Edgar Filing: INTERSECTIONS INC

e10vq

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, 2010


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

INTERSECTIONS INC.

(Exact name of registrant as specified in the charter)


DELAWARE (State or other jurisdiction of incorporation or organization)		54-1956515 (I.R.S. Employer Identification Number)

3901 Stonecroft Boulevard, Chantilly, Virginia (Address of principal executive office)		20151 (Zip Code)

(703) 488-6100
(Registrant’s telephone number including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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


Large accelerated filer o	Accelerated filer o	Non-accelerated filer o	Smaller reporting company þ
		( Do not check if a smaller reporting company)

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date:

As of August 6, 2010 there were 18,808,280 shares of common stock, $0.01 par value, issued and 17,741,864 shares outstanding, with 1,066,416 shares of treasury stock.

Form 10-Q

June 30, 2010

Table of Contents


	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)		3
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2010 and 2009		3
Condensed Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009		4
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2010 and the Year Ended December 31, 2009		5
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009		6
Notes to Condensed Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		26
Item 4. Controls and Procedures		47
PART II. OTHER INFORMATION
Item 6. Exhibits		48
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

INTERSECTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
Revenue	$	98,872		$	90,317		$	195,461		$	177,586
Operating expenses:
Marketing		12,684			15,346			29,787			30,375
Commissions		29,809			26,785			60,604			52,650
Cost of revenue		25,544			25,848			51,720			51,384
General and administrative		17,533			18,552			35,105			35,230
Impairment		—			5,949			—			6,163
Depreciation		2,163			1,962			4,471			4,112
Amortization		1,877			2,174			4,176			4,582

Total operating expenses		89,610			96,616			185,863			184,496

Income (loss) from operations		9,262			(6,299	)		9,598			(6,910	)
Interest income		6			98			11			142
Interest expense		(560	)		(288	)		(1,198	)		(437	)
Other (expense) income, net		(23	)		919			(472	)		473

Income (loss) before income taxes and noncontrolling interest		8,685			(5,570	)		7,939			(6,732	)
Income tax expense		(3,509	)		(205	)		(3,831	)		(864	)

Net income (loss)		5,176			(5,775	)		4,108			(7,596	)
Net loss attributable to noncontrolling interest		—			3,116			—			4,380

Net income (loss) attributable to Intersections, Inc.	$	5,176		$	(2,659	)	$	4,108		$	(3,216	)

Net income (loss) per share — basic	$	0.29		$	(0.15	)	$	0.23		$	(0.18	)
Net income (loss) per share — diluted	$	0.29		$	(0.15	)	$	0.23		$	(0.18	)
Weighted average common shares outstanding — basic		17,683			17,486			17,652			17,437
Weighted average common shares outstanding — diluted		18,128			17,486			18,004			17,437

See Notes to Condensed Consolidated Financial Statements

INTERSECTIONS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

(unaudited)


	June 30,			December 31,
	2010			2009
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	28,962		$	12,394
Short-term investments		4,994			4,995
Accounts receivable, net of allowance for doubtful accounts $264 (2010) and $374 (2009)		24,676			25,111
Prepaid expenses and other current assets		5,667			5,182
Income tax receivable		1,925			2,460
Deferred subscription solicitation costs		29,797			34,256

Total current assets		96,021			84,398

PROPERTY AND EQUIPMENT, net		16,645			17,802
DEFERRED TAX ASSET, net		6,922			3,700
LONG-TERM INVESTMENT		4,327			3,327
GOODWILL		46,939			46,939
INTANGIBLE ASSETS, net		17,437			21,613
OTHER ASSETS		7,677			14,392

TOTAL ASSETS	$	195,968		$	192,171

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt	$	7,000		$	7,000
Capital leases, current portion		1,091			1,028
Accounts payable		5,396			9,168
Accrued expenses and other current liabilities		18,654			17,255
Accrued payroll and employee benefits		4,128			2,782
Commissions payable		940			2,044
Deferred revenue		5,021			5,202
Deferred tax liability, net, current portion		15,327			14,879

Total current liabilities		57,557			59,358

LONG-TERM DEBT		27,960			31,393
OBLIGATIONS UNDER CAPITAL LEASE, less current portion		1,309			1,681
OTHER LONG-TERM LIABILITIES		6,687			3,332

TOTAL LIABILITIES		93,513			95,764

COMMITMENTS AND CONTINGENCIES (see notes 12 and 14)
STOCKHOLDERS’ EQUITY:
Common stock at $.01 par value; shares authorized, 50,000; shares issued, 18,812 (2010) and 18,662 (2009); shares outstanding, 17,745 (2010) and 17,595 (2009)		188			187
Additional paid-in capital		106,129			104,810
Treasury stock, 1,067 shares at cost in 2010 and 2009		(9,516	)		(9,516	)
Retained earnings		6,135			2,027
Accumulated other comprehensive (loss) income:
Cash flow hedge		(677	)		(856	)
Other		196			(245	)

TOTAL STOCKHOLDERS’ EQUITY		102,455			96,407

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	195,968		$	192,171

See Notes to Condensed Consolidated Financial Statements

INTERSECTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Year Ended December 31, 2009 and the Six Months Ended June 30, 2010

(in thousands)

(unaudited)


	Common				Additional			Stock								Other			Intersections Inc.						Total
	Stock				Paid-in					Income			Retained			Comprehensive			Stockholders’			Noncontrolling			Stockholders’
	Shares		Amount		Capital			Shares		(Loss)			Earnings			Income (Loss)			Equity			Interest			Equity
	(In thousands)
BALANCE, DECEMBER 31, 2008		18,383	$	184	$	103,544			1,067	$	(9,516	)	$	8,380		$	(1,153	)	$	101,439		$	1,013		$	102,452

Issuance of common stock upon exercise of stock options and vesting of restricted stock units		279		3		(670	)		—		—			—			—			(667	)		—			(667	)
Share based compensation		—		—		4,556			—		—			—			—			4,556			—			4,556
Tax deficiency of stock options exercised and vesting of restricted stock units		—		—		(87	)		—		—			—			—			(87	)		—			(87	)
Release of uncertain tax benefits		—		—		526			—		—			—			—			526			—			526
Purchase of noncontrolling interest		—		—		(3,059	)		—		—			—			(200	)		(3,259	)		3,658			399
Net loss		—		—		—			—		—			(6,353	)		—			(6,353	)		(4,380	)		(10,733	)
Foreign currency translation adjustments		—		—		—			—		—			—			(155	)		(155	)		(291	)		(446	)
Cash flow hedge		—		—		—			—		—			—			407			407			—			407

Comprehensive Loss		—		—		—			—		—			—			—			(5,032	)		(1,013	)		(6,045	)

BALANCE, DECEMBER 31, 2009		18,662	$	187	$	104,810			1,067	$	(9,516	)	$	2,027		$	(1,101	)	$	96,407		$	—		$	96,407

Issuance of common stock upon vesting of restricted stock units		150		1		(1,258	)		—		—			—			—			(1,257	)		—			(1,257	)
Share based compensation		—		—		2,785			—		—			—			—			2,785			—			2,785
Tax deficiency upon vesting of restricted stock units		—		—		(208	)		—		—			—			—			(208	)		—			(208	)
Net income		—		—		—			—		—			4,108			—			4,108			—			4,108
Foreign currency translation adjustments		—		—		—			—		—			—			441			441			—			441
Cash flow hedge		—		—		—			—		—			—			179			179			—			179

Comprehensive Income		—		—		—			—		—			—			—			6,048			—			6048

BALANCE, JUNE 30, 2010		18,812	$	188	$	106,129			1,067	$	(9,516	)	$	6,135		$	(481	)	$	102,455		$	—		$	102,455

See Notes to Condensed Consolidated Financial Statements.

INTERSECTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Six Months Ended
	June 30,
	2010			2009
Net income (loss)	$	4,108		$	(7,596	)
Adjustments to reconcile net income (loss) to cash flows provided by operating activities:
Depreciation		4,472			4,109
Amortization		4,176			4,582
Loss on disposal of fixed assets		—			63
Amortization of debt issuance cost		34			44
Provision for doubtful accounts		(164	)		9
Share based compensation		2,785			2,037
Amortization of deferred subscription solicitation costs		31,996			32,569
Goodwill impairment charges		—			6,163
Foreign currency transaction losses (gains), net		506			(829	)
Changes in assets and liabilities:
Accounts receivable		507			3,423
Prepaid expenses and other current assets		(501	)		851
Income tax receivable		743			4,328
Deferred subscription solicitation costs		(26,027	)		(36,706	)
Other assets		5,203			(2,228	)
Tax deficiency upon vesting of restricted stock units		(208	)		(425	)
Accounts payable		(3,386	)		(2,948	)
Accrued expenses and other current liabilities		1,227			3,305
Accrued payroll and employee benefits		1,352			(1,540	)
Commissions payable		(1,104	)		574
Deferred revenue		(182	)		329
Deferred income tax, net		(2,773	)		2,375
Other long-term liabilities		3,498			(1,340	)

Cash flows provided by operating activities		26,262			11,149

CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of additional interest in long-term investment		(1,000	)		—
Acquisition of property and equipment		(3,251	)		(3,548	)
Proceeds from sale of property and equipment		—			16

Cash flows used in investing activities		(4,251	)		(3,532	)

CASH FLOWS USED IN FINANCING ACTIVITIES:
Repayments under credit agreement		(3,500	)		(3,500	)
Tax deficiency upon vesting of restricted stock units		(208	)		(425	)
Capital lease payments		(478	)		(288	)
Cash proceeds from stock options exercised		—			1
Cash distribution on vesting of restricted stock units		(970	)		—
Withholding tax payment on vesting of restricted stock units		(284	)		(362	)

Cash flows used in financing activities		(5,440	)		(4,574	)

EFFECT OF EXCHANGE RATE ON CASH		(3	)		151

INCREASE IN CASH AND CASH EQUIVALENTS		16,568			3,194
CASH AND CASH EQUIVALENTS — Beginning of period		12,394			10,762

CASH AND CASH EQUIVALENTS — End of period	$	28,962		$	13,956

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest	$	613		$	823

Cash paid for taxes	$	3,183		$	593

SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES:
Equipment obtained under capital lease	$	170		$	1,089

Equipment additions accrued but not paid	$	488		$	462

See Notes to Condensed Consolidated Financial Statements

INTERSECTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Organization and Business

We offer consumers a variety of consumer protection services and other consumer products and services primarily on a subscription basis. Our services help consumers protect themselves against identity theft or fraud and understand and monitor their credit profiles and other personal information. Through our subsidiary, Intersections Insurance Services, Inc. (“IISI”), we offer a portfolio of services to include consumer discounts on healthcare, home and auto related expenses, access to professional financial and legal information, and life, accidental death and disability insurance products. Our consumer products and services are offered through relationships with clients, including many of the largest financial institutions in the United States and Canada, and clients in other industries.

In addition, we also offer our services directly to consumers. We conduct our consumer direct marketing primarily through the Internet, television, radio and other mass media. We also may market through other channels, including direct mail, outbound telemarketing, inbound telemarketing and email.

Through our subsidiary, Screening International Holdings, LLC (“SIH”), we provide personnel and vendor background screening services to businesses worldwide. In May 2006, we created Screening International, LLC (“SI”) with Control Risks Group, Ltd., (“CRG”), a company based in the UK, by combining our subsidiary, American Background Information Services, Inc. (“ABI”) with CRG’s background screening division. Prior to July 1, 2009, we owned 55% of SI and had the right to designate a majority of the five-member board of directors. CRG owned 45% of SI. As further described in Note 18, on July 1, 2009, we and CRG agreed to terminate the existing ownership agreement, we acquired CRG’s ownership interest in Screening International, LLC, and we formed SIH, our wholly owned subsidiary, which became the sole owner of SI. As further described in Note 21 on July 19, 2010, we and SIH entered into a membership interest purchase agreement with Sterling Infosystems, Inc. (“Sterling”), pursuant to which SIH sold, and Sterling acquired, 100% of the membership interests of SI for an aggregate purchase price of $15.0 million in cash plus adjustments for working capital and other items. SIH is not an operating subsidiary, and our background screening services ceased upon the sale of SI.

We have four reportable segments through the period ended June 30, 2010. Our Consumer Products and Services segment includes our consumer protection and other consumer products and services. This segment consists of identity theft management tools, services from our relationship with a third party that administers referrals for identity theft to major banking institutions and breach response services, membership product offerings and other subscription based services such as life and accidental death insurance. Our Online Brand Protection segment includes corporate brand protection provided by Net Enforcers, Inc. (“Net Enforcers”) and our Bail Bonds Industry Solutions segment includes the software management solutions for the bail bond industry provided by Captira Analytical, LLC (“Captira Analytical”). In addition, until the sale of SI on July 19, 2010, our Background Screening segment included the personnel and vendor background screening services provided by SI.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared by us in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission. They include the accounts of the company and our subsidiaries. Our decision to consolidate an entity is based on our direct and indirect majority interest in the entity. All significant intercompany transactions have been eliminated. The condensed consolidated results of operations for the interim periods are not necessarily indicative of results for the full year.

These condensed consolidated financial statements do not include all the information or notes necessary for a complete presentation and, accordingly, should be read in conjunction with our audited consolidated financial statements and accompanying notes for the year ended December 31, 2009, as filed in our Annual Report on Form 10-K.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Goodwill, Identifiable Intangibles and Other Long Lived Assets

We record, as goodwill, the excess of the purchase price over the fair value of the identifiable net assets acquired in purchase transactions. We review our goodwill for impairment annually and follow the two step process. We test goodwill annually as of October 31, or more frequently if indicators of impairment exist. Goodwill has been assigned to our reporting units for purposes of impairment testing. As of June 30, 2010, goodwill of $43.2 million and $3.7 million resided in our Consumer Products and Services and Background Screening reporting units, respectively.

A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others (a) a significant decline in our expected future cash flows; (b) a sustained, significant decline in our stock price and market capitalization; (c) a significant adverse change in legal factors or in the business climate; (d) unanticipated competition; (e) the testing for recoverability of a significant asset group within a reporting unit; and (f) slower growth rates. Any adverse change in these factors could have a significant impact on the recoverability of these assets and could have a material impact on our condensed consolidated financial statements.

The goodwill impairment test involves a two-step process. The first step is a comparison of each reporting unit’s fair value to its carrying value. We estimate fair value using the best information available, using a combined income (discounted cash flow) valuation model and market based approach. The market approach measures the value of an entity through an analysis of recent sales or offerings of comparable companies. The income approach measures the value of the reporting units by the present values of its economic benefits. These benefits can include revenue and cost savings. Value indications are developed by discounting expected cash flows to their present value at a rate of return that incorporates the risk-free rate for use of funds, trends within the industry, and risks associated with particular investments of similar type and quality as of the valuation date.

The estimated fair value of our reporting units is dependent on several significant assumptions, including our earnings projections, and cost of capital (discount rate). The projections use management’s best estimates of economic and market conditions over the projected period including business plans, growth rates in sales, costs, estimates of future expected changes in operating margins and cash expenditures. Other significant estimates and assumptions include terminal value growth rates, future estimates of capital expenditures and changes in future working capital requirements. There are inherent uncertainties related to these factors and management’s judgment in applying each to the analysis of the recoverability of goodwill.

We estimate fair value giving consideration to both the income and market approaches. Consideration is given to the line of business and operating performance of the entities being valued relative to those of actual transactions, potentially subject to corresponding economic, environmental, and political factors considered to be reasonable investment alternatives.

