##### 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 June 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
 (Former name, former address and former fiscal year, if changed since last report)
 þ o
  o þ o
 o þ




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##### 



FORM 10-Q
TABLE OF CONTENTS
 PagePart I.
    
    Financial InformationItem 1.
    
    Financial StatementsConsolidated Balance Sheets at June 30, 2006 (unaudited)
and December 31, 2005
    
    
    1Unaudited Consolidated Statements of Operations for the
three and six months ended June 30, 2006 and 2005
    
    
    2Unaudited Consolidated Statements of Changes in
Stockholders Equity for the six months ended June 30,
2006
    
    
    3Unaudited Consolidated Statements of Cash Flows for the
six months ended June 30, 2006 and 2005
    
    
    4Notes to Unaudited Consolidated Financial Statements
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    28Item 3.
    
    Quantitative and Qualitative Disclosures About
 Market Risk
    
    
    44Item 4.
    
    Controls and Procedures
    
    
    44Part II.
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    
    45Item 1A.
    
    Risk Factors
    
    
    45Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    55Item 3.
    
    Defaults Upon Senior Securities
    
    
    55Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    56Item 5.
    
    Other Information
    
    
    56Item 6.
    
    Exhibits
    
    
    56Signatures
    
    
    
    
    57Exhibit Index
    
    
    
    
    58EX-10.65: CONTRACT OF APPOINTMNETEX-10.66: SHARE OPTION AGREEMENTEX-10.67: CONTRACT OF APPOINTMENTEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION




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##### Table of Contents



GREENFIELD ONLINE, INC.
 
 CONSOLIDATED BALANCE SHEETS
(In thousands, except share data
 June 30,
    
    
    December 31,2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    25,170
    
    
    $
    20,623Accounts receivable trade, net (net of
allowances of $1,539 and $1,448 at June 30,
2006 and December 31, 2005, respectively)
    
    
    19,126
    
    
    
    18,197Prepaid expenses and other current assets
    
    
    1,571
    
    
    
    1,613Deferred tax assets, current
    
    
    1,177
    
    
    
    1,932Total current assets
    
    
    47,044
    
    
    
    42,365Property and equipment, net
    
    
    7,583
    
    
    
    9,660Other intangible assets, net
    
    
    18,894
    
    
    
    20,077Goodwill
    
    
    69,530
    
    
    
    67,442Deferred tax assets, long-term
    
    
    19,224
    
    
    
    20,068Security deposits and other long-term assets
    
    
    847
    
    
    
    1,248Total assets
    
    $
    163,122
    
    
    $
    160,860LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,908
    
    
    $
    3,264Accrued expenses and other current liabilities
    
    
    13,847
    
    
    
    14,576Income taxes payable
    
    
    5,291
    
    
    
    3,990Current portion of capital lease obligations
    
    
    37
    
    
    
    2,061Deferred revenue
    
    
    412
    
    
    
    388Total current liabilities
    
    
    22,495
    
    
    
    24,279Capital lease obligations
    
    
    28
    
    
    
    2,032Other long-term liabilities
    
    
    28
    
    
    
    56Total liabilities
    
    
    22,551
    
    
    
    26,367Commitments and contingencies (Note 13)
Stockholders equity:Common stock; par value $0.0001 per share;
100,000,000 shares authorized; 25,382,720 and
25,303,088 shares issued and outstanding at
June 30, 2006 and December 31, 2005,
respectively
    
    
    3
    
    
    
    3Additional paid-in capital
    
    
    288,809
    
    
    
    288,707Accumulated deficit
    
    
    (141,535
    )
    
    
    (144,630
    )Unearned stock-based compensation
    
    
    
    
    
    
    (1,284
    )Accumulated other comprehensive loss
    
    
    (6,575
    )
    
    
    (8,172
    )Treasury stock, at costCommon stock  9,643 shares
    
    
    (131
    )
    
    
    (131
    )Total stockholders equity
    
    
    140,571
    
    
    
    134,493Total liabilities and stockholders equity.
    
    $
    163,122
    
    
    $
    160,860
  1




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##### Table of Contents



GREENFIELD ONLINE, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net revenues
    
    $
    24,453
    
    
    $
    26,283
    
    
    $
    45,985
    
    
    $
    41,534Cost of revenues
    
    
    5,560
    
    
    
    7,162
    
    
    
    11,108
    
    
    
    11,587Gross profit
    
    
    18,893
    
    
    
    19,121
    
    
    
    34,877
    
    
    
    29,947Operating expenses:Selling, general and administrative
    
    
    10,717
    
    
    
    11,174
    
    
    
    20,252
    
    
    
    17,872Panel acquisition expenses
    
    
    1,231
    
    
    
    833
    
    
    
    2,937
    
    
    
    1,287Depreciation and amortization
    
    
    2,401
    
    
    
    2,020
    
    
    
    4,717
    
    
    
    2,803Research and development
    
    
    821
    
    
    
    570
    
    
    
    1,762
    
    
    
    916Restructuring charges
    
    
    20
    
    
    
    
    
    
    
    188
    
    
    
    Total operating expenses
    
    
    15,190
    
    
    
    14,597
    
    
    
    29,856
    
    
    
    22,878Operating income
    
    
    3,703
    
    
    
    4,524
    
    
    
    5,021
    
    
    
    7,069Other income (expense):Interest income (expense), net
    
    
    85
    
    
    
    (232
    )
    
    
    (82
    )
    
    
    222Other income (expense), net
    
    
    (206
    )
    
    
    22
    
    
    
    (154
    )
    
    
    (19
    )Total other income (expense)
    
    
    (121
    )
    
    
    (210
    )
    
    
    (236
    )
    
    
    203Income before income taxes
    
    
    3,582
    
    
    
    4,314
    
    
    
    4,785
    
    
    
    7,272Provision (benefit) for income taxes
    
    
    1,328
    
    
    
    (14,812
    )
    
    
    1,690
    
    
    
    (14,320
    )Net income
    
    $
    2,254
    
    
    $
    19,126
    
    
    $
    3,095
    
    
    $
    21,592Net income per share available to common stockholders:Basic
    
    $
    0.09
    
    
    $
    0.76
    
    
    $
    0.12
    
    
    $
    0.93Diluted
    
    $
    0.09
    
    
    $
    0.75
    
    
    $
    0.12
    
    
    $
    0.92Weighted average shares outstanding:Basic
    
    
    25,353
    
    
    
    25,041
    
    
    
    25,331
    
    
    
    23,118Diluted
    
    
    25,541
    
    
    
    25,422
    
    
    
    25,523
    
    
    
    23,555
  2




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##### Table of Contents



GREENFIELD ONLINE, INC.
 
