##### 



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 September 30, 2006
 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 number 000-50698
 GREENFIELD ONLINE, INC.
  Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    06-1440369
(I.R.S. Employer Identification No.)
 21 River Road, Wilton, CT 06897
 : (203) 834-8585
 
 x o
  o þ o
 o þ




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##### 



GREENFIELD ONLINE, INC.
FORM 10-Q
TABLE OF CONTENTS
 PagePart I.
    
    Financial InformationItem 1.
    
    Financial StatementsConsolidated Balance Sheets at September 30, 2006(unaudited) and December 31, 2005
    
    
    1Unaudited Consolidated Statements of Operations for thethree and nine months ended September 30, 2006 and 2005
    
    
    2Unaudited Consolidated Statements of Changes inStockholders Equity for the nine months ended September30, 2006
    
    
    3Unaudited Consolidated Statements of Cash Flows for thenine months ended September 30, 2006 and 2005
    
    
    4Notes to Unaudited Consolidated Financial Statements
    
    
    5Item 2.
    
    Managements Discussion and Analysis of FinancialCondition and Results of Operations
    
    
    30Item 3.
    
    Quantitative and Qualitative Disclosures AboutMarket Risk
    
    
    46Item 4.
    
    Controls and Procedures
    
    
    46Part II.
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    
    47Item 1A.
    
    Risk Factors
    
    
    47Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    58Item 3.
    
    Defaults Upon Senior Securities
    
    
    58Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    58Item 5.
    
    Other Information
    
    
    58Item 6.
    
    Exhibits
    
    
    58Signatures
    
    
    
    
    
    
    59Exhibit Index
    
    
    
    
    
    
    60




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##### 



GREENFIELD ONLINE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data
 September 30,
    
    
    December 31,2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    17,382
    
    
    $
    20,623Investments in marketable securities
    
    
    12,608
    
    
    
    Accounts receivable trade, net (net of
allowances of $1,861 and $1,448 at September
30, 2006 and December 31, 2005, respectively)
    
    
    18,991
    
    
    
    18,197Prepaid expenses and other current assets
    
    
    1,870
    
    
    
    1,613Deferred tax assets, current
    
    
    1,743
    
    
    
    1,932Total current assets
    
    
    52,594
    
    
    
    42,365Property and equipment, net
    
    
    6,749
    
    
    
    9,660Other intangible assets, net
    
    
    18,008
    
    
    
    20,077Goodwill
    
    
    69,950
    
    
    
    67,442Deferred tax assets, long-term
    
    
    18,469
    
    
    
    20,068Security deposits and other long-term assets
    
    
    890
    
    
    
    1,248Total assets
    
    $
    166,660
    
    
    $
    160,860LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,734
    
    
    $
    3,264Accrued expenses and other current liabilities
    
    
    13,184
    
    
    
    14,576Income taxes payable
    
    
    5,175
    
    
    
    3,990Current portion of capital lease obligations
    
    
    31
    
    
    
    2,061Deferred revenue
    
    
    366
    
    
    
    388Total current liabilities
    
    
    22,490
    
    
    
    24,279Capital lease obligations
    
    
    25
    
    
    
    2,032Deferred tax liabilities, long term
    
    
    410
    
    
    
    Other long-term liabilities
    
    
    91
    
    
    
    56Total liabilities
    
    
    23,016
    
    
    
    26,367Commitments and contingencies (Note 13)Stockholders equity:Common stock; par value $0.0001 per share;
100,000,000 shares authorized; 25,445,917 and
25,303,088 shares issued and outstanding at
September 30, 2006 and December 31, 2005,
respectively
    
    
    3
    
    
    
    3Additional paid-in capital
    
    
    289,572
    
    
    
    288,707Accumulated deficit
    
    
    (139,692
    )
    
    
    (144,630
    )Unearned stock-based compensation
    
    
    
    
    
    
    (1,284
    )Accumulated other comprehensive loss
    
    
    (6,108
    )
    
    
    (8,172
    )Treasury stock, at costCommon stock  9,643 shares
    
    
    (131
    )
    
    
    (131
    )Total stockholders equity
    
    
    143,644
    
    
    
    134,493Total liabilities and stockholders equity
    
    $
    166,660
    
    
    $
    160,860
  1




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##### 



GREENFIELD ONLINE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net revenues
    
    $
    24,875
    
    
    $
    23,146
    
    
    $
    70,860
    
    
    $
    64,680Cost of revenues
    
    
    5,974
    
    
    
    6,714
    
    
    
    17,082
    
    
    
    18,301Gross profit
    
    
    18,901
    
    
    
    16,432
    
    
    
    53,778
    
    
    
    46,379Operating expenses:Selling, general and administrative
    
    
    11,602
    
    
    
    11,819
    
    
    
    31,854
    
    
    
    29,691Panel acquisition expenses
    
    
    1,351
    
    
    
    1,035
    
    
    
    4,288
    
    
    
    2,322Depreciation and amortization
    
    
    2,427
    
    
    
    1,901
    
    
    
    7,144
    
    
    
    4,704Research and development
    
    
    973
    
    
    
    854
    
    
    
    2,735
    
    
    
    1,770Restructuring charges
    
    
    55
    
    
    
    
    
    
    
    243
    
    
    
    Total operating expenses
    
    
    16,408
    
    
    
    15,609
    
    
    
    46,264
    
    
    
    38,487Operating income
    
    
    2,493
    
    
    
    823
    
    
    
    7,514
    
    
    
    7,892Other income (expense):Interest income (expense), net
    
    
    60
    
    
    
    (251
    )
    
    
    (22
    )
    
    
    (29
    )Other expense, net
    
    
    (16
    )
    
    
    (112
    )
    
    
    (170
    )
    
    
    (131
    )Total other income (expense)
    
    
    44
    
    
    
    (363
    )
    
    
    (192
    )
    
    
    (160
    )Income before income taxes
    
    
    2,537
    
    
    
    460
    
    
    
    7,322
    
    
    
    7,732Provision (benefit) for income taxes
    
    
    694
    
    
    
    (1,091
    )
    
    
    2,384
    
    
    
    (15,411
    )Net income
    
    $
    1,843
    
    
    $
    1,551
    
    
    $
    4,938
    
    
    $
    23,143Net income per share available to common stockholders:Basic
    
    $
    0.07
    
    
    $
    0.06
    
    
    $
    0.19
    
    
    $
    0.97Diluted
    
    $
    0.07
    
    
    $
    0.06
    
    
    $
    0.19
    
    
    $
    0.96Weighted average shares outstanding:Basic
    
    
    25,413
    
    
    
    25,292
    
    
    
    25,359
    
    
    
    23,851Diluted
    
    
    25,986
    
    
    
    25,542
    
    
    
    25,562
    
    
    
    24,219
  2




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##### 



GREENFIELD ONLINE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(In thousands)
 AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    Unearned
    
    
    
    
    
    
    Other
    
    
    TotalCommon Stock
    
    
    Paid-In
    
    
    Treasury Stock
    
    
    Stock Based
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Stockholders'
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Capital
    
    
    Shares
    
    
    Amount
    
    
    Compensation
    
    
    Deficit
    
    
    Income (Loss)
    
    
    Equity
    
    
    IncomeBalance at December 31, 2005
    
    
    25,303
    
    
    $
    3
    
    
    $
    288,707
    
    
    
    9
    
    
    $
    (131
    )
    
    $
    (1,284
    )
    
    $
    (144,630
    )
    
    $
    (8,172
    )
    
    $
    134,493Nine months ended September 30, 2006:Net income for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,938
    
    
    
    
    
    
    
    4,938
    
    
    $
    4,938Issuance of shares related to the Employee Stock Purchase Plan
    
    
    25
    
    
    
    
    
    
    
    125
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125
    
    
    
    Exercise of stock options
    
    
    118
    
    
    
    
    
    
    
    152
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    152
    
    
    
    Adoption of SFAS 123(R)
    
    
    
    
    
    
    
    
    
    
    (1,284
    )
    
    
    
    
    
    
    
    
    
    
    1,284
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unrealized gain on available-for-sale securities, net of related
income tax effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85
    
    
    
    85
    
    
    
    85Translation adjustments, net of related income tax effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,979
    
    
    
    1,979
    
    
    
    1,979Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    7,002Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,872
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,872Balance at September 30, 2006
    
    
    25,446
    
    
    $
    3
    
    
    $
    289,572
    
    
    
    9
    
    
    $
    (131
    )
    
    $
    (
    )
    
    $
    (139,692
    )
    
    $
    (6,108
    )
    
