WebMediaBrands
Inc.
Consolidated Condensed Balance
Sheets
September 30, 2012 and December
31, 2011
(in thousands, except share and
per share amounts)
|
|
September 30,
2012
|
|
|
December 31,
2011
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,479
|
|
|
$
|
3,438
|
|
Accounts receivable, net of allowances of $37 and $11, respectively
|
|
|
617
|
|
|
|
489
|
|
Prepaid expenses and other current assets
|
|
|
583
|
|
|
|
575
|
|
Total current assets
|
|
|
3,679
|
|
|
|
4,502
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net of accumulated depreciation of $1,582 and $1,350, respectively
|
|
|
346
|
|
|
|
477
|
|
Intangible assets, net
|
|
|
2,403
|
|
|
|
2,626
|
|
Goodwill
|
|
|
15,116
|
|
|
|
15,116
|
|
Investments and other assets
|
|
|
794
|
|
|
|
1,146
|
|
Total assets
|
|
$
|
22,338
|
|
|
$
|
23,867
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
362
|
|
|
$
|
367
|
|
Accrued payroll and related expenses
|
|
|
397
|
|
|
|
391
|
|
Accrued expenses and other current liabilities
|
|
|
476
|
|
|
|
662
|
|
Deferred revenues
|
|
|
1,555
|
|
|
|
1,288
|
|
Total current liabilities
|
|
|
2,790
|
|
|
|
2,708
|
|
|
|
|
|
|
|
|
|
|
Loan from related party
|
|
|
7,647
|
|
|
|
7,647
|
|
Deferred revenues
|
|
|
20
|
|
|
|
22
|
|
Deferred income taxes
|
|
|
470
|
|
|
|
444
|
|
Other long-term liabilities
|
|
|
63
|
|
|
|
60
|
|
Total liabilities
|
|
|
10,990
|
|
|
|
10,881
|
|
|
|
|
|
|
|
|
|
|
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, 18,750,000 shares authorized, 6,128,879 and 6,077,957 shares issued and 6,009,594 and 5,958,672 shares outstanding at September 30, 2012 and December 31, 2011, respectively
|
|
|
61
|
|
|
|
61
|
|
Additional paid-in capital
|
|
|
289,543
|
|
|
|
289,036
|
|
Accumulated deficit
|
|
|
(277,760
|
)
|
|
|
(275,615
|
)
|
Treasury stock, 119,285 shares at cost
|
|
|
(496
|
)
|
|
|
(496
|
)
|
Total stockholders’ equity
|
|
|
11,348
|
|
|
|
12,986
|
|
Total liabilities and stockholders’ equity
|
|
$
|
22,338
|
|
|
$
|
23,867
|
|
See notes to unaudited consolidated condensed
financial statements.
Shares outstanding and per share data have been
adjusted to give effect to the one-for-seven reverse stock split implemented on August 16, 2012 as described in note 5 to the unaudited
consolidated condensed financial statements.
WebMediaBrands Inc.
