##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2010
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File No. 001-34628
 
 QuinStreet, Inc.
 (Exact Name of Registrant as Specified in Its Charter)
 
 Delaware
    
    77-05121(State or Other Jurisdiction of
    
    (IRS EmployerIncorporation or Organization)
    
    Identification No.)
 1051 East Hillsdale Blvd., Suite 800
    
    94404(Address of principal executive offices)
    
    (Zip Code)
 650-578-7700
Registrants Telephone Number, Including Area Code
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




---



##### 



QUINSTREET, INC.
INDEX
 PART I. FINANCIAL INFORMATION
    
    
    3Item 1. Condensed Consolidated Financial Statements
    
    
    3Condensed Consolidated Balance Sheets at March 31, 2010 and June 30, 2009
    
    
    3Condensed Consolidated Statements of Operations for the Three and Nine Months Ended March 31, 2010 and 2009
    
    
    4Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2010 and 2009
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    28Item 4. Controls and Procedures
    
    
    28PART II. OTHER INFORMATION
    
    
    29Item 1A. Risk Factors
    
    
    29Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    38Item 6. Exhibits
    
    
    40SIGNATURES
    
    
    41EX-10.1EX-31.1EX-31.2EX-32.1EX-32.2
  2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 QUINSTREET, INC.


CONDENSED CONSOLIDATED BALANCE SHEETS
 March 31,
    
    
    June 30,2010
    
    
    2009AssetsCurrent assetsCash and cash equivalents
    
    $
    175,318
    
    
    $
    25,182Accounts receivable, net
    
    
    47,334
    
    
    
    33,283Deferred tax assets
    
    
    5,531
    
    
    
    5,543Prepaid expenses and other assets
    
    
    8,322
    
    
    
    1,228Total current assets
    
    
    236,505
    
    
    
    65,236Property and equipment, net
    
    
    5,351
    
    
    
    4,741Goodwill
    
    
    145,803
    
    
    
    106,744Other intangible assets, net
    
    
    45,824
    
    
    
    33,990Deferred tax assets, noncurrent
    
    
    
    
    
    
    1,525Other assets, noncurrent
    
    
    684
    
    
    
    642Total assets
    
    $
    434,167
    
    
    $
    212,878Liabilities, Convertible Preferred Stock and
Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    19,019
    
    
    $
    13,408Accrued liabilities
    
    
    28,011
    
    
    
    21,794Deferred revenue
    
    
    1,257
    
    
    
    718Debt
    
    
    18,096
    
    
    
    12,890Total current liabilities
    
    
    66,383
    
    
    
    48,810Deferred revenue, noncurrent
    
    
    370
    
    
    
    820Debt, noncurrent
    
    
    84,636
    
    
    
    44,350Other liabilities, noncurrent
    
    
    2,405
    
    
    
    2,309Total liabilities
    
    
    153,794
    
    
    
    96,289Commitments
and contingencies (Note 9)Convertible preferred stock: $0.001 par value; 5,000,000 and 30,000,000
shares authorized; 0 and 21,176,533 shares issued and outstanding at
March 31, 2010 and June 30, 2009, respectively; liquidation value of $0
and $69,564 at March 31, 2010 and June 30, 2009, respectively
    
    
    
    
    
    
    43,403Stockholders equityCommon stock: $0.001 par value; 100,000,000 and 45,000,000 shares
authorized; 47,237,175 and 15,413,000 shares issued, and 45,059,723 and
13,315,348 shares outstanding at March 31, 2010 and June 30, 2009,
respectively
    
    
    47
    
    
    
    15Additional paid-in capital
    
    
    214,331
    
    
    
    20,634Treasury stock, at cost (2,177,452 and 2,097,652 shares at March 31,
2010 and June 30, 2009, respectively)
    
    
    (7,779
    )
    
    
    (7,064
    )Accumulated other comprehensive income
    
    
    21
    
    
    
    21Retained earnings
    
    
    73,753
    
    
    
    59,580Total stockholders equity
    
    
    280,373
    
    
    
    73,186Total liabilities, convertible preferred stock and stockholders equity
    
    $
    434,167
    
    
    $
    212,878
  3




---



##### Table of Contents



QUINSTREET, INC.


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Net revenue
    
    $
    90,773
    
    
    $
    69,813
    
    
    $
    246,288
    
    
    $
    192,726Cost of revenue (1)
    
    
    66,268
    
    
    
    46,780
    
    
    
    177,872
    
    
    
    135,030Gross profit
    
    
    24,505
    
    
    
    23,033
    
    
    
    68,416
    
    
    
    57,696Operating expenses: (1)Product development
    
    
    5,325
    
    
    
    3,512
    
    
    
    14,534
    
    
    
    10,992Sales and marketing
    
    
    4,575
    
    
    
    3,594
    
    
    
    12,190
    
    
    
    12,017General and administrative
    
    
    4,467
    
    
    
    2,865
    
    
    
    14,111
    
    
    
    9,772Operating income
    
    
    10,138
    
    
    
    13,062
    
    
    
    27,581
    
    
    
    24,915Interest income
    
    
    16
    
    
    
    44
    
    
    
    33
    
    
    
    221Interest expense
    
    
    (1,302
    )
    
    
    (879
    )
    
    
    (2,931
    )
    
    
    (2,749
    )Other income (expense), net
    
    
    (64
    )
    
    
    (16
    )
    
    
    221
    
    
    
    (256
    )Income before income taxes
    
    
    8,788
    
    
    
    12,211
    
    
    
    24,904
    
    
    
    22,131Provision for taxes
    
    
    (3,538
    )
    
    
    (5,818
    )
    
    
    (10,731
    )
    
    
    (10,084
    )Net income
    
    $
    5,250
    
    
    $
    6,393
    
    
    $
    14,173
    
    
    $
    12,047Net income attributable to common stockholdersBasic
    
    $
    3,714
    
    
    $
    2,150
    
    
    $
    6,371
    
    
    $
    3,697Diluted
    
    $
    3,797
    
    
    $
    2,301
    
    
    $
    6,790
    
    
    $
    3,981Net income per share attributable to common stockholdersBasic
    
    $
    0.12
    
    
    $
    0.16
    
    
    $
    0.33
    
    
    $
    0.28Diluted
    
    $
    0.11
    
    
    $
    0.15
    
    
    $
    0.31
    
    
    $
    0.26Weighted average shares used in computing net income per
share attributable to common stockholdersBasic
    
    
    30,795
    
    
    
    13,297
    
    
    
    19,156
    
    
    
    13,287Diluted
    
    
    33,938
    
    
    
    14,890
    
    
    
    22,008
    
    
    
    15,032(1)     Cost of revenue and operating expenses include stock-based compensation expense as follows:Cost of revenue
    
    $
    653
    
    
    $
    470
    
    
    $
    2,143
    
    
    $
    1,477Product development
    
    
    686
    
    
    
    176
    
    
    
    1,570
    
    
    
    494Sales and marketing
    
    
    1,163
    
    
    
    455
    
    
    
    2,504
    
    
    
    1,352General and administrative
    
    
    624
    
    
    
    373
    
    
    
    4,002
    
    
    
    1,061
  4




---



##### Table of Contents



QUINSTREET, INC.