    $
    143,644
  3




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##### 



GREENFIELD ONLINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 Nine Months EndedSeptember 30,2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    4,938
    
    
    $
    23,143Adjustments to reconcile net income to net cash provided by operating activities:Deferred income tax benefit
    
    
    (439
    )
    
    
    (17,211
    )Depreciation and amortization
    
    
    9,349
    
    
    
    6,635Stock-based compensation
    
    
    1,872
    
    
    
    678Restructuring charges
    
    
    243
    
    
    
    Loss on disposal of property and equipment
    
    
    3
    
    
    
    19Provision for doubtful accounts
    
    
    290
    
    
    
    313Changes in assets and liabilities, net:Accounts receivable
    
    
    (407
    )
    
    
    247Deferred project costs
    
    
    192
    
    
    
    (67
    )Other current assets
    
    
    (382
    )
    
    
    (5
    )Security deposits
    
    
    516
    
    
    
    108Other long-term assets
    
    
    (57
    )
    
    
    (490
    )Accounts payable
    
    
    410
    
    
    
    (1,095
    )Accrued expenses and other current liabilities
    
    
    (1,746
    )
    
    
    2,813Income taxes payable
    
    
    1,071
    
    
    
    968Deferred project revenues
    
    
    (23
    )
    
    
    99Net cash provided by operating activities
    
    
    15,830
    
    
    
    16,155Cash flows from investing activities:Purchases of marketable securities
    
    
    (17,388
    )
    
    
    (8,249
    )Sales of marketable securities
    
    
    5,316
    
    
    
    25,649Proceeds from sale of property and equipment
    
    
    30
    
    
    
    Purchases of businesses, net of cash acquired
    
    
    
    
    
    
    (113,645
    )Additions to property and equipment and intangibles
    
    
    (3,201
    )
    
    
    (3,693
    )Net cash used in investing activities
    
    
    (15,243
    )
    
    
    (99,938
    )Cash flows from financing activities:Proceeds from borrowing under credit facility
    
    
    
    
    
    
    18,848Repayments under credit facility
    
    
    
    
    
    
    (2,917
    )Decrease in other long-term liabilities
    
    
    (49
    )
    
    
    (31
    )Proceeds of options exercised
    
    
    152
    
    
    
    244Proceeds of employee stock purchase plan
    
    
    94
    
    
    
    84Contribution to capital
    
    
    
    
    
    
    27Net proceeds from issuance of common stock in connection with business acquisitions
    
    
    
    
    
    
    4,200Principal payments under capital lease obligations
    
    
    (4,300
    )
    
    
    (1,119
    )Net cash (used in) provided by financing activities
    
    
    (4,103
    )
    
    
    19,336Effect of exchange rate changes
    
    
    275
    
    
    
    (237
    )Net decrease in cash and cash equivalents
    
    
    (3,241
    )
    
    
    (64,684
    )Cash and cash equivalents at beginning of the period
    
    
    20,623
    
    
    
    96,082Cash and cash equivalents at end of the period
    
    $
    17,382
    
    
    $
    31,398Supplemental disclosures of cash flow information:Cash paid during the period for:Interest
    
    $
    424
    
    
    $
    842Income taxes
    
    
    1,752
    
    
    
    823Supplemental Schedule of Non-cash Investing and Financing Activities:Purchase of equipment and internal use software financed through capital lease
obligations
    
    $
    263
    
    
    $
    1,532Issuance of common stock for business acquisition
    
    
    
    
    
    
    79,697
  4




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##### 



GREENFIELD ONLINE, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Note 1  Basis of Presentation:
   Reclassifications.
 Note 2  Summary of Significant Accounting Policies:
  Investments in Marketable Securities.
 Stock-based Compensation. Share-Based Payment, 25 Accounting for Stock Issued to Employees
 5




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##### 



Accounting for Stock-Based Compensation
  Transition Election Related to Accounting for Tax Effects of
Share-Based Payment Awards,
 Panelist Incentives.
 Concentration of Credit Risk.
 6




---



##### 



Accounts Receivable Allowances.
 Goodwill.
 Use of Estimates.
 Recently Issued Accounting Pronouncements
    7




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##### 



Note 3  Prepaid Expenses and Other Current Assets:
  September 30,
    
    
    December 31,2006
    
    
    2005Prepaid maintenance and license contracts
    
    $
    295
    
    
    $
    316Prepaid expenses
    
    
    505
    
    
    
    254Prepaid insurance
    
    
    659
    
    
    
    488Deferred project costs
    
    
    192
    
    
    
    378Prepaid taxes
    
    
    104
    
    
    
    136Other
    
    
    115
    
    
    
    41$
    1,870
    
    
    $
    1,613
 8




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##### 



Note 4  Property and Equipment, net:
  EstimatedUseful
    
    
    September 30,
    
    
    December 31,Life-Years
    
    
    2006
    
    
    2005Computer and data processing equipment
    
    
    24
    
    
    $
    13,637
    
    
    $
    14,730Leasehold improvements
    
    
    25
    *
    
    
    1,841
    
    
    
    1,838Furniture and fixtures
    
    
    7-8
    
    
    
    2,657
    
    
    
    2,382Telephone systems
    
    
    4-5
    
    
    
    1,119
    
    
    
    1,121Automobile(s)
    
    
    4
    
    
    
    42
    
    
    
    9919,296
    
    
    
    20,170Less: Accumulated depreciation
    
    
    
    
    
    
    (12,547
    )
    
    
    (10,510
    )Property and equipment, net
    
    
    
    
    
    $
    6,749
    
    
    $
    9,660
 
 *
    
    Lesser of the estimated life of the asset or the life of the underlying lease.    September 30,
    
    
    December 31,2006
    
    
    2005Computer and data processing equipment
    
    $
    50
    
    
    $
    4,717Leasehold improvements
    
    
    
    
    
    
    28Furniture and fixtures
    
    
    
    
    
    
    1,374Telephone system
    
    
    
    
    
    
    975Automobile
    
    
    
    
    
    
    5850
    
    
    
    7,152Accumulated depreciation
    
    
    (33
    )
    
    
    (3,112
    )Assets under capital leases, net
    
    $
    17
    
    
    $
    4,040
 9




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##### 



Note 5  Other Intangible Assets:
  As of September 30, 2006
    
    
    As of December 31, 2005Estimated
    
    
    Gross
    
    
    
    
    
    
    
    
    
    
    GrossUseful
    
    
    Carrying
    
    
    Accumulated
    
    
    Net
    
    
    Carrying
    
    
    Accumulated
    
    
    NetLife-Years
    
    
    Cost
    
    
    Amortization
    
    
    Amount
    
    
    Cost
    
    
    Amortization
    
    
    AmountInternal use software
    
    
    2-3
    
    
    $
    4,703
    
    
    $
    1,915
    
    
    $
    2,788
    
    
    $
    3,321
    
    
    $
    1,777
    
    
    $
    1,544Other software acquired
    
    
    0.42
    
    
    
    159
    
    
    
    159
    
    
    
    
    
    
    
    159
    
    
    
    159
    
    
    
    Panel members*
    
    
    3-4
    
    
    
    6,762
    
    
    
    2,933
    
    
    
    3,829
    
    
    
    6,674
    
    
    
    1,558
    
    
    
    5,116Backlog
    
    
    0.25
    
    
    
    434
    
    
    
    434
    
    
    
    
    
    
    
    419
    
    
    
    419
    
    
    
    Affiliate network
    
    
    3
    
    
    
    347
    
    
    
    188
    
    
    
    159
    
    
    
    347
    
    
    
    87
    
    
    
    260Customer relationships
    
    
    5
    
    
    
    7,437
    
    
    
    2,305
    
    
    
    5,132
    
    
    
    7,015
    
    
    
    1,142
    
    
    
    5,873Non-competition agreements
    
    
    2.75-3
    
    
    
    2,502
    
    
    
    1,390
    
    
    
    1,112
    
    
    
    2,371
    
    
    
    712
    
    
    
    1,659Domain names and service
marks
    
    
    5-10
    
    
    
    6,978
    
    
    
    1,990
    
    
    
    4,988
    
    
    
    6,545
    
    
    
    920
    
    
    
    5,625Other intangible assets, net
    
    
    
    
    
    $
    29,322
    
    
    $
    11,314
    
    
    $
    18,008
    
    
    $
    26,851
    
    
    $
    6,774
    
    
    $
    20,077
 
 *
    
    During the fourth quarter of 2005, we reduced the estimated useful lives of our acquired
panelists from 4-8 years to 3-4 years. We reduced the useful lives based on the accumulation
of additional experience with regard to the duration that, on average, a panel member will
continue to participate in surveys.     10