Unaudited Consolidated Condensed Statements
of Operations
For the Three and Nine Months Ended September
30, 2012 and 2011
(in thousands, except per share amounts)
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Revenues
|
|
$
|
2,917
|
|
|
$
|
3,008
|
|
|
$
|
10,642
|
|
|
$
|
9,054
|
|
Cost of revenues
|
|
|
1,678
|
|
|
|
1,686
|
|
|
|
5,830
|
|
|
|
5,257
|
|
Advertising, promotion and selling
|
|
|
614
|
|
|
|
472
|
|
|
|
1,920
|
|
|
|
1,537
|
|
General and administrative
|
|
|
1,306
|
|
|
|
1,359
|
|
|
|
3,938
|
|
|
|
4,080
|
|
Depreciation
|
|
|
78
|
|
|
|
77
|
|
|
|
238
|
|
|
|
242
|
|
Amortization
|
|
|
137
|
|
|
|
160
|
|
|
|
409
|
|
|
|
371
|
|
Contingent acquisition consideration
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
329
|
|
Total operating expenses
|
|
|
3,813
|
|
|
|
3,754
|
|
|
|
12,335
|
|
|
|
11,816
|
|
Operating loss
|
|
|
(896
|
)
|
|
|
(746
|
)
|
|
|
(1,693
|
)
|
|
|
(2,762
|
)
|
Other loss, net
|
|
|
(213
|
)
|
|
|
(4
|
)
|
|
|
(216
|
)
|
|
|
(7
|
)
|
Interest income
|
|
|
1
|
|
|
|
1
|
|
|
|
3
|
|
|
|
41
|
|
Interest expense
|
|
|
(63
|
)
|
|
|
(178
|
)
|
|
|
(209
|
)
|
|
|
(535
|
)
|
Loss before income taxes
|
|
|
(1,171
|
)
|
|
|
(927
|
)
|
|
|
(2,115
|
)
|
|
|
(3,263
|
)
|
Provision (benefit) for income taxes
|
|
|
11
|
|
|
|
(437
|
)
|
|
|
30
|
|
|
|
(417
|
)
|
Net loss
|
|
$
|
(1,182
|
)
|
|
$
|
(490
|
)
|
|
$
|
(2,145
|
)
|
|
$
|
(2,846
|
)
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net loss
|
|
$
|
(0.20
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(0.49
|
)
|
Diluted net loss
|
|
$
|
(0.20
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(0.49
|
)
|
Weighted average shares used in computing loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
6,009
|
|
|
|
6,082
|
|
|
|
5,983
|
|
|
|
5,765
|
|
Diluted
|
|
|
6,009
|
|
|
|
6,082
|
|
|
|
5,983
|
|
|
|
5,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited consolidated condensed
financial statements.
Shares outstanding and per share data have been
adjusted to give effect to the one-for-seven reverse stock split implemented on August 16, 2012 as described in note 5 to the unaudited
consolidated condensed financial statements.
WebMediaBrands Inc.
Unaudited Consolidated Condensed Statements
of Cash Flows
For the Nine Months Ended September 30, 2012
and 2011
|
|
Nine Months Ended
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,145
|
)
|
|
$
|
(2,846
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
647
|
|
|
|
613
|
|
Stock-based compensation
|
|
|
380
|
|
|
|
372
|
|
Other, net
|
|
|
210
|
|
|
|
(3
|
)
|
Amortization of debt issuance costs
|
|
|
27
|
|
|
|
22
|
|
Deferred income taxes
|
|
|
25
|
|
|
|
(422
|
)
|
Provision for losses on accounts receivable
|
|
|
27
|
|
|
|
15
|
|
Changes in assets and liabilities (net of businesses acquired):
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
(155
|
)
|
|
|
(53
|
)
|
Prepaid expenses and other assets
|
|
|
130
|
|
|
|
434
|
|
Accounts payable, accrued expenses and other liabilities
|
|
|
(195
|
)
|
|
|
(566
|
)
|
Deferred revenues
|
|
|
265
|
|
|
|
309
|
|
Net cash used in operating activities
|
|
|
(784
|
)
|
|
|
(2,125
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(91
|
)
|
|
|
(39
|
)
|
Acquisitions of businesses, assets and other
|
|
|
(186
|
)
|
|
|
(9,020
|
)
|
Net cash used in investing activities
|
|
|
(277
|
)
|
|
|
(9,059
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Deft issuance costs
|
|
|
(23
|
)
|
|
|
–
|
|
Repayment of borrowings from related party
|
|
|
–
|
|
|
|
(50
|
)
|
Proceeds from exercise of stock options
|
|
|
125
|
|
|
|
144
|
|
Net cash provided by financing activities
|
|
|
102
|
|
|
|
94
|
|
Net decrease in cash and cash equivalents
|
|
|
(959
|
)
|
|
|
(11,090
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
3,438
|
|
|
|
12,970
|
|
Cash and cash equivalents, end of period
|
|
$
|
2,479
|
|
|
$
|
1,880
|
|
See notes to unaudited consolidated condensed
financial statements.