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(In thousands)
 Additional
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unearned
    
    
    
    
    
    
    Accumulated 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
    )
    
    $
    134,493Six months ended June 30, 2006:Net income for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,095
    
    
    
    
    
    
    
    3,095
    
    
    $
    3,095Issuance of shares related to the Employee Stock Purchase Plan
    
    
    13
    
    
    
    
    
    
    
    64
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64
    
    
    
    Exercise of stock options
    
    
    67
    
    
    
    
    
    
    
    104
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104
    
    
    
    Adoption of SFAS 123(R)
    
    
    
    
    
    
    
    
    
    
    (1,284
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,284
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Translation adjustments, net of related income tax effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,597
    
    
    
    1,597
    
    
    
    1,597Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4,692Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,218
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,218Balance at June 30, 2006
    
    
    25,383
    
    
    $
    3
    
    
    $
    288,809
    
    
    

    
    
    
    

    9
    
    
    $
    (131
    )
    
    $
    (
    )
    
    $
    (141,535
    )
    
    $
    (6,575
    )
    
    $
    140,571
  3




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##### Table of Contents



GREENFIELD ONLINE, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 Six Months EndedJune 30,2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    3,095
    
    
    $
    21,592Adjustments to reconcile net income to net cash provided by operating activities:Deferred income tax benefit
    
    
    (619
    )
    
    
    (15,503
    )Depreciation and amortization
    
    
    6,190
    
    
    
    4,004Stock based compensation
    
    
    1,218
    
    
    
    476Restructuring charges
    
    
    188
    
    
    
    Loss on disposal of property and equipment
    
    
    31
    
    
    
    16Provision for doubtful accounts
    
    
    52
    
    
    
    121Changes in assets and liabilities, net:Accounts receivable
    
    
    (525
    )
    
    
    (3,544
    )Deferred project costs
    
    
    41
    
    
    
    (68
    )Other current assets
    
    
    42
    
    
    
    781Security deposits
    
    
    427
    
    
    
    12Other long-term assets
    
    
    (17
    )
    
    
    (533
    )Accounts payable
    
    
    (403
    )
    
    
    20Accrued expenses and other current liabilities
    
    
    (960
    )
    
    
    1,505Income taxes payable
    
    
    1,290
    
    
    
    Deferred project revenues
    
    
    23
    
    
    
    117Net cash provided by operating activities
    
    
    10,073
    
    
    
    8,996Cash flows from investing activities:Purchases of marketable securities
    
    
    
    
    
    
    (8,249
    )Sales of marketable securities
    
    
    
    
    
    
    25,649Proceeds from sale of property and equipment
    
    
    2
    
    
    
    Purchases of businesses, net of cash acquired
    
    
    
    
    
    
    (110,658
    )Additions to property and equipment and intangibles
    
    
    (1,882
    )
    
    
    (1,795
    )Net cash used in investing activities
    
    
    (1,880
    )
    
    
    (95,053
    )Cash flows from financing activities:Proceeds from borrowing under credit facility
    
    
    
    
    
    
    18,848Repayments under credit facility
    
    
    
    
    
    
    (555
    )Decrease in other long-term liabilities
    
    
    (28
    )
    
    
    (37
    )Proceeds of options exercised
    
    
    104
    
    
    
    203Proceeds of employee stock purchase plan
    
    
    61
    
    
    
    Contribution to capital
    
    
    
    
    
    
    27Net proceeds from issuance of common stock in connection with business acquisitions
    
    
    
    
    
    
    4,200Principal payments under capital lease obligations
    
    
    (4,291
    )
    
    
    (694
    )Net cash (used in) provided by financing activities
    
    
    (4,154
    )
    
    
    21,992Effect of exchange rate changes
    
    
    508
    
    
    
    (208
    )Net increase (decrease) in cash and cash equivalents
    
    
    4,547
    
    
    
    (64,273
    )Cash and cash equivalents at beginning of the period
    
    
    20,623
    
    
    
    96,082Cash and cash equivalents at end of the period
    
    $
    25,170
    
    
    $
    31,809Supplemental disclosures of cash flow information:Cash paid during the period for:Interest
    
    $
    372
    
    
    $
    387Income taxes
    
    
    1,018
    
    
    
    690Supplemental Schedule of Non-cash Investing and Financing Activities:Purchase of equipment and internal use software financed through capital lease
obligations
    
    $
    263
    
    
    $
    1,062Issuance of Common Stock for business acquisition
    
    
    
    
    
    
    79,697
  4




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##### Table of Contents



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




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##### Table of Contents



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




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##### Table of Contents



Goodwill.
 Use of Estimates.
 Recently Issued Accounting Pronouncements
    7




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##### Table of Contents





Note 3  Prepaid Expenses and Other Current Assets:




June 30,
    
    
    December 31,2006
    
    
    2005Prepaid maintenance and license contracts
    
    $
    304
    
    
    $
    316Prepaid expenses
    
    
    404
    
    
    
    254Prepaid insurance
    
    
    156
    
    
    
    488Deferred project costs
    
    
    342
    
    
    
    378Prepaid taxes
    
    
    145
    
    
    
    136Other
    
    
    220
    
    
    
    41$
    1,571
    
    
    $
    1,613


Note 4  Property and Equipment, net:




EstimatedUseful
    
    
    June 30,
    
    
    December 31,Life-Years
    
    
    2006
    
    
    2005Computer and data processing equipment
    
    
    2  4
    
    
    $
    13,188
    
    
    $
    14,730Leasehold improvements
    
    
    2  5
    *
    
    
    1,832
    
    
    
    1,838Furniture and fixtures
    
    
    7  8
    
    
    
    2,561
    
    
    
    2,382Telephone systems
    
    
    4  5
    
    
    
    1,169
    
    
    
    1,121Automobile(s)
    
    
    4
    
    
    
    42
    
    
    
    9918,792
    
    
    
    20,170Less: Accumulated depreciation
    
    
    
    
    
    
    (11,209
    )
    
    
    (10,510
    )Property and equipment, net
    
    
    
    
    
    $
    7,583
    
    
    $
    9,660





|  |  |                                                                               
|- |  | ------------------------------------------------------------------------------
|* |  | Lesser of the estimated life of the asset or the life of the underlying lease.







