UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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S
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Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
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For the quarterly period ended June 30, 2012.
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or
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£
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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 __________
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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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(I.R.S. Employer Identification No.)
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50 Washington Street, Suite
912
Norwalk, Connecticut
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06854
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(Address of principal executive offices)
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(Zip Code)
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(203) 662-2800
(Registrant’s telephone number,
including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes
x
No
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
x
No
¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large
accelerated filer” 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
x
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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 Rule 12b-2 of the Exchange Act.): Yes
¨
No
x
The number of outstanding shares the Registrant’s
common stock, par value $.01 per share, as of August 3, 2012 was 42,067,316.
WebMediaBrands Inc.
Index
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Page
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PART I. Financial Information
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Item 1.
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Financial Statements
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3
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Consolidated Condensed Balance Sheets – June 30, 2012 (unaudited) and December 31,
2011
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3
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Unaudited Consolidated Condensed Statements of Operations – For the Three and Six Months Ended June 30, 2012 and 2011
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4
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Unaudited Consolidated Condensed Statements of Cash Flows – For the Six Months Ended June 30, 2012 and 2011
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5
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Notes to Unaudited Consolidated Condensed Financial Statements
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6
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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13
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Item 3.
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Quantitative and Qualitative Disclosures about Market Risk
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18
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Item 4.
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Controls and Procedures
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18
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PART II. Other Information
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Item 1.
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Legal Proceedings
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20
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Item 1A.
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Risk Factors
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20
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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20
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Item 3.
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Defaults Upon Senior Securities
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20
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Item 4.
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Mine Safety Disclosures
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20
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Item 5.
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Other Information
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20
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Item 6.
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Exhibits
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20
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Signatures
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21
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WebMediaBrands Inc.
Consolidated Condensed Balance Sheets
June 30, 2012 and December 31, 2011
(in thousands, except share and per share
amounts)
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June 30,
2012
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December 31,
2011
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(unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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3,557
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$
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3,438
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Accounts receivable, net of allowances of $25 and $11, respectively
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575
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489
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Prepaid expenses and other current assets
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370
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575
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Total current assets
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4,502
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4,502
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Property and equipment, net of accumulated depreciation of $1,504 and $1,350, respectively
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381
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477
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Intangible assets, net
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2,431
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2,626
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Goodwill
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15,116
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15,116
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Investments and other assets
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1,133
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1,146
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Total assets
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$
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23,563
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$
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23,867
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Current liabilities:
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Accounts payable
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$
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447
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$
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367
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Accrued payroll and related expenses
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504
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391
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Accrued expenses and other current liabilities
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580
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662
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Deferred revenues
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1,437
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1,288
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Total current liabilities
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2,968
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2,708
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Loan from related party
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7,647
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7,647
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Deferred revenues
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22
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22
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Deferred income taxes
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460
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444
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Other long-term liabilities
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62
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60
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Total liabilities
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11,159
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10,881
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Commitments and contingencies (see note 11)
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Stockholders’ equity:
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Preferred stock, $.01 par value, 4,000,000 shares authorized, no shares issued and outstanding
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–
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–
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Common stock, $.01 par value, 75,000,000 shares authorized, 42,880,983 and 42,545,702 shares issued and 42,045,983 and 41,710,702 shares outstanding at June 30, 2012 and December 31, 2011, respectively
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429
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425
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Additional paid-in capital
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289,049
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288,672
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Accumulated deficit
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(276,578
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)
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(275,615
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)
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Treasury stock, 835,000 shares, at cost
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(496
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)
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(496
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)
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Total stockholders’ equity
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12,404
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12,986
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Total liabilities and stockholders’ equity
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$
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23,563
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$
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23,867
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See notes to unaudited consolidated condensed
financial statements.
WebMediaBrands Inc.
Unaudited Consolidated Condensed Statements
of Operations
For the Three and Six Months Ended
June 30, 2012 and 2011
(in thousands, except per share amounts)
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Three Months Ended
June 30,
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Six Months Ended
June 30,
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2012
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2011
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2012
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2011
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Revenues
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$
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4,040
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$
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3,800
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$
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7,725
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$
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6,046
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Cost of revenues
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2,109
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2,123
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4,152
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3,571
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Advertising, promotion and selling
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665
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633
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1,306
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1,065
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General and administrative
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1,313
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1,366
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2,632
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2,721
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Depreciation
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80
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81
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160
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165
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Amortization
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136
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93
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272
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211
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Contingent acquisition consideration
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–
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329
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–
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329
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Total operating expenses
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4,303
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4,625
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8,522
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8,062
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Operating loss
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(263
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)
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(825
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)
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(797
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)
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(2,016
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)
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Other income (loss) , net
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(3
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)
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1
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(3
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)
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(3
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)
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Interest income
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1
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5
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2
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40
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Interest expense
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(73
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)
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(178
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)
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(146
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)
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(357
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)
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Loss before income taxes
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(338
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)
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(997
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)
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(944
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)
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(2,336
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)
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Provision for income taxes
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8
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10
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19
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20
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Net loss
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$
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(346
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)
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$
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(1,007
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)
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$
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(963
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)
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$
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(2,356
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)
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Loss per share:
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Basic net loss
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$
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(0.01
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)
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$
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(0.02
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)
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$
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(0.02
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)
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$
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(0.06
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)
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Diluted net loss
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$
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(0.01
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)
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$
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(0.02
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)
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$
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(0.02
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)
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$
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(0.06
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)
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Weighted average shares used in computing loss per share:
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Basic
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41,879
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40,463
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41,786
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39,277
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Diluted
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41,879
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40,463
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41,786
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39,277
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See notes to unaudited consolidated condensed
financial statements.
WebMediaBrands Inc.
Unaudited Consolidated Condensed Statements
of Cash Flows
For the Six Months Ended June 30, 2012
and 2011
(in thousands)
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Six Months Ended
June 30,
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2012
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2011
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Cash flows from operating activities:
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Net loss
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$
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(963
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)
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$
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(2,356
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)
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Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
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Depreciation and amortization
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432
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376
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Stock-based compensation
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259
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198
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Provision for losses on accounts receivable
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20
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5
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Amortization of debt issuance costs
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17
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15
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Deferred income taxes
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16
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16
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Changes in assets and liabilities (net of businesses acquired):
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Accounts receivable, net
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(106
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)
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(83
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)
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Prepaid expenses and other assets
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200
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373
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Accounts payable, accrued expenses and other liabilities
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99
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(1,813
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)
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Deferred revenues
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150
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280
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Net cash provided by (used in) operating activities
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124
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(2,989
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)
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Cash flows from investing activities:
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Purchases of property and equipment
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(47
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)
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(30
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)
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Acquisitions of businesses, assets and other
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(77
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)
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|
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(7,495
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)
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Net cash used in investing activities
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(124
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)
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(7,525
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)
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Cash flows from financing activities:
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|
|
|
|
|
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Repayment of borrowings from related party
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|
–
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(50
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)
|
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Proceeds from exercise of stock options
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|
|
119
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|
|
|
129
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|
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Net cash provided by financing activities
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119
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|
|
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79
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Net increase (decrease) in cash and cash equivalents
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119
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|
|
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(10,435
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)
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Cash and cash equivalents, beginning of period
|
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|
3,438
|
|
|
|
12,970
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Cash and cash equivalents, end of period
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$
|
3,557
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|
|
$
|
2,535
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|
See notes to unaudited consolidated condensed
financial statements.