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine Months EndedMarch 31,2010
    
    
    2009Cash flows from operating activitiesNet income
    
    $
    14,173
    
    
    $
    12,047Adjustments to reconcile net income to net cash provided byoperating activities:Depreciation and amortization
    
    
    13,678
    
    
    
    12,386Provision for sales returns and doubtful accounts receivable
    
    
    (234
    )
    
    
    1,363Stock-based compensation
    
    
    10,219
    
    
    
    4,384Excess tax benefits from exercise of stock options
    
    
    (1,821
    )
    
    
    (362
    )Other non-cash adjustments, net
    
    
    567
    
    
    
    560Changes in assets and liabilities, net of effects of acquisitions:Accounts receivable
    
    
    (11,261
    )
    
    
    (6,463
    )Prepaid expenses and other assets
    
    
    (5,251
    )
    
    
    386Other assets, noncurrent
    
    
    (22
    )
    
    
    332Deferred tax assets
    
    
    (123
    )
    
    
    18Accounts payable
    
    
    4,338
    
    
    
    5,643Accrued liabilities
    
    
    5,635
    
    
    
    (3,722
    )Deferred revenue
    
    
    (57
    )
    
    
    (627
    )Deferred tax liabilities
    
    
    134
    
    
    
    Other liabilities, noncurrent
    
    
    (12
    )
    
    
    (43
    )Net cash provided by operating activities
    
    
    29,963
    
    
    
    25,902Cash flows from investing activitiesRestricted cash
    
    
    15
    
    
    
    711Proceeds from sales of property and equipment
    
    
    52
    
    
    
    Capital expenditures
    
    
    (2,159
    )
    
    
    (1,276
    )Business acquisitions, net of notes payable and cash acquired
    
    
    (52,899
    )
    
    
    (19,808
    )Internal software development costs
    
    
    (1,009
    )
    
    
    (813
    )Proceeds from sales and maturities of marketable securities
    
    
    
    
    
    
    2,302Net cash used in investing activities
    
    
    (56,000
    )
    
    
    (18,884
    )Cash flows from financing activitiesNet proceeds from issuance of common stock
    
    
    138,076
    
    
    
    Proceeds from exercise of common stock options
    
    
    1,550
    
    
    
    300Proceeds from bank debt
    
    
    43,300
    
    
    
    8,607Principal payments on bank debt
    
    
    (2,250
    )
    
    
    (2,750
    )Principal payments on acquisition-related notes payable
    
    
    (5,609
    )
    
    
    (6,764
    )Excess tax benefits from exercise of stock options
    
    
    1,821
    
    
    
    362Repurchases of common stock
    
    
    (715
    )
    
    
    (1,369
    )Net cash provided by (used in) financing activities
    
    
    176,173
    
    
    
    (1,614
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    (20
    )Net increase in cash and cash equivalents
    
    
    150,136
    
    
    
    5,384Cash and cash equivalents at beginning of period
    
    
    25,182
    
    
    
    24,953Cash and cash equivalents at end of period
    
    $
    175,318
    
    
    $
    30,337Supplemental disclosure of noncash investing and financing activitiesAccrued stock issuance costs
    
    
    1,273
    
    
    
    Notes payable issued in connection with business acquisitions
    
    
    10,750
    
    
    
    5,891
  5




---



##### Table of Contents



QUINSTREET, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (In thousands, except share and per share data)
 Unaudited)
 1. ORGANIZATION AND DESCRIPTION OF BUSINESS
  Initial Public Offering
    2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
 Principles of Consolidation
  Unaudited Interim Financial Information
   Use of Estimates
  Foreign Currency Translation
  6




---



##### Table of Contents



QUINSTREET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(In thousands, except share and per share data)
(Unaudited)
 Concentrations of Credit Risk
    Revenue Recognition
      Fair Value of Financial Instruments
  Goodwill
   Long-Lived Assets
  7




---



##### Table of Contents



QUINSTREET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(In thousands, except share and per share data)
(Unaudited)
 Internal Software Development Costs
  Stock-Based Compensation
     Comprehensive Income
   Income Taxes
  Recent Accounting Pronouncements
   
    
    provide updated guidance on whether multiple deliverables exist, how the
deliverables in an arrangement should be separated, and how the consideration should be
allocated;
 
    
    require an entity to allocate revenue in an arrangement using estimated selling
price (ESP) of deliverables if a vendor does not have vendor-specific objective
evidence (VSOE) of selling price or third-party evidence (TPE) of selling price;
 
    
    and eliminate the use of the residual method and require an entity to allocate
revenue using the relative selling price method.
    8




---



##### Table of Contents



QUINSTREET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(In thousands, except share and per share data)
(Unaudited)
 3. NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS AND NET INCOME PER SHARE
    Three
Months Ended  March 31,
    
    

Nine
Months Ended  March 31,2010
    
    
    2009
    
    
    2010
    
    
    2009(In thousands, except per share data)Numerator:Basic:Net income
    
    $
    5,250
    
    
    $
    6,393
    
    
    $
    14,173
    
    
    $
    12,0478% non-cumulative dividends on convertible preferred stock
    
    
    (373
    )
    
    
    (819
    )
    
    
    (2,018
    )
    
    
    (2,457
    )Undistributed earnings allocated to convertible preferred stock
    
    
    (1,163
    )
    
    
    (3,424
    )
    
    
    (5,784
    )
    
