SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

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

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

Commission file number: 000-1158172

comScore, Inc.

(Exact name of registrant as specified in its charter)

Delaware		54-1955550
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)
11950 Democracy Drive, Suite 600
Reston, VA		20190
(Address of principal executive offices)		(Zip Code)

(Former name, former address and former fiscal year, if changed since last report)

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

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

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of August 7, 2009, there were 30,133,958 shares of the registrant’s common stock outstanding.

 

 

COMSCORE, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2009

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION			4
Item 1. Financial Statements			4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
Item 3. Quantitative and Qualitative Disclosures about Market Risk			31
Item 4. Controls and Procedures			32
PART II. OTHER INFORMATION			33
Item 1. Legal Proceedings			33
Item 1A. Risk Factors			33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			48
Item 3. Defaults Upon Senior Securities			49
Item 4. Submission of Matters to a Vote of Security Holders			49
Item 5. Other Information			49
Item 6. Exhibits			49
SIGNATURES			50
EXHIBIT INDEX			51

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

     This Quarterly Report on Form 10-Q, including the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Quantitative and Qualitative Disclosures About Market Risk” under Items 2 and 3, respectively, of Part I of this report, and the sections entitled “Legal Proceedings,” “Risk Factors,” and “Unregistered Sales of Equity Securities and Use of Proceeds” under Items 1, 1A and 2, respectively, of Part II of this report, may contain forward-looking statements. These statements may relate to, but are not limited to, expectations of future operating results or financial performance, capital expenditures, introduction of new products, regulatory compliance, plans for growth and future operations, as well as assumptions relating to the foregoing. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. These risks and other factors include, but are not limited to, those listed under the section entitled “Risk Factors” in Item 1A of Part II of this Quarterly Report on Form 10-Q. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend,” “potential,” “continue,” “seek” or the negative of these terms or other comparable terminology. These statements are only predictions. Actual events and/or results may differ materially.

     We believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to accurately predict or control and that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the Securities and Exchange Commission, or SEC, we do not plan to publicly update or revise any forward-looking statements, whether as a result of any new information, future events or otherwise, other than through the filing of periodic reports in accordance with the Securities Exchange Act of 1934, as amended. Investors and potential investors should not place undue reliance on our forward-looking statements. Before you invest in our common stock, you should be aware that the occurrence of any of the events described in the “Risk Factors” section and elsewhere in this Quarterly Report on Form 10-Q could harm our business, prospects, operating results and financial condition. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

COMSCORE, INC.

CONSOLIDATED BALANCE SHEETS

		June 30,				December 31,
		2009				2008
		(Unaudited)
		(In thousands, except share and per
		share data)
Assets
Current assets:
Cash and cash equivalents		$	31,064			$	34,297
Short-term investments			42,943				37,164
Accounts receivable, net of allowances of $450 and $479, respectively			25,139				29,947
Prepaid expenses and other current assets			2,608				1,871
Deferred tax asset			13,211				13,304
Total current assets			114,965				116,583
Long-term investments			7,439				3,497
Property and equipment, net			17,577				17,697
Other non-current assets			138				131
Long-term deferred tax asset			10,464				13,736
Intangible assets, net			8,444				8,805
Goodwill			40,145				39,114
Total assets		$	199,172			$	199,563
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable		$	1,385			$	1,755
Accrued expenses			6,572				9,432
Deferred revenues			40,678				42,779
Deferred rent			1,182				1,049
Capital lease obligations			499				977
Total current liabilities			50,316				55,992
Deferred rent, long-term			8,581				8,691
Total liabilities			58,897				64,683
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value per share; 5,000,000 shares authorized at June 30, 2009 and December 31, 2008; no shares issued or outstanding at June 30, 2009 and December 31, 2008			—				—
Common stock, $0.001 par value per share; 100,000,000 shares authorized at June 30, 2009 and December 31, 2008; 30,130,763 and 29,130,140 shares issued and outstanding at June 30, 2009 and December 31, 2008, respectively			30				29
Treasury stock, 415,054 and 164,395 shares at cost, at June 30, 2009 and December 31, 2008, respectively			(2,517	)			(1,265	)
Additional paid-in capital			197,032				192,612
Accumulated other comprehensive loss			(78	)			(842	)
Accumulated deficit			(54,192	)			(55,654	)
Total stockholders’ equity			140,275				134,880
Total liabilities and stockholders’ equity		$	199,172			$	199,563

The accompanying notes are an integral part of these consolidated financial statements.

COMSCORE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
		(Unaudited)
		(In thousands, except share and per share data)
Revenues		$	31,374			$	28,750			$	61,998			$	55,120
Cost of revenues (excludes amortization of intangible assets resulting from acquisitions shown below) (1)			9,695				7,857				19,731				14,874
Selling and marketing (1)			10,329				9,516				20,815				18,461
Research and development (1)			4,528				3,637				8,533				6,707
General and administrative (1)			4,015				4,444				8,522				8,330
Amortization of intangible assets resulting from acquisitions			327				122				647				129
Total expenses from operations			28,894				25,576				58,248				48,501
Income from operations			2,480				3,174				3,750				6,619
Interest income, net			132				492				307				1,311
Gain (loss) from foreign currency			7				(87	)			19				(142	)
Other income			2				—				2				—
Impairment of marketable securities			—				(386	)			—				(386	)
Income before income taxes			2,621				3,193				4,078				7,402
Provision for income taxes			(1,436	)			(1,483	)			(2,616	)			(3,161	)
Net income		$	1,185			$	1,710			$	1,462			$	4,241
Net income available to common stockholders per common share:
Basic		$	0.04			$	0.06			$	0.05			$	0.15
Diluted		$	0.04			$	0.06			$	0.05			$	0.14
Weighted-average number of shares used in per share calculation — common stock:
Basic			30,052,515				28,651,067				29,766,531				28,424,191
Diluted			31,008,672				30,269,947				30,736,912				30,130,009
Net income available to common stockholders per common share subject to put:
Basic		$	—			$	0.06			$	—			$	0.15
Diluted		$	—			$	0.06			$	—			$	0.14
Weighted-average number of shares used in per share calculation — common share subject to put:
Basic			—				2,981				—				69,308
Diluted			—				2,981				—				69,308
(1)     Amortization of stock-based compensation is included in the line items above as follows
Cost of revenues		$	327			$	204			$	647			$	345
Selling and marketing			1,226				605				2,339				1,026
Research and development			306				168				544				282
General and administrative			672				613				1,301				1,080
Comprehensive income:
Net income		$	1,185			$	1,710			$	1,462			$	4,241
Other comprehensive income:
Foreign currency cumulative translation adjustment			948				28				819				(49	)
Unrealized (loss) gain on marketable securities, net of tax effect of $1 and $35 for the three and six months ended June 30, 2009			(2	)			117				(55	)			(102	)
Total comprehensive income		$	2,131			$	1,855			$	2,226			$	4,090

The accompanying notes are an integral part of these consolidated financial statements.

COMSCORE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Six Months Ended June 30,
		2009				2008
		(Unaudited)
		(In thousands)
Operating activities:
Net Income		$	1,462			$	4,241
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			3,197				2,243
Amortization of intangible assets resulting from acquisitions			647				129
Provision for bad debts and sales allowances			271				222
Stock- based compensation			4,827				2,733
Amortization of deferred rent			(308	)			(24	)
Deferred tax provision			2,459				2,957
Impairment of marketable securities			—				386
Loss on asset disposal			16				—
Changes in operating assets and liabilities:
Accounts receivable			5,003				1,055
Prepaid expenses and other current assets			(245	)			279
Other non-current assets			—				28
Accounts payable, accrued expenses and other liabilities			(3,491	)			(1,340	)
Deferred revenues			(2,710	)			3,726
Deferred rent			331				7,854
Net cash provided by operating activities			11,459				24,489
Investing activities:
Acquisition, net of cash acquired			—				(44,403	)
Recovery of restricted cash			—				1,385
Purchase of investments			(36,336	)			(64,129	)
Sales and maturities of investments			26,526				65,332
Purchases of property and equipment			(4,142	)			(10,066	)
Net cash used in investing activities			(13,952	)			(51,881	)
Financing activities:
Proceeds from exercise of common stock options and warrants			290				714
Repurchase of common stock			(1,252	)			(1,034	)
Principal payments on capital lease obligations			(479	)			(441	)
Net cash used in financing activities			(1,441	)			(761	)
Effect of the exchange rate changes on cash			701				(56	)
Net decrease in cash and cash equivalents			(3,233	)			(28,209	)
Cash and cash equivalents at beginning of period			34,297				68,368
Cash and cash equivalents at end of period		$	31,064			$	40,159

The accompanying notes are an integral part of these consolidated financial statements.

COMSCORE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization

     comScore, Inc. (the “Company”), a Delaware corporation incorporated in August 1999, provides a digital marketing intelligence platform that helps customers make better-informed business decisions and implement more effective digital business strategies. The Company’s products and solutions offer customers insights into consumer behavior, including objective, detailed information regarding usage of their online properties and those of their competitors, coupled with information on consumer demographic characteristics, attitudes, lifestyles and offline behavior.

     The Company’s digital marketing intelligence platform is comprised of proprietary databases and a computational infrastructure that measures, analyzes and reports on digital activity. The foundation of the platform is data collected from a panel of more than two million Internet users worldwide who have granted to the Company explicit permission to confidentially measure their Internet usage patterns, online and certain offline buying behavior and other activities. By applying advanced statistical methodologies to the panel data, the Company projects consumers’ online behavior for the total online population and a wide variety of user categories.

     On May 28, 2008, the Company acquired the outstanding stock of M:Metrics, Inc., a provider of marketing and media intelligence for the mobile medium in the United States and internationally, to expand its abilities to provide its customers a more robust solution for the mobile medium.

2. Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

     The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and accounts have been eliminated upon consolidation. The Company consolidates investments where it has a controlling financial interest as defined by Accounting Research Bulletin (“ARB”) No. 51, Consolidated Financial Statements, as amended by Statement of Financial Accounting Standards (“SFAS”) No. 94, Consolidation of all Majority-Owned Subsidiaries. The usual condition for controlling financial interest is ownership of a majority of the voting interest and, therefore, as a general rule, ownership, directly or indirectly, of more than 50% of the outstanding voting shares is a condition indicating consolidation. For investments in variable interest entities, as defined by Financial Accounting Standards Board (“FASB”) Interpretation No. 46, Consolidation of Variable Interest Entities, the Company would consolidate when it is determined to be the primary beneficiary of a variable interest entity. The Company does not have any variable interest entities.

Unaudited Interim Financial Information

     The condensed consolidated financial statements included in this quarterly report on Form 10-Q have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures contained in this quarterly report comply with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, for a quarterly report on Form 10-Q and are adequate to make the information presented not misleading. The condensed consolidated financial statements included herein, reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, filed March 16, 2009 with the SEC. The results of operations for the three and six months ended June 30, 2009 are not necessarily indicative of the results to be anticipated for the entire year ending December 31, 2009 or thereafter. All references to June 30, 2009 and 2008 or to the three or six months ended June 30, 2009 and 2008 in the notes to the consolidated financial statements are unaudited.

Use of Estimates

     The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenue and expense during the reporting periods. Significant estimates and assumptions are inherent in the analysis and the measurement of deferred tax assets, the identification and quantification of income tax liabilities due to uncertain tax positions, valuation of marketable securities, recoverability of intangible assets, other long-lived assets and goodwill, and the determination of the allowance for doubtful accounts. The Company bases its estimates on historical experience and assumptions that it believes are reasonable. Actual results could differ from those estimates.

Fair Value Measurements

     SFAS No. 107, Disclosure about Fair Value of Financial Instruments, defines the fair value of financial instruments as the amount at which the instrument could be exchanged in a current transaction between willing parties. Cash equivalents, investments, accounts receivable, accounts payable, accrued expenses and capital lease obligations reported in the consolidated balance sheets equal or approximate their respective fair values.

COMSCORE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (continued)

     As of January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements (“SFAS No. 157”), except as it applied to the nonfinancial assets and liabilities subject to FASB Staff Position No. 157-2, Effective Date of FASB Statement No. 157, which the Company adopted effective January 1, 2009. SFAS No. 157 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, SFAS No. 157 establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1 — observable inputs such as quoted prices in active markets; Level 2 — inputs other than the quoted prices in active markets that are observable either directly or indirectly; Level 3 — unobservable inputs of which there is little or no market data, which require the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. On a recurring basis, the Company measures its marketable securities at fair value and determines the appropriate classification level for each reporting period. The Company is required to use significant judgments to make this determination.