Notes to Unaudited Consolidated Condensed
Financial Statements
June 30, 2012
WebMediaBrands Inc.
(“WebMediaBrands” or the “Company”) is an Internet media company that provides content, education and career
services to social media, traditional media and creative professionals through a portfolio of vertical online properties, communities
and trade shows. The Company’s online business includes:
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•
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mediabistro.com, a blog network providing content, education, community and career resources about major media industry verticals including new media, social media, Facebook, TV news, advertising, public relations, publishing, design, mobile and the Semantic Web that includes the following:
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10,000Words
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AllTwitter
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FishbowlLA
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MediaJobsDaily
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TVNewser
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AgencySpy
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AppNewser
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FishbowlNY
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PRNewser
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TVSpy
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AllFacebook
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FishbowlDC
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GalleyCat
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SocialTimes
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UnBeige
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The mediabistro.com business also includes an industry-leading job board for media and creative professionals focusing on job categories such as social media, online/new media, publishing, public relations/marketing, advertising, sales, design, web development, television and more;
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•
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InsideNetwork.com, a network of online properties dedicated
to providing original market research, data services, news, events and job listings on the Facebook platform, on social gaming
and on mobile applications ecosystems that includes the following:
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AppData
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Inside Network Research
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PageData
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Inside Facebook
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Inside Social Games
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The Facebook Marketing Bible
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Inside Mobile Apps
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Inside Virtual Goods
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•
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SemanticWeb.com, a blog providing content, education, community resources and career resources on the commercialization and application of Semantic Technologies, Linked Data and Big Data.
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•
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AllCreativeWorld.com, a network of online properties providing
content, education, community, career and other resources for creative and design professionals.
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•
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Community, membership and e-commerce offerings including
a freelance listing service, a marketplace for designing and purchasing logos (stocklogos.com), and premium membership services.
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The Company’s
education business features online and in-person courses and online conferences for social media and traditional media professionals. Online
education conferences combine the concepts of a large-scale event and a small group educational workshop that offers attendees
the opportunity to learn in a dynamic online setting with live weekly instruction via webcast, discussion forums, homework
assignments, and small group interaction where students receive one-on-one guidance and instruction from an advisor.
The Company’s
trade shows include, among others, the Semantic Tech and Business Conference, Inside Social Apps, Social Gaming Summit and the
AllFacebook Marketing Conference.
The accompanying unaudited
consolidated condensed financial statements have been prepared from the books and records of WebMediaBrands in accordance with
accounting principles generally accepted in the United States of America and Rule 10-01 of Regulation S-X promulgated by the
Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete financial statements. The consolidated condensed statements
of operations for the three and six months ended June 30, 2012 are not necessarily indicative of the results to be expected for
the full year or any future interim period. These unaudited consolidated condensed financial statements should be read
in conjunction with the consolidated financial statements and notes thereto included in WebMediaBrands’s Annual Report on
Form 10-K for the year ended December 31, 2011. Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation. In the opinion of management, all adjustments considered necessary
for a fair presentation of the results for the interim periods presented have been reflected in such consolidated condensed financial
statements.
The consolidated condensed
financial statements include the accounts of WebMediaBrands and its wholly-owned subsidiaries: Mediabistro.com Inc., a Delaware
corporation, and Inside Network, Inc., a California corporation. All significant intercompany balances and transactions
have been eliminated in consolidation.
|
3.
|
RECENT ACCOUNTING PRONOUNCEMENTS
|
In May 2011, the
Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") No. 2011-04, "Fair
Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and
IFRS". The amendments in ASU No. 2011-04 generally represent clarification of Topic No. 820, but also include instances
where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has
changed. ASU No. 2011-04 results in common principles and requirements for measuring fair value and for disclosing information
about fair value measurements in accordance with U.S. GAAP and International Financial Reporting Standards. The amendments are
effective for interim and annual periods beginning after December 15, 2011 and are to be applied prospectively. This
pronouncement did not have a material effect on the Company’s consolidated condensed financial statements.
In
September 2011, the FASB issued ASU No. 2011-08: “Intangibles — Goodwill and Other (Topic
350): Testing Goodwill for Impairment.” The objective of ASU 2011-08 is to simplify how entities test
goodwill for impairment. The amendments permit an entity to first assess qualitative factors to determine whether
it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for
determining whether it is necessary to perform the two-step goodwill impairment test. The more-likely-than-not
threshold is defined as having a likelihood of more than 50 percent. ASU No. 2011-08 is effective for annual and
interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is
permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011,
if an entity’s financial statements for the most recent annual or interim period have not yet been
issued. The Company has elected early adoption of ASU No. 2011-08. This pronouncement did not have
a material effect on the Company’s consolidated condensed financial statements.
Segment
information is presented in accordance with Accounting Standards Codification (“ASC”) Topic 280,
“Segment Reporting”. ASC Topic 280 is typically based on a management approach that designates the internal
organization used for making operating decisions and assessing performance. Operating segments are defined as business areas
or lines of an enterprise about which financial information is available and evaluated on a regular basis by the chief
operating decision-makers, or decision-making groups, in deciding how to allocate capital and other resources to such lines
of business. The Company operates in one reportable segment. The Company is affected by seasonality as customers generally
post more job listings during the first calendar quarter and fewer job listings during the fourth calendar quarter.
Also, advertisers generally place fewer advertisements during the first and third calendar quarters of each year, which
together with fluctuations in online job postings, directly affects the Company’s business. The Company’s
results will also be impacted by the number and type of education courses offered and by the number and size of trade shows
held in each quarter. In addition, there may be fluctuations as trade shows held in one period in the current year may be
held in a different period in future years.
|
5.
|
ACCOUNTING FOR EMPLOYEE STOCK-BASED COMPENSATION
|
Total employee stock-based
compensation is as follows (in thousands):
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
Stock options for employees
|
|
$
|
137
|
|
|
$
|
82
|
|
|
$
|
261
|
|
|
$
|
166
|
|
|
Restricted stock for employees
|
|
|
–
|
|
|
|
32
|
|
|
|
(2
|
)
|
|
|
32
|
|
|
Total employee stock based compensation
|
|
$
|
137
|
|
|
$
|
114
|
|
|
$
|
259
|
|
|
$
|
198
|
|
Total employee stock-based
compensation increased additional paid-in capital by $259,000 and $198,000 for the six months ended June 30, 2012 and 2011, respectively.
The fair value of each
stock option grant is estimated using the Black-Scholes option pricing model to estimate the fair value of stock-based awards with
the following assumptions used for grants during the periods presented:
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
Risk-free interest rate
|
|
|
0.97%
|
|
|
|
2.21%
|
|
|
Expected life (in years)
|
|
|
6.0
|
|
|
|
6.0
|
|
|
Dividend yield
|
|
|
0%
|
|
|
|
0%
|
|
|
Expected volatility
|
|
|
99%
|
|
|
|
93%
|
|
The expected
stock price volatility is based on the historical volatility of WebMediaBrands’s common stock. The risk-free interest
rate is based on the implied yield available on U.S. Treasury zero-coupon issues with a term that is equivalent to the
remaining term of the stock option. WebMediaBrands had previously issued stock options with a five-year
life. The Company calculated the expected life for these stock options using historical
data. However, during the third quarter of 2010, the Company began issuing stock options with a ten-year
life and, as a result, calculated the expected life using the simplified method.
The weighted-average
grant date fair value of stock options granted during the six months ended June 30, 2012 and 2011 was $0.63 and $1.26, respectively.
