UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

  For the quarterly period ended September 30, 2007

or

  For the transition period from                      to                     

Commission File Number 000-26659

(805) 557-2300
(Registrant’s Telephone Number, including Area Code:)

(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)

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

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

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

     At October 30, 2007, the registrant had 155,381,310 shares of its common stock outstanding.

 

MOVE, INC.

The accompanying notes are an integral part of these unaudited
Condensed Consolidated Financial Statements.

MOVE, INC.

The accompanying notes are an integral part of these unaudited
Condensed Consolidated Financial Statements.

MOVE, INC.

The accompanying notes are an integral part of these unaudited
Condensed Consolidated Financial Statements.

MOVE, INC.

 
1. Business
     

     Move, Inc. (the “Company”) has created an online service that enables consumers to find real estate listings and other content related to residential real estate, moving and relocation. The Company’s web sites collectively have become the leading consumer destination on the Internet for home and real estate-related information based on the number of visitors, time spent on its web sites and number of property listings. The Company generates most of its revenue from selling advertising and marketing solutions to real estate industry participants, including real estate agents, homebuilders and rental property owners, and other local and national advertisers interested in reaching the Company’s consumer audience (before, during or after a move). The Company also provides software solutions to real estate agents to assist them in managing their client interactions and architects’ home plans to consumers considering building a new home. The Company derives all of its revenue from its North American operations.

     The Company’s primary consumer web sites are Move.com and REALTOR.com^®, the official site of the National Association of REALTORS^® (“NAR”), which provide new and existing home, apartment, and corporate housing listings, and are home information resource sites with an emphasis on content related to mortgage financing, moving and storage, and home and garden activities. The Company’s web sites also include SeniorHousingNet.com, a comprehensive resource for seniors and Moving.com which connects consumers with moving companies, van lines, truck rental providers and self storage facilities.

      The Company’s unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) including those for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X issued by the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and note disclosures required by GAAP for complete financial statements. These statements are unaudited and, in the opinion of management, all adjustments (which include only normal recurring adjustments) considered necessary for a fair presentation have been included. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2006, which was filed with the SEC on March 5, 2007. The results of operations for these interim periods are not necessarily indicative of the operating results for a full year.

     On January 1, 2007, the Company adopted the provisions of Emerging Issues Task Force (“EITF”) Issue No. 06-03 “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross Versus Net Presentation)” (“EITF No. 06-03”). Under EITF No. 06-03, a company must disclose its accounting policy regarding the gross or net presentation of certain taxes. If taxes included in gross revenues are significant, a company must disclose the amount of such taxes for each period for which an income statement is presented (i.e., both interim and annual periods). Taxes within the scope of EITF No. 06-03 are those that are imposed on and concurrent with a specific revenue-producing transaction. Taxes assessed on an entity’s activities over a period of time, such as gross receipts taxes, are not within the scope of EITF No. 06-03. The Company continues to report taxes collected from customers on a net presentation basis after the adoption of EITF No. 06-03.

     In February 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115” (“SFAS 159”). This standard permits an entity to choose to measure many financial instruments and certain other items at fair value. Most of the provisions in SFAS 159 are elective; however, the amendment to FASB Statement No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” applies to all entities with available-for-sale and trading securities. The fair value option established by SFAS 159 permits all entities to choose to measure eligible items at fair value at specified election dates. A business entity will report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. The fair value option: (a) may be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method; (b) is irrevocable (unless a new election date occurs); and (c) is applied only to entire instruments and not to portions of instruments. SFAS 159 is effective as of the beginning of an entity’s first fiscal year that begins after November

15, 2007. Early adoption is permitted as of the beginning of the previous fiscal year provided that the entity makes that choice in the first 120 days of that fiscal year and also elects to apply the provisions of SFAS No. 157, “Fair Value Measurements.” The Company is currently evaluating whether the adoption of this statement will have a material effect on its financial conditions, its results of operations or its liquidity.