     The Company’s investment instruments are classified within Level 1 or Level 3 of the fair value hierarchy. Level 1 investment instruments are valued using quoted market prices. Level 3 instruments are valued using valuation models, primarily discounted cash flow analyses. The types of instruments valued based on quoted market prices in active markets include all U.S. government and agency securities. Such instruments are generally classified within Level 1 of the fair value hierarchy. The types of instruments valued based on significant unobservable inputs include certain illiquid auction rate securities. Such instruments are classified within Level 3 of the fair value hierarchy (see Note 4).

Cash and Cash Equivalents and Investments

     Cash and cash equivalents consist of highly liquid investments with an original maturity of three months or less at the time of purchase. Cash and cash equivalents consist primarily of bank deposit accounts and certificates of deposit.

     Investments, which consist principally of U.S. treasury bills, U.S. treasury notes and auction rate securities, are stated at fair value. These securities are accounted for as available-for-sale securities in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. Realized gains and losses on available-for-sale securities are included in interest income. Interest and dividends on securities classified as available-for-sale are included in interest income. The Company uses the specific identification method to compute realized gains and losses on its investments. Realized gains and losses for the three and six months ended June 30, 2009 and 2008 were not material.

     As of April 1, 2009, the Company adopted FASB Staff Position (“FSP”) FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (“FSP No. 115-2”). FSP No. 115-2 modified the existing model for recognition and measurement of impairment for debt securities. The two principal changes to the impairment model for securities are as follows:

	•		Recognition of an other-than-temporary impairment charge for debt securities in an unrealized loss position is required if any of these conditions are met: (1) the Company does not expect to recover the entire amortized cost basis of the security, (2) the Company intends to sell the security or (3) it is more likely than not that the Company will be required to sell the security before it recovers its amortized cost basis.
	•		If the first condition above is met, but the Company does not intend to sell and it is not more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, the Company is required to record the difference between the security’s amortized cost basis and its recoverable amount (representing the credit loss) in earnings and the difference between the security’s recoverable amount and fair value in other comprehensive income. If either the second or third criteria are met, then the Company is required to recognize the entire difference between the security’s amortized cost basis and its fair value in earnings.

The Company concluded that its auction rate securities fall within the second and third criteria above, and as a result, the adoption of the FSP No. 115-2 had no effect on the Company’s consolidated financial statements as all previous impairments were deemed other-than-temporary and were recognized in earnings.

     Prior to the adoption of FSP No. 115-2, the intent and ability of the Company to hold the security until the market value recovered was a critical factor in determining whether any declines in the fair value of investments was other-than-temporary. Declines in value below cost for investments where it was considered probable that all contractual terms of the investment would be satisfied, due primarily to changes in market demand, and not because of increased credit risk, and where the Company intended and had the ability to hold the investment for a period of time sufficient to allow a market recovery, were not assumed to be other-than-temporary.

     Interest income on investments was $150,000 and $526,000 for the three months ended June 30, 2009 and 2008, respectively, and $344,000 and $1.4 million for the six months ended June 30, 2009 and 2008, respectively.

Accounts Receivable

     Accounts receivable are recorded at the invoiced amount and are non-interest bearing. The Company generally grants uncollateralized credit terms to its customers and maintains an allowance for doubtful accounts to reserve for potentially uncollectible receivables. Allowances are based on management’s judgment, which considers historical experience and specific knowledge of accounts where collectability may not be probable. The Company makes provisions based on historical bad debt experience, a specific review of all significant outstanding invoices and an assessment of general economic conditions. If the financial condition of a customer deteriorates, resulting in an impairment of its ability to make payments, additional allowances may be required.

COMSCORE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (continued)

Property and Equipment

     Property and equipment is stated at cost, net of accumulated depreciation. Property and equipment is depreciated on a straight-line basis over the estimated useful lives of the assets, ranging from three to five years. Assets under capital leases are recorded at their net present value at the inception of the lease and are included in the appropriate asset category. Assets under capital leases and leasehold improvements are amortized over the shorter of the related lease terms or their useful lives. Replacements and major improvements are capitalized; maintenance and repairs are charged to expense as incurred. Amortization of assets under capital leases is included within the expense category on the Statement of Operations in which the asset is deployed.

Goodwill and Intangible Assets

     Goodwill represents the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed when other businesses are acquired. The allocation of the purchase price to intangible assets and goodwill involves the extensive use of management’s estimates and assumptions, and the result of the allocation process can have a significant impact on future operating results. The Company estimates the fair value of identifiable intangible assets acquired using several different valuation approaches, including the replacement cost, income and market approaches. The replacement cost approach is based on determining the discrete cost of replacing or reproducing a specific asset. The Company generally uses the replacement cost approach for estimating the value of acquired technology/methodology assets. The income approach converts the anticipated economic benefits that the Company assumes will be realized from a given asset into value. Under this approach, value is measured as the present worth of anticipated future net cash flows generated by an asset. The Company generally uses the income approach to value customer relationship assets and non-compete agreements. The market approach compares the acquired asset to similar assets that have been sold. The Company generally uses the market approach to value trademarks and brand assets.

     Under SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”), intangible assets with finite lives are amortized over their useful lives while goodwill is not amortized but is evaluated for potential impairment at least annually by comparing the fair value of a reporting unit to its carrying value including goodwill recorded by the reporting unit. If the carrying value exceeds the fair value, impairment is measured by comparing the implied fair value of the goodwill to its carrying value, and any impairment determined is recorded in the current period. In accordance with SFAS 142, all of the Company’s goodwill is associated with one reporting unit. Accordingly, on an annual basis the Company performs the impairment assessment for goodwill required under SFAS 142 at the enterprise level. The Company completed its annual impairment analysis as of October 1st for 2008 and determined that there was no impairment of goodwill. There have been no indicators of impairment suggesting that an interim assessment was necessary for goodwill since the October 1, 2008 test.

     Intangible assets with finite lives are amortized using the straight-line method over the following useful lives:

		Useful Lives
		(Years)
Acquired methodologies/technology			5 to 7
Customer relationships			7
Panel			7
Intellectual property			10

Impairment of Long-Lived Assets

     The Company’s long-lived assets primarily consist of property and equipment and intangible assets. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company evaluates the recoverability of long-lived assets for impairment whenever events or changes in circumstances indicate the carrying value of such assets may not be recoverable. If an indication of impairment is present, the Company compares the estimated undiscounted future cash flows to be generated by the asset to its carrying amount. Recoverability measurement and estimation of undiscounted cash flows are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. If the undiscounted future cash flows are less than the carrying amount of the asset, the Company records an impairment loss equal to the excess of the asset’s carrying amount over its fair value. The fair value is determined based on valuation techniques such as a comparison to fair values of similar assets or using a discounted cash flow analysis. Although the Company believes that the carrying values of its long-lived assets are appropriately stated, changes in strategy or market conditions or significant technological developments could significantly impact these judgments and require adjustments to recorded asset balances. There were no impairment charges recognized during the three and six months ended June 30, 2009 or 2008.

Lease Accounting

     The Company leases its facilities under operating leases, and accounts for those leases in accordance with SFAS No. 13, Accounting for Leases. For facility leases that contain rent escalations or rent concession provisions, the Company records the total rent payable during the lease term on a straight-line basis over the term of the lease. The Company records the difference between the rent paid and the straight-line rent as a deferred rent liability in the accompanying consolidated balance sheets. Leasehold improvements funded by landlord incentives or allowances are recorded as leasehold improvement assets and a deferred rent liability which is amortized as a reduction of rent expense over the term of the lease.

COMSCORE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (continued)

Foreign Currency Translation

     The Company applies SFAS No. 52, Foreign Currency Translation, with respect to its international operations. The functional currency of the Company’s foreign subsidiaries is the local currency. All assets and liabilities are translated at the current exchange rate as of the end of the period, and revenues and expenses are translated at average exchange rates in effect during the period. The gain or loss resulting from the process of translating foreign currency financial statements into U.S. dollars is included as a component of other comprehensive income.

     The Company realized foreign currency transaction gains of $7,000 and $19,000 for the three and six months ended June 30, 2009, respectively, and incurred foreign currency transaction losses of $87,000 and $142,000 for the three and six months ended June 30, 2008, respectively. These gains and losses are the result of transactions denominated in currencies other than the functional currency of the Company’s foreign subsidiaries.

Revenue Recognition

     The Company recognizes revenues in accordance with Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition (“SAB 104”). SAB 104 requires that four basic criteria must be met prior to revenue recognition: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or the services have been rendered, (iii) the fee is fixed or determinable and (iv) collection of the resulting receivable is reasonably assured.

     The Company generates revenues by providing access to the Company’s online database or delivering information obtained from the database, usually in the form of periodic reports. Revenues are typically recognized on a straight-line basis over the period in which access to data or reports are provided, which generally ranges from three to 24 months.

     Revenues are also generated through survey services under contracts ranging in term from two months to one year. Survey services consist of survey and questionnaire design with subsequent data collection, analysis and reporting. Revenues are recognized on a straight-line basis over the estimated data collection period once the survey or questionnaire has been delivered. Any change in the estimated data collection period results in an adjustment to revenues recognized in future periods.

     Certain of the Company’s arrangements contain multiple elements, consisting of the various services the Company offers. Multiple element arrangements typically consist of a subscription to the Company’s online database combined with customized services. These arrangements are accounted for in accordance with Emerging Issues Task Force (“EITF”) Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. The Company has determined that there is not objective and reliable evidence of fair value for any of its services and, therefore, accounts for all elements in multiple elements arrangements as a single unit of accounting. Access to data under the subscription element is generally provided shortly after the execution of the contract. However, the initial delivery of customized services generally occurs subsequent to contract execution. The Company recognizes the entire arrangement fee over the performance period of the last deliverable. As a result, the total arrangement fee is recognized on a straight-line basis over the period beginning with the commencement of the last customized service delivered.

     Generally, contracts are non-refundable and non-cancelable. In the event a portion of a contract is refundable, revenue recognition is delayed until the refund provisions lapse. A limited number of customers have the right to cancel their contracts by providing a written notice of cancellation. In the event that a customer cancels its contract, the customer is not entitled to a refund for prior services, and will be charged for costs incurred plus services performed up to the cancellation date.

     Advance payments are recorded as deferred revenues until services are delivered or obligations are met and revenue can be recognized. Deferred revenues represent the excess of amounts invoiced over amounts recognized as revenues.

Stock-Based Compensation

     The Company accounts for share-based compensation expense in accordance with SFAS No. 123 (revised 2005), Share-Based Payment (“SFAS 123R”). SFAS 123R requires the measurement and recognition of compensation expense for share-based awards based on the estimated fair value on the date of the grant. The Company estimates the fair value of each option award on the date of the grant using the Black-Scholes option-pricing model. This model is affected by the Company’s stock price as well as estimates regarding a number of variables including expected stock price volatility over the term of the award and projected employee stock option exercise behaviors. The fair value of the restricted stock awards is determined based on the quoted market price of the Company’s common stock on the grant date. For stock-based awards subject to graded vesting, the Company has utilized the straight-line ratable method for allocating compensation cost by period. In accordance with SFAS 123R, the Company recorded stock-based compensation expense of $2.5 million and $4.8 million for the three and six months ended June 30, 2009, respectively, and $1.6 million and $2.7 million for the three and six months ended June 30, 2008, respectively. As of June 30, 2009, there was an accrual for $1.1 million included in stock-based compensation expense for compensation earned during the six months ended June 30, 2009. This accrual will be settled with shares of restricted stock to be granted in 2010. As of December 31, 2008, there was an accrual for $369,000 for compensation earned during 2008 that was settled with shares of restricted stock granted in February 2009.

Income Taxes

     Income taxes are accounted for using the asset and liability method in accordance with SFAS No. 109, Accounting for Income Taxes. Deferred income taxes are provided for temporary differences in recognizing certain income, expense and credit items for financial reporting purposes and tax reporting purposes. Such deferred income taxes primarily relate to the difference between the tax bases of assets and liabilities and their financial reporting amounts. Deferred tax assets and liabilities are measured by applying enacted statutory tax rates applicable to the future years in which deferred tax assets or liabilities are expected to be settled or realized.