WebMediaBrands Inc.
Notes to Unaudited Consolidated Condensed
Financial Statements
September 30, 2012
1. THE COMPANY
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:
|
·
|
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 and mobile that includes the following:
|
|
10,000Words
|
AppNewser
|
GalleyCat
|
SocialTimes
|
|
|
AgencySpy
|
FishbowlDC
|
LostRemote
|
TVNewser
|
|
|
AllFacebook
AllTwitter
|
FishbowlLA
FishbowlNY
|
MediaJobsDaily PRNewser
|
TVSpy
UnBeige
|
|
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;
|
·
|
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:
|
|
AppData
|
Inside Social Games
|
PageData
|
|
Inside Facebook
|
Inside Virtual Goods
|
Social App Research Service
|
|
Inside Mobile Apps
|
Mobile App Research Service
|
The Facebook Marketing Bible
|
|
·
|
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; and
|
|
·
|
AllCreativeWorld.com, a network of online properties providing
content, education, community, career and other resources for creative and design professionals that includes the following:
|
|
AdsoftheWorld
BrandsoftheWorld
Creativebits
|
DynamicGraphics
Graphics.com
GraphicsDesignForum
|
LiquidTreat
StockLogos
|
The Company’s online
business also includes c
ommunity, membership and e-commerce offerings
including a freelance listing service, a marketplace for designing and purchasing logos (stocklogos.com), and premium
membership services.
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.
2. BASIS OF PRESENTATION
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 nine months ended September 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 unaudited
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 July 2012, the
Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2012-02, amending
ASU No. 2011-08: “Intangibles — Goodwill and Other (Topic 350): Testing Goodwill for Impairment.” The
amended guidance is related to indefinite-lived intangibles by providing entities an option to use a qualitative approach to test
these assets for impairment. An entity will be able to first perform a qualitative assessment to determine whether it is more likely
than not that the indefinite-lived intangible asset is impaired. If it is concluded that this is the case, then the entity must
perform a quantitative impairment test. This amendment is effective for fiscal years beginning after September 15, 2012,
with early adoption permitted. The Company does not expect the adoption of ASU 2012-02 to have a material impact on its financial
statements.
4. SEGMENT INFORMATION
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. REVERSE STOCK SPLIT AND AUTHORIZED COMMON STOCK
On August
16, 2012 (“Effective Date”), the Company amended its Amended and Restated Certificate of Incorporation to reduce the
number of shares of common stock the Company is authorized to issue and to effect a one-for-seven reverse stock split of the Company's
issued common stock. On the Effective Date, the number of shares of common stock, par value $0.01 per share, the Company is authorized
to issue decreased to 18,750,000 shares from 75,000,000 shares. As a result of the reverse stock split, each seven shares of common
stock issued on the Effective Date were combined and converted into one share of common stock, par value $0.01 per share. Any stockholder
who otherwise would have been entitled to receive a fractional share as a result of the reverse stock split became entitled to
receive a cash payment in lieu of such fractional share. Each stockholder's percentage ownership in the Company and proportional
voting power remained unchanged after the reverse stock split, except for minor changes and adjustments resulting from the treatment
of fractional shares. Immediately prior to the effectiveness of the reverse stock split, 42,902,316 shares of common stock were
issued. Immediately after the reverse stock split, 6,128,879 shares of common stock were issued. Trading of WebMediaBrands's common
stock on The Nasdaq Capital Market began on a split-adjusted basis at the open of trading on August 17, 2012. The ticker
symbol remains "WEBM".
6 . ACCOUNTING FOR STOCK-BASED COMPENSATION
Shares
outstanding
and per share data below have been adjusted to give effect to the one-for-seven reverse stock split implemented on August 16, 2012
as described in note 5 above.