June 30,
    
    
    December 31,2006
    
    
    2005Computer and data processing equipment
    
    $
    50
    
    
    $
    4,717Leasehold improvements
    
    
    
    
    
    
    28Furniture and fixtures
    
    
    
    
    
    
    1,374Telephone system
    
    
    50
    
    
    
    975Automobile
    
    
    
    
    
    
    58100
    
    
    
    7,152Accumulated depreciation
    
    
    (43
    )
    
    
    (3,112
    )Assets under capital leases, net
    
    $
    57
    
    
    $
    4,040


8




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##### Table of Contents



Note 5  Other Intangible Assets:
  As of June 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
    
    
    $
    3,904
    
    
    $
    1,489
    
    
    $
    2,415
    
    
    $
    3,321
    
    
    $
    1,777
    
    
    $
    1,544Other software acquired
    
    
    0.42
    
    
    
    159
    
    
    
    159
    
    
    
    
    
    
    
    159
    
    
    
    159
    
    
    
    Panel members*
    
    
    3-4
    
    
    
    6,747
    
    
    
    2,487
    
    
    
    4,260
    
    
    
    6,674
    
    
    
    1,558
    
    
    
    5,116Backlog
    
    
    0.25
    
    
    
    434
    
    
    
    434
    
    
    
    
    
    
    
    419
    
    
    
    419
    
    
    
    Affiliate network
    
    
    3
    
    
    
    347
    
    
    
    159
    
    
    
    188
    
    
    
    347
    
    
    
    87
    
    
    
    260Customer relationships
    
    
    5
    
    
    
    7,368
    
    
    
    1,922
    
    
    
    5,446
    
    
    
    7,015
    
    
    
    1,142
    
    
    
    5,873Non-competition agreements
    
    
    2.75-3
    
    
    
    2,481
    
    
    
    1,167
    
    
    
    1,314
    
    
    
    2,371
    
    
    
    712
    
    
    
    1,659Domain names and service
marks
    
    
    5-10
    
    
    
    6,908
    
    
    
    1,637
    
    
    
    5,271
    
    
    
    6,545
    
    
    
    920
    
    
    
    5,625Other intangible assets, net
    
    
    
    
    
    $
    28,348
    
    
    $
    9,454
    
    
    $
    18,894
    
    
    $
    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.      AmountFor the remaining six months ending December 31, 2006
    
    $
    3,5842007
    
    
    6,7762008
    
    
    4,6412009
    
    
    2,8932010
    
    
    8042011
    
    
    51
 9




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##### Table of Contents



June 30,
    
    
    December 31,2006
    
    
    2005Internal use software
    
    $
    
    
    
    $
    69Accumulated amortization
    
    
    
    
    
    
    (39
    )Assets under capital leases, net
    
    $
    
    
    
    $
    30
 10




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##### Table of Contents



Note 6  Goodwill:
   GoodwillBalance as of December 31, 2005
    
    $
    67,442Adjustment *
    
    
    (113
    )Foreign currency translation adjustment
    
    
    2,201Balance as of June 30, 2006
    
    $
    69,530
 
 *
    
    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
  11




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##### Table of Contents



Zing Wireless Acquisition
  Ciao Acquisition
   12




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##### Table of Contents



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. Other intangible assets consisted of the following at the date of acquisition for goZing and Ciao
(in thousands):
 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.  13




---



##### Table of Contents



Pro Forma(Unaudited)Six Months EndedJune 30,(In thousands, except per share data)
    
    2005Net revenues
    
    $
    49,328Operating income*
    
    
    6,854Net income
    
    
    21,387Net income per share:Basic
    
    $
    0.85Diluted
    
    
    0.83Weighted average shares outstanding:Basic
    
    
    25,231Diluted
    
    
    25,668
 
 *
    
    Included in pro forma operating income for the six months ended June 30, 2005 is amortization
of approximately $3.2 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 six months ended June 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.  Note 8  Accrued Expenses and Other Current Liabilities:
  June 30,
    
    
    December 31,2006
    
    
    2005Accrued payroll, bonus and commissions
    
    $
    3,018
    
    
    $
    2,567Panelist incentives
    
    
    4,398
    
    
    
    4,419Accrued panel costs
    
    
    317
    
    
    
    550Accrued restructuring costs
    
    
    76
    
    
    
    347Accrued management change costs
    
    
    527
    
    
    
    754Non-income tax accruals
    
    
    1,332
    
    
    
    1,472Software license liability
    
    
    197
    
    
    
    274Accrued audit and tax costs
    
    
    552
    
    
    
    1,175Outside sample accruals
    
    
    1,084
    
    
    
    949Due to customers
    
    
    919
    
    
    
    Other
    
    
    1,427
    
    
    
    2,069$
    13,847
    
    
    $
    14,576
   14




---



##### Table of Contents



Note 9  Earnings Per Share:
 Net Income per Share.
  Three Months
    
    
    Six MonthsEnded
    
    
    EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Weighted average number of common and
potential common shares outstanding:Basic number of common shares outstanding
    
    
    25,353
    
    
    
    25,041
    
    
    
    25,331
    
    
    
    23,118Dilutive effect of stock option grants
and the employee stock purchase plan
    
    
    188
    
    
    
    381
    
    
    
    192
    
    
    
    437Diluted number of common and potential
common shares outstanding
    
    
    25,541
    
    
    
    25,422
    
    
    
    25,523
    
    
    
    23,555
 Note 10  Stock-Based Compensation:
  Unearned Stock-Based Compensation
  15




---



##### Table of Contents



2004 Employee Stock Purchase Plan
     Stock Options
 1999 Stock Option Plan
  16




---



##### Table of Contents



2004 Equity Incentive Plan
   2005 Inducement Options
  Stock-Based Compensation and adoption of SFAS 123(R)
  17




---



##### Table of Contents



For the Three Months Ended June 30, 2006
    
    
    For the Six Months Ended June 30, 2006AsUnder
    
    
    Effect of
    
    
    Reported
    
    
    Under
    
    
    Effect of
    
    
    As ReportedPrevious
    
    
    SFAS 123(R)
    
    
    SFAS
    
    
    Previous
    
    
    SFAS 123(R)
    
    
    SFASAccounting
    
    
    Adjustments
    
    
    123(R)
    
    
    Accounting
    
    
    Adjustments
    
    
    123(R)Income (loss) from
operations
    
    $
    4,173
    
    
    $
    (470
    )
    
    $
    3,703
    
    
    $
    5,901
    
    
    $
    (880
    )
    