COMSCORE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (continued)

     FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, an interpretation of SFAS No. 109, clarifies the accounting for income taxes by prescribing that a company should use a more-likely-than not recognition threshold based on the technical merits of the tax position taken. Tax provisions that meet the more-likely-than-not recognition threshold should be measured as the largest amount of tax benefits, determined on a cumulative probability basis, which are more likely than not to be realized upon ultimate settlement in the financial statements. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting for interim periods, disclosure and transition, and explicitly excludes income taxes from the scope of SFAS No. 5, Accounting for Contingencies. The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense.

Earnings Per Share

     The Company computes earnings per share in accordance with the provisions of SFAS No. 128, Earnings Per Share (“SFAS 128”). Under SFAS 128, entities with capital structures that include classes of common stock with different dividend rates are required to apply the two-class method of calculating earnings per share. In addition to the Company’s common stock, prior to April 2008, the Company had Common Stock Subject to Put outstanding that was issued in connection with certain acquisitions. However, the additional contractual rights of such Common Stock Subject to Put lapsed unexercised in April 2008, and such Common Stock Subject to Put was reallocated as common stock following such time. Prior to the lapse of the contractual rights, the Company calculated earnings per share for its common stock and its Common Stock Subject to Put using a method akin to the two-class method under SFAS 128. Undistributed earnings were allocated to holders of common stock and Common Stock Subject to Put on a pro rata basis. Total earnings allocated to each class of common stock were then divided by the weighted-average number of shares outstanding for each class of common stock to determine basic earnings per share. Diluted earnings per share for common stock reflects the potential dilution that could result if securities or other contracts to issue common stock were exercised or converted into common stock. Diluted earnings per share assumes the exercise of stock options and warrants using the treasury stock method.

     The following table sets forth the computation of basic and diluted earnings per share:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
		(Unaudited)
		(In thousands, except share and per share data)
Net income		$	1,185			$	1,710			$	1,462			$	4,241
Weighted-average shares outstanding-common stock, basic			30,052,515				28,651,067				29,766,531				28,424,191
Dilutive effect of
Options to purchase common stock			919,600				1,576,807				938,278				1,657,846
Unvested shares of restricted stock units			27,516				21,879				26,076				27,576
Warrants to purchase common stock			9,041				20,194				6,027				20,396
Weighted-average shares outstanding-common stock, diluted			31,008,672				30,269,947				30,736,912				30,130,009
Net income per share-common stock:
Basic		$	0.04			$	0.06			$	0.05			$	0.15
Diluted		$	0.04			$	0.06			$	0.05			$	0.14
Weighted-average number of shares used in per share calculation — common share subject to put:
Basic			—				2,981				—				69,308
Diluted			—				2,981				—				69,308
Net income available to common stockholders per common share subject to put:
Basic		$	—			$	0.06			$	—			$	0.15
Diluted		$	—			$	0.06			$	—			$	0.14
The following is a summary of common stock equivalents for the securities outstanding during the respective periods that have been excluded from the earnings per share calculations as their impact was anti-dilutive.
		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
		(Unaudited)
Stock options and restricted stock units			73,983				29,134				120,593				19,041
Common stock warrants			2,000				2,000				2,000				2,000

COMSCORE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (continued)

     In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162. This standard establishes only two levels of U.S. generally accepted accounting principles (“GAAP”), authoritative and nonauthoritative. The FASB Accounting Standards Codification (the “Codification”) will become the source of authoritative, nongovernmental GAAP, except for rules and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC registrants. All other nongrandfathered, non-SEC accounting literature not included in the Codification will become nonauthoritative. This standard is effective for financial statements for interim or annual reporting periods ending after September 15, 2009. The Company will begin to use the new guidelines and numbering system prescribed by the Codification when referring to GAAP beginning in the period ended September 30, 2009. As the Codification was not intended to change or alter existing GAAP, it is not otherwise expected to have any impact on the Company’s consolidated financial statements.

     In May 2009, the FASB issued SFAS No. 165, Subsequent Events. SFAS No. 165 establishes authoritative accounting and disclosure guidance for recognized and non-recognized subsequent events that occur after the balance sheet date but before financial statements are issued. SFAS No. 165 also requires disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. SFAS No. 165 was effective for the Company beginning with its Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009, and will be applied prospectively. The adoption of SFAS No. 165 had no impact on the Company’s consolidated financial statements.

     In April 2009, the FASB issued three Staff Positions that are intended to provide additional application guidance and enhance disclosures about fair value measurements and impairments of securities. FSP No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability has Significantly Decreased and Identifying Transactions that are Not Orderly, clarifies the objective and method of fair value measurement when there has been a significant decrease in market activity for the asset being measured. FSP No. 115-2 established a new model for measuring other-than-temporary impairments for debt securities, including establishing criteria for when to recognize a write-down through earnings versus other comprehensive income. FSP No. FAS 107-1 and APB 28-1, Interim Disclosures About Fair Value of Financial Instruments, extends the fair value disclosures required for all financial instruments within the scope of SFAS No. 107, Disclosures about Fair Value of Financial Instruments, to interim periods. All of these FSPs are effective for interim and annual periods ending after June 15, 2009. The adoption of FSP No. FAS 157-4 and FSP No. 115-2 did not have a material impact on the Company’s consolidated financial statements. The adoption of FSP No. FAS 107-1 and APB No. 28-1 did not result in increased disclosures in the second quarter of 2009 as the Company had historically included the required disclosures in its interim consolidated financial statements.

     In December 2007, the FASB issued SFAS No. 141 (revised), Business Combinations (“SFAS 141(R)”), which is intended to improve reporting by creating greater consistency in the accounting and financial reporting of business combinations. SFAS 141(R) requires that the acquiring entity in a business combination recognize all (and only) the assets and liabilities assumed in the transaction, establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed, and requires the acquirer to disclose to investors and other users all of the information that they need to evaluate and understand the nature and financial effect of the business combination. In addition, SFAS 141(R) modifies the accounting for transaction and restructuring costs. SFAS 141(R) is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. After the effective date of SFAS 141(R), all changes to tax uncertainties and deferred tax asset valuation allowances established in business combination accounting should be recognized in accordance with SFAS 141(R), generally as an adjustment to income tax expense. For the Company’s acquisition of M:Metrics, Inc. (see Note 3), the effects of changes outside of the measurement period (or within the measurement period if the changes result from new information about facts that arose after the acquisition date) to deferred tax asset valuation allowances established in acquisition accounting will be recognized directly as an adjustment to income tax expense. The adoption of SFAS 141( R) did not have a material impact on the Company’s consolidated results of operation or financial position.

     In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of Accounting Research Bulletin No. 51 (“SFAS No. 160”). SFAS No. 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of the consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS No. 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008. The Company adopted SFAS No. 160 effective January 1, 2009 and the adoption did not have a material impact on the Company’s consolidated financial statements.

     On May 28, 2008, comScore completed its merger with M:Metrics, Inc. (“M:Metrics”), a provider of marketing and media intelligence for the mobile medium in the United States and internationally, pursuant to the Agreement and Plan of Merger dated May 28, 2008, (the “Merger”). Pursuant to the Agreement and Plan of Merger, the Company acquired all the outstanding common stock of M:Metrics in a cash transaction for approximately $46.0 million. The total purchase price of $46.0 million is comprised of $44.3 million in cash consideration, $1.2 million in expenses paid on M:Metrics’ behalf and estimated acquisition related transaction costs of approximately $480,000.

     Acquisition-related transaction costs include legal and accounting fees, and other external costs directly related to the Merger. In connection with the Merger, the Company exchanged the unvested options for M:Metrics common stock for options for the purchase of 51,908 shares of comScore common stock. In addition, $5.0 million of comScore restricted common stock was reserved for issuance pursuant to the Merger and $4.72 million was issued to certain former M:Metrics employees that continued as employees of comScore as of June 30, 2008. The estimated fair

COMSCORE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (continued)

value of these options and restricted stock has been and is expected to be recognized as compensation expense for post merger services. The Company has included the financial results of M: Metrics in its consolidated financial statements since May 28, 2008, the date of acquisition.

     The Company believes the Merger with M:Metrics supports the Company’s long-term strategic direction and that the demands in the digital marketing intelligence industry continue to accelerate at a rapid pace as advertising moves to new digital mediums. In evaluating the acquisition of M:Metrics, the Company focused primarily on the business’s revenues and customer base, the strategic fit of the business’s product line with the Company’s existing product offerings, and opportunities for cost reductions and other synergies, rather than on the business’s tangible or intangible assets, such as its property and equipment. As a result, the fair value of the acquired assets corresponds to a relatively smaller portion of the acquisition price, with the Company recording a substantial amount of goodwill associated with the acquisition.

     The Merger was accounted for under the purchase method of accounting in accordance with SFAS No. 141, Business Combinations (“SFAS 141”). Assets acquired and liabilities assumed were recorded at their estimated fair values as of May 28, 2008. Under the purchase method of accounting, the total purchase price is allocated to M:Metrics net tangible and intangible assets based on their estimated fair values as of May 28, 2008, the effective date of the Merger. The final purchase price was allocated as follows (in thousands):

Cash and cash equivalents		$	1,554
Accounts receivable			2,010
Prepaid expenses and other current assets			226
Property and equipment			464
Other long term assets			85
Deferred tax assets, net			2,692
Accounts payable			(865	)
Other accrued liabilities			(3,469	)
Deferred revenue			(5,473	)
Other long-term liabilities			(145	)
Net tangible liabilities to be acquired			(2,921	)
Definite-lived intangible assets acquired			10,160
Goodwill			38,781
Total purchase price		$	46,020

     Included in the final purchase price allocation were $8.6 million of deferred tax assets and $3.6 million of deferred tax liabilities initially offset by a full valuation allowance of $5.0 million. In connection with the reduction of the deferred tax asset valuation allowance recorded as of December 31, 2008 (see Note 7), the Company recorded a $3.7 million reduction in the valuation allowance recorded for the acquired deferred tax assets of M:Metrics with a corresponding reduction of goodwill. In connection with the finalization of the purchase price allocation during the three months ended June 30, 2009, the Company reduced the acquired deferred tax assets by approximately $1.0 million with an offsetting increase to goodwill (see Note 5).

     Of the total purchase price, approximately $2.9 million has been allocated to net tangible liabilities acquired, and $10.2 million has been allocated to definite-lived intangible assets acquired. Definite-lived intangible assets of $10.2 million consist of the value assigned to M:Metrics customer relationships of $3.2 million, intellectual property of $2.6 million, developed and core technology of $2.5 million and panel of $1.9 million. The useful lives range from five to ten years (see Note 2). Goodwill represents the excess of the purchase price of an acquired business over the fair value of the net tangible and intangible assets acquired. Goodwill is not deductible for tax purposes.

     In connection with the purchase price allocation, the estimated fair value of the deferred revenue assumed from M:Metrics in connection with the Merger was determined utilizing a cost build-up approach. The cost build-up approach determines fair value by estimating the costs relating to fulfilling the assumed contractual obligations plus a market profit margin. The present value of the sum of the costs and operating profit approximates the amount that the Company would be required to pay a third party to assume the obligations. The estimated costs to fulfill the obligation were based on the historical direct costs related to providing the services.

4. Investments and Fair Value Measurements

     As of June 30, 2009 and December 31, 2008, the Company had $2.9 million invested in auction rate securities, all of which are classified as long-term investments on its consolidated balance sheets.

     Auction rate securities are generally long-term debt instruments that provide liquidity through a Dutch auction process that resets the applicable interest rate at pre-determined calendar intervals, generally every 28 days. This mechanism typically allows existing investors to rollover their holdings and to continue to own their respective securities or liquidate their holdings by selling their securities at par value. These securities often are insured against loss of principal and interest by bond insurers. In prior years, the Company invested in these securities for short periods of time as part of its investment policy. However, the uncertainties in the credit markets have prevented the Company and other investors from liquidating holdings of certain auction rate securities in recent auctions because the amount of securities submitted for sale has exceeded the amount of purchase orders. Accordingly, the Company continues to hold these long-term securities and is due interest at a higher rate than similar securities for which auctions have cleared.

