UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x	Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
	For the quarterly period ended June 30, 2014.

 

or

 

o	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

 

Mecklermedia Corporation

(Exact name of Registrant as specified in its charter)

  

Delaware	06-1542480
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
50 Washington Street, Suite 912 Norwalk, Connecticut	06854
(Address of principal executive offices)	(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 August 8, 2014 was 6,057,662.

 

 

Mecklermedia Corporation

Index

 

		Page
PART I. Financial Information
Item 1.	Financial Statements	3
	Consolidated Condensed Balance Sheets – June 30, 2014 (unaudited) and December 31, 2013	3
	Unaudited Consolidated Condensed Statements of Operations – For the Three and Six Months Ended June 30, 2014 and 2013	4
	Unaudited Consolidated Condensed Statements of Cash Flows – For the Six Months Ended June 30, 2014 and 2013	5
	Notes to Unaudited Consolidated Condensed Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	21
Item 4.	Controls and Procedures	21
PART II. Other Information
Item 1.	Legal Proceedings	22
Item 1A.	Risk Factors	22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 3.	Defaults Upon Senior Securities	22
Item 4.	Mine Safety Disclosures	22
Item 5.	Other Information	22
Item 6.	Exhibits	22
Signatures		23

 

 

 

PART I - FINANCIAL INFORMATION

 

Item 1.

Financial Statements.

 

Mecklermedia Corporation

Consolidated Condensed Balance Sheets

June 30, 2014 and December 31, 2013

(in thousands, except share and per share amounts)

 

		June 30, 2014 (unaudited)				December 31, 2013
ASSETS
Current assets:
Cash and cash equivalents		$	374			$	1,232
Accounts receivable, net of allowances of $5 and $3, respectively			605				557
Prepaid expenses and other current assets			1,009				769
Total current assets			1,988				2,558
Property and equipment, net			364				430
Intangible assets, net			1,067				1,946
Goodwill			2,916				6,633
Investments and other assets			713				637
Total assets		$	7,048			$	12,204
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable		$	528			$	445
Accrued payroll and related expenses			415				511
Accrued expenses and other current liabilities			1,027				1,092
Deferred revenues			1,159				1,120
Total current liabilities			3,129				3,168
Loan from related party, net of discount			8,948				8,341
Deferred revenues			16				16
Deferred income taxes			507				481
Total liabilities			12,600				12,006
Commitments and contingencies (see note 11)
Stockholders’ equity (deficit):
Preferred stock, $.01 par value, 4,000,000 shares authorized, 600,000 designated as Series A Junior participating preferred stock, no shares issued and outstanding			–				–
Common stock, $.01 par value, 18,750,000 shares authorized, 6,176,947 and 6,176,661 shares issued and 6,057,662 and 6,057,376 shares outstanding at June 30, 2014 and December 31, 2013, respectively			62				62
Additional paid-in capital			290,739				290,620
Accumulated deficit			(295,857	)			(289,988	)
Treasury stock, 119,285 shares, at cost			(496	)			(496	)
Total stockholders’ equity (deficit)			(5,552	)			198
Total liabilities and stockholders’ equity (deficit)		$	7,048			$	12,204

 

See notes to unaudited consolidated condensed financial statements.

 

 

Mecklermedia Corporation

Unaudited Consolidated Condensed Statements of Operations

For the Three and Six Months Ended June 30, 2014 and 2013

(in thousands, except per share amounts)

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2014				2013				2014				2013
Revenues		$	3,674			$	3,963			$	6,833			$	6,483
Cost of revenues			2,427				2,297				4,248				3,854
Advertising, promotion and selling			859				713				1,434				1,189
General and administrative			1,205				1,147				2,305				2,307
Depreciation			36				41				73				105
Amortization			69				105				165				214
Total operating expenses			4,596				4,303				8,225				7,669
Operating loss			(922	)			(340	)			(1,392	)			(1,186	)
Other income (loss), net			26				8				(110	)			4
Loss on disposition of assets			(363	)			–				(363	)			–
Impairment of goodwill			(3,717	)			–				(3,717	)			–
Interest income			–				1				–				2
Interest expense			(132	)			(64	)			(259	)			(127	)
Loss before income taxes			(5,108	)			(395	)			(5,841	)			(1,307	)
Provision for income taxes			15				11				28				23
Net loss		$	(5,123	)		$	(406	)		$	(5,869	)		$	(1,330	)
Loss per share:
Basic and diluted net loss		$	(0.85	)		$	(0.07	)		$	(0.97	)		$	(0.22	)
Weighted average shares used in computing loss per share:
Basic and diluted			6,058				6,022				6,058				6,023

 

See notes to unaudited consolidated condensed financial statements.

 

 

Mecklermedia Corporation

Unaudited Consolidated Condensed Statements of Cash Flows

For the Six Months Ended June 30, 2014 and 2013

(in thousands)

 

		Six Months Ended June 30,
		2014				2013
Cash flows from operating activities:
Net loss		$	(5,869	)		$	(1,330	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			238				319
Stock-based compensation			108				159
Provision for losses on accounts receivable			(4	)			4
Amortization of debt issuance costs			12				19
Other loss, net			120				12
Loss on disposition of assets			363				–
Impairment of goodwill			3,717				–
Deferred income taxes			26				18
Changes in assets and liabilities
Accounts receivable, net			(44	)			(113	)
Prepaid expenses and other assets			(276	)			(18	)
Accounts payable, accrued expenses and other liabilities			(78	)			379
Deferred revenues			158				200
Net cash used in operating activities			(1,529	)			(351	)
Cash flows from investing activities:
Purchases of property and equipment			(17	)			(33	)
Proceeds from sale of assets			190				–
Purchases of intangible assets and other development costs			(102	)			(161	)
Net cash provided by (used in) investing activities			71				(194	)
Cash flows from financing activities:
Borrowings from related party			600				–
Proceeds from exercise of stock options			–				7
Net cash provided by financing activities			600				7
Net decrease in cash and cash equivalents			(858	)			(538	)
Cash and cash equivalents, beginning of period			1,232				2,210
Cash and cash equivalents, end of period		$	374			$	1,672

  

See notes to unaudited consolidated condensed financial statements.

 

 

Mecklermedia Corporation

Notes to Unaudited Consolidated Condensed Financial Statements

June 30, 2014

(in thousands, except per share amounts)

 

1. THE COMPANY

 

Mecklermedia Corporation (f/k/a Mediabistro Inc.) (“Mecklermedia” or the “Company”) is an Internet media company that provides services for social media, traditional media and creative professionals. Mecklermedia is a leading producer of 3D printing and Bitcoin trade shows. The Company’s service offerings include an online job board, news and analysis, trade shows and events, online and in-person courses, and research and data services products.