If the estimated fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired and the second step of the impairment test is not necessary. If the carrying value of the reporting unit exceeds its estimated fair value, then the second step of the goodwill impairment test must be performed. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with its goodwill carrying value to measure the amount of impairment charge, if any. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. In other words, the estimated fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of that reporting unit was the purchase price paid. If the carrying value of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment charge is recognized in an amount equal to that excess.

We reviewed all impairment indicators with regards to goodwill and we concluded that for the three and six months ended June 30, 2010, there were no adverse changes in these indicators which would cause a need for an interim goodwill impairment analysis. Therefore, we were not required to perform a goodwill analysis during the second quarter of 2010.

Due to the deterioration in the general economic environment and decline in our market capitalization through June 30, 2009, we concluded a triggering event had occurred indicating potential impairment in our Background Screening reporting unit. We determined, in the first step of our goodwill impairment analysis performed as of June 30, 2009, that goodwill in the Background Screening reporting unit was impaired. The goodwill impairment test involves a two-step process. The first step is a comparison of each reporting unit’s fair value to its carrying value. We calculated the value of our reporting units by utilizing an income and market based approach. The value under the income approach is developed by discounting the projected future cash flows to present value. The reporting units discounted cash flows require significant management judgment with respect to revenue, earnings, capital expenditures and the selection and use of an appropriate discount rate. The discounted cash flows are based on our annual business plan or other forecasted results. Discount rates reflect market-based estimates of the risks associated with the projected cash flows directly resulting from the use of those assets in operations. However, the comparison of the values calculated using the income and market based approach to our market capitalization resulted in a value significantly in excess of our market capitalization. We therefore proportionally allocated the market capitalization, including a reasonable control premium, to the reporting units to determine the implied fair value of the reporting units. The carrying value of our Background Screening reporting unit exceeded its implied fair value based on this analysis as of June 30, 2009, which resulted in an impairment of goodwill in our Background Screening reporting unit.

The second step of the impairment test required us to allocate the fair value of the reporting unit derived in the first step to the fair value of the reporting unit’s net assets. Goodwill was written down to its implied fair value for our Background Screening reporting unit. For the three months ended June 30, 2009, we recorded an impairment charge of $5.9 million in our Background Screening reporting unit.

In addition, during the three months ended March 31, 2009, we finalized our calculation for the second step of our goodwill impairment test, in which the first step was performed during the year ended December 31, 2008. Based on the finalization of this second step, we recorded an additional impairment charge of $214 thousand in our Background Screening reporting unit in the three months ended March 31, 2009.

We will continue to monitor our market capitalization, along with other operational performance measures and general economic conditions. A downward trend in one or more of these factors could cause us to reduce the estimated fair value of our reporting units and recognize a corresponding impairment of our goodwill in connection with a future goodwill impairment test.

Our Consumer Products and Services reporting unit has $43.2 million of remaining goodwill as of June 30, 2010. Our Background Screening reporting unit had $3.7 million of goodwill remaining as of June 30, 2010. We may not be able to take sufficient cost containment actions to maintain our current operating margins in the future. In addition, due to the concentration of our significant clients in the financial industry, any significant impact to a contract held by a major client may have an effect on future revenue which could lead to additional impairment charges.

We review long-lived assets, including finite-lived intangible assets, property and equipment and other long term assets, for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be fully recoverable. Significant judgments in this area involve determining whether a triggering event has occurred and determining the future cash flows for assets involved. In conducting our analysis, we compared the undiscounted cash flows expected to be generated from the long-lived assets to the related net book values. If the undiscounted cash flows exceed the net book value, the long-lived assets are considered not to be impaired. If the net book value exceeds the undiscounted cash flows, an impairment charge is measured and recognized. An impairment charge is measured as the difference between the net book value and the fair value of the long-lived assets. Fair value is estimated by discounting the future cash flows associated with these assets.

Intangible assets subject to amortization include trademarks and customer, marketing and technology related intangibles. Such intangible assets, excluding customer related intangibles, are amortized on a straight-line basis over their estimated useful lives, which are generally three to ten years. Customer related intangible assets are amortized on either a straight-line or accelerated basis, dependent upon the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up.

During the three and six months ended June 30, 2010 and 2009, there were no adverse changes in our long-lived assets, which would cause a need for an impairment analysis. Therefore, we were not required to perform an analysis of our long-lived assets in the three or six months ended June 30, 2010 and 2009.

Revenue Recognition

We recognize revenue on 1) identity theft, credit management and background screening services, 2) accidental death insurance and 3) other membership products.

Our products and services are offered to consumers primarily on a monthly subscription basis. Subscription fees are generally billed directly to the subscriber’s credit card, mortgage bill or demand deposit accounts. The prices to subscribers of various configurations of our products and services range generally from $4.99 to $25.00 per month. As a means of allowing customers to become familiar with our services, we sometimes offer free trial or guaranteed refund periods. No revenues are recognized until applicable trial periods are completed.

Identity Theft and Credit Management Services

We recognize revenue from our services when: a) persuasive evidence of arrangement exists as we maintain signed contracts with all of our large financial institution customers and paper and electronic confirmations with individual purchases, b) delivery has occurred once the product is transmitted over the internet, c) the seller’s price to the buyer is fixed as sales are generally based on contract or list prices and payments from large financial institutions are collected within 30 days with no significant write-offs, and d) collectability is reasonably assured as individual customers pay by credit card which has limited our risk of non-collection. Revenue for monthly subscriptions is recognized in the month the subscription fee is earned. For subscriptions with refund provisions whereby only the prorated subscription fee is refunded upon cancellation by the subscriber, deferred subscription fees are recorded when billed and amortized as subscription fee revenue on a straight-line basis over the subscription period, generally one year. We also generate revenue through a collaborative arrangement which involves joint marketing and servicing activities. We recognize our share of revenues and expenses from this arrangement.

Revenue for annual subscription fees must be deferred if the subscriber has the right to cancel the service. Annual subscriptions include subscribers with full refund provisions at any time during the subscription period and pro-rata refund provisions. Revenue related to annual subscription with full refund provisions is recognized on the expiration of these refund provisions. Revenue related to annual subscribers with pro-rata provisions is recognized based on a pro rata share of revenue earned. An allowance for discretionary subscription refunds is established based on our actual experience.

We also provide services for which certain financial institution clients are the primary obligors directly to their customers. Revenue from these arrangements is recognized when earned, which is at the time we provide the service, generally on a monthly basis.

We generally record revenue on a gross basis in the amount that we bill the subscriber when our arrangements with financial institution clients provide for us to serve as the primary obligor in the transaction, we have latitude in establishing price and we bear the risk of physical loss of inventory and credit risk for the amount billed to the subscriber. We generally record revenue in the amount that we bill our financial institution clients, and not the amount billed to their customers, when our financial institution client is the primary obligor, establishes price to the customer and bears the credit risk.

Accidental Death Insurance and Other Membership Products

We recognize revenue from our services when: a) persuasive evidence of arrangement exists as we maintain paper and electronic confirmations with individual purchases, b) delivery has occurred at the completion of a product trial period, c) the seller’s price to the buyer is fixed as the price of the product is agreed to by the customer as a condition of the sales transaction which established the sales arrangement, and d) collectability is reasonably assured as evidenced by our collection of revenue through the monthly mortgage payments of our customers or through checking account debits to our customers’ accounts. Revenues from insurance contracts are recognized when earned. Marketing of our insurance products generally involves a trial period during which time the product is made available at no cost to the customer. No revenues are recognized until applicable trial periods are completed.

For insurance products, we record revenue on a net basis as we perform as an agent or broker for the insurance products without assuming the risks of ownership of the insurance products. For membership products, we generally record revenue on a gross basis as we serve as the primary obligor in the transactions, have latitude in establishing price and bear credit risk for the amount billed to the subscriber.

We participate in agency relationships with insurance carriers that underwrite insurance products offered by us. Accordingly, insurance premiums collected from customers and remitted to insurance carriers are excluded from our revenues and operating expenses. Insurance premiums collected but not remitted to insurance carriers as of June 30, 2010 and December 31, 2009 were $1.3 million and $1.5 million, respectively, and are included in accrued expenses and other current liabilities in our condensed consolidated balance sheet.

Other Monthly Subscription Products

We generate revenue from other types of subscription based products provided from our Online Brand Protection and Bail Bonds Industry Solutions segments. We recognize revenue from online brand protection and brand monitoring services, offered by Net Enforcers, on a monthly basis and from providing management service solutions, offered by Captira Analytical, on a monthly subscription basis.

Deferred Subscription Solicitation and Advertising

Our deferred subscription solicitation costs consist of subscription acquisition costs, including telemarketing, web-based marketing expenses and direct mail such as printing and postage. We expense advertising costs the first time advertising takes place, except for direct-response marketing costs. Telemarketing, web-based marketing and direct mail expenses are direct response marketing costs, which are amortized on a cost pool basis over the period during which the future benefits are expected to be received, but no more than 12 months. The recoverability of amounts capitalized as deferred subscription solicitation costs are evaluated at each balance sheet date by comparing the carrying amounts of such assets on a cost pool basis to the probable remaining future benefit expected to result directly from such advertising costs. Probable remaining future benefit is estimated based upon historical subscriber patterns, and represents net revenues less costs to earn those revenues. In estimating probable future benefit (on a per subscriber basis) we deduct our contractual cost to service that subscriber from the known sales price. We then apply the future benefit (on a per subscriber basis) to the number of subscribers expected to be retained in the future to arrive at the total probable future benefit. In estimating the number of subscribers we will retain (i.e., factoring in expected cancellations), we utilize historical subscriber patterns maintained by us that show attrition rates by client, product and marketing channel. The total probable future benefit is then compared to the costs of a given marketing campaign (i.e., cost pools), and if the probable future benefit exceeds the cost pool, the amount is considered to be recoverable. If direct response advertising costs were to exceed the estimated probable remaining future benefit, an adjustment would be made to the deferred subscription costs to the extent of any shortfall.

Commission Costs

Commissions that relate to annual subscriptions with full refund provisions and monthly subscriptions are expensed when incurred, unless we are entitled to a refund of the commissions. If annual subscriptions are cancelled prior to their initial terms, we are generally entitled to a full refund of the previously paid commission for those annual subscriptions with a full refund provision and a pro-rata refund, equal to the unused portion of the subscription, for those annual subscriptions with a pro-rata refund provision. Commissions that relate to annual subscriptions with full commission refund provisions are deferred until the earlier of expiration of the refund privileges or cancellation. Once the refund privileges have expired, the commission costs are recognized ratably in the same pattern that the related revenue is recognized. Commissions that relate to annual subscriptions with pro-rata refund provisions are deferred and charged to operations as the corresponding revenue is recognized. If a subscription is cancelled, upon receipt of the refunded commission from our client, we record a reduction to the deferred commission.

We have prepaid commission agreements with some of our clients. Under these agreements, we pay a commission on new subscribers in lieu of or reduction in ongoing commission payments. We amortize these prepaid commissions, on an accelerated basis, over a period of time not to exceed three years, which is the average expected life of customers. The short-term portion of the prepaid commissions are shown in deferred subscription solicitation costs in our condensed consolidated balance sheet. The long-term portion of the prepaid commissions are shown in other assets in our condensed consolidated balance sheet. Amortization is included in commission expense in our condensed consolidated statement of operations.

Share Based Compensation

We use the Black-Scholes option-pricing model to value all options and the straight-line method to amortize this fair value as compensation cost over the requisite service period. The fair value of each option granted has been estimated as of the date of grant with the following weighted-average assumptions:


	Six Months Ended
	June 30,
	2010			2009
Expected dividend yield		0	%		0	%
Expected volatility		67.8	%		55.4	%
Risk-free interest rate		2.8	%		2.0	%
Expected life of options	6.2 years			6.2 years

Expected Dividend Yield. The Black-Scholes valuation model requires an expected dividend yield as an input. We have not issued dividends in the past. As such, the dividend yield used in our valuations for the three and six months ended June 30, 2010 and 2009 were zero.

Expected Volatility. The expected volatility of the options granted was estimated based upon our historical share price volatility as well as the average volatility of comparable public companies. We will continue to review our estimate in the future.

Risk-free Interest Rate. The yield on actively traded non-inflation indexed U.S. Treasury notes was used to extrapolate an average risk-free interest rate based on the expected term of the underlying grants.

Expected Term. The expected term of options granted during the six months ended June 30, 2010 and 2009 was determined under the simplified calculation ((vesting term + original contractual term)/2). For the majority of grants valued during the six months ended June 30, 2010 and 2009, the options had graded vesting over 4 years (equal vesting of options annually) and the contractual term was 10 years.

In addition, we estimate forfeitures based on historical option and restricted stock unit activity on a grant by grant basis. We may make changes to that estimate throughout the vesting period based on actual activity.

Income Taxes

We account for income taxes under the applicable provisions of U.S. GAAP, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. If necessary, deferred tax assets are reduced by a valuation allowance to an amount that is determined to be more likely than not recoverable.

Accounting for income taxes in interim periods provides that at the end of each interim period we are required to make our best estimate of the consolidated effective tax rate expected to be applicable for our full calendar year. The rate so determined shall be used in providing for income taxes on a consolidated current year-to-date basis. Further, the rate is reviewed, if necessary, as of the end of each successive interim period during the year to our best estimate of our annual effective tax rate.

We believe that our tax positions comply with applicable tax law. As a matter of course, we may be audited by various taxing authorities and these audits may result in proposed assessments where the ultimate resolution may result in us owing additional taxes. U.S. GAAP addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. We may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.

In addition to the amount of tax resulting from applying the estimated effective tax rate to pretax income, we included certain items, treated as discrete events, to arrive at an estimated overall tax amount for the six months ended June 30, 2010. See Note 16 for additional information.

3. Accounting Standards Updates

Accounting Standards Updates Recently Adopted

This update is effective for annual periods beginning after November 15, 2009, for interim periods within the first annual reporting period and for interim and annual periods thereafter. Earlier application is prohibited. We have adopted the provisions of this update as of January 1, 2010 and there was no material impact to our condensed consolidated financial statements.

In February 2010, an update was made to “Subsequent Events”. This update removes the requirement for a public filer to disclose a date in both issued and revised financial statements. This update is effective upon issuance of the final update, except for the use of the issued date for conduit debt obligators. That amendment is effective for interim or annual periods ending after June 15, 2010. We have adopted the provisions of this update as of March 31, 2010 and there was no material impact to our condensed consolidated financial statements.

In March 2010, an update was made to “Derivatives and Hedging”. This update provides clarification and related additional examples to improve financial reporting by resolving potential ambiguity about the breadth of the embedded credit derivative scope exception. This update is effective for each reporting entity at the beginning of the first fiscal quarter beginning after June 15, 2010. We have adopted the provisions of this update as of June 30, 2010 and there was no material impact to our condensed consolidated financial statements.

In April 2010, an update was made to “Revenue Recognition — Milestone Method”. This update provides amendments to provide guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. A vendor can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. This update is effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Earlier adoption is permitted. We have adopted the provisions of this update as of June 30, 2010 and there was no material impact to our condensed consolidated financial statements.

Accounting Standards Updates Not Yet Effective

In October 2009, an update was made to “Revenue Recognition — Multiple-Deliverable Revenue Arrangements”. This update amends the criteria in “Multiple-Element Arrangements” for separating consideration in multiple-deliverable arrangements and replaces the term fair value in the revenue allocation guidance with selling price to clarify that the allocation of revenue is based on entity-specific assumptions rather than assumptions of a marketplace participant. This update establishes a selling price hierarchy for determining the selling price of a deliverable, eliminates the residual method of allocation and significantly expands the disclosures related to a vendor’s multiple-deliverable revenue arrangements. This update is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. We will adopt the provisions of this update and do not anticipate a material impact to our condensed consolidated financial statements.