---



##### 



AmountFor the remaining three months ending December 31, 2006
    
    $
    1,7962007
    
    
    7,2132008
    
    
    5,0612009
    
    
    2,9312010
    
    
    8132011
    
    
    52
  September 30,
    
    
    December 31,2006
    
    
    2005Internal use software
    
    $
    
    
    
    $
    69Accumulated amortization
    
    
    
    
    
    
    (39
    )Assets under capital leases, net
    
    $
    
    
    
    $
    30
 11




---



##### 



Note 6  Goodwill:
   GoodwillBalance as of December 31, 2005
    
    $
    67,442Adjustment *
    
    
    (113
    )Foreign currency translation adjustment
    
    
    2,621Balance as of September 30, 2006
    
    $
    69,950
 
 *
    
    Goodwill has been adjusted to reflect the reversal of certain purchase accounting reserves not
utilized within the twelve month period following the Ciao acquisition. Note 7  Acquisition of Businesses:
 Rapidata.net Acquisition
  12




---



##### 



Zing Wireless Acquisition
  Ciao Acquisition
     
  13




---



##### 



North America
    
    
    EuropegoZing
    
    
    CiaoFebruary 8,
    
    
    April 6,2005
    
    
    2005Cash
    
    $
    833
    
    
    $
    1,775Trade receivables
    
    
    2,330
    
    
    
    5,602Other current assets
    
    
    91
    
    
    
    647Property and equipment
    
    
    276
    
    
    
    1,561Other intangible assets
    
    
    4,549
    
    
    
    18,194Deferred tax asset
    
    
    
    
    
    
    6,060Goodwill *
    
    
    25,749
    
    
    
    135,698Total assets acquired
    
    
    33,828
    
    
    
    169,537Accounts payable
    
    
    (712
    )
    
    
    (535
    )Accrued expenses
    
    
    (1,024
    )
    
    
    (1,844
    )Current taxes payable
    
    
    
    
    
    
    (2,032
    )Other current liabilities
    
    
    (31
    )
    
    
    (1,041
    )Deferred tax liability
    
    
    
    
    
    
    (6,103
    )Long term liabilities
    
    
    (78
    )
    
    
    Net assets acquired
    
    $
    31,983
    
    
    $
    157,982
 
 *
    
    Goodwill is not deductible for income tax purposes. Goodwill has been adjusted to reflect the
reversal of certain purchase accounting reserves not utilized within the twelve month period
following the Ciao acquisition.  Estimated
    
    
    goZing
    
    
    Estimated
    
    
    CiaoUseful
    
    
    February 8,
    
    
    Useful
    
    
    April 6,Life-Years
    
    
    2005
    
    
    Life-Years
    
    
    2005Acquired software
    
    
    0.42
    
    
    $
    159
    
    
    
    
    
    
    $
    Panel members *
    
    
    5.0
    
    
    
    2,369
    
    
    
    4.0
    
    
    
    1,565Domain names and service marks
    
    
    10.0
    
    
    
    116
    
    
    
    5.0
    
    
    
    6,542Customer relationships
    
    
    5.0
    
    
    
    975
    
    
    
    5.0
    
    
    
    7,483Non-competition agreements
    
    
    3.0
    
    
    
    459
    
    
    
    2.75
    
    
    
    2,340Affiliate network
    
    
    3.0
    
    
    
    347
    
    
    
    
    
    
    
    Backlog
    
    
    0.25
    
    
    
    124
    
    
    
    0.25
    
    
    
    264Total other intangible assets
    
    
    
    
    
    $
    4,549
    
    
    
    
    
    
    $
    18,194
  
 *
    
    During the fourth quarter of 2005, we reduced the estimated useful lives of our acquired
panelists of goZing from 5 years to 3 years. We reduced the useful lives based on the
accumulation of additional experience with regard to the duration that, on average, a panel
member will continue to participate in surveys.  14




---



##### 



Pro Forma(Unaudited)Nine Months EndedSeptember 30,(In thousands, except per share data)
    
    2005Net revenues
    
    $
    72,474Operating income*
    
    $
    7,677Net income **
    
    $
    22,938Net income per share:Basic
    
    $
    0.91Diluted
    
    $
    0.90Weighted average shares outstanding:Basic
    
    
    25,242Diluted
    
    
    25,610
 
 *
    
    Included in pro forma operating income for the nine months ended September 30, 2005 is
amortization of approximately $4.5 million related to the increase in fair value of the
identifiable intangible assets associated with the acquisitions. Additionally, pro forma
operating income was negatively impacted in the nine months ended September 30, 2005 by
approximately $308,000 or $0.01 per share basic and diluted for legal and consulting fees
associated with goZings sale of their business.**
    
    Pro forma net income was increased for the nine months ended September 30, 2005 by
approximately $531,000 due to an additional pro forma tax benefit associated with the Ciao
acquisition.  Note 8  Accrued Expenses and Other Current Liabilities:
  September 30,
    
    
    December 31,2006
    
    
    2005Accrued payroll, bonus and commissions
    
    $
    3,663
    
    
    $
    2,567Panelist incentives
    
    
    4,484
    
    
    
    4,419Accrued panel costs
    
    
    309
    
    
    
    550Accrued restructuring costs
    
    
    33
    
    
    
    347Accrued management change costs
    
    
    429
    
    
    
    754Non-income tax accruals
    
    
    1,104
    
    
    
    1,472Software license liability
    
    
    23
    
    
    
    274Accrued audit and tax costs
    
    
    632
    
    
    
    1,175Outside sample accruals
    
    
    698
    
    
    
    949Other
    
    
    1,809
    
    
    
    2,069$
    13,184
    
    
    $
    14,576
  15




---



##### 



Note 9  Earnings Per Share:
 Net Income per Share.
  Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Weighted average number of common and
potential common shares outstanding:Basic number of common shares outstanding
    
    
    25,413
    
    
    
    25,292
    
    
    
    25,359
    
    
    
    23,851Dilutive effect of stock option grants
and the employee stock purchase plan
    
    
    573
    
    
    
    250
    
    
    
    203
    
    
    
    368Diluted number of common and potential
common shares outstanding
    
    
    25,986
    
    
    
    25,542
    
    
    
    25,562
    
    
    
    24,219
 Note 10  Stock-Based Compensation:
  16




---



##### 



Unearned Stock-Based Compensation
   2004 Employee Stock Purchase Plan
     17




---



##### 



Stock Options
 1999 Stock Option Plan
   2004 Equity Incentive Plan
   2005 Inducement Options
  18




---



##### 



Stock-Based Compensation and adoption of SFAS 123(R)
        19




---



##### 



For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30, 2006
    
    
    September 30, 2006Under
    
    
    Effect of
    
    
    
    
    
    
    Under
    
    
    Effect ofPrevious
    
    
    SFAS 123(R)
    
    
    As Reported
    
    
    Previous
    
    
    SFAS 123(R)
    
    
    As ReportedAccounting
    
    
    Adjustments
    
    
    SFAS 123(R)
    
    
    Accounting
    
    
    Adjustments
    
    
    SFAS 123(R)Operating income (loss)
    
    $
    2,982
    
    
    $
    (489
    )
    
    $
    2,493
    
    
    $
    8,883
    
    
    $
    (1,369
    )
    
    $
    7,514Income (loss) before income
tax provision
    
    
    3,026
    
    
    
    (489
    )
    
    
    2,537
    
    
    
    8,691
    
    
    
    (1,369
    )
    
    
    7,322Net income (loss)
    
    
    2,176
    
    
    
    (333
    )
    
    
    1,843
    
    
    
    5,818
    
    
    
    (880
    )
    
    
    4,938Earnings (loss) per share:Basic
    
    $
    0.08
    
    
    $
    (0.01
    )
    
    $
    0.07
    
    
    $
    0.22
    
    
    $
    (0.03
    )
    
    $
    0.19Diluted
    
    $
    0.08
    
    
    $
    (0.01
    )
    
    $
    0.07
    
    
    $
    0.22
    
    
    $
    (0.03
    )
    
    $
    0.19
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005 *
    
    
    2006
    
    
    2005 *Cost of revenues
    
    $
    81
    
    
    $
    44
    
    
    $
    218
    
    
    $
    133Research and development expenses
    
    
    22
    
    
    
    
    
    
    
    45
    
    
    
    Selling, general and administrative expenses
    
    
    551
    
    
    
    158
    
    
    
    1,609
    
    
    
    545Pre-tax stock-based compensation expense
    
    
    654
    
    
    
    202
    
    
    
    1,872
    
    
    