 

The Company’s online job board, a leader in the media industry, has an audience of social media, gaming, mobile, publishing, public relations, journalism, advertising, graphic design, web development, 3D printing and television professionals.

 

The Company’s trade shows include, among others, Inside 3D Printing Conference & Expo, Inside Bitcoin, and AllFacebook Marketing Conference.

 

Mecklermedia’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 also provides original and in-depth daily coverage of the latest developments in social media, advertising and public relations, television and video, mobile apps, 3D printing, publishing and design. In addition, Mecklermedia features a marketplace for designing and purchasing logos through Stocklogos.com.

 

Liquidity. The Company has incurred losses and negative cash flows from operations in recent quarters and expects to continue to incur operating losses until revenues from all sources reach a level sufficient to support its on-going operations. The Company’s liquidity will largely be determined by its ability to raise capital from debt, equity, or other forms of financing, by the success of its product offerings, by developing additional product offerings, and by expenses associated with operations. The Company’s management believes that its cash resources at June 30, 2014, will be sufficient to meet current obligations and fund its operating activities through June 30, 2015.

 

In the absence of a sufficient increase in revenues, the Company will need to do one or more of the following in the next 12 months to meet its planned level of expenditures: (a) raise additional capital; (b) reduce spending on operations; or (c) restructure its operations. A capital raise could take any number of forms including but not limited to: additional debt, additional equity, asset sales, or other forms of financing as dictated by its needs and its view toward its overall capital structure. However, additional financing might not be available on acceptable terms, if at all, and such financing might only be available on terms dilutive or otherwise detrimental to its stockholders or its business. Historically, the Company has been able to raise capital in the form of debt from its Chief Executive Officer, Alan M. Meckler (see note 9). Mr. Meckler intends to provide additional capital in the form of a loan to the Company over the next 12 months, if deemed necessary, to absorb any cash flow shortages that the Company may sustain.

  

2. BASIS OF PRESENTATION

 

There have been no significant changes to the Company’s accounting policies since it filed its audited financial statements in its Annual Report on Form 10-K for the year ended December 31, 2013. During the six months ended June 30, 2014, the Company adopted ASU 2014-08 (defined below), which impacts the Company’s reporting of discontinued operations. For further information about the Company’s accounting policies, refer to the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2013 included in the Company’s Annual Report on Form 10-K filed with the SEC.

 

The accompanying unaudited consolidated condensed financial statements have been prepared from the books and records of Mecklermedia 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 (“SEC”). Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The consolidated condensed statements of operations for the three and six months ended June 30, 2014 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 condensed financial statements and notes thereto included in Mecklermedia’s Annual Report on Form 10-K for the year ended December 31, 2013. In the opinion of management, all adjustments considered necessary for a fair presentation of the results for the interim periods presented have been reflected in such consolidated condensed financial statements.

 

The consolidated condensed financial statements include the accounts of Mecklermedia and its wholly-owned subsidiaries: Mecklermedia.com Subsidiary Inc. (f/k/a Mediabistro.com Subsidiary 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 June 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)  2014-12, “Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (a consensus of the FASB Emerging Issues Task Force),” which amends current guidance for stock compensation tied to performance targets. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition and apply existing guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. ASU 2014-12 will be effective for interim and annual periods beginning after December 15, 2015 with early adoption permitted. The adoption of ASU 2014-12 is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

 

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers”, which provides guidance for revenue recognition. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under today’s guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. This guidance will be effective for the Company in the first quarter of its fiscal year ending December 31, 2017. The Company is currently in the process of evaluating the impact of adoption of this ASU on the Company's consolidated financial statements.

 

In April 2014, the FASB issued ASU 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” to Accounting Standards Codification (“ASC”) Topic 205, “Presentation of Financial Statements” and ASC Topic 360, “Property Plant and Equipment”. Under ASU 2014-08, only disposals that represent a strategic shift that has (or will have) a major effect on the entity's results and operations would qualify as discontinued operations. In addition, ASU 2014-08 expands the disclosure requirements for disposals that meet the definition of a discontinued operation and requires entities to disclose information about disposals of individually significant components that do not meet the definition of discontinued operations. ASU 2014-08 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2014; early adoption is permitted. In 2014, the Company has elected early adoption of ASU 2014-08. As a result of the adoption of ASU 2014-08, results of operations for assets that are classified as held for sale or disposed of in the ordinary course of business on or subsequent to January 1, 2014 would generally be included in continuing operations on the Company’s consolidated condensed statements of operations, to the extent such disposals did not meet the criteria for classification of a discontinued operation as described above. Additionally, any gain or loss on sale of assets that does not meet the criteria for classification as a discontinued operation would be included in income from continuing operations on the consolidated condensed statement of operations. See note 6 for further details of the disposition of assets.

 

 

 

 

4. ACCOUNTING FOR EMPLOYEE STOCK-BASED COMPENSATION

 

Total employee stock-based compensation is as follows:

    

		Three Months Ended June 30,								Six Months Ended June 30,
		2014				2013				2014				2013
Stock options for employees		$	53			$	78			$	108			$	158
Restricted stock for employees			–				–				–				1
Total employee stock-based compensation		$	53			$	78			$	108			$	159

  

Total employee stock-based compensation increased additional paid-in capital by $108 and $159 for the six months ended June 30, 2014 and 2013, respectively.

 

The fair value of each stock option grant is estimated using the Black-Scholes option pricing model with the following assumptions used for grants during the periods presented:

 

		Six Months Ended June 30,
		2014				2013
Risk-free interest rate			0.69%				0.38%
Expected life (in years)			3.4				3.4
Dividend yield			0%				0%
Expected volatility			135%				124%

 

The expected stock price volatility is based on the historical volatility of Mecklermedia’s common stock. The risk-free interest rate is based on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term. The Company has calculated the expected term for stock options issued using historical data.

 

The weighted-average grant date fair value of stock options granted during the six months ended June 30, 2014 and 2013 was $1.95 and $1.24, respectively.

 

The following table summarizes stock option activity during the six months ended June 30, 2014:

 

		Shares				Weighted Average Exercise Price				Weighted Average Remaining Contractual Term (years)				Aggregate Intrinsic Value
Outstanding at December 31, 2013			793,169			$	5.59
Granted			87,300			$	2.44
Exercised			(286	)		$	1.82
Forfeited, expired or cancelled			(114,339	)		$	7.66
Outstanding at June 30, 2014			765,844			$	4.92				6.04			$	–
Exercisable at June 30, 2014			533,032			$	5.74				4.70			$	–

 

During the six months ended June 30, 2014 and 2013, the total intrinsic value of stock options exercised was $0 and $2, respectively. As of June 30, 2014, there was $316 of unrecognized compensation cost related to nonvested stock-based compensation arrangements granted under the Company’s stock incentive plan. The Company expects to amortize that cost over a weighted-average period of 2.3 years.

