UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2008
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission file number: 000-26393
WebMediaBrands Inc.
(Exact name of Registrant as specified in its charter)
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Delaware
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06-1542480
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(State or other jurisdiction of incorporation or organization)
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(IRS Employer Identification No.)
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23 Old Kings Highway South
Darien, Connecticut
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06820
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(Address of principal executive offices)
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(Zip Code)
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(203) 662-2800
(Registrants telephone number, including area code)
Securities registered under Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock $.01 par value
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The NASDAQ Stock Market LLC
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Securities
registered under Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
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No
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 15(d) of the
Act. Yes
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No
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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
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No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this
chapter) is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
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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 definitions of large accelerated filer, accelerated filer
and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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(Do not check if a smaller reporting company)
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Indicate by check
mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2 of the Act). Yes
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No
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The aggregate market value of voting and non-voting common
stock held by non-affiliates of the registrant as of June 30, 2008, based upon the last sale price of such common stock on that date as reported by the Nasdaq National Market was $34,127,223.
The number of shares of the outstanding registrants Common Stock as of
March 25, 2009 was 35,977,070.
Information required
by Part III of this Form 10-K, to the extent not set forth herein, is incorporated by reference from the registrants definitive proxy statement for its 2009 annual meeting of stockholders, which will be filed pursuant to Regulation 14A under
the Securities Exchange Act of 1934 within 120 days after the end of the fiscal year to which this Form 10-K relates.
WebMediaBrands Inc.
Annual Report on Form 10-K
Table of Contents
Safe
Harbor Statement under the Private Securities Litigation Reform Act of 1995: Statements in this Form 10-K which are not historical facts are forward-looking statements that are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The potential risks and
uncertainties address a variety of subjects including, for example, the competitive environment in which WebMediaBrands Inc. (f/k/a Jupitermedia Corporation) (WebMediaBrands) competes; the unpredictability of WebMediaBrandss future
revenues, expenses, cash flows and stock price; WebMediaBrandss ability to integrate acquired businesses, products and personnel into its existing businesses; WebMediaBrandss ability to protect its intellectual property; and
WebMediaBrandss dependence on a limited number of advertisers. For a more detailed discussion of such risks and uncertainties, refer to WebMediaBrandss reports filed with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934. The forward-looking statements included herein are made as of the date of this Form 10-K, and WebMediaBrands assumes no obligation to update the forward-looking statements after the date hereof.
Part I
Recent Developments
On
February 23, 2009, we announced the closing of the previously announced sale of our Online images business to Getty Images, Inc. (Getty Images) pursuant to the terms and conditions of a definitive stock purchase agreement dated
October 22, 2008 by and between us and Getty Images (the Agreement) for an aggregate purchase price of $96.0 million in cash, subject to a working capital purchase price adjustment (the Sale). Following the Sale, we will
account for the operations of our Online images business as a discontinued operation commencing in the first quarter of 2009 and our continuing operations will be comprised solely of our Online media business.
In conjunction with the Sale, we changed our name from Jupitermedia
Corporation to WebMediaBrands Inc. effective February 24, 2009.
Overview
Prior to the Sale, WebMediaBrands
was a leading global provider of images, original information, job boards and events for information technology (IT), business and creative professionals. We provided access to one of the largest online image libraries and developed and
disseminated vertically focused, original content, all of which provided our users with the knowledge and tools that they needed to accomplish their day-to-day job functions. We delivered our content through a number of our proprietary channels,
including our extensive online images networks, our online media networks and our events.
Prior to the Sale, we operated two interrelated and complementary businesses through some of the most well known brands targeted at IT, business and creative professionals. Our operations were classified into two
principal segments: Online images and Online media. Following the Sale, our continuing operations will be comprised solely of our Online media business.
Online images
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Jupiterimages, our online images business, is one of the leading stock content suppliers in the world.
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Online media
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The Online media segment of WebMediaBrands includes three distinct online networks:
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internet.com provides enterprise IT and business professionals and developers with the news, original information resources and community they need to succeed in
todays rapidly evolving IT and business environment.
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Mediabistro.com is dedicated to anyone who creates or works with content, or who is a professional working in a content/creative industry. This includes editors,
writers, producers, graphic designers, book publishers and others in industries such as magazines, television, film, radio, newspapers, book publishing, online media, advertising, public relations and design.
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Graphics.com provides creative professionals with news, resources, online courses and community information.
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WebMediaBrands also includes (i) specialized career Web sites for
select professional communities which can be found on Mediabistro.com and JustTechJobs.com; (ii) Mediabistro events, which produce offline conferences and trade shows and (iii) online courses training and seminars at Mediabistro.com and
Graphics.com.
1
Prior to the Sale, we developed and branded these businesses in a manner that enabled us to
cross-leverage and cross-promote the content and users of each. For example, many of the users of our online media networks also attended our events and utilized our images products. Similarly, many of our event attendees used our online networks.
For information regarding the components of our Online images
and Online media revenue, respectively, please see Item 7Managements Discussion and Analysis of Financial Condition and Results of OperationsResults of Operations.
Our Strategy
Following the Sale, our objective is to strengthen our position as a leading provider of original information and events for IT, business and creative
professionals. We intend to achieve this objective by continuing to execute on the following strategies:
Create and Monetize New Offerings and Services.
We expect to strengthen our existing offerings of products and services by continuing to
improve our original content and events available for our users, clients and customers. We expect to continue to identify emerging technologies and topics of interest and then create original content and events for those topics through internal
development and strategic acquisitions. We expect to continue to develop additional revenue sources through the launch of new content areas and events coverage topics.
Grow Through Targeted Acquisitions.
We have made a number of acquisitions since our inception and we expect to continue to
pursue strategic acquisition opportunities to obtain valuable content, brands, expertise and access to new users, advertisers and vendors. Although we are currently considering potential strategic acquisitions, we have no binding commitments or
agreements with respect to any such acquisitions other than those that have been reported by us from time to time in our filings made pursuant to the Securities Exchange Act of 1934. We intend to use the experience gained from our numerous
acquisitions to identify, evaluate, acquire and integrate properties that are complementary to our business.
Identify and Define Emerging Technologies and New Business Opportunities.
We continually search for emerging technologies and topics that
are of interest to IT, business and creative professionals. We believe that our creative and entrepreneurial culture enables us to identify technology and business shifts before these changes are apparent to most of our users and competitors.
Leverage Our Interrelated and Complementary Business
Segments.
Prior to the Sale, we operated in two interrelated and complementary business segments. Following the Sale, our continuing operations will be comprised solely of our Online media business. We will continue to cross-leverage and
cross-promote our various products and service offerings among the users of our online networks and attendees to our events.
Corporate Information
Prior to the acquisition of Mecklermedia Corporation (Mecklermedia) by Penton Media, Inc. (Penton Media) in November 1998, we
operated since December 1994 as one of three divisions that comprised Mecklermedia. Our predecessor Web sites, mecklerweb.com and iworld.com, were also dedicated to covering IT and the Internet industry. In connection with this acquisition, Penton
Media determined that Mecklermedias Internet business was not consistent with its planned strategic direction. To address this issue, Alan M. Meckler, Mecklermedias Chairman and Chief Executive Officer, purchased an 80.1% interest in
internet.com LLC, a business formed by Penton Media to hold the Internet business acquired from Mecklermedia. As of March 25, 2009, Mr. Meckler beneficially owned 41% of our outstanding common stock.
internet.com LLC was incorporated on April 5, 1999 in the State of
Delaware. internet.com LLC was merged with and into internet.com Corporation upon consummation of our initial public offering in June 1999.
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On May 24, 2001, internet.com Corporation changed its name from internet.com Corporation to INT
Media Group, Incorporated. On August 12, 2002, INT Media Group, Incorporated changed its name to Jupitermedia Corporation. On February 23, 2009, in connection with the consummation of the Sale, Jupitermedia Corporation changed its name to
WebMediaBrands Inc.
Our principal executive offices are
located at 23 Old Kings Highway South, Darien, Connecticut 06820 and our telephone number is (203) 662-2800.
Our Web site address is http://www.webmediabrands.com. We make available free of charge, through a link on our Web site to the Securities and Exchange
Commissions (SEC) Internet site, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the SEC.
Marketing and Sales
Following the Sale, our marketing efforts are directed largely at acquiring advertising and job board clients and subscribers to our paid subscription
products.
We employ a combination of online and offline
advertising and promotional campaigns to promote our content offerings and services to our users, advertisers and vendors. User advertising includes cross-promotion on our networks, advertising in trade publications and promotional links from Web
sites that attract demographically similar audiences. We use public relations, user groups, and speaking engagements to generate publicity for our products and services. We also use print advertising in various industry related trade publications,
highly targeted traditional direct mail campaigns by mailing postcards and/or brochures to select lists in targeted geographic areas.
Prior to the Sale, we sold most of our Online images and Online media products through separate direct sales forces. Our U.S. sales forces operated from
our New York, McLean, Peoria, South Pasadena, San Francisco, Chicago and Darien offices, and we also maintained local representatives in various locations throughout the United States. Our Online images direct sales force also operated from our
offices in the U.K., France, Germany, Spain and Australia. We also had sales employees and sales representatives in Canada and a number of European countries. Sales employees receive a base salary and are eligible for commissions based on sales and
revenue goals. Sales representatives receive commissions based on a percentage of sales. Our Online images products were also sold on our Web sites.
Following the Sale, our continuing operations will be comprised solely of our Online media business and our sales forces will no longer operate from the
McLean, South Pasadena, Chicago, U.K., France, Germany, Spain and Australia offices.
Geographic Financial Information
Revenue is
summarized below based on the country that generates the sale to the customer with countries having total revenue of 5% or more in a reportable period shown separately:
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2007
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2008
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United States of America
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76
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%
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78
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%
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United Kingdom
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7
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6
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France
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6
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5
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Other International
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11
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11
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100
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%
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100
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%
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See note 7 to the
consolidated financial statements included in Item 8 for revenue amounts by geographic area.
3
Intellectual Property
We seek protection of our proprietary content, logos, brands, domain names and software relating to our Web sites, e-mail newsletters, online discussion
forums and events, and attempt to protect them by relying on trademark, copyright, trade secret and other laws and restrictions.
Patents:
We currently have no patents or patents pending and do not anticipate that patents will become a significant part of our intellectual
property in the foreseeable future.
Trademarks:
We
pursue the registration of our trademarks and service marks in the United States and internationally. We have applied for registration in, and own a large number of trademarks and service marks in, the United States and over 50 other countries for a
number of our trademarks and service marks. We have encountered obstacles to registration of some marks in several of these countries.
Trademark rights are perpetual once applications mature into registrations, for so long as statutory filings and renewals are timely made and local use
requirements are met. Our trademark portfolio supports our claim to the exclusive right to use the registered marks for the goods and services listed in the applicable jurisdictions. This helps us in marketing our goods and services, building
goodwill among customers and preventing infringement of our marks by third parties that would dilute the value of these marks.
The primary mark used in the Online images segment is Jupiterimages. Following and in accordance with the terms and provisions of the Sale, the trademarks
and service marks used in the Online images segment were transferred to Getty Images.
The primary marks used in the Online media segment are Internet.com, Jupitermedia, EarthWeb.com, DevX.com, Mediabistro.com and Graphics.com, and secondary marks include, among others, Internetnews.com, TheCounter.com
and Avantguild.com.
Copyrights:
We also pursue
copyright registration of our content in the United States. We own numerous copyright registrations pertaining to the business. Following and in accordance with the terms and provisions of the Sale, the copyrights used in the Online images segment
were transferred to Getty Images.
Licenses:
We license
various images, content and music, which we provide to customers through our Web sites, direct sales force and third-party relationships. Following and in accordance with the terms and provisions of the Sale, the licensing agreements used in the
Online images segment were transferred to Getty Images.
Domain Names:
We own numerous domain name registrations, both in the United States and internationally. Domain names generally are regulated by Internet regulatory bodies. The regulation of domain names in the United States and
internationally is subject to change. Regulatory bodies could establish additional top-level domains, appoint additional domain name registrars or modify the requirements for registering or maintaining domain names. As a result, we might not be able
to acquire or maintain comparable domain names in all the countries in which we conduct business or prevent third parties from acquiring domain names that infringe or otherwise decrease the value of our trademarks and other proprietary rights. As a
result, our business, results of operations, financial condition and cash flows could suffer. Following and in accordance with the terms and provisions of the Sale, the domain name used in the Online images segment were transferred to Getty Images.
Franchises and Concessions:
We are not involved in any
franchises or concessions.
We might not be able to obtain
effective trademark, copyright, domain name and trade secret protection in every country in which we distribute our services or make them available through the Internet, and it is difficult for us to police unauthorized use of our proprietary rights
and information.
4
Legal standards relating to the validity, enforceability and scope of protection of proprietary rights in
Internet-related businesses and digital rights are still evolving. As a result, we cannot assure the future viability or value of our proprietary rights. We might not have taken adequate steps to prevent the misappropriation or infringement of our
intellectual property. Any such infringement or misappropriation, should it occur, might harm our business, results of operations and financial condition. In addition, we may have to file lawsuits in the future to perfect or enforce our intellectual
property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. These lawsuits could result in substantial costs and divert our resources and the attention of our management. As a result, our
business, results of operations, financial condition and cash flows would suffer.
Our business activities may infringe upon the rights of others, and other parties might assert legal claims against us. From time to time, we have been, and expect to continue to be, subject to claims in the ordinary
course of our business including claims of alleged infringement of the trademarks, service marks, content, copyright, images, issues related to model or property releases for images that we license and other rights of third parties. If similar
claims are made against us in the future, those claims and any resultant litigation might subject us to liability for damages, result in invalidation of our proprietary rights and, even if not meritorious, could be time consuming and expensive to
defend and could result in the diversion of our resources and the attention of our management. As a result, our business, results of operations, financial condition and cash flows would suffer.
We generally obtain ownership of our content and some of our technology from
our employees, pursuant to work-for-hire arrangements or purchase. We also license technology and content from third parties. In such license arrangements, we generally obtain representations as to the origin and ownership of such content and
technology and the licensors have generally agreed to defend, indemnify and hold us harmless from any third party claims that such content or technology violates the rights of another. We cannot be sure that these third party content and technology
protections will be effective or sufficient or that we will be able to maintain such content or technology on commercially reasonable terms. As a result, our business, results of operations, financial condition and cash flows would suffer.
We have licensed in the past, and expect to license in the
future, proprietary rights, such as trademarks, brands, content, images or other copyrighted material, to third parties. While we attempt to ensure that the quality of our content, software and brands are maintained by such licensees, we cannot be
sure that such licensees will not take actions that might decrease the value of our trademarks, brands, content, images or rights or other copyrighted material, which would harm our business, prospects, financial condition, results of operations and
cash flows.
We indemnify certain customers from claims related
to alleged infringements of the intellectual property or other rights of third parties, such as claims arising from a photographers failure to secure model or property releases for an image we license. The standard terms of these indemnities
require us to defend those claims and pay related damages, if any. We mitigate this risk by contractually requiring our contributing photographers and other image and content providers to secure all necessary rights, including all model or property
releases prior to submitting any images or content to us, and by requiring them to indemnify us in the event a claim arises in relation to an image or content they have provided. However, following the Sale, this risk should diminish since our
continuing operations will be comprised solely of our Online media business.
Seasonality and Cyclicality
Advertisers
generally place fewer advertisements during the first and third calendar quarters of each year, which directly affects our Online media business.
Our results will be impacted by the number and size of events we hold in each quarter. In addition, there may be fluctuations as events held in one period
in the current year may be held in a different period in future years.
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Expenditures by our customers tend to vary in cycles that reflect overall economic conditions as well as
budgeting and buying patterns.
The Online images business is
not materially impacted by seasonality.
Customers
Our customer base is a diverse group of individuals and companies, many of
which are focused on IT, the Internet and graphics.
The
following table sets forth, for the periods indicated, a year-over-year comparison of the percentage of our revenues derived from the 20 largest customers in each segment. One customer accounted for 16% of our Online media revenues in 2008. No
customer accounted for more than 10% of our consolidated revenues during any of the periods presented.
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2007
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2008
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Online images
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3
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%
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3
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%
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Online media
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51
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49
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All segments combined
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11
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14
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If we were to lose one
or more of our significant customers, our future financial results could be negatively affected.
Backlog
The following
is a summary of our backlog for each of our segments as of December 31, 2007 and 2008 (in thousands):
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December 31,
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2007
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2008
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Online images
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$
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12,632
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$
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12,428
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Online media
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4,313
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3,100
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$
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16,945
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$
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15,528
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Our Online images
backlog consists primarily of subscriptions to certain of our Jupiterimages products. Our Online media backlog consists of commitments for advertising, e-commerce, job board and licensing arrangements on our networks, subscriptions to our paid
subscription services, and attendee registrations, exhibit space and vendor sponsorships for our events.
Substantially all of our Online media backlog as of December 31, 2008 will be recognized as revenue in 2009. However, due to the Sale, a significant
majority of our Online images backlog as of December 31, 2008 will not be recognized as revenue in 2009.
Competition
Online
images
The market for visual content is highly
competitive. Competitive factors in this industry include the quality, relevance and diversity of our image library, the quality of our contributing photographers, customer service, pricing, accessibility of our images and our speed of fulfillment.
Prior to the Sale, our primary competitors included Getty Images and Corbis Corporation. We also competed with smaller image aggregators throughout the world. However, following the Sale, our continuing operations will be comprised solely of our
Online media business.
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Online media
The market for Internet-based services is intensely competitive and rapidly changing. Since the advent of commercial
services on the Internet, the number of online services competing for users attention and spending has proliferated. We expect that competition will continue to intensify. Competitive factors in this industry include editorial quality,
quantity and quality of the users of our networks, customer service, pricing and the strength of our complementary offerings. We compete with other companies, which direct a portion of their overall Web content at the IT and Internet professional
community, such as CNET, Inc., CMP Media Inc., International Data Group, SourceForge, Inc., TechTarget, Inc. and Ziff Davis Media Inc. We also compete for circulation and advertising impressions with general interest portal and destination Web sites
as well as traditional media. In addition, our Mediabistro.com and JustTechJobs.com online job boards compete with Monster, CareerBuilder.com, Dice, Craigslist and other job-related sites and services.
Employees
The following is a summary of our employees by segment as of December 31, 2007 and 2008:
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December 31,
2007
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December 31,
2008
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Online images
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497
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405
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Online media
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150
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188
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Other
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57
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59
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704
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652
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The table above
includes twelve and eleven part time Online images employees as of December 31, 2007 and 2008, respectively. Due to the Sale, our remaining employees will be a part of either our Online media business or Other.
7
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN INVESTMENT DECISION. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY
ONES FACING OUR COMPANY. OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS COULD BE HARMED BY ANY OF THE FOLLOWING RISKS. THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE DUE TO ANY OF THE FOLLOWING RISKS, AND YOU MIGHT LOSE ALL OR PART
OF YOUR INVESTMENT.
Risks Related to Our Business
We may fail to identify or successfully acquire businesses and content that would
otherwise enhance our product offerings to our customers and users, and as a result our revenue may decrease or fail to grow.
We have acquired and intend to continue to acquire, where appropriate opportunities arise, businesses and content as a key component of our growth
strategy. We may not be successful in identifying, appropriate acquisition opportunities and, as a result, our growth strategy could be adversely affected. If we identify an appropriate acquisition opportunity, we might not be able to negotiate the
terms of the acquisition successfully or finance the transaction. In order to finance any strategic acquisitions, one or more of which may be very significant to our company, we may have to incur indebtedness, use our existing cash, enter into new
credit facilities and/or issue securities. We may be unable to obtain adequate financing for acquisitions on terms and conditions acceptable to us. In order to finance acquisitions, we may sell equity securities at a discount to our common
stocks market value. Any issuance of equity securities may result in substantial dilution to existing stockholders, which may be increased as a result of any discount to our common stocks market price. Any future acquisition or
investment may result in amortization expenses related to intangible assets. If the market price for acquisition targets increases, or if we fail to acquire desired targets for this or any other reason, our business may fail to grow at historical
rates or at all, and as a result our stock price could fluctuate or decline.
We may fail to successfully integrate or achieve expected synergies from recent or future acquisitions, which could result in increased expenses, diversion of managements time and resources and a reduction in expected revenues, any
of which could cause our stock price to fluctuate or decline.
We may make acquisitions in the future. With respect to any future acquisitions, we may fail to successfully integrate our financial and management controls, technology, reporting systems and procedures, or adequately expand, train and
manage our work force. The process of integration could take a significant period of time and will require the dedication of management and other resources, which may distract managements attention from our other operations. If we make
acquisitions outside of our core businesses, assimilating the acquired technology, services or products into our operations could be difficult and costly. Our inability to successfully integrate any acquired company, or the failure to achieve any
expected synergies, could result in increased expenses and a reduction in expected revenues or revenue growth, and as a result our stock price could fluctuate or decline.
Given the tenure and experience of our CEO and his guiding role in developing our business and growth strategy since our inception, our growth may be
inhibited or our operations may be impaired if we were to lose his services.
Our growth and success depends to a significant extent on our ability to retain Alan M. Meckler, our Chairman and Chief Executive Officer. Mr. Meckler has developed, engineered and stewarded the growth and
operation of our business since its inception. The loss of the services of Mr. Meckler could inhibit our growth or impair our operations and cause our stock price to decline.
8
Our CEO and other employees with specialized knowledge and expertise in the operation of one or more of our businesses
could use that knowledge and expertise to compete against us, which could reduce our market share.
We do not have a non-competition agreement with Mr. Meckler or Christopher S. Cardell, our former President and Chief Operating Officer, or with any
other member of management or personnel, other than in connection with certain recent acquisitions. As a result, we may not have any recourse if they were to join a competitor or start up a competing venture. Competition from key employees or a
defection by one or more of them to a competitor could harm our business and results of operations by strengthening our competitors and, as a result, reducing our market share and revenues.
Our quarterly operating results are subject to fluctuations, and our stock price may
decline if we do not meet the expectations of investors and analysts.
Our quarterly revenues and operating results are difficult to predict and may fluctuate significantly from quarter to quarter due to a number of factors, many of which are outside of our control. We believe that our
online media revenues are subject to seasonal fluctuations because advertisers generally place fewer advertisements during the first and third calendar quarters of each year. Furthermore, Internet user traffic typically drops during the summer
months, which reduces the number of advertisements to sell and deliver. Expenditures by advertisers tend to vary in cycles that reflect overall economic conditions as well as budgeting and buying patterns. Our overall revenues could be materially
reduced in any period by a decline in the economic prospects of advertisers, IT professionals, business professionals and creative professionals or the economy in general, which could alter current or prospective customers spending priorities
or budget cycles or extend our sales cycle for the period. Finally, we recently consummated the Sale on February 23, 2009 and we have engaged in a number of significant acquisitions in recent years which make it difficult to analyze our results
and to compare them from period to period, including the acquisitions of Mediabistro.com Inc. on July 18, 2007, HAAP Media Ltd. on December 19, 2006, Cover-Imagen y Publicaciones, S.L. on October 26, 2006, RoyaltyFreeMusic.com on August 4, 2006,
Workbook Stock on June 5, 2006, IFA Bilderteam GmbH on May 2, 2006, Stock Image S.A.S. on February 2, 2006, Animation Factory on December 23, 2005, Bananastock Limited on October 13, 2005, PictureArts Corporation on July 18, 2005, Goodshoot
S.A.S. on May 18, 2005 and Creatas, LLC on March 7, 2005. Any future acquisitions will also make our results difficult to compare from period to period. Due to such risks, you should not rely on quarter-to-quarter comparisons of our results of
operations as an indicator of our future results.
We are exposed to
potential liabilities in connection with the sale of the Jupiterimages business to Getty Images.
In connection with the Sale, we have agreed to indemnify Getty Images for breaches of representations and warranties set forth in the Agreement if
aggregate damages for such breaches exceed $1.2 million, up to a maximum aggregate amount of $2.0 million. To provide a partial fund against which Getty Images may assert an indemnification claim pursuant to the foregoing, $2.0 million of the
purchase price was deposited into an escrow account. Half of the escrow fund will be released six months after the February 23, 2009 closing date (net of amounts paid out of the escrow fund and reserved for pending valid indemnification claims)
and the remainder will be paid one year after the closing date. In addition, we are required to indemnify Getty Images for any breach or failure by us to perform any of our covenants or agreements contained in the Agreement, any excluded liabilities
under the Agreement, any liabilities arising out of any actions taken by Getty Images or Jupiterimages at our request with respect to the transfer of Jupiterimages right, title and interests in and to the Peoria, Illinois facility to us and
the lease of such facility to Getty Images (US), Inc. and all tax liabilities of Jupiterimages (and its subsidiaries) for all pre-closing periods, including any tax liabilities arising by reason of Jupiterimages being a member of our consolidated
group. A claim against us could result in substantial cost that may, if it relates to certain issues, be paid from sources other than the funds deposited in escrow, which would have a negative impact on our financial condition.
9
We are unable to compete with the Jupiterimages business for five years from the date of the closing of the Sale.
The Agreement under which we sold Jupiterimages to Getty Images includes a
non-competition obligation which lasts for a period of five years from the closing of the Sale on February 23, 2009. Under this provision, we agreed that we will not and we will cause our affiliates not to, directly or indirectly, own, manage,
operate, control or participate in the ownership, management, operation or control of any business engaged in the same type of business or operations conducted by Jupiterimages and its subsidiaries as of the date of the Agreement, which is
October 22, 2008. Additionally, we will not be able to recruit or solicit employees of Jupiterimages for a period of three years commencing with the closing of the Sale on February 23, 2009. These limitations on the scope of our business
operations may adversely effect our business prospects, operating results and financial condition.