    $
    5,021Income (loss) before
income tax provision
    
    
    4,052
    
    
    
    (470
    )
    
    
    3,582
    
    
    
    5,665
    
    
    
    (880
    )
    
    
    4,785Net income (loss)
    
    
    2,545
    
    
    
    (291
    )
    
    
    2,254
    
    
    
    3,642
    
    
    
    (547
    )
    
    
    3,095Earnings (loss) per share:Basic
    
    $
    0.10
    
    
    $
    (0.01
    )
    
    $
    0.09
    
    
    $
    0.14
    
    
    $
    (0.02
    )
    
    $
    0.12Diluted
    
    $
    0.10
    
    
    $
    (0.01
    )
    
    $
    0.09
    
    
    $
    0.14
    
    
    $
    (0.02
    )
    
    $
    0.12
 18




---



##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005 *
    
    
    2006
    
    
    2005 *Cost of revenues
    
    $
    80
    
    
    $
    44
    
    
    $
    137
    
    
    $
    89Research and development expenses
    
    
    17
    
    
    
    
    
    
    
    23
    
    
    
    Selling, general and administrative expenses
    
    
    539
    
    
    
    179
    
    
    
    1,058
    
    
    
    387Pre-tax stock-based compensation expense
    
    
    636
    
    
    
    223
    
    
    
    1,218
    
    
    
    476Income tax benefit
    
    
    (266
    )
    
    
    
    
    
    
    (472
    )
    
    
    Net stock based compensation expense
    
    $
    370
    
    
    $
    223
    
    
    $
    746
    
    
    $
    476
 
 *
    
    Amounts recorded in the prior year period were recorded under APB 25.  1999 Plan
    
    
    2004 Equity PlanWeighted
    
    
    
    
    
    
    
    
    
    
    WeightedNumber
    
    
    
    
    
    
    Average
    
    
    Number
    
    
    
    
    
    
    Averageof
    
    
    Option Price
    
    
    Price Per
    
    
    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-$20.71
    
    
    $
    12.42Granted
    
    
    
    
    
    $
        -$     
    
    
    $
    
    
    
    
    1,115,000
    
    
    $
    6.66-$  7.27
    
    
    $
    7.05Canceled, expired
    
    
    (262
    )
    
    $
    0.42-$168.84
    
    
    $
    45.82
    
    
    
    (118,380
    )
    
    $
    13.00-$16.10
    
    
    $
    14.28Forfeited
    
    
    (32,144
    )
    
    $
    2.66-$    2.66
    
    
    $
    2.66
    
    
    
    (17,500
    )
    
    $
    5.42-$  9.35
    
    
    $
    8.86Exercised *
    
    
    (66,783
    )
    
    $
    0.42-$    2.66
    
    
    $
    1.56
    
    
    
    
    
    
    $
        -$     
    
    
    $
    Outstanding at June 30, 2006
    
    
    469,729
    
    
    $
    0.14-$168.84
    
    
    $
    6.11
    
    
    
    3,245,575
    
    
    $
    4.92-$20.71
    
    
    $
    10.53Exercisable at June 30, 2006
    
    
    352,748
    
    
    $
    0.14-$168.84
    
    
    $
    7.46
    
    
    
    1,633,824
    
    
    $
    7.44-$20.71
    
    
    $
    13.70Available for future option
grants at June 30, 2006
    
    
    23,054
    
    
    
    
    
    
    
    
    
    
    
    277,737
 
 *
    
    The total intrinsic value of options exercised during the six months ended June 30, 2006 was
approximately $348,000. 2005 Inducement OptionsWeightedNumber
    
    
    
    
    
    
    Averageof
    
    
    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 June 30, 2006
    
    
    675,000
    
    
    $
    5.02-$5.93
    
    
    $
    5.29Exercisable at June 30, 2006
    
    
    141,259
    
    
    $
    5.02-$5.93
    
    
    $
    5.25
   19




---



##### Table of Contents



Weighted
    
    
    WeightedAverage
    
    
    AverageOption
    
    
    Exercise
    
    
    Fair ValueNumber of
    
    
    Price
    
    
    Price Per
    
    
    at DateSix months ended June 30, 2006:
    
    Shares
    
    
    Range
    
    
    Share
    
    
    of Grant2004 Equity Incentive PlanOptions granted with an exercise price equal to market
    
    
    1,115,000
    
    
    $
    6.66-$7.27
    
    
    $
    7.05
    
    
    $
    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
    
    
    1,302,500
    
    
    $
    5.93-$7.27
    
    
    $
    6.89
    
    
    $
    3.33
  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
    
    
    170,533
    
    
    4.7 years
    
    $
    0.29
    
    
    
    
    
    
    
    141,953
    
    
    $
    0.32$0.71-$2.80
    
    
    204,952
    
    
    7.3 years
    
    $
    2.66
    
    
    
    
    
    
    
    116,551
    
    
    $
    2.66$2.81-$7.04
    
    
    1,715,500
    
    
    6.6 years
    
    $
    6.34
    
    
    
    
    
    
    
    141,259
    
    
    $
    5.25$7.05-$7.44
    
    
    662,500
    
    
    6.7 years
    
    $
    7.42
    
    
    
    
    
    
    
    143,749
    
    
    $
    7.44$7.45-$13.00
    
    
    479,529
    
    
    7.7 years
    
    $
    12.80
    
    
    
    
    
    
    
    434,529
    
    
    $
    12.94$13.01-$14.99
    
    
    994,541
    
    
    5.4 years
    
    $
    14.68
    
    
    
    
    
    
    
    987,041
    
    
    $
    14.68$15.00-$20.00
    
    
    150,119
    
    
    7.7 years
    
    $
    17.11
    
    
    
    
    
    
    
    150,119
    
    
    $
    17.11$20.01-$42.00
    
    
    8,165
    
    
    5.4 years
    
    $
    23.79
    
    
    
    
    
    
    
    8,165
    
    
    $
    23.79$42.01-$168.84
    
    
    4,465
    
    
    3.7 years
    
    $
    162.37
    
    
    
    
    
    
    
    4,465
    
    
    $
    162.374,390,304
    
    
    
    
    
    
    
    
    
    
    $
    3,753
    
    
    
    2,127,831
    
    
    
    
    
    
    $
    1,5861999 Plan$0.00-$0.70
    
    
    170,533
    
    
    4.7 years
    
    $
    0.29
    
    
    
    
    
    
    