 

 

5. COMPUTATION OF LOSS PER SHARE

 

The Company computes basic loss per share using the weighted average number of common shares outstanding during the period. The Company computes diluted loss per share using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Common equivalent shares consist of the incremental common shares issuable upon the exercise of stock options. Common equivalent shares are excluded from the calculation if their effect is anti-dilutive.

 

Computations of basic and diluted loss per share for the periods presented are as follows:

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2014				2013				2014				2013
Net loss		$	(5,123	)		$	(406	)		$	(5,869	)		$	(1,330	)
Basic weighted average number of common shares outstanding			6,058				6,022				6,058				6,023
Effect of dilutive stock options			–				–				–				–
Total basic weighted average number of common shares and dilutive stock options			6,058				6,022				6,058				6,023
Basic and diluted net loss		$	(0.85	)		$	(0.07	)		$	(0.97	)		$	(0.22	)

 

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:

  

		Six Months  Ended June 30,
		2014				2013
Number of anti-dilutive stock options			766				787
Weighted average exercise price		$	4.92			$	5.74

 

6. DISPOSITION OF ASSETS

 

The Company early adopted ASU 2014-08 for the reporting period beginning January 1, 2014. As a result of the adoption of ASU 2014-08, assets that are classified as held for sale or disposed of in the ordinary course of business on or subsequent to January 1, 2014 would generally be included in continuing operations on the Company’s consolidated condensed statements of operations. For more information, see note 2, “Basis of presentation”.

 

On May 30, 2014, the Company completed the sale of its AppData Research product to AppData, LLC for an aggregate purchase price of $190. AppData was part of the Inside Network business originally acquired on May 17, 2011. As part of the sale of AppData and in accordance with FASB ASC Topic 350, “Intangibles – Goodwill and Other” and ASC Topic 360, “Property, Plant and Equipment”, the Company evaluated the remaining assets and liabilities within the Inside Network business for impairment and wrote those assets off concurrently with the sale of AppData. The carrying value of the net assets at the time of the sale were $553, resulting in a loss from disposition of assets of $363, which is recorded in loss on disposition of assets in the three and six months ended June 30, 2014 of the consolidated condensed statements of operations. Revenues from the AppData Research product for the year ended December 31, 2013, the three months ended March 31, 2013 and March 31, 2014 were $1,100, $344 and $190, respectively.

 

Assets and liabilities at time of sale were as follows:
Prepaids and other current assets		$	1
Property and equipment, net			2
Intangible assets, net			669
Total assets		$	672
Deferred revenue			119
Total liabilities		$	119

 

 

7. INTANGIBLE ASSETS AND GOODWILL

 

Amortized Intangible Assets

 

The following tables set forth the intangible assets that are subject to amortization, including the related accumulated amortization:

 

		June 30, 2014
		Cost				Accumulated Amortization				Net Carrying Value
Website and product development costs		$	524			$	(410	)		$	114
Copyrights and trademarks			27				(25	)			2
Total		$	551			$	(435	)		$	116

   

		December 31, 2013
		Cost				Accumulated Amortization				Net Carrying Value
Website and product development costs		$	998			$	(572	)		$	426
Customer relationships			610				(339	)			271
Copyrights and trademarks			534				(297	)			237
Total		$	2,142			$	(1,208	)		$	934

 

The Company amortizes intangible assets that are subject to amortization on a straight-line basis over their expected useful lives. The Company amortizes website and product development costs, customer relationships and copyrights and trademarks over three to seven years and content development costs over two years.

 

Amortization expense related to intangible assets subject to amortization was $69 and $165 for the three and six months ended June 30, 2014, respectively, and $105 and $214 for the three and six months ended June 30, 2013, respectively. As discussed in note 6, the Company wrote off $669 in connection with the sale of AppData and the impairment of Inside Network assets. Estimated annual amortization expense for the next five years, including the remainder of 2014, is expected to be as follows:

  

Years Ending December 31:
2014		$	39
2015			57
2016			20
2017			–
2018			–
		$	116

 

Unamortized Intangible Assets

 

The following tables set forth the intangible assets that are not subject to amortization:

 

		June 30, 2014				December 31, 2013
Domain names		$	951			$	1,012

  

Goodwill

 

During the quarter ended June 30, 2014, concurrently with the sale of Inside Network’s AppData Research product, the Company identified indicators that the Inside Network goodwill was impaired. As a result, the Company recorded a non-cash impairment charge of $3,717 related to the writedown of goodwill. This impairment charge is not tax deductible because the acquisitions that gave rise to most of the carrying value of the Company’s goodwill were structured as stock transactions.

 

The changes in the carrying amount of goodwill for the six months ended June 30, 2014 are as follows:

 

Balance as of December 31, 2013		$	6,633
Impairment of goodwill			(3,717	)
Balance  as of June 30, 2014		$	2,916

 

 

8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

 

Accrued expenses and other current liabilities consist of the following:

 

		June 30, 2014				December 31, 2013
Deferred rent		$	593			$	578
Customer overpayments			81				81
Accrued professional fees			47				63
Accrued property and capital taxes			46				49
Other			260				321
Total		$	1,027			$	1,092

 

9. DEBT

 

On May 29, 2009, Mecklermedia entered into a loan agreement in the amount of $7,200 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, Mecklermedia.com Subsidiary Inc. (“MM Subsidiary”), 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 MM Subsidiary 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, MM Subsidiary (1) entered into a Security Agreement by and between MM Subsidiary and Mr. Meckler pursuant to which MM Subsidiary granted to Mr. Meckler a security interest in MM Subsidiary’s assets (the “MM Subsidiary Security Agreement”), (2) entered into an Intellectual Property Security Agreement by and between MM Subsidiary and Mr. Meckler pursuant to which MM Subsidiary granted to Mr. Meckler a security interest in MM Subsidiary’s intellectual property (the “MM Subsidiary IP Security Agreement”), and (3) agreed to enter into a Blocked Account Control Agreement by and among MM Subsidiary, Mr. Meckler and a depositary bank, to further secure the 2009 Note (the “MM Subsidiary Control Agreement” and, together with the MM Subsidiary Security Agreement and the MM Subsidiary IP Security Agreement, the “MM Subsidiary 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 2009 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, Mecklermedia entered into a note modification agreement (“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.