In October 2009, an update was made to “Software — Certain Revenue Arrangements That Include Software Elements”. This update changes the accounting model for revenue arrangements that include both tangible products and software elements. This update removed tangible products containing software components and nonsoftware components that function together to deliver the tangible product’s essential functionality from the scope of the software revenue guidance in “Software-Revenue Recognition”. This update also provides guidance on how a vendor should allocate arrangement consideration to deliverables in an arrangement that includes both tangible products and software, how to allocate arrangement consideration when an arrangement includes deliverables both included and excluded from the scope of software revenue guidance and provides additional disclosure requirements. This update is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. We will adopt the provisions of this update and do not anticipate a material impact to our condensed consolidated financial statements.

In January 2010, an update was made to “Fair Value Measurements and Disclosures”. This update requires new disclosures of transfers in and out of Levels 1 and 2 and of activity in Level 3 fair value measurements. The update also clarifies the existing disclosures for levels of disaggregation and about inputs and valuation techniques. This update is effective for interim and annual reporting periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. We will adopt the provisions of this update and do not anticipate a material impact to our condensed consolidated financial statements.

In April 2010, an update was made to “Compensation — Stock Compensation". This update provides amendments to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of

the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would classify such an award as a liability if it otherwise qualifies as equity. This update is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. Earlier adoption is permitted. We will adopt the provisions of this update and do not anticipate a material impact to our condensed consolidated financial statements.

4. Net Income (Loss) Per Common Share

Basic and diluted income (loss) per share is determined in accordance with the applicable provisions of U.S. GAAP. Basic income (loss) per common share is computed using the weighted average number of shares of common stock outstanding for the period. Diluted income (loss) per share is computed using the weighted average number of shares of common stock, adjusted for the dilutive effect of potential common stock. Potential common stock, computed using the treasury stock method or the if-converted method, includes the potential exercise of stock options under our share-based employee compensation plans, our restricted stock units and warrants.

For the three and six months ended June 30, 2010, options to purchase 4.7 million shares of common stock, respectively, have been excluded from the computation of diluted income per share as their effect would be anti-dilutive. For the three and six months ended June 30, 2009, options to purchase 5.8 million shares of common stock, respectively, have been excluded from the computation of diluted loss per share as their effect would be anti-dilutive. These shares could dilute earnings per share in the future.

A reconciliation of basic income (loss) per common share to diluted income (loss) per common share is as follows:


	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2010		2009			2010		2009
	(In thousands, except					(In thousands, except
	per share data)					per share data)
Net income (loss) available to common shareholders — basic and diluted	$	5,176	$	(2,659	)	$	4,108	$	(3,216	)

Weighted average common shares outstanding — basic		17,683		17,486			17,652		17,437
Dilutive effect of common stock equivalents		445		—			352		—

Weighted average common shares outstanding — diluted		18,128		17,486			18,004		17,437

Income (loss) per common share:
Basic	$	0.29	$	(0.15	)	$	0.23	$	(0.18	)
Diluted	$	0.29	$	(0.15	)	$	0.23	$	(0.18	)

5. Fair Value Measurement

Our cash and any investment instruments are classified within Level 1 or Level 2 of the fair value hierarchy as they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. The types of instruments valued based on quoted market prices in active markets are primarily U.S. government and agency securities and money market securities. Such instruments are generally classified within Level 1 of the fair value hierarchy.

The principal market where we execute our interest swap contracts is the retail market in an over-the-counter environment with a relatively high level of price transparency. The market participants usually are large money center banks and regional banks. These contracts are typically classified within Level 2 of the fair value hierarchy.

The fair value of our instruments measured on a recurring basis at June 30, 2010 are as follows (in thousands):

Fair Value Measurements at Reporting Date Using:

Quoted Prices

Significant

in Active

Other

Significant

Markets for

Observable

Unobservable

June 30,

Identical Assets

Inputs

2010

(Level 1)

(Level 2)

(Level 3)

Assets:

US Treasury bills

4,994

—

Liabilities:

Interest rate swap contracts

677

—

677

—

The fair value of our instruments measured on a recurring basis at December 31, 2009 are as follows (in thousands):


	Fair Value Measurements at Reporting Date using:
			Quoted Prices
			in Active		Significant
			Markets for		other		Significant
			Identical Assets		Observable		Unobservable
	December 31, 2009		(Level 1)		Inputs (Level 2)		Inputs (Level 3)
Assets:
US Treasury bills	$	4,995	$	4,995	$	—	$	—
Liabilities:
Interest rate swap contracts		856		—		856		—

For financial instruments such as cash and cash equivalents, short-term government debt instruments, trade accounts receivables, notes payable, leases payable, accounts payable and short-term and long-term debt, we consider the recorded value of the financial instruments to approximate the fair value based on the liquidity of these financial instruments.

6. Deferred Subscription Solicitation and Commission Costs

Total deferred subscription solicitation costs included in the accompanying condensed consolidated balance sheet as of June 30, 2010 and December 31, 2009 was $35.6 million and $41.6 million, respectively. The long-term portion of the deferred subscription solicitation costs are reported in other assets in our condensed consolidated balance sheet and include $5.9 million and $7.4 million as of June 30, 2010 and December 31, 2009, respectively. Included in the current portion of the deferred subscription solicitation costs is the current portion of prepaid commissions which were $9.7 million and $11.5 million as of June 30, 2010 and December 31, 2009, respectively. Amortization of deferred subscription solicitation and commission costs, which are included in either marketing or commissions expense in our condensed consolidated statements of operations, for the three months ended June 30, 2010 and 2009 were $14.0 million and $16.2 million, respectively. Amortization of deferred subscription solicitation and commission costs for the six months ended June 30, 2010 and 2009 were $32.0 and $32.6, respectively. Marketing costs, which are included in marketing expenses in our condensed consolidated statements of operations, as they did not meet the criteria for deferral, for the three months ended June 30, 2010 and 2009, were $1.3 and $3.1 million respectively. Marketing costs expensed as incurred related to marketing for the six months ended June 30, 2010 and 2009 were $6.1 million and $6.4 million, respectively.

7. Long-Term Investments

Our long-term investment consists of an investment in equity shares of a privately held company. During the three months ended March 31, 2010, we paid $1.0 million in cash for an additional preferred stock investment in White Sky, Inc. (“White Sky”), a privately held company in California. White Sky provides smart card-based software solutions to safeguard consumers against identity theft and online crime when they bank, shop and invest online. We own less than 20% of White Sky. The investment is accounted for at cost in our condensed consolidated balance sheet. As of June 30, 2010, no indicators of impairment were identified.

In addition to the investment, we amended a commercial agreement with White Sky to receive exclusivity on the sale of its ID Vault products. The amended strategic commercial agreement allows us to include these products and services as part of our comprehensive identity theft protection services to consumers. The amendment also modified our future royalty payments to White Sky in exchange for certain exclusivity on the sale of its ID Vault products.

8. Goodwill and Intangible Assets

Changes in the carrying amount of goodwill are as follows (in thousands):


	June 30, 2010
										Net Carrying
	Gross		Accumulated			Net Carrying				Amount at
	Carrying		Impairment			Amount at				June 30,
	Amount		Losses			January 1, 2010		Impairment		2010
Consumer Products and Services	$	43,235	$	—		$	43,235	$	—	$	43,235
Background Screening		23,583		(19,879	)		3,704		—		3,704
Online Brand Protection		11,242		(11,242	)		—		—		—
Bail Bonds Industry Solutions		1,390		(1,390	)		—		—		—

Total Goodwill	$	79,450	$	(32,511	)	$	46,939	$	—	$	46,939


	December 31, 2009
											Net Carrying
	Gross		Accumulated			Net Carrying					Amount at
	Carrying		Impairment			Amount at					December 31,
	Amount		Losses			January 1, 2009		Impairment			2009
Consumer Products and Services	$	43,235	$	—		$	43,235	$	—		$	43,235
Background Screening		23,583		(13,716	)		9,867		(6,163	)		3,704
Online Brand Protection		11,242		(11,242	)		—		—			—
Bail Bonds Industry Solutions		1,390		(1,390	)		—		—			—

Total Goodwill	$	79,450	$	(26,348	)	$	53,102	$	(6,163	)	$	46,939

The goodwill impairment test involves a two-step process. The first step is a comparison of each reporting unit’s fair value to its carrying value. We calculated the value of our reporting units by utilizing an income and market based approach. The value under the income approach is developed by discounting the projected future cash flows to present value. The reporting units discounted cash flows require significant management judgment with respect to revenue, earnings, capital expenditures and the selection and use of an appropriate discount rate. The discounted cash flows are based on our annual business plan or other forecasted results. Discount rates reflect market-based estimates of the risks associated with the projected cash flows directly resulting from the use of those assets in operations. However, the comparison of the values calculated using the income and market based approach to our market capitalization resulted in a value significantly in excess of our market capitalization. We therefore proportionally allocated the market capitalization, including a reasonable control premium, to the reporting units to determine the implied fair value of the reporting units. The carrying value of our Background Screening reporting unit exceeded its implied fair value based on this analysis as of June 30, 2009, which resulted in an impairment of goodwill in our Background Screening reporting unit.

The second step of the impairment test required us to allocate the implied fair value of the reporting unit derived in the first step to the fair value of the reporting unit’s net assets. Goodwill was written down to its implied fair value for our Background Screening reporting unit. For the three months ended June 30, 2009 we recorded an impairment charge of $5.9 million in our Background Screening reporting.

In addition, during the three months ended March 31, 2009, we finalized the second step of our goodwill impairment test, in which the first step was performed during the year ended December 31, 2008. Based on the finalization of this second step, we recorded an additional impairment charge of $214 thousand in our Background Screening reporting unit in the three months ended March 31, 2009.

Our intangible assets consisted of the following (in thousands):


	June 30, 2010
	Gross
	Carrying		Accumulated			Net Carrying
	Amount		Amortization			Amount
Amortizable intangible assets:
Customer related	$	40,857	$	(23,866	)	$	16,991
Marketing related		3,553		(3,407	)		146
Technology related		2,796		(2,496	)		300

Total amortizable intangible assets	$	47,206	$	(29,769	)	$	17,437


	December 31, 2009
	Gross
	Carrying		Accumulated			Net Carrying
	Amount		Amortization			Amount
Amortizable intangible assets:
Customer related	$	40,857	$	(19,913	)	$	20,944
Marketing related		3,553		(3,335	)		218
Technology related		2,796		(2,345	)		451

Total amortizable intangible assets	$	47,206	$	(25,593	)	$	21,613

During the year ended December 31, 2009, we recorded an impairment of $947 thousand related to certain intangible assets. We have adjusted the gross carrying amount and accumulated amortization to reflect this impairment. Intangible assets are amortized over a period of three to ten years. For the three and six months ended June 30, 2010, we incurred aggregate amortization expense of $1.9 million and $4.2 million, respectively, which was included in amortization expense in our condensed consolidated statement of operations. For the three and six months ended June 30, 2009, we incurred aggregate amortization expense of $2.2 million and $4.6 million, respectively, which was included in amortization expense in our condensed consolidated statement of operations. We estimate that we will have the following amortization expense for the future periods indicated below (in thousands):


For the remaining six months ending December 31, 2010	$	2,540
For the years ending December 31:
2011		3,828
2012		3,542
2013		3,483
2014		3,437
Thereafter		607

	$	17,437

9. Other Assets

The components of our other assets are as follows:


	June 30,		December 31,
	2010		2009
	(In thousands)
Prepaid royalty payments	$	75	$	75
Prepaid contracts		220		1,341
Prepaid commissions		5,852		7,362
Other		1,530		5,614

	$	7,677	$	14,392

During the six months ended June 30, 2010, the decrease in other assets is primarily related to a trade receivable from an ongoing marketing arrangement and a decrease in prepaid commissions.

10. Accrued Expenses and Other Current Liabilities

The components of our accrued expenses and other liabilities are as follows:


	June 30,		December 31,
	2010		2009
	(In thousands)
Accrued marketing	$	2,627	$	3,614
Accrued cost of sales, including credit bureau costs		5,685		5,764
Accrued general and administrative expense and professional fees		4,331		4,191
Insurance premiums		1,299		1,473
Other		4,712		2,213

	$	18,654	$	17,255

11. Accrued Payroll and Employee Benefits

The components of our accrued payroll and employee benefits are as follows:


	June 30,		December 31,
	2010		2009
	(In thousands)
Accrued payroll	$	2,324	$	415
Accrued benefits		1,804		2,364
Other		—		3

	$	4,128	$	2,782

12. Commitments and Contingencies

Leases

We have entered into long-term operating lease agreements for office space and capital leases for fixed assets. The minimum fixed commitments related to all noncancellable leases are as follows:


	Operating		Capital
	Leases		Leases
	(In thousands)
For the remaining six months ending December 31, 2010	$	1,211	$	663
For the years ending December 31:
2011		2,046		1,149
2012		2,143		715
2013		2,380		78
2014		2,001		—
2015		2,081		—
Thereafter		7,951		—

Total minimum lease payments	$	19,813		2,605

Less: amount representing interest				(205	)

Present value of minimum lease payments				2,400
Less: current obligation				(1,091	)

Long term obligations under capital lease			$	1,309

During the six months ended June 30, 2010 we entered into additional capital lease agreements for approximately $170 thousand. We recorded the lease liability at the fair market value of the underlying assets on our condensed consolidated balance sheet.

In the six months ended June 30, 2010, we financed certain software development costs. These costs did not meet the criteria for capitalization under U.S. GAAP. Amounts owed under this arrangement as of June 30, 2010 are $212 thousand and $258 thousand and are included in accrued expenses and other current liabilities and other long-term liabilities, respectively, in our condensed consolidated financial statements. The minimum fixed commitments related to this arrangement are as follows (in thousands):


For the remaining six months ending December 31, 2010	$	104
For the years ending December 31:
2011		221
2012		136
2013		9

Long term obligations under arrangement	$	470

We entered into an agreement with a related party who is a provider of identity theft products under which we are required to pay non-refundable minimum payments totaling $1.5 million during the year ended December 31, 2010, in exchange for exclusivity.

Rental expenses included in general and administrative expenses were $856 thousand and $1.8 million for the three and six months ended June 30, 2010, respectively. Rental expenses included in general and administrative expenses were $636 thousand and $1.3 million for the three and six months ended June 30, 2009, respectively. The increase in rental expenses is due to the increase in rent as a result of our relocation to a new building facility.

Legal Proceedings

On May 27, 2009, we filed a complaint in the U.S. District Court for the Eastern District of Virginia against Joseph C. Loomis and Jenni M. Loomis in connection with our stock purchase agreement to purchase all of Net Enforcers, Inc.’s (NEI) stock in November 2007 (the “Virginia Litigation”). We alleged, among other things, that Mr. Loomis committed securities fraud, breached the stock purchase agreement, and breached his fiduciary duties to the company. The complaint also seeks a declaration that NEI is not in breach of its employment agreement with Mr. Loomis and that, following NEI’s termination of Mr. Loomis for cause, NEI’s obligations pursuant to the agreement were terminated. In addition to a judgment rescinding the stock purchase agreement and return of the entire purchase price we had paid, we are seeking unspecified compensatory, consequential and punitive damages, among other relief. On July 2, 2009, Mr. Loomis filed a motion to dismiss certain of our claims. On July 24, 2009, Mr. Loomis’ motion to dismiss

our claims was denied in its entirety. Mr. Loomis also asserted counterclaims for an unspecified amount not less than $10,350,000, alleging that NEI breached the employment agreement by terminating him without cause and breached the stock purchase agreement by preventing him from running NEI in such a way as to earn certain earn-out amounts. On January 14, 2010, we settled all claims with Mr. Loomis and his sister, co-defendant Jenni Loomis. On January 26, 2010, prior to final documentation of the settlement and transfer of the funds, Mr. Loomis filed for bankruptcy in the United States Bankruptcy Court for the District of Arizona (the “Bankruptcy Court’). The Virginia litigation thus was automatically stayed as related to Mr. Loomis. In furtherance of our efforts to enforce the settlement agreement, we obtained a stay of the case as related to Jenni Loomis as well. On April 22, 2010, the Bankruptcy Court granted our motion to modify the stay so that we may seek a declaration from the U.S. District Court for the Eastern District of Virginia that the settlement is enforceable.

