relevant technical accounting matters including updating the appropriate personnel on recent accounting pronouncements and other relevant accounting literature In order to improve controls to ensure sufficient and effective review and supervision by management of certain accounting policies and procedures we have initiated and intend to continue to Ensure that financial management is routinely reviewing and monitoring the application of and any changes to the accounting policies and procedures underlying complex transactions during future reporting periods Ensure the proper evidence of this review is consistently documented during future reporting periods Ensure that financial management is heavily involved in oversight and monitoring of the recording and reporting of complex transactions during future reporting periods Utilize specialized third party consultants to assist us in monitoring and ensuring the propriety of our revenue recognition policies procedures and activities on quarterly basis Consider implementation of additional automation trending analyses and management reporting to highlight potential future issues surrounding complex transactions Implement process either formal or informal whereby senior finance personnel are informed of all significant judgments made during the close process In order to ensure the Company accounting and reporting systems are adequate to carry out the level and complexities associated with our service revenue transactions we have initiated and intend to continue to We have purchased and intend to implement in Q1 2010 software application which will assist in ensuring that the Companys revenue accounting the complexities associated with our service revenue transactions and reporting systems adequately address In order to improve controls over the use of debit memorandum to reclassify aged customer credits froan the accounts receivable subsidiary ledger to the general accrual account we have initiated and intend to continue to Establish clearly defined policies and procedures relating to the disposition of customer credits Establish policy whereby we disburse payment to customers or apply credits to customer invoices if an aged customer credit is not used by the customer within reasonable time after the credit has been issued to the customers account Establish clearly defined policies and procedures related to the general accrual account to insure account activity is proper the liability fairly states incurred but not reported liabilities and the period end reconciliation is adequately reviewed by the appropriate finance personnel In order to improve education training and awareness of the process for reporting concerns with regird to accounting practices to finance management management and/or the Audit Committee we have initiated and intend to continue to Provide additional training and education to all employees of the reporting processes and protocols for communicating The training will emphasize any concerns relating to accounting practices within the confidential nature of the process as well as the importance the Company of timely reporting concerns to finance management management and the Audit Committee In addition separate training will be provided to address relevant technical accounting matters including updating the appropriate personnel on recent accounting pronouncements and other relevant accounting literature 99 Report of niependenL Registered Public Accounting I1irm The Board of Directors and Stockholders of TechTarget Inc We have audited TechTarget Inc.s internal control over financial reporting as of December 31 2009 based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission the COSO criteria TechTarget Inc.s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying managements report on internal control over financial reporting Our responsibility is to express an opinion on the companys internal control over financial reporting based on our audit We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board United States reasonable assurance about whether Those standards require that we plan and perform the audit to obtain effective internal control over financial reporting was maintained in all material respects Our audit included obtaining an understanding of internal control over financial reporting assessing the risk that material weakness exists testing and evaluating the design and operating effectiveness of internal control based on the assessed risk and performing such other procedures as we considered reasonable basis for our opinion necessary in the circumstances We believe that our audit provides companys internal control over financial reporting is process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles companys internal control over financial reporting includes those policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of reasonable assurance regarding prevention or timely detection the company and of unauthorized acquisition provide use or disposition of the companys assets that could have material effect on the financial statements Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections to the risk that controls may become inadequate because of changes in conditions or of compliance with the policies or procedures may deteriorate of any evaluation of effectiveness to future periods are subject that the degree material weakness is deficiency or combination of deficiencies in internal control over financial reporting such that there is reasonable possibility that