    141,953
    
    
    $
    0.32$0.71-$2.80
    
    
    204,952
    
    
    7.3 years
    
    $
    2.66
    
    
    
    
    
    
    
    116,551
    
    
    $
    2.66$7.45-$13.00
    
    
    8,495
    
    
    4.5 years
    
    $
    9.83
    
    
    
    
    
    
    
    8,495
    
    
    $
    9.83$15.00-$20.00
    
    
    78,119
    
    
    7.4 years
    
    $
    17.59
    
    
    
    
    
    
    
    78,119
    
    
    $
    17.59$20.01-$42.00
    
    
    3,165
    
    
    3.6 years
    
    $
    29.39
    
    
    
    
    
    
    
    3,165
    
    
    $
    29.39$42.01-$168.84
    
    
    4,465
    
    
    3.7 years
    
    $
    162.37
    
    
    
    
    
    
    
    4,465
    
    
    $
    162.37469,729
    
    
    
    
    
    
    
    
    
    
    $
    1,909
    
    
    
    352,748
    
    
    
    
    
    
    $
    1,2812004 Equity Plan$2.81-$7.04
    
    
    1,040,500
    
    
    6.7 years
    
    $
    7.03
    
    
    
    
    
    
    
    
    
    
    $
    0.00$7.05-$7.44
    
    
    662,500
    
    
    6.7 years
    
    $
    7.42
    
    
    
    
    
    
    
    143,749
    
    
    $
    7.44$7.45-$13.00
    
    
    471,034
    
    
    7.7 years
    
    $
    12.86
    
    
    
    
    
    
    
    426,034
    
    
    $
    13.00$13.01-$14.99
    
    
    994,541
    
    
    5.4 years
    
    $
    14.68
    
    
    
    
    
    
    
    987,041
    
    
    $
    14.68$15.00-$20.00
    
    
    72,000
    
    
    8.1 years
    
    $
    16.59
    
    
    
    
    
    
    
    72,000
    
    
    $
    16.59$20.01-$42.00
    
    
    5,000
    
    
    6.6 years
    
    $
    20.25
    
    
    
    
    
    
    
    5,000
    
    
    $
    20.253,245,575
    
    
    
    
    
    
    
    
    
    
    $
    411
    
    
    
    1,633,824
    
    
    
    
    
    
    $
    2005
Inducement Options$2.81-$7.04
    
    
    675,000
    
    
    6.4 years
    
    $
    5.29
    
    
    
    
    
    
    
    141,259
    
    
    $
    5.25675,000
    
    
    
    
    
    
    
    
    
    
    $
    1,433
    
    
    
    141,259
    
    
    
    
    
    
    $
    305
 20




---



##### Table of Contents



Three Months Ended June 30, 20062005InducementCombined
    
    
    2004 Equity Plan
    
    
    OptionsRisk-free interest rate
    
    
    4.99
    %
    
    
    4.99
    %
    
    
    Weighted average expected life (years)
    
    
    4.66
    
    
    
    4.66
    
    
    
    Volatility factor
    
    
    51.30
    %
    
    
    51.30
    %
    
    
    Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    
 Six Months Ended June 30, 20062005InducementCombined
    
    
    2004 Equity Plan
    
    
    OptionsRisk-free interest rate
    
    
    4.63
    %
    
    
    4.68
    %
    
    
    4.30
    %Weighted average expected life (years)
    
    
    4.60
    
    
    
    4.66
    
    
    
    4.21Volatility factor
    
    
    51.78
    %
    
    
    51.96
    %
    
    
    50.60
    %Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    
 Volatility
 Risk-free interest rate
 Expected term
 Dividend yield
  21




---



##### Table of Contents



Fair Value Disclosures  Prior to SFAS 123(R) Adoption.
   22




---



##### Table of Contents



Three Months
    
    
    Six MonthsEnded
    
    
    EndedJune 30, 2005
    
    
    June 30, 2005Net income as reported
    
    $
    19,126
    
    
    $
    21,592Add: Stock-based employee
compensation expense included in
net income as recorded
    
    
    223
    
    
    
    476Deduct: Total stock-based
employee compensation expense
determined under the fair value
method for all awards, net of
related tax effects
    
    
    (473
    )
    
    
    (1,079
    )Pro forma net income
    
    $
    18,876
    
    
    $
    20,989Net income per share as reported:Basic
    
    $
    0.76
    
    
    $
    0.93Diluted
    
    $
    0.75
    
    
    $
    0.92Pro forma income per share:Basic
    
    $
    0.75
    
    
    $
    0.91Diluted
    
    $
    0.74
    
    
    $
    0.89
  Three Months
    
    Six MonthsEnded
    
    EndedJune 30, 2005
    
    June 30, 2005Risk-free interest rate
    
    
    3.83
    %
    
    
    3.83
    %Weighted average expected life (years)
    
    
    4.0
    
    
    
    4.0Volatility factor
    
    
    52.34
    %
    
    
    52.34
    %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:
  23




---



##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Gross segment revenuesNorth American Internet survey solutionsThird-party revenues
    
    $
    14,832
    
    
    $
    18,202
    
    
    $
    28,403
    
    
    $
    33,453Inter-segment revenues
    
    
    278
    
    
    
    46
    
    
    
    522
    
    
    
    46Gross segment revenues
    
    $
    15,110
    
    
    $
    18,248
    
    
    $
    28,925
    
    
    $
    33,499Ciao Internet survey solutionsThird-party revenues
    
    $
    5,390
    
    
    $
    5,745
    
    
    $
    9,944
    
    
    $
    5,745Inter-segment revenues
    
    
    2,303
    
    
    
    516
    
    
    
    3,494
    
    
    
    516Gross segment revenues
    
    $
    7,693
    
    
    $
    6,261
    
    
    $
    13,438
    
    
    $
    6,261Net revenues:North American Internet survey solutions **
    
    $
    15,110
    
    
    $
    18,248
    
    
    $
    28,925
    
    
    $
    33,499Ciao Internet survey solutions
    
    
    7,693
    
    
    
    6,261
    
    
    
    13,438
    
    
    
    6,261Ciao comparison shopping*
    
    
    4,231
    
    
    
    2,336
    
    
    
    7,638
    
    
    
    2,336Elimination of inter-segment revenues
    
    
    (2,581
    )
    
    
    (562
    )
    
    
    (4,016
    )
    
    
    (562
    )Total net revenues
    
    $
    24,453
    
    
    $
    26,283
    
    
    $
    45,985
    
    
    $
    41,534Segment operating income (as defined above):North American Internet survey solutions
    