On September 11, 2009, a putative class action complaint was filed against Intersections, Inc., Intersections Insurance Services Inc., Loeb Holding Corp., Bank of America of America, NA, Banc of America Insurance Services, Inc., American International Group, Inc., National Union Fire Insurance Company of Pittsburgh, PA, and Global Contact Services, LLC, in the U.S. District Court for the Southern District of Texas. The complaint alleges various claims based on telemarketing of an accidental death and disability program. The defendants each have filed a motion to dismiss the plaintiff’s claims, and the motions are pending. We believe we have meritorious and complete defenses to the plaintiff’s claims. We believe, however, that it is too early in the litigation to form an opinion as to the likelihood of success in defeating the claims.

On February 16, 2010, a putative class action complaint was filed against Intersections, Inc., Bank of America Corporation, and FIA Card Services, N.A., in the U.S. District Court for the Northern District of California. The complaint alleges various claims based on the provision of identity protection services to the named plaintiff. We believe we have meritorious and complete defenses to the plaintiff’s claims but believe that it is too early in the litigation to form an opinion as to the likelihood of success in defeating the claims. Defendants filed answers to the complaint on May 24, 2010.

13. Other Long-Term Liabilities

The components of our other long-term liabilities are as follows:


	June 30,		December 31,
	2010		2009
	(In thousands)
Deferred rent	$	1,962	$	1,129
Uncertain tax positions, interest and penalties not recognized		3,784		224
Interest rate swaps		677		856
Accrued general and administrative expenses		257		352
Other		7		771

	$	6,687	$	3,332

During the six months ended June 30, 2010, we recorded a liability for an uncertain tax position in a foreign jurisdiction of $3.6 million, including interest and penalties.

14. Debt and Other Financing


	June 30,			December 31,
	2010			2009
	(In thousands)
Term loan	$	11,083		$	14,583
Revolving line of credit		23,000			23,000
Note payable to CRG: $1.4 million face amount, noninterest bearing, due in three annual payments of $467 thousand beginning June 30, 2012 (less unamortized discount, based on an imputed interest rate of 16%, of $523 thousand and $590 thousand at June 30, 2010 and December 31, 2009, respectively)		877			810

		34,960			38,393
Less current portion		(7,000	)		(7,000	)

Total long term debt	$	27,960		$	31,393

On July 3, 2006 we negotiated bank financing in the amount of $40 million (the “Credit Agreement”). Under terms of the Credit Agreement, we were granted a $25 million line of credit and a term loan of $15 million with interest at 1.00-1.75 percent over LIBOR. On January 31, 2008, we amended the Credit Agreement in order to increase the term loan facility to $28 million. The amended term

loan is payable in monthly installments of $583 thousand, plus interest. Substantially all our assets and a pledge by us of stock and membership interests we hold in certain subsidiaries are pledged as collateral to these loans. In addition, pursuant to the amendment, our subsidiaries Captira and Net Enforcers were added as co-borrowers under the Credit Agreement. The amendment provides that the maturity date for the revolving credit facility and the term loan facility under the Credit Agreement will be December 31, 2011. In July 2009, we entered into a third amendment to the Credit Agreement. The amendment related to the termination and ongoing operations of SI, including the formation of a new domestic subsidiary Screening International Holdings, LLC (“SIH”), the parent of SI, neither of which will join in the Credit Agreement as a co-borrower, and to clarify other matters related to the termination of our joint ownership agreement with CRG and the ongoing operations of SIH. We also formed Intersections Business Services, LLC, to provide services to our Background Screening, Online Brand Protection and Bail Bonds Industry Solutions segments, and which joined in the Credit Agreement as a co-borrower. On March 11, 2010, we entered into a fourth amendment to the Credit Agreement. The amendment increased our interest rate by one percent at each pricing level such that the interest rate now ranges from 2.00% to 2.75% over LIBOR. In addition, the amendment increased our ability to invest additional funds into Screening International, as well as required a portion of the proceeds from any disposition of that entity to be paid to Bank of America, N.A. As of June 30, 2010, the outstanding rate was 1.4% and the principal balance was $34.1 million. See Note 21 for further information.

The Credit Agreement contains certain customary covenants, including among other things covenants that limit or restrict the incurrence of liens; the making of investments including at SIH and its subsidiaries; the incurrence of certain indebtedness; mergers, dissolutions, liquidation, or consolidations; acquisitions (other than certain permitted acquisitions); sales of substantially all of our or any co-borrowers’ assets; the declaration of certain dividends or distributions; transactions with affiliates (other than co-borrowers under the Credit Agreement) other than on fair and reasonable terms; and the creation or acquisition of any direct or indirect subsidiary of ours that is not a domestic subsidiary unless such subsidiary becomes a guarantor. We are also required to maintain compliance with certain financial covenants which includes our consolidated leverage ratios, consolidated fixed charge coverage ratios as well as customary covenants, representations and warranties, funding conditions and events of default. We are currently in compliance with all such covenants.

As further described in Note 15, we entered into interest rate swap transactions on our term loan and revolving line of credit that converts our variable-rate debt to fixed-rate debt.

As further described in Note 19 on July 1, 2009, we and CRG agreed to terminate our existing ownership agreement in SI and we acquired CRG’s 45% ownership interest in SI, resulting in SI becoming our wholly-owned subsidiary. As part of the termination, a $900 thousand demand loan between SI and CRG was forgiven and a non-interest bearing $1.4 million note was issued by SIH to CRG. The note matures in five years and requires equal annual payments by SIH of $467 thousand due on June 30, 2012, 2013 and 2014. The note was recorded at fair value, which was $748 thousand, as of July 1, 2009. Interest is being accrued monthly using a 16% imputed interest rate in accordance with U.S. GAAP. For the three and six months ended June 30, 2010, $34 thousand and $67 thousand, respectively, of interest was accrued on the note. The principal balance was $877 thousand and $810 thousand as of June 30, 2010 and December 31, 2009 respectively. See Note 21 for further information regarding the disposition of this note.

Aggregate maturities are as follows (in thousands):


For the twelve month period ending June 30,
2011	$	7,000
2012		27,550
2013		467
2014		467

Total	$	35,484

15. Derivative Financial Instruments

Risk Management Strategy

We maintain an interest rate risk management strategy that incorporates the use of derivative instruments to minimize the economic effect of interest rate changes. In 2008, we entered into certain interest rate swap transactions that convert our variable-rate long-term debt to fixed-rate debt. Our interest rate swaps are related to variable interest rate risk exposure associated with our long-term debt and are intended to manage this risk. As of June 30, 2010, the interest rate swaps on our outstanding term loan amount and a portion of our outstanding revolving line of credit have notional amounts of $12.3 million and $10.0 million, respectively. The swaps

modify our interest rate exposure by effectively converting the variable rate on our term loan (0.4% at June 30, 2010) to a fixed rate of 3.2% per annum through December 2011 and on our revolving line of credit (0.4% at June 30, 2010) to a fixed rate of 3.4% per annum through December 2011. The notional amount of the term loan interest rate swap amortizes on a monthly basis through December 2011 and the notional amount of the line of credit interest rate swap amortized from $15.0 million to $10.0 million through March 31, 2009 and terminates in December 2011. We use the monthly LIBOR interest rate and have the intent and ability to continue to use this rate on our hedged borrowings. Accordingly, we do not recognize any ineffectiveness on the swaps. For the three and six months ended June 30, 2010 and 2009, there was no material ineffective portion of the hedge and therefore, no impact to our condensed consolidated statements of operations.

Although we use derivatives to minimize interest rate risk, the use of derivatives does expose us to both market and credit risk. Market risk is the chance of financial loss resulting from changes in interest rates. Credit risk is the risk that our counterparty will not perform its obligations under the contracts and it is limited to the loss of fair value gain in a derivative that the counterparty owes us. We are currently in a liability position to the counterparty and, therefore, have limited credit risk exposure to the counterparty. The counterparty to our derivative agreements is a major financial institution for which we continually monitor its position and credit ratings. We do not anticipate nonperformance by this financial institution.

Summary of Derivative Financial Statement Impact

As of June 30, 2010 and December 31, 2009 our interest rate contracts had a fair value of $677 thousand and $856 thousand, respectively, which is included in other long-term liabilities in our condensed consolidated balance sheet. The following table summarizes the impact of derivative instruments in our condensed consolidated statement of operations.

The Effect of Derivative Instruments on the Statement of Operations
(in thousands)

Amount of Gain or (Loss)

Reclassified from

Amount of (Loss)

Accumulated OCI into

Derivative in SFAS

Amount of Gain or (Loss)

Reclassified from

Income (Ineffective

No. 133 Cash Flow

Recognized in OCI on

Accumulated OCI into

Portion and Amount

Hedge Relationships

Derivative (Effective

Income (Effective

Excluded from

Three Months Ended

Portion)

Effectiveness Testing)

June 30,

2010

2009

2010

2009

2010

2009

In thousands of dollars

Interest rate contracts

122

271

(174

)

(216

)

—

Total

122

271

(174

)(1)

(216

)(1)

—

Amount of Gain or (Loss)

Reclassified from

Amount of (Loss)

Accumulated OCI into

Derivative in SFAS

Amount of Gain or (Loss)

Reclassified from

Income (Ineffective

No. 133 Cash Flow

Recognized in OCI on

Accumulated OCI into

Portion and Amount

Hedge Relationships

Derivative (Effective

Income (Effective

Excluded from

Six Months Ended

Portion)

Effectiveness Testing)

June 30,

2010

2009

2010

2009

2010

2009

In thousands of dollars

Interest rate contracts

179

304

(356

)

(461

)

—

Total

179

304

(356

)(1)

(461

)(1)

—


(1)		Gain or (Loss) Reclassified from Accumulated OCI into income for the effective portion of the cash flow hedge is recorded in interest expense in our condensed consolidated statement of operations.

16. Income Taxes

Our consolidated effective tax rate for the three months ended June 30, 2010 and 2009 was 40.4% and (3.7%), respectively. Our consolidated effective tax rate for the six months ended June 30, 2010 and 2009 was 48.3% and (12.8%), respectively. The change is primarily due to an increase in book income and the utilization of domestic operating losses incurred in the Background Screening segment due to the acquisition of the remaining non-controlling interest in this segment in the year ended December 31, 2009. As of June 30, 2010, we continued to have a valuation allowance against the foreign deferred tax assets of the Background Screening segment.

In addition, the liability increased by approximately $3.2 million primarily related to an uncertain tax position in a foreign jurisdiction in the six months ended June 30, 2010. This liability is recorded in other long-term liabilities in our condensed consolidated balance sheet. We record income tax penalties related to uncertain tax positions as part of our income tax expense in our condensed consolidated financial statements. We record interest expense related to uncertain tax positions as part of interest expense in our condensed consolidated financial statements. In the three months ended June 30, 2010, we recorded interest of $24 thousand primarily due to the uncertain tax position in a foreign jurisdiction. In the six months ended June 30, 2010, we recorded penalties of $219 thousand and interest of $210 thousand primarily due to the uncertain tax position in a foreign jurisdiction. The penalties and interest, net of federal benefit, increased the effective tax rate in the three and six months ended June 30, 2010.

17. Stockholders’ Equity

Share Repurchase

On April 25, 2005, our Board of Directors authorized a share repurchase program under which we can repurchase up to $20 million of our outstanding shares of common stock from time to time, depending on market conditions, share price and other factors. The repurchases may be made on the open market, in block trades, through privately negotiated transactions or otherwise, and the program may be suspended or discontinued at any time. We did not repurchase shares in the three and six months ended June 30, 2010 and 2009. See Note 22 for further information on the share repurchase program.

Share Based Compensation

On August 24, 1999, the Board of Directors and stockholders approved the 1999 Stock Option Plan (the “1999 Plan”). The active period for this plan expired on August 24, 2009. The number of shares of common stock that have been issued under the 1999 Plan could not exceed 4.2 million shares pursuant to an amendment to the plan executed in November 2001. As of June 30, 2010, there were 525 thousand shares outstanding. Individual awards under the 1999 Plan took the form of incentive stock options and nonqualified stock options.

On March 12, 2004 and May 5, 2004, the Board of Directors and stockholders, respectively, approved the 2004 Stock Option Plan (the “2004 Plan”) to be effective immediately prior to the consummation of the initial public offering. The 2004 Plan provides for the authorization to issue 2.8 million shares of common stock, of which 136 thousand shares are remaining to issue. As of June 30, 2010, we also have 136 thousand shares outstanding. Individual awards under the 2004 Plan may take the form of incentive stock options and nonqualified stock options. Option awards are generally granted with an exercise price equal to the market price of our stock at the date of grant; those option awards generally vest over three and four years of continuous service and have ten year contractual terms.

On March 8, 2006 and May 24, 2006, the Board of Directors and stockholders, respectively, approved the 2006 Stock Incentive Plan (the “2006 Plan”). The number of shares of common stock that may be issued under the 2006 Plan may not exceed 5.1 million shares pursuant to an amendment to the plan executed in May 2009. As of June 30, 2010, we have 924 thousand shares or restricted stock units remaining to issue and options to purchase 4.1 million shares and restricted stock units outstanding. Individual awards under the 2006 Plan may take the form of incentive stock options, nonqualified stock options, restricted stock awards and/or restricted stock units. These awards generally vest over four years of continuous service.

The Compensation Committee administers the Plans, selects the individuals who will receive awards and establishes the terms and conditions of those awards. Shares of common stock subject to awards that have expired, terminated, or been canceled or forfeited are available for issuance or use in connection with future awards.

The 1999 Plan active period expired on August 24, 2009, the 2004 Plan will remain in effect until May 5, 2014, and the 2006 Plan will remain in effect until March 7, 2016, unless terminated by the Board of Directors.

Stock Options

Total share-based compensation expense recognized for stock options, which is included in general and administrative expense in our condensed consolidated statement of operations, for the three months ended June 30, 2010 and 2009 was $590 thousand and $563 thousand, respectively. Total share-based compensation expense recognized for stock options, which is included in general and

administrative expense in our condensed consolidated statement of operations, for the six months ended June 30, 2010 and 2009 was $1.2 million and $1.0 million, respectively.

The following table summarizes our stock option activity:


								Weighted-
				Weighted-				Average
				Average				Remaining
	Number of			Exercise		Aggregate		Contractual
	Shares			Price		Intrinsic Value		Term
						(In thousands)		(In years)
Outstanding at December 31, 2009		3,806,052		$	6.49
Granted		719,335			4.32
Canceled and Forfeited		(174,135	)		6.23

Outstanding at June 30, 2010		4,351,252		$	6.14	$	1,653		7.37

Exercisable at June 30, 2010		1,494,474		$	8.70	$	420		5.30

There were no options granted during the three months ended June 30, 2010. The weighted average grant date fair value of options granted, based on the Black-Scholes method, during the three months ended June 30, 2009 was $1.23. The weighted average grant date fair value of options granted, based on the Black-Scholes method, during the six months ended June 30, 2010 and 2009 was $2.75 and $1.76, respectively.