 

On November 14, 2011, the Company and MM Subsidiary entered into a 2^nd Note Modification Agreement with Mr. Meckler. The 2^nd Note Modification Agreement amends the 2009 Note, which is described above. Under the 2^nd Note Modification Agreement, the parties agreed to terminate the Company’s obligation to make a monthly accommodation fee of $40 to Mr. Meckler.  As a result, the 2^nd Note Modification Agreement reduces the effective interest payable on the 2009 Meckler Loan by $480 per year.  The Company granted Mr. Meckler a fully vested stock option to purchase 142,858 shares of the Company’s common stock pursuant to the terms of the 2008 Mecklermedia Stock Option Plan. All other terms of the 2009 Meckler Loan remain unchanged.

 

 

Also on November 14, 2011, Mecklermedia and its wholly owned subsidiaries, MM Subsidiary and Inside Network: (1) entered into a promissory note jointly and severally payable by the Company, MM Subsidiary and Inside Network to Mr. Meckler (the “2011 Note”); (2) entered into a Security Agreement by and between the Company and Mr. Meckler (the “MECK 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 “2^nd 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 “2^nd Pledge Agreement”), and together with the 2011 Note, the MECK Security Agreement and the 2^nd 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 MM Subsidiary and Inside Network owned by the Company.

 

In the 2011 Note, Mr. Meckler loaned the Company $1,800 (the “2011 Meckler Loan”). The interest rate of the 2011 Note at the time of the loan was 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 2^nd 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. 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 may 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 MM Subsidiary, Inside Network, or the Company.

 

On July 27, 2012, the Company entered into a 3^rd 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. 

 

On November 1, 2013, the Company and its wholly-owned subsidiaries, MM Subsidiary and Inside Network entered into an Amended and Restated Promissory Note (the “Restated Note”) with Mr. Meckler. The Restated Note combines, amends, restates and replaces, but does not extinguish, the obligations of the 2009 Note and the 2011 Note.

 

The Restated Note combines the outstanding principal amounts of the 2009 Note and the 2011 Note along with applicable closing costs to $7,800 and extends the maturity date to September 1, 2043. Initially, interest accrues from August 27, 2013, at a rate of 5.5% per annum. Beginning September 1, 2018 (“Change Date”), the interest rate will convert to an adjustable rate based on a specified amount above LIBOR, initially not to exceed 7.5% per annum or be less than 5.5% per annum. Thereafter, the adjustable rate will never be increased or decreased on any single Change Date by more than 2.0% from the rate of interest paid by the Company for the preceding twelve months, and will never be less than 5.50% per annum or greater than 11.5% per annum. Interest only is payable in arrears beginning November 1, 2013 and each month thereafter until September 1, 2023. Beginning October 1, 2023 and continuing each month thereafter, the monthly payment will be in an amount sufficient to repay the principal and interest at the rate determined under the Restated Note in substantially equal installments by the maturity date.

 

On November 15, 2013, the Company and its wholly-owned subsidiaries, MM Subsidiary Inc. and Inside Network, Inc. entered into a Second Amended and Restated Promissory Note (the “2^nd Restated Note”) with Mr. Meckler. The 2^nd Restated Note increases the principal amount of the Restated Note to $8,800, a $1,000 increase. The terms of the 2^nd Restated Note are otherwise substantially the same as the terms of the Restated Note.

 

In the event of change of control, Mr. Meckler may elect to make the remaining principal balance and all accrued and unpaid interest due and payable concurrently with the closing of the change of control event. A change of control includes a sale of the Company or either subsidiary to a third party or any merger, consolidation, restructuring or reorganization of the Company that results in the common stock holders immediately prior to the transaction possessing less than 50% of the voting power of the surviving entity. Upon the occurrence of an event of default, Mr. Meckler may, among other things, declare the entire outstanding balance under the 2^nd Restated Note to be immediately due and payable, and/or exercise any other rights.

 

Mr. Meckler funded a portion of the Restated Note with a portion of the proceeds of his personal loan from BOFI Federal Bank (“BOFI”) with the intent that the principal and interest payments under the Restated Note will be utilized by Mr. Meckler to make payments under his note with BOFI. The Company must repay the 2^nd Restated Note if Mr. Meckler is required to repay the BOFI note whether due to an event of default by Mr. Meckler under the BOFI note or otherwise.

 

To induce Mr. Meckler to enter into the 2^nd Restated Note, pursuant to a Second Reaffirmation of Collateral Documents (the “Reaffirmation”), the Company reaffirmed its obligations under the collateral documents related to the Restated Note. To further induce Mr. Meckler to enter into the 2^nd Restated Note, the Company issued to Mr. Meckler on November 14, 2013 a warrant for 301,124 shares of the Company’s common stock. The warrant is exercisable at any time on or after November 14, 2013 until the close of business on November 13, 2018 at an exercise price per share of $2.00, which was 110% of the closing price of the Company’s common stock on November 14, 2013. The exercise price and number of the shares of the common stock issuable upon the exercise of the warrant is subject to adjustment in the event of any stock dividend, stock split, recapitalization, reorganization or similar transaction. The warrant will terminate upon a fundamental transaction, which includes the acquisition of the Company or all or substantially all of its assets by another party.

 

 

The Company recorded a discount on the 2^nd Restated Note based on the value of the warrants as of the date of issuance, which was $455. The discount is being amortized over the life of the 2^nd Restated Note, and the carrying amount of the discount was $447 as of June 30, 2014.

 

Effective April 25, 2014, the Company entered into a 3^rd Restated Note Agreement with Mr. Meckler that increases the principal amount of the Restated Note to $9,100, a $300 increase. All other terms of the promissory notes remain unchanged.

 

Effective May 19, 2014, the Company entered into a 4^th Restated Note Agreement with Mr. Meckler that increases the principal amount of the Restated Note to $9,400, a $300 increase. All other terms of the promissory notes remain unchanged.

 

Effective July 1, 2014, the Company entered into a 5^th Restated Note Agreement with Mr. Meckler that increases the principal amount of the Restated Note to $9,700, a $300 increase. Additionally, Mr. Meckler agrees to loan the company up to an additional aggregate principal amount of $100 in one or more advances. All other terms of the promissory notes remain unchanged.

 

Interest expense on the Restated Notes were $126 and $247 during the three and six months ended June 30, 2014, respectively. Interest expense on the 2009 Meckler Loan and the 2011 Meckler Loan was $54 and $108 during the three months and six months ended June 30, 2013, respectively. 