    $
    3,186
    
    
    $
    5,683
    
    
    $
    6,202
    
    
    $
    10,994Ciao Internet survey solutions
    
    
    3,351
    
    
    
    2,551
    
    
    
    5,117
    
    
    
    2,551Ciao comparison shopping
    
    
    2,642
    
    
    
    1,167
    
    
    
    4,292
    
    
    
    1,167Segment operating income
    
    
    9,179
    
    
    
    9,401
    
    
    
    15,611
    
    
    
    14,712Depreciation and amortization
    
    
    (3,124
    )
    
    
    (2,784
    )
    
    
    (6,190
    )
    
    
    (4,004
    )Stock-based compensation
    
    
    (636
    )
    
    
    (223
    )
    
    
    (1,218
    )
    
    
    (476
    )Restructuring charges
    
    
    (20
    )
    
    
    (
    )
    
    
    (188
    )
    
    
    (
    )Corporate
    
    
    (1,696
    )
    
    
    (1,870
    )
    
    
    (2,994
    )
    
    
    (3,163
    )Total operating income
    
    
    3,703
    
    
    
    4,524
    
    
    
    5,021
    
    
    
    7,069Interest income (expense), net
    
    
    85
    
    
    
    (232
    )
    
    
    (82
    )
    
    
    222Currency exchange (loss) gain, net
    
    
    (206
    )
    
    
    22
    
    
    
    (154
    )
    
    
    (19
    )Income before income taxes
    
    $
    3,582
    
    
    $
    4,314
    
    
    $
    4,785
    
    
    $
    7,272
 
 *
    
    The Ciao comparison shopping segment has no inter-segment revenues, and as a result, gross
segment revenues are 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 six months
ended June 30, 2005 include approximately $1.0 million of revenues generated from data sold to our
European customers prior to our acquisition of Ciao. 24




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##### Table of Contents



Note 12  Income Taxes:
  For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Income (loss) before income taxes:Domestic
    
    $
    (234
    )
    
    $
    3,222
    
    
    $
    (462
    )
    
    $
    6,029Foreign
    
    
    3,816
    
    
    
    1,092
    
    
    
    5,247
    
    
    
    1,243$
    3,582
    
    
    $
    4,314
    
    
    $
    4,785
    
    
    $
    7,272Provision (benefit) for income taxes:Currently payable:Federal
    
    $
    307
    
    
    $
    (61
    )
    
    $
    384
    
    
    $
    188State
    
    
    59
    
    
    
    48
    
    
    
    146
    
    
    
    281Foreign
    
    
    1,344
    
    
    
    704
    
    
    
    1,779
    
    
    
    714Total current income tax provision
    
    
    1,710
    
    
    
    691
    
    
    
    2,309
    
    
    
    1,183Deferred income tax provision (benefit):Federal
    
    $
    (583
    )
    
    $
    (11,878
    )
    
    $
    (932
    )
    
    $
    (11,878
    )State
    
    
    (86
    )
    
    
    (3,838
    )
    
    
    (19
    )
    
    
    (3,838
    )Foreign
    
    
    287
    
    
    
    213
    
    
    
    332
    
    
    
    213Total deferred income tax benefit
    
    
    (382
    )
    
    
    (15,503
    )
    
    
    (619
    )
    
    
    (15,503
    )Total income tax provision (benefit)
    
    $
    1,328
    
    
    $
    (14,812
    )
    
    $
    1,690
    
    
    $
    (14,320
    )
  June 30,
    
    
    December 31,2006
    
    
    2005Deferred tax assets (liabilities):Net operating loss carryforwards
    
    $
    18,232
    
    
    $
    19,053Stock-based compensation
    
    
    4,132
    
    
    
    3,657Capitalized panel costs
    
    
    507
    
    
    
    391Intangible assets acquired
    
    
    (5,573
    )
    
    
    (6,064
    )Foreign exchange
    
    
    908
    
    
    
    2,942Fixed assets
    
    
    824
    
    
    
    289Federal and state tax credits
    
    
    2,226
    
    
    
    2,281Other deferred tax assets
    
    
    685
    
    
    
    932Net deferred tax asset
    
    
    21,941
    
    
    
    23,481Valuation allowance
    
    
    (1,540
    )
    
    
    (1,481
    )Total net deferred tax assets
    
    $
    20,401
    
    
    $
    22,000
  25




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Note 13  Commitments and Contingencies:
 Legal Contingencies:
  Note 14  Management Change:
   26




---



##### Table of Contents



Note 15  Restructuring Program:
   Severance
    
    
    Leaseand
    
    
    Cancellation
    
    
    NorthRelated
    
    
    and
    
    
    AmericanCosts
    
    
    Other Costs
    
    
    TotalRestructuring activity:Balance at December 31, 2005
    
    $
    347
    
    
    $
    
    
    
    $
    347Provision
    
    
    82
    
    
    
    106
    
    
    
    188Charges against reserve
    
    
    (353
    )
    
    
    (106
    )
    
    
    (459
    )Balance at June 30, 2006
    
    $
    76
    
    
    $
    
    
    
    $
    76Additional information:Cumulative amount incurred as of June 30, 2006
    
    $
    461
    
    
    $
    106
    
    
    $
    567Total expected amounts to be incurred*
    
    $
    461
    
    
    $
    160
    
    
    $
    621
 
 *
    
    The total expected amounts of $621,000 represents the cumulative amount incurred through June
30, 2006 of $567,000, plus additional restructuring charges of $54,000 primarily related to
the lease terminations that we have identified to date that have not yet been recognized in
the consolidated financial statements, excluding interest accretion on the reserve. We have
currently estimated a sub-lease rental component in our future lease cancellation and other
costs. Both the timing and amount of these estimates are dependent on external factors and may
materially differ once such contracts are finalized.  Note 16  Subsequent events:
   27




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##### 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 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 .
 28




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##### Table of Contents



Stock-Based Compensation . Share-Based Payment Accounting for Stock-
Based Compensation,
     Translation of foreign currencies .
 29




---



##### Table of Contents



Results of Operations
 Three Months Ended June 30, 2006 Versus Three Months Ended June 30, 2005
 Consolidated Results
  2006
    
    
    %
    
    
    2005
    
    
    %Net revenues
    
    $
    24,453
    
    
    
    100.0
    %
    
    $
    26,283
    
    
    
    100.0
    %Cost of revenues
    
    
    5,560
    
    
    
    22.7
    
    
    
    7,162
    
    
    