Because a limited number of advertisers constitute a significant portion of our revenues, our revenues could decline significantly if one or more of these advertisers were to cease advertising with us.
For the year ended December 31, 2008, our top 20
advertisers accounted for 49% of our online media revenues. We expect that a limited number of advertisers will continue to account for a significant portion of our revenues. Moreover, we typically sell advertisements under purchase order
agreements. Generally, these agreements are subject to cancellation by our advertisers with no minimum notice requirement. From time to time, our content may focus on areas that some of our advertisers find contrary to their commercial interests. In
the event that this occurs, an advertiser may choose to reduce or terminate their commercial relationship with us. If we lose one or more of the advertisers that represent a material portion of the revenues we have generated to date, our business,
results of operations and financial condition would suffer. In addition, if a significant advertiser fails to pay amounts it owes us, or does not pay those amounts on time, our revenues and our stock price could decline.
Our business may suffer if we are unable to maintain or enhance awareness of our brands or
if we incur excessive expenses attempting to promote our brands.
Promoting and strengthening the internet.com, Mediabistro.com and Graphics.com brands is critical to our efforts to attract and retain users of our online media networks, advertisers, customers and clients for our content products, and to
increase attendance at our events. We believe that the importance of brand recognition will likely increase due to the increasing number of competitors entering our markets. In order to promote these brands, in response to competitive pressures or
otherwise, we may find it necessary to increase our marketing budget, hire additional marketing and public relations personnel or otherwise increase our financial commitment to creating and maintaining brand loyalty among our clients. If we fail to
effectively promote and maintain our brands, or incur excessive expenses attempting to promote and maintain our brands, our business and financial results may suffer.
We have generated significant losses since inception and may not report net income in the future.
As of December 31, 2008, we had an accumulated deficit of $234.5
million. Any failure to achieve profitability could deplete our current capital resources and reduce our ability to raise additional capital in the future. Our advertising, promotion and selling and general and administrative expenses are based on
expectations of future revenues and are relatively fixed in the short term. These expenses totaled $56.9 million for the year ended December 31, 2007 and $59.5 million for the year ended December 31, 2008. If our revenues are lower than
expected, we might not be able to quickly reduce spending. Any shortfall in revenues would have a direct impact on operating results for a particular quarter and these fluctuations could affect the market price of our common stock.
10
The impairment of a significant amount of goodwill and intangible assets on our balance sheet could result in a
decrease in earnings and, as a result, our stock price could decline.
In the course of our operating history, we have acquired numerous assets and businesses. Some of our acquisitions have resulted in the recording of a significant amount of goodwill and/or intangible assets on our
financial statements. We had $118.3 million of goodwill and net intangible assets as of December 31, 2008. This is after an impairment charge of $87.2 million and $81.1 million in 2007 and 2008, respectively (See note 5 to the consolidated
financial statements included in Item 8). The goodwill and/or intangible assets were recorded because the fair value of the net tangible assets acquired was less than the purchase price. We may not realize the full value of the goodwill and/or
intangible assets. As such, we evaluate goodwill and other intangible assets with indefinite useful lives for impairment on an annual basis or more frequently if events or circumstances suggest that the asset may be impaired. We evaluate other
intangible assets subject to amortization whenever events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable. If goodwill or other intangible assets are deemed to be impaired, we would write off the
unrecoverable portion as a charge to our earnings. If we acquire new assets and businesses in the future, as we intend to do, we may record additional goodwill and/or intangible assets. The possible write-off of the goodwill and/or intangible assets
could negatively impact our future earnings and, as a result, the market price of our common stock could decline.
Our business, which is dependent on centrally located communications and computer hardware systems, is vulnerable to natural disasters, telecommunication failures,
terrorism and similar problems, and we are not fully insured for losses caused by all of these incidents.
Our operations are dependent on our communications systems and computer hardware, most of which is located in data centers operated by Qwest
Communications, Inc., Login Inc. and in our facility in Peoria, IL. These systems could be damaged by fire, floods, earthquakes, power loss, telecommunication failures and similar events. Our insurance policies have limited coverage levels for loss
or damages in these events and may not adequately compensate us for any losses that may occur. In addition, terrorist acts or acts of war may cause harm to our employees or damage our facilities, our clients, our clients customers and vendors,
or cause us to postpone or cancel, or result in dramatically reduced attendance at, our events, which could adversely impact our revenues, costs and expenses and financial position. The potential for future terrorist attacks, the national and
international responses to terrorist attacks or perceived threats to national security, and other acts of war or hostility have created many economic and political uncertainties that could adversely affect our business and results of operations in
ways that cannot be presently predicted, and could cause our stock price to fluctuate or decline. We are predominantly uninsured for losses and interruptions to our systems or cancellations of events caused by terrorist acts and acts of war.
System failures and other events may prohibit users from accessing our
networks or Web sites, which could reduce traffic on our networks or Web sites and result in decreased capacity for advertising space and reduced revenues.
Our networks and Web sites must accommodate a high volume of traffic and deliver frequently updated information. They have in the past experienced, and
may in the future experience, slower response times or decreased traffic for a variety of reasons. Since we became a public company in 1999, there have been instances where our online networks as a whole, or our Web sites individually, have been
inaccessible. Also, slower response times, which have occurred more frequently, can result from general Internet problems, routing and equipment problems involving third party Internet access providers, problems with third party advertising servers,
increased traffic to our servers, viruses and other security breaches. We also depend on information providers to provide information and data feeds on a timely basis. Some of the services in our networks or Web sites could experience temporary
interruptions in service due to the failure or delay in the transmission or receipt of this information. In addition, our users depend on Internet service providers and online service providers for access to our online networks or Web sites. Those
providers have experienced outages and delays in the past, and may experience outages or delays in the future. Moreover, our Internet infrastructure might not be able to support
11
continued growth of our online networks or Web sites. Any of these problems could result in less traffic to our networks or Web sites or harm the perception
of our networks or Web sites as reliable sources of information. Less traffic on our networks and Web sites or periodic interruptions in service could have the effect of reducing demand for advertising on our networks or Web sites, thereby reducing
our advertising revenues.
Our network operations may be vulnerable to
hacking, viruses and other disruptions, which may make our products and services less attractive and reliable and could result in increased costs and reduced revenues.
Internet usage could decline if any well-publicized compromise of security occurs. Hacking involves efforts to
gain unauthorized access to information or systems or to cause intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment. Hackers, if successful, could misappropriate proprietary information or cause
disruptions in our service. We may be required to expend capital and other resources to protect our Web sites against hackers. Our online networks could also be affected by computer viruses or other similar disruptive problems, and we could
inadvertently transmit viruses across our networks to our users or other third parties. Any of these occurrences could harm our business or give rise to a cause of action against us. Providing unimpeded access to our online networks is critical to
servicing our clients and providing superior customer service. Our inability to provide continuous access to our online networks could cause some of our clients to discontinue purchasing our products and services and/or prevent or deter our users
from accessing our networks.
Our intellectual property is important to our
business, and our failure to protect that intellectual property could result in increased expenses and adversely affect our future growth and success.
Trademarks, copyrights, domain names and other proprietary rights are important to our success and competitive position. Our failure to protect our
existing intellectual property rights may result in the loss of exclusivity or the right to use our content and technologies. If we do not adequately ensure our freedom to use certain content and technology, we may have to pay others for rights to
use their intellectual property, pay damages for infringement or misappropriation, and/or be prohibited from using this intellectual property.
We seek protection of our content, logos, brands, domain names and software relating to our businesses, including the registration of our trademarks,
service marks and copyrights both in the United States and in certain foreign countries. However, our actions may be inadequate to protect our trademarks, copyrights, domain names and other proprietary rights or to prevent others from claiming
violations of their trademarks and other proprietary rights. We might not be able to obtain effective trademark, copyright, domain name and trade secret protection in every country in which we distribute our products and services or make them
available through the Internet. For instance, it may be difficult for us to enforce certain of our intellectual property rights against third parties who may have inappropriately acquired interests in our intellectual property. It is also difficult
and costly for us to police unauthorized use of our proprietary rights and information, particularly in foreign countries. We may not have, in all cases, conducted formal evaluations to confirm that our technology, intellectual property, products
and services do not, or will not, infringe upon the intellectual property rights of third parties. As a result, we cannot be certain that our technology, intellectual property, products and services do not, or will not, infringe upon the
intellectual property rights of third parties. If we were found to have infringed on a third partys intellectual property rights, the value of our brands and our business reputation could be impaired, and sales of our products and services
could suffer.
Although we generally obtain our content and
some of our technologies from our employees, through work-for-hire arrangements or purchase, we also license content from third parties. In these license arrangements, we generally obtain representations as to origin and ownership of this content
and the licensors have generally agreed to defend, indemnify and hold us harmless from any third party claims that this content violates the rights of another. However, we cannot be sure that these protections will be effective or sufficient or that
we will be able to maintain our content on commercially reasonable terms.
12
In seeking to protect our trademarks, copyrights and other proprietary rights, or defending ourselves
against claims of infringement brought by others, with or without merit, we could face costly litigation and the diversion of our managements attention and resources, which could result in increased expenses and operating losses, any of which
could cause our stock price to fluctuate or decline.
If we fail to maintain
an effective direct sales force, our revenues could decline significantly.
We depend primarily on our direct sales force to sell advertising on our online networks. This dependence involves a number of risks, including:
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the need to increase the size of our direct sales force;
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the need to hire, retain, integrate and motivate additional sales and sales support personnel;
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lack of experience of our new sales personnel; and
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competition from other companies in hiring and retaining sales personnel.
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Our revenues could decline if we fail to maintain an effective direct sales force, and as a result our stock price could
decline.
Intense competition in each of our businesses could reduce our
market share, which could result in a decrease in revenue.
The market for Internet-based services is intensely competitive and rapidly changing. Since the advent of commercial services on the Internet, the number of online services competing for users attention and spending has proliferated.
We expect that competition will continue to intensify. We compete with other companies, which direct a portion of their overall Web content at the IT and Internet professional community, such as CNET, Inc., CMP Media Inc., International Data Group,
Source Forge, Inc., Tech Target, Inc. and Ziff Davis Media Inc. We also compete for circulation and advertising impressions with general interest portal and destination Web sites as well as traditional media. In addition, our Mediabistro.com and
JustTechJobs.com online job boards compete with Monster, CareerBuilder.com, Dice, Craigslist and other job-related sites and services.
Many of our current and potential competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater
financial, marketing and other resources than we have. These competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements and to devote greater resources to the development, promotion and sale
of their products and services than we can. As a result, we could lose market share to our competitors in one or more of our business and our revenues could decline.
We may not be able to attract and retain qualified personnel, which could impact the quality of our content and services and the
effectiveness and efficiency of our management, resulting in increased costs and losses in revenue.
Our success also depends on our ability to attract and retain qualified technical, sales and marketing, customer support, financial and accounting, legal
and other managerial personnel. The competition for personnel in the industries in which we operate is intense. Our personnel may terminate their employment at any time for any reason. Loss of personnel may also result in increased costs for
replacement hiring and training. If we fail to attract new personnel or retain and motivate our current personnel, we may not be able to operate our businesses effectively or efficiently, serve our customers properly or maintain the quality of our
content and services.
13
We face potential liability for information that we publish or distribute, which could spur costly litigation against
us.
Due to the nature of content published on our online
networks, including content placed on our online networks by others, and as a publisher and distributor of original information, we face potential liability based on a variety of theories, including defamation, negligence, copyright or trademark
infringement, personal injury or other legal theories based on the nature, publication or distribution of this information. Such claims may also include, among others, claims that by providing hypertext links to Web sites operated by third parties,
we are liable for wrongful actions by those third parties through these Web sites. Similar claims have been brought, and sometimes successfully asserted, against online services. It is also possible that users could make claims against us for losses
incurred in reliance on information provided on our networks. Such claims, whether brought in the United States or abroad, could divert management time and attention and result in significant cost to investigate and defend, regardless of the merit
of these claims. In addition, if we become subject to these types of claims and are not successful in our defense, we may be forced to pay substantial damages. Our insurance may not adequately protect us against these claims. The filing of these
claims may also damage our reputation as a high-quality provider of unbiased, timely analysis and result in client cancellations or overall decreased demand for our products and services.
Our stock price could continue to be extremely volatile, making an investment in our common stock less predictable and more risky, and
could spur costly litigation against us.
The market price
of our common stock has fluctuated in the past and is likely to continue to be highly volatile. For example, the market price of our common stock has ranged from $0.20 per share to $72.25 per share since our initial public offering in June 1999. The
stock market has experienced extreme price and volume fluctuations and the market prices of securities of technology companies, particularly Internet-related companies, have been highly volatile. In the past, following periods of volatility in the
market price of a companys securities, securities class action litigation has often been instituted against such a company. Such litigation could result in substantial costs and a diversion of our managements attention and resources.
Because our stock ownership is heavily concentrated with Alan M. Meckler,
our Chairman and CEO, Mr. Meckler will be able to influence matters requiring stockholder approval.
As of March 25, 2009, Alan M. Meckler beneficially owned 41% of our outstanding common stock. As a result of his beneficial ownership,
Mr. Meckler, acting alone or with others, is able to influence matters requiring stockholder approval, including the election of directors and approval of significant transactions. This concentration of ownership may have the effect of delaying
or preventing a change in control of our company, which some investors might deem to be in the best interests of the stockholders.
Our charter documents and the Delaware General Corporation Law may inhibit a takeover, even if such takeover would be beneficial to our stockholders.
Our Amended and Restated Certificate of Incorporation, bylaws and the
Delaware General Corporation Law could make it more difficult for a third party to acquire us, even if a change in control would be beneficial to our stockholders. Our Amended and Restated Certificate of Incorporation allows our board of directors
to issue preferred stock that may have rights and preferences that are superior to those of our common stock, which could deter a potential acquiror. Our bylaws provide that a special meeting of stockholders may only be called by our Board, Chairman
of the Board, Chief Executive Officer or President or at the request of the holders of a majority of the outstanding shares of our common stock, which could deter a potential acquiror or delay a vote on a potentially beneficial change in control
transaction until the annual meeting of stockholders.
14
We have identified a material weakness in our internal control over financial reporting that, if not remediated, could
affect our ability to prepare timely and accurate financial reports, which could cause investors to lose confidence in our reported financial information and could have a negative effect on the trading price of our stock.
In connection with the preparation of this report, we identified and
reported a material weakness in our internal controls over financial reporting relating to accounting for income taxes. As a result of this material weakness, we were unable to conclude that our internal control over financial reporting was
effective as of December 31, 2008. As of December 31, 2007, we also reported a material weakness in our internal controls over financial reporting relating to accounting for income taxes.
Our management, with the oversight of the Audit Committee, has continued to
address this material weakness and is committed to effective remediation of this deficiency as expeditiously as possible. However, due to the Sale of our Online images business we believe that the complexities that gave rise to this material
weakness may be substantially reduced. We will continue our efforts to establish or modify specific processes and controls to provide reasonable assurance with respect to the appropriate review and approval surrounding income taxes for the ongoing
business. Our material weakness will not be considered remediated until new internal controls are developed and implemented and are operational for a period of time and are tested. Our management will continue to review and make necessary changes to
the overall design of our internal control environment, as well as policies and procedures to improve the overall effectiveness of internal control over financial reporting.
Also, internal controls may become inadequate because of changes in conditions and the degree of compliance with the
policies or procedures may deteriorate. Any failure to remediate the material weakness described above or to implement and maintain effective internal control over financial reporting could harm our operating results, delay our completion of our
consolidated financial statements and our independent registered public accounting firms audit or review of our consolidated financial statements which could cause us to fail to timely meet our periodic reporting obligations with the SEC, or
result in material misstatements in our consolidated financial statements which could also cause us to fail to timely meet our periodic reporting obligations with the SEC. Deficiencies in our internal control over financial reporting could also
cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.
Risks Related to the Information Technology and Internet Industries
A lack of continued growth in the use of information technology and the Internet could inhibit the growth of our business.
Our market is relatively new and rapidly evolving. If information technology
or Internet usage does not continue to grow or declines, the use of our networks could decrease or fail to increase and the growth of our business could decline. Information technology and Internet usage may be inhibited for a number of reasons,
including:
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inadequate network infrastructure;
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inconsistent quality of service;
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lack of availability of cost-effective and high-speed service; and
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changes in government regulation and other law.
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If information technology and Internet usage grows, the Internet infrastructure might not be able to support the demands placed on it by this growth or
its performance and reliability may decline. In addition, future outages and other interruptions occurring throughout the Internet could lead to decreased use of our networks and would therefore harm our business.
15
If we are unable to adapt to the relatively new and rapidly changing Internet advertising environment, we may be
unable to attract advertisers to our networks and our revenues could suffer.
The Internet is a relatively new advertising medium and advertisers that have historically relied upon traditional advertising media may be reluctant to advertise on the Internet. In addition, advertisers that have
already invested substantial resources in other advertising methods may be reluctant to adopt a new strategy. Moreover, filtering software programs that limit or prevent advertising from being delivered to an Internet users computer are now
more effective and widely available. Widespread adoption of this filtering software by Internet users could impair the commercial viability of Internet advertising. Our business would suffer a decrease in revenues if the market for Internet
advertising fails to recover from its recent downturn or develops more slowly than expected.
In addition, several pricing models have emerged for selling advertising on the Internet. A majority of our advertising is sold on a cost-per-impression basis in which we are paid for every advertising impression that
we display. We also offer advertising based on certain cost-per-action models in which we are paid only when a specific event occurs, such as a Web site visitor downloading a computer file or a Web site visitor requesting information on a product.
Legal uncertainties could add additional costs and risks to doing business
on the Internet, which would cause an increase in the costs and risks associated with operating our business.
Legal standards relating to the validity, enforceability and scope of protection of proprietary rights in Internet-related businesses and digital rights
are still evolving. As a result, we cannot assure the future viability or value of our proprietary rights. We might not have taken adequate steps to prevent the misappropriation or infringement of our intellectual property. Any such infringement or
misappropriation, should it occur, might decrease the value of our intellectual property and undermine our competitive advantage with respect to such property, resulting in impairment of our business, results of operations and financial condition.
In addition, we may have to file lawsuits in the future to perfect or enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. These lawsuits could result in
substantial costs and divert our resources and the attention of our management, which could reduce our earnings and cause our stock price to decline.
Regulation could reduce the registration or value of our domain names.
We own registrations for the Internet domain names Jupitermedia.com, WebMediaBrands.com, JupiterOnlineMedia.com,
internet.com, EarthWeb.com, DevX.com, Mediabistro.com and Graphics.com, as well as numerous other domain names both in the United States and internationally. Domain names generally are
regulated by Internet regulatory bodies. The regulation of domain names in the United States and in foreign countries is subject to change. Regulatory bodies could establish additional top-level domains, appoint additional domain name registrars or
modify the requirements for holding domain names. As a result, we might not acquire or maintain the Jupitermedia.com, JupiterOnlineMedia.com, internet.com, EarthWeb.com, DevX.com,
Mediabistro.com and Graphics.com domain names, or comparable domain names, in all the countries in which we conduct business. Because our domain names are important assets which increase our value and contribute to our
competitive advantage through name recognition, reputation, user and search engine traffic, a failure to acquire or maintain such domain names in certain countries could inhibit our growth. Furthermore, the relationship between regulations governing
domain names and laws protecting trademarks and similar proprietary rights is still evolving. Therefore, we might be unable to prevent third parties from acquiring domain names that infringe or otherwise decrease the value of our trademarks and
other proprietary rights. Any further impairment in the value of these important assets could cause our stock price to decline.
16
Changes in laws and standards relating to data collection and use practices and the privacy of Internet users and
other individuals could impair our efforts to advertise our products and services and thereby decrease our advertising revenue.
We collect information from our customers that register to purchase products or services, use certain of our services, or respond to surveys. With our
customers permission, we may use this information to inform our customers of products and services that may be of interest to them. We may also share this information with our advertising clients if our customers have granted us permission to
do so. The U.S. federal and various state governments have recently adopted or proposed limitations on the collection, distribution and use of personal information of Internet users. The European Union adopted a directive that may limit our
collection and use of information from Internet users in Europe. In addition, public concern about privacy and the collection, distribution and use of personal information has led to self-regulation of these practices by the Internet advertising and
direct marketing industry and to increased federal and state regulation. Since many of the proposed laws, regulations and practices are still being developed, we cannot yet determine the impact these issues may have on our business. Changes to laws
or regulations, or industry practices, including consumer privacy laws, could lead to additional costs and could impair our ability to collect customer information which helps us to provide more targeted advertising for our customers, thereby
impairing our ability to maximize advertising revenue from our advertising clients.
Taxation of online commerce in certain states or jurisdictions could result in a decrease in sales and an increase in compliance costs, either of which could cause our stock price to decline.
Tax authorities in a number of states, as well as a Congressional advisory
commission, are currently reviewing the appropriate tax treatment of companies engaged in online commerce, and new state tax regulations may subject us to additional state sales and other taxes. If one or more local, state or foreign jurisdictions
impose sales tax collection obligations on us, we may suffer decreased sales into such state or jurisdiction as the effective cost of purchasing goods from us increases for those residing in these states or jurisdictions. We pay value added taxes on
subscription sales in the European Union. We may also be subject to value added and other taxes if we sell other merchandise to customers located in the European Union and we may incur significant financial and organizational burdens in order to set
up the infrastructure required to comply with applicable tax regulations.
The information technology and Internet industries are characterized by rapid technological change, which could require frequent and costly technological improvements and, if we fail to continually improve our content offerings and
services, we could cease to be competitive in our businesses.
Rapid technological developments, evolving industry standards and user demands, and frequent new product introductions and enhancements characterize the market for Internet products and services. These market characteristics are exacerbated
by the emerging nature of the market and the fact that many companies are expected to introduce new Internet products and services in the near future. Our future success and competitive edge will depend on our ability to continually improve our
content offerings and services. In addition, the widespread adoption of developing multimedia-enabling technologies could require fundamental and costly changes in our technology and could fundamentally affect the nature, viability and measurability
of Internet-based advertising, which could harm our advertising revenues.
ITEM 1B.
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UNRESOLVED STAFF COMMENTS
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None
17
The following table sets forth a list of our current office locations as of December 31, 2008:
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Locations
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Square
Feet
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Termination Date
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Use
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Leased and Occupied
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Darien, CT
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23,000
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February 2013
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Administrative, IT, Online media editorial and operations, and Online images marketing and operations
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New York, NY
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18,750
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May 2013
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Online media sales and editorial, and Online images sales and operations
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South Pasadena, CA (1)
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16,000
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December 2009
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Online images sales, marketing and operations
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Mountainside, NJ (1)
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14,500
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June 2010
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Online images operations
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Ottobrunn, Germany (1)
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12,000
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October 2009
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Online images sales, marketing and operations
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Gatineau, Quebec (1)
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7,500
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July 2009
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Online images sales and operations
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San Francisco, CA
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7,500
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August 2012
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Online media editorial, operations, sales and marketing
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McLean, Virginia (1)
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6,000
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June 2010
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Online images sales
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Essex, England (1)
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5,000
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December 2009
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Online images sales, marketing and operations
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Tucson, AZ (1)
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4,500
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December 2011
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Online images operations and marketing
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Madrid, Spain (1)
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4,300
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March 2010
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Online images sales, marketing and operations
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Sioux Falls, SD (1)
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2,800
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July 2013
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Online images operations
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Chicago, IL (1)
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2,700
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May 2009
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Online images sales
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Paris, France (1)
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2,200
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February 2013
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Online images sales, marketing and operations
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Budapest, Hungary (1)
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2,000
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Auto renews
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Online images operations
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North Sydney, Australia (1)
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1,900
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March 2012
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Online images sales, marketing and operations
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Norcross, GA (1)
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1,800
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September 2009
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Online images operations
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London, England (1)
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1,800
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January 2012
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Online images sales and operations
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Sophia Antipolis, France (1)
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1,600
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January 2013
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Online images sales and operations
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Annecy le Vieux, France (1)
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1,100
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Month-to-Month
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Online images operations
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Dusseldorf, Germany (1)
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500
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90 days notice
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Online images sales
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Owned and Occupied
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|
|
|
|
|
Peoria, IL (2)
|
|
56,000
|
|
|
|
Online images sales, marketing and operations
|
(1)
|
As a result of the Sale, this facility was transferred to Getty Images as of February 23, 2009.
|
(2)
|
Following the Sale, this facility was leased to Getty Images (US), Inc.
|
We believe that the general condition of our leased real estate is good and that our facilities are suitable for the purposes for which they are being
used. We believe that our current facilities will be adequate to meet our needs for the foreseeable future.
18
ITEM 3.
|
LEGAL PROCEEDINGS
|
On or about November 13, 2006, Robert Lange, who identified himself as a stockholder of WebMediaBrands, commenced a purported stockholders
derivative action in the United States District Court for the District of Connecticut (the Court), purportedly on behalf of WebMediaBrands, against all of WebMediaBrandss current directors and against WebMediaBrandss former
Chief Financial Officer and Former President and Chief Operating Officer. WebMediaBrands was named in the suit as a nominal defendant on whose behalf recovery is purportedly sought (the Action). Mr. Lange did not make a
litigation demand on WebMediaBrandss board of directors prior to commencing the action, and alleged that such demand should be excused as a matter of law. The complaint alleged, based primarily on a statistical analysis, that certain stock
options granted to certain defendants in 1999, 2000 and 2001 were backdated, and asserted on behalf of WebMediaBrands various causes of action against the defendants arising out of such alleged backdating, including securities fraud, breach of
fiduciary duty and unjust enrichment. On April 24, 2007, we and the individual defendants filed a motion to dismiss the case in its entirety. Rather than respond to the motion to dismiss, the Plaintiff filed an amended complaint on
July 16, 2007. The amended complaint removed one of the individual defendants, but was substantially similar to the original complaint. On or around September 11, 2007, Defendants filed a motion to dismiss the Amended Complaint. Briefing
on that motion was completed, and oral argument was held on the motion in December 2007. The Court subsequently denied the motion as moot after being advised by the parties that they had agreed to a settlement of the action, pending Court approval.