The following table
summarizes stock option activity during the six months ended June 30, 2012:
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term (years)
|
|
|
Aggregate
Intrinsic
Value
(in thousands)
|
|
|
Outstanding at December 31, 2011
|
|
|
6,994,169
|
|
|
$
|
0.92
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
159,600
|
|
|
$
|
0.90
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(454,176
|
)
|
|
$
|
0.26
|
|
|
|
|
|
|
|
|
|
|
Forfeited, expired or cancelled
|
|
|
(288,746
|
)
|
|
$
|
2.88
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2012
|
|
|
6,410,847
|
|
|
$
|
0.88
|
|
|
|
5.9
|
|
|
$
|
486
|
|
|
Vested and expected to vest at June 30, 2012
|
|
|
6,149,619
|
|
|
$
|
0.89
|
|
|
|
5.8
|
|
|
$
|
479
|
|
|
Exercisable at June 30, 2012
|
|
|
3,826,599
|
|
|
$
|
0.96
|
|
|
|
4.5
|
|
|
$
|
410
|
|
The aggregate intrinsic
value in the table above is before income taxes, based on WebMediaBrands’s closing stock price of $0.63 on June 29, 2012,
the last trading day of the quarter. During the three months ended June 30, 2012 and 2011, the total intrinsic value of stock options
exercised was $133,000 and $422,000, respectively. During the six months ended June 30, 2012 and 2011, the total intrinsic value
of stock options exercised was $238,000 and $547,000, respectively.
As of June 30, 2012,
there was $900,000 of total unrecognized compensation cost related to nonvested stock-based compensation arrangements granted under
the Company’s stock incentive plan. The Company expects to amortize that cost over a weighted-average period of 23 months.
The following table
summarizes restricted stock activity during the six months ended June 30, 2012:
|
|
|
|
Shares
|
|
|
Weighted Average
Grant Date Fair Value
|
|
|
Outstanding nonvested shares at December 31, 2011
|
|
|
|
132,645
|
|
|
$
|
1.67
|
|
|
Granted
|
|
|
|
–
|
|
|
|
–
|
|
|
Vested
|
|
|
|
(7,077
|
)
|
|
$
|
1.67
|
|
|
Forfeited
|
|
|
|
(118,895
|
)
|
|
$
|
1.67
|
|
|
Outstanding nonvested shares at June 30, 2012
|
|
|
|
6,673
|
|
|
$
|
1.67
|
|
|
6.
|
COMPUTATION OF LOSS PER SHARE
|
The Company computes
basic loss per share using the weighted average number of common shares outstanding during the period. The Company computes diluted
loss per share 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 issuable upon the exercise of stock options. Common equivalent
shares are excluded from the calculation if their effect is anti-dilutive.
Computations of basic
and diluted loss per share for the periods presented are as follows (in thousands, except per share amounts):
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
Net loss
|
|
$
|
(346
|
)
|
|
$
|
(1,007
|
)
|
|
$
|
(963
|
)
|
|
$
|
(2,356
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average number of common shares outstanding
|
|
|
41,879
|
|
|
|
40,463
|
|
|
|
41,786
|
|
|
|
39,277
|
|
|
Effect of dilutive stock options
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Total basic weighted average number of common shares and dilutive stock options
|
|
|
41,879
|
|
|
|
40,463
|
|
|
|
41,786
|
|
|
|
39,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.06
|
)
|
The following table
summarizes the number of outstanding stock options excluded from the calculation of diluted loss per share for the periods presented
because the result would have been anti-dilutive (in thousands, except weighted average exercise price):
|
|
|
Three and Six Months Ended
June 30,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
Number of anti-dilutive stock options
|
|
|
6,411
|
|
|
|
4,768
|
|
|
Weighted average exercise price
|
|
$
|
0.88
|
|
|
$
|
1.05
|
|
|
7.
|
INTANGIBLE ASSETS AND GOODWILL
|
Amortized Intangible Assets
The following tables
set forth the intangible assets that are subject to amortization, including the related accumulated amortization (in thousands):
|
|
|
June 30, 2012
|
|
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Value
|
|
|
Customer relationships
|
|
$
|
804
|
|
|
$
|
(332
|
)
|
|
$
|
472
|
|
|
Copyrights and trademarks
|
|
|
538
|
|
|
|
(137
|
)
|
|
|
401
|
|
|
Website development costs
|
|
|
640
|
|
|
|
(264
|
)
|
|
|
376
|
|
|
Non-compete agreements
|
|
|
97
|
|
|
|
(90
|
)
|
|
|
7
|
|
|
Content development costs
|
|
|
165
|
|
|
|
(159
|
)
|
|
|
6
|
|
|
Total
|
|
$
|
2,244
|
|
|
$
|
(982
|
)
|
|
$
|
1,262
|
|
|
|
|
December 31, 2011
|
|
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Value
|
|
|
Customer relationships
|
|
$
|
804
|
|
|
$
|
(239
|
)
|
|
$
|
565
|
|
|
Copyrights and trademarks
|
|
|
534
|
|
|
|
(79
|
)
|
|
|
455
|
|
|
Website development costs
|
|
|
567
|
|
|
|
(174
|
)
|
|
|
393
|
|
|
Content development costs
|
|
|
165
|
|
|
|
(142
|
)
|
|
|
23
|
|
|
Non-compete agreements
|
|
|
109
|
|
|
|
(88
|
)
|
|
|
21
|
|
|
Total
|
|
$
|
2,179
|
|
|
$
|
(722
|
)
|
|
$
|
1,457
|
|
The Company amortizes
intangible assets that are subject to amortization on a straight-line basis over their expected useful lives. The Company amortizes
website development costs, copyrights and trademarks and customer relationships over three to seven years and content development
costs over two years. The Company amortizes non-compete agreements over the period of the agreements, typically from
one to three years.
Amortization expense
related to intangible assets subject to amortization was $136,000 and $272,000 for the three and six months ended June 30, 2012,
respectively, and $93,000 and $211,000 for the three and six months ended June 30, 2011, respectively. Estimated annual amortization
expense for the next five years, including the remainder of 2012, is expected to be as follows (in thousands):
|
Years Ending December 31:
|
|
|
|
|
|
|
2012
|
|
|
$
|
258
|
|
|
2013
|
|
|
|
338
|
|
|
2014
|
|
|
|
249
|
|
|
2015
|
|
|
|
210
|
|
|
2016
|
|
|
|
121
|
|
|
Thereafter
|
|
|
|
86
|
|
|
|
|
|
$
|
1,262
|
|
Unamortized Intangible Assets
The following
tables set forth the intangible assets that are not subject to amortization (in thousands):
|
|
|
June 30,
2012
|
|
|
December 31,
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
Domain names
|
|
$
|
1,169
|
|
|
$
|
1,169
|
|
Goodwill
There were no changes in the carrying amount
of goodwill for the six months ended June 30, 2012.
|
8.
|
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
|
Accrued expenses and other current liabilities
consist of the following (in thousands):
|
|
|
June 30,
2012
|
|
|
December 31,
2011
|
|
|
Customer overpayments
|
|
$
|
96
|
|
|
$
|
96
|
|
|
Accrued professional fees
|
|
|
112
|
|
|
|
151
|
|
|
Accrued property and capital taxes
|
|
|
34
|
|
|
|
48
|
|
|
Other
|
|
|
338
|
|
|
|
367
|
|
|
Total
|
|
$
|
580
|
|
|
$
|
662
|
|
On May 29, 2009, WebMediaBrands
entered into a loan agreement in the amount of $7.2 million with the Company’s Chief Executive Officer, Alan M. Meckler (the
“2009 Meckler Loan”).