For options exercised, intrinsic value is calculated as the difference between the market price on the date of exercise and the exercise price. There were no options exercised in the three and six months ended June 30, 2010 and 2009.

As of June 30, 2010, there was $6.8 million of total unrecognized compensation cost related to nonvested stock option arrangements granted under the Plans. That cost is expected to be recognized over a weighted-average period of 2.9 years.

Restricted Stock Units

Total share based compensation recognized for restricted stock units, which is included in general and administrative expense in our condensed consolidated statement of operations, for the three months ended June 30, 2010 and 2009 was $775 thousand and $507 thousand, respectively. Total share based compensation recognized for restricted stock units for the six months ended June 30, 2010 and 2009 was $1.6 million and $1.0 million, respectively.

The following table summarizes our restricted stock unit activity:


						Weighted-Average
				Weighted-Average		Remaining
	Number of			Grant Date		Contractual
	RSUs			Fair Value		Life
						(In years)
Outstanding at December 31, 2009		1,562,108		$	4.32
Granted		1,010,205			4.32
Canceled		(236,801	)		4.55
Vested		(372,938	)		5.79

Outstanding at June 30, 2010		1,962,574		$	4.61		3.05

As of June 30, 2010, there was $7.8 million of total unrecognized compensation cost related to unvested restricted stock units compensation arrangements granted under the Plans. That cost is expected to be recognized over a weighted-average period of 2.8 years.

In the three months ended March 31, 2010, two restricted stock unit grants, at the vesting date, were paid in cash rather that stock, to recipients at our election. Total cash paid was $970 thousand, which did not exceed the fair value on the settlement date.

18. Related Party Transactions

We have a minority investment in White Sky, Inc. (“White Sky”) and a commercial agreement to incorporate and market their product into our fraud and identity theft protection product offerings. For the three months ended June 30, 2010 and 2009, there was

$375 thousand and $441 thousand, respectively, included in cost of revenue in our condensed consolidated statement of operations related to royalties for exclusivity and product costs. For the six months ended June 30, 2010 and 2009, there was $926 thousand and $613 thousand, respectively, included in cost of revenue in our condensed consolidated statement of operations related to royalties for exclusivity and product costs.

19. Transfers from Noncontrolling Interest

On July 1, 2009, we and CRG terminated our May 15, 2006 ownership agreement pursuant to which we established and operated SI. In connection with the termination, we formed SIH, which purchased from CRG (a) all of CRG’s equity in SI and (b) all of SI’s indebtedness (with an aggregate principal amount and accrued interest of $1.0 million) and certain payables (with a value of $125 thousand (based on current currency conversion rates)) to CRG. SIH paid the purchase price for this equity and indebtedness by delivery of a promissory note in favor of CRG with a principal amount of $1.4 million, accruing no interest and maturing in five years, with equal principal repayments due on June 30, 2012, June 30, 2013 and June 30, 2014. See Note 21 for further detail on the disposition of SI and the note payable with CRG.

Changes in a parent’s ownership interest in which the parent retains its controlling financial interest in its subsidiary are accounted for as an equity transaction. The carrying amount of the noncontrolling interest was adjusted to reflect the change in our ownership interest in SIH. The difference between the fair value of the consideration received or paid and the amount by which the noncontrolling interest were adjusted were recognized in our stockholders’ equity. As a result of the transaction, we reclassified the noncontrolling interest to stockholders’ equity in our condensed consolidated financial statements.

20. Segment and Geographic Information

We have four reportable segments through the period ended June 30, 2010. In 2009, we changed our segment reporting by realigning a portion of our Other segment into the Consumer Products and Services segment. Our Consumer Products and Services segment includes our consumer protection and other consumer products and services. This segment consists of identity theft management tools, services from our relationship with a third party that administers referrals for identity theft to major banking institutions and breach response services, membership product offerings and other subscription based services such as life and accidental death insurance. Our Online Brand Protection segment includes corporate brand protection provided by Net Enforcers. Our Bail Bonds Industry Solutions segment includes the software management solutions for the bail bond industry provided by Captira Analytical. In addition, until the sale of SI on July 19, 2010, our Background Screening segment included the personnel and vendor background screening services provided by SI.

We have recasted the results of our business segment data for the three and six months ended June 30, 2009 into the new operating segments for comparability with current presentation. The following table sets forth segment information for the three and six months ended June 30, 2010 and 2009:


	Consumer								Bail Bonds
	Products		Background			Online Brand			Industry
	and Services		Screening			Protection			Solutions			Consolidated
						(in thousands)
Three Months Ended June 30, 2010
Revenue	$	91,507	$	6,746		$	496		$	123		$	98,872
Depreciation		1,955		203			5			—			2,163
Amortization		1,870		—			7			—			1,877
Income (loss) before income taxes and noncontrolling interest	$	8,561	$	593		$	(94	)	$	(375	)	$	8,685
Three Months Ended June 30, 2009
Revenue	$	85,182	$	4,511		$	520		$	104		$	90,317
Goodwill impairment charges		—		5,949			—			—			5,949
Depreciation		1,734		218			2			8			1,962
Amortization		1,934		116			17			107			2,174
Income (loss) before income taxes and noncontrolling interest	$	3,308	$	(6,785	)	$	(1,586	)	$	(507	)	$	(5,570	)
Six Months Ended June 30, 2010
Revenue	$	182,425	$	11,846		$	959		$	231		$	195,461
Depreciation		4,046		415			10			—			4,471
Amortization		4,162		—			14			—			4,176
Income (loss) before income taxes and noncontrolling interest	$	9,351	$	(239	)	$	(402	)	$	(771	)	$	7,939
Six Months Ended June 30, 2009
Revenue	$	167,346	$	8,945		$	1,120		$	175		$	177,586
Goodwill impairment charges		—		6,163			—			—			6,163
Depreciation		3,660		435			4			13			4,112
Amortization		4,092		243			34			213			4,582
Income (loss) before income taxes and noncontrolling interest	$	5,482	$	(9,476	)	$	(1,709	)	$	(1,029	)	$	(6,732	)


	Consumer						Bail Bonds
	Products		Background		Online Brand		Industry
	and Services		Screening		Protection		Solutions		Consolidated
					(in thousands)
As of June 30, 2010
Property, plant and equipment, net	$	14,548	$	2,035	$	28	$	34	$	16,645

Identifiable assets	$	163,565	$	17,098	$	11,757	$	3,548	$	195,968

As of December 31, 2009
Property, plant and equipment, net	$	15,553	$	2,212	$	37	$	—	$	17,802

Identifiable assets	$	165,995	$	14,016	$	9,210	$	2,950	$	192,171

Information concerning the revenues and total assets of principal geographic areas are as follows:


	United States		United Kingdom		Other		Consolidated
			(in thousands)
Revenue
For the three months ended June 30, 2010	$	96,961	$	1,729	$	182	$	98,872
For the three months ended June 30, 2009		89,274		981		62		90,317
For the six months ended June 30, 2010		192,303		2,846		312		195,461
For the six months ended June 30, 2009		175,451		2,024		111		177,586
Total assets
As of June 30, 2010	$	190,349	$	5,385	$	234	$	195,968
As of December 31, 2009		187,040		5,029		102		192,171

21. Discontinued Operations

On July 19, 2010 we and SIH, entered into a membership interest purchase agreement with Sterling Infosystems, Inc., pursuant to which SIH sold, and Sterling acquired, 100% of the membership interests of SI for an aggregate purchase price of $15.0 million in cash plus adjustments for working capital and other items. SIH is not an operating subsidiary and our background screening services ceased upon the sale of SI. The sale is subject to customary representations, warranties, indemnifications, escrow and a further post-closing working capital adjustment.

We evaluated the segment disposal for classification as held for sale under U.S. GAAP. We do not believe we met all the criteria required for held for sale classification or discontinued operations as of the balance sheet date. At the balance sheet date, management could not fully commit to sell the subsidiary without a formal Board of Director approval providing authorization to execute the transaction. This formal authorization to execute the transaction occurred after June 30, 2010. Our corporate governance policies require Board of Directors’ approval to completely commit and execute a sale of a long-lived asset, such as a subsidiary.

The carrying value for SI, as of June 30, 2010, was ($2.4) million. We expect to recognize a gain on the disposition of our subsidiary in the third quarter of 2010.

As a result of the sale, we remitted $1.4 million in full payment of a note payable entered into between SIH and CRG in 2009. We believe the payment of this note payable will result in a loss from debt extinguishment as the note payable is recorded at fair value under U.S. GAAP. We plan to record this loss from debt extinguishment and present the segment as held for sale and discontinued operations in the third quarter of 2010.

22. Subsequent Events

On July 1, 2010 we entered into additional capital lease agreements for fixed assets of approximately $3.6 million. We will record the lease liability at the fair market value of the underlying assets in our condensed consolidated balance sheet.

On July 30, 2010, as a result of the proceeds received from the disposition of SI, we prepaid the remaining balance and accrued interest on the term loan under our Credit Agreement of approximately $11.2 million. We are currently evaluating the impact, if any, the prepayment has on the accounting for the respective interest rate swap.

On August 12, 2010, we announced a cash dividend of $.15 per share on our common stock, payable on September 10, 2010 to stockholders of record as of August 31, 2010.

On August 12, 2010, we announced that our Board of Directors had increased the authorized amount under our existing share repurchase program to a total of $30.0 million of our common shares. This represents an increase of approximately $10.0 million with approximately $20.5 million remaining in the program. Repurchase under the program may be made in open market or privately negotiated transactions or otherwise, from time to time, depending on market conditions.


Item 2.		*Management’s Discussion and Analysis of Financial Condition and Results of Operations*

Forward Looking Statements

Certain written and oral statements made by or on our behalf may constitute “forward-looking statements” as defined under the Private Securities Litigation Reform Act of 1995. Words or phrases such as “should result,” “are expected to,” “we anticipate,” “we estimate,” “we project,” or similar expressions are intended to identify forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in any forward-looking statements. These risks and uncertainties include, but are not limited to, those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2009 filed on March 16, 2010, and our quarterly and current reports filed with the Securities and Exchange Commission and the following important factors: demand for our services, general economic conditions, including the effects of the recession in the U.S. and the worldwide economic slowdown, recent disruptions to the credit and financial markets in the U.S. and worldwide, economic conditions specific to our financial institutions clients, product development, maintaining acceptable margins, maintaining secure systems, ability to control costs, the impact of federal, state and local regulatory requirements on our business, specifically the consumer credit market, the impact of competition, ability to continue our long-term business strategy including growth through acquisition, ability to attract and retain qualified personnel and the uncertainty of economic conditions in general.

Readers are cautioned not to place undue reliance on forward-looking statements, since the statements speak only as of the date that they are made, and we undertake no obligation to publicly update these statements based on events that may occur after the date of this report.

Overview

We have four reportable segments through the period ended June 30, 2010: Consumer Products and Services, Background Screening, Online Brand Protection and Bail Bonds Industry Solutions. In 2009, we changed our segment reporting by realigning a portion of our Other segment into the Consumer Products and Services segment. Our Consumer Products and Services segment includes our consumer protection and other consumer products and services. This segment consists of identity theft management tools, services from our relationship with a third party that administers referrals for identity theft to major banking institutions and breach response services, membership product offerings and other subscription based services such as life and accidental death insurance. Our Online Brand Protection segment includes corporate brand protection provided by Net Enforcers. Our Bail Bonds Industry Solutions segment includes the software management solutions for the bail bond industry provided by Captira Analytical. In addition, until the sale of SI on July 19, 2010, our Background Screening segment included the personnel and vendor background screening services provided by SI.

Consumer Products and Services

We offer consumers a variety of consumer protection services and other consumer products and services primarily on a subscription basis. Our services help consumers protect themselves against identity theft or fraud and understand and monitor their credit profiles and other personal information. Through our subsidiary, Intersections Insurance Services, we offer a portfolio of services to include consumer discounts on healthcare, home, and auto related expenses, access to professional financial and legal information, and life, accidental death and disability insurance products. Our consumer services are offered through relationships with clients, including many of the largest financial institutions in the United States and Canada, and clients in other industries.

Our products and services are marketed to customers of our clients, and often are branded and tailored to meet our clients’ specifications. Our clients are principally credit card, direct deposit or mortgage issuing financial institutions, including many of the largest financial institutions in the United States and Canada. With certain of our financial institution clients, we have broadened our marketing efforts to access demand deposit accounts. Our financial institution clients currently account for the majority of our existing subscriber base. We also are continuing to augment our client base through relationships with insurance companies, mortgage companies, brokerage companies, associations, travel companies, retail companies, web and technology companies and other service providers with significant market presence and brand loyalty.

With our clients, our services are marketed to potential subscribers through a variety of marketing channels, including direct mail, outbound telemarketing, inbound telemarketing, inbound customer service and account activation calls, email, mass media and the Internet. Our marketing arrangements with our clients sometimes call for us to fund and manage marketing activity. The mix between our company-funded and client-funded marketing programs varies from year to year based upon our and our clients’ strategies.

We conduct our consumer direct marketing primarily through the Internet and broadcast media. We also may market through other channels, including direct mail, outbound telemarketing, inbound telemarketing and email. We expect to continue our investment in marketing in 2010 in our direct to consumer business.

Our client arrangements are distinguished from one another by the allocation between us and the client of the economic risk and reward of the marketing campaigns. The general characteristics of each arrangement are described below, although the arrangements with particular clients may contain unique characteristics:

	•		Direct marketing arrangements: Under direct marketing arrangements, we bear most of the new subscriber marketing costs and pay our client a commission for revenue derived from subscribers. These commissions could be payable upfront in a lump sum on a per subscriber basis for the subscriber’s enrollment, periodically over the life of a subscriber, or through a combination of both. These arrangements generally result in negative cash flow over the first several months after a program is launched due to the upfront nature of the marketing investments. In some arrangements, we pay the client a service fee for access to the client’s customers or billing of the subscribers by the client, and we may reimburse the client for certain of its out-of-pocket marketing costs incurred in obtaining the subscriber.

	•		Indirect marketing arrangements: Under indirect marketing arrangements, our client bears the marketing expense and pays us a service fee or percentage of the revenue. Because the subscriber acquisition cost is borne by our client under these arrangements, our revenue per subscriber is typically lower than that under direct marketing arrangements. Indirect marketing arrangements generally provide positive cash flow earlier than direct arrangements and the ability to obtain subscribers and utilize marketing channels that the clients otherwise may not make available.

	•		Shared marketing arrangements: Under shared marketing arrangements, marketing expenses are shared by us and the client in various proportions, and we may pay a commission to or receive a service fee from the client. Revenue generally is split relative to the investment made by our client and us.

The classification of a client relationship as direct, indirect or shared is based on whether we or the client pay the marketing expenses. Our accounting policies for revenue recognition, however, are not based on the classification of a client arrangement as direct, indirect or shared. We look to the specific client arrangement to determine the appropriate revenue recognition policy, as discussed in detail in Note 2 to our condensed consolidated financial statements.

Our typical contracts for direct marketing arrangements, and some indirect and shared marketing arrangements, provide that, after termination of the contract, we may continue to provide our services to existing subscribers, for periods ranging from two years to no specific termination period, under the economic arrangements that existed at the time of termination. Under certain of our agreements, however, including most indirect marketing arrangements and some shared marketing arrangements, the clients may require us to cease providing services under existing subscriptions. Clients under some contracts may also require us to cease providing services to their customers under existing subscriptions if the contract is terminated for material breach by us.

The following table details other selected subscriber and financial data.