On October 8, 2008, the Court granted preliminary approval of a comprehensive settlement of the Action, and scheduled a hearing for December 10, 2008 to consider whether to approve the settlement and enter judgment thereon. At the
settlement hearing, Mr. Langes counsel requested that the Court approve the agreed-to fees and expenses (Fees and Expenses) for their efforts in filing, prosecuting and settling the Action. On December 11, 2008, the Court
issued an Order and Final Judgment approving the settlement. As a result, the Company caused its insurers to pay the Fees and Expenses.
ITEM 4.
|
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
None
19
PART II
ITEM 5.
|
MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
|
Our common stock began trading publicly on the Nasdaq Stock Market on June 25, 1999, under the symbol INTM.
Prior to that date, there was no public market for our common stock. In September 2002, effective with the change in the name of the company to Jupitermedia Corporation, our ticker symbol was changed to JUPM. In February 2009, effective
with the change in the name of the company to WebMediaBrands in connection with the Sale, our ticker symbol was changed from JUPM to WEBM. The following table sets forth for the periods indicated the high and low sale prices
of our common stock.
|
|
|
|
|
|
|
|
|
High
|
|
Low
|
Year ended December 31, 2007
|
|
|
|
|
|
|
First Quarter
|
|
$
|
10.48
|
|
$
|
6.06
|
Second Quarter
|
|
$
|
7.48
|
|
$
|
6.12
|
Third Quarter
|
|
$
|
8.38
|
|
$
|
5.01
|
Fourth Quarter
|
|
$
|
6.75
|
|
$
|
3.30
|
|
|
|
Year ended December 31, 2008
|
|
|
|
|
|
|
First Quarter
|
|
$
|
3.98
|
|
$
|
1.61
|
Second Quarter
|
|
$
|
2.33
|
|
$
|
1.23
|
Third Quarter
|
|
$
|
1.88
|
|
$
|
1.05
|
Fourth Quarter
|
|
$
|
1.20
|
|
$
|
0.20
|
|
|
|
Year ending December 31, 2009
|
|
|
|
|
|
|
First Quarter (through March 25, 2009)
|
|
$
|
0.60
|
|
$
|
0.21
|
As of March 25,
2009, there were 56 holders of record of our common stock, although we believe that the number of beneficial owners of our common stock is substantially higher.
DIVIDEND POLICY
We have never declared or paid a cash dividend and do not anticipate doing so in the foreseeable future. We expect to retain earnings to finance the
expansion and development of our business. Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon our financial condition, results of operations and capital requirements.
EQUITY COMPENSATION PLAN INFORMATION
|
|
|
|
|
|
|
|
Plan Category
|
|
Number of securities to be
issued upon exercise of
outstanding options, warrants
and rights
|
|
Weighted-
average exercise
price of outstanding
options, warrants
and rights
|
|
Number of securities
remaining available
for future issuance under equity
compensation
plans
(excluding securities
reflected in column (a))
|
|
|
(a)
|
|
(b)
|
|
(c)
|
Equity compensation plans approved by security holders
|
|
6,848,500
|
|
$
|
2.60
|
|
4,231,108
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
6,848,500
|
|
$
|
2.60
|
|
4,231,108
|
|
|
|
|
|
|
|
|
20
ITEM 7.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Recent Developments
On February 23, 2009, we announced the closing of the previously announced sale of our Online images business to Getty Images, Inc. (Getty
Images) pursuant to the terms and conditions of a definitive stock purchase agreement dated October 22, 2008 by and between us and Getty Images (the Agreement) for an aggregate purchase price of $96.0 million in cash, subject
to a working capital purchase price adjustment (the Sale). Following the Sale, we will account for the operations of our Online images business as a discontinued operation commencing in the first quarter of 2009 and our continuing
operations will be comprised solely of our Online media business.
As the Sale was consummated on February 23, 2009, our consolidated financial statements do not reflect the results of such Sale, including the receipt of the consideration or the discontinuing of our operations in the Online images
business. Such changes will be reflected commencing with our consolidated financial statements for the first quarter ending March 31, 2009. Therefore, the data presented in our consolidated financial statements and in our discussion below are
not indicative of our future operating results or financial position.
Overview
Prior to the Sale, we were a leading
global provider of images, original information, job boards and events for information technology (IT), business and creative professionals. Our operations were classified into two principal segments: Online images and Online media.
However, following the Sale, our continuing operations will be comprised solely of our Online media business.
Online images.
Jupiterimages, our Online images business, was and is one of the leading images companies in the world with more than
18 million downloadable files, including images, video, audio, flash, animation, fonts and illustrations serving creative professionals with brands like BananaStock, Workbook Stock, Brand X Pictures, FoodPix, Botanica, Nonstock, The Beauty
Archive, IFA Bilderteam, Comstock Images, Creatas Images, PictureQuest, Liquid Library, Thinkstock Images, Thinkstock Footage, Bigshot Media, Goodshoot, Polka Dot Images, Stock Image, Pixland, Photos.com, Ablestock.com, PhotoObjects.net,
Clipart.com, AnimationFactory.com, JupiterGreetings.com, RoyaltyFreeMusic.com, StudioCutz.com, eStockMusic.com and Stockxpert.com.
We generated our Online images revenues from paid subscriptions that provided access to our image and music libraries. Customers could purchase
subscriptions, which were offered based on a variety of prices and terms, to access our image and music libraries. Once a customer became a subscriber, they had the ability to download copies of images or music within our libraries. We also derived
revenue from granting rights to use images and music that were downloaded or delivered on CD-ROMs. Revenue was recognized when persuasive evidence of an arrangement existed, delivery had occurred or services had been rendered, the price was fixed or
determinable and collectibility was reasonably assured. Delivery occurred upon shipment or upon the availability of the image or music for downloading by the customer. A product is considered delivered when it arrives at the customers site via
standard delivery methods of ground transportation or next day air delivery.
Our images and music were licensed online through our networks, through our direct sales force and through third party relationships. We had agreements with a number of distributors of images, music and footage clips,
whereby the distributors made sales to third party customers and remitted a percentage of the sales to us. We recognized the revenue from the sale by the distributor at the time of the sale.
We also licensed a portion of our content to third parties for royalties
based on the licensees revenues generated by the licensed content.
The principal costs of our Online images business related to commissions paid to third party image suppliers, payroll costs for technology, production, sales and marketing personnel, advertising, technology
21
infrastructure, lead generation fees for sales referrals and credit card processing fees. However, following the Sale, our continuing operations will be
comprised solely of our Online media business.
Online
media.
The media segment of WebMediaBrands includes three distinct online networks: internet.com for IT and business professionals and developers and Mediabistro.com and Graphics.com for media and creative professionals. The networks include
more than 150 Web sites and 150 e-mail newsletters that are viewed by over 20 million users monthly. WebMediaBrands also includes specialized career Web sites for select professional communities which can be found on Mediabistro.com and
JustTechJobs.com. In addition, WebMediaBrands includes Mediabistro events, which produce offline conferences and trade shows focused on IT, media and business-specific topics.
We generate our Online media revenues from:
|
|
|
advertising and custom publishing on our Web sites, e-mail newsletters and online discussion forums;
|
|
|
|
e-commerce agreements, which generally include a fixed advertising fee;
|
|
|
|
fees charged for online job postings;
|
|
|
|
attendee registration fees for our online and in-person training courses;
|
|
|
|
advertiser sponsorships for our Webcasts;
|
|
|
|
subscription sales for our paid e-mail newsletters and services;
|
|
|
|
advertising, subscriptions and newsstand sales for our print magazines;
|
|
|
|
attendee registration fees to our conferences and trade shows;
|
|
|
|
exhibition space fees and vendor sponsorships to our conferences and trade shows;
|
|
|
|
renting our permission based opt-in e-mail list names; and
|
|
|
|
licensing our editorial content, software and brands to third parties for fixed fees and royalties based on the licensees revenues generated by the licensed
property.
|
Advertisers generally place fewer
advertisements during the first and third calendar quarters of each year, which directly affects our Online media business. Our results will also be impacted by the number and size of events we hold in each quarter. In addition, there may be
fluctuations as events held in one period in the current year may be held in a different period in future years.
The principal costs of our Online media business relate to payroll for our editorial, technology, operations and sales personnel; technology related
costs; facilities and equipment; paper and printing costs; and venue, speaker and advertising expenses for training and events.
Recent Acquisitions
On July 18, 2007, we acquired all of the shares of Mediabistro.com Inc. (Mediabistro). The consideration paid was $20.0 million in cash
and a two year earn-out that could result in an additional $3.0 million in cash consideration. The acquisition of Mediabistro solidifies our position in the important media professionals market. The acquisition further diversifies our revenue
sources since a significant percentage of Mediabistros revenue is generated from online job postings and online and in-person training courses.
In 2007, we also made various smaller acquisitions to complement our current product and service offerings.
We expect to continue to develop and expand our current offerings through
internal development and, where appropriate opportunities are identified, through strategic acquisitions of assets and content that would be complimentary to our business.
22
Results of Operations
Revenues
The following table sets forth, for the periods indicated, a year-over-year comparison of our revenues by segment (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2007 vs. 2008
|
|
|
|
2007
|
|
2008
|
|
$
|
|
|
%
|
|
Online images
|
|
$
|
108,904
|
|
$
|
96,263
|
|
$
|
(12,641
|
)
|
|
(12
|
)%
|
Online media
|
|
|
31,430
|
|
|
32,131
|
|
|
701
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
140,334
|
|
$
|
128,394
|
|
$
|
(11,940
|
)
|
|
(9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Online
images.
The decrease in revenues for the year ended December 31, 2008 is due primarily to declines in direct sales of royalty-free single images and CD-ROMs and in sales from third party distributors, partially offset by an increase in
subscription revenues. The decrease in revenues was mainly due to changes in the images industry, including the emergence of competitive image offerings such as micropayment, and a downturn in the U.S. and global economy.
The following table sets forth, for the years ended December 31, 2007
and 2008 the components of our Online images revenues (in thousands):
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
2007
|
|
2008
|
Single images and CD-ROMs
|
|
$
|
52,498
|
|
$
|
44,805
|
Subscriptions
|
|
|
29,014
|
|
|
30,879
|
Distributors
|
|
|
22,951
|
|
|
16,509
|
Licensing and other
|
|
|
4,441
|
|
|
4,070
|
|
|
|
|
|
|
|
Total Online images
|
|
$
|
108,904
|
|
$
|
96,263
|
|
|
|
|
|
|
|
Due to the Sale, we
will not realize any Online images revenues after February 23, 2009, which will affect our aggregate revenues and results of operations on a going forward basis and in subsequent reporting periods.
Online media.
The increase in revenues for the year ended
December 31, 2008 was due primarily to the acquisition of Mediabistro, which added an additional $4.3 million in revenues. This was partially offset by a reduction in advertising revenues due to a decline in advertising spending by technology
companies and a downturn in the U.S. and global economy.
The
following table sets forth, for the years ended December 31, 2007 and 2008 the components of our Online media revenues (in thousands):
|
|
|
|
|
|
|
|
|
Year Ended
December 31
|
|
|
2007
|
|
2008
|
Advertising
|
|
$
|
26,096
|
|
$
|
23,613
|
Online job postings
|
|
|
2,175
|
|
|
3,928
|
Other
|
|
|
3,159
|
|
|
4,590
|
|
|
|
|
|
|
|
|
|
$
|
31,430
|
|
$
|
32,131
|
|
|
|
|
|
|
|
23
The following table sets forth, for the periods indicated, the number of our Online media online
advertisers and the average revenue derived from each advertiser (dollars in thousands):
|
|
|
|
|
|
|
|
Number of
Advertisers
|
|
Average Revenue
per Advertiser
|
2007
|
|
369
|
|
$
|
66
|
2008
|
|
403
|
|
|
55
|
Cost of revenues
The following table sets forth, for the periods indicated, a year-over-year
comparison of our cost of revenues by segment (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31
|
|
2007 vs. 2008
|
|
|
|
2007
|
|
2008
|
|
$
|
|
|
%
|
|
Online images
|
|
$
|
44,563
|
|
$
|
40,627
|
|
$
|
(3,936
|
)
|
|
(9
|
)%
|
Online media
|
|
|
14,599
|
|
|
17,833
|
|
|
3,234
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
59,162
|
|
$
|
58,460
|
|
$
|
(702
|
)
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Online
images.
Cost of revenues primarily consists of commissions paid to third party image suppliers, payroll and benefits costs for technology and production personnel, communications infrastructure, Web site hosting and storage for our image
library. Cost of revenues excludes depreciation and amortization. The decrease in cost of revenues from 2007 to 2008 is due primarily to a decrease in commission expense of $3.6 million due primarily to a decrease in sales and a shift in sales from
third party content to wholly owned content. The remaining decrease was due primarily to a decrease in employee related costs of $564,000. This decrease was partially offset by an increase in professional consulting and software licensing costs of
$402,000. Due to the Sale, we will not incur additional cost of revenues in respect of the Online images business after February 23, 2009, which will affect our aggregate cost of revenues and results of operations on a going forward basis and
in subsequent reporting periods.
Online media.
Cost of revenues primarily consists of payroll and benefits costs for technology and editorial personnel, freelance costs, communications infrastructure and Web site hosting. Cost of revenues excludes depreciation and amortization. The increase in
cost of revenues from 2007 to 2008 was primarily due to the acquisition of Mediabistro on July 18, 2007, which added $2.9 million to cost of revenues. The remaining increase was due primarily to an increase in employee related costs of
$856,000, partially offset by a reduction in event related costs of $478,000.
We intend to make investments through internal development and, where appropriate opportunities arise, acquisitions to continue to expand our content offerings. We may need to increase our spending in order to create
additional content related to new topics or offerings.
Advertising,
promotion and selling
The following table sets forth, for
the periods indicated, a year-over-year comparison of our advertising, promotion and selling expenses by segment (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
2007 vs. 2008
|
|
|
|
2007
|
|
2008
|
|
$
|
|
|
%
|
|
Online images
|
|
$
|
21,340
|
|
$
|
20,591
|
|
$
|
(749
|
)
|
|
(4
|
)%
|
Online media
|
|
|
7,811
|
|
|
8,460
|
|
|
649
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29,151
|
|
$
|
29,051
|
|
$
|
(100
|
)
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
Online images.
Advertising, promotion and selling expenses primarily consist of payroll and
benefits costs for sales and marketing personnel and advertising. The year-over-year decrease in advertising, promotion and selling expense from 2007 to 2008 is due primarily to a decrease in advertising costs of $1.1 million and a decrease in
professional consulting and recruiting fees of $138,000, partially offset by an increase in employee related costs of $547,000. Due to the Sale, we will not incur additional advertising, promotion and selling expenses in respect of the Online images
business after February 23, 2009, which will affect our aggregate advertising, promotion and selling expenses and results of operations on a going forward basis and in subsequent reporting periods.
Online media.
Advertising, promotion and selling expenses
primarily consist of payroll and benefits costs for sales and marketing personnel. The year-over-year increase in advertising, promotion and selling expense from 2007 to 2008 is due primarily to the acquisition of Mediabistro, which added $805,000
during 2008.
General and administrative
The following table sets forth, for the periods indicated, a year-over-year
comparison of our general and administrative expenses by segment (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
2007 vs. 2008
|
|
|
|
2007
|
|
2008
|
|
$
|
|
|
%
|
|
Online images
|
|
$
|
8,188
|
|
$
|
9,911
|
|
$
|
1,723
|
|
|
21
|
%
|
Online media
|
|
|
1,540
|
|
|
2,621
|
|
|
1,081
|
|
|
70
|
|
Other
|
|
|
18,068
|
|
|
17,868
|
|
|
(200
|
)
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
27,796
|
|
$
|
30,400
|
|
$
|
2,604
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Online images.
General and administrative expenses primarily consist of payroll and benefit costs for administrative personnel, office related costs, professional fees and provisions for losses on accounts receivable. The year-over-year increase from 2007
to 2008 in general and administrative expenses is due primarily to an increase in legal fees of $1.2 million related to the Agreement with Getty Images and an increase in bad debt expense of $966,000. The increase in bad debt expense is primarily
due to the downturn in the U.S. and global economy. The increase in general and administrative expenses is partially offset by a decrease in employee related costs of $240,000 and a decrease in office related costs of $194,000. Due to the Sale, we
will not incur additional general and administrative expenses in respect of the Online images business after February 23, 2009, which will affect our aggregate general and administrative expenses and results of operations on a going forward
basis and in subsequent reporting periods.
Online
media.
General and administrative expenses primarily consist of office related costs and provisions of losses on accounts receivable. The increase in general and administrative expenses from 2007 to 2008 is primarily due to the impact of the
acquisition of Mediabistro, which added $610,000 and an increase in bad debt expense of $303,000.
Other.
General and administrative expenses primarily consist of payroll and benefit costs for administrative personnel, office related costs
and professional fees. The decrease from 2007 to 2008 is primarily due to a decrease in professional fees of $2.0 million partially offset by an increase in stock based compensation of $1.2 million and an increase in payroll related costs of
$780,000.
25
Depreciation and amortization
The following table sets forth, for the periods indicated, a year-over-year comparison of our depreciation and amortization
expenses (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
2007 vs. 2008
|
|
|
|
2007
|
|
2008
|
|
$
|
|
%
|
|
Depreciation
|
|
$
|
4,447
|
|
$
|
5,093
|
|
$
|
646
|
|
15
|
%
|
Amortization
|
|
|
13,222
|
|
|
16,072
|
|
|
2,850
|
|
22
|
|
Depreciation expense
increased year-over-year from 2007 to 2008 due primarily to an increase in capital expenditures. Amortization expense increased year-over-year from 2007 to 2008 due primarily to the amortization of certain intangible assets acquired
in connection with the acquisition of Mediabistro.
Due to the
Sale, depreciation and amortization expense will decrease significantly after February 23, 2009, which will affect our aggregate depreciation and amortization expenses and results of operations on a going forward basis and in subsequent
reporting periods. Our depreciation and amortization expenses may further vary in future periods based upon a change in our capital expenditure levels, any changes in any purchase accounting adjustments relating to our acquisitions or any future
acquisitions.
Impairment of goodwill and long-lived assets
In conjunction
with our annual impairment review as of October 1, 2007, we identified certain events or factors that indicated that goodwill and intangible assets may be impaired as of December 31, 2007. These indicators included a decline in our stock price and
changes in the images industry, including the emergence of competitive image offerings such as micropayment, that impacted the projected operations and cash flows of the Online images reporting segment. As a result, we recorded an impairment charge
of $87.2 million ($81.5 million after tax) to reduce the carrying amounts of goodwill and intangible assets to fair value.
During the third quarter of 2008, we received indications of interest from multiple market participants for our Online images business and concluded that
the indications of interest being made were an indicator of impairment to goodwill as of September 30, 2008. Accordingly, we recorded an estimated impairment charge of $40.0 million during the third quarter of 2008. In the fourth quarter of
2008, we completed our valuation of impairment under Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, and SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. As a result, we recorded an additional impairment charge of $36.5 million to reduce the carrying amounts of goodwill and domain names to fair value for our Online images reporting segment.
Also during the fourth quarter of 2008, we identified certain indicators that
the amortized intangible assets of our Online media business may be impaired. These indicators included a downturn in the U.S. and global economy that impacted the projected operations and cash flows of the Online media reporting segment. As a
result, we recorded an impairment charge of $4.5 million and $86,000 to reduce the carrying amounts of the amortized intangible assets and property and equipment, respectively, to fair value for our Online media reporting segment under SFAS
No. 144. The charge is not tax deductible because the acquisition that gave rise to the intangibles was structured as a stock transaction. The impairment charge, which is included in the line item Impairment of goodwill and long-lived
assets in our 2008 consolidated statement of operations, is presented below by intangible asset (in thousands):
|
|
|
|
|
|
Year Ended
December 31,
2008
|
Customer and distributor relationships
|
|
$
|
4,184
|
Web site development costs
|
|
|
60
|
Non-compete agreements
|
|
|
179
|
Content development costs
|
|
|
108
|
|
|
|
|
Total
|
|
$
|
4,531
|
|
|
|
|
26
Our impairment tests during 2008 resulted in a total non-cash impairment charge of $76.5 million
related to the write-down of goodwill and domain names of our Online images reporting segment. The majority of the charge is not tax deductible because the majority of the acquisitions that gave rise to goodwill and domain names were structured as
stock transactions. The impairment charge, which is included in the line item Impairment of goodwill and long-lived assets in the 2007 and 2008 consolidated statements of operations, is presented below by intangible asset (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
|
Pre-Tax
|
|
Tax
Benefit
|
|
After-Tax
|
Goodwill
|
|
$
|
83,138
|
|
$
|
5,708
|
|
$
|
77,430
|
Domain names
|
|
|
4,048
|
|
|
|
|
|
4,048
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
87,186
|
|
$
|
5,708
|
|
$
|
81,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008
|
|
|
Pre-Tax
|
|
Tax
Benefit
|
|
After-Tax
|
Goodwill
|
|
$
|
74,235
|
|
$
|
|
|
$
|
74,235
|
Domain names
|
|
|
2,256
|
|
|
|
|
|
2,256
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
76,491
|
|
$
|
|
|
$
|
76,491
|
|
|
|
|
|
|
|
|
|
|
The tax benefit of
$5.3 million related to goodwill impairment for the year ended December 31, 2008 was subject to a full valuation allowance.
The fair value of goodwill is the residual fair value after allocating the total fair value of a reporting segment to its other assets, net of
liabilities. The total fair value of each reporting segment was estimated using a combination of a discounted cash flow model (present value of future cash flows) and two market approach models (a multiple of various metrics based on comparable
businesses and market transactions).
The fair value of the
domain names was calculated by estimating the present value of future cash flows associated with each asset.
Other income, net
Other income of $103,000 and $676,000 during 2007 and 2008 was due primarily to foreign currency transaction gains and losses.
Interest income and interest expense
The following table sets forth, for the periods indicated, a year-over-year comparison of our interest income and interest expense (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
2007 vs. 2008
|
|
|
|
2007
|
|
|
2008
|
|
|
$
|
|
%
|
|
Interest income
|
|
$
|
184
|
|
|
$
|
331
|
|
|
$
|
147
|
|
80
|
%
|
Interest expense
|
|
|
(7,146
|
)
|
|
|
(7,152
|
)
|
|
|
6
|
|
|
|
Interest expense
relates primarily to borrowings under our senior credit facilities (see Liquidity and Capital Resources).
In connection with the Sale, on February 23, 2009, we (A) terminated the Credit and Security Agreement, dated as of July 12, 2007, among
us, as borrower, the lenders party thereto (the Lenders), KeyBank National
27
Association (KeyBank), as the lead arranger, sole book runner and administrative agent, and Citizens Bank, N.A., as syndication agent (the
Credit Agreement), as amended by the First Amendment Agreement to the Credit Agreement, dated as of October 10, 2008 (Amendment No. 1) and (B) applied approximately $82 million of the gross proceeds from the
sale of Jupiterimages to repay all outstanding indebtedness under (i) the Revolving Credit Note (as defined in the Credit Agreement), (ii) the Term Loan B Note (as defined in the Credit Agreement), and (iii) all other obligations
under the Credit Agreement other than (a) a $500,000 letter of credit previously issued by Keybank (the Outstanding Letter of Credit), which has been fully cash collateralized by us and (b) a First Amendment to ISDA Master
Agreement, dated as of February 23, 2009 (the Swap Amendment), with respect to that certain ISDA Master Agreement, dated as of July 19, 2007, including the Schedule and Confirmation, both dated as of July 19, 2007, by and
between KeyBank and us (the Original Swap Agreement and, together with the Swap Amendment, the Swap Agreement). Due to the termination of the Credit Agreement, our interest expenses should decrease significantly, which will
affect our results of operations on a going forward basis and in subsequent reporting periods.
Provision (benefit) for income taxes
A provision for income taxes of $18.7 million was recorded during the year ended December 31, 2008. The income tax provision is primarily related to the establishment of a valuation allowance on certain deferred
tax assets that were recorded as of December 31, 2007. The income tax provision is also impacted by income taxes accrued in foreign jurisdictions where we have income, partially offset by an income tax benefit related to losses incurred for
United States federal income tax purposes that can be carried back.
Based on our most recent projections, we have concluded that it is more likely than not that we will have insufficient taxable income to allow recognition of certain of our deferred tax assets. Accordingly, a valuation allowance has been
established against those deferred tax assets where there is uncertainty on future utilization as described below.
At December 31, 2008, we had federal, state and foreign net operating loss (NOL) carryforwards of $13.4 million for which a valuation
allowance of $804,000 had been established at December 31, 2007. Realization of the deferred tax assets is dependent on generating sufficient taxable income in future years. We have established an additional valuation allowance against $12.1 million
of deferred tax assets attributable to NOL carryforwards during 2008.
At December 31, 2008, we had other deferred tax assets of $26.6 million which were primarily composed of amortization and impairment of goodwill and long-lived assets and reversals of book expense on stock-based compensation.
Realization of the deferred tax assets is dependent on generating sufficient taxable income in future years. We have established a valuation allowance against $25.1 million of these deferred tax assets.
During 2007, we recorded an income tax benefit of $5.3 million, which
was primarily due to the write-down of goodwill and long-lived assets.