    
    (5,893
    )Net income attributable to common stockholders  basic
    
    $
    3,714
    
    
    $
    2,150
    
    
    $
    6,371
    
    
    $
    3,697Diluted:Net income attributable to common stockholders  basic
    
    $
    3,714
    
    
    $
    2,150
    
    
    $
    6,371
    
    
    $
    3,697Undistributed earnings re-allocated to common stock
    
    
    83
    
    
    
    151
    
    
    
    419
    
    
    
    284Net income attributable to common stockholders  diluted
    
    $
    3,797
    
    
    $
    2,301
    
    
    $
    6,790
    
    
    $
    3,981Denominator:Basic:Weighted average shares of common stock used in
computing basic net income per share
    
    
    30,795
    
    
    
    13,297
    
    
    
    19,156
    
    
    
    13,287Diluted:Weighted average shares of common stock used in
computing basic net income per share
    
    
    30,795
    
    
    
    13,297
    
    
    
    19,156
    
    
    
    13,287Add weighted average effect of dilutive securities:Stock options
    
    
    3,143
    
    
    
    1,593
    
    
    
    2,852
    
    
    
    1,745Weighted average shares of common stock
used in computing diluted net income per share
    
    
    33,938
    
    
    
    14,890
    
    
    
    22,008
    
    
    
    15,032Net income per common share:Basic
    
    $
    0.12
    
    
    $
    0.16
    
    
    $
    0.33
    
    
    $
    0.28Diluted
    
    $
    0.11
    
    
    $
    0.15
    
    
    $
    0.31
    
    
    $
    0.26
  9




---



##### Table of Contents



QUINSTREET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(In thousands, except share and per share data)
(Unaudited)
 4. FAIR VALUE MEASUREMENTS
   Level 1 
    
    Inputs are unadjusted quoted prices in active markets for identical assets or
liabilities.
 Level 2 
    
    Inputs are quoted prices for similar assets and liabilities in active markets or
inputs that are observable for the asset or liability, either directly or
indirectly through market corroboration, for substantially the full term of
the financial instrument.
 Level 3 
    
    Inputs are unobservable inputs based on the Companys assumptions.
  Quoted Prices inActive Marketsfor Identical AssetsTotal
    
    
    (Level 1)Assets:Money market funds
    
    $
    8,054
    
    
    $
    8,054Balance at June 30, 2009
    
    $
    8,054
    
    
    $
    8,054Assets:Money market funds
    
    $
    147,078
    
    
    $
    147,078Balance at March 31, 2010
    
    $
    147,078
    
    
    $
    147,078
 5. ACQUISITIONS
 Acquisition of Internet.com
  AmountCash
    
    $
    16,000Fair value of debt (net of $46 of imputed interest)
    
    
    1,954$
    17,954
  10




---



##### Table of Contents



QUINSTREET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(In thousands, except share and per share data)
(Unaudited)
 Estimated
    
    
    EstimatedFair Value
    
    
    Useful LifeTangible assets acquired
    
    $
    2,663Liabilities assumed
    
    
    (634
    )Customer relationships
    
    
    1,900
    
    
    7 yearsWebsite/trade/domain names
    
    
    2,500
    
    
    5 yearsContent
    
    
    4,300
    
    
    4 yearsNoncompete agreements
    
    
    200
    
    
    2 yearsGoodwill
    
    
    7,025
    
    
    Indefinite$
    17,954
 Acquisition of Insure.com
  AmountCash
    
    $
    15,000Fair value of debt (net of $24 of imputed interest)
    
    
    976$
    15,976
  Estimated
    
    
    EstimatedFair Value
    
    
    Useful LifeNoncompete agreements
    
    $
    900
    
    
    3 yearsWebsite/trade/domain names
    
    
    1,250
    
    
    8 yearsContent
    
    
    3,900
    
    
    8 yearsGoodwill
    
    
    9,926
    
    
    Indefinite$
    15,976
 Acquisition of Payler Corp. D/B/A HSH Associates Financial Publishers (HSH)
  AmountCash
    
    $
    6,000Fair value of debt (net of $241 of imputed interest)
    
    
    3,759$
    9,759
  11




---



##### Table of Contents



QUINSTREET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(In thousands, except share and per share data)
(Unaudited)
 Estimated
    
    
    EstimatedFair Value
    
    
    Useful LifeTangible assets acquired
    
    $
    50Liabilities assumed
    
    
    (1,695
    )Advertiser relationships
    
    
    1,100
    
    
    3 yearsWebsite/trade/domain names
    
    
    800
    
    
    6 yearsContent
    
    
    1,400
    
    
    6 yearsGoodwill
    
    
    8,104
    
    
    Indefinite$
    9,759
 Acquisition of U.S. Citizens for Fair Credit Card Terms, Inc. (CardRatings)
  AmountCash
    
    $
    10,372Fair value of debt (net of $722 of imputed interest)
    
    
    4,278Acquisition-related costs
    
    
    20$
    14,670
  Estimated
    
    
    EstimatedFair Value
    
    
    Useful LifeTangible assets acquired
    
    $
    834Liabilities assumed
    
    
    (206
    )Advertiser relationships
    
    
    2,325
    
    
    7 yearsWebsite/trade/domain names
    
    
    776
    
    
    5 yearsNoncompete agreements
    
    
    124
    
    
    3 yearsContent
    
    
    140
    
    
    2 yearsGoodwill
    
    
    10,677
    
    
    Indefinite$
    14,670
 Other Acquisitions
  AmountCash
    
    $
    14,598Fair value of debt (net of $295 in imputed interest)
    
    
    4,061$
    18,659
 12




---



##### Table of Contents



QUINSTREET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(In thousands, except share and per share data)
(Unaudited)
  Estimated
    
    
    EstimatedFair Value
    
    
    Useful LifeTangible
assets acquired
    
    $
    1Content
    
    
    2,526
    
    
    1-6 yearsCustomer / publisher relationships
    
    
    687
    
    
    1-7 yearsWebsite/trade/domain names
    
    
    1,101
    
    
    5 yearsNoncompete agreements
    
    
    141
    
    
    2-3 yearsAcquired technology
    
    
    199
    
    
    3 yearsGoodwill
    
    
    14,004
    
    
    Indefinite$
    18,659
  AmountCash
    
    $
    14,606Fair value of debt (net of $395 of imputed interest)
    