Other Data (in thousands):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
Subscribers at beginning of period		4,238			4,536			4,301			4,730
New subscribers — indirect		191			241			420			451
New subscribers — direct (1)		293			572			765			1,121
Cancelled subscribers within first 90 days of subscription		(203	)		(244	)		(443	)		(460	)
Cancelled subscribers after first 90 days of subscription		(412	)		(638	)		(936	)		(1,375	)

Subscribers at end of period		4,107			4,467			4,107			4,467

Total revenue	$	98,872		$	90,317		$	195,461		$	177,586
Revenue from transactional sales		(7,938	)		(5,624	)		(13,874	)		(11,405	)
Revenue from lost/stolen credit card registry		(7	)		(17	)		(16	)		(26	)

Subscription revenue	$	90,927		$	84,676		$	181,571		$	166,155

Marketing and commissions	$	42,493		$	42,131		$	90,391		$	83,025
Commissions paid on transactional sales		—			(1	)		(1	)		(2	)
Commissions paid on lost/stolen credit card registry		(22	)		(18	)		(34	)		(42	)

Marketing and commissions associated with subscription revenue	$	42,471		$	42,112		$	90,356		$	82,981


(1)		We classify subscribers from shared marketing arrangements with direct marketing arrangements.

Subscription revenue, net of marketing and commissions associated with subscription revenue, is a non-GAAP financial measure that we believe is important to investors and one that we utilize in managing our business as subscription revenue normalizes the effect of changes in the mix of indirect and direct marketing arrangements.

Background Screening

Through our subsidiary, Screening International, we provided a variety of risk management tools for the purpose of personnel and vendor background screening services, including criminal background checks, driving records, employment verification and reference checks, drug testing and credit history checks to businesses worldwide. Our background screening services integrated data from various automated sources throughout the world, additional manual research findings from employees and subcontractors, and internal business logic that assists in decision making. Our background screening services were generally sold to corporate clients under contractual arrangements with individual per unit prices for specific service specifications. Due to substantial differences in both service specifications and associated data acquisition costs, prices for our background screening services varied significantly among clients and geographies.

Our clients included leading US, UK and global companies in such areas as manufacturing, staffing and recruiting agencies, financial services, retail and transportation. Our clients were primarily located in the US and the UK. Several of our clients have operations in other countries, and use our services in connection with those operations. We had other clients in various countries, and expected the number of these clients to increase as we developed our global background screening business. Because we serviced the majority of our clients through our operations in the US and the UK, we considered those two locations to be the sources of our business for purposes of allocating revenue on a geographic basis.

We generally marketed our background screening services to businesses through an internal sales force. Our services were offered to businesses on a local or global basis. Prices for our services varied based upon complexity of the services offered, the cost of performing these services and competitive factors. Control Risks Group, Ltd, our former business partner, provided marketing assistance and services and licensed certain trademarks to Screening International, under which our services were branded in certain geographic areas.

Online Brand Protection

Through our subsidiary, Net Enforcers, we provide online brand protection services including online channel monitoring, auction monitoring, forum, blog and newsgroup monitoring and other services. Net Enforcers’ services include the use of technology and operations staff to search the Internet for instances of our clients’ brands and/or specific products, categorize each instance as potentially threatening to our clients based upon client provided criteria, and report our findings back to our clients. Net Enforcers also offers additional value added services to assist our clients to take actions to remediate perceived threats detected online. Net Enforcers’ services are typically priced as monthly subscriptions for a defined set of monitoring services, as well as per transaction charges for value added communications services. Prices for our services vary based upon the specific configuration of services purchased by each client and range from several hundred dollars per month to tens of thousands of dollars per month.

Bail Bonds Industry Solutions

Through our subsidiary, Captira Analytical, we provide automated service solutions for the bail bonds industry. These services include accounting, reporting, and decision making tools which allow bail bondsmen, general agents and sureties to run their offices more efficiently, to exercise greater operational and financial control over their businesses, and to make better underwriting decisions. We believe Captira Analytical’s services are the only fully integrated suite of bail bonds management applications of comparable scope available in the marketplace today. Captira Analytical’s services are sold to retail bail bondsman on a “per seat” license basis plus additional one-time or recurring charges for various optional services. Captira Analytical has also developed a suite of services

for bail bonds insurance companies, general agents and sureties which are also sold on either a transactional or recurring revenue basis. As Captira Analytical’s business model is relatively new, pricing and service configurations are subject to change at any time.

Critical Accounting Policies

Management Estimates

In preparing our condensed consolidated financial statements, we make estimates and assumptions that can have a significant impact on our financial position and results of operations. The application of our critical accounting policies requires an evaluation of a number of complex criteria and significant accounting judgments by us. In applying those policies, our management uses its judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Actual results may differ significantly from these estimates under different assumptions, judgments or conditions. We have identified the following policies as critical to our business operations and the understanding of our results of operations. For further information on our critical and other accounting policies, see Note 2 to our condensed consolidated financial statements.

Goodwill, Identifiable Intangibles and Other Long Lived Assets

unit was the purchase price paid. If the carrying value of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment charge is recognized in an amount equal to that excess.

We reviewed all impairment indicators with regards to goodwill and we concluded that for the three and six months ended

June 30, 2010, there were no adverse changes in these indicators which would cause a need for an interim goodwill impairment analysis. Therefore, we were not required to perform a goodwill analysis during the second quarter of 2010.

The second step of the impairment test required us to allocate the fair value of the reporting unit derived in the first step to the fair value of the reporting unit’s net assets. Goodwill was written down to its implied fair value for our Background Screening reporting unit. For the three months ended June 30, 2009 we recorded an impairment charge of $5.9 million in our Background Screening reporting unit.

Revenue Recognition

We recognize revenue on 1) identity theft, credit management and background screening services, 2) accidental death insurance and 3) other membership products.

Identity Theft and Credit Management Services

Accidental Death Insurance and Other Membership Products

Other Monthly Subscription Products

Deferred Subscription Solicitation and Advertising

Commission Costs

Share Based Compensation


	Six Months Ended
	June 30,
	2010			2009
Expected dividend yield		0	%		0	%
Expected volatility		67.8	%		55.4	%
Risk-free interest rate		2.8	%		2.0	%
Expected life of options	6.2 years			6.2 years

Expected Volatility. The expected volatility of the options granted was estimated based upon our historical share price volatility, as well as the average volatility of comparable public companies. We will continue to review our estimate in the future.

Income Taxes

Accounting Standards Updates

Accounting Standards Updates Recently Adopted

In June 2009, an update was made to “Consolidation — Consolidation of Variable Interest Entities”, to replace the calculation for determining which entities, if any, have a controlling financial interest in a variable interest entity (“VIE”) from a quantitative risk based calculation, to a qualitative approach that focuses on identifying which entities have the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses of the VIE or the right to receive benefits from the VIE. The update requires an ongoing assessment as to whether an entity is the primary beneficiary of a VIE, modifies the presentation of consolidated VIE assets and liabilities, and requires additional disclosures about a company’s involvement in VIEs. This update is effective for annual periods beginning after November 15, 2009, for interim periods within the first annual reporting period and for interim and annual periods thereafter. Earlier application is prohibited. We have adopted the provisions of this update as of January 1, 2010 and there was no material impact to our condensed consolidated financial statements.

Accounting Standards Updates Not Yet Effective

and for interim periods within those fiscal years. We will adopt the provisions of this update and do not anticipate a material impact to our condensed consolidated financial statements.

In April 2010, an update was made to “Compensation – Stock Compensation". This update provides amendments to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would classify such an award as a liability if it otherwise qualifies as equity. This update is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. Earlier adoption is permitted. We will adopt the provisions of this update and do not anticipate a material impact to our condensed consolidated financial statements.

Results of Operations

Three Months Ended June 30, 2010 vs. Three Months Ended June 30, 2009 (in thousands):

The condensed consolidated results of operations are as follows:


	Consumer
	Products								Bail Bonds
	and		Background			Online Brand			Industry
	Services		Screening			Protection			Solutions			Consolidated
Three Months Ended June 30, 2010
Revenue	$	91,507	$	6,746		$	496		$	123		$	98,872
Operating expenses:
Marketing		12,684		—			—			—			12,684
Commissions		29,809		—			—			—			29,809
Cost of revenue		21,755		3,634			143			12			25,544
General and administrative		14,323		2,289			435			486			17,533
Depreciation		1,955		203			5			—			2,163
Amortization		1,870		—			7			—			1,877

Total operating expenses		82,396		6,126			590			498			89,610

Income (loss) from operations	$	9,111	$	620		$	(94	)	$	(375	)	$	9,262

Three Months Ended June 30, 2009
Revenue	$	85,182	$	4,511		$	520		$	104		$	90,317
Operating expenses:
Marketing		15,346		—			—			—			15,346
Commissions		26,785		—			—			—			26,785
Cost of revenue		22,581		2,997			228			42			25,848
General and administrative		13,425		2,814			1,858			455			18,552
Impairment		—		5,949			—			—			5,949
Depreciation		1,734		218			2			8			1,962
Amortization		1,934		116			17			107			2,174

Total operating expenses		81,805		12,094			2,105			612			96,616

Income (loss) from operations	$	3,377	$	(7,583	)	$	(1,585	)	$	(508	)	$	(6,299	)

Consumer Products and Services Segment

OVERVIEW

Our income from operations in our Consumer Products and Services segment increased in the three months ended June 30, 2010 as compared to the three months ended June 30, 2009. This is primarily due to growth in revenue from existing clients, decreased marketing expenses in our direct subscription and direct to consumer business, partially offset by increased commissions on as a result of increased sales in our ongoing direct subscriber base. Our subscription revenue (see Other Data) increased to $90.9 million from $84.7 million in the comparable period.


	Three Months Ended June 30,
	2010		2009		Difference			%
Revenue	$	91,507	$	85,182	$	6,325			7.4	%
Operating expenses:
Marketing		12,684		15,346		(2,662	)		(17.4	)%
Commissions		29,809		26,785		3,024			11.3	%
Cost of revenue		21,755		22,581		(826	)		(3.7	)%
General and administrative		14,323		13,425		898			6.7	%
Depreciation		1,955		1,734		221			12.8	%
Amortization		1,870		1,934		(64	)		(3.3	)%

Total operating expenses		82,396		81,805		591			0.7	%

Income from operations	$	9,111	$	3,377	$	5,734			169.8	%

Revenue. The increase in revenue is primarily the result of growth in revenue from existing clients, the increase in the ratio of revenue from direct marketing arrangements to revenue from indirect subscribers and increased revenue from our direct to consumer business. The growth in revenue from existing clients is primarily from new and ongoing subscribers converting to higher priced product offerings. The percentage of revenue from direct marketing arrangements, in which we recognize the gross amount billed to the subscriber, has increased to 88.8% for the three months ended June 30, 2010 from 87.2% in the three months ended June 30, 2009.

Total subscriber additions for the three months ended June 30, 2010 were 484 thousand compared to 813 thousand in the three months ended June 30, 2009.

The table below shows the percentage of subscribers generated from direct marketing arrangements:


	Three Months Ended
	June 30,
	2010			2009
Percentage of subscribers from direct marketing arrangements to total subscribers		60.8	%		58.7	%
Percentage of new subscribers acquired from direct marketing arrangements to total new subscribers acquired		60.5	%		70.4	%
Percentage of revenue from direct marketing arrangements to total subscription revenue		88.8	%		87.2	%

Marketing Expenses. Marketing expenses consist of subscriber acquisition costs, including radio, television, telemarketing, web-based marketing and direct mail expenses such as printing and postage. Marketing expense decreased 17.4% to $12.7 million for the three months ended June 30, 2010 from $15.3 million for the three months ended June 30, 2009. The decrease is primarily a result of a decrease in marketing for our direct to consumer business and marketing for our direct subscription business with existing clients. Amortization of deferred subscription solicitation costs related to marketing for the three months ended June 30, 2010 and 2009 were

$11.4 million and $12.3 million, respectively. Marketing costs expensed as incurred for the three months ended June 30, 2010 and 2009 were $1.3 million and $3.1 million, respectively, as a result of a decrease in marketing expenses related to broadcast media, which do not meet the criteria for capitalization, for our direct to consumer business.

As a percentage of revenue, marketing expenses decreased to 13.9% for the three months ended June 30, 2010 from 18.0% for the three months ended June 30, 2009.

Commissions Expenses. Commission expenses consist of commissions paid to our clients. Commission expenses increased 11.3% to $29.8 million for the three months ended June 30, 2010 from $26.8 million for the three months ended June 30, 2009. The increase is related to an increase in sales and subscribers from our direct marketing arrangements with existing clients, as well as an increase in the effective commission rate.

As a percentage of revenue, commission expenses increased to 32.6% for the three months ended June 30, 2010 from 31.4% for the three months ended June 30, 2009, primarily due to the increased proportion of revenue from direct marketing arrangements with ongoing clients.

Cost of Revenue. Cost of revenue consists of the costs of operating our customer service and information processing centers, data costs, and billing costs for subscribers and one-time transactional sales. Cost of revenue decreased 3.7% to $21.8 million for the three months ended June 30, 2010 from $22.6 million for the three months ended June 30, 2009. The decrease in cost of revenue is primarily the result of reduced data and fulfillment costs required to support new members of $1.1 million, partially offset by higher data costs required to support the ongoing subscriber base.

As a percentage of revenue, cost of revenue decreased to 23.8% for the three months ended June 30, 2010 compared to 26.5% for the three months ended June 30, 2009, as a result of an increase in the ratio of revenue from direct marketing arrangements.

General and Administrative Expenses. General and administrative expenses consist of personnel and facilities expenses associated with our executive, sales, marketing, information technology, finance, program and account management functions. General and administrative expenses increased 6.7% to $14.3 million for the three months ended June 30, 2010 from $13.4 million for the three months ended June 30, 2009. The increase in general and administrative expenses is primarily related to increased payroll costs.

Total share based compensation expense for the three months ended June 30, 2010 and 2009 was $1.4 million and $1.1 million, respectively.

As a percentage of revenue, general and administrative expenses remained unchanged at 15.7% for the three months ended June 30, 2010 and 15.7% for the three months ended June 30, 2009.

Depreciation. Depreciation expenses consist primarily of depreciation expenses related to our fixed assets and capitalized software. Depreciation expense increased for the three months ended June 30, 2010 compared to the three months ended June 30, 2009, primarily due to additional assets placed in service.

As a percentage of revenue, depreciation expenses increased to 2.1% for the three months ended June 30, 2010 from 2.0% for the three months ended June 30, 2009.

Amortization. Amortization expenses consist primarily of the amortization of our intangible assets. Amortization decreased for the three months ended June 30, 2010 compared to the three months ended June 30, 2009.

As a percentage of revenue, amortization expenses decreased to 2.0% for the three months ended June 30, 2010 from 2.3% for the three months ended June 30, 2009.

Background Screening Segment

Our Background Screening segment consisted of the personnel and vendor background screening services provided by SI. On July 19, 2010 we and SIH, entered into a membership interest purchase agreement with Sterling Infosystems, Inc. (“Sterling”), pursuant to which SIH sold, and Sterling acquired, 100% of the membership interests of SI for an aggregate purchase price of $15.0 million in cash plus adjustments for working capital and other items. SIH is not an operating subsidiary and our background screening services ceased upon the sale of SI.

OVERVIEW

In our Background Screening segment we had income from operations in the three months ended June 30, 2010 as compared to a loss from operations in the three months ended June 30, 2009. This is primarily due to the effects of a goodwill impairment in the three months ended June 30, 2009 and increased revenue. Volume of background screens has increased 120.5% in the three months ended June 30, 2010 from the three months ended June 30, 2009.