material misstatement of the companys annual or The following material weaknesses interim financial statements will not be prevented or detected on timely basis have been identified and included in managements assessment Inadequate and ineffective controls over the accounting for certain complex transactions The Company did not have effective design or operational controls over the accounting for certain online service revenue transactions specifically the ability to apply generally accepted accounting principles as they relate to the recognition of revenue on transactions that include duration-based services and multiple element advertising campaigns This material weakness resulted in the misstatement of revenue for certain service offerings and multiple element campaigns which required previously reported consolidated financial statements to be restated The Company also did not have effective design on organizational controls over the accounting for stock based compensation arrangements in accordance with generally accepted accounting principles which resulted in adjustments being recorded in the quarter ended September 30 2009 100 Inadequate and ineffective controls over adequacy of staffing of accounting group The Companys controls related to ensuring the adequacy of staffing of its accounting and finance department were inadequate and ineffective This material weakness resulted in the misstatement of revenue for certain service offerings and multiple element campaigns which required previously reported consolidated financial statements to be restated This material weakness also resulted in errors in accounting which resulted for stock based compensation aging customer credits and certain unallocated accruals in adjustments being recorded in the quarter ended September 30 2009 Insufficient and ineffective review and supervision by management of certain accounting policies and procedures Managements monitoring and review controls over certain accounting policies and procedures as well as the business process controls surrounding certain complex online service revenue transactions were inadequate and ineffective Managements oversight and related detective controls to ensure timely and proper identification and correction of errors for arrangements involving certain complex online service revenue transactions were inadequate and ineffective This material weakness resulted in the misstatement of revenue for certain service offerings and multiple element campaigns which required previously reported consolidated financial statements to be restated This material weakness also resulted in errors in accounting for stock based compensation aging customer credits and certain unallocated accruals which resulted in adjustments being recorded in the quarter ended September 30 2009 Inadequate and ineffective accounting and reporting system for processing and reporting of certain complex service revenue transactions The Companys current accounting and financial reporting system and related internal controls are inadequate to carry out the volume and level of complexities associated with its online service revenue transactions This material weakness resulted in the misstatement of revenue for certain service offerings and multiple element campaigns which required previously reported consolidated financial statements to be restated Inadequate and ineffective controls over the use of debit memorandums to reclassify aged customer credits from the accounts receivable subsidiaiy ledger to an unallocated general accrual account The Company did not have effective design or operational controls to prevent the reclassification of customer liabilities from the accounts receivable subsidiary ledger to an unallocated general accrual account This material weakness resulted in the misstatement of customer liabilities which required an adjustment in the quarter ended September 30 2009 Inadequate education training and awareness of the process for reporting concerns with regard to accounting practices to finance management management and/or the Audit Committee The Company did not have effective employee education and training to ensure communication of any concerns related to accounting practices are brought to the appropriate personnel or governing body on timely manner We also have audited in accordance with the standards of the Public Company Accounting Oversight Board United States December 31 2009 and 2008 and the related the consolidated balance sheets of TechTarget Inc as of consolidated statements of operations redeemable convertible preferred stock and stockholders equity and cash flows for each of the three years in the period ended December 31 2009 These material weaknesses were considered in determining the nature timing and extent of audit tests applied in our audit of the 2009 financial statements and this report does not affect our report dated March 16 2010 which expressed an unqualified opinion on those financial statements 101 In our opinion because of the effect of the material weaknesses described above on the achievement of the objectives of the control criteria Tºchlargei Inc has not maintained effective internal control over financial reporting as of December 311 2009 based on the COSO criteria Is Ernst Young LLP Boston Massachusetts March 16 2010 Item 9B Other Information None Item 10 Directors Executive Officers and Corporate Governance PART III The information required Class III Directors Officers Code of Business definitive proxy statement reference We are also required