    678Income tax benefit
    
    
    (223
    )
    
    
    
    
    
    
    (695
    )
    
    
    Net stock based compensation expense
    
    $
    431
    
    
    $
    202
    
    
    $
    1,177
    
    
    $
    678
 
 *
    
    Amounts recorded in the prior year period were recorded under APB 25.  1999 Plan
    
    
    2004 Equity PlanWeighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    
    
    
    AverageNumber of
    
    
    Option Price
    
    
    Price Per
    
    
    Number of
    
    
    Option Price
    
    
    Price PerShares
    
    
    Range
    
    
    Share
    
    
    Shares
    
    
    Range
    
    
    ShareOutstanding at December 31, 2005
    
    
    568,918
    
    
    $
    0.14-$168.84
    
    
    $
    5.40
    
    
    
    2,266,455
    
    
    $
    4.92-$20.25
    
    
    $
    12.42Granted
    
    
    
    
    
    $
        $
    
    
    $
    
    
    
    
    1,140,000
    
    
    $
    6.66-$7.29
    
    
    $
    7.06Canceled, expired
    
    
    (775
    )
    
    $
    0.42-$168.84
    
    
    $
    23.83
    
    
    
    (238,503
    )
    
    $
    13.00-$20.25
    
    
    $
    14.44Forfeited
    
    
    (32,148
    )
    
    $
    2.66-$2.66
    
    
    $
    2.66
    
    
    
    (97,500
    )
    
    $
    5.42-$9.35
    
    
    $
    7.37Exercised *
    
    
    (117,930
    )
    
    $
    0.42-$2.66
    
    
    $
    1.29
    
    
    
    
    
    
    $
        $
    
    
    $
    Outstanding at September 30, 2006
    
    
    418,065
    
    
    $
    0.14-$168.84
    
    
    $
    6.74
    
    
    
    3,070,452
    
    
    $
    4.92-$20.25
    
    
    $
    10.44Exercisable at September 30, 2006
    
    
    315,378
    
    
    $
    0.14-$168.84
    
    
    $
    8.18
    
    
    
    1,573,493
    
    
    $
    7.44-$20.25
    
    
    $
    13.42Available for future option
grants at September 30, 2006
    
    
    23,054
    
    
    
    
    
    
    
    
    
    
    
    453,377
 
 *
    
    The total intrinsic value of options exercised during the nine months ended September 30, 2006
was approximately $729,000. 20




---



##### 



2005 Inducement OptionsWeightedAverageNumber of
    
    
    Option Price
    
    
    Price PerShares
    
    
    Range
    
    
    ShareOutstanding at December 31, 2005
    
    
    487,500
    
    
    $
    5.02-$5.07
    
    
    $
    5.04Granted
    
    
    187,500
    
    
    $
    5.93-$5.93
    
    
    $
    5.93Canceled, expired
    
    
    
    
    
    $
        $
    
    
    $
    Forfeited
    
    
    
    
    
    $
        $
    
    
    $
    Exercised
    
    
    
    
    
    $
        $
    
    
    $
    Outstanding at September 30, 2006
    
    
    675,000
    
    
    $
    5.02-$5.93
    
    
    $
    5.29Exercisable at September 30, 2006
    
    
    200,561
    
    
    $
    5.02-$5.93
    
    
    $
    5.27
    Weighted
    
    WeightedAverage
    
    AverageExercise
    
    Fair ValueNumber of
    
    
    
    
    
    Price Per
    
    at DateShares
    
    Option Price Range
    
    Share
    
    of Grant2004 Equity Incentive PlanOptions granted with an exercise price equal to market
    
    
    1,140,000
    
    
    $
    6.66-$7.29
    
    
    $
    7.06
    
    
    $
    3.442005 Inducement OptionsOptions granted with an exercise price equal to market
    
    
    187,500
    
    
    $
    5.93-$5.93
    
    
    $
    5.93
    
    
    $
    2.68CombinedOptions granted with an exercise price equal to market
    
    
    1,327,500
    
    
    $
    5.93-$7.29
    
    
    $
    6.90
    
    
    $
    3.34
 21




---



##### 



Options Outstanding
    
    
    Options ExercisableWeighted
    
    
    Weighted
    
    
    (000s)
    
    
    
    
    
    
    Weighted
    
    
    (000s)Number of
    
    
    Average
    
    
    Average
    
    
    Aggregate
    
    
    Number of
    
    
    Average
    
    
    AggregateRange of
    
    Outstanding
    
    
    Remaining
    
    
    Exercise
    
    
    Intrinsic
    
    
    Exercisable
    
    
    Exercise
    
    
    IntrinsicExercise Prices
    
    Options
    
    
    Contractual Life
    
    
    Price
    
    
    Value
    
    
    Options
    
    
    Price
    
    
    ValueCombined$0.00-$0.70
    
    
    130,877
    
    
    5.8 years
    
    $
    0.25
    
    
    
    
    
    
    
    116,591
    
    
    $
    0.26$0.71-$2.80
    
    
    193,094
    
    
    7.0 years
    
    $
    2.66
    
    
    
    
    
    
    
    104,693
    
    
    $
    2.66$2.81-$7.04
    
    
    1,635,500
    
    
    6.3 years
    
    $
    6.31
    
    
    
    
    
    
    
    200,561
    
    
    $
    5.27$7.05-$7.44
    
    
    687,500
    
    
    6.5 years
    
    $
    7.41
    
    
    
    
    
    
    
    193,541
    
    
    $
    7.44$7.45-$13.00
    
    
    466,086
    
    
    7.6 years
    
    $
    12.80
    
    
    
    
    
    
    
    431,086
    
    
    $
    12.90$13.01-$14.99
    
    
    892,241
    
    
    5.3 years
    
    $
    14.68
    
    
    
    
    
    
    
    884,741
    
    
    $
    14.68$15.00-$20.00
    
    
    146,619
    
    
    7.6 years
    
    $
    17.11
    
    
    
    
    
    
    
    146,619
    
    
    $
    17.11$20.01-$42.00
    
    
    7,165
    
    
    5.9 years
    
    $
    24.29
    
    
    
    
    
    
    
    7,165
    
    
    $
    24.29$42.01-$168.84
    
    
    4,435
    
    
    3.5 years
    
    $
    162.32
    
    
    
    
    
    
    
    4,435
    
    
    $
    162.324,163,517
    
    
    
    
    
    
    
    
    
    
    $
    11,570
    
    
    
    2,089,432
    
    
    
    
    
    
    $
    3,5991999 Plan$0.00-$0.70
    
    
    130,877
    
    
    5.8 years
    
    $
    0.25
    
    
    
    
    
    
    
    116,591
    
    
    $
    0.26$0.71-$2.80
    
    
    193,094
    
    
    7.0 years
    
    $
    2.66
    
    
    
    
    
    
    
    104,693
    
    
    $
    2.66$7.45-$13.00
    
    
    8,375
    
    
    4.3 years
    
    $
    9.82
    
    
    
    
    
    
    
    8,375
    
    
    $
    9.82$15.00-$20.00
    
    
    78,119
    
    
    7.1 years
    
    $
    17.59
    
    
    
    
    
    
    
    78,119
    
    
    $
    17.59$20.01-$42.00
    
    
    3,165
    
    
    3.4 years
    
    $
    29.39
    
    
    
    
    
    
    
    3,165
    
    
    $
    29.39$42.01-$168.84
    
    
    4,435
    
    
    3.5 years
    
    $
    162.32
    
    
    
    
    
    
    
    4,435
    
    
    $
    162.32418,065
    
    
    
    
    
    
    
    
    
    
    $
    2,824
    
    
    
    315,378
    
    
    
    
    
    
    $
    1,9952004 Equity Plan$2.81-$7.04
    
    
    960,500
    
    
    6.4 years
    
    $
    7.02
    
    
    
    
    
    
    
    
    
    
    $
    0.00$7.05-$7.44
    
    
    687,500
    
    
    6.5 years
    
    $
    7.41
    
    
    
    
    
    
    
    193,541
    
    
    $
    7.44$7.45-$13.00
    
    
    457,711
    
    
    7.6 years
    
    $
    12.85
    
    
    
    
    
    
    
    422,711
    
    
    $
    12.96$13.01-$14.99
    
    
    892,241
    
    
    5.3 years
    
    $
    14.68
    
    
    
    
    
    
    
    884,741
    
    
    $
    14.68$15.00-$20.00
    
    
    68,500
    
    
    8.2 years
    
    $
    16.56
    
    
    
    
    
    
    