 

10. INCOME TAXES

 

The Company recorded a provision for income taxes of $15 and $28 during the three and six months ended June 30, 2014, respectively, and $11 and $23 during the three and six months ended June 30, 2013, respectively.

 

Deferred tax assets of approximately $44,000 related to capital loss carryforwards will expire at the end of 2014 and will most likely go unutilized. There is deferred tax asset of approximately $30,000 for federal and state net operating loss carryforwards. The federal net operating loss carry forwards begin to expire in the year 2024, state net operating loss carry forwards generally start to expire in the year 2017. While we have no other limitations on the use of our net operating loss carry forwards, we are potentially subject to limitations if a change in control occurs pursuant to applicable statutory regulations.

 

Based on current projections, management believes that it is more likely than not that Mecklermedia 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 $61 as of June 30, 2014 and December 31, 2013, all of which would affect the effective tax rate, if recognized, as of June 30, 2014.

 

11. COMMITMENTS AND CONTINGENCIES

 

Mecklermedia 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 Mecklermedia.

 

12. SUBSEQUENT EVENTS

 

The Company has evaluated events and transactions subsequent to June 30, 2014 and through the date these consolidated condensed financial statements were included in this Form 10-Q and filed with the SEC. As described in note 9, on July 1, 2014 the Company entered into a 5^th Restated Note Agreement with Mr. Meckler that increases the principal amount of the Restated Note to $9,700, a $300 increase.

 

On May 28, 2014, the Company entered into a definitive asset purchase agreement to sell all of its assets related to the Business (the “Business Assets”) to PGM-MB, LLC, Delaware limited liability company (“PGM-MB”). The “Business” refers to the Company’s business of providing online publishing of editorial content, e-commerce offerings, an online job board, online education and certificate programs for social media, traditional media and creative professionals and bundled subscription services of the foregoing. For more detail and a copy of the asset purchase agreement, see the Company’s Current Report on Form 8-K dated June 2, 2014.

 

In conjunction with the sale of the Business Assets, the Company changed its name to Mecklermedia Corporation from Mediabistro Inc. effective August 8, 2014.

 

The asset purchase agreement provides that, upon the terms and subject to the conditions set forth in the purchase agreement, PGM-MB will purchase from the Company, and the Company will sell, assign, transfer, convey and deliver to PGM-MB, the Business Assets, and PGM-MB will assume specified liabilities related to the Business. Prometheus Global Media, LLC, a Delaware limited liability company and parent company of PGM-MB, has irrevocably guaranteed the full and punctual payment and performance of certain obligations of PGM-MB set forth in the Agreement, including the payment by PGM-MB of the purchase price at the closing of the transaction. As of the time of filing, the stockholders have approved the sale of the Business Assets, but the sale has not yet been consummated.

 

 

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 Mecklermedia competes; the unpredictability of Mecklermedia’s future revenues, expenses, cash flows and stock price; Mecklermedia’s potential need for additional capital; Mecklermedia’s ability to integrate acquired businesses products and personnel into its existing businesses; Mecklermedia’s dependence on a limited number of advertisers; Mecklermedia’s ability to maintain its listing on the OTCQX Stock Market; and Mecklermedia’s ability to protect its intellectual property. For a more detailed discussion of these risks and uncertainties, refer to Mecklermedia’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.

 

Recent Developments

 

On May 28, 2014, the Company entered into a definitive asset purchase agreement to sell all of its assets related to the Business (the “Business Assets”) to PGM-MB, LLC, Delaware limited liability company (“PGM-MB”). The “Business” refers to the Company’s business of providing online publishing of editorial content, e-commerce offerings, an online job board, online education and certificate programs for social media, traditional media and creative professionals and bundled subscription services of the foregoing. For more detail and a copy of the asset purchase agreement, see the Company’s Current Report on Form 8-K dated June 2, 2014.

 

In conjunction with the sale of the Business Assets, the Company changed its name to Mecklermedia Corporation from Mediabistro Inc. effective August 8, 2014.

 

The asset purchase agreement provides that, upon the terms and subject to the conditions set forth in the purchase agreement, PGM-MB will purchase from the Company, and the Company will sell, assign, transfer, convey and deliver to PGM-MB, the Business Assets, and PGM-MB will assume specified liabilities related to the Business. Prometheus Global Media, LLC, a Delaware limited liability company and parent company of PGM-MB, has irrevocably guaranteed the full and punctual payment and performance of certain obligations of PGM-MB set forth in the Agreement, including the payment by PGM-MB of the purchase price at the closing of the transaction. As of the time of the filing, the stockholders have approved the sale of the Business Assets, but the sale has not yet been consummated.

 

The following disclosure describes the Company’s business as of June 30, 2014 without giving effect to the sale of the Business Assets.

 

Overview

 

Mecklermedia Corporation (“Mecklermedia” or the “Company”) is an Internet media company that provides services for social media, traditional media and creative professionals, as well as for innovators in the 3D printing and Bitcoin trade shows. Our service offerings include an online job board, news and analysis, trade shows and events, online and in-person courses, and research and data services products.  

 

Our online job board, a leader in the media industry, has an audience of social media, gaming, mobile, publishing, public relations, journalism, advertising, graphic design, web development and television professionals.

 

Our trade shows include, among others, Inside 3D Printing Conference & Expo, Inside Bitcoins and AllFacebook Marketing Conference.

 

Our 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.

 

We also provide original and in-depth daily coverage of the latest developments in social media, advertising and public relations, television and video, mobile apps, 3D printing, publishing and design. In addition, we feature a marketplace for designing and purchasing logos through Stocklogos.com.

 

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;
	·	attendee registration fees to our trade shows;
	·	advertising on our websites and e-mail newsletters;
	·	exhibition space fees and vendor sponsorships to our trade shows;
	·	attendee registration fees for our online and in-person education courses and conferences;
	·	fees for social media and mobile-related market research and data services products;
	·	subscription sales from our paid membership services; and
	·	granting rights to use logos that are downloaded from our stocklogos.com website.

 

Customers generally post more job listings during the first calendar quarter and fewer job listings during the fourth calendar quarter. Also, advertisers generally place fewer advertisements during the first and third calendar quarters of each year, which, together with fluctuations in online job postings, directly affect our business. Our results will also be impacted by the number and type of education courses we offer and by the number and size of trade shows we hold in each quarter. In addition, there may be fluctuations as trade shows held in one period in the current year may be held in a different period in future years.

  

The principal costs of our business relate to: payroll and benefits costs for our personnel; technology-related costs; facilities and equipment; and venue, speaker and advertising expenses for our trade shows and courses.