Total employee stock-based
compensation is as follows (in thousands):
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Stock options for employees
|
|
$
|
120
|
|
|
$
|
117
|
|
|
$
|
381
|
|
|
$
|
283
|
|
Restricted stock for employees
|
|
|
1
|
|
|
|
57
|
|
|
|
(1
|
)
|
|
|
89
|
|
Total employee stock-based compensation
|
|
$
|
121
|
|
|
$
|
174
|
|
|
$
|
380
|
|
|
$
|
372
|
|
Stock-based compensation
increased additional paid-in capital by $380,000 during the nine months ended September 30, 2012.
The Company estimates the
fair value of each stock option grant 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:
|
|
Nine Months Ended
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
Risk-free interest rate
|
|
|
0.93%
|
|
|
|
1.35%
|
|
Expected life (in years)
|
|
|
6.0
|
|
|
|
6.0
|
|
Dividend yield
|
|
|
0%
|
|
|
|
0%
|
|
Expected volatility
|
|
|
99%
|
|
|
|
94%
|
|
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 nine months ended September 30, 2012 and 2011 was $4.20 and $5.60, respectively.
The following table summarizes
stock option activity during the nine months ended September 30, 2012:
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term (years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at December 31, 2011
|
|
|
999,344
|
|
|
$
|
6.44
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
24,609
|
|
|
$
|
6.08
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(67,953
|
)
|
|
$
|
1.84
|
|
|
|
|
|
|
|
|
|
Forfeited, expired or cancelled
|
|
|
(84,679
|
)
|
|
$
|
4.65
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2012
|
|
|
871,321
|
|
|
$
|
6.23
|
|
|
|
5.6
|
|
|
|
52,000
|
|
Vested and expected to vest at September 30, 2012
|
|
|
842,272
|
|
|
$
|
6.27
|
|
|
|
5.5
|
|
|
|
52,000
|
|
Exercisable at September 30, 2012
|
|
|
615,621
|
|
|
$
|
6.66
|
|
|
|
4.6
|
|
|
|
52,000
|
|
The aggregate intrinsic
value in the table above is before income taxes, based on WebMediaBrands’s closing stock price of $2.29 as of September 30,
2012. During the three months ended September 30, 2012 and 2011, the total intrinsic value of stock options exercised was $8,000
and $19,000, respectively. During the nine months ended September 30, 2012 and 2011, the total intrinsic value of stock
options exercised was $246,000 and $566,000, respectively.
As of September 30, 2012,
there was $679,000 of total unrecognized compensation cost related to unvested 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 21 months.
The following table summarizes
restricted stock activity during the nine months ended September 30, 2012:
|
|
Shares
|
|
|
Weighted Average
Grant Date Fair Value
|
|
Outstanding nonvested shares at December 31, 2011
|
|
|
18,949
|
|
|
$
|
11.69
|
|
Granted
|
|
|
–
|
|
|
$
|
–
|
|
Vested
|
|
|
(1,097
|
)
|
|
$
|
11.69
|
|
Forfeited
|
|
|
(16,986
|
)
|
|
$
|
11.69
|
|
Outstanding nonvested shares at September 30, 2012
|
|
|
866
|
|
|
$
|
11.69
|
|
7. COMPUTATION OF LOSS PER SHARE
Shares outstanding and per share data below
have been adjusted to give effect to the one-for-seven reverse stock split implemented on August 16, 2012 as described in note
5 above.