    27.3Gross profit
    
    
    18,893
    
    
    
    77.3
    
    
    
    19,121
    
    
    
    72.7Operating expenses:Selling, general and administrative
    
    
    10,717
    
    
    
    43.8
    
    
    
    11,174
    
    
    
    42.4Panel acquisition expenses
    
    
    1,231
    
    
    
    5.0
    
    
    
    833
    
    
    
    3.2Depreciation and amortization
    
    
    2,401
    
    
    
    9.8
    
    
    
    2,020
    
    
    
    7.7Research and development
    
    
    821
    
    
    
    3.4
    
    
    
    570
    
    
    
    2.2Restructuring charges
    
    
    20
    
    
    
    0.1
    
    
    
    
    
    
    
    Total operating expenses
    
    
    15,190
    
    
    
    62.1
    
    
    
    14,597
    
    
    
    55.5Operating income
    
    
    3,703
    
    
    
    15.2
    
    
    
    4,524
    
    
    
    17.2Other income (expense):Interest income (expense), net
    
    
    85
    
    
    
    0.3
    
    
    
    (232
    )
    
    
    (0.9
    )Other income (expense), net
    
    
    (206
    )
    
    
    (0.8
    )
    
    
    22
    
    
    
    0.1Total other income (expense), net
    
    
    (121
    )
    
    
    (0.5
    )
    
    
    (210
    )
    
    
    (0.8
    )Income before income taxes
    
    
    3,582
    
    
    
    14.7
    
    
    
    4,314
    
    
    
    16.4Provision (benefit) for income taxes
    
    
    1,328
    
    
    
    5.5
    
    
    
    (14,812
    )
    
    
    (56.4
    )Net income
    
    $
    2,254
    
    
    
    9.2
    %
    
    $
    19,126
    
    
    
    72.8
    %
 Net Revenues.
 Gross Profit.
  
    
    incentives of 3.7%;
    
    publisher commissions of 0.9%;
    
    survey distribution costs of 0.6%;
    
    amortization of internal use software of 0.3%;
    
    revenue share arrangements of 0.2%; and
    
    other direct costs of 1.5%.
 30




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##### Table of Contents




    
    direct project personnel costs of 1.6%;
    
    outside sample purchases of 0.8%; and
    
    stock-based compensation expense of 0.2%.
  i)
    
    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;ii)
    
    changing our definition of an active panelist reducing the activity timeframe from 1
year to 6 months. This has in turn increased the incentives forfeited by inactive panelists
for the quarter;iii)
    
    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; andiv)
    
    the growth of the comparison shopping revenues which have no incentive expense in cost
of revenues.
        31




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##### Table of Contents



Selling, General and Administrative Expenses.
  
  Panel Acquisition Expenses.
  Depreciation and Amortization Expenses.
 32




---



##### Table of Contents



Restructuring Charges.
 Research and Development Expenses.
 Interest Income (Expense), Net.
  
    
    The decrease in net interest expense associated with our debt and capital lease
obligations, which were paid off in December 2005 and March 2006, respectively; and
    
    The increase in net interest income resulting from higher cash balances in interest
bearing instruments in 2006 versus 2005.
 Other Income (Expense), Net.
 Provision (Benefit) for Income Taxes.
   33




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##### Table of Contents



Net Income.
 North American Internet Survey Solutions Segment Results
  Three Months Ended June 30,2006
    
    %
    
    2005
    
    %Net revenues
    
    $
    15,110
    
    
    
    100.0
    %
    
    $
    18,248
    
    
    
    100.0
    %Segment operating income
    
    
    3,186
    
    
    
    21.1
    
    
    
    5,683
    
    
    
    31.1
 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 $600,000 associated with the goZing 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 resulting from increased demand for
higher-cost European-sourced data, which was supplied by Ciao.
 Ciao Internet Survey Solutions Segment Results
  Three Months Ended June 30,2006
    
    %
    
    2005
    
    %Net revenues
    
    $
    7,693
    
    
    
    100.0
    %
    
    $
    6,261
    
    
    
    100.0
    %Segment operating income
    
    
    3,351
    
    
    
    43.6
    
    
    
    2,551
    
    
    
    40.7
 Net Revenues.
 34




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##### Table of Contents



Segment
Operating Income.
 Ciao Comparison Shopping Segment Results
  Three Months Ended June 30,2006
    
    %
    
    2005
    
    %Net revenues
    
    $
    4,231
    
    
    
    100.0
    %
    
    $
    2,336
    
    
    
    100.0
    %Segment operating income
    
    
    2,642
    
    
    
    62.4
    
    
    
    1,167
    
    
    
    50.0
 Net Revenues.
 Segment
Operating Income.
 Six
Months Ended June 30, 2006 Versus Six Months Ended June 30, 2005
 Consolidated Results
  2006
    
    
    %
    
    
    2005
    
    
    %Net revenues
    
    $
    45,985
    
    
    
    100.0
    %
    
    $
    41,534
    
    
    
    100.0
    %Cost of revenues
    
    
    11,108
    
    
    
    24.2
    
    
    
    11,587
    
    
    
    27.9Gross profit
    
    
    34,877
    
    
    
    75.8
    
    
    
    29,947
    
    
    
    72.1Operating expenses:Selling, general and administrative
    
    
    20,252
    
    
    
    44.0
    
    
    
    17,872
    
    
    
    43.1Panel acquisition expenses
    
    
    2,937
    
    
    
    6.4
    
    
    
    1,287
    
    
    
    3.1Depreciation and amortization
    
    
    4,717
    
    
    
    10.3
    
    
    
    2,803
    
    
    
    6.7Research and development
    
    
    1,762
    
    
    
    3.8
    
    
    
    916
    
    
    
    2.2Restructuring charges
    
    
    188
    
    
    
    0.4
    
    
    
    
    
    
    
    Total operating expenses
    
    
    29,856
    
    
    
    64.9
    
    
    
    22,878
    
    
    
    55.1Operating income
    
    
    5,021
    
    
    
    10.9
    
    
    
    7,069
    
    
    
    17.0Other income (expense):Interest income (expense), net
    
    
    (82
    )
    
    
    (0.2
    )
    
    
    222
    
    
    
    0.5Other income (expense), net
    
    
    (154
    )
    
    
    (0.3
    )
    
    
    (19
    )
    
    
    0.0Total other income (expense), net
    
    
    (236
    )
    
    
    (0.5
    )
    
    
    203
    
    
    
    0.5Income before income taxes
    
    
    4,785
    
    
    