Minority interests
Minority interests
represent the minority stockholders proportionate share of profits or losses of our majority-owned Japanese and Hungarian subsidiaries. Japan.internet.com KK and Jupiterimages Japan represent our Online media and Online images businesses
focused on Japan. HAAP Media Ltd. is our micropayment Online images business based in Hungary. In connection with the consummation of the Sale on February 23, 2009, we disposed of our Jupiterimages Japan and HAAP Media Ltd. subsidiaries.
28
Liquidity and Capital Resources
The following table sets forth, for the periods indicated, a year-over-year comparison of the key components of our liquidity and capital
resources (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
December 31:
|
|
|
|
|
2007 vs. 2008
|
|
|
2007
|
|
|
2008
|
|
|
$
|
|
|
%
|
|
Operating cash flows
|
|
$
|
16,026
|
|
|
$
|
12,164
|
|
|
$
|
(3,862
|
)
|
|
(24
|
)%
|
Investing cash flows
|
|
$
|
(35,848
|
)
|
|
$
|
(12,547
|
)
|
|
$
|
23,301
|
|
|
65
|
%
|
Financing cash flows
|
|
$
|
18,744
|
|
|
$
|
(1,576
|
)
|
|
$
|
(20,320
|
)
|
|
(108
|
)%
|
Capital expenditures
|
|
$
|
(5,168
|
)
|
|
$
|
(6,274
|
)
|
|
$
|
(1,106
|
)
|
|
(21
|
)%
|
Acquisitions of businesses, images and other
|
|
$
|
(30,813
|
)
|
|
$
|
(6,313
|
)
|
|
$
|
24,500
|
|
|
80
|
%
|
|
|
|
|
|
As of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
7,301
|
|
|
$
|
3,755
|
|
|
$
|
(3,546
|
)
|
|
(49
|
)%
|
Accounts receivable, net
|
|
$
|
25,689
|
|
|
$
|
18,939
|
|
|
$
|
(6,750
|
)
|
|
(26
|
)%
|
Working capital (excludes debt)
|
|
$
|
2,749
|
|
|
$
|
(7,480
|
)
|
|
$
|
(10,229
|
)
|
|
(372
|
)%
|
Short-term and long-term debt
|
|
$
|
84,125
|
|
|
$
|
81,213
|
|
|
$
|
(2,912
|
)
|
|
(3
|
)%
|
Since inception, we
have funded operations through various means including our initial and follow-on public offerings of our common stock in June 1999, January 2000 and May 2004, the sales of our Events and Research businesses, through various credit agreements
and through cash flows from operating activities. Our cash balance decreased in 2008 due primarily to payments made to reduce our debt.
Operating activities.
Cash provided by operating activities decreased in 2008 primarily due to a net loss, which was partially offset by
reductions in our deferred income tax assets that resulted from the establishment of a valuation allowance. Deferred revenues decreased primarily due to decreased bookings of subscription products for our Online images business.
Investing Activities.
The amounts of cash used in investing
activities vary in correlation to the value of the acquisitions consummated. Net cash used in investing activities in 2008 related primarily to the capitalization of internally developed software, leasehold improvements made to our New York office
and content purchases for our image library.
Due to the Sale,
we will not be making further investments in image libraries after February 23, 2009, which will affect the aggregate amount of cash used in investing activities and results of operations on a going forward basis and in subsequent reporting
periods.
Financing Activities.
Cash flows from
financing activities in 2007 and 2008 relates primarily to our senior credit facilities. As noted above, we were party to the Credit Agreement. Until amended by Amendment No. 1, the Credit Agreement provided for a $115.0 million senior credit
facility comprised of (i) a $75.0 million term loan facility, that was drawn in full on July 12, 2007, and (ii) a $40.0 million revolving credit facility, including a $2.0 million sublimit for letters of credit and a $5.0 million
swingline facility. As of December 31, 2007 and 2008, the weighted-average interest rate on our outstanding debt was 7.6% and 8.4%, respectively.
In connection with the Sale, on February 23, 2009, we (A) terminated the Credit Agreement, as amended by Amendment No. 1, and
(B) applied approximately $82.0 million of the gross proceeds from the Sale to repay all outstanding indebtedness under (i) the Revolving Credit Note (as defined in the Credit Agreement), (ii) the Term Loan B Note (as defined in the
Credit Agreement), and (iii) all other obligations under the Credit Agreement other than (a) the Outstanding Letter of Credit and (b) the Swap Agreement. We make quarterly payments pursuant to the Swap Agreement, as amended, that are
calculated on a net basis and based on the notional amount under the Swap Agreement (with the notional amount amortizing over time). As described in more detail in the Related Party Transactions section of this Item 7, the Swap Agreement with
KeyBank will remain outstanding.
29
We expect to continue our investing activities on a limited basis for the foreseeable future, which
includes the potential to strategically acquire companies and content that are complementary to our business. We expect to finance any near term acquisitions with proceeds from the sale of our Online images business.
Our existing cash and investment balances may decline during 2009 in the
event of a continued downturn in the general economy or changes in our planned cash outlay. However, after applying approximately $82.0 million of the $96.0 million in gross proceeds from the Sale to repay our outstanding debt obligations and paying
certain Sale related costs, we feel as though the remaining cash flow from the Sale together with our existing cash balances, current business plan and revenue prospects will be sufficient to meet the working capital and operating resource
expenditure requirements of the Online media business for the foreseeable future.
Off-Balance Sheet Arrangements
We have not
entered into off-balance sheet arrangements or issued guarantees to third parties.
Related Party Transactions
During 2005, our
Board of Directors granted lifetime post-employment medical benefits to our Chairman and Chief Executive Officer and his spouse. The cost accrued for these benefits was $69,000 and $69,000 for the years ended December 31, 2007 and 2008,
respectively, and is included in general and administrative expenses in the accompanying consolidated statements of operations.
In connection with the Sale, on February 23, 2009, we entered into (a) the Swap Amendment, with respect to the Original Swap Agreement and
(b) the Credit Support Agreement, dated as of February 23, 2009, by and among Alan M. Meckler (Mr. Meckler), Ellen L. Meckler (Mrs. Meckler) and the Company (the Credit Support Agreement). In connection
with the Credit Support Agreement, Mr. Meckler agreed to personally guarantee the Companys obligations under the Swap Agreement and Mrs. Meckler has agreed to grant a security interest to KeyBank in respect of certain of her assets
to support Mr. Mecklers personal guarantee to KeyBank. In exchange for Mr. Mecklers personal guarantee to KeyBank and Mrs. Mecklers grant of a security interest to KeyBank, the Company has agreed pursuant to the
Credit Support Agreement to, among other things, pay certain cash consideration to Mr. Meckler and Mrs. Meckler on a monthly basis. The amount of the cash consideration is equal to one-twelfth (1/12) of one percent (1%) of the
notional amount of the Swap Agreement, which notional amount is initially $49,250,000 and will decrease by $125,000 at the beginning of each fiscal quarter commencing on March 31, 2009. In addition, in certain circumstances, Mr. Meckler
may have the right to assume KeyBanks interests in the Swap Agreement and the Swap Security Agreements and, in the event that Mr. Meckler or Mrs. Meckler is required to satisfy the Companys obligations under the Swap Agreement,
Mr. Meckler and Mrs. Meckler will be subrogated to KeyBanks rights against the Company under the Swap Agreement and the Swap Security Agreements. The Credit Support Agreement was approved by all of the independent members of the
Companys Board of Directors, each of whom also has no direct or indirect interest in the Credit Support Agreement (the Disinterested Directors), following Mr. Mecklers disclosure to such Disinterested Directors of the
terms of the Credit Support Agreement.
Recent Accounting Pronouncements
We are required to adopt certain new accounting
pronouncements. See note 2 to the consolidated financial statements included in Item 8 of this Form 10-K.
Critical Accounting Estimates
Our significant accounting policies are described in note 2 to the consolidated financial statements included in Item 8 of this Form 10-K.
30
The preparation of financial statements in conformity with accounting principles generally accepted in
the U.S. requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our consolidated financial statements and the revenues and expenses
reported during the period. Following are accounting policies that we believe are most important to the portrayal of our financial condition and results of operations and that require our most difficult judgments as a result of the need to make
estimates and assumptions about the effects of matters that are inherently uncertain. These critical accounting estimates have been discussed with our Audit Committee.
Impairment of Goodwill and Indefinite Lived Intangible Assets.
We evaluate the carrying value of our goodwill and indefinite
lived intangible assets annually in the fourth quarter and whenever events or circumstances make it more likely than not that an impairment may have occurred. Goodwill and other intangible assets are tested for impairment in accordance with
SFAS No. 142 and all other long-lived assets are tested for impairment in accordance with SFAS No. 144. Long-lived assets, including goodwill and intangible assets, were $226.9 million and $132.7 million as of December 31, 2007
and 2008, respectively.
SFAS No. 142 prescribes a
two-step method for determining goodwill impairment. In the first step, we compare the estimated fair value of each reporting unit to its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds the estimated fair
value, step two is completed to determine the amount of the impairment loss. Step two requires the allocation of the estimated fair value of the reporting unit to the assets, including any unrecognized intangible assets, and liabilities in a
hypothetical purchase price allocation. Any remaining unallocated fair value represents the implied fair value of goodwill, which is compared to the corresponding carrying value of goodwill to compute the goodwill impairment amount.
The determination of reporting unit fair value is a matter of significant
judgment and we employ, as appropriate, three different methodologies to make this determination. The income approach requires management to estimate a number of factors for each reporting unit, including projected future operating results, economic
projections, anticipated future cash flows, discount rates, and the allocation of shared or corporate items. The market approach estimates fair value using comparable marketplace fair value data from within a comparable industry grouping. In the
similar transactions method, consideration is given to prices paid in recent transactions that have occurred in the reporting units industry or in related industries.
As part of our 2008 impairment analysis, we estimated the fair value of the Online images reporting unit using a weighted
average model that employed the income approach, the market approach and the similar transaction method. For the similar transaction method we used the Sale of the Online images business as the primary consideration of fair value. The fair
value of the Online media reporting unit was determined using the income approach and the market approach.
The determination of the fair value of the reporting units and the allocation of that value to individual assets and liabilities within those reporting
units requires management to make significant estimates and assumptions. These estimates and assumptions primarily include, but are not limited to: the selection of appropriate peer group companies; control premiums appropriate for acquisitions in
the industries in which we compete; the discount rate; terminal growth rates; and forecasts of net sales, operating income, depreciation and amortization and capital expenditures. The allocation requires several analyses to determine the fair value
of assets and liabilities including, among others, trade names, customer relationships, and property, plant and equipment. Although we believe our estimates of fair value are reasonable, actual financial results could differ from those estimates due
to the inherent uncertainty involved in making such estimates. Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on either the fair value of the reporting units, the amount of
the goodwill impairment charge, or both. We also compared the sum of the estimated fair values of the reporting units to our total enterprise value as implied by the market value of our equity securities. This comparison indicated that, in
total, our assumptions and estimates were not unreasonable. However, future declines in the overall market value of our equity securities may indicate that the fair value of one or more reporting units has declined below their carrying value.
31
One measure of the sensitivity of the amount of goodwill impairment charges to key assumptions is the
amount by which each reporting unit had fair value in excess of its carrying amount or had carrying amount in excess of fair value for the first step of the goodwill impairment test. For the Online images reporting unit the carrying amount exceeded
fair value by 44%. For our Online media reporting unit the fair value exceeded the carrying value by 5%. Generally, changes in estimates of expected future cash flows would have a similar effect on the estimated fair value of the reporting
unit. That is, a 1% change in estimated future cash flows would decrease the estimated fair value of the reporting unit by approximately 1%.
Determining whether an impairment of indefinite lived intangible assets has occurred requires an analysis of the fair value of each of the related
domain names. The significant estimates and assumptions used by management in assessing the recoverability of long-lived assets are estimated future cash flows, weighted average cost of capital, currently enacted tax laws, as well as other factors.
Any changes in these estimates or assumptions could result in an impairment charge. The estimates of future cash flows, based on reasonable and supportable assumptions and projections, require managements subjective judgment. Depending on the
assumptions and estimates used, the estimated future cash flows projected in the evaluations of long-lived assets can vary within a range of outcomes.
In addition to the testing above, which is done on an annual basis, management uses certain indicators to evaluate whether the carrying value of its
long-lived assets may not be recoverable, such as i) current-period operating or cash flow declines combined with a history of operating or cash flow declines or a projection/forecast that demonstrates continuing declines in the cash flow of an
entity or inability of an entity to improve its operations to forecasted levels and ii) a significant adverse change in the business climate, whether structural or technological, that could affect the value of an entity.
Impairment of Long-Lived Assets
.
All other
long-lived assets (intangible assets that are amortized, such as image library, and property, plant and equipment) are tested for impairment, in accordance with SFAS No. 144, at the asset level associated with the lowest level of cash flows. An
impairment exists if the carrying value of the asset is i) not recoverable (the carrying value of the asset is greater than the sum of undiscounted cash flows) and ii) is greater than its fair value.
The significant estimates and assumptions used by management in assessing the
recoverability of long-lived assets are estimated future cash flows, weighted average cost of capital, currently enacted tax laws, as well as other factors. Any changes in these estimates or assumptions could result in an impairment charge. The
estimates of future cash flows, based on reasonable and supportable assumptions and projections, require managements subjective judgment. Depending on the assumptions and estimates used, the estimated future cash flows projected in the
evaluations of long-lived assets can vary within a range of outcomes.
The annual impairment analysis is considered critical because of the significance of long-lived assets to our consolidated balance sheet. We have applied what we believe to be the most appropriate valuation methodology for each of our
reporting units.
Image library
. The estimated
useful lives of our image library are determined based on the expected average life of those that are currently generating revenue. This judgment is based on historical sales and is difficult to measure because there are a number of factors
including style, subject matter and technology which can affect the useful life of a specific image or set of images. Periodically, we perform analyses of the library which have shown that the average life of contemporary images is approximately
seven years and that the average life of archival images is approximately fifteen years. The net book value of our image library was $41.1 million and $36.4 million in December 31, 2007 and 2008, respectively. Historically, the difference
between our estimates and actual results has not been material. Historical revenue may not be indicative of future revenue, and therefore, these estimated useful lives are inherently uncertain and require managements most difficult judgments.
Due to the Sale, our image library will be disposed of as of February 23, 2009.
Stock-based compensation
. Effective January 1, 2006, we adopted SFAS No. 123 (Revised), Share-Based Payment (SFAS No. 123R). Among its provisions, SFAS
No. 123R requires us to recognize compensation
32
expense for equity awards over the vesting period based on the awards grant-date fair value. The intrinsic value of options exercised during the years
ended December 31, 2007 and 2008 was $1.1 million and $2,000, respectively.
Historically, we offered stock option awards as our primary form of long-term incentive compensation. These stock option awards generally vest over three years and have a 5 or 10 year term. We use the Black-Scholes
option valuation model to value stock option awards. The fair value of stock option awards is based on the fair value of Jupitermedia stock on the date of grant.
The Black-Scholes valuation model for our stock option awards estimates the potential value the employee will receive based
on current interest rates, expected time at which the employee will exercise the award and the expected volatility of our stock price. These assumptions are based on historical experience and future expectations of employee behavior and stock price.
Another significant assumption utilized in calculating our
share-based compensation is the amount of awards that we expect to forfeit. Compensation expense is recognized only for share-based payments expected to vest and we estimate forfeitures, both at the date of grant as well as throughout the vesting
period, based on our historical experience and future expectations.
Changes in our assumptions utilized to value our stock options and forfeiture rates could materially affect the amount of share-based compensation expense recognized in the consolidated statement of operations.
Income taxes.
We are subject to income taxes in the U.S. and in
numerous foreign jurisdictions. Significant judgments, estimates and assumptions are required in determining our tax return reporting positions and in calculating our provisions for income taxes, as they are based on our interpretation of tax
regulations and accounting pronouncements. The tax bases of our assets and liabilities reflect our best estimate of the tax benefits and costs we expect to realize. We establish valuation allowances to reduce our deferred income tax assets to an
amount that will more likely than not be realized. Our net deferred income tax assets were $14.5 million and our net deferred income tax liabilities were $3.3 million as of December 31, 2007 and 2008, respectively. A significant portion of
deferred income tax assets consists of net operating loss carryforwards (NOLs). We have NOLs totaling $82.4 million at December 31, 2008, which are available to reduce future taxes in the United States, Australia, Canada, Japan,
Germany and the United Kingdom. Of these NOLs, $78.2 million expire at various times between 2009 and 2028 and $4.2 million have indefinite lives.
Significant management judgment is required in determining our income tax provision and in evaluating our tax position. We evaluate our uncertain tax
positions using a two-step approach in accordance with FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxesan Interpretation of SFAS No. 109. Recognition, the first step, occurs when an enterprise
concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Measurement, the second step, determines the amount of benefit that more-likely-than-not will be realized upon settlement.
Reversal of a tax position that was previously recognized would occur when an enterprise subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained. Our net income tax benefit was $5.3 million
for the year ended December 31, 2007 and a net income tax provision of $18.7 million for the year ended December 31, 2008. A change in our uncertain tax positions could have a significant impact on our results of operations. Historically,
the difference between our estimates and actual results has not been material.
Allowance for doubtful accounts.
We estimate our allowance for doubtful accounts based on historical losses as a percentage of revenue, existing economic conditions, and specific account analysis of
at-risk customers. Historical losses and existing economic conditions may not necessarily be indicative of future losses, and the impact of economic conditions on each of our customers is difficult to estimate. Should future uncollectible amounts
not reflect our current estimates, we would be required to change our allowance for doubtful accounts through an entry to bad debt expense included in general and administrative expense in our consolidated statement of operations. Our allowances for
doubtful accounts at December 31, 2007 and 2008 were $2.0 million and $2.3 million, respectively. Historically, the difference between our estimates and actual results has not been material.
33
ITEM 8.
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
WebMediaBrands Inc.
Index to Consolidated Financial Statements
34
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
WebMediaBrands Inc. (formerly known as Jupitermedia Corporation)
We have audited the accompanying consolidated balance sheet of WebMediaBrands Inc. (formerly known as Jupitermedia Corporation) and Subsidiaries (the Company) as of December 31, 2008, and the related
consolidated statements of operations, stockholders equity, and cash flows for the year then ended. Our audit of the basic financial statements included the financial statement schedule for the year ended December 31, 2008 listed in the index
appearing under Item 15(a)(2). These financial statements and financial statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements and financial statement
schedule based on our audit.
We conducted our audit in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of WebMediaBrands
Inc. and Subsidiaries as of December 31, 2008, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the
related financial statement schedule for the year ended December 31, 2008, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ Grant Thornton LLP
Melville, New York
March 30, 2009
35
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
WebMediaBrands Inc.
Darien, Connecticut
We have audited the accompanying
consolidated balance sheet of WebMediaBrands Inc. (formerly known as Jupitermedia Corporation) and subsidiaries (the Company) as of December 31, 2007, and the related consolidated statements of operations, stockholders equity,
and cash flows for the year ended December 31, 2007. Our audit also included the financial statement schedule listed in the Index at Item 15(a)(2). These financial statements and financial statement schedule as of and for the year ended
December 31, 2007 are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2007, and the results of their operations and their cash
flows for the year ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, the Company adopted Financial Accounting Standards Board Interpretation No. 48,
Accounting for Uncertainty in Income Taxesan Interpretation of SFAS No. 109, effective January 1, 2007.
/s/ Deloitte & Touche LLP
Stamford, Connecticut
April 2, 2008
36
WebMediaBrands Inc.
Consolidated Balance Sheets
December 31, 2007 and 2008
(in
thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
December 31,
2007
|
|
|
December 31,
2008
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
7,301
|
|
|
$
|
3,755
|
|
Accounts receivable, net of allowances of $2,026 and $2,305, respectively
|
|
|
25,689
|
|
|
|
18,939
|
|
Prepaid expenses and other current assets
|
|
|
5,797
|
|
|
|
5,468
|
|
Deferred income taxes
|
|
|
1,441
|
|
|
|
496
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
40,228
|
|
|
|
28,658
|
|
Property and equipment, net
|
|
|
13,022
|
|
|
|
14,333
|
|
Intangible assets, net
|
|
|
74,002
|
|
|
|
54,896
|
|
Goodwill
|
|
|
139,813
|
|
|
|
63,444
|
|
Deferred income taxes
|
|
|
13,049
|
|
|
|
|
|
Investments and other assets
|
|
|
2,575
|
|
|
|
2,762
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
282,689
|
|
|
$
|
164,093
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
7,153
|
|
|
$
|
6,889
|
|
Accrued payroll and related expenses
|
|
|
3,383
|
|
|
|
3,440
|
|
Accrued expenses and other current liabilities
|
|
|
11,822
|
|
|
|
11,224
|
|
Current portion of long-term debt
|
|
|
750
|
|
|
|
81,213
|
|
Deferred revenues
|
|
|
15,121
|
|
|
|
14,585
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
38,229
|
|
|
|
117,351
|
|
Long-term debt
|
|
|
83,375
|
|
|
|
|
|
Deferred revenues
|
|
|
507
|
|
|
|
290
|
|
Deferred income taxes
|
|
|
|
|
|
|
3,812
|
|
Other long-term liabilities
|
|
|
3,586
|
|
|
|
7,764
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
125,697
|
|
|
|
129,217
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (see note 12)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value, 4,000,000 shares authorized, no shares issued and outstanding
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value, 75,000,000 shares authorized, 36,029,651 and 36,032,152 shares issued at December 31, 2007 and 2008,
respectively
|
|
|
360
|
|
|
|
360
|
|
Additional paid-in capital
|
|
|
266,858
|
|
|
|
273,324
|
|
Accumulated deficit
|
|
|
(117,798
|
)
|
|
|
(234,479
|
)
|
Treasury stock, 65,000 shares, at cost
|
|
|
(106
|
)
|
|
|
(106
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
7,678
|
|
|
|
(4,223
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
156,992
|
|
|
|
34,876
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
282,689
|
|
|
$
|
164,093
|
|
|
|
|
|
|
|
|
|
|
See notes to
consolidated financial statements.
37
WebMediaBrands Inc.
Consolidated Statements of Operations
For the Years Ended December 31, 2007 and 2008
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
Revenues
|
|
$
|
140,334
|
|
|
$
|
128,394
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of items shown separately below)
|
|
|
59,162
|
|
|
|
58,460
|
|
Advertising, promotion and selling
|
|
|
29,151
|
|
|
|
29,051
|
|
General and administrative
|
|
|
27,796
|
|
|
|
30,400
|
|
Depreciation
|
|
|
4,447
|
|
|
|
5,093
|
|
Amortization
|
|
|
13,222
|
|
|
|
16,072
|
|
Impairment of goodwill and long-lived assets
|
|
|
87,186
|
|
|
|
81,108
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
220,964
|
|
|
|
220,184
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(80,630
|
)
|
|
|
(91,790
|
)
|
Other income, net
|
|
|
103
|
|
|
|
676
|
|
Interest income
|
|
|
184
|
|
|
|
331
|
|
Interest expense
|
|
|
(7,146
|
)
|
|
|
(7,152
|
)
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and minority interests
|
|
|
(87,489
|
)
|
|
|
(97,935
|
)
|
Provision (benefit) for income taxes
|
|
|
(5,278
|
)
|
|
|
18,724
|
|
Minority interests
|
|
|
(64
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(82,275
|
)
|
|
$
|
(116,681
|
)
|
|
|
|
|
|
|
|
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
Basic net loss
|
|
$
|
(2.29
|
)
|
|
$
|
(3.24
|
)
|
|
|
|
|
|
|
|
|
|
Diluted net loss
|
|
$
|
(2.29
|
)
|
|
$
|
(3.24
|
)
|
|
|
|
|
|
|
|
|
|
Shares used in computing loss per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
35,880
|
|
|
|
35,967
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
35,880
|
|
|
|
35,967
|
|
|
|
|
|
|
|
|
|
|
See notes to
consolidated financial statements.
38
WebMediaBrands Inc.
Consolidated Statements of Changes in Stockholders Equity
For the Years Ended December 31, 2007 and 2008
(in thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional
Paid-In
Capital
|
|
Accumulated
Deficit
|
|
|
Treasury
Stock
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Total
Stockholders
Equity
|
|
|
Total
Comprehensive
Income (Loss)
|
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
Balance at January 1, 2007
|
|
35,713,327
|
|
$
|
357
|
|
$
|
261,534
|
|
$
|
(35,523
|
)
|
|
$
|
(106
|
)
|
|
$
|
1,042
|
|
|
$
|
227,304
|
|
|
$
|
|
|
Exercise of stock options
|
|
316,324
|
|
|
3
|
|
|
1,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,179
|
|
|
|
|
|
Excess tax benefit from employee stock option exercises
|
|
|
|
|
|
|
|
1,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,129
|
|
|
|
|
|
Stock-based compensation, net of forfeitures
|
|
|
|
|
|
|
|
3,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,019
|
|
|
|
|
|
Net unrealized loss on interest rate swap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,071
|
)
|
|
|
(2,071
|
)
|
|
|
(2,071
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,707
|
|
|
|
8,707
|
|
|
|
8,707
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(82,275
|
)
|
|
|
|
|
|
|
|
|
|
|
(82,275
|
)
|
|
|
(82,275
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
36,029,651
|
|
|
360
|
|
|
266,858
|
|
|
(117,798
|
)
|
|
|
(106
|
)
|
|
|
7,678
|
|
|
|
156,992
|
|
|
|
(75,639
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
2,501
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
Excess tax benefit from employee stock option exercises
|
|
|
|
|
|
|
|
1,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,813
|
|
|
|
|
|
Stock-based compensation, net of forfeitures
|
|
|
|
|
|
|
|
4,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,646
|
|
|
|
|
|
Net unrealized loss on interest rate swap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,578
|
)
|
|
|
(2,578
|
)
|
|
|
(2,578
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,323
|
)
|
|
|
(9,323
|
)
|
|
|
(9,323
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(116,681
|
)
|
|
|
|
|
|
|
|
|
|
|
(116,681
|
)
|
|
|
(116,681
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
36,032,152
|
|
$
|
360
|
|
$
|
273,324
|
|
$
|
(234,479
|
)
|
|
$
|
(106
|
)
|
|
$
|
(4,223
|
)
|
|
$
|
34,876
|
|
|
$
|
(128,582
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to
consolidated financial statements.