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
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Net loss
|
|
$
|
(1,182
|
)
|
|
$
|
(490
|
)
|
|
$
|
(2,145
|
)
|
|
$
|
(2,846
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average number of common shares outstanding
|
|
|
6,009
|
|
|
|
6,082
|
|
|
|
5,983
|
|
|
|
5,765
|
|
Effect of dilutive stock options
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total basic weighted average number of common shares and dilutive stock options
|
|
|
6,009
|
|
|
|
6,082
|
|
|
|
5,983
|
|
|
|
5,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss
|
|
$
|
(0.20
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(0.49
|
)
|
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):
|
|
Nine Months
Ended September 30,
|
|
|
|
2012
|
|
|
2011
|
|
Number of anti-dilutive stock options
|
|
|
871
|
|
|
|
773
|
|
Weighted average exercise price
|
|
$
|
6.23
|
|
|
$
|
7.21
|
|
8. 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):
|
|
September 30, 2012
|
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Value
|
|
Customer relationships
|
|
$
|
804
|
|
|
$
|
(379
|
)
|
|
$
|
425
|
|
Website development costs
|
|
|
747
|
|
|
|
(314
|
)
|
|
|
433
|
|
Copyrights and trademarks
|
|
|
540
|
|
|
|
(165
|
)
|
|
|
375
|
|
Content development costs
|
|
|
155
|
|
|
|
(154
|
)
|
|
|
1
|
|
Non-compete agreements
|
|
|
97
|
|
|
|
(97
|
)
|
|
|
–
|
|
Total
|
|
$
|
2,343
|
|
|
$
|
(1,109
|
)
|
|
$
|
1,234
|
|
|
|
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 $137,000 and $409,000 for the three and nine months ended September 30, 2012,
respectively, and $160,000 and $371,000 for the three and nine months ended September 30, 2011, respectively. The Company expects
estimated annual amortization expense for the next five years, including the remainder of 2012, to be as follows (in thousands):
Years Ending December 31:
|
|
|
|
2012
|
|
$
|
131
|
|
2013
|
|
|
375
|
|
2014
|
|
|
285
|
|
2015
|
|
|
236
|
|
2016
|
|
|
121
|
|
Thereafter
|
|
|
86
|
|
|
|
$
|
1,234
|
|
Unamortized Intangible Assets
The following tables
set forth the intangible assets that are not subject to amortization (in thousands):
|
|
September 30,
2012
|
|
|
December 31,
2011
|
|
Domain names
|
|
$
|
1,169
|
|
|
$
|
1,169
|
|
|
|
|
|
|
|
|
|
|
Goodwill
There were no changes in
the carrying amount of goodwill for the nine months ended September 30, 2012.
9. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other
current liabilities consist of the following (in thousands):
|
|
September 30,
2012
|
|
|
December 31,
2011
|
|
Accrued professional fees
|
|
$
|
117
|
|
|
$
|
151
|
|
Customer overpayments
|
|
|
96
|
|
|
|
96
|
|
Accrued property and capital taxes
|
|
|
34
|
|
|
|
48
|
|
Other
|
|
|
229
|
|
|
|
367
|
|
Total
|
|
$
|
476
|
|
|
$
|
662
|
|
10. DEBT
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.
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 September
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 nine months ended September 30, 2012, and
one principal payment in the amount of $50,000 during the nine months ended September 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 142,857 shares of the Company’s common stock (after giving effect
to the August 16, 2012 one-for-seven reverse stock split) 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.
On July 27, 2012, the Company
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.
Interest expense on the
2009 Meckler Loan and 2011 Meckler Loan was $53,000 and $182,000 during the three and nine months ended September 30, 2012, respectively,
and $171,000 and $513,000 during the three and nine months ended September 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.
11. INCOME TAXES
The Company recorded a
provision for income taxes of $11,000 and $30,000 during the three and nine months ended September 30, 2012, respectively. The
Company recorded an income tax benefit of $437,000 and $417,000 during the three and nine months ended September 30, 2011, respectively,
which was primarily due to the release of valuation allowance against the Company’s deferred income tax assets as a result
of additional deferred tax liabilities that were recorded as part of the acquisition of Inside Network.
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 September 30, 2012 and December 31, 2011, all of which would affect the effective tax rate,
if recognized, as of September 30, 2012.
12. 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.