    
    3,873Acquisition-related costs
    
    
    134$
    18,613
  Estimated
    
    
    EstimatedFair Value
    
    
    Useful LifeLiabilities assumed
    
    $
    (22
    )Content
    
    
    2,538
    
    
    1-6 yearsCustomer/publisher relationships
    
    
    1,952
    
    
    1-7 yearsWebsite/trade/domain names
    
    
    2,418
    
    
    5 yearsNoncompete agreements
    
    
    236
    
    
    5 yearsAcquired technology
    
    
    392
    
    
    3 yearsGoodwill
    
    
    11,099
    
    
    Indefinite$
    18,613
 Pro Forma Financial Information
  13




---



##### Table of Contents



QUINSTREET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(In thousands, except share and per share data)
(Unaudited)
 Three Months Ended
    
    Nine Months EndedMarch 31,
    
    March 31,2010
    
    2009
    
    2010
    
    2009Total revenue
    
    $
    91,518
    
    
    $
    75,003
    
    
    $
    254,277
    
    
    $
    208,825Net income
    
    
    5,220
    
    
    
    4,459
    
    
    
    15,219
    
    
    
    9,903Basic net income per share
    
    $
    0.12
    
    
    $
    0.11
    
    
    $
    0.36
    
    
    $
    0.22Diluted net income per share
    
    $
    0.11
    
    
    $
    0.10
    
    
    $
    0.34
    
    
    $
    0.21
 6. INTANGIBLE ASSETS, NET
  March 31, 2010
    
    
    June 30, 2009Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountCustomer/publisher relationships
    
    $
    26,669
    
    
    $
    (9,472
    )
    
    $
    17,197
    
    
    $
    22,982
    
    
    $
    (6,299
    )
    
    $
    16,683Content
    
    
    30,271
    
    
    
    (15,039
    )
    
    
    15,232
    
    
    
    18,145
    
    
    
    (10,546
    )
    
    
    7,599Website/trade/domain names
    
    
    14,838
    
    
    
    (4,400
    )
    
    
    10,438
    
    
    
    9,187
    
    
    
    (2,988
    )
    
    
    6,199Acquired technology and other
    
    
    11,474
    
    
    
    (8,517
    )
    
    
    2,957
    
    
    
    10,034
    
    
    
    (6,525
    )
    
    
    3,509$
    83,252
    
    
    $
    (37,428
    )
    
    $
    45,824
    
    
    $
    60,348
    
    
    $
    (26,358
    )
    
    $
    33,990
   Year Ending June 30,2010 (remaining three months)
    
    $
    5,5022011
    
    
    13,1222012
    
    
    10,5942013
    
    
    7,8972014
    
    
    3,7952015
    
    
    2,578Thereafter
    
    
    2,336$
    45,824
 7. GOODWILL
  DMS
    
    
    DSS
    
    
    TotalBalance at June 30, 2009
    
    $
    105,513
    
    
    $
    1,231
    
    
    $
    106,744Additions
    
    
    39,059
    
    
    
    
    
    
    
    39,059Balance at March 31, 2010
    
    $
    144,572
    
    
    $
    1,231
    
    
    $
    145,803
  14




---



##### Table of Contents



QUINSTREET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(In thousands, except share and per share data)
(Unaudited)
 8. DEBT
 Promissory Notes
  Term Loan and Revolving Credit Facility
           15




---



##### Table of Contents



QUINSTREET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(In thousands, except share and per share data)
(Unaudited)
 Debt Maturities
  Term loan andrevolvingNotes
    
    
    creditYear Ending June 30,
    
    Payable
    
    
    line2010 (remaining three months)
    
    $
    2,400
    
    
    $
    8502011
    
    
    14,419
    
    
    
    3,9632012
    
    
    6,204
    
    
    
    7,0002013
    
    
    2,834
    
    
    
    12,6882014
    
    
    2,273
    
    
    
    52,2532015
    
    
    500
    
    
    
    28,630
    
    
    
    76,754Less: imputed interest and unamortized discounts
    
    
    (1,288
    )
    
    
    (1,364
    )Less: current portion
    
    
    (14,955
    )
    
    
    (3,141
    )Noncurrent portion of debt
    
    $
    12,387
    
    
    $
    72,249
 Letters of Credit
    9. COMMITMENTS AND CONTINGENCIES
 Leases
   OperatingYear Ending June 30,
    
    Leases2010 (remaining three months)
    
    $
    7832011
    
    
    1,4592012
    
    
    1,1462013
    
    
    2,0732014
    
    
    2,3322015
    
    
    2,379Thereafter
    
    
    8,269$
    18,441
 16




---



##### Table of Contents



QUINSTREET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(In thousands, except share and per share data)
(Unaudited)
     Guarantor Arrangements
     17




---



##### Table of Contents



QUINSTREET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(In thousands, except share and per share data)
(Unaudited)
 Litigation
     10. EQUITY BENEFIT PLANS
        Three Months Ended
    
    Nine Months EndedMarch 31,
    
    March 31,2010
    
    2009
    
    2010
    
    2009Risk-free interest rate
    
    
    2.43
    %
    
    
    1.76
    %
    
    
    2.39
    %
    
    
    2.81
    %Expected term (years)
    
    
    4.6
    
    
    
    4.6
    
    
    
    4.6
    
    
    
    4.6Expected volatility
    
    
    56
    %
    
    
    70
    %
    
    
    67
    %
    
    
    62
    %Expected
dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
  18




---



##### Table of Contents



QUINSTREET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(In thousands, except share and per share data)
(Unaudited)
 11. STOCKHOLDERS EQUITY
     Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income
    
    $
    5,250
    
    
    $
    6,393
    
    
    $
    14,173
    
    
    $
    12,047Other comprehensive income (loss)Foreign currency translation adjustment
    
    
    8
    
    
    
    (26
    )
    
    
    
    
    
    
    14Comprehensive income
    
    $
    5,258
    
    
    $
    6,367
    
    
    $
    14,173
    
    
    $
    12,061
 12. SEGMENT INFORMATION
     19




---



##### Table of Contents



QUINSTREET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(In thousands, except share and per share data)
(Unaudited)
  Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Net revenue by segment:DMS
    
    $
    90,511
    
    
    $
    68,925
    
    
    $
    244,841
    
    
    $
    190,208DSS
    
    
    262
    
    
    
    888
    
    
    
    1,447
    
    
    
    2,518Total net revenue
    
    
    90,773
    
    
    