39
WebMediaBrands Inc.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2007 and 2008
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(82,275
|
)
|
|
$
|
(116,681
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Impairment of goodwill and long-lived assets
|
|
|
87,186
|
|
|
|
81,108
|
|
Depreciation and amortization
|
|
|
17,669
|
|
|
|
21,165
|
|
Stock-based compensation
|
|
|
3,019
|
|
|
|
4,646
|
|
Provision (benefit) for losses on accounts receivable
|
|
|
(310
|
)
|
|
|
470
|
|
Minority interests
|
|
|
64
|
|
|
|
22
|
|
Other (income) loss, net
|
|
|
835
|
|
|
|
(8
|
)
|
Amortization of debt issue costs
|
|
|
253
|
|
|
|
208
|
|
Loss on extinguishment of debt
|
|
|
401
|
|
|
|
|
|
Deferred income taxes
|
|
|
(7,598
|
)
|
|
|
17,510
|
|
Excess tax benefit from stock-based compensation
|
|
|
(1,129
|
)
|
|
|
(1,813
|
)
|
Changes in current assets and liabilities (net of businesses acquired):
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
934
|
|
|
|
4,903
|
|
Prepaid expenses and other assets
|
|
|
(518
|
)
|
|
|
1,852
|
|
Accounts payable and other accrued expenses
|
|
|
(3,496
|
)
|
|
|
(789
|
)
|
Deferred revenues
|
|
|
991
|
|
|
|
(429
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
16,026
|
|
|
|
12,164
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(5,168
|
)
|
|
|
(6,274
|
)
|
Acquisitions of businesses, images and other
|
|
|
(30,813
|
)
|
|
|
(6,313
|
)
|
Proceeds from sale of assets and other
|
|
|
133
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(35,848
|
)
|
|
|
(12,547
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Borrowings under credit facilities
|
|
|
94,900
|
|
|
|
3,900
|
|
Debt issuance costs
|
|
|
(1,790
|
)
|
|
|
(483
|
)
|
Repayment of borrowings under credit facilities
|
|
|
(76,674
|
)
|
|
|
(6,813
|
)
|
Proceeds from exercise of stock options
|
|
|
1,179
|
|
|
|
7
|
|
Excess tax benefit from stock-based compensation
|
|
|
1,129
|
|
|
|
1,813
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
18,744
|
|
|
|
(1,576
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash
|
|
|
(512
|
)
|
|
|
(1,587
|
)
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(1,590
|
)
|
|
|
(3,546
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
8,891
|
|
|
|
7,301
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
7,301
|
|
|
$
|
3,755
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow:
|
|
|
|
|
|
|
|
|
Cash paid for (refund of) income taxes, net
|
|
$
|
1,139
|
|
|
$
|
(1,026
|
)
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
6,859
|
|
|
$
|
7,008
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing activities:
|
|
|
|
|
|
|
|
|
Accrued acquisitions of long-lived assets
|
|
$
|
716
|
|
|
$
|
372
|
|
|
|
|
|
|
|
|
|
|
Accrued earn-out
|
|
$
|
|
|
|
$
|
61
|
|
|
|
|
|
|
|
|
|
|
See notes to
consolidated financial statements.
40
WebMediaBrands Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2007 and 2008
1. THE COMPANY
WebMediaBrands Inc. (f/k/a Jupitermedia Corporation) (WebMediaBrands or the Company) is a global
provider of images, original information and events for information technology (IT), business and creative professionals. WebMediaBrands includes three distinct online networks: internet.com for IT and business professionals and for
developers and Mediabistro.com and Graphics.com for media and creative professionals. WebMediaBrands also includes specialized career Web sites for select professional communities which can be found on Mediabistro.com and JustTechJobs.com. In
addition, WebMediaBrands includes Mediabistro events, which produce offline conferences and trade shows focused on IT, media and business-specific topics.
As discussed in note 17, on February 23, 2009, we announced the closing of the previously announced sale of our Online images business to Getty
Images, Inc. (Getty Images) pursuant to the terms and conditions of a definitive stock purchase agreement dated October 22, 2008 by and between us and Getty Images (the Agreement) for an aggregate purchase price of $96.0
million in cash, subject to a working capital purchase price adjustment (the Sale). Prior to the Sale, WebMediaBrands also included Jupiterimages, the Companys Online images business. Following the Sale, WebMediaBrands will account
for the operations of its Online images business as a discontinued operation commencing in the first quarter of 2009 and its continuing operations will be comprised solely of the Online media business.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation.
The consolidated financial
statements include the accounts of WebMediaBrands and its majority-owned and wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Revenue recognition.
WebMediaBrands generates its revenues from
two reportable segments: Online images and Online media.
Online images
Jupiterimages provides creative professionals with online
access to photos, photo objects, clipart, animations, illustrations, Web graphics, footage clips, fonts, Flash movies and music. Paid subscription sites include JupiterimagesUnlimited.com, ComstockComplete.com, Photos.com, Ablestock.com,
Clipart.com, LiquidLibrary.com, PhotoObjects.net, AnimationFactory.com, RoyaltyFreeMusic.com, JupiterGreetings.com and Stockxpert.com.
Revenue from subscriptions is recognized ratably over the subscription period. Deferred revenues relate to the portion of collected subscription fees that
has not yet been recognized as revenue.
Jupiterimages also
derives revenue from granting rights to use images and music that are downloaded or delivered on CD-ROMs. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is
fixed or determinable and collectibility is reasonably assured. Delivery occurs upon shipment (CD-ROMs and transparencies) or the availability of the image or music for downloading by the customer. A product is considered delivered when it arrives
at the customers site via standard delivery methods of ground transportation or next day air delivery.
Jupiterimages has agreements with a number of distributors of images, music and footage clips, whereby the distributors make sales to third party
customers and remit a percentage of the sales to Jupiterimages. Jupiterimages recognizes the revenue from the sale by the distributor based on the amount to be remitted to Jupiterimages from the distributor.
41
WebMediaBrands Inc.
Notes to Consolidated Financial Statements(Continued)
For the Years Ended December 31, 2007 and 2008
Jupiterimages licenses a portion of its content to third parties for royalties based on the
licensees revenues generated by the licensed content. Such amounts are recognized as revenue in the period earned.
As discussed above, following the Sale, WebMediaBrands will account for the operations of its Online images business as a discontinued operation
commencing in the first quarter of 2009 and its continuing operations will be comprised solely of the Online media business.
Online media
Advertising revenues.
Advertising revenue is recognized ratably in the period in which the advertising is displayed, provided that no
significant company obligations remain and collection of the resulting receivable is probable. WebMediaBrands typically sells its advertising based on the delivery of a minimum number of advertising impressions, or the number of times that an
advertisement is viewed by users of WebMediaBrandss Web sites and related media properties or based on the delivery of a minimum number of leads.
E-commerce revenues.
WebMediaBrandss e-commerce agreements and offerings generally provide for a fixed fee for advertising on its Web
sites. WebMediaBrands recognizes revenue from the fixed advertising fees ratably in the period the advertising is displayed provided that no significant company obligations remain and collection of the remaining receivable is probable. Revenues from
these agreements are recognized in the period in which they are earned.
Online job boards.
WebMediaBrands generates fees charged for online job postings on specialized career Web sites for select professional communities which can be found on Mediabistro.com and JustTechJobs.com. Revenue is
recognized ratably in the period in which the job postings are displayed.
Online and in-person training.
WebMediaBrands offers online and in-person training on topics aligned with its online media properties. WebMediaBrands generates revenues from attendee registrations and
recognizes revenue ratably as classes are performed.
Webcast revenues.
Webcasts are objective, educational online forums that provide focused research findings and analysis from highly respected analysts, journalists and industry experts. Webcasts are free to qualified
professionals. WebMediaBrands generates revenue from advertiser sponsorships. Revenue is recognized in the period in which the Webcast occurs.
Paid subscription revenues.
Paid subscription services relate to customer subscriptions to paid e-mail newsletters and services,
TheCounter.com, The Guestbook.com, DevXPremierClub and AvantGuild.com, which are sold through our networks and through affiliate relationships. Revenue from subscriptions is recognized ratably over the subscription period. Deferred revenues relate
to the portion of collected subscription fees that has not yet been recognized as revenue.
Print publishing.
WebMediaBrands generates advertising, subscriptions and newsstand sales from its STEP Inside Design and Dynamic Graphics print magazines. Revenue from the sales of advertising space is
recognized at the time the issue is circulated. Proceeds from subscriptions are recorded as deferred magazine revenue when received and are recognized as revenue over the terms of the subscriptions. Sales to newsstand distributors are recognized as
revenue in the month of distribution.
Events.
WebMediaBrands produces offline events focused on IT, media and business-specific topics that are aligned with its Online media properties. WebMediaBrands generates revenues from attendee registrations, the
42
WebMediaBrands Inc.
Notes to Consolidated Financial Statements(Continued)
For the Years Ended December 31, 2007 and 2008
purchase of exhibition space by exhibitors who pay a fixed price per square foot of booth space and advertiser and vendor sponsorships. Revenues from events
are recognized in the period in which the event is held.
Permission based opt-in e-mail list rental revenues.
Permission based opt-in e-mail list revenue relates to customer subscriptions to opt-in e-mail lists. Revenue is recorded on a per use basis for the rental of
WebMediaBrands list names. Revenue from permission based opt-in list rentals is recognized at the time of the use by the renter.
Licensing revenues.
Licensing agreements vary with WebMediaBrands generating fixed fees, royalties or both for access to editorial content
and brands produced by WebMediaBrands. Such amounts are recognized as revenue in the period earned.
Use of estimates in the financial statements.
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the WebMediaBrandss consolidated financial statements. Actual results could differ from those estimates.
Concentration of credit risk.
Financial
instruments that potentially subject WebMediaBrands to concentration of credit risk consist primarily of cash, accounts receivable and an interest rate swap. In general, WebMediaBrands invests its excess cash in short-term debt instruments of the
U.S. Government and agencies. WebMediaBrandss cash balances are in excess of federal depository insurance limitations. WebMediaBrands has not experienced any losses on its deposits of cash and cash equivalents. WebMediaBrandss
concentration of credit risk with respect to accounts receivable is limited due to the large number of its customers and their dispersion across many geographic areas. No single customer represented 10% or more of our total revenue or accounts
receivable in any of the periods presented. In 2007, WebMediaBrands entered into a derivative interest rate swap that is to mature in July 2013. This instrument has been designated as a cash flow hedge as defined by Statement of Financial Accounting
Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, for financial reporting purposes. The objective of the hedge is to eliminate the variability of cash flows in the interest payments
of $50.0 million of variable rate debt. The interest rate swap is reflected on WebMediaBrandss balance sheet at fair value with gains and losses on the instrument, to the extent the hedge is effective, recorded in other accumulated
comprehensive income, a component of stockholders equity. WebMediaBrands does not hold or issue derivative financial instruments for trading purposes. In general, WebMediaBrandss derivative does not create interest rate risk because
fluctuations in the value of the instruments used for economic hedging purposes are offset by fluctuations in the value of the underlying exposures being hedged. Counterparties to derivative financial instruments expose WebMediaBrands to
credit-related losses in the event of non-performance. See note 9 for further disclosure on the interest rate swap.
Cash and cash equivalents.
WebMediaBrands considers all highly liquid investments purchased with original maturities of three months or less
to be cash equivalents. At December 31, 2007 and 2008, WebMediaBrands had no investments with maturities greater than three months.
Financial instruments.
The carrying amounts of financial instruments such as cash and cash equivalents, accounts receivable and accounts
payable approximate their fair values due to their short-term maturities. WebMediaBrands pays variable interest rates on its long-term debt. As such, the fair value approximates the carrying value of the long-term debt because the interest rates
associated with the debt fluctuate with market rates.
43
WebMediaBrands Inc.
Notes to Consolidated Financial Statements(Continued)
For the Years Ended December 31, 2007 and 2008
Foreign currency translation.
WebMediaBrands translates assets and liabilities of
foreign subsidiaries, whose functional currency is the local currency, at exchange rates in effect as of the balance sheet date. WebMediaBrands translates results of operations at the average rates of exchange prevailing during the year.
WebMediaBrands includes the adjustment resulting from translating the financial statements of such foreign subsidiaries in accumulated other comprehensive income, which is reflected as a separate component of stockholders equity.
Foreign currency transactions.
WebMediaBrands and its
subsidiaries enter into transactions that are denominated in currencies other than their functional currency (foreign currencies), primarily euros, British pounds and U.S. dollars. Some of these transactions result in foreign currency denominated
assets and liabilities that are revalued periodically. Upon revaluation, transaction gains and losses are generated, which, with the exception of those related to long-term intercompany balances, are reported as exchange gains and losses in other
income, net in the consolidated statements of operations in the periods in which the exchange rates fluctuate. Transaction gains and losses on foreign currency denominated long-term intercompany balances for which settlement is not planned or
anticipated in the foreseeable future, are reported in accumulated other comprehensive income (loss) in the consolidated balance sheets.
Property and equipment.
Depreciation of computer equipment and software is provided for by the straight-line method over estimated useful
lives of three years. Depreciation of furniture, fixtures and equipment is provided for by the straight-line method over estimated useful lives ranging from five to ten years. Depreciation of buildings is provided for by the straight-line method
over estimated useful life of forty years. Leasehold improvements are amortized over the shorter of their useful lives or the lease term. Amortization of leasehold improvements is included in depreciation expense.
Image library.
The estimated useful lives of
WebMediaBrandss image library are determined based on the average life of images that are currently generating revenue. Annually, WebMediaBrands performs analyses of the library that have shown that the average life of contemporary images
approximate seven years and that the average life of archival images approximate fifteen years.
Goodwill and other intangible assets.
In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill
and other intangible assets with indefinite useful lives are no longer amortized but are reviewed periodically for impairment.
The provisions of SFAS No. 142 require that an intangible asset that is not subject to amortization be tested for impairment annually, or more
frequently if events or changes in circumstances indicate that the asset might be impaired. WebMediaBrands evaluates goodwill on a separate reporting unit basis in the fourth quarter each year. The provisions also require that a two-step test be
performed to assess goodwill for impairment. First, the fair value of each reporting unit is compared to its carrying value, including goodwill. If the fair value exceeds the carrying value then goodwill is not impaired and no further testing is
performed. If the carrying value of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step compares the fair value of the reporting
units goodwill with the carrying amount of the goodwill. An impairment loss would be recognized in an amount equal to the excess of the carrying amount of goodwill over the fair value of the goodwill. See note 5 for additional disclosure
information.
The significant estimates and assumptions used by
management in assessing the recoverability of goodwill and other intangible assets are estimated future cash flows, present value discount rate and other factors. Any
44
WebMediaBrands Inc.
Notes to Consolidated Financial Statements(Continued)
For the Years Ended December 31, 2007 and 2008
changes in these estimates or assumptions could result in an impairment charge. The estimates of future cash flows, based on reasonable and supportable
assumptions and projections, require managements subjective judgment.
In addition to the testing above, which is done on an annual basis, management uses certain indicators to evaluate whether the carrying value of goodwill and other intangible assets may not be recoverable, including
among others i) current-period operating or cash flow declines combined with a history of operating or cash flow declines or a projection/forecast that demonstrates continuing declines in the cash flow of an entity or inability of an entity to
improve its operations to forecasted levels and ii) a significant adverse change in the business climate, whether structural or technological, that could affect the value of an entity.
SFAS No. 142 also requires that intangible assets with definite lives be amortized over their estimated useful life and
reviewed for impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Intangible assets with definite lives are amortized using the straight line method over their expected useful
lives ranging from three to fifteen years.
Impairment of
long-lived assets.
Long-lived assets and certain identifiable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss
is recognized when the sum of undiscounted expected future cash flows is less than the carrying amount of such assets. The measurement for such impairment loss is based on estimated fair values. Fair values have been determined based upon estimated
future cash flows. Goodwill and certain other intangible assets are tested for impairment under SFAS No. 142 and all other long-lived assets are tested for impairment under SFAS No. 144. See note 5 for additional disclosure information.
Advertising and promotion expense.
WebMediaBrands expenses advertising and promotion costs as incurred. Advertising and promotion expense was $6.9 million and $5.8 million for the years ended December 31, 2007 and 2008, respectively.
Income taxes.
WebMediaBrands accounts for income taxes in
accordance with SFAS No. 109, Accounting for Income Taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using presently enacted statutory tax rates. The effect on deferred income tax assets and liabilities of changes in tax rates is
recognized in income in the period that includes the enactment date. SFAS No. 109 also requires that deferred income tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred income
tax assets will not be realized.
WebMediaBrands adopted FASB
Interpretation (FIN) No 48 Accounting for Income TaxesAn interpretation of FASB Statement 109 on January 1, 2007 which prescribes a more-likely-than-not threshold for financial statement recognition and measurement
of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting
for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures. Penalties and tax-related interest expense are reported as a component of income tax expense in the consolidated
statements of operations.
Stock-based
compensation.
Effective January 1, 2006, WebMediaBrands adopted SFAS No. 123 (Revised), Share-Based Payment (SFAS No. 123R). Among its provisions, SFAS No. 123R requires WebMediaBrands
45
WebMediaBrands Inc.
Notes to Consolidated Financial Statements(Continued)
For the Years Ended December 31, 2007 and 2008
to recognize compensation expense for equity awards over the vesting period based on their grant-date fair value. WebMediaBrandss policy is to grant
stock options with an exercise price equal to or greater than the fair value on the date of grant. WebMediaBrands amortizes stock-based compensation expense on a straight-line basis over the vesting term.
Compensation expense is recognized only for stock-based payments expected to
vest. WebMediaBrands estimates forfeitures at the date of grant based on WebMediaBrandss historical experience and future expectations.
Allowance for doubtful accounts
. WebMediaBrands estimates their allowance for doubtful accounts based on historical losses as a percentage
of revenue, existing economic conditions, and specific account analysis of at-risk customers. Historical losses and existing economic conditions may not necessarily be indicative of future losses, and the impact of economic conditions on each of
their customers is difficult to estimate. Should future uncollectible amounts not reflect their current estimates, WebMediaBrands would be required to change their allowance for doubtful accounts through an entry to bad debt expense included in
general and administrative expense in their consolidated statement of operations.
Recent accounting pronouncements.
Effective January 1, 2008, WebMediaBrands adopted the Financial Accounting Standards Board (FASB) SFAS No. 157, Fair Value
Measurements, which establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. 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. SFAS No. 157 also requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which
these assets and liabilities must be grouped, based on significant levels of inputs as follows:
Level 1
quoted prices in active markets for identical assets or liabilities;
Level 2
quoted prices in active markets for similar assets and liabilities and inputs that are observable for the
asset or liability; or
Level 3
unobservable inputs,
such as discounted cash flow models or valuations.
The
determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement. In July 2007, WebMediaBrands entered into a derivative interest rate swap, which
has been designated as a cash flow hedge (see note 9). The initial fair value of this instrument was determined using inputs that are available in the public swap markets for similarly termed instruments and then making adjustments for the terms
specific to its instrument. WebMediaBrands continues to value this security based on quotes from its counterparties. Since the inputs used to value this option contract are observable, WebMediaBrands has classified them as level 2 inputs. There
was no ineffectiveness relating to the interest rate swap for the year ended December 31, 2008, with all of the unrecognized gains and losses being recorded in accumulated other comprehensive income in stockholders equity.
In February 2008, the FASB issued FASB Staff Position
(FSP) FAS No. 157-2 Effective Date of FASB Statement No. 157, which delays the effective date of SFAS No. 157 for non-financial assets and non-financial
46
WebMediaBrands Inc.
Notes to Consolidated Financial Statements(Continued)
For the Years Ended December 31, 2007 and 2008
liabilities, except items that are recognized or disclosed at fair value in the financial statements on a recurring basis. FSP FAS No. 157-2 defers the
effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008, and for interim periods within those fiscal years. WebMediaBrands is currently evaluating whether the adoption of SFAS No. 157, for items within the
scope of FSP FAS No. 157-2, will have an impact on its consolidated financial position, results of operations or cash flows.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, which permits
entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 was effective for
WebMediaBrands on January 1, 2008. WebMediaBrands did not elect the fair value option for existing eligible items; therefore, SFAS No. 159 had no impact on WebMediaBrandss unaudited consolidated condensed financial statements.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations. SFAS No. 141(R) is to be applied prospectively to business combinations for which the acquisition date is on or after January 1, 2009 and, therefore, will not impact WebMediaBrandss financial
statements upon adoption. SFAS No. 141(R) makes significant changes to the accounting for business combinations, including, but not limited to:
|
|
|
professional fees incurred in connection with the business combination will be expensed as incurred rather than capitalized as part of goodwill;
|
|
|
|
costs to be incurred in connection with restructuring activities that do not represent legal liabilities prior to the acquisition date will be expensed
post-acquisition rather than capitalized as part of goodwill;
|
|
|
|
material adjustments to the purchase price allocation made during the accounting measurement period will be recast to the original period of acquisition in
subsequent presentations of the respective financial statements; and
|
|
|
|
adjustments to deferred tax assets and uncertain tax position balances that occur after the accounting measurement period will be recorded as a component of income
tax expense rather than as an adjustment to goodwill, regardless of whether the entity was acquired prior to or after adoption of SFAS No. 141(R).
|
In December 2007, the Securities and Exchange Commission (SEC) staff issued Staff Accounting Bulletin (SAB)
No. 110, which, effective January 1, 2008, amends and replaces SAB No. 107, Share-Based Payment. SAB No. 110 expresses the views of the SEC staff regarding the use of a simplified method in developing an
estimate of the expected term of plain vanilla share options in accordance with SFAS No. 123(R), Share-Based Payment. Under the simplified method, the expected term is calculated as the midpoint between the
vesting date and the end of the contractual term of the option. The use of the simplified method, which was first described in SAB No. 107, was scheduled to expire on December 31, 2007. SAB No. 110 extends the use of the
simplified method for plain vanilla awards in certain situations. The SEC staff does not expect the simplified method to be used when sufficient information regarding exercise behavior, such as historical exercise
data or exercise information from external sources, becomes available. The expected life of an option takes into consideration the history of similar options. WebMediaBrands issued options in 2007 and 2008 with a life of five years, whereas similar
options were previously granted with a life of 10 years. Therefore, WebMediaBrands feels that the simplified method for determining the expected life of the options is appropriate since they do not have the historical data to consider in
determining the expected life of the newly granted options. The adoption of SAB No. 110 did not have an impact on the consolidated financial position, results of operations or cash flows of WebMediaBrands.
47
WebMediaBrands Inc.
Notes to Consolidated Financial Statements(Continued)
For the Years Ended December 31, 2007 and 2008
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements, which amends Accounting Research Bulletin No. 51, Consolidated Financial Statements, to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. It also clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS No. 160 also
changes the way the consolidated income statement is presented by requiring consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on
the face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. SFAS No. 160 requires that a parent recognize a gain or loss in net income when a
subsidiary is deconsolidated and requires expanded disclosures in the consolidated financial statements that clearly identify and distinguish between the interests of the parent owners and the interests of the noncontrolling owners of a subsidiary.
SFAS No. 160 is effective for fiscal periods, and interim periods within those fiscal years, beginning on or after December 15, 2008. WebMediaBrands is currently evaluating whether the adoption of SFAS No. 160 will have an impact on
its consolidated financial position, results of operations or cash flows.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133, Accounting for Derivative Instruments
and Hedging Activities. SFAS No. 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures stating how and why an entity uses derivative instruments;
how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations; and how derivative instruments and related hedged items affect an entitys consolidated financial statements. SFAS
No. 161 requires that objectives for using derivative instruments to be disclosed in terms of underlying risk and accounting designation. This disclosure better conveys the purpose of derivative use in terms of the risks that the entity is
intending to manage. Disclosing the fair values of derivative instruments and their gains and losses in a tabular format should provide a more complete picture of the location in an entitys financial statements on both the derivative positions
existing at period end and the effect of using derivatives during the reporting period. Disclosing information about credit-risk related contingent features should provide information on the potential effect on an entitys liquidity from using
derivatives. SFAS No. 161 requires cross-referencing within the footnotes, which should help users of financial statements locate important information about derivatives. SFAS No. 161 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008, with early application encouraged. SFAS No. 161 also encourages, but does not require comparative disclosures for earlier periods at initial adoption. WebMediaBrands is currently
evaluating whether the adoption of SFAS No. 161 will have an impact on its consolidated financial statements.
In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of Intangible Assets, which amends the factors to be considered
in renewal or extension assumptions used to determine the useful life of a recognized intangible asset. FSP FAS 142-3 is effective for interim periods and fiscal years beginning after December 15, 2008. The measurement provisions of this
standard will apply only to intangible assets of WebMediaBrands acquired after the effective date. WebMediaBrands is currently evaluating whether the adoption of FSP FAS 142-3 will have an impact on its consolidated financial position, results of
operations or cash flows.
In May 2008, the FASB issued SFAS
No. 162, The Hierarchy of Generally Accepted Accounting Principles. This statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements
of nongovernmental entities that are presented in conformity with accounting principles generally accepted in the United States (the GAAP Hierarchy). SFAS No. 162 is effective
48
WebMediaBrands Inc.