In conjunction with
the 2009 Meckler Loan, the Company (1) entered into a promissory note jointly and severally payable by the Company and its subsidiary,
Mediabistro, to Mr. Meckler (the “2009 Note”), (2) entered into a Security Agreement by and between the Company and
Mr. Meckler (the “Security Agreement”) pursuant to which the Company granted to Mr. Meckler a security interest in
the Company’s assets, (3) entered into an Intellectual Property Security Agreement by and between the Company and Mr. Meckler
(the “IP Security Agreement”) pursuant to which the Company granted to Mr. Meckler a security interest in the Company’s
intellectual property, (4) entered into a Pledge Agreement by the Company in favor of Mr. Meckler (the “Pledge Agreement”)
pursuant to which the Company granted to Mr. Meckler a security interest in and an assignment of all of the shares of stock or
other equity interest of Mediabistro owned by the Company, and (5) agreed to enter into a Blocked Account Control Agreement by
and among the Company, Mr. Meckler and a depositary bank, to further secure the Note (the “Control Agreement,” and
together with the 2009 Note, the Security Agreement, the IP Security Agreement and the Pledge Agreement, the “Company Loan
Documents”).
Simultaneously, Mediabistro
(1) entered into a Security Agreement by and between Mediabistro and Mr. Meckler pursuant to which Mediabistro granted to Mr. Meckler
a security interest in Mediabistro’s assets (the “Mediabistro Security Agreement”), (2) entered into an Intellectual
Property Security Agreement by and between Mediabistro and Mr. Meckler pursuant to which Mediabistro granted to Mr. Meckler a security
interest in Mediabistro’s intellectual property (the “Mediabistro IP Security Agreement”), and (3) agreed to
enter into a Blocked Account Control Agreement by and among Mediabistro, Mr. Meckler and a depositary bank, to further secure the
2009 Note (the “Mediabistro Control Agreement” and, together with the Mediabistro Security Agreement and the Mediabistro
IP Security Agreement, the “Mediabistro Documents”).
To fund the 2009 Meckler
Loan, Mr. Meckler used a portion of the proceeds of a residential mortgage loan that Bank of America, N.A. (“BOA”)
granted to Mr. Meckler and Mrs. Ellen L. Meckler (the “BOA Loan”). Pursuant to a Collateral Assignment of the 2009
Note dated May 29, 2009, by Mr. Meckler to BOA, Mr. Meckler collaterally assigned the Note to BOA as additional collateral for
the BOA Loan. Payment terms of the 2009 Meckler Loan reflect pass through of the BOA Loan payment terms (excluding those funds
borrowed pursuant to the BOA Loan for Mr. Meckler’s personal use). As a result, the interest rate, amortization schedule
and maturity date of each loan are identical.
The original principal
amount of the 2009 Meckler Loan equaled the amount that was required to pay off and terminate an interest rate swap agreement between
the Company and KeyBank and related transactional expenses. On September 1, 2010, WebMediaBrands entered into a Note Modification
Agreement with Mr. Meckler. The Note Modification Agreement reduced the interest rate of the 2009 Note from 4.7% to
3.4% per annum. Interest on the outstanding principal amount is due and payable on the first day of each calendar month
through June 2014. Thereafter, principal and interest is due and payable in equal monthly payments in an amount sufficient to pay
the loan in full based on an amortization term of 15 years. In addition to the interest rate reduction noted above,
the Note Modification Agreement also reduced the required minimum monthly principal and interest payments that commence on July
1, 2014. Although there are no future minimum principal payments due under the 2009 Meckler Loan for the years ended
December 31, 2012 through December 31, 2013, the Company had repaid approximately $1.3 million of the 2009 Meckler Loan as of June
30, 2012. The 2009 Note is due and payable in full on May 29, 2016, and may be prepaid at any time without penalty or
premium. WebMediaBrands made no principal payments on the 2009 Meckler Loan during the six months ended June 30, 2012, and one
principal payment in the amount of $50,000 during the six months ended June 30, 2011.
On November 14, 2011,
the Company and Mediabistro entered into a 2nd Note Modification Agreement with Mr. Meckler. The 2nd Note Modification
Agreement amends the 2009 Note, which is described above. Under the 2nd Note Modification Agreement, the parties agreed
to terminate the Company’s obligation to make a monthly accommodation fee of $40,000 to Mr. Meckler. As a result,
the 2nd Note Modification Agreement reduces the effective interest payable on the 2009 Meckler Loan by $480,000 per year. The
Company granted Mr. Meckler a fully vested stock option to purchase 1,000,000 shares of the Company’s common stock pursuant
to the terms of the 2008 WebMediaBrands Stock Option Plan. All other terms of the 2009 Meckler Loan remain unchanged.
Also on November 14,
2011, WebMediaBrands and its wholly owned subsidiaries, Mediabistro and Inside Network: (1) entered into a promissory
note jointly and severally payable by the Company, Mediabistro and Inside Network to Mr. Meckler (the “2011 Note”);
(2) entered into a Security Agreement by and between the Company and Mr. Meckler (the “WEBM Security Agreement”) pursuant
to which the Company granted to Mr. Meckler a security interest in the Company’s assets; (3) entered into an Intellectual
Property Security Agreement by and between the Company and Mr. Meckler (the “2nd IP Security Agreement”) pursuant to
which the Company granted to Mr. Meckler a security interest in the Company’s intellectual property; and (4) entered into
a Pledge Agreement by the Company in favor of Mr. Meckler (the “2nd Pledge Agreement”), and together with the 2011
Note, the WEBM Security Agreement and the 2nd IP Security Agreement, the “2011 Company Loan
Documents”)
pursuant to which the Company granted to Mr. Meckler a security interest in and assignment of all of the shares of stock or other
equity interest of Mediabistro and Inside Network owned by the Company.
In the 2011 Note, Mr.
Meckler loaned the Company $1,750,000 (the “2011 Meckler Loan”). The interest rate of the 2011 Note is 3.10%
per annum. Interest on the outstanding principal amount is due and payable monthly until August 2014. Thereafter,
principal and interest is due and payable in equal monthly installments, with the outstanding principal amount, together with all
accrued interest thereon, due and payable on August 18, 2016. The 2011 Note may be prepaid at any time without penalty
or premium.
In partial consideration
of the 2011 Note and the 2nd Note Modification Agreement, Inside Network entered into a Security Agreement by and between Inside
Network and Mr. Meckler pursuant to which Inside Network granted to Mr. Meckler a security interest in Inside Network’s assets
(the “Inside Network Security Agreement”) to secure Inside Network’s obligations under the 2011 Note and the
2009 Note.
The 2011 Company Loan
Documents and the Inside Network Security Agreement contain customary terms for a loan transaction of this type. If
an Event of Default (as defined in the 2011 Note) occurs and is continuing beyond a specified cure period, Mr. Meckler may declare
the 2011 Meckler Loan immediately due and payable. The 2011 Meckler Loan also will become immediately due and payable upon certain
events of bankruptcy or insolvency or in the event of a Change of Control (as defined in the 2011 Note) of Mediabistro, Inside
Network, or the Company.