    69,813
    
    
    
    246,288
    
    
    
    192,726Segment operating income before depreciation, amortization, and stock-based
compensation expense:DMS
    
    
    18,266
    
    
    
    18,085
    
    
    
    50,672
    
    
    
    40,425DSS
    
    
    73
    
    
    
    486
    
    
    
    806
    
    
    
    1,260Total segment operating income before depreciation, amortization, and stock-based
compensation expense
    
    
    18,339
    
    
    
    18,571
    
    
    
    51,478
    
    
    
    41,685Depreciation and amortization
    
    
    5,075
    
    
    
    4,035
    
    
    
    13,678
    
    
    
    12,386Stock-based compensation expense
    
    
    3,126
    
    
    
    1,474
    
    
    
    10,219
    
    
    
    4,384Operating income
    
    $
    10,138
    
    
    $
    13,062
    
    
    $
    27,581
    
    
    $
    24,915
  Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Net revenue:North America
    
    $
    90,764
    
    
    $
    69,769
    
    
    $
    245,754
    
    
    $
    192,498Europe
    
    
    9
    
    
    
    44
    
    
    
    534
    
    
    
    228Total net revenue
    
    $
    90,773
    
    
    $
    69,813
    
    
    $
    246,288
    
    
    $
    192,726
 March 31,
    
    
    June 30,2010
    
    
    2009Assets:North America
    
    $
    433,074
    
    
    $
    211,337Europe
    
    
    488
    
    
    
    927Asia/Pacific
    
    
    605
    
    
    
    614Total assets
    
    $
    434,167
    
    
    $
    212,878Long-lived assets:North America
    
    $
    5,176
    
    
    $
    4,485Europe
    
    
    
    
    
    
    35Asia/Pacific
    
    
    175
    
    
    
    221Total long-lived assets
    
    $
    5,351
    
    
    $
    4,741
 20




---



##### Table of Contents



ITEM 2. MANAGEMENTS 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 read in conjunction with our condensed consolidated financial statements and related
notes appearing elsewhere in this Quarterly Report on Form 10-Q and our prospectus filed pursuant
to Rule 424(b) under the Securities Act with the SEC on February 11, 2010.
 This quarterly report on Form 10-Q contains forward-looking statements that involve risks
and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could
cause our results to differ materially from those expressed or implied by such forward-looking
statements. The statements contained in this Quarterly Report on Form 10-Q that are not purely
historical are forward-looking statements within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements are often identified by the use of words such as, but not limited to,
anticipate, believe, can, continue, could, estimate, expect, intend, may, will,
plan, project, seek, should, target, will, would, and similar expressions or
variations intended to identify forward-looking statements. These statements are based on the
beliefs and assumptions of our management based on information currently available to management.
Such forward-looking statements are subject to risks, uncertainties and other important factors
that could cause actual results and the timing of certain events to differ materially from future
results expressed or implied by such forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those identified below, and those
discussed in the section titled Risk Factors included in our prospectus filed pursuant to Rule
424(b) under the Securities Act with the Securities and Exchange Commission on February 11, 2010.
Furthermore, such forward-looking statements speak only as of the date of this report. Except as
required by law, we undertake no obligation to update any forward-looking statements to reflect
events or circumstances after the date of such statements.
 Management Overview
   
    
    We own or access targeted media;
    
    We run advertisements or other forms of marketing messages and programs in that media to create visitor responses or clicks through to client offerings;
    
    We match these responses or clicks to client offerings or brands that meet visitor interests or needs, converting visitors into qualified leads or clicks; and
    
    We optimize client matches and media yield such that we achieve desired results for clients and a sound financial outcome for us.
       Trends Affecting our Business
 Seasonality
  21




---



##### Table of Contents



Acquisitions
    Client Verticals
  Development and Acquisition of Vertical Media
  Basis of Presentation
 General
  Net Revenue
 DMS.
 DSS.
 Cost of Revenue
   Operating Expenses
  Product Development.
 Sales and Marketing.
 22




---



##### Table of Contents



General and Administrative.
 Interest and Other Income (Expense), Net
  Income Tax Expense
    Critical Accounting Policies, Estimates and Judgments
     
    
    Revenue recognition;
    
    Goodwill;
    
    Long-lived assets;
    
    Internal software development costs;
    
    Stock-based compensation; and
    
    Income taxes.
  23




---



##### Table of Contents



Results of Operations
  Three Months Ended March 31,

        

    Nine Months Ended March 31,2010

    

     
    
    2009
    
    
 

    2010
     
 


    


    2009(In
thousands)Net revenue
    
    $
    90,773
    
    
    
    100.0
    %
    
    $
    69,813
    
    
    
    100.0
    %
    
    $
    246,288
    
    
    
    100.0
    %
    
    $
    192,726
    
    
    
    100.0
    %Cost of revenue (1)
    
    
    66,268
    
    
    
    73.0
    
    
    
    46,780
    
    
    
    67.0
    
    
    
    177,872
    
    
    
    72.2
    
    
    
    135,030
    
    
    
    70.1Gross profit
    
    
    24,505
    
    
    
    27.0
    
    
    
    23,033
    
    
    
    33.0
    
    
    
    68,416
    
    
    
    27.8
    
    
    
    57,696
    
    
    
    29.9Operating expenses (1):Product development
    
    
    5,325
    
    
    
    5.9
    
    
    
    3,512
    
    
    
    5.0
    
    
    
    14,534
    
    
    
    5.9
    
    
    
    10,992
    
    
    
    5.7Sales and marketing
    
    
    4,575
    
    
    
    5.0
    
    
    
    3,594
    
    
    
    5.2
    
    
    
    12,190
    
    
    
    5.0
    
    
    
    12,017
    
    
    
    6.2General and administrative
    
    
    4,467
    
    
    
    4.9
    
    
    
    2,865
    
    
    
    4.1
    
    
    
    14,111
    
    
    
    5.7
    
    
    
    9,772
    
    
    
    5.1Operating income
    
    
    10,138
    
    
    
    11.2
    
    
    
    13,062
    
    
    
    18.7
    
    
    
    27,581
    
    
    
    11.2
    
    
    
    24,915
    
    
    
    12.9Interest income
    
    
    16
    
    
    
    0.0
    
    
    
    44
    
    
    
    0.1
    
    
    
    33
    
    
    
    0.0
    
    
    