Notes to Consolidated Financial Statements(Continued)
For the Years Ended December 31, 2007 and 2008
60 days following the SECs approval of the Public Company Oversight Board (PCAOB) amendments to AU Section 411, The Meaning of
Present Fairly in Conformity With Generally Accepted Accounting Principles. The GAAP Hierarchy under SFAS No. 162 is as follows:
|
(a)
|
FASB SFAS and Interpretations, FASB Statement 133 Implementation Issues, FASB Staff Positions, and American Institute of Certified Public Accountants (AICPA) Accounting
Research Bulletins and Accounting Principles Board Opinions that are not superseded by actions of the FASB.
|
|
(b)
|
FASB Technical Bulletins, and if cleared by the FASB, AICPA Industry Audit and Accounting Guides and Statements of Position.
|
|
(c)
|
AICPA Accounting Standards Executive Committee Practice Bulletins that have been cleared by the FASB, consensus positions of the FASB EITF and the topics discussed in Appendix D of
EITF Abstracts.
|
|
(d)
|
Implementation guides (Q&As) published by the FASB staff, AICPA Accounting Interpretations, AICPA Industry Audit and Accounting Guides and Statements of Positions not cleared by
the FASB, and practices that are widely recognized and prevalent either generally or in the industry.
|
In June 2008, the FASB issued FSP Emerging Issues Task Force (EITF) 03-6-1, Determining Whether Instruments Granted in Share-Based
Payment Transactions are Participating Securities. FSP EITF 03-6-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. FSP EITF 03-6-1 provides
that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of Earnings Per Share (EPS)
pursuant to the two-class method. Upon adoption, all of a companys prior period EPS data presented shall be adjusted retrospectively (including interim financial statements, summaries of earnings, and selected financial data) to conform with
the provisions of FSP EITF 03-6-1. Early application is not permitted for FSP EITF 03-6-1. WebMediaBrands is currently evaluating the effect, if any, that FSP EITF 03-6-1 will have on its financial statements.
3. COMPUTATION OF LOSS PER SHARE
Basic loss per share is computed using the weighted average number of common
shares outstanding during the period. Dilutive loss per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Common equivalent shares consist of the incremental common
shares that may be issued upon the exercise of stock options. Common equivalent shares are excluded from the calculation if their effect is anti-dilutive.
49
WebMediaBrands Inc.
Notes to Consolidated Financial Statements(Continued)
For the Years Ended December 31, 2007 and 2008
Computations of basic and diluted loss per share for the years ended December 31, 2007 and 2008
are as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
Net loss
|
|
$
|
(82,275
|
)
|
|
$
|
(116,681
|
)
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding
|
|
|
35,880
|
|
|
|
35,967
|
|
Effect of dilutive stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total basic weighted average common shares and dilutive stock options
|
|
|
35,880
|
|
|
|
35,967
|
|
|
|
|
|
|
|
|
|
|
Loss Per Share:
|
|
|
|
|
|
|
|
|
Basic net loss
|
|
$
|
(2.29
|
)
|
|
$
|
(3.24
|
)
|
|
|
|
|
|
|
|
|
|
Diluted net loss
|
|
$
|
(2.29
|
)
|
|
$
|
(3.24
|
)
|
|
|
|
|
|
|
|
|
|
The following table
summarizes the number of outstanding stock options excluded from the calculation of diluted earnings per share for the periods presented because the result would have been anti-dilutive (in thousands, except weighted average exercise price):
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
2007
|
|
2008
|
Number of anti-dilutive stock options
|
|
|
5,417
|
|
|
6,848
|
Weighted average exercise price
|
|
$
|
9.81
|
|
$
|
2.60
|
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
December 31, 2008
|
|
Computer equipment and software
|
|
$
|
22,847
|
|
|
$
|
27,925
|
|
Buildings
|
|
|
3,146
|
|
|
|
3,267
|
|
Furniture, fixtures and equipment
|
|
|
2,267
|
|
|
|
2,358
|
|
Leasehold improvements
|
|
|
1,326
|
|
|
|
2,149
|
|
Land
|
|
|
800
|
|
|
|
800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,386
|
|
|
|
36,499
|
|
Less: Accumulated depreciation
|
|
|
(17,364
|
)
|
|
|
(22,166
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
13,022
|
|
|
$
|
14,333
|
|
|
|
|
|
|
|
|
|
|
WebMediaBrands
recorded an impairment charge of $86,000 to reduce the carrying value of property and equipment during the fourth quarter of 2008. See Amortized Intangible Assets of note 5 for additional disclosure information.
50
WebMediaBrands Inc.
Notes to Consolidated Financial Statements(Continued)
For the Years Ended December 31, 2007 and 2008
5. INTANGIBLE ASSETS AND GOODWILL
In conjunction with its annual impairment review as of October 1,
2007, WebMediaBrands identified certain events or factors that indicated that goodwill and intangible assets may be impaired as of December 31, 2007. These indicators included a decline in its stock price and changes in the images industry,
including the emergence of competitive image offerings such as micropayment, that impacted the projected operations and cash flows of the Online images reporting segment. As a result, WebMediaBrands recorded an impairment charge of $87.2 million
($81.5 million after tax) to reduce the carrying amounts of goodwill and intangible assets to fair value.
During the third quarter of 2008, WebMediaBrands received indications of interest from multiple market participants for the Online images business and
concluded that the indications of interest being made represented an indicator of impairment to goodwill as of September 30, 2008. Accordingly, WebMediaBrands recorded an estimated impairment charge of $40.0 million during the third quarter of
2008. In the fourth quarter of 2008, WebMediaBrands completed its valuation of impairment under SFAS No. 142 and SFAS No. 144. As a result, WebMediaBrands recorded an additional impairment charge of $36.5 million to reduce the carrying
amounts of goodwill and domain names to fair value for its Online images reporting segment.
Amortized Intangible Assets
Also, during the fourth quarter of 2008, WebMediaBrands identified certain indicators that the amortized intangible assets of its Online media business may be impaired. These indicators included a downturn in the U.S.
and global economy that impacted the projected operations and cash flows of the Online media reporting segment. As a result, WebMediaBrands recorded an impairment charge of $4.5 million to reduce the carrying amounts of the amortized intangible
assets to fair value for its Online media reporting segment under SFAS No. 144. The charge is not tax deductible because the acquisition that gave rise to the intangibles was structured as a stock transaction. The impairment charge, which is
included in the line item Impairment of goodwill and long-lived assets in the 2008 consolidated statement of operations, is presented below by intangible asset (in thousands):
|
|
|
|
|
|
Year Ended
December 31, 2008
|
Customer and distributor relationships
|
|
$
|
4,184
|
Web site development costs
|
|
|
60
|
Non-compete agreements
|
|
|
179
|
Content development costs
|
|
|
108
|
|
|
|
|
Total
|
|
$
|
4,531
|
|
|
|
|
51
WebMediaBrands Inc.
Notes to Consolidated Financial Statements(Continued)
For the Years Ended December 31, 2007 and 2008
The following table sets forth the intangible assets that are subject to amortization, including the
related accumulated amortization (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
Cost
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Value
|
Image library
|
|
$
|
53,383
|
|
$
|
(12,242
|
)
|
|
$
|
41,141
|
Supplier and contributor contracts
|
|
|
15,462
|
|
|
(5,639
|
)
|
|
|
9,823
|
Customer and distributor relationships
|
|
|
10,135
|
|
|
(2,974
|
)
|
|
|
7,161
|
Web site development costs
|
|
|
7,711
|
|
|
(4,750
|
)
|
|
|
2,961
|
Trademarks
|
|
|
4,457
|
|
|
(3,454
|
)
|
|
|
1,003
|
Non-compete agreements
|
|
|
1,780
|
|
|
(909
|
)
|
|
|
871
|
Content development costs
|
|
|
570
|
|
|
|
|
|
|
570
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
93,498
|
|
$
|
(29,968
|
)
|
|
$
|
63,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
Cost
|
|
Impairment
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Value
|
Image library
|
|
$
|
54,327
|
|
$
|
|
|
|
$
|
(17,943
|
)
|
|
$
|
36,384
|
Supplier and contributor contracts
|
|
|
14,801
|
|
|
|
|
|
|
(8,701
|
)
|
|
|
6,100
|
Customer and distributor relationships
|
|
|
11,933
|
|
|
(4,184
|
)
|
|
|
(5,885
|
)
|
|
|
1,864
|
Web site development costs
|
|
|
8,436
|
|
|
(60
|
)
|
|
|
(6,571
|
)
|
|
|
1,805
|
Trademarks
|
|
|
4,938
|
|
|
|
|
|
|
(4,115
|
)
|
|
|
823
|
Non-compete agreements
|
|
|
1,803
|
|
|
(179
|
)
|
|
|
(1,534
|
)
|
|
|
90
|
Content development costs
|
|
|
400
|
|
|
(108
|
)
|
|
|
(292
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
96,638
|
|
$
|
(4,531
|
)
|
|
$
|
(45,041
|
)
|
|
$
|
47,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles that are
subject to amortization are amortized on a straight-line basis over their expected useful lives. The image library is amortized over seven and fifteen years, customer and distributor relationships are amortized over periods ranging from three to
eight years, Web site development costs are amortized over three or five years and trademarks are amortized over three years. Supplier and contributor contracts are amortized over seven years. Non-compete agreements are amortized over the period of
the agreements, typically from one to three years. Content development costs are amortized over a five year period. Estimated amortization expense for intangible assets subject to amortization (excluding the impact of the Sale) is as follows (in
thousands):
|
|
|
|
Year Ending December 31:
|
|
|
2009
|
|
$
|
10,496
|
2010
|
|
|
8,885
|
2011
|
|
|
5,968
|
2012
|
|
|
4,062
|
2013
|
|
|
3,393
|
Thereafter
|
|
|
14,262
|
|
|
|
|
|
|
$
|
47,066
|
|
|
|
|
52
WebMediaBrands Inc.
Notes to Consolidated Financial Statements(Continued)
For the Years Ended December 31, 2007 and 2008
Unamortized Intangible Assets and Goodwill
WebMediaBrandss impairment tests during 2008 resulted in a total
non-cash impairment charge of $76.5 million related to the write-down of goodwill and domain names of its Online images reporting segment. The majority of the charge is not tax deductible because the majority of the acquisitions that gave rise
to goodwill and domain names were structured as stock transactions. The impairment charge, which is included in the line item Impairment of goodwill and long-lived assets in the 2007 and 2008 consolidated statements of operations, is
presented below by intangible asset (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
|
Pre-Tax
|
|
Tax
Benefit
|
|
After-Tax
|
Goodwill
|
|
$
|
83,138
|
|
$
|
5,708
|
|
$
|
77,430
|
Domain names
|
|
|
4,048
|
|
|
|
|
|
4,048
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
87,186
|
|
$
|
5,708
|
|
$
|
81,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008
|
|
|
Pre-Tax
|
|
Tax
Benefit
|
|
After-Tax
|
Goodwill
|
|
$
|
74,235
|
|
$
|
|
|
$
|
74,235
|
Domain names
|
|
|
2,256
|
|
|
|
|
|
2,256
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
76,491
|
|
$
|
|
|
$
|
76,491
|
|
|
|
|
|
|
|
|
|
|
The tax benefit of
$5.3 million related to goodwill impairment for the year ended December 31, 2008 was subject to a full valuation allowance.
The fair value of goodwill is the residual fair value after allocating the total fair value of a reporting segment to its other assets, net of
liabilities. The total fair value of each reporting segment was estimated using a combination of a discounted cash flow model (present value of future cash flows) and two market approach models (a multiple of various metrics based on comparable
businesses and market transactions).
The fair value of the
domain names was calculated by estimating the present value of future cash flows associated with the assets.
The following table sets forth the intangible assets that are not subject to amortization (in thousands):
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2007
|
|
2008
|
Domain names
|
|
$
|
10,472
|
|
$
|
7,830
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,472
|
|
$
|
7,830
|
|
|
|
|
|
|
|
53
WebMediaBrands Inc.
Notes to Consolidated Financial Statements(Continued)
For the Years Ended December 31, 2007 and 2008
The changes in the
carrying amount of goodwill for each of the two years in the period ended December 31, 2008 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Online
images
|
|
|
Online
media
|
|
Total
|
|
Balance as of January 1, 2007
|
|
$
|
187,029
|
|
|
$
|
8,474
|
|
$
|
195,503
|
|
Goodwill acquired during year
|
|
|
2,252
|
|
|
|
14,303
|
|
|
16,555
|
|
Purchase accounting adjustments
|
|
|
5,211
|
|
|
|
857
|
|
|
6,068
|
|
Impairment
|
|
|
(83,138
|
)
|
|
|
|
|
|
(83,138
|
)
|
Effect of foreign currency
|
|
|
4,825
|
|
|
|
|
|
|
4,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
|
116,179
|
|
|
|
23,634
|
|
|
139,813
|
|
Purchase accounting adjustments
|
|
|
(1,206
|
)
|
|
|
2,428
|
|
|
1,222
|
|
Impairment
|
|
|
(74,235
|
)
|
|
|
|
|
|
(74,235
|
)
|
Effect of foreign currency
|
|
|
(3,356
|
)
|
|
|
|
|
|
(3,356
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
$
|
37,382
|
|
|
$
|
26,062
|
|
$
|
63,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase accounting
adjustments pertain primarily to purchase price adjustments made in finalizing the valuations of the fair value of certain assets purchased in conjunction with the acquisition of Stock Image, S.A.S. Workbook, Inc. and Mediabistro.com Inc. (see note
8).
6. DEFERRED REVENUES
The components of deferred revenues by segment are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
December 31, 2008
|
Online images
|
|
$
|
13,099
|
|
$
|
12,420
|
Online media
|
|
|
2,529
|
|
|
2,455
|
|
|
|
|
|
|
|
|
|
$
|
15,628
|
|
$
|
14,875
|
|
|
|
|
|
|
|
7. SEGMENT INFORMATION
WebMediaBrandss management has established a
financial-based operational structure around two main entities: Online images and Online media. Its executive team makes regular performance assessments, operational trade-offs, expenditure and investment choices and resource allocation
determinations based on these entities. WebMediaBrands defines its operating segments based on its ability to segregate discrete financial information, which is supported by the fact that each of these segments regularly engage in business activity
that either earns revenue or incurs expense or both and, also, for which the Companys organizational structure supports regular executive management review. For purposes of the evaluation of SFAS No. 131 Disclosures about Segments
of an Enterprise and Related Information, WebMediaBrands views its chief operating decision maker as the Chairman and Chief Executive Officer. WebMediaBrandss Chairman and Chief Executive Officer regularly reviews the operating results
of its legal entities to determine the allocation of resources and to assess performance.
In determining that WebMediaBrands has two reporting segments, the Company has aggregated the legal entities that make up its images business into one reporting segment Online images, and the legal entities
that make up its media business into one reporting segment Online media. WebMediaBrandss segments were
54
WebMediaBrands Inc.
Notes to Consolidated Financial Statements(Continued)
For the Years Ended December 31, 2007 and 2008
determined recognizing that the operations of each segment have similar economic characteristics and are similar with regard to the nature of the production
processes, the type or class of customer and the methods used to distribute products or provide services and the recognition that reported revenue, assets and absolute profit (or loss) meet the criteria for inclusion under the 10% test. We have also
determined and continue to report Other in the interest of providing a complete reconciled view of our revenues and expenses. Other includes corporate overhead, depreciation and amortization.
The following tables summarize the results of the segments of WebMediaBrands
for the years ended December 31, 2007 and 2008. Online images consists of the Jupiterimages business that includes BananaStock, Workbook Stock, Brand X Pictures, FoodPix, Botanica, Nonstock, The Beauty Archive, IFA Bilderteam, Comstock Images,
Creatas Images, PictureQuest, Liquid Library, Thinkstock Images, Thinkstock Footage, Goodshoot, Polka Dot Images, Stock Image, Pixland, Photos.com, Ablestock.com, PhotoObjects.net, Clipart.com, AnimationFactory.com, RoyaltyFreeMusic.com,
JupiterGreetings.com and Stockxpert.com. Online media includes the internet.com, Mediabistro.com and Graphics.com Networks. Advertisers generally place fewer advertisements during the first and third calendar quarters of each year, which directly
affects the Online media business. Results will also be impacted by the number and size of events held in each quarter. In addition, there may be fluctuations as events held in one period in the current year may be held in a different period in
future years. With the exception of goodwill, WebMediaBrands does not identify or allocate assets by operating segment. See note 5 for the allocation of goodwill to WebMediaBrandss reportable segments.
As discussed in note 17, on February 23, 2009, WebMediaBrands
consummated the Sale. Following the Sale, WebMediaBrands will account for the operations of its Online images business as a discontinued operation commencing in the first quarter of 2009 and its continuing operations will be comprised solely of the
Online media business.
Summary information by segment for the
years ended December 31, 2007 and 2008 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Online images
|
|
$
|
108,904
|
|
|
$
|
96,263
|
|
Online media
|
|
|
31,430
|
|
|
|
32,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140,334
|
|
|
|
128,394
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues and operating expenses:
|
|
|
|
|
|
|
|
|
Online images
|
|
|
74,091
|
|
|
|
71,129
|
|
Online media
|
|
|
23,950
|
|
|
|
28,914
|
|
Impairment of goodwill and long-lived assets
|
|
|
87,186
|
|
|
|
81,108
|
|
Other
|
|
|
35,737
|
|
|
|
39,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
220,964
|
|
|
|
220,184
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
Online images
|
|
|
34,813
|
|
|
|
25,134
|
|
Online media
|
|
|
7,480
|
|
|
|
3,217
|
|
Impairment of goodwill and long-lived assets
|
|
|
(87,186
|
)
|
|
|
(81,108
|
)
|
Other
|
|
|
(35,737
|
)
|
|
|
(39,033
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(80,630
|
)
|
|
$
|
(91,790
|
)
|
|
|
|
|
|
|
|
|
|
55
WebMediaBrands Inc.
Notes to Consolidated Financial Statements(Continued)
For the Years Ended December 31, 2007 and 2008
Revenues are summarized below based on the country that generates the revenue with countries having
total revenue of 5% or more in a reportable period shown separately (in thousands):
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2007
|
|
2008
|
United States
|
|
$
|
106,341
|
|
$
|
99,967
|
United Kingdom
|
|
|
9,544
|
|
|
7,444
|
France
|
|
|
8,381
|
|
|
6,930
|
Other
|
|
|
16,068
|
|
|
14,053
|
|
|
|
|
|
|
|
|
|
$
|
140,334
|
|
$
|
128,394
|
|
|
|
|
|
|
|
Long-lived assets
include property and equipment, intangible assets and goodwill. These assets are shown below, net of accumulated depreciation and amortization with countries containing 10% or more of the total of these assets shown separately (in thousands).
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2007
|
|
2008
|
United States
|
|
$
|
178,737
|
|
$
|
108,033
|
France
|
|
|
16,974
|
|
|
9,794
|
United Kingdom
|
|
|
21,373
|
|
|
6,962
|
Other
|
|
|
9,753
|
|
|
7,884
|
|
|
|
|
|
|
|
|
|
$
|
226,837
|
|
$
|
132,673
|
|
|
|
|
|
|
|
8. ACQUISITIONS
On July 17, 2007, WebMediaBrands agreed to acquire all of the shares of
capital stock (the Acquisition) of Mediabistro.com Inc., a company incorporated in Delaware (Mediabistro), pursuant to an Agreement and Plan of Merger (the Merger Agreement), dated as of July 17, 2007, by and
among WebMediaBrands, Mediabistro Acquisition Subsidiary, Inc., a Delaware corporation and a wholly-owned subsidiary of WebMediaBrands (Merger Sub), Mediabistro and Laurel Touby, as agent for the security holders of Mediabistro, in
which, among other things, (i) the Merger Sub would merge with and into Mediabistro, (ii) the separate existence of Merger Sub would cease, and (iii) Mediabistro would continue its existence as both the surviving corporation and a
wholly-owned subsidiary of WebMediaBrands. Mediabistro, based in New York City, is a career and community site for media and creative professionals, and includes job postings, educational courses, events, forums, original content and a premium
subscription service. The Acquisition closed the following day on July 18, 2007 concurrently with the filing of the Certificate of Merger with the Secretary of State of the State of Delaware.
The consideration paid in the Acquisition consisted of $20.0 million in cash
and a two year earn-out that could result in an additional $3.0 million in cash consideration. Funding for the acquisition was secured through the Credit Agreement arranged by KeyBank National Association (see note 9).
As part of the acquisition of Mediabistro, WebMediaBrands is required to make
earn-out payments totaling up to a maximum of $3.0 million based on the attainment of a profit target achieved by Mediabistro for the period from July 1, 2007 to June 30, 2008; and for the period from July 1, 2008 to June 30,
2009. Based upon the results of Mediabistro for the period from July 1, 2007 to June 30, 2008, WebMediaBrands paid $900,000 in October 2008.
56
WebMediaBrands Inc.
Notes to Consolidated Financial Statements(Continued)
For the Years Ended December 31, 2007 and 2008
The total purchase price has been allocated to the assets and liabilities based on estimates of their
respective fair values.
The following table summarizes the
final purchase price allocation of the acquisition of Mediabistro (in thousands):
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,133
|
Accounts receivable, net
|
|
|
512
|
Prepaid expenses and other
|
|
|
514
|
Property, plant and equipment
|
|
|
87
|
Domain names
|
|
|
1,300
|
Customer relationships
|
|
|
4,090
|
Web site development costs
|
|
|
350
|
Covenant not to compete
|
|
|
300
|
Content development costs
|
|
|
570
|
Goodwill
|
|
|
13,562
|
|
|
|
|
Total assets acquired
|
|
|
22,418
|
|
|
|
|
Accounts payable
|
|
|
630
|
Accrued payroll and related expenses
|
|
|
99
|
Accrued expenses
|
|
|
155
|
Deferred income taxes
|
|
|
546
|
Deferred revenue
|
|
|
988
|
|
|
|
|
Total liabilities assumed
|
|
|
2,418
|
|
|
|
|
Net assets acquired
|
|
$
|
20,000
|
|
|
|
|
Intangible assets and
goodwill include the final allocation of the purchase price relating to the acquisition of Mediabistro. The intangible assets subject to amortization are being amortized on a straight-line basis over periods ranging from three to fifteen years. The
goodwill associated with the acquisition of Mediabistro is not deductible for tax purposes.
The acquisition of Mediabistro strengthens WebMediaBrandss position in the important media professionals market. The acquisition of Mediabistro further diversifies WebMediaBrandss revenue sources since a
significant percentage of Mediabistros revenue is generated from online job postings and online and in-person training courses. WebMediaBrands believes that online job postings and online and in-person training courses are natural e-commerce
offerings for the 20 million unique users that it has on its Online media Web site. WebMediaBrands also believes that many of the 1.0 million unique users on Mediabistro will be buyers of its other product offerings. These factors resulted
in a significant portion of the purchase price of Mediabistro being allocated to goodwill.
The following table summarizes WebMediaBrandss additional acquisitions during the years ended December 31, 2007 and 2008 (dollars in thousands):
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
2007
|
|
2008
|
Number of acquisitions
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
Total aggregate purchase price
|
|
$
|
4,982
|
|
$
|
|
|
|
|
|
|
|
|
57
WebMediaBrands Inc.
Notes to Consolidated Financial Statements(Continued)
For the Years Ended December 31, 2007 and 2008
The acquisitions presented in the above table were not material, individually or in aggregate
annually, to WebMediaBrands as a whole and, therefore, pro forma financial information is not presented.
9. DEBT AND DERIVATIVE INSTRUMENT
WebMediaBrands is party to a Credit and Security Agreement, dated as of July 12, 2007 (the Credit Agreement), among WebMediaBrands, as borrower, the lenders party thereto (the Lenders),
KeyBank National Association (KeyBank), as the lead arranger, sole book runner and administrative agent (the Administrative Agent), and Citizens Bank, N.A., as Syndication Agent. Until amended as described below, the Credit
Agreement provided for a $115.0 million senior credit facility and was comprised of (i) a $75.0 million term loan facility, that was drawn in full on July 12, 2007, and (ii) a $40.0 million revolving credit facility, including a
$2.0 million sublimit for letters of credit and a $5.0 million swingline facility.
As of December 31, 2007 and 2008, the weighted-average interest rate on WebMediaBrandss outstanding debt was 7.6% and 8.4%, respectively.
On October 10, 2008, WebMediaBrands entered into Amendment No. 1, which amends the Credit Agreement, in pertinent
part, as follows (capitalized terms are used as defined in Amendment No. 1):
|
|
|
Amendment to Financial Covenants. The Leverage Ratio covenant was modified to increase the maximum Leverage Ratio to 3.50 to 1.00 from December 31, 2008
through March 30, 2010, and 2.75 to 1.00 from March 31, 2010 through June 29, 2010. The maximum Leverage Ratio from June 30, 2010 was not changed. The maximum Consolidated Capital Expenditure covenant was modified to increase the
maximum amount permitted to $6.25 million during the 2008 fiscal year and $6.0 million during the 2009 fiscal year and was left unchanged for subsequent periods.
|
|
|
|
Changes to Fees and Interest Rate Margins. The Applicable Commitment Fee Rate was fixed at 50 basis points. The Applicable Margin was changed as follows: If the
Leverage Ratio is less than or equal to 2.50 to 1.00 the Applicable Margin is 450 basis points for Eurodollar Loans and 450 basis points for Base Rate Loans, and otherwise the Applicable Margin is 475 basis points for Eurodollar Loans and 475 basis
points for Base Rate Loans.
|
|
|
|
Reduction in Size of Revolving Credit Facility. The Maximum Revolving Amount has been reduced to $25.0 million. The Swing Line Commitment has been reduced to $3.1
million.
|
|
|
|
Excess Cash Flow Prepayment. Commencing with the fiscal year ended December 31, 2009, WebMediaBrands is required to make mandatory principal repayments equal
to 75% of Excess Cash Flow; provided, that commencing with the fiscal quarter ending March 31, 2009, if the Leverage Ratio at any time is less than 2.00 to 1.00 for any two consecutive fiscal quarters, the mandatory prepayment is reduced to 50%
of the Excess Cash Flow and remains at such reduced percentage unless and until the Leverage Ratio equals or exceeds 2.00 to 1.00.
|
|
|
|
Other Changes. The Amendment also contains an amendment to the definition of Consolidated EBITDA, includes a definition of Excess Cash Flow and contains certain
other modifications of the Credit Agreement. The accordion feature contemplated by Section 2.10(b) and (c) of the Credit Agreement is deleted pursuant to the Amendment.
|
WebMediaBrands paid an amendment fee of 50 basis points to Lenders who
consented to the Amendment.