 

Results of Operations

 

All amounts below are in thousands, except share and per share amounts.

 

Revenues

 

Revenues were $3,674 for the three months ended June 30, 2014, representing a decrease of 7% compared to the same period of 2013. This change was primarily due to a decrease in online job postings and research revenues that was partially offset by an increase in advertising revenues.

 

Revenues were $6,833 for the six months ended June 30, 2014 and $6,483 for the six months ended June 30, 2013, representing an increase of 5%. This change was primarily due to an increase in trade show revenues. We ran nine trade shows during the six months ended June 30, 2014 compared to eight tradeshows during the six months ended June 30, 2013.

 

The following table sets forth, for the periods indicated, the components of our revenues:

 

		Three Months Ended June 30,								2014 vs. 2013								Six Months Ended June 30,								2014 vs. 2013
		2014				2013				$				%				2014				2013				$				%
Trade shows		$	1,414			$	1,390			$	24				2%			$	2,162			$	1,397			$	765				55%
Online job postings			863				980				(117	)			(12	)			1,801				1,921				(120	)			(6	)
Advertising			579				503				76				15				1,091				889				202				23
Education			428				496				(68	)			(14	)			878				1,031				(153	)			(15	)
Research			124				316				(192	)			(61	)			329				699				(370	)			(53	)
Other			266				278				(12	)			(4	)			572				546				26				5
Total		$	3,674			$	3,963			$	(289	)			(7)%			$	6,833			$	6,483			$	350				5%

 

Other revenues include subscription sales from our paid membership services and sales of logos through stocklogos.com.

 

Cost of revenues

 

Cost of revenues primarily consists of payroll and benefits costs for technology and editorial personnel, freelance costs, communications infrastructure and trade show and education operations. Cost of revenues excludes depreciation and amortization. Cost of revenues was $2,427 for the three months ended June 30, 2014 and $2,297 for the three months ended June 30, 2013, representing an increase of 6%. This change was primarily due to an increase in trade show operating costs of $241 and professional consulting costs of $99, offset by a decrease in employee-related costs of $234.

 

Cost of revenues was $4,248 for the six months ended June 30, 2014 and $3,854 for the six months ended June 30, 2013, representing an increase of 10%.  This change was primarily due to an increase in trade show operating costs of $740 and professional consulting costs of $124, offset by a decrease in employee-related costs of $510.

 

We intend to make investments through internal development and, where appropriate opportunities arise, through targeted asset 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, trade shows or offerings.

 

Advertising, promotion and selling

 

Advertising, promotion and selling expenses primarily consist of payroll and benefits costs for sales and marketing personnel, sales commissions and promotion costs. Advertising, promotion and selling expenses were $859 for the three months ended June 30, 2014 and $713 for the three months ended June 30, 2013, representing an increase of 20%. This increase was due primarily to an increase in trade show marketing costs of $226, offset by a decrease in employee-related costs of $77.

 

Advertising, promotion and selling expenses were $1,434 for the six months ended June 30, 2014 and $1,189 for the six months ended June 30, 2013, representing an increase of 21%. This increase was due primarily to an increase in trade show marketing costs of $247, offset by a decrease in employee-related costs of $49.

 

 

General and administrative

 

General and administrative expenses consist primarily of payroll and benefits costs for administrative personnel, office-related costs and professional fees. General and administrative expenses were $1,205 for the three months ended June 30, 2014 and $1,147 for the three months ended June 30, 2013, representing an increase of 5%. This change was due to the costs related to legal and professional fees incurred in connection with the exploration of certain strategic alternatives of $302 and an increase in trade show partner fees of $41, offset by a decrease in employee-related costs of $245.

 

General and administrative expenses were $2,305 for the six months ended June 30, 2014 and $2,307 for the six months ended June 30, 2013.

 

Depreciation and amortization

 

Depreciation expense was $36 for the three months ended June 30, 2014 and $41 for the three months ended June 30, 2013, representing a decrease of 12%. Depreciation expense was $73 for the six months ended June 30, 2014 and $105 for the six months ended June 30, 2013, representing a decrease of 30%. These decreases were due primarily to certain assets becoming fully depreciated.

 

Amortization expense was $69 for the three months ended June 30, 2014 and $105 for the three months ended June 30, 2013, representing a decrease of 34%. Amortization expense was $165 for the six months ended June 30, 2014 and $214 for the six months ended June 30, 2013, representing a decrease of 23%. These decreases were due primarily to the sale of our Appdata property and to certain intangibles becoming fully amortized.

 

Our depreciation and amortization expenses might vary in future periods based upon a change in our capital expenditure levels or any future acquisitions.

 

Other income (loss), net

 

Other income of $26 during the three months ended June 30, 2014, related primarily to digital currency transaction gains. Other loss of $110 during the six months ended June 30, 2014, related primarily to digital currency transaction losses and the sale of certain assets. Other income was $8 and $4 during the three and six months ended June 30, 2013, respectively.

 

Loss on disposition of assets

 

On May 30, 2014, we completed the sale of our AppData Research product to AppData, LLC for an aggregate purchase price of $190. AppData was part of the Inside Network business originally acquired on May 17, 2011. As part of the sale of AppData and in accordance with FASB ASC Topic 350, “Intangibles – Goodwill and Other” and ASC Topic 360, “Property, Plant and Equipment”, we evaluated the remaining assets and liabilities within the Inside Network business for impairment and wrote those assets off concurrently with the sale of AppData. The carrying value of the net assets at the time of the sale were $553, resulting in a loss from disposition of assets of $363, which is recorded in loss on disposition of assets in the three and six months ended June 30, 2014 of the consolidated condensed statements of operations.

 

Goodwill

 

During the quarter ended June 30, 2014, concurrently with the sale of Inside Network’s assets of AppData, we identified indicators that the Inside Network goodwill was impaired. As a result, we recorded a non-cash impairment charge of $3,717 related to the writedown of goodwill. This impairment charge is not tax deductible because the acquisitions that gave rise to most of the carrying value of our goodwill were structured as stock transactions.

 

 Interest income and interest expense

 

The following table sets forth, for the periods indicated, a comparison of our interest income and interest expense:

  

		Three Months Ended June 30,								2014 vs. 2013								Six Months Ended June 30,								2014 vs. 2013
		2014				2013				$				%				2014				2013				$				%
Interest income		$	–			$	1			$	(1	)			(100%	)		$	–			$	2			$	(2	)			(100%	)
Interest expense		$	(132	)		$	(64	)		$	(68	)			(106%	)		$	(259	)		$	(127	)		$	(132	)			(104%	)

  

Interest expense during the three and six months ended June 30, 2014 and 2013 relates primarily to costs associated with our loans from a related party. The increase in interest expense during the three and six months ended June 30, 2014 was due to the Restated Note that was entered into on November 1, 2013. See “Related Party Transactions” for a description of the loans and Restated Note.