    221
    
    
    
    0.1Interest expense
    
    
    (1,302
    )
    
    
    (1.4
    )
    
    
    (879
    )
    
    
    (1.3
    )
    
    
    (2,931
    )
    
    
    (1.2
    )
    
    
    (2,749
    )
    
    
    (1.4
    )Other income (expense), net
    
    
    (64
    )
    
    
    (0.1
    )
    
    
    (16
    )
    
    
    (0.0
    )
    
    
    221
    
    
    
    0.1
    
    
    
    (256
    )
    
    
    (0.1
    )Income before income taxes
    
    
    8,788
    
    
    
    9.7
    
    
    
    12,211
    
    
    
    17.5
    
    
    
    24,904
    
    
    
    10.1
    
    
    
    22,131
    
    
    
    11.5Provision for taxes
    
    
    (3,538
    )
    
    
    (3.9
    )
    
    
    (5,818
    )
    
    
    (8.3
    )
    
    
    (10,731
    )
    
    
    (4.3
    )
    
    
    (10,084
    )
    
    
    (5.2
    )Net income
    
    $
    5,250
    
    
    
    5.8
    %
    
    $
    6,393
    
    
    
    9.2
    %
    
    $
    14,173
    
    
    
    5.8
    %
    
    $
    12,047
    
    
    
    6.3
    %(1)    Cost of revenue and operating expenses include stock-based compensation expense as follows:Cost of revenue
    
    $
    653
    
    

    
    
    

$
    470
    
    

    
    
    

$
    2,143
    
    

    
    
    

$
    1,477Product development
    
    
    686
    
    
    

    
    
    

    176
    
    
    

    
    
    

    1,570
    
    
    

    
    
    

    494Sales and marketing
    
    
    1,163
    
    
    

    
    
    

    455
    
    
    

    
    
    

    2,504
    
    
    

    
    
    

    1,352General and administrative
    
    
    624
    
    
    

    
    
    

    373
    
    
    

    
    
    

    4,002
    
    
    

    
    
    

    1,061
 Net Revenue
 Three Months Ended
    
    
    Nine Months Ended
    
    
    Three-
    
    
    Nine-March 31,
    
    
    March 31,
    
    
    Month
    
    
    Month2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    % Change
    
    
    % Change(In thousands)Net revenue
    
    $
    90,773
    
    
    $
    69,813
    
    
    $
    246,288
    
    
    $
    192,726
    
    
    
    30
    %
    
    
    28
    %Cost of revenue
    
    
    66,268
    
    
    
    46,780
    
    
    
    177,872
    
    
    
    135,030
    
    
    
    42
    %
    
    
    32
    %
   24




---



##### Table of Contents



Cost of Revenue
   Operating Expenses
 Three Months Ended
    
    
    Nine Months Ended
    
    
    Three-
    
    
    Nine-March 31,
    
    
    March 31,
    
    
    Month
    
    
    Month2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    % Change
    
    
    % Change(In thousands)Product development
    
    $
    5,325
    
    
    $
    3,512
    
    
    $
    14,534
    
    
    $
    10,992
    
    
    
    52
    %
    
    
    32
    %Sales and marketing
    
    
    4,575
    
    
    
    3,594
    
    
    
    12,190
    
    
    
    12,017
    
    
    
    27
    %
    
    
    1
    %General and administrative
    
    
    4,467
    
    
    
    2,865
    
    
    
    14,111
    
    
    
    9,772
    
    
    
    56
    %
    
    
    44
    %Operating expenses
    
    $
    14,367
    
    
    $
    9,971
    
    
    $
    40,835
    
    
    $
    32,781
    
    
    
    44
    %
    
    
    25
    %
 Product Development Expenses
   Sales and Marketing Expenses
   General and Administrative Expenses
   25




---



##### Table of Contents



Interest and Other Income (Expense), Net
 Three Months Ended
    
    
    Nine Months Ended
    
    
    Three-
    
    
    Nine-March 31,
    
    
    March 31,
    
    
    Month
    
    
    Month2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    % Change
    
    
    % Change(In thousands)Interest income
    
    $
    16
    
    
    $
    44
    
    
    $
    33
    
    
    $
    221
    
    
    
    (64)
    %
    
    
    (85
    )%Interest expense
    
    
    (1,302
    )
    
    
    (879
    )
    
    
    (2,931
    )
    
    
    (2,749
    )
    
    
    48
    %
    
    
    7
    %Other income (expense), net
    
    
    (64
    )
    
    
    (16
    )
    
    
    221
    
    
    
    (256
    )
    
    
    (300)
    %
    
    
    186
    %$
    (1,350
    )
    
    $
    (851
    )
    
    $
    (2,677
    )
    
    $
    (2,784
    )
    
    
    (59)
    %
    
    
    4
    %
   Provision for Taxes
 Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2010
    
    
    2009
    
    
    2010
    
    
    2009(In thousands)Provision for taxes
    
    $
    3,538
    
    
    $
    5,818
    
    
    $
    10,731
    
    
    $
    10,084Effective tax rate
    
    
    40
    %
    
    
    48
    %
    
    
    43
    %
    
    
    46
    %
  Liquidity and Capital Resources
   Net Cash Provided by Operating Activities
    26




---



##### Table of Contents



Net Cash Used in Investing Activities
     Net Cash Provided by or Used in Financing Activities
   Off-Balance Sheet Arrangements
  Contractual Obligations
  New
Credit Facility
      New Lease
  27




---



##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Foreign Currency Exchange Risk
  Interest Rate Risk
   
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  28




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1A. RISK FACTORS
 Investing in our common stock involves a high degree of risk. You should carefully
consider the risks described below and the other information in this Quarterly Report on Form 10-Q .
If any of such risks actually occur, our business, operating results or financial condition could
be adversely affected. In those cases, the trading price of our common stock could decline and you
may lose all or part of your investment.
 Risks Related to Our Business and Industry
 We operate in an immature industry and have a relatively new business model, which makes it
difficult to evaluate our business and prospects.
  