Interest expense on
the 2009 Meckler Loan and 2011 Meckler Loan was $64,000 and $127,000 during the three and six months ended June 30, 2012, respectively,
and $170,000 and $340,000 during the three and six months ended June 30, 2011, respectively. There are no future minimum
principal payments due under the 2009 Meckler Loan and the 2011 Meckler Loan for the years ended December 31, 2012 and 2013. There
are future minimum payments due to Mr. Meckler for the 2009 Meckler Loan and the 2011 Meckler Loan in the amount of $189,000 for
the year ended December 31, 2014; $419,000 for the year ended December 31, 2015; and $7.0 million for the year ended December 31,
2016.
The Company recorded
a provision for income taxes of $8,000 and $19,000 during the three and six months ended June 30, 2012, respectively, and $10,000
and $20,000 during the three and six months ended June 30, 2011, respectively.
Based on current projections,
management believes that it is more likely than not that WebMediaBrands will have insufficient taxable income to allow recognition
of its deferred tax assets. Accordingly, a valuation allowance has been established against deferred tax assets to the extent that
deductible temporary differences cannot be offset by taxable temporary differences. To the extent that the net book value of indefinite
lived assets exceeds the net tax value of indefinite lived assets, an additional tax provision will be incurred as the assets are
amortized.
The total amount of
unrecognized tax benefits was $85,000 as of June 30, 2012 and December 31, 2011, all of which would affect the effective tax
rate, if recognized, as of June 30, 2012.
|
11.
|
COMMITMENTS AND CONTINGENCIES
|
WebMediaBrands is subject
to 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 should not materially affect the financial statements of WebMediaBrands.
On July 27, 2012, WebMediaBrands entered into a 3rd Note Modification
Agreement with Mr. Meckler that reduces the interest rate (i) of the 2009 Note to 2.975% from 3.40% effective June 1, 2012, and
(ii) of the 2011 Note to 2.40% from 3.10% effective on June 18, 2012. All other terms of the promissory notes remain
unchanged. Both promissory notes are described in note 9 above.
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
The following discussion
should be read in conjunction with our unaudited consolidated condensed financial statements and the accompanying notes that appear
elsewhere in this filing. Statements in this Form 10-Q, that are not historical facts are “forward-looking statements”
under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks
and uncertainties that could cause actual results to differ materially from those described. The potential risks and uncertainties
address a variety of subjects including, for example: general economic conditions; the competitive environment in which WebMediaBrands
competes; the unpredictability of WebMediaBrands’s future revenues, expenses, cash flows and stock price; WebMediaBrands’s
ability to integrate acquired businesses, products and personnel into its existing businesses; WebMediaBrands’s dependence
on a limited number of advertisers; and WebMediaBrands’s ability to protect its intellectual property. For a more detailed
discussion of these risks and uncertainties, refer to WebMediaBrands’s other 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-Q, and we are under no obligation to update the forward-looking statements after the date hereof, except as required
by law.
Overview
WebMediaBrands is an
Internet media company that provides content, education and career services to media and creative professionals through a portfolio
of vertical online properties, communities and trade shows. Our online business includes:
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|
•
|
mediabistro.com, a blog network providing content, education, community and career resources about major media industry verticals including new media, social media, Facebook, TV news, advertising, public relations, publishing, design, mobile and the Semantic Web that includes the following:
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|
10,000Words
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AllTwitter
|
FishbowlLA
|
MediaJobsDaily
|
TVNewser
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AgencySpy
|
AppNewser
|
FishbowlNY
|
PRNewser
|
TVSpy
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AllFacebook
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FishbowlDC
|
GalleyCat
|
SocialTimes
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UnBeige
|
Our mediabistro.com
business also includes an industry-leading job board for media and business professionals focusing on job categories such as social
media, online/new media, publishing, public relations/marketing, advertising, sales, design, web development, television and
more;
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•
|
InsideNetwork.com, a network of online properties dedicated to providing original market research, data services, news, events and job listings on the Facebook platform, social gaming and mobile applications ecosystems that includes the following:
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|
AppData
|
Inside Network Research
|
PageData
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|
Inside Facebook
|
Inside Social Games
|
The Facebook Marketing Bible
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|
|
Inside Mobile Apps
|
Inside Virtual Goods
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•
|
SemanticWeb.com, a blog providing content, education, community resources and career resources on the commercialization and application of Semantic Technologies, Linked Data and Big Data.
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•
|
AllCreativeWorld.com, a network of online properties providing
content, education, community, career and other resources for creative and design professionals.
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•
|
Community, membership and e-commerce offerings including
a freelance listing service, a marketplace for designing and purchasing logos (stocklogos.com) and premium membership services.
|
Our education business
features online and in-person courses and online conferences (including our Facebook Marketing and Social Media Marketing Boot
Camps) for social media and traditional media professionals. Online education conferences combine the concepts of a
large-scale event and a small group educational workshop that offers attendees the opportunity to learn in a dynamic online
setting with live weekly instruction via webcast, discussion forums, homework assignments, and small group
interaction where students receive one-on-one guidance and instruction from an advisor.
Our trade shows include,
among others, the Semantic Tech and Business Conference, Inside Social Apps, Social Gaming Summit and the AllFacebook Marketing
Conference.
Our businesses cross-leverage
and cross-promote our content, product and service offerings. For example, users of our Websites read our content, search
for jobs on our job boards, attend our trade shows, subscribe to and purchase products and services and take courses.
We generate our revenues
from:
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|
•
|
fees charged for online job postings;
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|
•
|
advertising on our Websites and e-mail newsletters;
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|
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|
|
•
|
attendee registration fees to our trade shows;
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|
|
•
|
attendee registration fees for our online and in-person courses and conferences;
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•
|
fees for social media-related market research and data services products;
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•
|
exhibition space fees and vendor sponsorships to our trade shows; and
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|
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•
|
subscription sales from our paid membership services.
|
Customers generally
post more job listings during the first calendar quarter and fewer job listings during the fourth calendar quarter. Also, advertisers
generally place fewer advertisements during the first and third calendar quarters of each year, which, together with fluctuations
in online job postings, directly affect our business. Our results will also be impacted by the number and type of education courses
we offer and by the number and size of trade shows we hold in each quarter. In addition, there may be fluctuations as trade shows
held in one period in the current year may be held in a different period in future years.
The principal costs
of our business relate to: payroll and benefits costs for our personnel; technology-related costs; facilities and equipment; and
venue, speaker and advertising expenses for our trade shows and courses.
Results of Operations
Revenues
Revenues were $4.0
million for the three months ended June 30, 2012 and $3.8 million for the three months ended June 30, 2011, representing an increase
of 6%. This change was primarily due to growth of our research and advertising revenues. Research revenue relates to Inside Network
Inc.’s (“Inside Network”) original market research and data services, which includes AppData, Inside Virtual
Goods and the Facebook Marketing Bible.
Revenues
were $7.7 million for the six months ended June 30, 2012 and $6.0 million for the six months ended June 30, 2011,
representing an increase of 28%. This change was primarily due to the full period impact of the acquisition of Inside
Network, which we acquired in May 2011, along with continued organic growth of our advertising, trade show and education
revenues. Inside Network contributed $1.8 million to our revenues during the six months ended June 30, 2012.