by this item will be set Information About Continuing Directors forth under the captions Proposal Election of Information About Executive Conduct and Ethics and Board CommitteesAudit Committee in our for the 2010 Annual Meeting of Stockholders and is incorporated herein by under Item 405 of Regulation S-K to provide information concerning delinquent filers of reports under Section 16 of the Securities Exchange Act of 1934 as amended This information will be listed under Compliance in our definitive proxy statement the caption Section 16a Beneficial Ownership Reporting for the 2010 Annual Meeting of Stockholders This information is incorporated herein by reference The information regarding executive officers will be listed under the section captioned Executive Officers of the Company in our definitive proxy statement for the 2010 Annual Meeting of Stockholders This information is incorporated herein by reference Item 11 Executive Compensation The information required by this item will be set forth under the captions Director Compensation Executive Officer Compensation Compensation Committee Report and Compensation Committee Interlocks and Insider Participation in our definitive proxy statement for the 2010 Annual Meeting of Stockholders This information is incorporated herein by reference Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this item will be set forth under the captions Stock Owned by and Securities Authorized for Directors Executive Officers Issuance Under Equity Compensation and Greater-Than-5% Stockholders Plans in our definitive proxy statement for the 2010 Annual Meeting of Stockholders This information is incorporated herein by reference Item 13 Certain Relationships and Related Transactions and Director Independence The information required by this item will be set forth under the captions Related Party Transactions and Information About Corporate Governance in our definitive proxy statement for the 2010 Annual Meeting of Stockholders This information is incorporated herein by reference Item 14 Principal Accounting Fees and Services The information required by this item will be set forth under the caption Independent Registered Public Accountants in our definitive proxy statement for the 2010 Annual Meeting of Stockholders This information is incorporated herein by reference 102 Item 15 Exhibits Financial Statement Schedules PART 1V Financial Statements are filed as part of this Annual Report on Form 10-K The following consolidated financial statements are included in Item Consolidated Balance Sheets as of December 31 2009 and 2008 Consolidated Statements of Operations for the Years Ended December 31 2009 and 2007 2008 Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders Equity Deficit for the Years Ended December 31 2009 2008 and 2007 Consolidated Statements of Cash Flows for the Years Ended December 31 2009 and 2007 2008 Notes to Consolidated Financial Statements Exhibit Index The exhibits listed in the Exhibit Index immediately preceding the exhibits are filed as part of this Annual Report on Form 10-K 103 Pursuant to the requirements of Section 13 or 15d of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized SIGNATURES TECHTARGET Date March 16 2010 INC By Is GREG STRAKOSCH Greg Strakosch Chief Executive Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated Signature Title Date /5/ GREG STRAKOSCH Chief Executive Officer and Director Greg Strakosch Principal executive officer March 16 2010 /s/ ERIC SOCKOL Eric Sockol Chief Financial Officer Principal financial and accounting officer March 16 2010 Is LEONARD FORMAN Leonard Forman Is JAY HOAG Jay Hoag Is BRUCE LEVENSON Bruce Levenson Is ROGER MINo Roger Marino Director Director Director Director 104 March 16 2010 March 16 2010 March 16 2010 March 16 2010 EXHIBIT INDEX Exhibit Number Description Articles of Incorporation and By-Laws Incorporated by Reference to Form or Schedule Exhibit No Filing Date with SEC SEC File Number 3.1 3.2 4.1 Fourth Amended and Restated Certificate of i0-Q 3.1 11/13/2007 001-33472 Incorporation of the Registrant Amended and Restated Bylaws of the S-i/A 3.3 03/20/2007 333-140503 Registrant Instruments Defining the Rights of Security Holders Specimen Stock Certificate for shares Registrants Common Stock Material Contracts of the S-i/A 4.1 04/10/2007 333-140503 10.1 Second Amended and Restated Investors 5-1 10.1 02/07/2007 333-140503 Rights Agreement by and among the the Investors Registrant SG Cowen Securities Corporation December 17 2004 named therein and dated as of 10.2 Form of Indemnification Agreement between S-i/A 10.2 05/15/2007 333- 140503 the Registrant and its Directors and Officers 10.3 2007 Stock Option and Incentive Plan 10.4 Form of Incentive Stock Option Agreement S-i/A S-i/A 10.3 10.4 04/20/2007 333- 140503 04/20/2007 333-140503 under Plan the 2007 Stock Option and Incentive 10.5 Form of Non-Qualified Stock Option S-i/A 10.5 04/20/2007 333-140503 Agreement under the 2007 Stock Option and Incentive Plan 10.6 Form of Non-Qualified Stock Option S-i/A 10.5.1 04/27/2007 333-140503 Agreement for Non-Employee Directors 10.7 Form of Restricted Stock Agreement under S-i/A 10.6 04/20/2007 333- 140503 the 2007 Stock Option and Incentive Plan iO.8 Form of Restricted Stock Unit Agreement 10-K 10.8 3/31/2008 001-33472 under the 2007 Stock Option and Incentive Plan iO.9 Restricted Stock Unit Agreement December 18 2007 by and between the Registrant and Kevin Beam dated 10-K 10.9 3/31/2008 001-33472 iO.iO Restricted Stock Unit Agreement dated 10-K 