    
    maintain and expand client relationships;
    
    sustain and increase the number of visitors to our websites;
    
    sustain and grow relationships with third-party website publishers and other sources of web visitors;
    
    manage our expanding operations and implement and improve our operational, financial and management controls;
    
    raise capital at attractive costs, or at all;
    
    acquire and integrate websites and other businesses;
    
    successfully expand our footprint in our existing client verticals and enter new client verticals;
    
    respond effectively to competition and potential negative effects of competition on profit margins;
    
    attract and retain qualified management, employees and independent service providers;
    
    successfully introduce new processes and technologies and upgrade our existing technologies and services;
    
    protect our proprietary technology and intellectual property rights; and
    
    respond to government regulations relating to the Internet, personal data protection, email, software technologies and other aspects of our business.
  If we do not effectively manage our growth, our operating performance will suffer and we may lose
clients.
  
    
    successfully scale our technology to accommodate a larger business and integrate acquisitions;
    
    maintain our standing with key vendors, including Internet search companies and third-party website publishers;
    
    maintain our client service standards; and
    
    develop and improve our operational, financial and management controls and maintain adequate reporting systems and procedures.
  We depend upon Internet search companies to attract a significant portion of the visitors to our
websites, and any change in the search companies search algorithms or perception of us or our
industry could result in our websites being listed less prominently in either paid or algorithmic
search result listings, in which case the number of visitors to our websites and our revenue could
decline.
  29




---



##### Table of Contents



Our future growth depends in part on our ability to identify and complete acquisitions.
  Any acquisitions that we complete will involve a number of risks. If we are unable to address
and resolve these risks successfully, such acquisitions could harm our business, results of
operations and financial condition.
  
    
    diversion of management time and potential business disruptions;
    
    difficulties integrating and supporting acquired products or technologies;
    
    expenses, distractions and potential claims resulting from acquisitions, whether or not they are completed;
    
    retaining and integrating employees from any businesses we may acquire;
    
    issuance of dilutive equity securities, incurrence of debt or reduction in cash balances;
    
    integrating various accounting, management, information, human resource and other systems to permit effective management;
    
    incurring possible impairment charges, contingent liabilities, amortization expense or write-offs of goodwill;
    
    unexpected capital expenditure requirements;
    
    insufficient revenue to offset increased expenses associated with acquisitions;
    
    underperformance problems associated with acquisitions; and
    
    becoming involved in acquisition-related litigation.
  A substantial portion of our revenue is generated from a limited number of clients and, if we lose
a major client, our revenue will decrease and our business and prospects would be adversely
impacted.
  We are dependent on two market verticals for a majority of our revenue.
   30




---



##### Table of Contents



If we are unable to retain the members of our management team or attract and retain qualified
management team members in the future, our business and growth could suffer.
  We need to hire and retain additional qualified personnel to grow and manage our business. If we
are unable to attract and retain qualified personnel, our business and growth could be seriously
harmed.
  We depend on third-party website publishers for a significant portion of our visitors, and any
decline in the supply of media available through these websites or increase in the price of this
media could cause our revenue to decline or our cost to reach visitors to increase.
  We have incurred a significant amount of debt, which may limit our ability to fund general
corporate requirements and obtain additional financing, limit our flexibility in responding to
business opportunities and competitive developments and increase our vulnerability to adverse
economic and industry conditions.
  
    
    we may not have sufficient liquidity to respond to business opportunities, competitive developments and adverse economic conditions;
    
    we may not have sufficient liquidity to fund all of these costs if our revenue declines or costs increase; and
    
    we may not have sufficient funds to repay the principal balance of our debt when due.
  The severe economic downturn in the United States poses additional risks to our business, financial
condition and results of operations.
  31




---



##### Table of Contents



Our operating results have fluctuated in the past and may do so in the future, which makes our
results of operations difficult to predict and could cause our operating results to fall short of
analysts and investors expectations.
  
    
    changes in demand and pricing for our services;
    
    changes in our pricing policies, the pricing policies of our competitors, or the pricing of Internet advertising or media;
    
    the addition of new clients or the loss of existing clients;
    
    changes in our clients advertising agencies or the marketing strategies our clients or their advertising agencies employ;
    
    changes in the economic prospects of our clients or the economy generally, which could alter current or prospective
clients spending priorities, or could increase the time or costs required to complete sales with clients;
    
    changes in the availability of Internet advertising or the cost to reach Internet visitors;
    
    changes in the placement of our websites on search engines;
    
    the introduction of new product or service offerings by our competitors; and
    
    costs related to acquisitions of businesses or technologies.
 Our quarterly revenue and operating results may fluctuate significantly from quarter to quarter due
to seasonal fluctuations in advertising spending.
  We may need additional capital in the future to meet our financial obligations and to pursue our
business objectives. Additional capital may not be available or may not be available on favorable
terms and our business and financial condition could therefore be adversely affected.
  If we fail to compete effectively against other online marketing and media companies and other
competitors, we could lose clients and our revenue may decline.
   
    
    online marketing or media services providers such as Monster Worldwide in the education vertical and Bankrate in financial services;
    
    offline and online advertising agencies;
    
    major Internet portals and search engine companies with advertising networks such as Google, Yahoo!, MSN, and AOL;
    
    other online marketing service providers, including online affiliate advertising networks and industry-specific portals or lead generation companies;
    
    website publishers with their own sales forces that sell their online marketing services directly to clients;
    
    in-house marketing groups at current or potential clients;
    
    offline direct marketing agencies; and
    
    television, radio and print companies.
 32




---



##### Table of Contents



If the market for online marketing services fails to continue to develop, our future growth may
be limited and our revenue may decrease.
  Third-party website publishers can engage in unauthorized or unlawful acts that could subject us to
significant liability or cause us to lose clients.
  Poor perception of our business or industry as a result of the actions of third parties could harm
our reputation and adversely affect our business, financial condition and results of operations.
  Because many of our client contracts can be cancelled by the client with little prior notice or
penalty, the cancellation of one or more contracts could result in an immediate decline in our
revenue.
  Unauthorized access to or accidental disclosure of consumer personally-identifiable information
that we collect may cause us to incur significant expenses and may
negatively affect our
credibility and business.
  If we do not adequately protect our intellectual property rights, our competitive position and
business may suffer.
    33




---



##### Table of Contents



Confidentiality agreements with employees, consultants and others may not adequately prevent
disclosure of trade secrets and other proprietary information.
  Third parties may sue us for intellectual property infringement which, if successful, could
require us to pay significant damages or curtail our offerings.
   Our proprietary technologies may include design or performance defects and may not achieve their
intended results, either of which could impair our future revenue growth.
  If we fail to keep pace with rapidly-changing technologies and industry standards, we could lose
clients or advertising inventory and our results of operations may suffer.
  Changes in government regulation and industry standards applicable to the Internet and our business
could decrease demand for our technologies and services or increase our costs.
    34