COMSCORE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (continued)

     As of June 30, 2009 and December 31, 2008, five auction rate securities with a par value of $5.1 million had failed their most recent auction and are considered illiquid. As there is no active market for these investments, the Company values its auction rate securities using a discounted cash flow model that takes into consideration the securities’ coupon rate, the discount rate and the expected date liquidity will be restored. The discount rate reflects the financial condition of the issuers and the bond insurers and incorporates a discount for illiquidity. As of June 30, 2009 and December 31, 2008, the estimated fair value of the auction rate securities was below cost, or par value, resulting in an unrealized loss.

     During the year ended December 31, 2008, the length of time and the extent to which the auction rate securities were valued below cost both increased significantly. As of December 31, 2008, the credit ratings of the issuers had deteriorated to a range of A- to B and the bond insurers saw similar downgrades to a range of BBB to C. As a result, the Company concluded that the unrealized losses on its auction rate securities at December 31, 2008 represented an other-than-temporary impairment and recorded a charge $2.2 million in earnings. During the three and six months ended June 30, 2009, there were no auctions for the auction rate securities held by the Company. However, credit spreads and credit ratings of the issues and bond insurers were more stable during those periods. As of June 30, 2009, based on the Company’s updated valuation, no further adjustments to the carrying value of these investments was necessary.

     The Company is unsure as to when the liquidity issues relating to these investments will improve. Accordingly, the Company classified these securities as non-current as of June 30, 2009 and December 31, 2008. If the credit ratings of the issuers, the bond insurers or the collateral deteriorate further, the Company may further adjust the carrying value of these investments.

     Marketable securities, which are classified as available-for-sale, are summarized below.

						Gross				Gross				Aggregate				Classification on Balance Sheet
		Amortized				Unrealized				Unrealized				Fair				Short-Term				Long-Term
		Cost				Gain				Loss				Value				Investments				Investments
		(Unaudited)
		(In thousands)
As of June 30, 2009:
U.S. treasury bills		$	7,954			$	43			$	—			$	7,997			$	7,997			$	—
U.S. treasury notes			39,482				42				—				39,524				34,946				4,578
Auction rate securities			2,861				—				—				2,861				—				2,861
		$	50,297			$	85			$	—			$	50,382			$	42,943			$	7,439

						Gross				Gross				Aggregate				Classification on Balance Sheet
		Amortized				Unrealized				Unrealized				Fair				Short-Term				Long-Term
		Cost				Gain				Loss				Value				Investments				Investments
		(In thousands)
As of December 31, 2008:
U.S. treasury bills		$	24,931			$	55			$	—			$	24,986			$	24,986			$	—
U.S. treasury notes			12,694				120				—				12,814				12,178				636
Auction rate securities			2,861				—				—				2,861				—				2,861
		$	40,486			$	175			$	—			$	40,661			$	37,164			$	3,497

     There were no gross unrealized losses related to available-for-sale securities as of June 30, 2009 and December 31, 2008 other than the auction rate securities, for which the unrealized loss was deemed other- than- temporary and included in earnings during 2008.

     Cash equivalents have original maturity dates of three months or less. All investments, excluding auction rate securities, have original maturity dates between three months and two years. Auction rate securities have original maturity dates in excess of fifteen years.

The fair value hierarchy of the Company’s marketable securities at fair value as of June 30, 2009 and December 31, 2008 is as follows:

COMSCORE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (continued)

						Fair Value Measurements at
						Reporting Date Using
						Quoted
						Prices
						in
						Active
						Markets				Significant
						for				Other				Significant
						Identical				Observable				Unobservable
		June 30,				Assets				Inputs				Inputs
		2009				(Level 1)				(Level 2)				(Level 3)
		(Unaudited)
		(In thousands)
Assets:
U.S. treasury bills		$	7,997			$	7,997			$	—			$	—
U.S. treasury notes			39,524				39,524				—				—
Auction rate securities			2,861				—				—				2,861
Total		$	50,382			$	47,521			$	—			$	2,861
						Fair Value Measurements at
						Reporting Date Using
						Quoted
						Prices
						In
						Active
						Markets				Significant
						For				Other				Significant
						Identical				Observable				Unobservable
		December 31,				Assets				Inputs				Inputs
		2008				(Level 1)				(Level 2)				(Level 3)
		(In thousands)
Assets:
U.S. treasury bills		$	24,986			$	24,986			$	—			$	—
U.S. treasury notes			12,814				12,814				—				—
Auction rate securities			2,861				—				—				2,861
Total		$	40,661			$	37,800			$	—			$	2,861

     From December 31, 2008 through June 30, 2009, there was no change in the balances for the major classes of assets measured at fair value using significant unobservable inputs (Level 3).

5. Goodwill and Intangible Assets

     The change in the carrying value of goodwill for the six months ended June 30, 2009 is as follows (in thousands):

Balance as of December 31, 2008		$	39,114
Purchase price allocation adjustments			1,031
Balance as of June 30, 2009 (unaudited)		$	40,145

     The $1.0 million of adjustments to goodwill during the six months ended June 30, 2009 were primarily due to deferred tax asset reductions of $768,000 for the M:Metrics net operating loss carryforward at the date of acquisition for transfer pricing adjustments and $344,000 to establish a reserve pursuant to FIN 48 for certain M:Metrics research and development tax credit carryforwards that existed at the date of acquisition. In addition, the deferred tax asset was increased by $138,000 to true-up the deferred tax balances to the filed tax returns.

     Certain of the Company’s intangible assets are recorded in British Pounds, and therefore, the gross carrying amount and accumulated amortization are subject to foreign currency translation adjustments. The carrying values of the Company’s amortized acquired intangible assets are as follows:

		June 30,				December 31,
		2009				2008
		(Unaudited)
		(In thousands)
Intangible assets consist of the following:
Customer relationships		$	3,078			$	2,927
Acquired methodologies/technology			2,445				2,378
Intellectual property			2,576				2,547
Panel			1,789				1,701
Total intangible assets			9,888				9,553
Accumulated amortization			(1,444	)			(748
Intangible assets, net		$	8,444			$	8,805

COMSCORE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (continued)

     Amortization expense related to intangible assets was approximately $327,000 and $122,000 for the three months ended June 30, 2009 and 2008, respectively, and $647,000 and $129,000 for the six months ended June 30, 2009 and 2008, respectively.

6. Commitments and Contingencies

Leases

     In January 2009, the Company amended an existing lease with a landlord and added approximately 7,264 square feet of additional space for its Seattle office. The base rent increased from approximately $289,000 per annum to $672,000 and escalates 3% per annum over the lease term. The lease expires May 2011. The Company consolidated the comScore and M:Metrics Seattle offices into this expanded office in March 2009. In connection with this lease, the Company recorded $333,000 of deferred rent and capitalized assets as a result of landlord allowances. The deferred rent will be applied to rent expense recognized by the Company over the lease term.

Contingencies

     On March 31, 2009, the Company renewed its $5.0 revolving line of credit with Bank of America, with an interest rate equal to BBA LIBOR rate plus an applicable margin based upon the Company’s funded- debt- to- unrestricted-EBITDA ratio. This line of credit includes no restrictive financial covenants and expires March 31, 2010. The Company maintains letters of credit in lieu of security deposits with respect to certain office leases. During the six months ended June 30, 2009 two letters of credit were reduced by approximately $260,000. As of June 30, 2009, no amounts were borrowed against the line of credit and $4.1 million of letters of credit were outstanding, leaving $860,000 available for additional letters of credit or other borrowings. These letters of credit may be reduced periodically provided the Company meets the conditional criteria of each related lease agreement. In July 2009, one letter of credit was reduced by approximately $220,000 leaving $1.1 million available for additional letters of credit or other borrowings.

     The Company has no asserted claims as of June 30, 2009, but is from time to time exposed to unasserted potential claims encountered in the normal course of business. Although the outcome of any legal proceedings cannot be predicted with certainty, management believes that the final resolution of these matters will not materially affect the Company’s consolidated financial position or results of operations.

7. Income Taxes

     The Company’s income tax provision for interim periods is calculated by applying its estimated annual effective tax rate on ordinary income before taxes to year-to-date ordinary book income before taxes in accordance with the interim reporting requirements of SFAS No. 109, Accounting for Income Taxes, APB Opinion No. 28, Interim Financial Reporting, and FASB Interpretation No. 18 Accounting for Income Taxes in Interim Periods — an interpretation of APB Opinion No. 28. The income tax effects of any extraordinary, significant unusual or infrequent items not included in ordinary book income are determined separately and recognized in the period in which the items arise.

     During the three and six months ended June 30, 2009, the Company recorded income tax provisions of $1.4 million and $2.6 million, respectively, resulting in effective tax rates of 54.79% and 64.15%, respectively. During the three and six months ended June 30, 2008, the Company recorded income tax provisions of $1.5 million and $3.2 million, respectively, resulting in effective tax rates of 46.45% and 42.70%, respectively. These effective tax rates differ from the Federal statutory rate of 35% primarily due to state income taxes, foreign income taxes, and nondeductible expenses such as certain stock compensation and meals and entertainment. During the three and six month periods ended June 30, 2009, certain shares related to restricted stock awards vested at times when the Company’s stock price was substantially lower than the fair value of those shares at the time of grant. As a result, the income tax deduction related to such shares is less than the expense previously recognized for book purposes. In accordance with SFAS 123R, such shortfalls reduce additional paid-in capital to the extent windfall tax benefits have been previously recognized. However, as described below, the Company has not yet recognized windfall tax benefits because these tax benefits have not resulted in a reduction of current taxes payable. Therefore, in accordance with SFAS 123R, the impact of these shortfalls totaling $177,000 and $680,000, respectively, has been included in income tax expense for the three and six month periods ended June 30, 2009.

     The exercise of certain stock options during the six months ended June 30, 2009 and 2008, generated income tax deductions equal to the excess of the fair market value over the exercise price. In accordance with SFAS 123R, the Company will not recognize a deferred tax asset with respect to the excess of tax over book stock compensation deductions until the tax deductions actually reduce its current taxes payable. As such, the Company has not recorded a deferred tax asset in the accompanying financial statements related to the additional net operating losses generated from the windfall tax deductions associated with the exercise of these stock options. If and when the Company utilizes these net operating losses to reduce income taxes payable, the tax benefit will be recorded as an increase in additional paid-in capital.

COMSCORE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (continued)

     As of June 30, 2009 and December 31, 2008, the Company had a valuation allowance of $3.0 million and $2.8 million, respectively, against certain deferred tax assets, which were related to the acquired deferred tax assets (primarily net operating loss carryforwards) of the M:Metrics UK subsidiary and the deferred tax asset related to the impairment recognized on auction rate securities. The increase in valuation allowance of approximately $0.2 million during the six months ended June 30, 2009 was attributable to the current year net operating losses generated and expected to expire unutilized at the M:Metrics UK subsidiary.

     During the year ended December 31, 2008, the Company concluded that portions of its valuation allowance against U.S. deferred tax assets and deferred tax assets in certain foreign jurisdictions were no longer necessary based on the weight of available evidence. In making that determination, the Company considered the profitability achieved during 2008, the successful integration of M:Metrics into the base business, and the continued maturity of the online marketing industry, balanced against the current overall economic environment. As a result, the Company reduced the valuation allowance against its deferred tax assets to $2.8 million as of December 31, 2008.

     As of June 30, 2009, the Company concluded that no events occurred during the six months ended June 30, 2009 that would significantly impact its valuation allowance against deferred tax assets. Management will continue to evaluate its valuation allowance position on a regular basis. To the extent the Company determines that, based on the weight of available evidence, all or a portion of its valuation allowance is no longer necessary, the Company will recognize an income tax benefit in the period such determination is made for the reversal of the valuation allowance. If management determines that, based on the weight of available evidence, it is more-likely-than-not that all or a portion of the net deferred tax assets will not be realized, the Company may recognize income tax expense in the period such determination is made to increase the valuation allowance. It is possible that any such reduction of or addition to the Company’s valuation allowance may have a material impact on the Company’s results from operations.

     As of June 30, 2009 and December 31, 2008, the Company had unrecognized tax benefits of approximately $912,000 and $240,000, respectively. The increase in unrecognized tax benefits of approximately $672,000 is attributable to uncertain tax positions related to the M:Metrics acquisition that were recorded through purchase accounting as an increase to acquired goodwill. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of June 30, 2009 and December 31, 2008, the amount of accrued interest expense on unrecognized tax benefits was not material.