    68,500
    
    
    $
    16.56$20.01-$42.00
    
    
    4,000
    
    
    7.9 years
    
    $
    20.25
    
    
    
    
    
    
    
    4,000
    
    
    $
    20.253,070,452
    
    
    
    
    
    
    
    
    
    
    $
    5,301
    
    
    
    1,573,493
    
    
    
    
    
    
    $
    5762005 Inducement Options$2.81-$7.04
    
    
    675,000
    
    
    6.2 years
    
    $
    5.29
    
    
    
    
    
    
    
    200,561
    
    
    $
    5.27675,000
    
    
    
    
    
    
    
    
    
    
    $
    3,445
    
    
    
    200,561
    
    
    
    
    
    
    $
    1,028
   Three Months Ended September 30, 20062005InducementCombined
    
    2004 Equity Plan
    
    OptionsRisk-free interest rate
    
    
    5.02
    %
    
    
    5.02
    %
    
    
    Weighted average expected life (years)
    
    
    4.66
    
    
    
    4.66
    
    
    
    Volatility factor
    
    
    51.30
    %
    
    
    51.30
    %
    
    
    Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    
 22




---



##### 



Nine Months Ended September 30, 20062004
    
    2005Equity
    
    InducementCombined
    
    Plan
    
    OptionsRisk-free interest rate
    
    
    4.64
    %
    
    
    4.69
    %
    
    
    4.30
    %Weighted average expected life (years)
    
    
    4.60
    
    
    
    4.66
    
    
    
    4.21Volatility factor
    
    
    51.77
    %
    
    
    51.94
    %
    
    
    50.60
    %Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    
 Volatility
 Risk-free interest rate
 Expected term
 Dividend yield
  Fair Value Disclosures  Prior to SFAS 123(R) Adoption.
   23




---



##### 



Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2005
    
    
    2005Net income as reported
    
    $
    1,551
    
    
    $
    23,143Add: Stock-based employee
compensation expense included in
net income as recorded
    
    
    202
    
    
    
    678Deduct: Total stock-based
employee compensation expense
determined under the fair value
method for all awards, net of
related tax effects
    
    
    (1,012
    )
    
    
    (2,091
    )Pro forma net income
    
    $
    741
    
    
    $
    21,730Net income per share as reported:Basic
    
    $
    0.06
    
    
    $
    0.97Diluted
    
    $
    0.06
    
    
    $
    0.96Pro forma income per share:Basic
    
    $
    0.03
    
    
    $
    0.91Diluted
    
    $
    0.03
    
    
    $
    0.90
  Three Months
    
    Nine MonthsEnded
    
    EndedSeptember 30,
    
    September 30,2005
    
    2005Risk-free interest rate
    
    
    4.01
    %
    
    
    3.89
    %Weighted average expected life (years)
    
    
    5.0
    
    
    
    4.3Volatility factor
    
    
    60.93
    %
    
    
    55.09
    %Expected dividend yield
    
    
    
    
    
    
    
 Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods and Services
 Note 11  Segment Reporting:
  24




---



##### 



 
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Gross segment revenues: *North American Internet survey solutionsThird-party revenues
    
    $
    15,368
    
    
    $
    15,061
    
    
    $
    43,771
    
    
    $
    48,514Inter-segment revenues
    
    
    157
    
    
    
    354
    
    
    
    679
    
    
    
    400Gross segment revenues
    
    $
    15,525
    
    
    $
    15,415
    
    
    $
    44,450
    
    
    $
    48,914Ciao Internet survey solutionsThird-party revenues
    
    $
    4,417
    
    
    $
    5,446
    
    
    $
    14,361
    
    
    $
    11,191Inter-segment revenues
    
    
    2,590
    
    
    
    1,427
    
    
    
    6,084
    
    
    
    1,943Gross segment revenues
    
    $
    7,007
    
    
    $
    6,873
    
    
    $
    20,445
    
    
    $
    13,134Net revenues:North American Internet survey solutions **
    
    $
    15,525
    
    
    $
    15,415
    
    
    $
    44,450
    
    
    $
    48,914Ciao Internet survey solutions
    
    
    7,007
    
    
    
    6,873
    
    
    
    20,445
    
    
    
    13,134Ciao comparison shopping
    
    
    5,090
    
    
    
    2,639
    
    
    
    12,728
    
    
    
    4,975Elimination of inter-segment revenues
    
    
    (2,747
    )
    
    
    (1,781
    )
    
    
    (6,763
    )
    
    
    (2,343
    )Total net revenues
    
    $
    24,875
    
    
    $
    23,146
    
    
    $
    70,860
    
    
    $
    64,680Segment operating income (as defined above):North American Internet survey solutions
    
    $
    2,965
    
    
    $
    2,427
    
    
    $
    9,167
    
    
    $
    13,421Ciao Internet survey solutions
    
    
    2,363
    
    
    
    3,275
    
    
    
    7,480
    
    
    
    5,826Ciao comparison shopping
    
    
    3,126
    
    
    
    1,241
    
    
    
    7,418
    
    
    
    2,408Segment operating income
    
    
    8,454
    
    
    
    6,943
    
    
    
    24,065
    
    
    
    21,655Depreciation and amortization
    
    
    (3,159
    )
    
    
    (2,631
    )
    
    
    (9,349
    )
    
    
    (6,635
    )Stock-based compensation
    
    
    (654
    )
    
    
    (202
    )
    
    
    (1,872
    )
    
    
    (678
    )Restructuring charges
    
    
    (55
    )
    
    
    (
    )
    
    
    (243
    )
    
    
    (
    )Management change severance charges
    
    
    (396
    )
    
    
    (1,037
    )
    
    
    (396
    )
    
    
    (1,037
    )Corporate
    
    
    (1,697
    )
    
    
    (2,250
    )
    
    
    (4,691
    )
    
    
    (5,413
    )Total operating income
    
    
    2,493
    
    
    
    823
    
    
    
    7,514
    
    
    
    7,892Interest income (expense), net
    
    
    60
    
    
    
    (251
    )
    
    
    (22
    )
    
    
    (29
    )Currency exchange loss, net
    
    
    (16
    )
    
    
    (112
    )
    
    
    (170
    )
    
    
    (131
    )Income before income taxes
    
    $
    2,537
    
    
    $
    460
    
    
    $
    7,322
    
    
    $
    7,732
 25




---



##### 



*
    
    The Ciao comparison shopping segment has no inter-segment revenues, and as a result, gross
segment revenues is equal to net segment revenues, and is not presented under gross segment
revenues.**
    
    Revenues recorded in our North American Internet survey solutions segment for the nine months
ended September 30, 2005 include approximately $1.0 million of revenues generated from data sold to
our European customers prior to our acquisition of Ciao.  Note 12  Income Taxes:
  For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Income (loss) before income taxes:Domestic
    
    $
    (218
    )
    
    $
    (1,221
    )
    
    $
    (680
    )
    
    $
    4,808Foreign
    
    
    2,755
    
    
    
    1,681
    
    
    
    8,002
    
    
    
    2,924$
    2,537
    
    
    $
    460
    
    
    $
    7,322
    
    
    $
    7,732Provision (benefit) for income taxes:Currently payable:Federal
    
    $
    (308
    )
    
    $
    215
    
    
    $
    76
    
    
    $
    403State
    
    
    (82
    )
    
    
    (162
    )
    
    
    64
    
    
    
    119Foreign
    
    
    904
    
    
    
    564
    
    
    
    2,683
    
    
    
    1,278Total current income tax provision
    
    
    514
    
    
    
    617
    
    
    
    2,823
    
    
    
    1,800Deferred income tax provision (benefit):Federal
    
    $
    (138
    )
    
    $
    (3,345
    )
    
    $
    (1,070
    )
    
    $
    (15,223
    )State
    
    
    (45
    )
    
    
    1,105
    
    
    
    (64
    )
    
    
    (2,733
    )Foreign
    
    
    363
    
    
    
    532
    
    
    
    695
    
    
    
    745Total deferred income tax provision (benefit)
    
    
    180
    
    
    
    (1,708
    )
    
    
    (439
    )
    
    
    (17,211
    )Total income tax provision (benefit)
    
    $
    694
    
    
    $
    (1,091
    )
    
    $
    2,384
    
    
    $
    (15,411
    )
  September 30,
    
    
    December 31,2006
    
    
    2005Deferred tax assets (liabilities):Net operating loss carryforwards
    
    $
    17,553
    
    
    $
    19,053Stock-based compensation
    
    
    4,329
    
    
    
    3,657Capitalized panel costs
    
    
    390
    
    
    
    391Intangible assets acquired
    
    
    (5,503
    )
    