The following table
sets forth, for the periods indicated, the components of our revenues (in thousands):
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|
|
Three Months Ended June
30,
|
|
|
2012 vs. 2011
|
|
|
Six Months Ended
June 30,
|
|
|
2012 vs. 2011
|
|
|
|
|
2012
|
|
|
2011
|
|
|
$
|
|
|
%
|
|
|
2012
|
|
|
2011
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Online job postings
|
|
$
|
1,009
|
|
|
$
|
1,119
|
|
|
$
|
(110
|
)
|
|
|
(10
|
)%
|
|
$
|
2,162
|
|
|
$
|
2,268
|
|
|
$
|
(106
|
)
|
|
|
(5
|
)%
|
|
Trade shows
|
|
|
1,046
|
|
|
|
1,095
|
|
|
|
(49
|
)
|
|
|
(4
|
)
|
|
|
1,686
|
|
|
|
1,129
|
|
|
|
557
|
|
|
|
49
|
|
|
Advertising
|
|
|
714
|
|
|
|
602
|
|
|
|
112
|
|
|
|
19
|
|
|
|
1,365
|
|
|
|
958
|
|
|
|
407
|
|
|
|
42
|
|
|
Education
|
|
|
545
|
|
|
|
536
|
|
|
|
9
|
|
|
|
2
|
|
|
|
1,087
|
|
|
|
996
|
|
|
|
91
|
|
|
|
9
|
|
|
Research
|
|
|
455
|
|
|
|
194
|
|
|
|
261
|
|
|
|
135
|
|
|
|
893
|
|
|
|
194
|
|
|
|
699
|
|
|
|
360
|
|
|
Other
|
|
|
271
|
|
|
|
254
|
|
|
|
17
|
|
|
|
7
|
|
|
|
532
|
|
|
|
501
|
|
|
|
31
|
|
|
|
6
|
|
|
Total
|
|
$
|
4,040
|
|
|
$
|
3,800
|
|
|
$
|
240
|
|
|
|
6
|
%
|
|
$
|
7,725
|
|
|
$
|
6,046
|
|
|
$
|
1,679
|
|
|
|
28
|
%
|
Cost of revenues
Cost of revenues primarily
consists of payroll and benefits costs for technology and editorial personnel, freelance costs, communications infrastructure and
trade show and education operations. Cost of revenues excludes depreciation and amortization. Cost of revenues
was $2.1 million for both the three months ended June 30, 2012 and June 30, 2011.
Cost of revenues was
$4.2 million for the six months ended June 30, 2012 and $3.6 million for the six months ended June 30, 2011, representing an increase
of 16%. This change was primarily due to the full period impact of the acquisition of Inside Network, which added $748,000
to cost of revenues during the six months ended June 30, 2012, including $299,000 in trade show costs for the Inside Social Apps
conference that was held during the first quarter of 2012 and $235,000 in employee-related costs.
We intend to make investments
through internal development and, where appropriate opportunities arise, through acquisitions to continue to expand our content
offerings. We might need to increase our spending in order to create additional content related to new topics or offerings.
Advertising,
promotion and selling
Advertising,
promotion and selling expenses primarily consist of payroll and benefits costs for sales and marketing personnel, sales
commissions and promotion costs. Advertising, promotion and selling expenses were $665,000 for the three months ended June
30, 2012 and $633,000 for the three months ended June 30, 2011, representing an increase of 5%. Advertising, promotion and
selling expenses were $1.3 million for the six months ended June 30, 2012 and $1.1 million for the six months ended June 30,
2011, representing an increase of 23%. These increases were primarily due to the full period impact of the acquisition of
Inside Network, which added an additional $159,000 and $313,000 to advertising, promotion, and selling expenses for the three
and six months ended June 30, 2012, respectively.
General and
administrative
General
and administrative expenses consist primarily of payroll and benefits costs for administrative personnel, office-related
costs and professional fees. General and administrative expenses were $1.3 million for the three months ended June 30, 2012
and $1.4 million for the three months ended June 30, 2011, representing a decrease of 4%. This change was due to a decrease
in professional fees of $125,000 that was partially offset by an increase in employee-related costs of $45,000 that was
primarily related to the acquisition of Inside Network. General and administrative expenses were $2.6 million for the
six months ended June 30, 2012 and $2.7 million for the six months ended June 30, 2011, representing a decrease of 3%.
This change was due to a decrease in professional fees of $199,000 that was partially offset by an increase in
employee-related costs of $120,000 that was primarily related to the acquisition of Inside Network. Professional fees of $147,000
and $177,000 for the three and six months ended June 30, 2011, respectively, were associated with the acquisition of Inside
Network.
Depreciation and
amortization
Depreciation expense
was $80,000 for the three months ended June 30, 2012 and $81,000 for the three months ended June 30, 2011, representing a decrease
of 1%. Depreciation expense was $160,000 for the six months ended June 30, 2012 and $165,000 for the six months ended June 30,
2011, representing a decrease of 3%. These decreases were due primarily to certain assets becoming fully depreciated.
Amortization expense
was $136,000 for the three months ended June 30, 2012 and $93,000 for the three months ended June 30, 2011, representing an increase
of 46%. Amortization expense was $272,000 for the six months ended June 30, 2012 and $211,000 for the six months ended June 30,
2011, representing an increase of 29%. These increases were due primarily to the acquisition of Inside Network.
Our depreciation and
amortization expenses might vary in future periods based upon a change in our capital expenditure levels or any future acquisitions.
Contingent acquisition
consideration
During the fourth quarter
of 2009, we entered into two asset purchase agreements. Both of the purchase agreements included a two year earn-out that could
result in additional cash consideration. We recorded a liability of $1.6 million as of December 31, 2009 for the estimated consideration
to be paid. During the three months ended June 30, 2011, we made our final earn-out payment related to these acquisitions. The
total additional cash consideration we paid during the two year earn-out period was $1.9 million and resulted in $329,000 being
recorded as contingent acquisition consideration during the three and six months ended June 30, 2011.
Other income (loss),
net
Other loss was $3,000
during the three and six months ended June 30, 2012. Other income for the three months ended June 30, 2011 was $1,000
and other loss for the six months ended June 30, 2011 was $3,000.
Interest income
and interest expense
The following table
sets forth, for the periods indicated, a comparison of our interest income and interest expense (dollars in thousands):
|
|
|
Three Months Ended
June 30,
|
|
|
2012 vs. 2011
|
|
|
Six Months Ended
June 30,
|
|
|
2012 vs. 2011
|
|
|
|
|
2012
|
|
|
2011
|
|
|
$
|
|
|
%
|
|
|
2012
|
|
|
2011
|
|
|
$
|
|
|
%
|
|
|
Interest income
|
|
$
|
1
|
|
|
$
|
5
|
|
|
$
|
(4
|
)
|
|
|
(80
|
)%
|
|
$
|
2
|
|
|
$
|
40
|
|
|
$
|
(38
|
)
|
|
|
(95
|
)%
|
|
Interest expense
|
|
|
(73
|
)
|
|
|
(178
|
)
|
|
|
105
|
|
|
|
59
|
|
|
|
(146
|
)
|
|
|
(357
|
)
|
|
|
211
|
|
|
|
59
|
|
Interest expense
during the three and six months ended June 30, 2012 and 2011 relates primarily to costs associated with our loans from a
related party. The reduction in interest expense during the three and six months ended June 30, 2012 was due to the Note
Modification Agreement that we entered into on September 1, 2010. See “Related Party Transactions” for a
description of the loans and Note Modification Agreement.
Provision for income
taxes
We recorded a provision
for income taxes of $8,000 and $19,000 during the three and six months ended June 30, 2012, respectively, and $10,000 and $20,000
during the three and six months ended June 30, 2011, respectively.
Based on current projections,
management believes that it is more likely than not that we will have insufficient taxable income to allow recognition of our deferred
tax assets. Accordingly, we have established a valuation allowance against deferred tax assets to the extent that deductible temporary
differences cannot be offset by taxable temporary differences. To the extent that the net book value of indefinite lived assets
exceeds the net tax value of indefinite lived assets, we will incur an additional tax provision as the assets are amortized.
