UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

    

FORM 10-Q

  

S	Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
	For the quarterly period ended September 30, 2012.

  

or

  

£	Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
	For the transition period from                       to

   

Commission file number: 000-26393

 

 

WebMediaBrands Inc.

(Exact name of Registrant as specified in its charter)

 

 

Delaware (State or other jurisdiction of incorporation or organization)	06-1542480 (I.R.S. Employer Identification No.)
50 Washington Street, Suite 912 Norwalk, Connecticut (Address of principal executive offices)	06854 (Zip Code)
(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):

 

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

 

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

 

The number of outstanding shares the Registrant’s common stock, par value $.01 per share, as of November 1, 2012 was 6,013,165.

 

 

 

 

 

WebMediaBrands Inc.

Index

 

		Page
PART I. Financial Information
Item 1.	Financial Statements	3
	Consolidated Condensed Balance Sheets – September 30, 2012 (unaudited)  and December 31, 2011	3
	Unaudited Consolidated Condensed Statements of Operations – For the Three Months and Nine Months Ended September 30, 2012 and 2011	4
	Unaudited Consolidated Condensed Statements of Cash Flows – For the Nine Months Ended September 30, 2012 and 2011	5
	Notes to Unaudited Consolidated Condensed Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	19
Item 4.	Controls and Procedures	19
PART II. Other Information
Item 1.	Legal Proceedings	20
Item 1A.	Risk Factors	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 3.	Defaults Upon Senior Securities	20
Item 4.	Mine Safety Disclosures	20
Item 5.	Other Information	20
Item 6.	Exhibits	20
Signatures		21

   

 

 

 

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 community, 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 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:

 

·

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.

 

Item 3.      Quantitative and 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.

 

Changes in Internal Control over Financial Reporting.  There were no changes in our internal control over financial reporting during the quarter ended September 30, 2012 that have material affected, or are reasonably likely to affect our internal control over financial reporting.

   

 

 

PART II - OTHER INFORMATION

    

Item 1.

LEGAL PROCEEDINGS None

 

Item 1A.

RISK FACTORS 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

   

Item 6.

EXHIBITS The following is a list of exhibits filed as part of this Report on Form 10-Q.

 

 

Exhibit Number		Description
3.1		Registrant’s Amended and Restated Certificate of Incorporation, as Amended
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.

 

Dated: November 5, 2012		WebMediaBrands Inc.
		/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)