    
    (6,064
    )Foreign exchange
    
    
    614
    
    
    
    2,942Fixed assets
    
    
    1,209
    
    
    
    289Federal and state tax credits
    
    
    2,268
    
    
    
    2,281Other deferred tax assets
    
    
    597
    
    
    
    932Net deferred tax asset
    
    
    21,457
    
    
    
    23,481Valuation allowance
    
    
    (1,655
    )
    
    
    (1,481
    )Total net deferred tax assets
    
    $
    19,802
    
    
    $
    22,000
 26




---



##### 



Note 13  Commitments and Contingencies:
 Legal Contingencies:
  Note 14  Management Change:
  27




---



##### 



Note 15  Restructuring Program:
   Lease
    
    
    NorthSeverance and
    
    
    Cancellation and
    
    
    AmericanRelated Costs
    
    
    Other Costs
    
    
    TotalRestructuring activity:Balance at December 31, 2005
    
    $
    347
    
    
    $
    
    
    
    $
    347Provision
    
    
    82
    
    
    
    161
    
    
    
    243Charges against reserve
    
    
    (422
    )
    
    
    (135
    )
    
    
    (557
    )Balance at September 30, 2006
    
    $
    7
    
    
    $
    26
    
    
    $
    33Additional information:Cumulative amount incurred as of
September 30, 2006
    
    $
    461
    
    
    $
    161
    
    
    $
    622Total expected amounts to be incurred*
    
    $
    461
    
    
    $
    161
    
    
    $
    622
 
 *
    
    The total expected amounts of $622,000 represents the cumulative amount incurred through
September 30, 2006, as we do not expect to incur any significant additional costs associated
with this restructuring plan.  28




---



##### 



Note 16  Accumulated Other Comprehensive Loss:
  September 30,
    
    
    December 31,2006
    
    
    2005Cumulative translation adjustment
    
    $
    (6,193
    )
    
    $
    (8,172
    )Unrealized gain on available-for-sale
securities, net of deferred taxes of $59
at September 30, 2006
    
    
    85
    
    
    
    Total accumulated other comprehensive loss
    
    $
    (6,108
    )
    
    $
    (8,172
    )
 Note 17  Subsequent Event:
 
 29




---



##### 



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 consolidated financial statements and related notes included
elsewhere in this Quarterly Report. This discussion contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of various factors, including those discussed in
the section entitled Risk Factors in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2005 and in this Quarterly Report on Form 10-Q . Also see the section entitled
Cautionary Note Regarding Forward-Looking Statements contained in this Quarterly Report on Form
10-Q.
 Segment Information
  Critical Accounting Policies and Estimates
   Recently Issued Accounting Pronouncements .
 30




---



##### 



Stock-Based Compensation . Share-Based Payment Accounting for Stock-Based Compensation,
     Translation of foreign currencies .
 31




---



##### 



Results of Operations
 Three Months Ended September 30, 2006 Versus Three Months Ended September 30, 2005
 Consolidated Results
  2006
    
    
    %
    
    
    2005
    
    
    %Net revenues
    
    $
    24,875
    
    
    
    100.0
    %
    
    $
    23,146
    
    
    
    100.0
    %Cost of revenues
    
    
    5,974
    
    
    
    24.0
    
    
    
    6,714
    
    
    
    29.0Gross profit
    
    
    18,901
    
    
    
    76.0
    
    
    
    16,432
    
    
    
    71.0Operating expenses:Selling, general and administrative
    
    
    11,602
    
    
    
    46.7
    
    
    
    11,819
    
    
    
    51.0Panel acquisition expenses
    
    
    1,351
    
    
    
    5.4
    
    
    
    1,035
    
    
    
    4.5Depreciation and amortization
    
    
    2,427
    
    
    
    9.8
    
    
    
    1,901
    
    
    
    8.2Research and development
    
    
    973
    
    
    
    3.9
    
    
    
    854
    
    
    
    3.7Restructuring charges
    
    
    55
    
    
    
    0.2
    
    
    
    
    
    
    
    Total operating expenses
    
    
    16,408
    
    
    
    66.0
    
    
    
    15,609
    
    
    
    67.4Operating income
    
    
    2,493
    
    
    
    10.0
    
    
    
    823
    
    
    
    3.6Other income (expense):Interest income (expense), net
    
    
    60
    
    
    
    0.2
    
    
    
    (251
    )
    
    
    (1.1
    )Other expense, net
    
    
    (16
    )
    
    
    (0.0
    )
    
    
    (112
    )
    
    
    (0.5
    )Total other income (expense), net
    
    
    44
    
    
    
    0.2
    
    
    
    (363
    )
    
    
    (1.6
    )Income before income taxes
    
    
    2,537
    
    
    
    10.2
    
    
    
    460
    
    
    
    2.0Provision (benefit) for income taxes
    
    
    694
    
    
    
    2.8
    
    
    
    (1,091
    )
    
    
    (4.7
    )Net income
    
    $
    1,843
    
    
    
    7.4
    %
    
    $
    1,551
    
    
    
    6.7
    %
 Net Revenues.
 Gross Profit.
 32




---



##### 




    
    incentives of 4.3%;
    
    outside sample of 1.3%;
    
    survey distribution costs of 0.6%;
    
    revenue share arrangements of 0.5%;
    
    publisher commissions of 0.4%;
    
    amortization of internal use software of 0.2%; and
    
    other direct costs of 0.2%.
  
    
    direct project personnel costs of 2.4%; and
    
    stock-based compensation expense of 0.1%.
  
    
    higher incentives paid in the prior year period primarily as a result of the goZing
acquisition in February 2005, which provided for higher guaranteed incentive payments;
    
    changing our definition of an active panelist by
reducing the in-activity timeframe from 1
year to 6 months. This has in turn increased the incentives forfeited by inactive panelists
for the quarter;
    
    increasing the percentage of surveys completed using random internet sampling.
Payments we make to web affiliates participating in random internet sampling include
respondent incentives and thereby reduce the incentives we have to pay to our panel
members; and
    
    the growth of the comparison shopping revenues.
      33




---



##### 



Selling, General and Administrative Expenses.
      Panel Acquisition Expenses.
  34




---



##### 



Depreciation and Amortization Expenses.
 Research and Development Expenses.
 Restructuring Charges.
 Interest Income (Expense), Net.
 Other Expense, Net.
 Provision (Benefit) for Income Taxes.
 Net Income.
 35




---



##### 



North American Internet Survey Solutions Segment Results
  Three Months Ended September 30,2006
    
    %
    
    2005
    
    %Net revenues
    
    $
    15,525
    
    
    
    100.0
    %
    
    $
    15,415
    
    
    
    100.0
    %Segment operating income
    
    
    2,965
    
    
    
    19.1
    
    
    
    2,427
    
    
    
    15.7
 Net Revenues.
  i)
    
    weaker third-party revenues associated with the sale of high-incidence North American
sample in our North American segment as a result of increased competition and pricing
pressure; andii)
    
    a decrease in revenues generated from the sale of North American sample to our Ciao
Internet Survey solutions segment.
 Segment
Operating Income.
 Ciao Internet Survey Solutions Segment Results
  Three Months Ended September 30,2006
    
    %
    
    2005
    
    %Net revenues
    
    $
    7,007
    
    
    
    100.0
    %
    
    $
    6,873
    
    
    
    100.0
    %Segment operating income
    
    
    2,363
    
    
    
    33.7
    
    
    
    3,275
    
    
    
    47.7
 Net Revenues.
 36




---



##### 



Segment
Operating Income.
 Ciao Comparison Shopping Segment Results
  Three Months Ended September 30,2006
    
    %
    
    2005
    
    %Net revenues
    
    $
    5,090
    
    
    
    100.0
    %
    
    $
    2,639
    
    
    
    100.0
    %Segment operating income
    
    
    3,126
    
    
    
    61.4
    
    
    
    1,241
    
    
    
    47.0
 Net Revenues.
 Segment
Operating Income.
 Nine Months Ended September 30, 2006 Versus Nine Months Ended September 30, 2005
 Consolidated Results
  2006
    
    
    %
    
    
    2005
    
    
    %Net revenues
    
    $
    70,860
    
    
    
    100.0
    %
    
    $
    64,680
    
    
    
    100.0
    %Cost of revenues
    
    
    17,082
    
    
    
    24.1
    
    
    
    18,301
    
    
    
    28.3Gross profit
    
    
    53,778
    
    
    
    75.9
    
    
    
    46,379
    
    
    
    71.7Operating expenses:Selling, general and administrative
    
    
    31,854
    
    
    
    44.9
    
    
    