58
WebMediaBrands Inc.
Notes to Consolidated Financial Statements(Continued)
For the Years Ended December 31, 2007 and 2008
WebMediaBrands outstanding debt, relating to the Credit Agreement, as of December 31, 2007 and
2008 is reflected in the consolidated balance sheets. WebMediaBrands made two quarterly debt payments on its term loan totaling $375,000 during the year ended December 31, 2007. WebMediaBrands made four quarterly debt payments on its term loan
totaling $750,000 during the year ended December 31, 2008. WebMediaBrands also made payments totaling $6.1 million and borrowed $3.9 million during 2008 to reduce the outstanding portion of the revolving credit facility by $2.2 million.
WebMediaBrands is not in compliance with its debt covenants relating to the Credit Agreement as of December 31, 2008 and has reclassed all of its outstanding debt from long-term to current liabilities as of December 31, 2008. However, in
connection with the Sale, on February 23, 2009, WebMediaBrands terminated the Credit Agreement. See note 17 for further disclosure on the termination of the Credit Agreement.
In connection with the Credit Agreement, WebMediaBrands also entered into a derivative interest rate swap that is to mature
in July 2013, which has been designated as a cash flow hedge. The objective of the hedge is to eliminate the variability of cash flows in the interest payments of $50.0 million of variable rate debt. Under this agreement, WebMediaBrands receives a
floating rate based on the LIBOR interest rate, and pays a fixed rate of 5.58% on the notional amount of $50.0 million.
As required by SFAS No. 133 all derivative instruments are recorded in the consolidated balance sheet at fair value as derivative assets or
derivative liabilities. Subject to certain specific qualifying conditions in SFAS No. 133, a derivative instrument may be designated either as a hedge of the fair value of an asset or liability (fair value hedge), or as a hedge of the
variability of cash flows of an asset or liability or forecasted transaction (cash flow hedge). Gains and losses on derivative instruments designated as cash flow hedges, to the extent they are effective, are recorded in accumulated other
comprehensive income, a component of stockholders equity, and subsequently reclassified to earnings to offset the impact of the hedged items when they occur. In the event the forecasted transaction to which a cash flow hedge relates is no
longer likely, the amount in accumulated other comprehensive income is recognized in earnings and generally the derivative is terminated. Changes in the fair value of derivatives not qualifying as hedges, and for any portion of a hedge that is
ineffective, are reported in earnings. The net interest paid or received on interest rate swaps is recognized as interest expense. Gains resulting from the early termination of interest rate swap agreements are deferred and amortized as adjustments
to interest expense over the remaining period of the debt originally covered by the terminated swap.
At December 31, 2007 and December 31, 2008, the fair value of the interest rate swap was a net loss of $3.4 million and $7.6 million,
respectively, and is recorded as other long-term liabilities in WebMediaBrandss consolidated balance sheet. During the year ended December 31 2007, the effective portion of the change in fair value of the interest rate swap of $2.1
million, net of tax of $1.3 million, was recorded as an unrecognized loss in accumulated other comprehensive income in stockholders equity and there was no ineffective portion. During the year ended December 31, 2008, the effective
portion of the change in fair value of the interest rate swap of $4.6 million, net of tax of $2.9 million, was recorded as an unrecognized loss in accumulated other comprehensive income in stockholders equity and there was no ineffective
portion. See note 17 for further disclosure on the interest rate swap.
Interest expense, as shown in the accompanying consolidated statement of operations was as follows (in thousands):
|
|
|
|
|
|
|
|
|
2007
|
|
2008
|
Interest expense
|
|
$
|
7,146
|
|
$
|
7,152
|
|
|
|
|
|
|
|
59
WebMediaBrands Inc.
Notes to Consolidated Financial Statements(Continued)
For the Years Ended December 31, 2007 and 2008
10. STOCKHOLDERS EQUITY
On June 25, 1999, in conjunction with its initial public offering, WebMediaBrands authorized the issuance of 4,000,000 shares of
preferred stock, $.01 par value (the Preferred Stock).
The Board of Directors (the Board) has the authority, without further vote or action by the stockholders, to issue the undesignated shares of Preferred Stock in one or more series and to fix all rights, qualifications,
preferences, limitations and restrictions of each series, including dividend rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series or the designation of such series.
On May 28, 2004, WebMediaBrands completed a follow-on
public offering of common stock that generated net proceeds of $30.3 million for WebMediaBrands. Of the 4,830,000 shares sold in the offering, 3,830,000 shares were sold by WebMediaBrands and 1,000,000 shares were sold by certain stockholders of
WebMediaBrands.
11. INCOME TAXES
WebMediaBrandss income tax provision (benefit) for each of the years
presented is determined in accordance with SFAS No. 109.
Loss before income taxes is attributable to the following tax jurisdictions (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
United States
|
|
$
|
(73,399
|
)
|
|
$
|
(88,484
|
)
|
Foreign
|
|
|
(14,154
|
)
|
|
|
(9,473
|
)
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
$
|
(87,553
|
)
|
|
$
|
(97,957
|
)
|
|
|
|
|
|
|
|
|
|
The components of the
income tax provision as shown in the consolidated statements of operations are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
Current income tax provision (benefit)
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(730
|
)
|
|
$
|
(237
|
)
|
State and local
|
|
|
14
|
|
|
|
28
|
|
Foreign
|
|
|
1,656
|
|
|
|
1,353
|
|
|
|
|
|
|
|
|
|
|
Total current income tax provision
|
|
|
940
|
|
|
|
1,144
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax provision (benefit)
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(5,573
|
)
|
|
|
13,974
|
|
State and local
|
|
|
369
|
|
|
|
3,059
|
|
Foreign
|
|
|
(1,014
|
)
|
|
|
547
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax provision (benefit)
|
|
|
(6,218
|
)
|
|
|
17,580
|
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit)
|
|
$
|
(5,278
|
)
|
|
$
|
18,724
|
|
|
|
|
|
|
|
|
|
|
60
WebMediaBrands Inc.
Notes to Consolidated Financial Statements(Continued)
For the Years Ended December 31, 2007 and 2008
A summary of WebMediaBrandss deferred income tax assets and liabilities as of December 31,
2007 and 2008 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Net operating losses
|
|
$
|
4,081
|
|
|
$
|
13,355
|
|
Amortization and impairment of goodwill and long-lived assets
|
|
|
13,929
|
|
|
|
18,441
|
|
Investment tax credit
|
|
|
334
|
|
|
|
351
|
|
Interest rate swap
|
|
|
1,294
|
|
|
|
2,910
|
|
Reserves recorded for financial reporting purposes
|
|
|
472
|
|
|
|
595
|
|
Stock-based compensation
|
|
|
1,759
|
|
|
|
3,059
|
|
Other
|
|
|
265
|
|
|
|
1,261
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax assets
|
|
|
22,134
|
|
|
|
39,972
|
|
Less valuation allowance
|
|
|
(804
|
)
|
|
|
(37,954
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax assets
|
|
|
21,330
|
|
|
|
2,018
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
(3,848
|
)
|
|
|
(2,288
|
)
|
Depreciation of property and equipment
|
|
|
(2,829
|
)
|
|
|
(2,944
|
)
|
Other
|
|
|
(163
|
)
|
|
|
(102
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred income tax liabilities
|
|
|
(6,840
|
)
|
|
|
(5,334
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax assets (liabilities)
|
|
$
|
14,490
|
|
|
$
|
(3,316
|
)
|
|
|
|
|
|
|
|
|
|
The income tax
provision recorded in 2008 is primarily related to the establishment of a valuation allowance on certain deferred tax assets that were recorded as of December 31, 2007. The income tax provision is also impacted by income taxes accrued in
foreign jurisdictions where WebMediaBrands has income, partially offset by an income tax benefit related to losses incurred for United States federal income tax purposes that can be carried back.
Based on WebMediaBrands most recent projections, management has concluded
that it is more likely than not that WebMediaBrands will have insufficient taxable income to allow recognition of certain of its deferred tax assets. Accordingly, a valuation allowance has been established against those deferred tax assets where
there is uncertainty on future utilization as described below.
At December 31, 2008, WebMediaBrands had federal, state and foreign net operating loss (NOL) carryforwards of $13.4 million for which a valuation allowance of $804,000 had been established at December 31, 2007.
Realization of the deferred tax assets is dependent on generating sufficient taxable income in future years. WebMediaBrands has established an additional valuation allowance against $12.1 million of deferred tax assets attributable to NOL
carryforwards during 2008.
At December 31, 2008,
WebMediaBrands had other deferred tax assets of $26.6 million which were primarily composed of amortization and impairment of goodwill and long-lived assets and reversals of book expense on stock-based compensation. Realization of the deferred tax
assets is dependent on generating sufficient taxable income in future years. WebMediaBrands has established a valuation allowance against $25.1 million of these deferred tax assets.
61
WebMediaBrands Inc.
Notes to Consolidated Financial Statements(Continued)
For the Years Ended December 31, 2007 and 2008
WebMediaBrands has recognized tax benefits in relation to certain net operating losses from acquired
companies. The reduction of the valuation allowance that was applied to goodwill in 2007 and 2008 was $445,000 and $588,000, respectively.
Tax benefits of $1.1 million and $1.8 million associated with the exercise of stock options were recorded in additional paid-in capital in 2007 and 2008,
respectively. The 2008 tax benefit was attributable to an amendment of the 2005 federal income tax return for stock option exercises not reported in the original 2005 federal income tax return.
WebMediaBrandss deferred income tax assets at December 31, 2008
with respect to net operating losses expire as follows (in thousands):
|
|
|
|
|
|
|
|
|
Deferred
Income
Tax Assets
|
|
Net
Operating
Loss Carry
Forwards
|
United States (Federal), expiring between 2021 and 2028
|
|
$
|
4,423
|
|
$
|
13,008
|
United States (State), expiring between 2009 and 2028
|
|
|
1,373
|
|
|
25,684
|
Foreign, expiring between 2009 and 2027
|
|
|
6,304
|
|
|
39,457
|
Foreign, indefinite
|
|
|
1,255
|
|
|
4,243
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,355
|
|
$
|
82,392
|
|
|
|
|
|
|
|
Certain WebMediaBrands
pre-2008 domestic NOLs are subject to limitation on future utilization under Internal Revenue Code (IRC) Section 382, which imposes limitations on the availability of a corporations net operating losses after a
more than 50 percentage point ownership change occurs. These NOL carryforwards were incurred by Dynamic Graphics Group prior to being acquired by WebMediaBrands. Therefore, Dynamic Graphics Group experienced a 100% ownership change during
2005. The utilization of these losses to offset WebMediaBrandss taxable income in future periods is limited to specific amounts in each year based on a formula prescribed by IRC Section 382, which formula is based on the value
of the acquired loss companies as of the ownership change date. These NOLs are subject to a full valuation allowance due to the Companys conclusion that there will be insufficient income in the carryforward period to allow for recognition of
the deferred tax asset.
A reconciliation setting forth the
difference between the amount of taxes computed at WebMediaBrandss effective income tax rate and the U.S. federal statutory income tax rate is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
Income tax expense based on federal statutory rate
|
|
$
|
(29,768
|
)
|
|
$
|
(33,305
|
)
|
State and local tax expense, net of U.S. federal income tax
|
|
|
623
|
|
|
|
(1,540
|
)
|
Change in valuation allowance
|
|
|
218
|
|
|
|
31,586
|
|
Non-deductible expenses
|
|
|
24,214
|
|
|
|
21,875
|
|
Foreign rate differential
|
|
|
(149
|
)
|
|
|
(165
|
)
|
Other
|
|
|
(416
|
)
|
|
|
273
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(5,278
|
)
|
|
$
|
18,724
|
|
|
|
|
|
|
|
|
|
|
62
WebMediaBrands Inc.
Notes to Consolidated Financial Statements(Continued)
For the Years Ended December 31, 2007 and 2008
Non-deductible expenses relate primarily to impairment of non-deductible goodwill.
Deferred U.S. federal income taxes are not provided for unremitted foreign
earnings of our foreign subsidiaries because we expect those earnings will be permanently reinvested. It is not practicable to calculate the unrecognized deferred income tax liability for temporary differences related to these investments.
On January 1, 2007, WebMediaBrands adopted the provisions
of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxesan Interpretation of SFAS No. 109 (FIN 48). FIN 48 creates a two-step approach for evaluating uncertain tax positions. Recognition, the
first step, occurs when an enterprise concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Measurement, the second step, determines the amount of benefit that
more-likely-than-not will be realized upon settlement. Reversal of a tax position that was previously recognized would occur when an enterprise subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being
sustained. FIN 48 specifically prohibits the use of a valuation allowance as a substitute for the reversal of tax positions, and it has expanded disclosure requirements. The adoption of FIN 48 did not result in change to WebMediaBrandss
January 1, 2007 accumulated deficit, however, it did result in an increase of $1.0 million to deferred income tax assets and an increase of $1.0 million to FIN 48 liability.
WebMediaBrands conducts business globally and, as a result, WebMediaBrands or one or more of its subsidiaries file income
tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. Through the normal course of business, WebMediaBrands is subject to examination by taxing authorities throughout the world. WebMediaBrands remains open for
examination by the Internal Revenue Service (IRS) for 2005 through 2007 although the IRS completed the examination of WebMediaBrandss originally filed 2005 federal income tax return in the fourth quarter of 2008. The examination
resulted in a refund of $464,000 of tax and $61,000 of interest. With limited exception, the Company is no longer subject to state and local or non-U.S. income tax audits by taxing authorities for years prior to 2005. In addition, for years prior to
2005 in which NOLs were generated, the tax authorities could adjust the NOL carryovers up to the amount of the NOL carryover.
As of December 31, 2007, the amount of accrued income tax-related interest and penalties included in accrued expenses and other current liabilities
in the consolidated balance sheet was $162,000 and $34,000, respectively. As of December 31, 2008, the amount of accrued income tax-related interest and penalties included in accrued expenses and other current liabilities was $256,000 and $34,000,
respectively. Penalties and tax-related interest expense of $34,000 and $120,000, respectively, are reported as a component of income tax expense in the consolidated statements of operations for the year ended December 31, 2007. Penalties and
tax-related interest expense of $0 and $93,000, respectively, are reported as a component of income tax expense in the consolidated statements of operations for the year ended December 31, 2008.
It is reasonably possible that a reduction in a range up to $500,000 of
unrecognized income tax benefits may occur within the next 12 months as a result of projected resolutions of worldwide tax disputes.
A reconciliation of our beginning and ending unrecognized income tax benefits is as follows (in thousands):
|
|
|
|
|
Balance at January 1, 2008
|
|
$
|
1,319
|
|
Gross reductions related to income tax positions taken in prior year
|
|
|
(13
|
)
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
1,306
|
|
|
|
|
|
|
63
WebMediaBrands Inc.
Notes to Consolidated Financial Statements(Continued)
For the Years Ended December 31, 2007 and 2008
As of December 31, 2007 and December 31, 2008, the total amount of unrecognized tax
benefits was $1.3 million and $1.3 million, respectively, of which $200,000 would affect the effective tax rate, if recognized, as of December 31, 2008.
12. COMMITMENTS AND CONTINGENCIES
WebMediaBrands has entered into various operating leases for each of its office facilities. Generally under the lease agreements, WebMediaBrands is
obligated to pay a proportionate share of all operating costs for these premises. Rent expense, net of sublease income, for leased facilities was, $2.8 million and $3.1 million for the years ended December 31, 2007 and 2008, respectively.
Future annual minimum lease payments under all operating
leases (excluding the impact of the Sale) are as follows (in thousands):
|
|
|
|
Years Ending December 31,
|
|
Operating Leases
|
2009
|
|
$
|
3,047
|
2010
|
|
|
2,170
|
2011
|
|
|
2,140
|
2012
|
|
|
1,854
|
2013
|
|
|
535
|
Thereafter
|
|
|
|
|
|
|
|
Total minimum payments
|
|
$
|
9,746
|
|
|
|
|
The total minimum
rentals to be received in the future under noncancelable subleases as of December 31, 2008 are $1,600.
WebMediaBrands has an employment agreement with its Vice President and Chief Financial Officer that provides for six months of severance and benefits to
be paid upon termination.
On or about November 13, 2006,
Robert Lange, who identified himself as a stockholder of WebMediaBrands, commenced a purported stockholders derivative action in the United States District Court for the District of Connecticut (the Court), purportedly on behalf of
WebMediaBrands, against all of WebMediaBrandss current directors and against WebMediaBrandss former Chief Financial Officer and Former President and Chief Operating Officer. WebMediaBrands was named in the suit as a nominal
defendant on whose behalf recovery is purportedly sought (the Action). Mr. Lange did not make a litigation demand on WebMediaBrandss board of directors prior to commencing the action, and alleged that such demand should
be excused as a matter of law. The complaint alleged, based primarily on a statistical analysis, that certain stock options granted to certain defendants in 1999, 2000 and 2001 were backdated, and asserted on behalf of WebMediaBrands various causes
of action against the defendants arising out of such alleged backdating, including securities fraud, breach of fiduciary duty and unjust enrichment. On April 24, 2007, we and the individual defendants filed a motion to dismiss the case in its
entirety. Rather than respond to the motion to dismiss, the Plaintiff filed an amended complaint on July 16, 2007. The amended complaint removed one of the individual defendants, but was substantially similar to the original complaint. On or
around September 11, 2007, Defendants filed a motion to dismiss the Amended Complaint. Briefing on that motion was completed, and oral argument was held on the motion in December 2007. The Court subsequently denied the motion as moot after
being advised by the parties that they had agreed to a settlement of the action, pending Court approval. On October 8, 2008, the Court granted preliminary approval of a comprehensive settlement of the Action, and
64
WebMediaBrands Inc.
Notes to Consolidated Financial Statements(Continued)
For the Years Ended December 31, 2007 and 2008
scheduled a hearing for December 10, 2008 to consider whether to approve the settlement and enter judgment thereon. At the settlement hearing,
Mr. Langes counsel requested that the Court approve the agreed-to fees and expenses (Fees and Expenses) for their efforts in filing, prosecuting and settling the Action. On December 11, 2008, the Court issued an Order and
Final Judgment approving the settlement. As a result, the Company caused its insurers to pay the Fees and Expenses.
WebMediaBrands is subject to other legal proceedings and claims that arise in the ordinary course of its business. In the opinion of management, the
amount of ultimate liability with respect to these actions will not materially affect the financial statements of WebMediaBrands.
13. EMPLOYEE BENEFIT PLAN
WebMediaBrands has a defined contribution plan, which qualifies under Section 401(k) of the Internal Revenue Code for employees meeting certain
service requirements. WebMediaBrands may also make contributions each year for the benefit of all eligible employees under the plan. Discretionary contributions to the plan totaled $471,000 and $0 in 2007 and 2008, respectively.
14. STOCK INCENTIVE PLAN
In April 1999, WebMediaBrands established the WebMediaBrands 1999 Stock
Incentive Plan (Amended and Restated as of March 5, 2008) (the 1999 Plan) under which WebMediaBrands may issue qualified incentive or nonqualified stock options to employees, including officers, consultants and directors. The
exercise price of the options granted under the 1999 Plan will not be less than the fair market value of the shares of WebMediaBrandss common stock on the date of grant. In June 2006, the 1999 Plan was amended to increase the number of shares
of WebMediaBrands common stock and options to purchase shares of WebMediaBrands common stock available for issuance thereunder to 12,000,000 shares.
At the Annual Meeting of Stockholders of WebMediaBrands held on June 3, 2008, WebMediaBrandss stockholders approved the WebMediaBrands 2008
Stock Incentive Plan (the 2008 Plan). The 2008 Plan, along with the form of Incentive Stock Option Agreement and the form of Nonqualified Stock Option Agreement were previously approved and adopted by WebMediaBrandss Board on
April 28, 2008.
The 2008 Plan will be administered by the
Compensation Committee of the Board and allows for the grant of incentive stock options, nonqualified stock options, restricted stock, performance-based awards and other stock-based awards.
Subject to certain antidilution adjustments, an aggregate of 4,000,000 shares
of WebMediaBrands common stock may be issued under the 2008 Plan. In addition to this 4,000,000 base share reserve, up to 231,108 shares of common stock remaining available for issuance under the 1999 Plan upon its expiration, together with up to
6,848,500 shares of common stock (as of December 31, 2008) underlying outstanding awards granted under the 1999 Plan that remain undelivered following any expiration, cancellation, forfeiture, cash settlement, or other termination of such
awards, may also be available for grant under the 2008 Plan.
Each stock option granted in 2007 has a five or ten year term from date of grant. Stock options granted prior to 2007 have a ten year term from date of grant except for options granted to the Chairman and Chief Executive Officer, which have
a five year term. Stock options granted in 2008 have a five year term. Stock option grants vest equally on each of the first three anniversaries of their respective grant dates. WebMediaBrands issues new shares of common stock upon the exercise of
stock options.
65
WebMediaBrands Inc.
Notes to Consolidated Financial Statements(Continued)
For the Years Ended December 31, 2007 and 2008
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option
pricing model with the following assumptions used for grants during the periods presented:
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
Risk-free interest rate
|
|
4.13
|
%
|
|
1.89
|
%
|
Expected life (in years)
|
|
3.7
|
|
|
2.19
|
|
Dividend yield
|
|
0
|
%
|
|
0
|
%
|
Expected volatility
|
|
66
|
%
|
|
84
|
%
|
The expected stock
price volatility is based on the historical volatility of WebMediaBrandss common stock. The risk-free interest rate is based on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term. The expected
term of the options was calculated using the simplified method for options granted in 2007 and 2008. WebMediaBrands previously had issued options with a life of ten years. Beginning in 2007, options were issued with a five year life. Due to this
change, WebMediaBrands did not have historical exercise data to provide a reasonable basis upon which to estimate the expected term. As a result the Company has applied the simplified method, which entails averaging the life of the option with the
vesting period.
The weighted-average grant date fair value of
options granted during the years 2007 and 2008 was $2.93 and $0.41, respectively. The total intrinsic value of options exercised during the years ended December 31, 2007 and 2008, $1.1 million and $2,000, respectively.
The following table summarizes nonvested option activity for the year ended
December 31, 2008:
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted Average
Exercise Price
|
Outstanding nonvested shares at December 31, 2007
|
|
1,850,497
|
|
|
$
|
8.31
|
Granted
|
|
7,628,701
|
|
|
|
1.23
|
Vested
|
|
(4,039,309
|
)
|
|
|
1.16
|
Forfeited
|
|
(4,066,161
|
)
|
|
|
4.28
|
|
|
|
|
|
|
|
Outstanding nonvested shares at December 31, 2008
|
|
1,373,728
|
|
|
$
|
1.95
|
|
|
|
|
|
|
|
66
WebMediaBrands Inc.
Notes to Consolidated Financial Statements(Continued)
For the Years Ended December 31, 2007 and 2008
The following table summarizes option activity during the year ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
Weighted
Average
Remaining
Contractual
Term (years)
|
|
Aggregate
Intrinsic Value
(in thousands)
|
Outstanding at December 31, 2007
|
|
5,417,430
|
|
|
$
|
9.81
|
|
|
|
|
|
Granted
|
|
7,628,701
|
|
|
|
1.23
|
|
|
|
|
|
Exercised
|
|
(2,501
|
)
|
|
|
2.91
|
|
|
|
|
|
Forfeited or expired
|
|
(6,195,130
|
)
|
|
|
7.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
6,848,500
|
|
|
$
|
2.60
|
|
3.13
|
|
$
|
408
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31, 2008
|
|
6,808,002
|
|
|
$
|
2.60
|
|
3.12
|
|
$
|
406
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2008
|
|
5,474,772
|
|
|
$
|
2.77
|
|
2.90
|
|
$
|
306
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate
intrinsic value in the table above is before income taxes, based on WebMediaBrandss closing stock price of $0.38 as of December 31, 2008.
Total stock-based compensation expense, net of forfeitures, was $3.0 million and $4.7 million for the years ended December 31, 2007 and
2008, respectively.
As of December 31, 2008, there was
$2.4 million of total unrecognized compensation cost related to nonvested stock-based compensation arrangements granted under the stock incentive plan. Pursuant to the stock incentive plan, due to the Sale, all nonvested stock options vested
immediately on February 23, 2009 and therefore that cost will be recognized during the first quarter of 2009.
WebMediaBrands received $1.2 million and $7,000 from the exercise of stock options during the years ended December 31, 2007 and 2008, respectively.
Cash provided by operating activities decreased and cash
provided by financing activities increased by $1.1 million and $1.8 million related to excess tax benefits from stock-based payment arrangements for the years ended December 31, 2007 and 2008.
Common Stock Option Exchange Offer
On May 20, 2008, WebMediaBrandss Board approved a plan to
exchange all outstanding non-qualified stock options having an exercise price greater than $4.00 per share (the Eligible Options) for new options with an exercise price of $2.01 per share, the closing price of WebMediaBrandss
common stock on May 20, 2008, on a one-for-one basis. The new options follow the vesting schedule of the original options that were exchanged.