     The Company or one of its subsidiaries files income tax returns in the U.S. Federal jurisdiction and various state and foreign jurisdictions. For income tax returns filed by the Company, the Company is no longer subject to U.S. Federal, state and local tax examinations by tax authorities for years before 2004, although tax attribute carryforwards generated prior to 2004 may still be adjusted upon examination by tax authorities.

8. Stockholders’ Equity

1999 Stock Option Plan and 2007 Equity Incentive Plan

     Prior to the effective date of the registration statement for the Company’s initial public offering (“IPO”) on June 26, 2007, eligible employees and non-employees were awarded options to purchase shares of the Company’s common stock, restricted stock or restricted stock units pursuant to the Company’s 1999 Stock Plan (the “1999 Plan”). Upon the effective date of the registration statement of the Company’s IPO, the Company ceased using the 1999 Plan for the issuance of new equity awards. Upon the closing of the Company’s IPO on July 2, 2007, the Company established its 2007 Equity Incentive Plan (the “2007 Plan” and together with the 1999 Plan, the “Plans”). The 1999 Plan will continue to govern the terms and conditions of outstanding awards granted thereunder, but no further shares are authorized for new awards under the 1999 Plan. As of December 31, 2008 and June 30, 2009, the Plans provided for the issuance of a maximum of approximately 5.4 million shares and 6.6 million shares, respectively, of common stock. In addition, the 2007 Plan provides for annual increases in the number of shares available for issuance thereunder on the first day of each fiscal year beginning with the 2008 fiscal year, equal to the lesser of: (i) 4% of the outstanding shares of the Company’s common stock on the last day of the immediately preceding fiscal year; (ii) 1,800,000 shares; or (iii) such other amount as the Company’s board of directors may determine. The vesting period of options granted under the Plans is determined by the Board of Directors, although the vesting has historically been generally ratably over a four-year period. Options generally expire 10 years from the date of the grant. Effective January 1, 2009, the shares available for grant increased 1,165,205 pursuant to the automatic share reserve increase provision under the Plans. Accordingly, as of June 30, 2009, 2,537,619 shares were available for future grant under the 2007 Plan.

     The Company estimates the fair value of stock option awards using the Black-Scholes option-pricing formula and a single option award approach. The Company then amortizes the fair value of awards expected to vest on a ratable straight-line basis over the requisite service periods of the awards, which is generally the period from the grant date to the end of the vesting period. During the three and six months ended June 30, 2009, no stock options were granted.

COMSCORE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (continued)

     A summary of the Plans is presented below:

										Weighted
										Average
						Weighted-				Remaining				Aggregate
						Average				Contractual				Intrinsic
		Number of				Exercise				Term				Value (in
		Shares				Price				(in years)				thousands)
Options outstanding at December 31, 2008			1,453,370			$	2.26
Options granted			—				—
Options exercised			226,966			$	1.28							$	1,809
Options forfeited			31,929			$	6.79
Options expired			992			$	6.30
Options outstanding at June 30, 2009			1,193,483			$	2.33				5.29			$	13,122
Options exercisable at June 30, 2009			1,110,150			$	1.98				5.15			$	12,588

     The aggregate intrinsic value for options outstanding and exercisable is calculated as the difference between the exercise price of the underlying stock option awards and the quoted market price of the Company’s common stock at June 30, 2009. The aggregate intrinsic value of exercised stock options is calculated based on the difference between the exercise price and the quoted market price of the Company’s common stock as of the close of the exercise date. As of June 30, 2009, total unrecognized compensation expense related to non-vested stock options granted prior to that date is estimated at $357,000, which the Company expects to recognize over a weighted average period of approximately 0.77 years. Total unrecognized compensation expense is estimated and may be increased or decreased in future periods for subsequent grants or forfeitures.

     The Company’s nonvested stock awards are comprised of restricted stock and restricted stock units. The Company has a right of repurchase on such shares that lapse at a rate of twenty-five percent (25%) of the total shares awarded at each successive anniversary of the initial award date, provided that the employee continues to provide services to the Company. In the event that an employee terminates their employment with the Company, any shares that remain unvested and consequently subject to the right of repurchase shall be automatically reacquired by the Company at the original purchase price paid by the employee. During the six months ended June 30, 2009, 129,145 forfeited shares of restricted stock have been repurchased by the Company at no cost. A summary of the status for nonvested stock awards as of June 30, 2009 is presented as follows:

														Weighted
										Total Number				Average
						Restricted				of Shares				Grant-Date
		Restricted				Stock				Underlying				Fair
Nonvested Stock Awards		Stock				Units				Awards				Value
Nonvested at December 31, 2008			1,043,101				96,673				1,139,774			$	18.53
Granted			1,000,040				99,726				1,099,766				9.31
Vested			330,845				24,099				354,944				15.83
Forfeited			129,145				4,667				133,812				18.95
Nonvested at June 30, 2009			1,583,151				167,633				1,750,784			$	13.26

     The aggregate intrinsic value for all non-vested shares of restricted common stock and restricted stock units outstanding as of June 30, 2009 was $23.3 million. The weighted average remaining contractual life for all non-vested shares of restricted common stock and restricted stock units as of June 30, 2009 was 3.06 years.

     The Company granted nonvested stock awards at no cost to recipients during the six months ended June 30, 2009. As of June 30, 2009, total unrecognized compensation expense related to non-vested restricted stock and restricted stock units was $20.5 million, which the Company expects to recognize over a weighted average period of approximately 1.95 years. Total unrecognized compensation expense may be increased or decreased in future periods for subsequent grants or forfeitures.

     Of the 354,944 shares of the Company’s restricted stock and restricted stock units vesting during the six months ended June 30, 2009, the Company repurchased 121,514 shares at an aggregate purchase price of approximately $1.3 million pursuant to the stockholder’s right under the Plans to elect to use common stock to satisfy tax withholding obligations.

Shares Reserved for Issuance

     At June 30, 2009, the Company had reserved for future issuance the following shares of common stock upon the exercise of options and warrants:

Common stock available for future issuances under the Plans			2,537,619
Common stock available for outstanding options and restricted stock units			1,361,116
Common stock warrants			26,375
			3,925,110

COMSCORE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (continued)

9. Geographic Information

     The Company attributes revenues to customers based on the location of the customer. The composition of the Company’s sales to unaffiliated customers between those in the United States and those in other locations for the three and six months ended June 30, 2009 and 2008 is set forth below:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
		(Unaudited)
		(In thousands)
United States		$	26,888			$	24,678			$	52,878			$	47,777
Canada			1,384				1,480				2,828				2,894
United Kingdom/Other			3,102				2,592				6,292				4,449
Total Revenues		$	31,374			$	28,750			$	61,998			$	55,120

     The composition of the Company’s property and equipment between those in the United States and those in other countries as of the end of each period is set forth below:

		June 30,				December 31,
		2009				2008
		(Unaudited)
		(In thousands)
United States		$	17,400			$	17,468
Canada			34				66
United Kingdom/Other			143				163
Total		$	17,577			$	17,697

10. Subsequent Events

     The Company evaluated subsequent events through the time of filing this Quarterly Report on Form 10-Q on August 10, 2009. The Company is not aware of any significant events that occurred subsequent to the balance sheet date but prior to the filing of this report that would have a material impact on its Consolidated Financial Statements.

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

     The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes to those statements included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Risk factors” and elsewhere in this document. See also “Cautionary Note Concerning Forward-Looking Statements” at the beginning of this Quarterly Report on Form 10-Q.

Overview

     We provide a leading digital marketing intelligence platform that helps our customers make better-informed business decisions and implement more effective digital business strategies. Our products and solutions offer our customers deep insights into consumer behavior, including objective, detailed information regarding usage of their online properties and those of their competitors, coupled with information on consumer demographic characteristics, attitudes, lifestyles and offline behavior.

     Our digital marketing intelligence platform is comprised of proprietary databases and a computational infrastructure that measures, analyzes and reports on digital activity. The foundation of our platform is data collected from our comScore panel of more than two million Internet users worldwide who have granted us explicit permission to confidentially measure their Internet usage patterns, online and certain offline buying behavior and other activities. By applying advanced statistical methodologies to our panel data, we project consumers’ online behavior for the total online population and a wide variety of user categories.

     We deliver our digital marketing intelligence through our comScore Media Metrix product family, through our comScore Marketing Solutions products and since May 2008 through our M:Metrics products suite. Media Metrix delivers digital media intelligence by providing an independent, third-party measurement of the size, behavior and characteristics of Web site and online advertising network audiences among home, work and university Internet users as well as insight into the effectiveness of online advertising. Our Marketing Solutions products combine the proprietary information gathered from the comScore panel with the vertical industry expertise of comScore analysts to deliver digital marketing intelligence, including the measurement of online advertising effectiveness, customized for specific industries. We typically deliver our Media Metrix products electronically in the form of weekly, monthly or quarterly reports. Customers can access current and historical Media Metrix data and analyze these data anytime online. Our M:Metrics products suite connects mobile consumer behavior, content merchandising, and device capabilities to provide comprehensive mobile market intelligence. Customers can access our M:Metrics data sets and reports anytime online. Our Marketing Solutions products are typically delivered on a monthly, quarterly or ad hoc basis through electronic reports and analyses.

     Our company was founded in August 1999. By 2000, we had established a panel of Internet users and began delivering digital marketing intelligence products that measured online browsing and buying behavior to our first customers. We also introduced netScore, our initial syndicated Internet audience measurement product. We accelerated our introduction of new products in 2003 with the launch of Plan Metrix (formerly AiM 2.0), qSearch, and the Campaign R/F (Reach and Frequency) analysis system and product offerings that measure online activity at the local market level. By 2004, we had built a global panel of over two million Internet users. In that year, in cooperation with Arbitron, we launched a service that provides ratings of online radio audiences. In 2005, we expanded our presence in Europe by opening an office in London. In 2006, we continued to expand our measurement capabilities with the launch of World Metrix, a product that provides worldwide data on digital media usage, and Video Metrix, our product that measures the audience for streaming online video. In 2007, we completed our initial public offering, resulting in the sale and issuance by us of 5,000,000 shares of our common stock, and we also launched ten new products during that year, including Campaign Metrix, qSearch 2.0, Ad Metrix, Brand Metrix, Segment Metrix and comScore Marketer. During the first quarter of 2008, we launched Ad Metrix-Advertiser View, a tool for agencies and publishers designed to support their media buying and selling activities and supply their competitive intelligence needs. In April 2008, we launched the second generation of our media planning product, Plan Metrix, and increased the frequency of reporting from semi-annual to a monthly cycle. In October 2008, we launched Extended Web Measurement which allows the tracking of distributed web content across third party sites, such as video, music, gaming applications, widgets and social media. It enables publishers to report audience reach and characteristics of their various advertising sales packages providing them with the ability to market those packages more effectively.

     We have complemented our internal development initiatives with select acquisitions. On June 6, 2002, we acquired certain Media Metrix assets from Jupiter Media Metrix, Inc. Through this acquisition, we acquired certain Internet audience measurement services that report details of Web site usage and visitor demographics. On July 28, 2004, we acquired the outstanding stock of Denaro and Associates, Inc, otherwise known as Q2 Brand Intelligence, Inc. or Q2, to improve our ability to provide our customers more robust survey research integrated with our underlying digital marketing intelligence platform. On January 4, 2005, we acquired the assets and assumed certain liabilities of SurveySite Inc., or SurveySite. Through this acquisition, we acquired proprietary Internet-based data-collection technologies and increased our customer penetration and revenues in the survey business. On May 28, 2008, we acquired the outstanding stock of M:Metrics, Inc. to expand our abilities to provide our customers a more robust solution for the mobile medium.

     Our total revenues have grown to $117.4 million during the fiscal year ending December 31, 2008 and $62.0 million for the first half of 2009 from $50.2 million during the fiscal year ended December 31, 2005. By comparison, our total expenses from operations have grown to

$106.4 million for the year ended 2008 and $58.2 for the first half of 2009 from $54.1 million during the fiscal year ended December 31, 2005. We attribute the growth in our revenues during this period to several factors including, but not limited to:

	•		increased sales to existing customers, as a result of our efforts to deepen our relationships with these clients by increasing their awareness of, and confidence in, the value of our digital marketing intelligence platform;
	•		growth in our customer base through the addition of new customers;
	•		the sales of new products to existing and new customers; and
	•		growth in sales outside of the U.S. as a result of entering into new international markets.