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:
|
·
|
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 and mobile that includes the following:
|
|
10,000Words
|
AppNewser
|
GalleyCat
|
SocialTimes
|
|
|
AgencySpy
|
FishbowlDC
|
LostRemote
|
TVNewser
|
|
|
AllFacebook
|
FishbowlLA
|
MediaJobsDaily
|
TVSpy
|
|
|
AllTwitter
|
FishbowlNY
|
PRNewser
|
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;
|
·
|
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:
|
|
AppData
|
Inside Social Games
|
PageData
|
|
Inside Facebook
|
Inside Virtual Goods
|
Social App Research Service
|
|
Inside Mobile Apps
|
Mobile App Research Service
|
The Facebook Marketing Bible
|
|
·
|
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; and
|
|
·
|
AllCreativeWorld.com, a network of
online properties providing content, education, community, career and other resources for creative and design professionals
that include the following:
|
|
AdsoftheWorld
BrandsoftheWorld
Creativebits
|
DynamicGraphics
Graphics.com
GraphicsDesignForum
|
LiquidTreat
StockLogos
|
Our online business also includes c
ommunity,
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:
|
·
|
fees charged for online job postings;
|
|
·
|
advertising on our Websites and e-mail newsletters;
|
|
·
|
attendee registration fees to our trade shows;
|
|
·
|
attendee registration fees for our online and in-person courses and
conferences;
|
|
·
|
fees for social media-related market research and data services
products;
|
|
·
|
exhibition space fees and vendor sponsorships to our trade shows;
and
|
|
·
|
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.
Recent Developments
On August
16, 2012 (“Effective Date”), we amended our Amended and Restated Certificate of Incorporation to reduce the number
of shares of common stock we are authorized to issue and to effect a one-for-seven reverse stock split of issued common stock.
On the Effective Date, the number of shares of common stock, par value $0.01 per share, we are authorized to issue decreased to
18,750,000 shares from 75,000,000 shares. As a result of the reverse stock split, each seven shares of common stock issued on the
Effective Date were combined and converted into one share of common stock, par value $0.01 per share. Any stockholder who otherwise
would have been entitled to receive a fractional share as a result of the reverse stock split became entitled to receive a cash
payment in lieu of such fractional share. Each stockholder's percentage ownership in the Company and proportional voting power
remained unchanged after the reverse stock split, except for minor changes and adjustments resulting from the treatment of fractional
shares. Immediately prior to the effectiveness of the reverse stock split, 42,902,316 shares of common stock were issued.
Immediately after the reverse stock split, 6,128,879 shares of common stock were issued. Trading of our common stock on The Nasdaq
Capital Market began on a split-adjusted basis at the open of trading on August 17, 2012. The ticker symbol remains
"WEBM".
Results of Operations
Revenues
Revenues were $2.9 million
for the three months ended September 30, 2012 and $3.0 million for the three months ended September 30, 2011, representing a decrease
of 3%. This change was primarily due to a decrease in online job postings offset by the growth of our research and advertising
revenues. Research revenue related to Inside Network’s original market research and data services, which includes AppData.
Revenues were $10.6 million
for the nine months ended September 30, 2012 and $9.1 million for the nine months ended September 30, 2011, representing an increase
of 18%. 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. The acquisition of Inside Network
contributed $2.4 million to our revenues during the nine months ended September 30, 2012 compared to $875,000 for the same period
last year.
The following table sets
forth, for the periods indicated, the components of our revenues (in thousands):
|
|
Three Months Ended September 30,
|
|
|
2012 vs. 2011
|
|
|
Nine Months Ended September 30,
|
|
|
2012 vs. 2011
|
|
|
|
2012
|
|
|
2011
|
|
|
$
|
|
|
%
|
|
|
2012
|
|
|
2011
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Online job postings
|
|
$
|
895
|
|
|
$
|
1,066
|
|
|
$
|
(171
|
)
|
|
|
(16
|
)%
|
|
$
|
3,057
|
|
|
$
|
3,334
|
|
|
$
|
(277
|
)
|
|
|
(8
|
)%
|
Advertising
|
|
|
785
|
|
|
|
704
|
|
|
|
81
|
|
|
|
12
|
|
|
|
2,150
|
|
|
|
1,662
|
|
|
|
488
|
|
|
|
29
|
|
Trade shows
|
|
|
112
|
|
|
|
159
|
|
|
|
(47
|
)
|
|
|
(30
|
)
|
|
|
1,798
|
|
|
|
1,288
|
|
|
|
510
|
|
|
|
40
|
|
Education
|
|
|
404
|
|
|
|
447
|
|
|
|
(43
|
)
|
|
|
(10
|
)
|
|
|
1,491
|
|
|
|
1,443
|
|
|
|
48
|
|
|
|
3
|
|
Research
|
|
|
421
|
|
|
|
371
|
|
|
|
50
|
|
|
|
13
|
|
|
|
1,314
|
|
|
|
565
|
|
|
|
749
|
|
|
|
133
|
|
Other
|
|
|
300
|
|
|
|
261
|
|
|
|
39
|
|
|
|
15
|
|
|
|
832
|
|
|
|
762
|
|
|
|
70
|
|
|
|
9
|
|
Total
|
|
$
|
2,917
|
|
|
$
|
3,008
|
|
|
$
|
(91
|
)
|
|
|
(3
|
)%
|
|
$
|
10,642
|
|
|
$
|
9,054
|
|
|
$
|
1,588
|
|
|
|
18%
|
|
Cost of revenues
Cost of revenues primarily
consists of payroll and benefit 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 $1.7 million for both the three months ended September 30, 2012 and September 30, 2011.