WebMediaBrands accounted for the exchange offer as a modification under SFAS No. 123(R). In accordance with SFAS No. 123(R), WebMediaBrands
recorded the incremental fair value related to the exchanged awards, together with unamortized stock-based compensation expense associated with the unvested cancelled awards, over the remaining vesting period. The fair values of the exchanged
options were estimated
67
WebMediaBrands Inc.
Notes to Consolidated Financial Statements(Continued)
For the Years Ended December 31, 2007 and 2008
using the Black-Scholes option pricing model. A total of 3,047,289 shares were cancelled and reissued. This amount has been included in the granted and
forfeited, expired or cancelled lines in the table above. The incremental fair value of the exchange offer was approximately $1.8 million, with $1.5 million recorded during the year ended December 31, 2008, and the remaining $263,000 to be
recognized over the remaining vesting period of the options.
On November 17, 2008, WebMediaBrandss Board approved a plan to exchange all outstanding non-qualified stock options having an exercise price greater than $2.00 per share (the Eligible Options) for new options with an
exercise price of $0.26 per share, the closing price of WebMediaBrandss common stock on November 17, 2008, on a one-for-one basis. The new options follow the vesting schedule of the original options that were exchanged.
WebMediaBrands accounted for the exchange offer as a modification under SFAS
No. 123(R). In accordance with SFAS No. 123(R), WebMediaBrands recorded the incremental fair value related to the exchanged awards, together with unamortized stock-based compensation expense associated with the unvested cancelled awards,
over the remaining vesting period. The fair values of the exchanged options were estimated using the Black-Scholes option pricing model. A total of 2,310,313 shares were cancelled and reissued. This amount has been included in the granted and
forfeited, expired or cancelled lines in the table above. The incremental fair value of the exchange offer was approximately $241,000, with $188,000 recorded during the year ended December 31, 2008, and the remaining $53,000 to be recognized
over the remaining vesting period of the options.
16. RELATED PARTY
TRANSACTIONS
During 2005, WebMediaBrandss Board
granted lifetime post-employment medical benefits to WebMediaBrandss Chairman and Chief Executive Officer and his spouse. The cost accrued for these benefits for years ended December 31, 2007 and 2008 was $69,000 and $69,000,
respectively, and is included in general and administrative expenses in the accompanying consolidated statements of operations.
See note 17 for further disclosure on related party transactions.
17. SUBSEQUENT EVENTS
On February 23, 2009, the Company announced the closing of the previously announced sale of its Online images business to Getty Images, Inc.
(Getty Images) pursuant to the terms and conditions of a definitive stock purchase agreement dated as of October 22, 2008, by and between the Company and Getty Images (the Stock Purchase Agreement) for $96 million in
cash, subject to certain post-closing adjustments. In connection with the Sale, the Company terminated its Credit Agreement with KeyBank and applied approximately $82 million of the gross proceeds from the Sale to repay all outstanding indebtedness
under (i) the Revolving Credit Note (as defined in the Credit Agreement), (ii) the Term Loan B Note (as defined in the Credit Agreement), and (iii) all other obligations under the Credit Agreement other than (a) a $500,000 letter
of credit previously issued by KeyBank, on behalf of the Lenders, pursuant to the Credit Agreement, which has been fully cash collateralized by the Company and (b) the Swap Agreement. As described in more detail below, the Swap Agreement with
KeyBank will remain outstanding.
In connection with its
termination of the Credit Agreement, WebMediaBrands Inc. entered into (a) the First Amendment to ISDA Master Agreement, dated as of February 23, 2009 (the Swap Amendment), with respect
68
WebMediaBrands Inc.
Notes to Consolidated Financial Statements(Continued)
For the Years Ended December 31, 2007 and 2008
to that certain ISDA Master Agreement, dated as of July 19, 2007, by and between KeyBank and the Company (the Original Swap Agreement and,
together with the Swap Amendment, the Swap Agreement) and (b) the Credit Support Agreement, dated as of February 23, 2009, by and among Alan M. Meckler (Mr. Meckler), Ellen L. Meckler (Mrs. Meckler) and
the Company (the Credit Support Agreement).
The
Companys obligations under the Swap Agreement are secured by a first priority security interest in all of the Companys assets and the assets of its wholly-owned subsidiary, Mediabistro.com Inc., granted pursuant to various security
agreements that each of the Company and Mediabistro entered into with KeyBank on July 12, 2007 and July 30, 2007, respectively, and amended on February 23, 2009 (collectively, the Amended Security Agreements). The Amended
Security Agreements evidence KeyBanks security interest in both the Companys assets (after giving effect to the sale of Jupiterimages) and Mediabistro.com Inc.s assets, which was granted in connection with the Swap Amendment. Under
the Swap Amendment, a termination or event of default under any of the Amended Security Agreements would entitle KeyBank to terminate the Swap Agreement.
In connection with the Credit Support Agreement, Mr. Meckler has agreed to personally guarantee the Companys obligations under the Swap
Agreement and Mrs. Meckler has agreed to grant a security interest to KeyBank in respect of certain of her assets to support Mr. Mecklers personal guarantee to KeyBank. In exchange for Mr. Mecklers personal guarantee to
KeyBank and Mrs. Mecklers grant of a security interest to KeyBank, the Company has agreed pursuant to the Credit Support Agreement to, among other things, pay certain cash consideration to Mr. Meckler and Mrs. Meckler on a
monthly basis. The amount of the cash consideration is equal to one-twelfth (1/12) of one percent (1%) of the notional amount of the Swap Agreement, which notional amount is initially $49,250,000 but will decrease by $125,000 at the
beginning of each fiscal quarter commencing on March 31, 2009. In addition, the Company acknowledges that Mr. Meckler may in certain circumstances have the right to purchase KeyBanks interests in the Swap Agreement and the Amended
Security Agreements. In the event that Mr. Meckler or Mrs. Meckler is required to satisfy the Companys obligations under the Swap Agreement, Mr. Meckler and Mrs. Meckler will be subrogated to KeyBanks rights against
the Company under the Swap Agreement and the Amended Security Agreements.
The Company will re-evaluate the designation of the interest rate swap during the three months ending March 31, 2009.
As a result of the Sale, the following assets and liabilities as of December 31, 2008 will be disposed (in thousands):
|
|
|
|
Current assets
|
|
$
|
17,080
|
Property and equipment, net
|
|
|
8,076
|
Intangible assets, net
|
|
|
51,836
|
Goodwill
|
|
|
36,585
|
Other assets
|
|
|
198
|
|
|
|
|
Total assets
|
|
$
|
113,775
|
|
|
|
|
Current liabilities
|
|
$
|
25,348
|
Long-term liabilities
|
|
|
9,497
|
|
|
|
|
Total liabilities
|
|
$
|
34,845
|
|
|
|
|
In conjunction with
the Sale, the Company changed its name from Jupitermedia Corporation to WebMediaBrands Inc. effective February 24, 2009.
69
ITEM 9.
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
None
ITEM 9A(T).
|
CONTROLS AND PROCEDURES
|
(a) Evaluation of Disclosure Controls and Procedures.
The Chief Executive Officer and Chief Financial Officer have evaluated the
effectiveness of the companys disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of December 31, 2007. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that, due to the material weakness in internal control over financial reporting described below in Managements Annual Report on Internal Control Over Financial Reporting, the
companys disclosure controls and procedures were not effective as of December 31, 2008.
(b) Managements Annual Report on Internal Control Over Financial Reporting.
The management of WebMediaBrands Inc. and subsidiaries
(the Company) is responsible for establishing and maintaining adequate internal control over financial reporting. The Companys internal control over financial reporting is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, internal
controls over financial reporting determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Companys internal control over financial reporting as of
December 31, 2008. In making this assessment, it used the criteria set forth in
Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Managements assessment included an evaluation of the design of the Companys internal controls over financial reporting and testing of the operational effectiveness of its internal controls over financial reporting. Based on this
assessment, management believes that the Companys internal control over financial reporting was not effective as of December 31, 2008, based on the criteria in that framework due to the material weakness described below.
A material weakness is a deficiency, or a combination of deficiencies, in
internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the companys annual or interim financial statements will not be prevented or detected on a timely basis.
Income TaxesThe Companys processes, procedures and controls
related to the preparation and review of the annual tax provision were not effective to ensure that amounts related to the tax provision and related current or deferred income tax asset and liability accounts were accurate and determined in
accordance with generally accepted accounting principles. Specifically, the Company lacked the appropriate technical oversight to effectively review the accounting for income taxes leading to the untimely identification and resolution of certain
income tax accounting matters. This material weakness resulted in accounting errors, which resulted in corrections prior to the issuance of the consolidated financial statements for the year ended December 31, 2008 and interim periods during
2008.
This annual report does not include an attestation
report of the Companys independent registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by the Companys independent registered public accounting
firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only managements report in this annual report.
70
(c) Changes in Internal Controls.
Other than the remediation of the material weakness
related to our financial reporting close process, no change in our internal controls over financial reporting occurred during the fourth quarter of our fiscal year ended December 31, 2008 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
(d) Remediation Plan for Material Weaknesses in Internal Control over Financial Reporting
Over the past few years the Company has outsourced preparation of the calculation of its quarterly and annual tax provisions, including tax calculations
related to purchase accounting, and its tax compliance to an external expert. In order to remediate the previously identified material weakness related to accounting for income taxes, early in 2008, the Company hired an internal Tax Director, who
has experience in accounting for income taxes and hired additional personnel trained and experienced in income tax accounting. Management recognized that a tax department, staffed with the appropriate tax accounting expertise, is important for the
Company to maintain effective internal controls.
The Company
has developed the following plan to remediate the material weakness in income taxes identified above.
|
|
|
Improve documentation and institute more formalized review of tax positions taken, with senior management and external experts, to ensure proper evaluation and
accounting treatment of complex tax issues, particularly in the area of purchase accounting;
|
|
|
|
Accelerate the timing of certain tax review activities during the financial statement closing process.
|
However, due to the Sale of its Online images business the Company believes
as though the complexities that gave rise to this material weakness may be substantially reduced.
We anticipate the actions described above and resulting improvements in controls will strengthen our internal control over financial reporting relating to
accounting for income taxes and will, over time, address the related material weakness that we identified as of December 31, 2007 and 2008. However, due to the recent Sale of our Online images business and the fact that many of the controls in
our system of internal controls rely extensively on manual review and approval, the successful operation of these controls for, at least, several quarters may be required prior to management being able to conclude that the material weakness has been
remediated.
ITEM 9B.
|
OTHER INFORMATION.
|
None.
71
PART III
ITEM 10.
|
DIRECTORS, EXECUTIVE OFFICERS OF THE REGISTRANT
|
Information with respect to this Item is incorporated herein by reference to WebMediaBrandss Proxy Statement for its Annual Meeting of Stockholders
to be held in 2009. WebMediaBrands has adopted a Code of Ethics for its Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer, the text of which it has posted on its Web site www.WebMediaBrands.com.
ITEM 11.
|
EXECUTIVE COMPENSATION
|
Information with respect to this Item is incorporated herein by reference to WebMediaBrandss Proxy Statement for its Annual Meeting of Stockholders
to be held in 2009.
ITEM 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|
Information with respect to this Item is incorporated herein by reference to WebMediaBrandss Proxy Statement for its Annual Meeting of Stockholders
to be held in 2009.
ITEM 13.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
|
Information with respect to this Item is incorporated herein by reference to WebMediaBrandss Proxy Statement for its Annual Meeting of Stockholders
to be held in 2009.
ITEM 14.
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
Information with respect to this Item is incorporated herein by reference to WebMediaBrandss Proxy Statement for its Annual Meeting of Stockholders
to be held in 2009.
72
PART IV
ITEM 15.
|
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|
INDEX TO EXHIBITS
(a) Documents filed as part of this report.
(1) Financial Statements: See WebMediaBrands Inc.Index to Consolidated Financial Statements at Item 8 on page 39 of this report.
(2) Financial Statement Schedule: Schedule IIValuation and Qualifying
Accounts
(3) Index to Exhibits
The following is a list of exhibits filed as part of this Report on Form
10-K. Where so indicated by footnote, exhibits, which were previously filed, are incorporated by reference. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated parenthetically except for in those
situations where the exhibit number was the same as set forth below.
|
|
|
Exhibit
Number
|
|
Description
|
2.1
|
|
Merger Agreement, dated June 24, 1999, between internet.com LLC and the Registrant. (1)
|
|
|
2.1.1
|
|
Stock Purchase Agreement, dated as of October 22, 2008, by and between Jupitermedia Corporation, a Delaware corporation and Getty Images, Inc., a Delaware corporation. (2)
|
|
|
3.1
|
|
Registrants Amended and Restated Certificate of Incorporation, as amended. (3)
|
|
|
3.2
|
|
Registrants Amended and Restated Bylaws, as amended. (4)
|
|
|
4.1
|
|
Form of Specimen Stock Certificate for the Registrants Common Stock. (1)
|
|
|
10.1
|
|
Form of Indemnification Agreement entered into between the Registrant and each of its directors and executive officers. (1)
|
|
|
10.2
|
|
Registrants 1999 Stock Incentive Plan (Amended and Restated as of June 7, 2006). (5)
|
|
|
10.3
|
|
Employment Agreement between the Registrant and Christopher S. Cardell, dated as of November 24, 1998. (6)
|
|
|
10.4
|
|
Employment Agreement between the Registrant and Christopher J. Baudouin, dated as of November 24, 1998. (7)
|
|
|
10.5
|
|
Credit Agreement, dated July 12, 2007, among Jupitermedia Corporation, as borrower, the lenders party thereto, KeyBank National Association, as the lead arranger, sole book runner and
administrative agent, and Citizens Bank, N.A., as Syndication Agent. (8)
|
|
|
10.6
|
|
Guaranty of Payment Agreement, dated July 12, 2007, among Jupiterimages Corporation as guarantor in favor of KeyBank National Association, as Administrative Agent. (9)
|
|
|
10.7
|
|
Guaranty of Payment Agreement, dated July 12, 2007, among I-Venture Management LLC as guarantor in favor of KeyBank National Association, as Administrative Agent. (10)
|
|
|
10.8
|
|
Guaranty of Payment Agreement, dated July 12, 2007, among Workbook, Inc. as guarantor in favor of KeyBank National Association, as Administrative Agent. (11)
|
|
|
10.9
|
|
Security Agreement, dated July 12, 2007, among Jupiterimages Corporation as pledgor and KeyBank National Association, as Administrative Agent. (12)
|
73
|
|
|
Exhibit
Number
|
|
Description
|
10.10
|
|
Security Agreement, dated July 12, 2007, among I-Venture Management LLC as pledgor and KeyBank National Association, as Administrative Agent. (13)
|
|
|
10.11
|
|
Security Agreement, dated July 12, 2007, among Workbook, Inc. as pledgor and KeyBank National Association, as Administrative Agent. (14)
|
|
|
10.12
|
|
Intellectual Property Security Agreement, dated July 12, 2007, among Jupiterimages Corporation as pledgor and KeyBank National Association, as Administrative Agent. (15)
|
|
|
10.13
|
|
Intellectual Property Security Agreement, dated July 12, 2007, among Jupitermedia Corporation. as borrower and KeyBank National Association, as Administrative Agent.
(16)
|
|
|
10.14
|
|
Pledge Agreement, dated July 12, 2007, among Jupitermedia Corporation., as borrower and KeyBank National Association, as Administrative Agent. (17)
|
|
|
10.15
|
|
Pledge Agreement, dated July 12, 2007, among Jupiterimages Corporation, as pledgor and KeyBank National Association, as Administrative Agent. (18)
|
|
|
10.16
|
|
Agreement and Plan of Merger, dated as of July 17, 2007, by and among Jupitermedia Corporation, a Delaware corporation, Mediabistro Acquisition Subsidiary, Inc., a Delaware corporation and a
wholly-owned subsidiary of Jupitermedia Corporation, Mediabistro.com Inc., a Delaware corporation and Laurel Touby, as agent for the security holders of the Company. (19)
|
|
|
10.17
|
|
Registrants 1999 Stock Incentive Plan (Amended and Restated as of March 5, 2008). (20)
|
|
|
10.18
|
|
Registrants 1999 Stock Incentive Plan Form of Incentive Stock Option Agreement. (21)
|
|
|
10.19
|
|
Registrants 1999 Stock Incentive Plan Form of Nonqualified Stock Option Agreement. (22)
|
|
|
10.20
|
|
Consent to Credit Agreement, dated as of March 30, 2008, by and among the Registrant, the several Lenders and subsidiaries of the Registrant listed on the signature pages thereof, and Keybank
National Association, as the lead arranger, sole book runner and administrative agent. (23)
|
|
|
10.21
|
|
Cash Bonus Plan Agreement, dated as of January 1, 2007, by and among the Registrant and Alan M. Meckler. (24)
|
|
|
10.22
|
|
Cash Bonus Plan Agreement, dated as of January 1, 2007, by and among the Registrant and Christopher S. Cardell. (25)
|
|
|
10.23
|
|
Cash Bonus Plan Agreement, dated as of March 7, 2008, by and among the Registrant and Alan M. Meckler. (26)
|
|
|
10.24
|
|
Cash Bonus Plan Agreement, dated as of March 7, 2008, by and among the Registrant and Christopher S. Cardell. (27)
|
|
|
10.25
|
|
Registrants 2008 Stock Incentive Plan. (28)
|
|
|
10.26
|
|
Registrants 2008 Stock Incentive Plan Form of Incentive Stock Option Agreement. (29)
|
|
|
10.27
|
|
Registrants 2008 Stock Incentive Plan Form of Nonqualified Stock Option Agreement. (30)
|
|
|
10.28
|
|
Employment Agreement between Registrant and Donald J. ONeill, dated as of July 21, 2008. (31)
|
|
|
10.29
|
|
First Amendment Agreement, dated as of October 10, 2008 to Credit and Security Agreement, dated July 12, 2007, among Jupitermedia Corporation, as borrower, the lenders party thereto, KeyBank
National Association, as the lead arranger, sole book runner and administrative agent and Citizens Bank, N.A., as Syndication Agent. (32)
|
|
|
10.30
|
|
Letter Agreement by and between Christopher Cardell and Jupitermedia Corporation, dated October 24, 2008. (33)
|
|
|
11.1
|
|
Statement Regarding Computation of Per Share Earnings (included in notes to financial statements).
|
74
|
|
|
Exhibit
Number
|
|
Description
|
21.1
|
|
Subsidiaries of the Registrant.
|
|
|
23.1
|
|
Consent of Deloitte & Touche LLP.
|
|
|
23.2
|
|
Consent of Grant Thorton LLP.
|
|
|
31.1
|
|
Rule 13a-14(a)/15d-14(a) Certification.
|
|
|
31.2
|
|
Rule 13a-14(a)/15d-14(a) Certification.
|
|
|
32.1
|
|
Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
32.2
|
|
Certification of the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
(1)
|
Incorporated herein by reference to the Registrants Registration Statement on Form S-1/A (File No. 333-76331) filed on May 19, 1999.
|
(2)
|
Incorporated herein by reference to Exhibit 2.1 of the Registrants Form 8-K Filed on October 23, 2008
|
(3)
|
Incorporated herein by reference to the Registrants Form 8-K Filed on February 27, 2009.
|
(4)
|
Incorporated herein by reference to Exhibit 3.1 of the Registrants Form 8-K Filed on December 14, 2007.
|
(5)
|
Incorporated herein by reference to Exhibit 10.1 of the Registrants Form 10-Q/A filed on February 8, 2007.
|
(6)
|
Incorporated herein by reference to Exhibit 10.7 of the Registrants Registration Statement on Form S-1/A (File No. 333-76331) filed on May 19, 1999.
|
(7)
|
Incorporated herein by reference to Exhibit 10.8 of the Registrants Registration Statement on Form S-1/A (File No. 333-76331) filed on May 19, 1999.
|
(8)
|
Incorporated herein by reference to Exhibit 10.1 of the Registrants Form 8-K Filed on July 18, 2007.
|
(9)
|
Incorporated herein by reference to Exhibit 10.2 of the Registrants Form 8-K Filed on July 18, 2007.
|
(10)
|
Incorporated herein by reference to Exhibit 10.3 of the Registrants Form 8-K Filed on July 18, 2007.
|
(11)
|
Incorporated herein by reference to Exhibit 10.4 of the Registrants Form 8-K Filed on July 18, 2007.
|
(12)
|
Incorporated herein by reference to Exhibit 10.5 of the Registrants Form 8-K Filed on July 18, 2007.
|
(13)
|
Incorporated herein by reference to Exhibit 10.6 of the Registrants Form 8-K Filed on July 18, 2007.
|
(14)
|
Incorporated herein by reference to Exhibit 10.7 of the Registrants Form 8-K Filed on July 18, 2007.
|
(15)
|
Incorporated herein by reference to Exhibit 10.8 of the Registrants Form 8-K Filed on July 18, 2007.
|
(16)
|
Incorporated herein by reference to Exhibit 10.9 of the Registrants Form 8-K Filed on July 18, 2007.
|
(17)
|
Incorporated herein by reference to Exhibit 10.10 of the Registrants Form 8-K Filed on July 18, 2007.
|
(18)
|
Incorporated herein by reference to Exhibit 10.11 of the Registrants Form 8-K Filed on July 18, 2007.
|
(19)
|
Incorporated herein by reference to Exhibit 10.1 of the Registrants Form 8-K Filed on July 20, 2007.
|
(20)
|
Incorporated herein by reference to Exhibit 10.1 of the Registrants Form 8-K Filed on March 7, 2008.
|
(21)
|
Incorporated herein by reference to Exhibit 10.3 of the Registrants Form 10-Q Filed on May 12, 2008.
|
(22)
|
Incorporated herein by reference to Exhibit 10.4 of the Registrants Form 10-Q Filed on May 12, 2008.
|
(23)
|
Incorporated herein by reference to Exhibit 10.5 of the Registrants Form 10-Q Filed on May 12, 2008
|
(24)
|
Incorporated herein by reference to Exhibit 10.6 of the Registrants Form 10-Q Filed on May 12, 2008.
|
(25)
|
Incorporated herein by reference to Exhibit 10.7 of the Registrants Form 10-Q Filed on May 12, 2008.
|
(26)
|
Incorporated herein by reference to Exhibit 10.8 of the Registrants Form 10-Q Filed on May 12, 2008.
|
(27)
|
Incorporated herein by reference to Exhibit 10.9 of the Registrants Form 10-Q Filed on May 12, 2008.
|
(28)
|
Incorporated herein by reference to Exhibit 10.1 of the Registrants Form 8-K Filed on June 9, 2008.
|
(29)
|
Incorporated herein by reference to Exhibit 10.2 of the Registrants Form 8-K Filed on June 9, 2008.
|
(30)
|
Incorporated herein by reference to Exhibit 10.3 of the Registrants Form 8-K Filed on June 9, 2008.
|
(31)
|
Incorporated herein by reference to Exhibit 10.13 of the Registrants Form 10-Q Filed on August 11, 2008.
|
(32)
|
Incorporated herein by reference to Exhibit 10.1 of the Registrants Form 8-K Filed on October 14, 2008.
|
(33)
|
Incorporated herein by reference to Exhibit 10.1 of the Registrants Form 8-K Filed on October 29, 2008.
|
|
Compensatory plans and arrangements for executives and others.
|
75
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
March 31, 2009
|
|
|
WebMediaBrands Inc.
|
|
|
By:
|
|
/
S
/ A
LAN
M.
M
ECKLER
|
Name:
|
|
Alan M. Meckler
|
Title:
|
|
Chairman and Chief Executive Officer
|
Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
|
|
|
|
|
|
|
/
S
/ A
LAN
M.
M
ECKLER
Alan M. Meckler
|
|
Chairman of the Board, Chief Executive Officer and Director (Principal Executive Officer)
|
|
March 31, 2009
|
|
|
|
/
S
/ D
ONALD
J.
ON
EILL
Donald J. ONeill
|
|
Vice President and Chief Financial Officer (Principal Financial Officer and Chief Accounting Officer)
|
|
March 31, 2009
|
|
|
|
/
S
/ G
ILBERT
F.
B
ACH
Gilbert F. Bach
|
|
Director
|
|
March 31, 2009
|
|
|
|
/
S
/ M
ICHAEL
J.
D
AVIES
Michael J. Davies
|
|
Director
|
|
March 31, 2009
|
|
|
|
/
S
/ J
OHN
R.
P
ATRICK
John R. Patrick
|
|
Director
|
|
March 31, 2009
|
|
|
|
/
S
/ W
ILLIAM
A.
S
HUTZER
William A. Shutzer
|
|
Director
|
|
March 31, 2009
|
76
Schedule IIValuation and Qualifying Accounts
WebMediaBrands Inc.
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Balance at
December 31,
2006
|
|
Additions
(Deductions)
Charged to
Operating
Expenses
|
|
|
Other
Additions
|
|
Other
Deductions
|
|
|
Balance at
December 31,
2007
|
|
Additions
(Deductions)
Charged to
Operating
Expenses
|
|
Other
Additions
|
|
Other
Deductions
|
|
|
Balance at
December 31,
2008
|
Allowance for doubtful accounts
|
|
$
|
2,114
|
|
$
|
(310
|
)
|
|
$
|
643
|
|
$
|
(421
|
)
|
|
$
|
2,026
|
|
$
|
1,037
|
|
$
|
47
|
|
$
|
(805
|
)
|
|
$
|
2,305
|
Deferred tax asset valuation allowance
|
|
|
303
|
|
|
218
|
|
|
|
728
|
|
|
(445
|
)
|
|
|
804
|
|
|
31,586
|
|
|
6,152
|
|
|
(588
|
)
|
|
|
37,954
|
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