     As of June 30, 2009, we had 1,195 customers, compared to 565 as of December 31, 2005. We sell most of our products through our direct sales force.

     As a result of the recent global financial crisis in the credit markets, softness in the housing markets, difficulties in the financial services sector and continuing economic uncertainties, the direction and relative strength of the U.S. and global economies have become increasingly uncertain. During the six months ended June 30, 2009, we experienced a limited number of our current and potential customers ceasing, delaying or reducing renewals of existing subscriptions and purchases of new or additional services and products presumably due to the effects of the current economic downturn. Further, certain of our existing customers have exited the market due to industry consolidation and bankruptcy in connection with these challenging economic conditions. Despite this economic downturn, we continued to add net new customers during the first half of 2009, and our existing customers renewed their subscriptions at a rate of over 90% based on revenue renewed in the quarter ended June 30, 2009. However, if these adverse economic conditions continue or further deteriorate, our operating results could be adversely affected.

Our Revenues

     We derive our revenues primarily from the fees that we charge for subscription-based products and customized projects. We define subscription-based revenues as revenues that we generate from products that we deliver to a customer on a recurring basis. We define project revenues as revenues that we generate from customized projects that are performed for a specific customer on a non-recurring basis. We market our subscription-based products, customized projects and survey services within the comScore Media Metrix product family, comScore Marketing Solutions and through our mobile solutions.

     A significant characteristic of our business model is our large percentage of subscription-based contracts. Subscription-based revenues accounted for 78% of our total revenues in 2004 and decreased to 70% of total revenues in 2005 primarily due to the acquisition of SurveySite. Subscription-based revenue increased to 75% of total revenues in 2006, to 79% of total revenues in 2007, to 83% of total revenues in 2008, and to 86% during the six months ended June 30, 2009.

     Many of our customers who initially purchased a customized project have subsequently purchased one of our subscription-based products. Similarly, many of our subscription-based customers have subsequently purchased additional customized projects.

     Historically, we have generated most of our revenues from the sale and delivery of our products to companies and organizations located within the United States. We intend to expand our international revenues by selling our products and deploying our direct sales force model in additional international markets in the future. For the year ended December 31, 2008, our international revenues were $16.5 million, an increase of $6.4 million, or 63% compared to 2007. For the six months ended June 30, 2009, our international revenues were $9.1 million, an increase of $1.8 million or 25% over international revenues of $7.3 million for the six months ended June 30, 2008. International revenues comprised approximately 12%, 14% and 15% of our total revenues for the fiscal years ended December 31, 2007 and 2008 and the six months ended June 30, 2009, respectively.

     We anticipate that revenues from our U.S. customers will continue to constitute the substantial majority of our revenues, but we expect that revenues from customers outside of the U.S. will increase as a percentage of total revenues as we build greater international recognition of our brand and expand our sales operations globally.

Subscription Revenues

     We generate a significant proportion of our subscription-based revenues from our Media Metrix product family. Products within the Media Metrix family include Media Metrix 2.0, Plan Metrix, World Metrix, Video Metrix and Ad Metrix. These product offerings provide subscribers with intelligence on digital media usage, audience characteristics, audience demographics and online and offline purchasing behavior. Customers who subscribe to our Media Metrix products are provided with login IDs to our Web site, have access to our database and can generate reports at anytime.

     We also generate subscription-based revenues from certain reports and analyses provided through comScore Marketing Solutions, if that work is procured by customers for at least a nine month period and the customer enters into an agreement to continue or extend the work. Through our Marketing Solutions products, we deliver digital marketing intelligence relating to specific industries, such as automotive, consumer packaged goods, entertainment, financial services, media, pharmaceutical, retail, technology, telecommunications and travel. This marketing intelligence leverages our global consumer panel and extensive database to deliver information unique to a particular customer’s needs on a

recurring schedule, as well as on a continual-access basis. Our Marketing Solutions customer agreements typically include a fixed fee with an initial term of at least one year. We also provide these products on a non-subscription basis as described under “Project Revenues” below.

     In addition, we generate subscription-based revenues from survey products that we sell to our customers. In conducting our surveys, we generally use our global Internet user panel. After questionnaires are distributed to the panel members and completed, we compile their responses and then deliver our findings to the customer, who also has ongoing access to the survey response data as they are compiled and updated over time. These data include responses and information collected from the actual survey questionnaire and can also include behavioral information that we passively collect from our panelists. If a customer contractually commits to having a survey conducted on a recurring basis, we classify the revenues generated from such survey products as subscription-based revenues. Our contracts for survey services typically include a fixed fee with terms that range from two months to one year.

Project Revenues

     We generate project revenues by providing customized information reports to our customers on a nonrecurring basis through comScore Marketing Solutions. For example, a customer in the media industry might request a custom report that profiles the behavior of the customer’s active online users and contrasts their market share and loyalty with similar metrics for a competitor’s online user base. If this customer continues to request the report beyond an initial project term of at least nine months and enters into an agreement to purchase the report on a recurring basis, we begin to classify these future revenues as subscription-based.

     In 2007, we launched Campaign Metrix, a suite of products that enables our customers to measure their return on investment from their investment in digital marketing campaigns and that we believe will help their revenue growth. In 2008, we also launched Brand Metrix, which shows customers the test compared to control effectiveness of a campaign using survey-based metrics that we collect for our Ad Recruit technology. Project revenues from Campaign Metrix and Brand Metrix are generated when a customer accesses or downloads a report through our Web site. Pricing for our Campaign Metrix and Brand Metrix products are presently based on the scope of the information provided in the report generated by the customer.

Critical Accounting Policies and Estimates

     Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the amounts reported in our financial statements and the accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. While our significant accounting policies are described in more detail in the notes to our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2008, we believe the following accounting policies to be the most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

     We recognize revenues in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 104, Revenue Recognition (“SAB 104”). SAB 104 requires that four basic criteria must be met prior to revenue recognition: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or the services have been rendered, (iii) the fee is fixed or determinable, and (iv) collection of the resulting receivable is reasonably assured.

     We generate revenues by providing access to our online database or delivering information obtained from our database, usually in the form of periodic reports. Revenues are typically recognized on a straight-line basis over the period in which access to data or reports are provided, which generally ranges from three to 24 months.

     We also generate revenues through survey services under contracts ranging in term from two months to one year. Our survey services consist of survey and questionnaire design with subsequent data collection, analysis and reporting. We recognize revenues on a straight-line basis over the estimated data collection period once the survey or questionnaire design has been delivered. Any change in the estimated data collection period results in an adjustment to revenues recognized in future periods.

     Certain of our arrangements contain multiple elements, consisting of the various services we offer. Multiple element arrangements typically consist of a subscription to our online database combined with customized services. These arrangements are accounted for in accordance with Emerging Issues Task Force (“EITF”) Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. We have determined that there is not objective and reliable evidence of fair value for any of our services and, therefore, account for all elements in multiple elements arrangements as a single unit of accounting. Access to data under the subscription element is generally provided shortly after the execution of the contract. However, the initial delivery of customized services generally occurs subsequent to contract execution. We recognize the entire arrangement fee over the performance period of the last deliverable. As a result, the total arrangement fee is recognized on a straight-line basis over the period beginning with the commencement of the last customized service delivered.

     Generally, our contracts are non-refundable and non-cancelable. In the event a portion of a contract is refundable, revenue recognition is delayed until the refund provisions lapse. A limited number of customers have the right to cancel their contracts by providing us with written notice of cancellation. In the event that a customer cancels its contract, it is not entitled to a refund for prior services, and it will be charged for costs incurred plus services performed up to the cancellation date.

     Advance payments are recorded as deferred revenues until services are delivered or obligations are met and revenue can be recognized. Deferred revenues represent the excess of amounts invoiced over amounts recognized as revenues.

Fair Value Measurements and Investments

     As of January 1, 2008, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, SFAS No. 157 establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1 — observable inputs such as quoted prices in active markets;

Level 2 — inputs other than the quoted prices in active markets that are observable either directly or indirectly;

Level 3 — unobservable inputs of which there is little or no market data, which require us to develop our own assumptions.

     This hierarchy requires the use of observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. On a recurring basis, we measure our marketable securities at fair value and determine the appropriate classification level for each reporting period. This determination requires significant judgments to be made by us.

     Our investment instruments are classified within Level 1 or Level 3 of the fair value hierarchy. Level 1 investment instruments are valued using quoted market prices. Level 3 instruments are valued using a discounted cash flow model that takes into consideration the securities coupon rate, the financial condition of the issuers and the bond insurers, the expected date liquidity will be restored, as well as an applied illiquidity discount. The types of instruments valued based on quoted market prices in active markets include all U.S. government and agency securities. Such instruments are generally classified within Level 1 of the fair value hierarchy. The types of instruments valued based on significant unobservable inputs include the illiquid auction rate securities. Such instruments are classified within Level 3 of the fair value hierarchy.

     As of April 1, 2009, we adopted FASB Staff Position (“FSP”) FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (“FSP No. 115-2”). FSP No. 115-2 modified the existing model for recognition and measurement of impairment for debt securities. The two principal changes to the impairment model for securities are as follows:

	•		Recognition of an other-than-temporary impairment charge for debt securities in an unrealized loss position is required if any of these conditions are met: (1) we do not expect to recover the entire amortized cost basis of the security, (2) we intend to sell the security or (3) it is more likely than not that we will be required to sell the security before it recovers its amortized cost basis.
	•		If the first condition above is met, but we do not intend to sell and it is not more likely than not that we will be required to sell the security before recovery of its amortized cost basis, we are required to record the difference between the security’s amortized cost basis and its recoverable amount (representing the credit loss) in earnings and the difference between the security’s recoverable amount and fair value in other comprehensive income. If either the second or third criteria are met, then we are required to recognize the entire difference between the security’s amortized cost basis and its fair value in earnings.

     We concluded that our auction rate securities fall within the second and third criteria above, and as a result, the adoption of the FSP No. 115-2 had no effect on our consolidated financial statements as all previous impairment were deemed other-than-temporary and were recognized in earnings.

     We record goodwill and intangible assets when we acquire other businesses. The allocation of acquisition costs to intangible assets and goodwill involves the extensive use of management’s estimates and assumptions, and the result of the allocation process can have a significant impact on our future operating results. We estimate the fair value of identifiable intangible assets acquired using several different valuation approaches, including the replacement cost, income and market approaches. The replacement cost approach is based on determining the discrete cost of replacing or reproducing a specific asset. We generally use the replacement cost approach for estimating the value of acquired technology/methodology assets. The income approach converts the anticipated economic benefits that we assume will be realized from a given asset into value. Under this approach, value is measured as the present worth of anticipated future net cash flows generated by an asset. We generally use the income approach to value customer relationship assets and non-compete agreements. The market approach compares the acquired asset to similar assets that have been sold. We generally use the market approach to value trademarks and brand assets.

     Under SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”), intangible assets with finite lives are amortized over their useful lives while goodwill and indefinite lived assets are not amortized, but rather are periodically tested for impairment. An impairment review generally requires developing assumptions and projections regarding our operating performance. In accordance with SFAS 142, we have determined that all of our goodwill is associated with one reporting unit as we do not operate separate lines of business with respect to our services. Accordingly, on an annual basis we perform the impairment assessment for goodwill required under SFAS 142 at the enterprise level by comparing the fair value of our reporting unit to its carrying value including goodwill recorded by the reporting unit. If the carrying value exceeds the fair value, impairment is measured by comparing the implied fair value of the goodwill to its carrying value and any impairment determined is recorded in the current period. If our estimates or the related assumptions change in the future, we may be required to record impairment charges

to reduce the carrying value of these assets, which could be material. There were no indicators of impairment suggesting that an interim assessment was necessary for goodwill during the three and six months ended June 30, 2009 and 2008.

     Our long-lived assets primarily consist of property and equipment and intangible assets. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we evaluate the recoverability of our long-lived assets for impairment whenever events or changes in circumstances indicate the carrying value of such assets may not be recoverable. If an indication of impairment is present, we compare the estimated undiscounted future cash flows to be generated by the asset to its carrying amount. Recoverability measurement and estimation of undiscounted cash flows are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. If the undiscounted future cash flows are less than the carrying amount of the asset, we record an impairment loss equal to the excess of the asset’s carrying amount over its fair value. The fair value is determined based on valuation techniques such as a comparison to fair values of similar assets or using a discounted cash flow analysis. Although we believe that the carrying values of our long-lived assets are appropriately stated, changes in strategy or market conditions or significant technological developments could significantly impact these judgments and require adjustments to recorded asset balances. There were no impairment charges recognized during the three and six months ended June 30, 2009 or 2008.