	Three Months Ended June 30,
	2010		2009			Difference			%
Revenue	$	6,746	$	4,511		$	2,235			49.5	%
Operating expenses:
Cost of revenue		3,634		2,997			637			21.3	%
General and administrative		2,289		2,814			(525	)		(18.7	)%
Impairment		—		5,949			(5,949	)		(100.0	)%
Depreciation		203		218			(15	)		(6.9	)%
Amortization		—		116			(116	)		(100.0	)%

Total operating expenses		6,126		12,094			(5,968	)		49.4	%

Income (loss) from operations	$	620	$	(7,583	)	$	8,203			108.2	%

Revenue. Revenue increased 49.5% to $6.7 million for the three months ended June 30, 2010 from $4.5 million for the three months ended June 30, 2009. The increase in revenue is primarily attributable to increases in volume from all operations, which increased domestic revenue by $1.4 million and UK revenue of $749 thousand.

Cost of Revenue. Cost of revenue consists of the costs to fulfill background screens and is composed of direct labor costs, consultant costs, database fees and access fees. Cost of revenue increased 21.3% to $3.6 million for the three months ended June 30, 2010 from $3.0 million for the three months ended June 30, 2009. The increase is due to increased database and other data fees, due to increases in volume, of $547 thousand and increased domestic labor costs of $200 thousand. The increases are partially offset by labor reductions in the UK of $93 thousand.

As a percentage of revenue, cost of revenue was 53.9% for the three months ended June 30, 2010 compared to 66.4% for the three months ended June 30, 2009

General and Administrative Expenses. General and administrative expenses consist of personnel and facilities expenses associated with our sales, marketing, information technology, finance, and account management functions. General and administrative expenses decreased 18.7% to $2.3 million for the three months ended June 30, 2010 from $2.8 million for the three months ended June 30, 2009. The decrease in general and administrative expenses is primarily attributable to cost reduction initiatives of $377 thousand and reductions in payroll costs of $144 thousand.

As a percentage of revenue, general and administrative expenses decreased to 33.9% for the year ended June 30, 2010 from 62.4% for the year ended June 30, 2009.

We reviewed all impairment indicators with regards to goodwill and we concluded that for the three months ended June 30, 2010, there were no adverse changes in these indicators which would cause a need for an interim goodwill impairment analysis. Therefore, we were not required to perform a goodwill analysis during the second quarter of 2010.

Online Brand Protection Segment

Our loss from operations in our Online Brand Protection segment decreased for the three months ended June 30, 2010 as compared to the three months year ended June 30, 2009 primarily due to reductions in general and administrative costs from ongoing litigation and regulatory compliance issues.


	Three Months Ended June 30,
	2010			2009			Difference			%
Revenue	$	496		$	520		$	(24	)		(4.6	)%
Operating expenses:
Cost of revenue		143			228			(85	)		(37.3	)%
General and administrative		435			1,858			(1,423	)		(76.6	)%
Depreciation		5			2			3			150.0	%
Amortization		7			17			(10	)		(58.8	)%

Total operating expenses		590			2,105			(1,515	)		72.0	%

Loss from operations	$	(94	)	$	(1,585	)	$	1,491			94.1	%

Revenue. Revenue decreased $24 thousand for the three months ended June 30, 2010 compared to the three months ended June 30, 2009.

Cost of Revenue. Cost of revenue consists of the costs of operating our customer service and information processing centers, data costs and billing costs for subscribers. Cost of revenue decreased by $85 thousand for the three months ended June 30, 2010 compared to the three months ended June 30, 2009, primarily due to the reductions in direct labor costs.

As a percentage of revenue, cost of revenue was 28.8% for the three months ended June 30, 2010 compared to 43.9% for the three months ended June 30, 2009.

As a percentage of revenue, general and administrative expenses decreased to 87.7% for the three months ended June 30, 2010 from 357.3% for the three months ended June 30, 2009.

Bail Bonds Industry Solutions Segment

Our loss from operations in our Bail Bonds Industry Solutions Segment decreased for the three months ended June 30, 2010 as compared to the three months ended June 30, 2009. The decrease in loss from operations is driven by slight growth in revenue and decreased amortization expense. The general economic slowdown has impacted revenue growth, along with slower growth for this early stage business in a new market.


	Three Months Ended June 30,
	2010			2009			Difference			%
Revenue	$	123		$	104		$	19			18.3	%
Operating expenses:
Cost of revenue		12			42			(30	)		(71.4	)%
General and administrative		486			455			31			6.8	%
Depreciation		—			8			(8	)		(100.0	)%
Amortization		—			107			(107	)		(100.0	)%

Total operating expenses		498			612			(114	)		18.6	%

Loss from operations	$	(375	)	$	(508	)	$	133			26.2	%

Revenue. Revenue increased $19 thousand for the three months ended June 30, 2010 as compared to the three months ended June 30, 2009.

Cost of Revenue. Cost of revenue consists of monitoring and credit bureau expenses. Cost of revenue decreased from the three months ended June 30, 2010 to the three months ended June 30, 2009.

As a percentage of revenue, cost of revenue was 9.8% for the three months ended June 30, 2010 compared to 40.4% for the three months ended June 30, 2009.

administrative expenses increased $31 thousand for the three months ended June 30, 2010 compared to the three months ended June 30, 2009.

Six Months Ended June 30, 2010 vs. Six Months Ended June 30, 2009 (in thousands):

The condensed consolidated results of operations are as follows:


	Consumer
	Products								Bail Bonds
	and		Background			Online Brand			Industry
	Services		Screening			Protection			Solutions			Consolidated
Six Months Ended June 30, 2010
Revenue	$	182,425	$	11,846		$	959		$	231		$	195,461
Operating expenses:
Marketing		29,787		—			—			—			29,787
Commissions		60,604		—			—			—			60,604
Cost of revenue		44,740		6,640			305			35			51,720
General and administrative		28,562		4,543			1,033			967			35,105
Depreciation		4,046		415			10			—			4,471
Amortization		4,162		—			14			—			4,176

Total operating expenses		171,901		11,598			1,362			1,002			185,863

Income (loss) from operations	$	10,524	$	248		$	(403	)	$	(771	)	$	9,598

Six Months Ended June 30, 2009
Revenue	$	167,346	$	8,945		$	1,120		$	175		$	177,586
Operating expenses:
Marketing		30,375		—			—			—			30,375
Commissions		52,650		—			—			—			52,650
Cost of revenue		44,696		6,151			440			97			51,384
General and administrative		25,945		6,054			2,350			881			35,230
Impairment		—		6,163			—			—			6,163
Depreciation		3,660		435			4			13			4,112
Amortization		4,092		243			34			213			4,582

Total operating expenses		161,418		19,046			2,828			1,204			184,496

Income (loss) from operations	$	5,928	$	(10,101	)	$	(1,708	)	$	(1,029	)	$	(6,910	)

Consumer Products and Services Segment

OVERVIEW

Our income from operations in our Consumer Products and Services segment increased in the six months ended June 30, 2010 as compared to the six months ended June 30, 2009. This is primarily due to growth in revenue from existing clients partially offset by increased commissions as a result of increased sales in our ongoing direct subscriber base and increased general and administrative expenses. Our subscription revenue (see Other Data) increased to $181.6 million from $166.2 million in the comparable period.


	Six Months Ended June 30,
	2010		2009		Difference			%
Revenue	$	182,425	$	167,346	$	15,079			9.0	%
Operating expenses:
Marketing		29,787		30,375		(588	)		(1.9	)%
Commissions		60,604		52,650		7,954			15.1	%
Cost of revenue		44,740		44,696		44			0.1	%
General and administrative		28,562		25,945		2,617			10.1	%
Depreciation		4,046		3,660		386			10.6	%
Amortization		4,162		4,092		70			1.7	%

Total operating expenses		171,901		161,418		10,483			6.5	%

Income from operations	$	10,524	$	5,928	$	4,596			77.5	%

Revenue. The increase in revenue is primarily the result of growth in revenue from existing clients, the increase in the ratio of revenue from direct marketing arrangements to revenue from indirect subscribers and increased revenue from our direct to consumer business. The growth in revenue from existing clients is primarily from new and ongoing subscribers converting to higher priced product offerings. The percentage of revenue from direct marketing arrangements, in which we recognize the gross amount billed to the subscriber, has increased to 88.7% for the six months ended June 30, 2010 from 87.1% in the six months ended June 30, 2009.

Total subscriber additions for the six months ended June 30, 2010 were 1.2 million compared to 1.6 million in the six months ended June 30, 2009.

The table below shows the percentage of subscribers generated from direct marketing arrangements:


	Six Months Ended
	June 30,
	2010			2009
Percentage of subscribers from direct marketing arrangements to total subscribers		60.8	%		58.7	%
Percentage of new subscribers acquired from direct marketing arrangements to total new subscribers acquired		64.5	%		71.3	%
Percentage of revenue from direct marketing arrangements to total subscription revenue		88.7	%		87.1	%

Marketing Expenses. Marketing expense decreased 1.9% to $29.8 million for the six months ended June 30, 2010 from $30.4 million for the six months ended June 30, 2009. The decrease in marketing is primarily a result of a decrease in marketing expenses for our direct subscription business with existing clients and our direct to consumer business. Amortization of deferred subscription solicitation costs related to marketing for the six months ended June 30, 2010 and 2009 were $23.7 million and $23.9 million, respectively. Marketing costs expensed as incurred for the six months ended June 30, 2010 and 2009 were $6.1 million and $6.4 million, respectively.

As a percentage of revenue, marketing expenses decreased to 16.3% for the six months ended June 30, 2010 from 18.2% for the six months ended June 30, 2009.

Commissions Expenses. Commission expenses increased 15.1% to $60.6 million for the six months ended June 30, 2010 from $52.7 million for the six months ended June 30, 2009. The increase is related to an increase in sales and subscribers from our direct marketing arrangements with existing clients, as well as an increase in the effective commission rate.

As a percentage of revenue, commission expenses increased to 33.2% for the six months ended June 30, 2010 from 31.5% for the six months ended June 30, 2009, primarily due to the increased proportion of revenue from direct marketing arrangements with ongoing clients.

Cost of Revenue. Cost of revenue increased 0.1% and was $44.7 million for the six months ended June 30, 2010 and June 30, 2009, respectively.

As a percentage of revenue, cost of revenue decreased slightly to 24.5% for the six months ended June 30, 2010 compared to 26.7% for the six months ended June 30, 2009, as a result of an increase in the ratio of revenue from direct marketing arrangements.

General and Administrative Expenses. General and administrative expenses increased 10.1% to $28.6 million for the six months ended June 30, 2010 from $25.9 million for the six months ended June 30, 2009. The increase in general and administrative expenses is primarily related to increased payroll costs and professional fees.

Total share-based compensation expense in our consolidated statements of operations for the six months ended June 30, 2010 and 2009 was $2.8 million and $2.0 million, respectively.

As a percentage of revenue, general and administrative expenses increased to 15.7% for the six months ended June 30, 2010 from 15.5% for the six months ended June 30, 2009.

Depreciation. Depreciation expense increased by $386 thousand for the six months ended June 30, 2010 compared to the six months ended June 30, 2009 due to an increase in assets placed into service in the six months ended June 30, 2010.

As a percentage of revenue, depreciation expenses was 2.2% for the six months ended June 30, 2010 and 2009, respectively.

Amortization. Amortization increased for the six months ended June 30, 2010 compared to the six months ended June 30, 2009.

As a percentage of revenue, amortization expenses decreased to 2.3% for the six months ended June 30, 2010 from 2.4% for the six months ended June 30, 2009.

Background Screening Segment

Our Background Screening segment, consisted of the personnel and vendor background screening services provided by SI. On July 19, 2010 we and SIH, entered into a membership interest purchase agreement with Sterling Infosystems, Inc. (“Sterling”), pursuant to which SIH sold, and Sterling acquired, 100% of the membership interests of SI for an aggregate purchase price of $15.0 million in cash plus adjustments for working capital and other items. SIH is not an operating subsidiary and our background screening services ceased upon the sale of SI.

OVERVIEW

In our Background Screening segment we had income from operations in the six months ended June 30, 2010 as compared to a loss from operations in the six months ended June 30, 2009. This is primarily due to goodwill impairments in the six months ended June 30, 2009, increased revenue in all operations and reductions in general and administrative costs from our cost reduction initiatives. Volume of background screens has increased 57.6% in the six months ended June 30, 2010 from the six months ended June 30, 2009.


	Six Months Ended June 30,
	2010		2009			Difference			%
Revenue	$	11,846	$	8,945		$	2,901			32.4	%
Operating expenses:
Cost of revenue		6,640		6,151			489			8.0	%
General and administrative		4,543		6,054			(1,511	)		(25.0	)%
Impairment		—		6,163			(6,163	)		(100.0	)%
Depreciation		415		435			(20	)		(4.6	)%
Amortization		—		243			(243	)		(100	)%

Total operating expenses		11,598		19,046			(7,448	)		39.1	%

Income (loss) from operations	$	248	$	(10,101	)	$	10,349			102,5	%

Revenue. Revenue increased 32.4% to $11.8 million for the six months ended June 30, 2010 from $8.9 million for the six months ended June 30, 2009. The increase in revenue is primarily attributable to increases in volume within all operations, which increased domestic revenue by $1.9 million and UK revenue of $817 thousand.

Cost of Revenue. Cost of revenue increased 8.0% to $6.6 million for the six months ended

June 30, 2010 from $6.2 million for the six months ended June 30, 2009. The increase is due to increased database and other data fees, due to increases in volume, of $749 thousand and increased domestic labor costs of $305 thousand. The increases were partially offset by labor reductions in the UK of $526 thousand.

As a percentage of revenue, cost of revenue was 56.1% for the six months ended June 30, 2010 compared to 68.8% for the six months ended June 30, 2009.

General and Administrative Expenses. General and administrative expenses decreased 25.0% to $4.5 million for the six months

ended June 30, 2010 from $6.1 million for the six months ended June 30, 2009. The decrease in general and administrative expenses is primarily attributable to cost reduction initiatives of $786 thousand and reductions in payroll costs of $700 thousand.

As a percentage of revenue, general and administrative expenses decreased to 38.4% for the year ended June 30, 2010 from 67.7% for the year ended June 30, 2009.

Impairment. Due to the deterioration in the general economic environment and the decline in our market capitalization at June 30, 2009, we concluded a triggering event had occurred indicating potential impairment in the Background Screening reporting unit as of June 30, 2009. For the three months ended June 30, 2009, we recorded an impairment charge of $5.9 million in our Background Screening reporting unit. In addition, during the three months ended March 31, 2009, we finalized the second step of our goodwill impairment test, in which the first step was performed during the year ended December 31, 2008. Based on the finalization of this second step, we recorded an additional impairment charge of $214 thousand in our Background Screening reporting unit in the three months ended March 31, 2009.

We reviewed all impairment indicators with regards to goodwill and we concluded that for the six months ended June 30, 2010, there were no adverse changes in these indicators which would cause a need for an interim goodwill impairment analysis. Therefore, we were not required to perform a goodwill analysis during the second quarter of 2010.

Online Brand Protection Segment

Our loss from operations in our Online Brand Protection segment decreased for the six months ended June 30, 2010 as compared to the six months year ended June 30, 2009 primarily due to reductions in general and administrative costs associated with our ongoing litigation and regulatory compliance issues.


	Six Months Ended June 30,
	2010			2009			Difference			%
Revenue	$	959		$	1,120		$	(161	)		(14.4	)%
Operating expenses:
Cost of revenue		305			440			(135	)		(30.7	)%
General and administrative		1,033			2,350			(1,317	)		(56.0	)%
Depreciation		10			4			6			150.0	%
Amortization		14			34			(20	)		(58.8	)%

Total operating expenses		1,362			2,828			(1,466	)		51.8	%

Loss from operations	$	(403	)	$	(1,708	)	$	1,305			76.4	%

Revenue. Revenue decreased $161 thousand for the six months ended June 30, 2010 compared to the six months ended June 30, 2009. This decrease is primarily due to the general economic slowdown, which negatively impacted sales in the six months ended June 30, 2010.