10.10 3/31/2008 001-33472 December 18 2007 by and between the Registrant and Don Hawk iO.ii Restricted Stock Unit Agreement December 18 2007 by and between the dated 10-K 10.11 3/31/2008 001-33472 Registrant and Rick Olin 105 Exhibit Number Description Incorporated by Reference to Form or Schedule Exhibit No Filing Date with SEC SEC File Number i0.12 Restricted Stock Unit Agreement dated 10-K 10.12 3/31/2008 001-33472 December 18 2007 by and between the Registrant and Eric Sockol 10.13 Restricted Stock Unit Agreement dated 10-K 1013 3/31/2008 001-33472 December 18 2007 by and between the and Greg Strakosch Registrant 10.14 Executive Incentive Bonus Plan 10.i5 1999 Stock Option Plan 10.i6 Form of Incentive Stock Option Grant Agreement under the 1999 Stock Option Plan for grants prior to September 27 2006 S-i/A S-i S-i 10.7 10.8 10.9 04/20/2007 333-140503 02/07/2007 333-140503 02/07/2007 333-140503 10.17 Form of Incentive Stock Option Grant S-i 10.10 02/07/2007 333-140503 Agreement under the 1999 Stock Option Plan for grants on or after September 27 2006 10.i8 Form of Incentive Stock Option Grant S-i/A 10.10.1 05/01/2007 333-140503 Agreement under the 1999 Stock Option Plan for grants to executives iO.i9 Form of Nonqualified Stock Option Grant Agreement under the 1999 Stock Option Plan S-i 10.11 02/07/2007 333-140503 iO.20 Lease Agreement between the Registrant and S-i 10.12 02/07/2007 333-140503 Wellsford/Whitehall Holdings L.L.C for the premises located Needham MA dated as of November 25 2003 at 117 Kendrick Street iO.2i First Amendment to Lease Agreement S-i 10.13 02/07/2007 333-140503 between the Registrant Whitehall Holdings L.L.C for the premises and Welisford located at 117 Kendrick Street Needham MA dated July 27 2004 Second Amendment between the Registrant Whitehall Holdings L.L.C for the premises to Lease Agreement and Wellsford/ located at ii7 Kendrick Street Needham MA dated December Third Amendment 2004 to Lease Agreement iO.22 iO.23 S-i 10.14 02/07/2007 333-140503 S-i 10.15 02/07/2007 333-140503 and Intercontinental between the Registrant Fund III for the premises located at 117 Kendrick Street Needham MA dated September 21 2006 iO.24 Credit Facility Agreement between the S-i 10.16 02/07/2007 333-140503 Registrant and Citizens Bank of Massachusetts dated August 30 2006 106 Exhibit Number Description Incorporated by Reference to Form or Schedule Exhibit No Filing Date with SEC SEC File Number 10.25 Amended and Restated Employment 10-K 10.25 3/31/2008 001-33472 Agreement between the Registrant dated January 17 2008 by and and Greg Strakosch 10.26 Amended and Restated Employment 10-K 10.26 3/31/2008 001-33472 Agreement dated January 17 2008 by and between the Registrant and Don Hawk 10.27 Amended and Restated Employment 10-K 10.27 3/31/2008 001-33472 Agreement dated January 17 2008 by and between the Registrant and Eric Sockol 10.28 Amended and Restated Employment 10-K 10.28 3/31/2008 001-33472 Agreement dated January 17 2008 by and between the Registrant and Kevin Beam 10.29 Amended and Restated Employment 10-K 10.29 3/31/2008 001-33472 Agreement dated January 17 2008 by and between the Registrant and Rick Olin 10.30 Lease Agreement by and between MA-Riverside Project L.L.C as landlord and TechTarget Inc as tenant 8-K 10.1 8/7/2009 001-33472 10.31 First Amendment dated August 30 2007 to 10-0 10.1 2/8/2010 001-33472 Credit Facility Agreement dated August 30 2006 between the Registrant Bank of Massachusetts and Citizens 10.32 10.33 Second Amendment dated December 18 2008 to Credit Facility Agreement the Registrant and Citizens Bank of between Massachusetts dated August 30 2006 Third Amendment dated December 17 2009 to Credit 30 Facility Agreement 2006 between the Registrant Bank of Massachusetts dated August and Citizens 10-0 10.2 2/8/2010 001-33472 10-Q 10.3 2/8/2010 001-33472 10.34 First Amendment dated December 17 2009 10-Q 10.4 2/8/2010 001-33472 to Revolving Promissory Note dated Angust 30 2006 between the Registrant Citizens Bank of Massachusetts and 10.35 Waiver of Specified Covenants dated December 17 2009 for Credit Facility 10-0 10.5 2/8/2010 001-33472 Agreement Registrant and Citizens Bank of dated August 30 2006 between the Massachusetts now known as RBS Citizens National Association 107 Exhibit Number 10.36 21.1 23.1 31.1 Description Waiver of Specified Covenants dated January 28 2010 for Credit Facility Agreement dated August 30 2006 between and Citizens Bank of Registrant Massachusetts now known as RBS Citizens the National Association Additional Exhibits List of Subsidiaries Consent of Ernst Young LLP Certification by Chief Executive Officer Pursuant to Rule 13a-14a and 15d-14a of the Securities Exchange Act of 1934 as amended 31.2 Certification by Chief Financial Officer Pursuant to Rule 13a-14a and 15d-14a of the Securities Exchange Act of 1934 as amended 32.1 Certification by Chief Executive Chief Financial Officer Pursuant to 18 U.S.C Officer and Section Section 2002 1350 as adopted pursuant to 906 of the Sarbanes-Oxley Act of 99.1 Agreement by and among the Registrant Catapult Acquisition Corp and and Plan of Merger Incorporated by Reference to Form or Schedule Exhibit No Filing Date with SEC SEC File Number 10-Q 10.6 2/8/2010 001-33472 8-K 99.1 11/07/2007 001-33472 KnowledgeStorm Inc dated November 2007 Filed herewith Management contract or compensatory plan or arrangement filed as an Exhibit to thisreport pursuant to 15a and 15c of Form 10-K 108 This page has been left blank intentionally This page has been left blank intentionally