     We manage credit risk on accounts receivable by performing credit evaluations of our customers for existing customers coming up for renewal as well as all prospective new customers, by reviewing our accounts and contracts and by providing appropriate allowances for uncollectible amounts. Allowances are based on management’s judgment, which considers historical experience and specific knowledge of accounts that may not be collectible. We make provisions based on our historical bad debt experience, a specific review of all significant outstanding invoices and an assessment of general economic conditions. If the financial condition of a customer deteriorates, resulting in an impairment of its ability to make payments, additional allowances may be required.

     We account for income taxes using the asset and liability method in accordance with SFAS No. 109, Accounting for Income Taxes. We estimate our tax liability through calculations we perform for the determination of our current tax liability, together with assessing temporary differences resulting from the different treatment of items for income tax and financial reporting purposes. These differences result in deferred tax assets and liabilities, which are recorded on our balance sheet. We then assess the likelihood that deferred tax assets will be recovered in future periods. In assessing the need for a valuation allowance against the net deferred tax asset, we consider factors such as future reversals of existing taxable temporary differences, taxable income in prior carryback years, if carryback is permitted under the tax law, tax planning strategies and future taxable income exclusive of reversing temporary differences and carryforwards. In evaluating projections of future taxable income, we consider our history of profitability, the competitive environment, the overall outlook for the online marketing industry and general economic conditions. In addition, we consider the timeframe over which it would take to utilize the deferred tax assets prior to their expiration. To the extent we cannot conclude that it is more likely than not that the benefit of such assets will be realized, we establish a valuation allowance to adjust the net carrying value of such assets.

     As of June 30, 2009, we estimate our federal and state net operating loss carryforwards for tax purposes are approximately $66.2 million and $32.1 million, respectively. These net operating loss carryforwards will begin to expire in 2022 for federal and in 2014 for state income tax reporting purposes. In addition, at June 30, 2009, we estimate our aggregate net operating loss carryforward for tax purposes related to our foreign subsidiaries is $11.2 million, which begins to expire in 2014.

     As of June 30, 2009 and December 31, 2008, we recorded valuation allowances against certain deferred tax assets of $3.0 million and $2.8 million, respectively. At June 30, 2009 and December 31, 2008, the remaining valuation allowance related to the acquired deferred tax assets of our M:Metrics UK subsidiary and the deferred tax asset related to the impairment recorded on our marketable securities in the U.S.

     As of December 31, 2008, we concluded that it was more likely than not that a substantial portion of our U.S. deferred tax assets and deferred tax assets in certain foreign jurisdictions would be realized and that a further reduction of our valuation allowance was necessary. In making that determination, we considered the profitability achieved during 2008, the successful integration of M:Metrics into the base business, and the continued maturity of the online marketing industry, balanced against the current overall economic environment. As a result, we recorded a reduction in the deferred tax asset valuation allowance of approximately $20.4 million. As of June 30, 2009, we concluded that no events occurred during the six months ended June 30, 2009 that would impact our valuation allowance against deferred tax assets.

     The exercise of certain stock options during the six months ended June 30, 2009 and 2008, generated income tax deductions equal to the excess of the fair market value over the exercise price. In accordance with SFAS No. 123R, Share Based Compensation (“SFAS 123R”), we will not recognize a deferred tax asset with respect to the excess of tax over book stock compensation deductions until the tax deductions actually reduce our current taxes payable. As such, we have not recorded a deferred tax asset in the accompanying financial statements related to the additional net operating losses generated from the windfall tax deductions associated with the exercise of these stock options. If and when we utilize these net operating losses to reduce income taxes payable, the tax benefit will be recorded as an increase in additional paid-in capital.

     During the three and six month periods ended June 30, 2009, certain shares related to restricted stock awards vested at times when our stock price was substantially lower than the fair value of those shares at the time of grant. As a result, the income tax deduction related to such shares is less than the expense previously recognized for book purposes. In accordance with SFAS 123R, such shortfalls reduce additional paid-in capital

to the extent windfall tax benefits have been previously recognized. However, as described above, we have not yet recognized windfall tax benefits because these tax benefits have not resulted in a reduction of current taxes payable. Therefore, in accordance with SFAS 123R, the impact of these shortfalls totaling $177,000 and $680,000 have been included in income tax expense for the three and six month periods ended June 30, 2009, respectively. Looking forward, we expect our income tax provisions for future reporting periods of 2009 will be impacted by this stock compensation tax deduction shortfall. We cannot predict the stock compensation shortfall impact because of dependency upon future market price performance of our stock.

     In June 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of SFAS No. 109 (“FIN 48”). This interpretation clarifies the accounting for income taxes by prescribing that a company should use a more-likely-than-not recognition threshold based on the technical merits of the tax position taken. Tax provisions that meet the more-likely-than-not recognition threshold should be measured as the largest amount of tax benefits, determined on a cumulative probability basis, which is more likely than not to be realized upon ultimate settlement in the financial statements. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting for interim periods, disclosure and transition, and explicitly excludes income taxes from the scope of SFAS No. 5, Accounting for Contingencies. FIN 48 is effective for fiscal years beginning after December 15, 2006, and was adopted by us on January 1, 2007. As of the adoption date of FIN 48 on January 1, 2007, we did not have any material gross unrecognized tax benefits. As of June 30, 2009 and December 31, 2008, we had unrecognized tax benefits of $912,000 and $240,000, respectively, on a tax affected basis. It is our policy to recognize interest and penalties related to income tax matters in income tax expense. As of June 30, 2009 and December 31, 2008, the amount of accrued interest expense on unrecognized tax benefits was not material. We or one of our subsidiaries files income tax returns in the U.S. Federal jurisdiction and various states and foreign jurisdictions. For income tax returns filed by us, we are no longer subject to U.S. Federal, state and local tax examinations by tax authorities for years before 2004, although tax attribute carryforwards generated prior to 2004 may still be adjusted upon examination by tax authorities.

Stock-Based Compensation

     We recognize stock-based compensation in accordance with SFAS 123R. SFAS 123R requires the measurement and recognition of compensation expense for share-based awards based on estimated fair value on the date of grant. We estimate the fair value of our stock option awards on the date of grant using the Black-Scholes option-pricing model. The determination of fair value using the Black-Scholes model requires a number of complex and subjective variables. Key variables in the Black-Scholes option-pricing model include the expected volatility of our common stock price, the expected term of the award and the risk-free interest rate. In addition, under SFAS 123R, we are required to estimate forfeitures of unvested awards when recognizing compensation expense.

     If factors change and we employ different assumptions in the application of SFAS 123R in future periods, the compensation expense we record may differ significantly from what we have previously recorded. Beginning in 2007, we made use of restricted stock awards and reduced our use of stock options as a form of stock-based compensation.

     At June 30, 2009, total estimated unrecognized compensation expense related to unvested stock-based awards granted prior to that date was $20.8 million, which is expected to be recognized over a weighted-average period of 1.93 years.

     The actual amount of stock-based compensation expense we record in any fiscal period will depend on a number of factors, including the number of shares subject to restricted stock and/or stock options issued, the fair value of our common stock at the time of issuance and the expected volatility of our stock price over time. In addition, changes to our incentive compensation plan that heavily favor stock-based compensation are expected to cause stock-based compensation expense to increase in absolute dollars.

Seasonality

     Historically, a slightly higher percentage of our customers have renewed their subscription products with us during the second half of the year.

Results of Operations

     The following table sets forth selected consolidated statements of operations data as a percentage of total revenues for each of the periods indicated.

		Three Months Ended June 30,								Six Months Ended June 30,
		2009				2008				2009				2008
						(Unaudited)
Revenues			100.0	%			100.0	%			100.0	%			100.0	%
Cost of revenues			30.9				27.3				31.8				27.0
Selling and marketing			32.9				33.1				33.6				33.5
Research and development			14.4				12.7				13.8				12.2
General and administrative			12.8				15.5				13.7				15.1
Amortization			1.0				0.4				1.0				0.2
Total expenses from operations			92.0				89.0				93.9				88.0
Income from operations			8.0				11.0				6.1				12.0
Interest and other income, net			0.4				1.7				0.5				2.4
Loss from foreign currency			—				(0.3	)			—				(0.3	)
Impairment of marketable securities			—				(1.3	)			—				(0.7	)
Income before income taxes			8.4				11.1				6.6				13.4
Provision for income taxes			(4.6	)			(5.1	)			(4.2	)			(5.7	)
Net income			3.8				6.0				2.4				7.7

Three and Six Month Period ended June 30, 2009 compared to the Three and Six Month Period ended June 30, 2008

Revenues

		Three Months Ended June 30,								Change								Six Months Ended June 30,								Change
		2009				2008				$				%				2009				2008				$				%
		(Unaudited)
		(In thousands)
Revenues		$	31,374			$	28,750			$	2,624				9.1	%		$	61,998			$	55,120			$	6,878				12.5	%

     Total revenues increased by approximately $2.6 million and $6.9 million in the three and six months ended June 30, 2009, respectively, as compared to the same periods in 2008. The revenue growth was due to a combination of increased sales to our existing customer base and continued growth of our customer base. Our total customer base grew by a net increase of 91 customers to 1,195 customers at June 30, 2009 from 1,104 at June 30, 2008. Sales to existing customers based in the U.S. totaled $24.3 million and $47.6 million in the three and six months ended June 30, 2009, respectively, which were $3.9 million and $7.5 million higher than in the corresponding periods in 2008, respectively.

     In addition, revenues from new U.S. customers in the three and six months ended June 30, 2009 were $2.6 million and $5.3 million, respectively, decreases of approximately $1.7 million and $2.4 million as compared to the three and six months ended June 30, 2008. Despite the decreases in revenues from new U.S. customers over the comparable periods, respectively, revenues from international customers totaled approximately $4.5 million and $9.1 million for the three and six months ended June 30, 2009, respectively, or approximately 14% and 15% of total respective revenues which were increases of $415,000 and $1.8 million, over the corresponding prior year periods respectively. These increases were due to ongoing international expansion efforts that resulted in increases of $197,000, $160,000 and $153,000 for the U.K., Asia and Latin America, respectively for the three months ended June 30, 2009, and $1.2 million, $265,000 and $251,000 for the U.K., Asia and Latin America, respectively for the six months ended June 30, 2009.

     We experienced continued revenue growth in subscription revenues, which increased by approximately $3.2 million and $8.3 million in the three and six months ended June 30, 2009, respectively, from $23.7 million and $45.1 million in the corresponding prior year periods. Our project-based revenues decreased by $600,000 and $1.4 million in the three and six months ended June 30, 2009, respectively, from $5.1 million and $10.0 million in the corresponding prior year periods. We believe that these decreases were attributable to the impact of general economic conditions upon our customers’ budgets and capacity for spending on market research.

Cost of Revenues

		Three Months Ended June 30,								Change								Six Months Ended June 30,								Change
		2009				2008				$				%				2009				2008				$				%
		(Unaudited)
		(In thousands)
Cost of revenues		$	9,695			$	7,857			$	1,838				23.4	%		$	19,731			$	14,874			$	4,857				32.7	%
As a percentage of revenues			30.9	%			27.3	%											31.8	%			27.0	%

     Cost of revenues consists primarily of expenses related to operating our network infrastructure, producing our products, and the recruitment, maintenance and support of our consumer panels. Expenses associated with these areas include the salaries, stock-based compensation, and related personnel expenses of network operations, survey operations, custom analytics and technical support, all of which are expensed as they are incurred. Cost of revenues also includes data collection costs for our products, operational costs associated with our data centers, including depreciation expense associated with computer equipment that supports our panel and systems, and allocated overhead which is comprised of rent and depreciation expense generated by general purpose equipment and software.

     Cost of revenues increased by approximately $1.8 million during the three months ended June 30, 2009 as compared to the three months ended June 30, 2008. This increase was attributable to a $1.3 million increase in panel recruitment and retention and data and bandwidth costs. In

addition, we incurred increases of approximately $232,000 in employee salaries, benefits, and stock-based compensation costs associated with an expanded workforce to support a larger product and customer base during the three months ended June 30, 2009. In addition, we attribute approximately $462,000 to increases in allocated overhead costs for the three months ended June 30, 2009.