---



##### Table of Contents



New tax treatment of companies engaged in Internet commerce may adversely affect the commercial use
of our marketing services and our financial results.
  Limitations on our ability to collect and use data derived from user activities could significantly
diminish the value of our services and cause us to lose clients and revenue.
  As a creator and a distributor of Internet content, we face potential liability and expenses for
legal claims based on the nature and content of the materials that we create or distribute. If we
are required to pay damages or expenses in connection with these legal claims, our operating
results and business may be harmed.
  Wireless devices and mobile phones are increasingly being used to access the Internet, and our
online marketing services may not be as effective when accessed through these devices, which could
cause harm to our business.
  We may not succeed in expanding our businesses outside the United States, which may limit our
future growth.
  
    
    the adaptation of technologies and services to foreign clients preferences and customs;
 35




---



##### Table of Contents




    
    application of foreign laws and regulations to us, including marketing and privacy regulations;
    
    changes in foreign political and economic conditions;
    
    tariffs and other trade barriers, fluctuations in currency exchange rates and potentially adverse tax consequences;
    
    language barriers or cultural differences;
    
    reduced or limited protection for intellectual property rights in foreign jurisdictions;
    
    difficulties and costs in staffing, managing or overseeing foreign operations; and
    
    education of potential clients who may not be familiar with online marketing.
  We rely on Internet bandwidth and data center providers and other third parties for key aspects of
the process of providing services to our clients, and any failure or interruption in the services
and products provided by these third parties could harm our business.
   Interruption or failure of our information technology and communications systems could impair our
ability to effectively deliver our services, which could cause us to lose clients and harm our
operating results.
    Any constraints on the capacity of our technology infrastructure could delay the effectiveness of
our operations or result in system failures, which would result in the loss of clients and harm our
business and results of operations.
  We could lose clients if we fail to detect click-through or other fraud on advertisements in a
manner that is acceptable to our clients.
  We incur significant costs as a result of operating as a public company, which may adversely
affect our operating results and financial condition.
  36




---



##### Table of Contents



If we fail to maintain proper and effective internal controls, our ability to produce accurate
financial statements on a timely basis could be impaired, which would adversely affect our ability
to operate our business.
  Risks Related to the Ownership of Our Common Stock
 Our stock price may be volatile, and you may not be able to resell shares of our common stock at or
above the price you paid.
  
    
    changes in earnings estimates or recommendations by securities analysts;
    
    announcements by us or our competitors of new services, significant contracts, commercial relationships, acquisitions or capital commitments;
    
    developments with respect to intellectual property rights;
    
    our ability to develop and market new and enhanced products on a timely basis;
    
    our commencement of, or involvement in, litigation;
    
    changes in governmental regulations or in the status of our regulatory approvals; and
    
    a slowdown in our industry or the general economy.
  If securities or industry analysts do not publish research or reports about our business, or if
they issue an adverse or misleading opinion regarding our stock, our stock price and trading volume
could decline.
  Our directors, executive officers and principal stockholders and their respective affiliates have
substantial control over us and could delay or prevent a change in corporate control.
  
    
    delaying, deferring or preventing a change in corporate control;
    
    impeding a merger, consolidation, takeover or other business combination involving us; or
 37




---



##### Table of Contents




    
    discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.
 Future sales of shares by existing stockholders could cause our stock price to decline.
   We have broad discretion to determine how to use the funds raised in our initial public offering
and may use them in ways that may not enhance our operating results or the price of our common
stock.
  Provisions in our charter documents under Delaware law and in contractual obligations, could
discourage a takeover that stockholders may consider favorable and may lead to entrenchment of
management.
  
    
    a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of
our board of directors;
    
    no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
    
    the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the
resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;
    
    the ability of our board of directors to determine to issue shares of preferred stock and to determine the price and other terms of those shares,
including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;
    
    a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;
    
    the requirement that a special meeting of stockholders may be called only by the chairman of the board of directors, the chief executive officer or the
board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of
directors; and
    
    advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be
acted upon at a stockholders meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the
acquirors own slate of directors or otherwise attempting to obtain control of us.
  We do not currently intend to pay dividends on our common stock and, consequently, your ability to
achieve a return on your investment will depend on appreciation in the price of our common stock.
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 Unregistered Sales of Equity Securities
  Use of Proceeds
  38




---



##### Table of Contents



39




---



##### Table of Contents



ITEM 6. EXHIBITS
 ExhibitNumber
    
    Description of Document3.1(1)
    
    Amended and restated certificate of incorporation.3.2(1)
    
    Amended and restated bylaws.4.1(1)
    
    Form of common stock certificate.4.2(1)
    
    Second Amended and Restated Investor Rights Agreement, by and between the registrant, Douglas Valenti and the investors listed
on Schedule 1 thereto, dated May 28, 2003.10.1
    
    Office Lease Metro Center, dated as of February 24, 2010, between the registrant and CA-Metro Center Limited Partnership.21.1(1)
    
    List of subsidiaries.31.1
    
    Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 (1)
    
    Previously filed as an exhibit to the registrants registration statement on Form S-1 (File No.
333-163228) and incorporated by reference herein. 40




---



##### Table of Contents



SIGNATURES
  QUINSTREET, INC./s/  Kenneth HahnKenneth HahnChief Financial Officer
(Principal Financial Officer and duly authorized signatory) Date: May 12, 2010 41




---



##### Table of Contents



ExhibitNumber
    
    Description of Document3.1(1)
    
    Amended and restated certificate of incorporation.3.2(1)
    
    Amended and restated bylaws.4.1(1)
    
    Form of common stock certificate.4.2(1)
    
    Second Amended and Restated Investor Rights Agreement, by and between the registrant, Douglas Valenti and the investors listed
on Schedule 1 thereto, dated May 28, 2003.10.1
    
    Office Lease Metro Center, dated as of February 24, 2010, between the registrant and CA-Metro Center Limited Partnership.21.1(1)
    
    List of subsidiaries.31.1
    
    Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 (1)
    
    Previously filed as an exhibit to the registrants registration statement on Form S-1
(File No. 333-163228) and incorporated by reference herein. 42