The total amount of
unrecognized tax benefits was $85,000 as of June 30, 2012 and December 31, 2011, all of which would affect the effective tax
rate, if recognized, as of June 30, 2012.
Liquidity and Capital Resources
The following table
sets forth, for the periods indicated, a comparison of the key components of our liquidity and capital resources (dollars in thousands):
|
|
|
Six Months Ended
June 30,
|
|
|
2012 vs. 2011
|
|
|
|
|
2012
|
|
|
2011
|
|
|
$
|
|
|
%
|
|
|
Operating cash flows
|
|
$
|
124
|
|
|
$
|
(2,989
|
)
|
|
$
|
3,113
|
|
|
|
104
|
%
|
|
Investing cash flows
|
|
|
(124
|
)
|
|
|
(7,525
|
)
|
|
|
7,401
|
|
|
|
98
|
|
|
Financing cash flows
|
|
|
119
|
|
|
|
79
|
|
|
|
40
|
|
|
|
51
|
|
|
|
|
As of
|
|
|
2012 vs. 2011
|
|
|
|
|
June 30,
2012
|
|
|
December 31,
2011
|
|
|
$
|
|
|
%
|
|
|
Cash and cash equivalents
|
|
$
|
3,557
|
|
|
$
|
3,438
|
|
|
$
|
119
|
|
|
|
3
|
%
|
|
Working capital
|
|
|
1,534
|
|
|
|
1,794
|
|
|
|
(260
|
)
|
|
|
(14
|
)
|
|
Loan from related party
|
|
|
7,647
|
|
|
|
7,647
|
|
|
|
–
|
|
|
|
–
|
|
Since
inception, we have funded operations through various means, including public offerings of our common stock, the sales of
certain of our businesses, including our Online images and Internet.com businesses, as well as credit agreements and cash
flows from operating activities.
Operating activities.
The change from cash used in operating activities of $3.0 million during the six months ended June 30, 2011 to cash provided by
operating activities of $124,000 for the same period of 2012 was primarily due to a reduction in operating losses that was driven
by an increase in our revenues.
Investing
activities.
The amounts of cash used in investing activities vary in correlation to the number and cost of the
acquisitions we complete. Net cash used in investing activities during the six months ended June 30, 2012, related
primarily to the purchase of certain assets and website development costs. Net cash used in investing activities
during the six months ended June 30, 2011, related primarily to the acquisition of Inside Network.
Financing activities.
Cash provided by financing activities during the six months ended June 30, 2012 related to stock option exercises. Cash provided
by financing activities during the six months ended June 30, 2011 related primarily to stock option exercises offset by a repayment
of borrowings from a related party.
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 cash on hand.
Our existing cash balances
might decline during the remainder of 2012 in the event of a downturn in the general economy or changes in our planned cash outlay.
However, we believe the remaining cash flow together with our existing cash balances and our current business plan and revenue
prospects will be sufficient to meet the working capital and operating resource expenditure requirements of our business for the
next 12 months.
Off-Balance Sheet Arrangements
We have not entered
into off-balance sheet arrangements or issued guarantees to third parties.
Recent Accounting Pronouncements
We are required to
adopt certain new accounting pronouncements. See note 3 to the consolidated condensed financial statements included in Item 1
of this Form 10-Q.
Related Party Transactions
On May 29, 2009, we
entered into a loan agreement in the amount of $7.2 million with our Chief Executive Officer, Alan M. Meckler (the “2009
Meckler Loan”).
In conjunction with
the 2009 Meckler Loan, we (1) entered into a promissory note jointly and severally payable by us and our subsidiary, Mediabistro,
to Mr. Meckler (the “2009 Note”), (2) entered into a Security Agreement with Mr. Meckler (the “Security Agreement”)
pursuant to which we granted to Mr. Meckler a security interest in the our assets, (3) entered into an Intellectual Property Security
Agreement with Mr. Meckler (the “IP Security Agreement”) pursuant to which the we granted to Mr. Meckler a security
interest in the our intellectual property, (4) entered into a Pledge Agreement by us in favor of Mr. Meckler (the “Pledge
Agreement”) pursuant to which we granted to Mr. Meckler a security interest in and an assignment of all of the shares of
stock or other equity interest of Mediabistro owned by us, and (5) agreed to enter into a Blocked Account Control Agreement with
Mr. Meckler and a depositary bank, to further secure the Note (the “Control Agreement,” and together with the 2009
Note, the Security Agreement, the IP Security Agreement and the Pledge Agreement, the “Company Loan Documents”).
Simultaneously, Mediabistro
(1) entered into a Security Agreement with Mr. Meckler pursuant to which Mediabistro granted to Mr. Meckler a security interest
in Mediabistro’s assets (the “Mediabistro Security Agreement”), (2) entered into an Intellectual Property Security
Agreement with Mr. Meckler pursuant to which Mediabistro granted to Mr. Meckler a security interest in Mediabistro’s intellectual
property (the “Mediabistro IP Security Agreement”), and (3) agreed to enter into a Blocked Account Control Agreement
with Mr. Meckler and a depositary bank, to further secure the 2009 Note (the “Mediabistro Control Agreement” and, together
with the Mediabistro Security Agreement and the Mediabistro IP Security Agreement, the “Mediabistro Documents”).
To fund the 2009 Meckler
Loan, Mr. Meckler used a portion of the proceeds of a residential mortgage loan that Bank of America, N.A. (“BOA”)
granted to Mr. Meckler and Mrs. Ellen L. Meckler (the “BOA Loan”). Pursuant to a Collateral Assignment of the 2009
Note dated May 29, 2009, by Mr. Meckler to BOA, Mr. Meckler collaterally assigned the Note to BOA as additional collateral for
the BOA Loan. Payment terms of the 2009 Meckler Loan reflect pass through of the BOA Loan payment terms (excluding those funds
borrowed pursuant to the BOA Loan for Mr. Meckler’s personal use). As a result, the interest rate, amortization schedule
and maturity date of each loan are identical.
The original principal
amount of the 2009 Meckler Loan equaled the amount required to pay off and terminate an interest rate swap agreement between us
and KeyBank and related transactional expenses. On September 1, 2010, we entered into a note modification agreement with Mr. Meckler. The
Note Modification Agreement reduced the interest rate of the 2009 Note from 4.7% to 3.4% per annum. Interest on the outstanding
principal amount is due and payable on the first day of each calendar month through June 2014. Thereafter, principal and interest
is due and payable in equal monthly payments in an amount sufficient to pay the loan in full based on an amortization term of 15
years. In addition to the interest rate reduction noted above, the note modification agreement also reduced the required
minimum monthly principal and interest payments that commence on July 1, 2014. Although there are no future minimum
principal payments due under the 2009 Meckler Loan for the years ended December 31, 2012 through December 31, 2013, we had repaid
approximately $1.3 million of the 2009 Meckler Loan as of June 30, 2012. The 2009 Note is due and payable in full on
May 29, 2016, and may be prepaid at any time without penalty or premium. We made no principal payments during the six months ended
June 30, 2012 and one principal payment on the 2009 Meckler Loan totaling $50,000 during the six months ended June 30, 2011.