Cost of Revenue. Cost of revenue decreased by $135 thousand for the six months ended June 30, 2010 compared to the six months ended June 30, 2009, primarily due to reductions in direct labor costs.

As a percentage of revenue, cost of revenue was 31.8% for the six months ended June 30, 2010 compared to 39.3% for the six months ended June 30, 2009.

General and Administrative Expenses. General and administrative expenses primarily decreased due to a reduction in legal fees in our ongoing litigation and regulatory compliance issues.

As a percentage of revenue, general and administrative expenses decreased to 107.7% for the six months ended June 30, 2010 from 209.8% for the six months ended June 30, 2009.

Bail Bonds Industry Solutions Segment

Our loss from operations in our Bail Bonds Industry Solutions Segment decreased for the six months ended June 30, 2010 as compared to the six months ended June 30, 2009. The decrease in loss from operations is primarily driven by decreased amortization

expense. The general economic slowdown has impacted revenue growth, along with slower growth for this early stage business in a new market.


	Six Months Ended June 30,
	2010			2009			Difference			%
Revenue	$	231		$	175		$	56			32.0	%
Operating expenses:
Cost of revenue		35			97			(62	)		(63.9	)%
General and administrative		967			881			86			9.8	%
Depreciation		—			13			(13	)		(100.0	)%
Amortization		—			213			(213	)		(100.0	)%

Total operating expenses		1,002			1,204			(202	)		16.8	%

Loss from operations	$	(771	)	$	(1,029	)	$	258			25.1	%

Revenue. Revenue increased $56 thousand for the six months ended June 30, 2010 as compared to the six months ended June 30, 2009.

Cost of Revenue. Cost of revenue decreased from the six months ended June 30, 2010 to the six months ended June 30, 2009.

As a percentage of revenue, cost of revenue was 15.2% for the six months ended June 30, 2010 compared to 55.4% for the six months ended June 30, 2009.

General and Administrative Expenses. The general and administrative expenses increased $86 thousand for the six months ended June 30, 2010 compared to the six months ended June 30, 2009.

As a percentage of revenue, general and administrative expenses decreased to 418.6% for the six months ended June 30, 2010 from 503.4% for the six months ended June 30, 2009.

Amortization. Amortization decreased for the six months ended June 30, 2010 compared to the six months ended June 30, 2009. This was due to impairment of amortizable intangible assets in late 2009.

As a percentage of revenue, amortization expenses decreased 100.0% for the six months ended June 30, 2010 from the six months ended June 30, 2009.

Interest Income

Interest income decreased to $6 thousand for the three months ended June 30, 2010 from $98 thousand for the three months ended June 30, 2009. Interest income decreased 92.3% to $11 thousand for the six months ended June 30, 2010 from $142 thousand for the six months ended June 20, 2009. This is primarily attributable to the decrease in the interest rates earned on short-term investments.

Interest Expense

Interest expense increased to $560 thousand for the three months ended June 30, 2010 from $288 thousand for the three months ended June 30, 2009. Interest expense increased to $1.2 million for the six months ended June 30, 2010 from $437 thousand for the six months ended June 30, 2009. The increase in interest expense for both the three and six months ended June 30, 2010 is primarily attributable to the increase in uncertain tax positions of $3.2 million, on which interest expense is recorded.

In 2008, we entered into an interest rate swap to effectively fix our variable rate term loan and a portion of the revolving credit facility under our Credit Agreement.

Other (Expense) Income

Other expense decreased to $23 thousand for the three months ended June 30, 2010 from income of $919 thousand for the three months ended June 30, 2009. Other expense decreased to $472 thousand for the six months ended June 30, 2010 from income of $473 thousand for the six months ended June 30, 2009. This is primarily attributable to the increase in the foreign currency transaction loss resulting from exchange rate fluctuations over the current period.

Income Taxes

Our consolidated effective tax rate for the three months ended June 30, 2010 and 2009 was 40.4% and (3.7%), respectively. Our consolidated effective tax rate for the six months ended June 30, 2010 and 2009 was 48.3% and (12.8%), respectively The change is primarily due to the utilization of domestic operating losses incurred in the Background Screening segment due to the acquisition of the remaining non-controlling interest in this segment in the year ended December 31, 2009. As of June 30, 2010, we continued to have a valuation allowance against the foreign deferred tax assets of the Background Screening segment.

In addition, our liability increased by approximately $3.2 million primarily related to an uncertain tax position in a foreign jurisdiction in the six months ended June 30, 2010. This liability is recorded in other long-term liabilities in our condensed consolidated balance sheet. We record income tax penalties related to uncertain tax positions as part of our income tax expense in our condensed consolidated financial statements. We record interest expense related to uncertain tax positions as part of interest expense in our condensed consolidated financial statements. In the three months ended June 30, 2010, we recorded interest of $24 thousand primarily due to the uncertain tax position in a foreign jurisdiction. In the six months ended June 30, 2010, we recorded penalties of $219 thousand and interest of $210 thousand primarily due to the uncertain tax position in a foreign jurisdiction The penalties and interest, net of federal benefit, increased the effective tax rate in the three and six months ended June 30, 2010.

Liquidity and Capital Resources

Cash and cash equivalents were $29.0 million as of June 30, 2010 compared to $12.4 million as of December 31, 2009. We believe our cash and cash equivalents are highly liquid investments and may include short-term U.S. Treasury securities with original maturity dates of less than or equal to 90 days.

As of June 30, 2010 and December 31, 2009 we held short term U.S. treasury securities with a maturity date greater than 90 days of approximately $5.0 million, which are classified as short-term investments in our condensed consolidated financial statements.

Our accounts receivable balance as of June 30, 2010 was $24.7 million, including approximately $3.3 million related to our Background Screening segment, compared to $25.1 million, including approximately $1.8 million related to our Background Screening segment, as of December 31, 2009. Our accounts receivable balance consists of credit card transactions that have been approved but not yet deposited into our account, several large balances with some of the top financial institutions and accounts receivable associated with background screening clients. The likelihood of non-payment has historically been remote with respect to subscriber based clients, however, we do provide for an allowance for doubtful accounts with respect to background screening clients and corporate brand protection clients. Given the events in the financial markets, we are continuing to monitor our allowance for doubtful accounts with respect to our financial institution obligors. In addition, we provide for a refund allowance, which is included in liabilities in our condensed consolidated balance sheet, against transactions that may be refunded in subsequent months. This allowance is based on historical results.

Our sources of capital include, but are not limited to, cash and cash equivalents, cash from continuing operations, amounts available under the credit agreement and other external sources of funds. Our short-term and long-term liquidity depends primarily upon our level of net income, working capital management and bank borrowings. We had a working capital surplus of $38.5 million as of June 30, 2010 compared to $25.0 million as of December 31, 2009. We believe that available short-term and long-term capital resources are sufficient to fund capital expenditures, working capital requirements, scheduled debt payments, interest and tax obligations for the next twelve months. We expect to utilize our cash provided by operations to fund our ongoing operations.


	Six Months Ended June 30,
	2010			2009			Difference
				(In thousands)
Cash flows provided by operating activities	$	26,262		$	11,149		$	15,113
Cash flows used in investing activities		(4,251	)		(3,532	)		(719	)
Cash flows used in financing activities		(5,440	)		(4,574	)		(866	)
Effect of exchange rate changes on cash and cash equivalents		(3	)		151			(154	)

Net increase in cash and cash equivalents		16,568			3,194			13,374
Cash and cash equivalents, beginning of year		12,394			10,762			1,632

Cash and cash equivalents, end of year	$	28,962		$	13,956		$	15,006

Cash flows provided by operations was $26.3 million for the six months ended June 30, 2010 compared to $11.1 million for the six months ended June 30, 2009. The $15.2 million increase in cash flows provided by operations was primarily the result of an increase

in earnings, a decrease in cash paid for subscriber marketing and prepaid commissions and a decrease in other assets due to payment on a trade receivable partially offset by an increase in accounts receivable. In the six months ended June 30, 2010, net cash used in operations for deferred subscription solicitation costs was $26.0 million as compared to $36.7 million in the six months ended June 30, 2009. Our agreements are short-term in nature and are not a “continuing contract” because either party may generally terminate the agreements without cause at any time, without penalty. Due to the short-term nature of these agreements, our clients could, at any time, re-negotiate (and at times have renegotiated) any of the key terms, including price, marketing and commission arrangements. Our operating results will continue to be impacted by the non-cash amortization of prepaid commissions, as well as the amortization of the deferred subscription solicitation costs. If we consent to the specific requests and choose to incur the costs, we may need to raise additional funds in the future in order to operate and expand our business. There can be no assurances that we will be successful in raising additional funds on favorable terms, or at all, which could materially adversely affect our business, strategy and financial condition, including losses of or changes in the relationships with one or more of our clients.

Cash flows used in investing activities was $4.3 million for the six months ended June 30, 2010 compared to $3.5 million during the six months ended June 30, 2009. The increase in cash flows used in investing activities for the six months ended June 30, 2010 was primarily attributable to the additional long-term investment in White Sky, Inc.

Cash flows used in financing activities was $5.4 million compared to $4.6 million for the six months ended June 30, 2010 and 2009, respectively. Cash flows used in financing activities for the six months ended June 30, 2010 was primarily attributable to a cash distribution on vesting of restricted stock units of $970 thousand.

On July 3, 2006, we entered into a $40 million credit agreement with Bank of America, N.A. (“Credit Agreement”). The Credit Agreement consists of a revolving credit facility in the amount of $25 million and a term loan facility in the amount of $15 million with interest at 1.00-1.75% over LIBOR. On January 31, 2008, we amended our credit agreement in order to increase the term loan facility to $28 million. In July 2009, we entered into a third amendment to the Credit Agreement. The amendment related to the termination and ongoing operations of Screening International, including the formation of a new domestic subsidiary that will not join in the Credit Agreement as a co-borrower, and to clarify other matters related to the termination and the ongoing operations of Screening International. On March 11, 2010, we entered into a fourth amendment to the Credit Agreement. The amendment increased our interest rate by one percent at each pricing level such that the interest rate now ranges from 2.00% to 2.75% over LIBOR. In addition, the amendment increased our ability to invest additional funds into Screening International, as well as require a portion of the proceeds from any disposition of that entity to be paid to Bank of America, N.A. As of June 30, 2010, the outstanding interest rate was 1.4% and principal balance under the Credit Agreement was $34.1 million.

The Credit Agreement contains certain customary covenants, including among other things covenants that limit or restrict the incurrence of liens; the making of investments, including at SIH and subsidiaries; the incurrence of certain indebtedness; mergers, dissolutions, liquidation, or consolidations; acquisitions (other than certain permitted acquisitions); sales of substantially all of our or any co-borrowers’ assets; the declaration of certain dividends or distributions; transactions with affiliates (other than co-borrowers under the Credit Agreement) other than on fair and reasonable terms; and the creation or acquisition of any direct or indirect subsidiary by us that is not a domestic subsidiary unless such subsidiary becomes a guarantor. We are also required to maintain compliance with certain financial covenants which include our consolidated leverage ratios, consolidated fixed charge coverage ratios as well as customary covenants, representations and warranties, funding conditions and events of default. We are currently in compliance with all such covenants.

In 2008, we entered into certain interest rate swap transactions that convert our variable-rate debt to fixed-rate debt. Our interest rate swaps are related to variable interest rate risk exposure associated with our long-term debt and are intended to manage this risk. The counterparty to our derivative agreements is a major financial institution for which we continually monitor its position and credit ratings. We do not anticipate nonperformance by this financial institution.

The interest rate swaps on our outstanding term loan amount and a portion of our outstanding revolving line of credit have notional amounts of $12.3 million and $10.0 million, respectively. The swaps modify our interest rate exposure by effectively converting the variable rate on our term loan (0.4% at June 30, 2010) to a fixed rate of 3.2% per annum through December 2011 and on our revolving line of credit (0.4% at June 30, 2010) to a fixed rate of 3.4% per annum through December 2011.

The notional amount of the term loan interest rate swap amortizes on a monthly basis through December 2011 and the notional amount on the revolving line of credit amortized to $10.0 million in 2009. Both swaps terminate in December 2011. We use the monthly LIBOR interest rate and have the intent and ability to continue to use this rate on our hedged borrowings. Accordingly, we do not recognize any ineffectiveness on the swaps. For the six months ended June 30, 2010, there was no material ineffective portion of the hedge and therefore, no impact to the condensed consolidated statement of operations.

On August 12, 2010, we announced that our Board of Directors had increased the authorized amount under our existing share repurchase program to a total of $30.0 million of our common shares. This represents an increase of approximately $10.0 million from the approximately $20.5 million remaining in the program. Repurchase under the program may be made in open market or privately negotiated transactions or otherwise, from time to time, depending on market conditions. We did not repurchase any common stock in the six months ended June 30, 2010 or 2009, respectively.

On July 19, 2010 we and SIH, entered into a membership interest purchase agreement with Sterling Infosystems, Inc. (“Sterling”), pursuant to which SIH sold, and Sterling acquired, 100% of the membership interests of SI for an aggregate purchase price of $15.0 million in cash plus adjustments for working capital and other items. SIH is not an operating subsidiary and our background screening services ceased upon the sale of SI. The sale is subject to customary representations, warranties, indemnifications, escrow and a further post-closing working capital adjustment. As a result of the proceeds received from the sale of SI, we prepaid the remaining balance and accrued interest on the term loan under our Credit Agreement of approximately $11.2 million. The outstanding balance of the revolving credit facility under the Credit Agreement is $23.0 million.

On August 12, 2010, we announced a cash dividend of $.15 per share on our common stock, payable on September 10, 2010 to stockholders of record as of August 31, 2010.

Contractual Obligations

We entered into an agreement with a provider of identity theft products under which we are required to pay non-refundable minimum payments totaling $1.5 million during the year ended December 31, 2010, in exchange for exclusivity.

During the six months ended June 30, 2010, we entered into additional capital lease agreements for approximately $170 thousand. Additionally, in the six months ended June 30, 2010, we financed certain software development costs. These costs did not meet the criteria for capitalization. Amounts owed under this arrangement as of June 30, 2010 are $212 thousand and $258 thousand and are included in accrued expenses and other current liabilities and other long-term liabilities, respectively, in our condensed consolidated financial statements.

On July 1, 2010, we entered into additional capital lease agreements for fixed assets of approximately $3.6 million. The minimum fixed commitments related to this capital lease agreement are $400 thousand, $801 thousand, $801 thousand, $801 thousand, $801 thousand, and $400 thousand for the years ended December 31, 2010, 2011, 2012, 2013, 2014 and 2015, respectively.


Item 4.		*Controls and Procedures*

The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and Principal Financial Officer, evaluated the effectiveness of the design and operation of its “disclosure controls and procedures” (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Our officers have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our chief executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed, and are effective, to give reasonable assurance that the information required to be disclosed by us in reports that we file under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

There have been no changes in our internal control over financial reporting during the three months ended June 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION


Item 6.		*Exhibits*


31.1*		Certification of Michael R. Stanfield, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Madalyn C. Behneman, Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Michael R. Stanfield, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification of Madalyn C. Behneman, Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


*		Filed herewith

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	INTERSECTIONS INC.
	By:	/s/ Madalyn C. Behneman
		Madalyn C. Behneman
Date: August 12, 2010		Principal Financial Officer