 

 

Provision for income taxes

 

We recorded a provision for income taxes of $15 and $28 during the three and six months ended June 30, 2014, respectively, and $11 and $23 during the three and six months ended June 30, 2013, respectively.

 

Deferred tax assets of approximately $44,000 related to capital loss carryforwards will expire at the end of 2014 and will most likely go unutilized. There is deferred tax asset of approximately $30,000 for federal and state net operating loss carryforwards. The federal net operating loss carry forwards begin to expire in the year 2024, state net operating loss carry forwards generally start to expire in the year 2017. While we have no other limitations on the use of our net operating loss carry forwards, we are potentially subject to limitations if a change in control occurs pursuant to applicable statutory regulations.

 

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 $61 as of June 30, 2014 and December 31, 2013, all of which would affect the effective tax rate, if recognized, as of June 30, 2014.

 

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:

  

		Six Months Ended June 30,								2014 vs. 2013
		2014				2013				$				%
Operating cash flows		$	(1,529	)		$	(351	)		$	(1,178	)			(336	)%
Investing cash flows			71				(194	)			265				137
Financing cash flows			600				7				593				8,471

 

		As of								2014 vs. 2013
		June 30, 2014				December 31, 2013				$				%
Cash and cash equivalents		$	374			$	1,232			$	(858	)			(70	)%
Working capital			(1,141	)			(610	)			(531	)			(87	)
Loan from related party			8,948				8,341				607				7

  

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 in 2009, as well as credit agreements and cash flows from operating activities.

 

Operating activities. Cash used in operating activities increased during the six months ended June 30, 2014 compared to the same period of 2013 due primarily to increased losses from operations.

 

Investing activities. The amounts of cash used in investing activities vary in correlation to the number and cost of the acquisitions we complete. Net cash provided by investing activities during the six months ended June 30, 2014 related primarily to the net proceeds from the sale of our AppData property. Net cash used by investing activities during the six months ended June 30, 2013 related primarily to the purchase of certain intangible assets and website and product development costs.

 

Financing activities. Cash provided by financing activities during the six months ended June 30, 2014 related to borrowings from a related party. See “Related Party Transactions” below. Cash provided by financing activities during the six months ended June 30, 2013 related to proceeds from stock option exercises.

 

We have incurred losses and negative cash flows from operations in recent quarters and expect to continue to incur operating losses until revenues from all sources reach a level sufficient to support our on-going operations. Our liquidity will largely be determined by our ability to raise capital from debt, equity, or other forms of financing, by the success of our product offerings, by developing additional product offerings, and/or by reducing expenses associated with operations.

 

 

In the absence of a sufficient increase in revenues, we will need to do one or more of the following in the next 12 months to meet our planned level of expenditures: (a) raise additional capital; (b) reduce spending on operations; or (c) restructure our operations. A capital raise could take any number of forms including but not limited to: additional debt, additional equity, asset sales, or other forms of financing as dictated by our needs and our view toward our overall capital structure. However, additional financing might not be available on acceptable terms, if at all, and such financing might only be available on terms dilutive or otherwise detrimental to our stockholders or our business.

 

As of July 1, 2014, we entered into a 5^th Restated Note Agreement with Mr. Meckler that provided additional capital of $300.

 

Our liquidity over the next 12 months could be materially affected by, among other things: our ability to increase revenues; costs related to our product development efforts; our ability to raise additional funds through debt, equity, or other financing alternatives; the strength of the United States job market, or other factors described under the risk factors set forth in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013.

 

Off-Balance Sheet Arrangements

 

We have not entered into off-balance sheet arrangements or issued guarantees to third parties.

 

Recent Accounting Pronouncements

 

We are required to adopt certain new accounting pronouncements. See note 3 to the consolidated condensed financial statements included in Item 1 of this Form 10-Q.

 

Related Party Transactions

 

On May 29, 2009, we entered into a loan agreement in the amount of $7,200 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, Mecklermedia.com Subsidiary Inc. (“MM Subsidiary”), 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 our assets, (3) entered into an Intellectual Property Security Agreement with Mr. Meckler (the “IP Security Agreement”) pursuant to which we granted to Mr. Meckler a security interest in 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 MM Subsidiary 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, MM Subsidiary (1) entered into a Security Agreement with Mr. Meckler pursuant to which MM Subsidiary granted to Mr. Meckler a security interest in MM Subsidiary’s assets (the “MM Subsidiary Security Agreement”), (2) entered into an Intellectual Property Security Agreement with Mr. Meckler pursuant to which MM Subsidiary granted to Mr. Meckler a security interest in MM Subsidiary’s intellectual property (the “MM Subsidiary 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 “MM Subsidiary Control Agreement” and, together with the MM Subsidiary Security Agreement and the MM Subsidiary IP Security Agreement, the “MM Subsidiary 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 2009 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 (“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.

 

On November 14, 2011, we along with MM Subsidiary, entered into a 2^nd Note Modification Agreement with Mr. Meckler. The 2^nd Note Modification Agreement amends the 2009 Note, which is described above. Under the 2^nd Note Modification Agreement, the parties agreed to terminate our obligation to make a monthly accommodation fee of $40 to Mr. Meckler. As a result, the 2^nd Note Modification Agreement reduces the effective interest payable on the 2009 Meckler Loan by $480 per year. We granted Mr. Meckler a fully vested stock option to purchase 142,858 shares of our common stock pursuant to the terms of the 2008 Mecklermedia 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, MM Subsidiary and Inside Network: (1) entered into a promissory note jointly and severally payable by the Company, MM Subsidiary and Inside Network to Mr. Meckler (the “2011 Note”); (2) entered into a Security Agreement by and between the Company and Mr. Meckler (the “MECK 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 “2^nd 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 “2^nd Pledge Agreement”), and together with the 2011 Note, the MECK Security Agreement and the 2^nd 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 MM Subsidiary and Inside Network owned by the Company.

 

In the 2011 Note, Mr. Meckler loaned us $1,800 (the “2011 Meckler Loan”). The interest rate of the 2011 Note at the time of the loan was 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 2^nd 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 may 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 MM Subsidiary, Inside Network, or the Company.

 

On July 27, 2012, we entered into a 3^rd 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.