      Goodwill, net, by segment, is as follows (in thousands):

      The Company has both indefinite and definite lived intangibles. Indefinite-lived intangibles consist of trade names and trademarks acquired during the year ended December 31, 2006. Definite-lived intangible assets consist of certain trade names, trademarks, brand names, domain names, purchased technology, and other miscellaneous agreements entered into in connection with business combinations and are amortized over expected periods of benefits. There are no expected residual values related to these intangible assets (in thousands):

     Amortization expense for intangible assets was $0.5 million and $1.5 million, respectively, for the three and nine months ended September 30, 2007 and $0.5 million and $1.8 million, respectively, for the three and nine months ended September 30, 2006. Amortization expense for the next five years is estimated to be as follows (in thousands):

     In anticipation of a potential move of the Company’s corporate headquarters, in August 2007, management entered into a sublease agreement for an interim facility located in Agoura Hills, California for a term of thirteen months. Subsequent to entering into the lease, management renegotiated with the current landlord and executed an amendment to the lease for its corporate headquarters in Westlake Village, California. As a result, the Company will not occupy the new facility in Agoura Hills. Since the Company will derive no economic value from the sublease, the Company has recorded an estimated liability in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” The estimated liability of $750,000 was recorded and is included in general and administrative expenses for the three and nine months ended September 30, 2007. No estimate was made for estimated subtenant rental income due to the unlikelihood that the Company will be able to sublease the location due to the limited term of the agreement and general economic conditions in the area.

     The Company accounts for stock issued to non-employees in accordance with the provisions of Statement of Financial

Accounting Standards (“SFAS”) No. 123 “Accounting for Stock-based Compensation” (“SFAS No. 123”) and EITF No. 96-18 “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods and Services.”

     The Company has granted restricted stock awards to members of its Board of Directors as compensation during the past four years. These shares will vest on the third anniversary of their issuance. There were 314,950 and 292,200 unvested shares of restricted stock issued to members of the Company’s Board of Directors as of September 30, 2007 and 2006, respectively.

     The Company has granted restricted stock awards to its Chief Executive Officer in consideration for his service in 2003 and 2004. These shares have vested or will vest on the third anniversary of their issuance. There were 115,740 and 186,662 unvested shares of restricted stock issued to the Company’s Chief Executive Officer as of September 30, 2007 and 2006, respectively. The intrinsic value of these restricted stock awards was included in the results of operations in the period in which they were granted.   During the nine months ended September 30, 2007, the Company granted 232,018 shares of restricted stock to one of its officers as a “sign-on” bonus. These shares have a fair value of $1.0 million and were vested fifty percent immediately with the balance vesting one year from the grant date subject to continued employment with the Company. The fair value of the first fifty percent vesting was recognized as stock based compensation immediately with the remaining fifty percent being amortized over one year. The total costs recognized during the three and nine months ended September 30, 2007 was approximately $123,000 and $670,000, respectively, which is included in the stock based compensation and charges detailed below.

     The Board of Directors has granted performance-based restricted stock units (“restricted stock units”) to certain of the Company’s executive officers beginning in fiscal year 2006. Based on the original terms of the awards, the officers were to earn shares of the Company’s common stock based on the attainment of certain performance goals relating to the Company’s revenues and EBITDA for the fiscal year ending December 31, 2008. In April of 2007, the Management Development and Compensation Committee of the Board of Directors approved a modification of the performance targets and the vesting period from the original awards, reducing the original restricted stock units available for vesting after the 2008 year end by 50% for each executive, and lowering the target financial performance for 2008 based on current market conditions and the Company’s expected performance within the market. At the same time, the committee also established financial performance targets for 2009, which provide the potential for executives to earn the remaining 50% of the restricted stock units previously granted by attainment of those performance goals for the 2009 fiscal year. The 2008 and 2009 financial goals require a high level of financial performance in both years, which the committee believes are challenging but achievable. The modification caused a new measurement date for the awards but caused no change in value of the previous awards. The remaining unamortized expense will be recognized over the remaining service periods.