    10.4
    
    
    
    7,272
    
    
    
    17.5Provision (benefit) for income taxes
    
    
    1,690
    
    
    
    3.7
    
    
    
    (14,320
    )
    
    
    (34.5
    )Net income
    
    $
    3,095
    
    
    
    6.7
    %
    
    $
    21,592
    
    
    
    52.0
    %
 35




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##### Table of Contents



Net Revenues.
 Gross Profit.
  
    
    incentives of 3.5%;
    
    publisher commissions of 0.6%;
    
    survey distribution costs of 0.4%;
    
    revenue share arrangements of 0.4%;
    
    amortization of internal use software of 0.2%; and
    
    other direct costs of 0.8%;
  
    
    direct project personnel of 1.4%;
    
    outside sample purchases of 0.7%; and
    
    stock-based compensation expense of 0.1%.
  i)
    
    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;ii)
    
    changing our definition of an active panelist reducing the activity timeframe from 1
year to 6 months. This has in turn increased the incentives forfeited by inactive panelists
for the period;iii)
    
    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
 36




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##### Table of Contents



iv)
    
    the growth of the comparison shopping revenues which have no incentive expense in cost
of revenues.
         Selling, General and Administrative Expenses.
  37




---



##### Table of Contents



Panel Acquisition Expenses.
  Depreciation and Amortization Expenses.
 Restructuring Charges.
 Research and Development Expenses.
 38




---



##### Table of Contents



Interest (Expense) Income, Net.
 Other Expense, Net.
 Provision (Benefit) for Income Taxes.
   Net Income.
 39




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##### Table of Contents



North American Internet Survey Solutions Segment Results




Six Months Ended June 30,2006
    
    %
    
    2005
    
    %Net revenues
    
    $
    28,925
    
    
    
    100.0
    %
    
    $
    33,499
    
    
    
    100.0
    %Segment operating income
    
    
    6,202
    
    
    
    21.4
    
    
    
    10,994
    
    
    
    32.8
 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 $1.0 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 resulting from increased demand for
higher-cost European-sourced data, which was supplied by Ciao.
 Ciao Internet Survey Solutions Segment Results
  Six Months Ended June 30,2006
    
    %
    
    2005
    
    %Net revenues
    
    $
    13,438
    
    
    
    100.0
    %
    
    $
    6,261
    
    
    
    100.0
    %Segment operating income
    
    
    5,117
    
    
    
    38.1
    
    
    
    2,551
    
    
    
    40.7
 Net Revenues.
 Segment Operating Income.
 40




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##### Table of Contents



Ciao Comparison Shopping Segment Results




Six Months Ended June 30,2006
    
    %
    
    2005
    
    %Net revenues
    
    $
    7,638
    
    
    
    100.0
    %
    
    $
    2,336
    
    
    
    100.0
    %Segment operating income
    
    
    4,292
    
    
    
    56.2
    
    
    
    1,167
    
    
    
    50.0
 Net Revenues.
 Segment Operating Income.
 Liquidity and Capital Resources
       41




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##### Table of Contents



Contractual Cash Obligations and Other Commercial Commitments and Contingencies
  Total at
    
    
    Years Ended December 31,June 30,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2011 and2006
    
    
    2006 (1)
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    ThereafterContractual obligations:Capital lease obligations
    
    $
    65
    
    
    $
    18
    
    
    $
    25
    
    
    $
    14
    
    
    $
    8
    
    
    $
    
    
    
    $
    Non-cancelable operating lease obligations
    
    
    9,969
    
    
    
    1,596
    
    
    
    2,771
    
    
    
    2,526
    
    
    
    2,031
    
    
    
    743
    
    
    
    302Management change commitments*
    
    
    527
    
    
    
    209
    
    
    
    318
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restructuring commitments**
    
    
    76
    
    
    
    76
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other long-term liabilities
    
    
    14
    
    
    
    3
    
    
    
    6
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    10,651
    
    
    $
    1,902
    
    
    $
    3,120
    
    
    $
    2,545
    
    
    $
    2,039
    
    
    $
    743
    
    
    $
    302
 
 (1)
    
    Includes only the remaining six months of the year ending December 31, 2006.*
    
    These management change commitments are a result of our recent management change 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 recently announced rightsizing plan
in North America as described in Note 15 to the consolidated financial statements included in
this Quarterly Report on Form 10-Q. 42




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43




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Item 3: Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4: Controls and Procedures
      44




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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;
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
    
    reinvigorating our North American sales efforts;
    
    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 38% of our total net revenue from ten clients in the six months ended
June 30, 2006. In our reportable segments of North American Internet survey solutions, Ciao
Internet survey solutions and Ciao comparison shopping, we derived approximately 42%, 48% and 63%
of net revenue from ten clients for the six months ended June 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.
  Currency exchange rate fluctuations could lower our revenue and net income.
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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;
    
    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.
   
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
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Item 4. Submission of Matters to a Vote of Security Holders
   Number of Shares
    
    Number of SharesVoted For
    
    WithheldBurton J. Manning
    
    
    21,244,011
    
    
    
    113,978Joseph A. Ripp
    
    
    21,375,718
    
    
    
    182,271
   
 Item 5. Other Information
  
 Item 6. Exhibits
  Exhibit No.
    
    Description of Exhibits10.65
    
    Contract of Appointment between Ciao AG, and Stephan Musikant,
dated June 15, 2004 and effective September 16, 2004 (English translation).10.66
    
    Share Option Agreement and Amendment of the Labour Agreement
between Ciao GmbH, and Stephan Musikant, dated July 8, 2005 (English translation).10.67
    
    Contract of Appointment between Ciao AG, and Daniel Keller,
dated March 4, 2005 and effective May 1, 2005 (English translation).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.
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SIGNATURE
  GREENFIELD ONLINE, INC.By:
    /s/ Robert E. BiesRobert E. BiesExecutive Vice President and
Chief Financial Officer  57




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EXHIBIT INDEX
 Exhibit No.
    
    Description of Exhibits10.65
    
    Contract of Appointment between Ciao AG, and Stephan Musikant,
dated June 15, 2004 and effective September 16, 2004 (English translation).10.66
    
    Share Option Agreement and Amendment of the Labour Agreement
between Ciao GmbH, and Stephan Musikant, dated July 8, 2005 (English translation).10.67
    
    Contract of Appointment between Ciao AG, and Daniel Keller,
dated March 4, 2005 and effective May 1, 2005 (English translation).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.
 58