Cost of revenues was $5.8
million for the nine months ended September 30, 2012 and $5.3 million for the nine months ended September 30, 2011, representing
an increase of 11%. This change was primarily due to the full period impact of the acquisition of Inside Network, which
added $1.0 million to cost of revenues during the nine months ended September 30, 2012 compared to $382,000 for the same period
last year.
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 benefit costs for sales and marketing personnel, sales commissions and promotion
costs. Advertising, promotion and selling expenses were $614,000 for the three months ended September 30, 2012 and $472,000 for
the three months ended September 30, 2011, representing an increase of 30%. The increase is primarily due to increases in employee-related
costs of $91,000 and an increase in marketing-related expenses of $55,000.
Advertising, promotion
and selling expenses were $1.9 million for the nine months ended September 30, 2012 and $1.5 million for the nine months ended
September 30, 2012, representing an increase of 25%. This increase was primarily due to the full period impact of the acquisition
of Inside Network, which added $578,000 to advertising, promotion and selling expenses during the nine months ended September 30,
2012 compared to $97,000 for the same period last year.
General and administrative
General and administrative
expenses consist primarily of payroll and benefit costs for administrative personnel, office-related costs and professional fees.
General and administrative expenses were $1.3 million for the three months ended September 30, 2012 and $1.4 million for the three
months ended September 30, 2011, representing a decrease of 4%. This change was due to a decrease in professional fees of
$116,000.
General and administrative
expenses were $3.9 million for the nine months ended September 30, 2012 and $4.1 million for the nine months ended September 30,
2011, representing a decrease of 3%. This change was due to a decrease in professional fees of $315,000 that was partially offset
by an increase in severance-related costs of $134,000.
Depreciation and amortization
Depreciation expense was
$78,000 for the three months ended September 30, 2012 and $77,000 for the three months ended September 30, 2011, representing an
increase of 1%. Depreciation expense was $238,000 for the nine months ended September 30, 2012 and $242,000 for the nine months
ended September 30, 2011, representing a decrease of 2%. This decrease was due primarily to certain assets becoming
fully depreciated.
Amortization expense was
$137,000 for the three months ended September 30, 2012 and $160,000 for the three months ended September 30, 2011, representing
a decrease of 14%. This decrease was due primarily to certain intangible assets becoming fully amortized. Amortization
expense was $409,000 for the nine months ended September 30, 2012 and $371,000 for the nine months ended September 30, 2011, representing
an increase of 10%. This increase was 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 require us to pay 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 nine months ended September 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 nine
months ended September 30, 2011.
Other loss, net
Other loss of $213,000
and $216,000 during the three and nine months ended September 30, 2012, respectively, relates primarily to the sale of our 33%
investment in Social.Media.Tracking GmbH. Other loss was $4,000 and $7,000 for the three and nine months ended September 30, 2011,
respectively.