 

On November 1, 2013, we along with our wholly-owned subsidiaries, MM Subsidiary and Inside Network entered into an Amended and Restated Promissory Note (the “Restated Note”) with Mr. Meckler. The Restated Note combines, amends, restates and replaces, but does not extinguish, the obligations of the 2009 Note and the 2011 Note.

 

The Restated Note combines the outstanding principal amounts of the 2009 Note and the 2011 Note along with applicable closing costs to $7,800 and extends the maturity date to September 1, 2043. Initially, interest accrues from August 27, 2013, at a rate of 5.5% per annum. Beginning September 1, 2018 (“Change Date”), the interest rate will convert to an adjustable rate based on a specified amount above LIBOR, initially not to exceed 7.5% per annum or be less than 5.5% per annum. Thereafter, the adjustable rate will never be increased or decreased on any single Change Date by more than 2.0% from the rate of interest that we paid for the preceding twelve months, and will never be less than 5.50% per annum or greater than 11.5% per annum. Interest only is payable in arrears beginning November 1, 2013 and each month thereafter until September 1, 2023. Beginning October 1, 2023 and continuing each month thereafter, the monthly payment will be in an amount sufficient to repay the principal and interest at the rate determined under the Restated Note in substantially equal installments by the maturity date.

 

On November 15, 2013, we along with our wholly-owned subsidiaries, MM Subsidiary and Inside Network entered into a Second Amended and Restated Promissory Note (the “2^nd Restated Note”) with Mr. Meckler. The 2^nd Restated Note increases the principal amount of the Restated Note to $8,800, a $1,000 increase. The terms of the 2^nd Restated Note are otherwise substantially the same as the terms of the Restated Note.

 

In the event of change of control, Mr. Meckler may elect to make the remaining principal balance and all accrued and unpaid interest due and payable concurrently with the closing of the change of control event. A change of control includes a sale of our Company or either subsidiary to a third party or any merger, consolidation, restructuring or reorganization of our Company that results in the common stock holders immediately prior to the transaction possessing less than 50% of the voting power of the surviving entity. Upon the occurrence of an event of default, Mr. Meckler may, among other things, declare the entire outstanding balance under the 2^nd Restated Note to be immediately due and payable, and/or exercise any other rights.

 

Mr. Meckler funded a portion of the Restated Note with a portion of the proceeds of his personal loan from BOFI Federal Bank (“BOFI”) with the intent that the principal and interest payments under the Restated Note will be utilized by Mr. Meckler to make payments under his note with BOFI. We must repay the 2^nd Restated Note if Mr. Meckler is required to repay the BOFI note whether due to an event of default by Mr. Meckler under the BOFI note or otherwise.

 

 

To induce Mr. Meckler to enter into the 2^nd Restated Note, pursuant to a Second Reaffirmation of Collateral Documents (the “Reaffirmation”), we reaffirmed our obligations under the collateral documents related to the Restated Note. To further induce Mr. Meckler to enter into the 2^nd Restated Note, we issued to Mr. Meckler on November 14, 2013 a warrant for 301,124 shares of the Company’s common stock. The warrant is exercisable at any time on or after November 14, 2013 until the close of business on November 13, 2018 at an exercise price per share of $2.00, which was 110% of the closing price of the Company’s common stock on November 14, 2013. The exercise price and number of the shares of our common stock issuable upon the exercise of the warrant is subject to adjustment in the event of any stock dividend, stock split, recapitalization, reorganization or similar transaction. The warrant will terminate upon a fundamental transaction, which includes the acquisition of the Company or all or substantially all of its assets by another party.

 

We recorded a discount on the 2^nd Restated Note based on the value of the warrants as of the date of issuance, which was $455. The discount is being amortized over the life of the 2^nd Restated Note, and the carrying amount of the discount was $447 as of June 30, 2014.

 

Effective April 25, 2014, we entered into a 3^rd Restated Note Agreement with Mr. Meckler that increases the principal amount of the Restated Note to $9,100, a $300 increase. All other terms of the promissory notes remain unchanged.

 

Effective May 19, 2014, we entered into a 4^th Restated Note Agreement with Mr. Meckler that increases the principal amount of the Restated Note to $9,400, a $300 increase. All other terms of the promissory notes remain unchanged.

 

Effective July 1, 2014, we entered into a 5^th Restated Note Agreement with Mr. Meckler that increases the principal amount of the Restated Note to $9,700, a $300 increase. Additionally, Mr. Meckler agrees to loan us up to an additional aggregate principal amount of $100 in one or more advances. All other terms of the promissory notes remain unchanged.

 

Interest expense on the Restated Notes were $126 and $247 during the three and six months ended June 30, 2014, respectively. Interest expense on the 2009 Meckler Loan and the 2011 Meckler Loan was $54 and $108 during the three months and six months ended June 30, 2013, respectively. 

 

 

 

 

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, 2013.

 

Item 3.

Quantitative & Qualitative Disclosures about Market Risk

 

As a smaller reporting company as defined by Item 10(f)(1) of Regulation S-K, we are not required to provide the information required by this Item.

   

Item 4.

Controls and Procedures

 

Disclosure Controls and Procedures. The Company conducted an evaluation of the effectiveness of the design and operation of our 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”), who serves as the Company’s principal executive and financial officer, 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 concluded that the Company’s disclosure controls and procedures are effective to provide the reasonable assurance discussed above.

 

Management’s Report on Internal Control over Financial Reporting. Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A control system, no matter how well conceived and operated, can provide only reasonable assurance that the objectives of the control system are met. Management applied its judgment in assessing the benefits of controls relative to their cost. Because of the inherent limitations in control systems, no evaluation of controls can provide absolute assurance that all controls issues and instances of fraud, if any, within the company have been detected.  Because of its inherent limitations, internal control over financial reporting might not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that controls might become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures might deteriorate.  The Company’s management, with the participation of the CEO, assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2014. Based on the Company’s evaluation, management concluded that our internal control over financial reporting was effective as of June 30, 2014 based on criteria in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

 

Changes in Internal Control over Financial Reporting.  There were no changes in our internal control over financial reporting during the six months ended June 30, 2014 that have materially affected, or are reasonably likely to affect, our internal control over financial reporting.

 

 

PART II - OTHER INFORMATION

  

Item 1.

Legal Proceedings

 

None.

 

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, 2013, with the exception of the following additional risk factor:

  

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
31.1		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
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.

 

		Mecklermedia Corporation
Dated: August 14, 2014		/s/ Alan M. Meckler
		Alan M. Meckler Chairman of the Board, Chief Executive Officer (Principal Executive Officer and Principal Financial Officer)