On November 14, 2011,
we along with Mediabistro, entered into a 2nd Note Modification Agreement with Mr. Meckler. The 2nd Note Modification
Agreement amends the 2009 Note, which is described above. Under the 2nd Note Modification Agreement, the parties agreed
to terminate our obligation to make a monthly accommodation fee of $40,000 to Mr. Meckler. As a result, the 2nd Note
Modification Agreement reduces the effective interest payable on the 2009 Meckler Loan by $480,000 per year. We granted Mr. Meckler
a fully vested stock option to purchase 1,000,000 shares of our common stock pursuant to the terms of the 2008 WebMediaBrands Stock
Option Plan. All other terms of the 2009 Meckler Loan remain unchanged.
Also on November 14,
2011, we, along with our wholly owned subsidiaries, Mediabistro and Inside Network: (1) entered into a promissory note jointly
and severally payable by the Company, Mediabistro and Inside Network to Mr. Meckler (the “2011 Note”); (2) entered
into a Security Agreement by and between the Company and Mr. Meckler (the “WEBM Security Agreement”) pursuant to which
the Company granted to Mr. Meckler a security interest in the Company’s assets; (3) entered into an Intellectual Property
Security Agreement by and between the Company and Mr. Meckler (the “2nd IP Security Agreement”) pursuant to which the
Company granted to Mr. Meckler a security interest in the Company’s intellectual property; and (4) entered into a Pledge
Agreement by the Company in favor of Mr. Meckler (the “2nd Pledge Agreement”), and together with the 2011 Note, the
WEBM Security Agreement and the 2nd IP Security Agreement, the “2011 Company Loan
Documents”) pursuant
to which the Company granted to Mr. Meckler a security interest in and assignment of all of the shares of stock or other equity
interest of Mediabistro and Inside Network owned by the Company.
In the 2011 Note, Mr.
Meckler loaned us $1,750,000 (the “2011 Meckler Loan”). The interest rate of the 2011 Note is 3.10% per
annum. Interest on the outstanding principal amount is due and payable monthly until August 2014. Thereafter,
principal and interest is due and payable in equal monthly installments, with the outstanding principal amount, together with all
accrued interest thereon, due and payable on August 18, 2016. The 2011 Note may be prepaid at any time without penalty
or premium.
In partial consideration
of the 2011 Note and the 2nd Note Modification Agreement, Inside Network entered into a Security Agreement by and between Inside
Network and Mr. Meckler pursuant to which Inside Network granted to Mr. Meckler a security interest in Inside Network’s assets
(the “Inside Network Security Agreement”) to secure Inside Network’s obligations under the 2011 Note and the
2009 Note.
The 2011 Company Loan
Documents and Inside Network Security Agreement contain customary terms for a loan transaction of this type. In an Event
of Default (as defined in the 2011 Note) occurs and is continuing beyond a specified cure period, Mr. Meckler may declare the 2011
Meckler Loan immediately due and payable. The 2011 Meckler Loan also will become immediately due and payable upon certain
events of bankruptcy or insolvency or in the event of a Change of Control (as defined in the 2011 Note) of Mediabistro, Inside
Network, or the Company.
Interest expense
on the 2009 Meckler Loan and 2011 Meckler Loan was $64,000 and $127,000 during the three and six months ended June 30, 2012,
respectively, and $170,000 and $340,000 during the three and six months ended June 30, 2011, respectively. There are no
future minimum principal payments due under the 2009 Meckler Loan and the 2011 Meckler Loan for the years ended December 31,
2012 and 2013. There are future minimum principal payments due to Mr. Meckler for the 2009 Meckler Loan and the 2011 Meckler
Loan in the amount of $189,000 for the year ended December 31, 2014; $419,000 for the year ended December 31, 2015; and $7.0
million for the year ended December 31, 2016.
Critical Accounting Policies
There have been no
changes to our critical accounting policies from those included in our most recent Form 10-K for the year ended December 31,
2011.
|
Item 3.
|
Quantitative & Qualitative Disclosures about Market Risk
|
As a smaller reporting
company as defined by Item 10(f)(1) of Regulation S-K, we are not required to provide the information required by this Item.
|
Item 4.
|
Controls and Procedures
|
Disclosure Controls
and Procedures.
The Company conducted an evaluation of the effectiveness of the design and operation of its disclosure
controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (“Exchange
Act”) under the supervision and with the participation of its management including the Company’s Chief Executive
Officer (“CEO”) and Chief Financial Officer (“CFO”), or persons performing similar functions, as appropriate
to allow timely decisions regarding required disclosure.
Disclosure controls
and procedures are designed only to provide reasonable assurance that (i) information required to be disclosed in an issuer’s
reports filed under the Exchange Act is recorded, processed, summarized and reported within the time period specified in the SEC
rules and forms and (ii) information is accumulated and communicated to management as appropriate to allow timely decisions regarding
required disclosures.
As a result of this
evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures are effective to provide the
reasonable assurance discussed above.
Management’s
Report on Internal Control over Financial Reporting.
Management of the Company is responsible for establishing
and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding
the reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A control system, no matter how well conceived and operated, can provide only reasonable
assurance that the objectives of the control system are met. Management applied its judgment in assessing the benefits
of controls relative to their cost. Because of the inherent limitations in control systems, no evaluation of controls
can provide absolute assurance that all controls issues and instances of fraud, if any, within the company have been detected.
Because of its inherent limitations, internal control over financial reporting might not prevent or detect misstatements. Also,
projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to
the risk that controls might become inadequate because of changes in conditions, or that the degree of compliance with policies
or procedures might deteriorate. The Company’s management, with the participation of the CEO and CFO, assessed the
effectiveness of the Company’s internal control over financial reporting as of June 30, 2012. Based on the Company’s
evaluation, management concluded that our internal control over financial reporting was effective as of June 30, 2012 based on
criteria in
Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
Changes in Internal
Control over Financial Reporting.
There were no changes in our internal control over financial reporting during the
quarter ended June 30, 2012 that have materially affected, or are reasonably likely to affect, our internal control over financial
reporting.
PART II - OTHER INFORMATION
|
Item 1.
|
LEGAL PROCEEDINGS
|
None.
The primary risk factors affecting
our business have not changed materially from the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31,
2011.
|
Item 2.
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
Not Applicable
|
Item 3.
|
DEFAULTS UPON SENIOR SECURITIES
|
Not Applicable
|
Item 4.
|
MINE SAFETY DISCLOSURES
|
Not Applicable
|
Item 5.
|
OTHER INFORMATION
|
Not Applicable
The following is a
list of exhibits filed as part of this Report on Form 10-Q.
|
Exhibit Number
|
|
Description
|
|
|
|
|
31.1
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
31.2
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
32.1
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
32.2
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
101.INS
|
|
XBRL Instance Document
|
|
|
|
|
|
101.SCH
|
|
XBRL Schema Document
|
|
|
|
|
|
101.CAL
|
|
XBRL Calculations Linkbase Document
|
|
|
|
|
|
101.DEF
|
|
XBRL Definition Linkbase Document
|
|
|
|
|
|
101.LAB
|
|
XBRL Label Linkbase Document
|
|
|
|
|
|
101.PRE
|
|
XBRL Presentation Linkbase Document
|
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
WebMediaBrands Inc.
|
|
|
|
|
|
|
|
|
|
Dated: August 8, 2012
|
|
/s/ Alan M. Meckler
|
|
|
|
Alan M. Meckler
Chairman and Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Donald J. O’Neill
|
|
|
|
Donald J. O’Neill
Vice President and Chief Financial
Officer
(Principal Financial Officer and
Chief Accounting Officer)
|
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