     Cost of revenues increased by approximately $4.9 million during the six months ended June 30, 2009 compared to the six months ended June 30, 2008. This increase was attributable to $2.6 million increase in panel recruitment and retention and data and bandwidth costs. In addition, we incurred increases of approximately $1.3 million in employee salaries, benefits, and stock-based compensation costs associated with an expanded workforce to support a larger product and customer base during the six month ended June 30, 2009. In addition, we attribute approximately $933,000 to increases in allocated overhead costs for the six months ended June 30, 2009.

     Cost of revenues increased as a percentage of revenues during the three and six months ended June 30, 2009 as compared to the same periods in 2008 due to the increases in costs to build and maintain our panel to support future growth. In addition, the headcount and costs associated with our technology staff grew at a faster rate relative to our revenue growth.

     We expect cost of revenues to increase in absolute dollar amounts as we continue to grow our business but vary as a percentage of revenues depending on whether we benefit from investments in our panel and network infrastructure and benefit from the synergies resulting from the integration of M:Metrics for our panel recruiting activities.

Selling and Marketing Expenses

		Three Months Ended June 30,								Change								Six Months Ended June 30,								Change
		2009				2008				$				%				2009				2008				$				%
		(Unaudited)
		(In thousands)
Selling and marketing		$	10,329			$	9,516			$	813				8.5	%		$	20,815			$	18,461			$	2,354				12.8	%
As a percentage of revenues			32.9	%			33.1	%											33.6	%			33.5	%

     Selling and marketing expenses consist primarily of salaries, benefits, commissions, bonuses, and stock-based compensation paid to our direct sales force and industry analysts, as well as costs related to online and offline advertising, product management, industry conferences, promotional materials, public relations, other sales and marketing programs, and allocated overhead. All selling and marketing costs are expensed as they are incurred. Commission plans are developed for our account managers with criteria and size of sales quotas that vary depending upon the individual’s role. Commissions are paid to a salesperson and are expensed as selling and marketing costs when a sales contract is executed by both the customer and us. In the case of multi-year agreements, one year of commissions is paid initially, with the remaining amounts paid at the beginning of the succeeding years.

     Selling and marketing expenses increased by $813,000 during the three months ended June 30, 2009 as compared to the three months ended June 30, 2008. The increase was due to a $624,000 increase in stock-based compensation as compared to the same period in 2008 prompted by our increased use of equity compensation for our sales and marketing employees and the increased number of personnel in these departments. In addition, we attribute $239,000 of the increase to increased allocated overhead costs as compared to the three months ended June 30, 2008.

     Selling and marketing expenses increased by $2.4 million during the six months ended June 30, 2009 as compared to the six months ended June 30, 2008. The increase was prompted by a $672,000 increase in employee salaries, benefits and related costs associated with an increase in personnel for our sales and product management departments, our expansion in foreign markets and the additional costs related to our acquisition of M:Metrics that did not exist in the first quarter of 2008. We also incurred a $1.4 million increase in stock-based compensation as compared to the same period in 2008 due to our increased use of equity compensation for our sales and marketing employees and increased number of personnel in these departments. In addition, we attribute $543,000 to an increase in allocated overhead costs as compared to the six months ended June 30, 2008.

     These increases were favorably impacted by certain cost containment programs which we initiated in 2009.

     Our selling and marketing headcount totaled 245 employees as of June 30, 2009, an increase of 19 employees as compared to June 30, 2008. Selling and marketing expenses as a percentage of revenues for the three and six months ended June 30, 2009 were consistent with the prior year periods.

     We expect selling and marketing expenses to increase in absolute dollar amounts as we continue to grow our selling and marketing efforts but to vary in future periods as a percentage of revenues depending on whether we benefit from increased productivity in our sales force and from increased revenues resulting in part from our ongoing marketing initiatives.

Research and Development Expenses

		Three Months Ended June 30,								Change								Six Months Ended June 30,								Change
		2009				2008				$				%				2009				2008				$				%
		(Unaudited)
		(In thousands)
Research and development		$	4,528			$	3,637			$	891				24.5	%		$	8,533			$	6,707			$	1,826				27.2	%
As a percentage of revenues			14.4	%			12.7	%											13.8	%			12.2	%

     Research and development expenses include new product development costs, consisting primarily of salaries, benefits, stock-based compensation and related costs for personnel associated with research and development activities, fees paid to third parties to develop new products and allocated overhead.

     Research and development expenses increased by $891,000 during the three months ended June 30, 2009 as compared to the three months ended June 30, 2008. The increase was due to a $524,000 increase in employee salaries, benefits and related costs associated with the increase in headcount and our continued focus on developing new products during the three months ended June 30, 2009. We also incurred a $139,000 increase in stock-based compensation due to our increased use of equity compensation as well as our increased headcount. In addition, we incurred an increase of $170,000 in allocation of overhead costs due to the increased size of our research and development functions. We also experienced smaller increases in our systems and maintenance costs related to computer hardware and software.

     Research and development expenses increased by $1.8 million during the six months ended June 30, 2009 as compared to the six months ended June 30, 2008. The increase was due to a $1.1 million increase in employee salaries, benefits and related costs associated with the increase in headcount and our continued focus on developing new products during the six months ended June 30, 2009. We also incurred a $262,000 increase in stock-based compensation due to our increased use of equity compensation as well as our increased headcount. In addition, we incurred an increase of $315,000 in allocated overhead costs due to the increased size of our research and development functions. We also experienced smaller increases in our systems and maintenance costs related to computer hardware and software.

     Research and development costs increased as a percentage of revenues for the three and six months ended June 30, 2009 as compared to the same period in 2008 due to our investments in research and development of new product initiatives relative to our growth in revenues.

     We expect research and development expenses to increase in absolute dollar amounts as we continue to enhance and expand our product offerings. As a result of the size of our panel and our past investment in our technology infrastructure, we expect research and development expenses to vary in future periods as a percentage of revenues however depending on the extent to which we may benefit from past investments, particularly with respect to our panel size and composition as we expand internationally.

General and Administrative Expenses

		Three Months Ended June 30,								Change								Six Months Ended June 30,								Change
		2009				2008				$				%				2009				2008				$				%
		(Unaudited)
		(In thousands)
General and administrative		$	4,015			$	4,444			$	(429	)			(9.7	)%		$	8,522			$	8,330			$	192				2.3	%
As a percentage of revenues			12.8	%			15.5	%											13.7	%			15.1	%

     General and administrative expenses consist primarily of salaries, benefits, stock-based compensation, and related expenses for executive management, finance, accounting, human capital, legal and other administrative functions, as well as professional fees, allocated overhead, and expenses incurred for other general corporate purposes.

     General and administrative expenses decreased by $429,000 during the three months ended June 30, 2009 as compared to the three months ended June 30, 2008. The decrease was due to a $390,000 reduction in employee salaries, benefits and related costs resulting from salary and benefits cost-containment programs that became effective during 2009. In addition, bad debt expense was $149,000 less as compared to the same period in 2008. The decreases were offset by smaller increases in professional fees such as tax and accounting services and legal fees, and stock-based compensation as compared to the same period in 2008.

     General and administrative expenses increased by $192,000 during the six months ended June 30, 2009 as compared to the six months ended June 30, 2008. This increase was due to a $366,000 increase in professional fees, a $180,000 increase in stock-based compensation, and the remaining increase is attributable to allocated overhead costs and general office expenses. The increase was offset by a $517,000 reduction in employee salaries, benefits and related costs resulting from salary and benefits cost-containment programs that became effective during 2009.

     General and administrative expenses decreased as a percentage of revenues for the three and six months ended June 30, 2009 as compared to the same period in 2008 due to the salary and benefits cost-containment programs that became effective during 2009 combined with increasing revenue.

     We expect general and administrative expenses to increase in absolute dollars in future periods as we continue to incur increased costs related to increases in outside professional fees, stock-based compensation and allocated costs such as rent.

Amortization Expense

		Three Months Ended June 30,								Change								Six Months Ended June 30,								Change
		2009				2008				$				%				2009				2008				$				%
		(Unaudited)
		(In thousands)
Amortization of intangible assets		$	327			$	122			$	205				168	%		$	647			$	129			$	518			NA
As a percentage of revenues			1.0	%			0.4	%											1.0	%			0.2	%

     Amortization expense consists of charges related to the amortization of intangible assets associated with past acquisitions.

     Amortization expense increased $205,000 and $518,000 during the three and six months ended June 30, 2009, respectively, as compared to the three and six months ended June 30, 2008, respectively, due to additional amortization of intangible assets that were acquired during the second quarter of 2008 in connection with the M:Metrics acquisition.

     Absent additional acquisitions, we expect amortization expense to remain constant in the near term, as the remaining amount of intangible assets related to previous acquisitions is amortized.

Interest Income, Net

     Interest income consists of interest earned from investments, such as short and long-term fixed income securities and auction rate securities, and our cash and cash equivalent balances. Interest expense is incurred due to capital leases pursuant to several equipment loan and security agreements and a line of credit that we have entered into in order to finance the lease of various hardware and other equipment purchases. Our capital lease obligations are secured by a senior security interest in eligible equipment.

     Interest income, net, for the three and six months ended June 30, 2009 was $132,000 and $307,000, respectively, as compared to $492,000 and $1.3 million for the three and six months ended June 30, 2008, respectively. The decreases of $360,000 and $1.0 million during the three and six months ended June 30, 2009 were due to a lower average cash balance due to the use of cash in May 2008 for the acquisition of M:Metrics and lower returns from our investments. Our cash, cash equivalents and short- and long-term investments increased by $6.6 million to $81.4 million at June 30, 2009 as compared to June 30, 2008 due to positive operating cash flow.

     We anticipate that interest income, net may decrease in future periods due to lower interest rates earned on our investments than those available in prior years.

Gain (loss) from Foreign Currency

     The functional currency of our foreign subsidiaries is the local currency. All assets and liabilities are translated at the current exchange rates as of the end of the period, and revenues and expenses are translated at average rates in effect during the period. The gain or loss resulting from the process of translating the foreign currency financial statements into U.S. dollars is included as a component of other comprehensive income.

     During the three and six months ended June 30, 2009, we recorded gains of $7,000 and $19,000, respectively, as compared to losses of $87,000 and $142,000 during the three and six months ended June 30, 2008, respectively. Our foreign currency transactions are primarily recorded as a result of fluctuations in the exchange rate between the U.S. dollar and the Canadian dollar, Euro and British Pound.

Provision for Income Taxes

     During the three and six months ended June 30, 2009 we recorded income tax provisions of $1.4 million and $2.6 million, respectively, compared to $1.5 million and $3.2 million in the same periods of 2008, respectively. The tax provision for the three and six months ended June 30, 2009 was attributable to current taxes of $230,000 and $157,000, respectively, and the utilization of our U.S. deferred tax assets of $1.2 million and $2.5 million, respectively, including discrete deferred tax write-offs of $154,000 and $657,000, respectively. The tax provision for the three and six months ended June 30, 2008 was attributable to current taxes of $139,000 and $205,000, respectively, and the utilization of our U.S. deferred tax assets of $1.3 million and $3.0 million, respectively, offset by a discrete release of the valuation allowance in the six months ended June 30, 2008 of $111,000 associated with a foreign entity.

     During the three and six months ended June 30, 2009, certain shares related to restricted stock awards vested at times when our stock price was substantially lower than the fair value of those shares at the time of grant. Such shortfalls reduce additional paid-in capital to the extent windfall tax benefits have been previously recognized. However, as we have not yet realized our windfall tax benefits because the tax benefits have not resulted in a reduction to current taxes payable, the three and six months ended June 30, 2009 was impacted. The tax provision impact of the shortfall totaling $177,000 and $680,000, respectively, has been included in income tax expense for the three and six months ended June 30, 2009.

Recent Pronouncements

     Recent accounting pronouncements are detailed in Note 2 to our Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q.

Liquidity and Capital Resources

     The following table summarizes our cash flows:

		Six Months Ended
		June 30,
		2009				2008
		(Unaudited)
		(In thousands)
Net cash provided by operating activities		$	11,459			$	24,489
Net cash used in investing activities			(13,952	)			(51,881	)
Net cash used in financing activities			(1,441	)			(761	)
Effect of exchange rate changes on cash			701				(56	)
Net decrease in cash and cash equivalents		$	(3,233	)		$	(28,209	)