    29,691
    
    
    
    45.9Panel acquisition expenses
    
    
    4,288
    
    
    
    6.1
    
    
    
    2,322
    
    
    
    3.6Depreciation and amortization
    
    
    7,144
    
    
    
    10.1
    
    
    
    4,704
    
    
    
    7.3Research and development
    
    
    2,735
    
    
    
    3.9
    
    
    
    1,770
    
    
    
    2.7Restructuring charges
    
    
    243
    
    
    
    0.3
    
    
    
    
    
    
    
    Total operating expenses
    
    
    46,264
    
    
    
    65.3
    
    
    
    38,487
    
    
    
    59.5Operating income
    
    
    7,514
    
    
    
    10.6
    
    
    
    7,892
    
    
    
    12.2Other income (expense):Interest expense, net
    
    
    (22
    )
    
    
    (0.0
    )
    
    
    (29
    )
    
    
    (0.0
    )Other expense, net
    
    
    (170
    )
    
    
    (0.3
    )
    
    
    (131
    )
    
    
    (0.2
    )Total other expense, net
    
    
    (192
    )
    
    
    (0.3
    )
    
    
    (160
    )
    
    
    (0.2
    )Income before income taxes
    
    
    7,322
    
    
    
    10.3
    
    
    
    7,732
    
    
    
    12.0Provision (benefit) for income taxes
    
    
    2,384
    
    
    
    3.3
    
    
    
    (15,411
    )
    
    
    (23.8
    )Net income
    
    $
    4,938
    
    
    
    7.0
    %
    
    $
    23,143
    
    
    
    35.8
    %
 Net Revenues.
 37




---



##### 



Gross Profit.
  
    
    incentives of 3.8%;
    
    outside sample purchases of 0.7%;
    
    publisher commissions of 0.5%;
    
    survey distribution costs of 0.5%;
    
    revenue share arrangements of 0.4%; and
    
    amortization of internal use software of 0.2%.
   
    
    direct project personnel of 1.7%;
    
    other direct costs of 0.1%; and
    
    stock-based compensation expense of 0.1%.
   
    
    higher incentives paid in the prior year period primarily as a result of the goZing
acquisition in February 2005, which provided for higher guaranteed incentive payments;
    
    changing our definition of an active panelist by
reducing the in-activity timeframe from 1
year to 6 months. This has in turn increased the incentives forfeited by inactive panelists
for the period;
    
    increasing the percentage of surveys completed using random internet sampling.
Payments we make to web affiliates participating in random internet sampling include
respondent incentives and thereby reduce the incentives we have to pay to our panel
members; and
    
    the growth of the comparison shopping revenues.
  38




---



##### 



Selling, General and Administrative Expenses.
    39




---



##### 



i)
    
    the inclusion of personnel costs associated with Rapidata, goZing and Ciao for the full
nine months ended September 30, 2006;ii)
    
    further investment in 2006 in finance and administrative staff necessary to operate as
a public company in 2006 versus 2005;iii)
    
    increased stock-based compensation expense of $0.8 million as a result of the
implementation of SFAS 123(R);iv)
    
    a one-time charge of $0.4 million associated with the departure of two senior founders
of Ciao during 2006; and,v)
    
    an increase in incentive accruals for G&A employees and senior management, related to
our performance in 2006.
    Panel Acquisition Expenses.
  Depreciation and Amortization Expenses.
 Research and Development Expenses.
 40




---



##### 



Restructuring Charges.
 Interest Expense, Net.
 Other Expense, Net.
 Provision (Benefit) for Income Taxes.
   Net Income.
 41




---



##### 



North American Internet Survey Solutions Segment Results
  Nine Months Ended September 30,2006
    
    %
    
    2005
    
    %Net revenues
    
    $
    44,450
    
    
    
    100.0
    %
    
    $
    48,914
    
    
    
    100.0
    %Segment operating income
    
    
    9,167
    
    
    
    20.6
    
    
    
    13,421
    
    
    
    27.4
 Net Revenues.
 i)
    
    during the latter half of 2005, we experienced an increased competitive environment in
North America in the form of new entrants in the market and pricing pressure, resulting in
a decline in net revenues year over year; andii)
    
    in 2005, the North American Internet survey solutions segment included revenues of
approximately $1.3 million associated with the goZing Online OLM, which we wound down later
in 2005.
 Segment
Operating Income.
 i)
    
    lower revenues associated with the increased competitive environment in North America
in the form of new entrants in the market and pricing pressure; andii)
    
    lower gross profit of approximately $5.4 million as a result of increased demand for
higher-cost European sourced data, which was supplied by Ciao.
 Ciao Internet Survey Solutions Segment Results
  Nine Months Ended September 30,2006
    
    %
    
    2005
    
    %Net revenues
    
    $
    20,445
    
    
    
    100.0
    %
    
    $
    13,134
    
    
    
    100.0
    %Segment operating income
    
    
    7,480
    
    
    
    36.6
    
    
    
    5,826
    
    
    
    44.4
 Net Revenues.
 42




---



##### 



Segment Operating Income.
 Ciao Comparison Shopping Segment Results
  Nine Months Ended September 30,2006
    
    %
    
    2005
    
    %Net revenues
    
    $
    12,728
    
    
    
    100.0
    %
    
    $
    4,975
    
    
    
    100.0
    %Segment operating income
    
    
    7,418
    
    
    
    58.3
    
    
    
    2,408
    
    
    
    48.4
 Net Revenues.
 i)
    
    including Ciao for the full nine months in 2006 as compared to only six months in the same
period in 2005, since the acquisition occurred in April 2005;ii)
    
    the underlying growth rate of the e-Commerce market in which it conducts business: andiii)
    
    efforts made during 2006 to increase the monetization rates of unique visitors to our comparison shopping websites, through improved site content and user experience.
 Segment Operating Income.
 Liquidity and Capital Resources
  43




---



##### 



44




---



##### 



Contractual Cash Obligations and Other Commercial Commitments and Contingencies
  Total at
    
    
    Years Ended December 31,September 30,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2011 and2006
    
    
    2006 (1)
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    ThereafterContractual obligations:Capital lease obligations
    
    $
    56
    
    
    $
    9
    
    
    $
    25
    
    
    $
    14
    
    
    $
    8
    
    
    $
    
    
    
    $
    Non-cancelable operating lease
obligations
    
    
    8,883
    
    
    
    779
    
    
    
    2,712
    
    
    
    2,406
    
    
    
    1,936
    
    
    
    745
    
    
    
    305Management change commitments*
    
    
    429
    
    
    
    110
    
    
    
    319
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restructuring commitments**
    
    
    33
    
    
    
    33
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other long-term liabilities
    
    
    13
    
    
    
    2
    
    
    
    6
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    9,414
    
    
    $
    933
    
    
    $
    3,062
    
    
    $
    2,425
    
    
    $
    1,944
    
    
    $
    745
    
    
    $
    305
 
 (1)
    
    Includes only the remaining three months of the year ending December 31, 2006.*
    
    These management change commitments are a result of our management change announced in the
third quarter of 2005 as described in Note 14 to the consolidated financial statements
included in this Quarterly Report on Form 10-Q.**
    
    The restructuring charge commitments are a result of our rightsizing plan in North America,
which we announced in the fourth quarter of 2005 as described in Note 15 to the consolidated
financial statements included in this Quarterly Report on Form 10-Q.  45




---



##### 



Item 3: Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4: Controls and Procedures
      46




---



##### 



PART II   OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  We may not be successful at implementing our announced strategy to separate our Ciao Internet
survey solutions and Ciao comparison shopping portals into two separate businesses and the
separation may have unforeseen consequences for the Ciao business as a whole and our financial
condition and results of operations may suffer.
  
    
    division and apportionment of intellectual property including trademarks and
Internet domain names;
    
    division and apportionment of the intertwined Ciao Internet panel member and
Ciao shopping member databases;
    
    division and apportionment of technology including licensed and internally
developed software; hardware and operating systems;
    
    allocation of personnel to each entity; and
    
    division and apportionment of real estate.
   We may not be successful at implementing important new business initiatives and key strategies,
which may have a material negative impact on our financial condition and results of operations.
  
    
    rightsizing of the North American business to bring expenses in line with current revenue levels;
    
    shifting to a relationship-based management sales strategy;
    
    targeting new client relationships and increasing our market share in North America;
    
    implementing a new pricing strategy;
    
    reinvigorating our North American sales efforts;
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
    
    continuing to build our panel to support revenue growth and improving panel management techniques;
    
    improving quality control and client satisfaction;
    
    accelerating the integration of our Ciao subsidiary; and
    
    developing and implementing new internal use software such as our new Unified Panel
System for panel and project management, and our new GoQuote system, an online quotation
ordering system.
  If we are unable to maintain the size or demographic composition of our Internet panels, our
clients may stop using our products and services.
   If the rate at which our panelists respond to our surveys decreases, we may not be able to meet
our clients needs.
  