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
September 30,
|
|
|
2012 vs. 2011
|
|
|
Nine Months Ended
September 30,
|
|
|
2012 vs. 2011
|
|
|
|
2012
|
|
|
2011
|
|
|
$
|
|
|
%
|
|
|
2012
|
|
|
2011
|
|
|
$
|
|
|
%
|
|
Interest income
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
–
|
|
|
|
—%
|
|
|
$
|
3
|
|
|
$
|
41
|
|
|
$
|
(38
|
)
|
|
|
(93
|
)%
|
Interest expense
|
|
|
(63
|
)
|
|
|
(178
|
)
|
|
|
115
|
|
|
|
65
|
|
|
|
(209
|
)
|
|
|
(535
|
)
|
|
|
326
|
|
|
|
61
|
|
Interest expense during
the three and nine months ended September 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 nine months ended September 30, 2012 was due to the 2
nd
Note Modification Agreement that we entered into on November 14, 2011. See “Related Party Transactions” for a description
of the loans and 2
nd
Note Modification Agreement.
Provision (benefit)
for income taxes
We recorded a provision
for income taxes of $11,000 and $30,000 during the three and nine months ended September 30, 2012, respectively. We recorded an
income tax benefit of $437,000 and $417,000 during the three and nine months ended September 30, 2011, respectively, which was
primarily due to the release of valuation allowance against our deferred income tax assets as a result of additional deferred tax
liabilities that we recorded as part of the acquisition of Inside Network.
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 September 30, 2012 and December 31, 2011, all of which would affect the effective tax rate,
if recognized, as of September 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):
|
Nine Months Ended
September 30,
|
|
2012 vs. 2011
|
|
|
2012
|
|
2011
|
|
$
|
|
%
|
|
Operating cash flows
|
$
|
(784
|
)
|
$
|
(2,125
|
)
|
$
|
1,341
|
|
|
63
|
%
|
Investing cash flows
|
|
(277
|
)
|
|
(9,059
|
)
|
|
8,782
|
|
|
97
|
|
Financing cash flows
|
|
102
|
|
|
94
|
|
|
8
|
|
|
9
|
|
|
As of
|
|
2012 vs. 2011
|
|
|
September 30,
2012
|
|
December 31,
2011
|
|
$
|
|
%
|
|
Cash and cash equivalents
|
$
|
2,479
|
|
$
|
3,438
|
|
$
|
(959
|
)
|
|
(28
|
)%
|
Working capital
|
|
889
|
|
|
1,794
|
|
|
(905
|
)
|
|
(50
|
)
|
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.
Cash used by operating activities decreased during the nine months ended September 30, 2012 compared to the same period of 2011
due primarily to reduced losses from operations.
Investing activities.
The amounts of cash used in investing activities vary in correlation to the number and cost of acquisitions we complete.
Net cash used in investing activities during the nine months ended September 30, 2012 related primarily to the purchase of certain
assets and website development costs. Net cash used in investing activities during the nine months ended September 30, 2011, related
primarily to the acquisition of Inside Network.
Financing activities.
Cash provided by financing activities during the nine months ended September 30, 2012 related to proceeds from stock option exercises
partially offset by debt issuance costs incurred with the 3
rd
Note Modification Agreement entered into on July 27, 2012.
See “Related Party Transactions” below. Cash provided by financing activities during the nine months ended September
30, 2011 related primarily to stock option exercises partially offset by a prepayment of borrowings from related parties.
We expect to continue our
investing activities on a limited basis for the foreseeable future, which includes the potential to strategically acquire content
that is 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 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.
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 September 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 nine months
ended September 30, 2012 and one principal payment on the 2009 Meckler Loan totaling $50,000 during the nine months ended September
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 142,857 shares of our common stock (after giving effect to the August 16, 2012 one-for-seven reverse
stock split) 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.
On July 27, 2012, we 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.
Interest expense on the
2009 Meckler Loan and 2011 Meckler Loan was $53,000 and $182,000 during the three and nine months ended September 30, 2012, respectively,
and $171,000 and $513,000 during the three and nine months ended September 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.