     The Board of Directors awarded 2,325,000 shares of restricted stock units during the nine months ended September 30, 2007, and 150,000 and 4,545,000 shares of restricted stock units during the three and nine months ended September 30, 2006, respectively. Some of these awards have been forfeited due to terminations. As of September 30, 2007, there were 5,535,000 shares of restricted stock units outstanding with a fair value of $26.6 million which will be amortized over the service periods. Currently, the Company is assuming that 100% of the shares will be earned by the end of the performance periods. This assumption will be reviewed each reporting period and the total value of the awards may be adjusted accordingly. There were $1.3 million and $5.2 million in costs associated with these restricted stock units amortized during the three and nine months ended September 30, 2007, respectively, and $1.9 million and $2.1 million amortized during the three and nine months ended September 30, 2006, respectively. These costs are included in the stock based compensation and charges detailed below.

     The Company adopted the fair value recognition provisions of SFAS No. 123 (revised 2004) “Share Based Payment” (“SFAS 123R”) using the modified-prospective transition method. Under that transition method, compensation cost recognized includes: (a) compensation cost for all share-based payments granted prior to January 1, 2006, but not yet vested, based on the grant-date fair value estimated in accordance with the original provisions of SFAS 123; and (b) compensation cost for all share-based payments granted subsequent to December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. Compensation costs are recognized using a straight-line amortization method over the vesting period. Results for prior periods have not been restated.

     The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model that uses the ranges of assumptions in the following table. Our computation of expected volatility is based on a combination of historical and market-based implied volatility. Due to the unusual volatility of the Company’s stock price around the time of the restatement of its financial statements in 2002 and several historical acquisitions that changed the Company’s risk profile, historical data was more heavily weighted toward the most recent four years of stock activity. The expected term of options granted was derived by averaging the vesting term with the contractual term. The risk-free interest rates are based on U.S. Treasury zero-coupon bonds for the periods in which the options were granted.

     The following chart summarizes the stock-based compensation and charges that have been included in the following captions for each of the periods presented (in thousands):

     In addition to costs related to stock options and restricted stock units, stock-based compensation and charges in sales and marketing includes costs related to vendor agreements and general and administrative includes costs related to the amortization of restricted stock grants to the Company’s board of directors.

      The following table sets forth the computation of basic and diluted net income (loss) per share applicable to common stockholders for the periods indicated (in thousands, except per share amounts):

     Because their effects would be anti-dilutive for the periods presented, the above computation of diluted income (loss) per share excludes preferred stock, stock options and warrants of 63,104,083 for both the three and nine months ended September 30, 2007, and 30,468,381 and 25,923,132 for the three and nine months ended September 30, 2006, respectively.

     In the third quarter of 2006, the amounts reported as “Dividends on convertible preferred stock” in the Company’s Form 10-Q omitted the related accretion of the discount that was derived from the issuance of the convertible preferred stock. The reported results for that quarter have been revised to reflect both the accretion and the dividends in arriving at “Net income

(loss) applicable to common stockholders.” As a result of the revision, additional expense of $296,000 and $888,000 for the three and nine months ended September 30, 2006, respectively, is reflected in the line “Convertible preferred stock dividends and related accretion.” As a result of this change, basic and diluted loss per share attributable to common stockholders for the nine months ended September 30, 2006 decreased by $0.01 from $0.01 to $0.00.

      Segment information is presented in accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.” This standard is based on a management approach, which requires segmentation based upon the Company’s internal organization and disclosure of revenue and operating expenses based upon internal accounting methods. The Company’s management evaluates performance and allocates resources based on two segments consisting of Real Estate Services for those products and services offered to industry professionals trying to reach new movers and manage their relationships with them and Consumer Media for those products and services offered to other advertisers who are trying to reach those consumers in the process of a move. This is consistent with the data that is made available to our management to assess performance and make decisions. In June 2007, the Company changed the name of its former Move-Related Services segment to Consumer Media.

          The expenses presented below for each of the business segments include an allocation of certain corporate expenses that are identifiable and benefit those segments and are allocated for internal management reporting purposes. The unallocated expenses are those corporate overhead expenses that are not directly attributable to a segment and include: corporate expenses, such as finance, legal, internal business systems, and human resources; amortization of intangible assets; and stock-based charges. There is no inter-segment revenue. Assets and liabilities are not fully allocated to segments for internal reporting purposes.

      Summarized information, by segment, as excerpted from internal management reports is as follows (in thousands):