    
    our email-based survey invitations are not received by our panelists due to the use of
spam-filtering and blocking software by individuals, corporations and Internet service
providers;
    
    our panelists become dissatisfied with the forms of participation incentives we offer;
or
    
    our panelists respond less frequently to our surveys, or stop responding altogether due
to excessive requests for participation from us or other researchers.
  If the rate at which our panelists respond to our surveys decreases, we may be required to expend
additional funds to retain our panelists or provide additional incentives to encourage panelist
participation.
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We derived approximately 39% of our total net revenue from ten clients in the nine months ended
September 30, 2006. In our reportable segments of North American Internet survey solutions, Ciao
Internet survey solutions and Ciao comparison shopping, we derived approximately 44%, 47% and 63%
of net revenue from ten clients for the nine months ended September 30, 2006, respectively. If we
were to lose, or if there were a material reduction in business from these clients, our net
revenue might decline substantially.
  We may not be able to successfully compete with other Internet survey solutions providers,
marketing research firms and other potential competitors, which may cause us to lose sales or
experience lower margins on sales.
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A substantial portion of our comparison shopping portal traffic is derived through optimization of
search engine results and changes in these algorithms may cause our comparison shopping revenue to
decline.
  Consolidation in the marketing research industry may result in fewer potential clients for us and
a smaller market in general if companies with existing Internet-based panels combine with
companies without such panels.
  If our clients develop their own Internet-based panels, we may lose some or all of their business.
  If the marketplace significantly slows its migration from traditional data collection methods to
Internet-based marketing research data collection, our growth may slow or cease altogether.
  If we do not keep pace with technological change, we may be unable to implement our business
strategy successfully.
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If we are unable to manage and support our growth effectively, we may not be able to execute our
business strategy successfully.
    If we are unable to achieve international growth of our Internet panels or to overcome other risks
of international operations, we may be unable to conduct business on a global level.
  
    
    more restrictive privacy and data protection laws;
    
    difficulty in recruiting and managing employees in foreign countries;
    
    aversion to U.S. companies or non-domestic companies in the regions where we plan to expand;
    
    unexpected changes in regulatory requirements;
    
    export controls relating to encryption technology;
    
    currency exchange rate fluctuations;
    
    problems collecting accounts receivable and longer collection periods;
    
    potentially adverse tax consequences;
    
    political instability; and
    
    Internet access restrictions.
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Currency exchange rate fluctuations could lower our revenue and net income.
  We have significant operations in India that could be limited or prohibited by changes in the
political or economic stability of India or government policies in India or the United States.
  Acquisitions or investments in other companies may have a negative impact on our business and our
stock price.
  
    
    difficulties with the integration and assimilation of the acquired business, including
maintaining the frequency of survey participation of panelists who join our panel through
acquisitions, and operational inefficiencies resulting from operating with multiple and
potentially incompatible systems until integration is complete;
    
    diversion of our management teams attention from other business concerns;
    
    availability of favorable acquisition or investment financing;
    
    potential undisclosed liabilities associated with acquisitions;
    
    loss of clients resulting from their desire to diversify their online sample data
sources as we increase our market share by acquiring or investing in complementary
businesses;
    
    loss of key employees of any acquired business; and
    
    our ability to successfully operate and grow business units within the acquired
companies that provide products and services other than Internet survey solutions.
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Our success depends on our ability to retain the current members of our senior management team and
other key personnel.
  If we fail to continue to attract and retain project management professionals and other
highly-skilled personnel, we may be unable to successfully execute our business strategy.
  We do not have adequate plans or procedures in place to allow us to rapidly rebuild our
operational and technical infrastructure in case of a catastrophic event.
  We may be at a competitive disadvantage if we are unable to protect our proprietary rights or if
we infringe on the proprietary rights of others, and related litigation could be time consuming
and costly.
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We may be subject to costly litigation arising out of information presented on or collected in
connection with our service, and the litigation could have a material adverse effect on our
business if decided adversely .
  Fluctuations in our quarterly operating results may cause our stock price to decline and limit our
stockholders ability to sell our common stock in the public market.
  
    
    fluctuations in general economic conditions;
    
    demand for marketing research products and services generally;
    
    fluctuations in the marketing research budgets of the end-users serviced by our
marketing research clients;
    
    the failure of our large clients to win Internet-based marketing research projects;
    
    fluctuations in foreign currency exchange rates;
    
    lower than expected project win-rates;
    
    the development of products and services by our competitors;
    
    project cancellations by our clients or changes in project completion dates by our
clients, effecting the timing of our recognition of revenue; and
    
    changes in search engine algorithms.
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We might have difficulty obtaining additional capital, which could prevent us from achieving our
business objectives. If we are successful in raising additional capital, it may have a dilutive
effect on our stockholders.
  Government regulations could limit our Internet activities or result in additional costs of doing
business and conducting marketing research on the Internet.
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
    
    user privacy and expression;
    
    the rights and safety of children;
    
    intellectual property;
    
    information security;
    
    anti-competitive practices;
    
    the convergence of offline channels with Internet commerce; and
    
    taxation and pricing.
  Cautionary Note Regarding Forward-Looking Statements
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
    
    risks related to the separation of our Ciao Internet survey solutions and comparison shopping businesses;
    
    risks related to the success of new business initiatives;
    
    our ability to bring expenses in line with current revenue levels;
    
    our ability to develop and deploy new technologies;
    
    risks related to our reliance on search engine algorithm optimization to generate internet traffic;
    
    our client satisfaction levels;
    
    our ability to build and maintain the size and demographic composition of the Greenfield Online panel;
    
    our panelists responsiveness to our surveys;
    
    issues related to the development, success and client acceptance of our real-time
sampling methodology for recruiting survey takers on the Internet;
    
    our ability to accurately predict future revenue;
    
    our ability to manage pricing pressure in North America and Europe;
    
    our reliance on our largest customers;
    
    our ability to reaccelerate North American sales growth;
    
    the growing competitiveness of our marketplace and our ability to compete therein;
    
    our ability to manage or accelerate our growth and international expansion;
    
    risks related to foreign currency rate fluctuations;
    
    our ability to integrate successfully the businesses we have recently acquired or may
acquire in the future;
    
    our online business model;
    
    demand for our products and services;
    
    the seasonality of demand for Internet survey solutions and comparison shopping services; and
    
    the strength of our brand.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
  Exhibit No.
    
    Description of Exhibits10.61
    
    Amendment to Metzke Letter of Engagement (Previously filed as
exhibit 10.61 to our Current Report on Form 8-K dated July 25,
2006).10.62
    
    Metzke Employment Agreement (Previously filed as exhibit
10.62 to our Current Report on Form 8-K dated July 25, 2006).10.63
    
    Cartellieri Separation Agreement (Previously filed as exhibit
10.63 to our Current Report on Form 8-K dated July 25, 2006).10.64
    
    Piening Separation Agreement (Previously filed as exhibit
10.64 to our Current Report on Form 8-K dated July 25, 2006).31.1
    
    Certification of the Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as
amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certification of the Chief Financial Officer pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as
amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    Certification of the Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350.32.2
    
    Certifications of the Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350.
 
 
    
    Previously filed and incorporated herein by reference. 58




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SIGNATURE
  GREENFIELD ONLINE, INC.By:
    /s/ Robert E. BiesRobert E. BiesExecutive Vice President and
Chief Financial Officer  59




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EXHIBIT INDEX
 Exhibit No.
    
    Description of Exhibits10.61
    
    Amendment to Metzke Letter of Engagement (Previously filed as
exhibit 10.61 to our Current Report on Form 8-K dated July 25,
2006).10.62
    
    Metzke Employment Agreement (Previously filed as exhibit
10.62 to our Current Report on Form 8-K dated July 25, 2006).10.63
    
    Cartellieri Separation Agreement (Previously filed as exhibit
10.63 to our Current Report on Form 8-K dated July 25, 2006).10.64
    
    Piening Separation Agreement (Previously filed as exhibit
10.64 to our Current Report on Form 8-K dated July 25, 2006).31.1
    
    Certification of the Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as
amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certification of the Chief Financial Officer pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as
amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    Certification of the Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350.32.2
    
    Certifications of the Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350.
 
 
    
    Previously filed and incorporated herein by reference. 60