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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 September 30, 2003
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: 333-76331
JUPITERMEDIA CORPORATION
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 06-1542480
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
23 OLD KINGS HIGHWAY SOUTH
DARIEN, CONNECTICUT 06820
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(203) 662-2800
----------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 is an accelerated filer (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 11, 2003 was 25,900,022.
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JUPITERMEDIA CORPORATION
INDEX
PAGE
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
December 31, 2002 and September 30, 2003 (unaudited) ....... 3
Consolidated Statements of Operations -
For the Three Months and Nine Months Ended
September 30, 2002 and 2003 (unaudited) .................... 4
Consolidated Statements of Cash Flows -
For the Nine Months Ended September 30, 2002
and 2003 (unaudited) ....................................... 5
Notes to Consolidated 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 ...................................... 20
PART II. Other Information
Item 1. Legal Proceedings ............................................ 21
Item 2. Changes in Securities ........................................ 21
Item 3. Defaults Upon Senior Securities .............................. 21
Item 4. Submission of Matters to a Vote of Security Holders .......... 21
Item 5. Other Information ............................................ 22
Item 6. Exhibits and Reports on Form 8-K ............................. 22
Signatures .................................................................. 24
2
JUPITERMEDIA CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND SEPTEMBER 30, 2003
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
DECEMBER 31, SEPTEMBER 30,
2002 2003
------------ ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 25,451 $ 8,989
Accounts receivable, net of allowances of $1,056 and $771,
respectively 7,521 7,616
Unbilled accounts receivable 1,999 871
Prepaid expenses and other 794 1,831
------------ ------------
Total current assets 35,765 19,307
Property and equipment, net of accumulated depreciation of
$7,656 and $8,590, respectively 1,924 2,159
Intangible assets, net 1,473 8,303
Goodwill 8,377 20,954
Investments and other assets 1,768 1,677
------------ ------------
Total assets $ 49,307 $ 52,400
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,386 $ 1,628
Accrued payroll and related expenses 2,014 2,078
Accrued expenses and other 3,823 3,543
Deferred revenues 7,230 8,637
------------ ------------
Total current liabilities 14,453 15,886
Long-term liabilities -- 381
------------ ------------
Total liabilities 14,453 16,267
------------ ------------
Stockholders' equity:
Preferred stock, $.01 par value, 4,000,000 shares
authorized, no shares issued -- --
------------ ------------
Common stock, $.01 par value, 75,000,000 shares authorized,
25,342,017 and 25,876,396 shares issued at December 31,
2002 and September 30, 2003, respectively 253 259
Additional paid-in capital 175,487 177,558
Accumulated deficit (140,809) (141,597)
Treasury stock, 65,000 shares at cost (106) (106)
Accumulated other comprehensive income 29 19
------------ ------------
Total stockholders' equity 34,854 36,133
------------ ------------
Total liabilities and stockholders' equity $ 49,307 $ 52,400
============ ============
See notes to consolidated financial statements.
3
JUPITERMEDIA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2003
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
2002 2003 2002 2003
------------ ------------ ------------ ------------
Revenues $ 10,478 $ 13,328 $ 29,040 $ 31,793
Cost of revenues 4,261 6,122 11,685 15,302
------------ ------------ ------------ ------------
Gross profit 6,217 7,206 17,355 16,491
------------ ------------ ------------ ------------
Operating expenses:
Advertising, promotion and selling 3,432 4,046 10,411 10,307
General and administrative 1,743 1,495 5,104 4,873
Depreciation 494 407 1,739 1,108
Amortization 226 517 593 1,013
------------ ------------ ------------ ------------
Total operating expenses 5,895 6,465 17,847 17,301
------------ ------------ ------------ ------------
Operating income (loss) 322 741 (492) (810)
Income (loss) on investments and other, net 34 30 (170) 29
Interest expense -- (10) -- (10)
Interest income 90 23 292 174
------------ ------------ ------------ ------------
Income (loss) before income taxes, minority
interests and equity loss from venture
fund investments and other, net 446 784 (370) (617)
Provision for income taxes 6 -- 25 --
Minority interests (10) 12 (11) 22
Equity loss from venture fund investments
and other, net (186) (143) (563) (193)
------------ ------------ ------------ ------------
Net income (loss) $ 244 $ 653 $ (969) $ (788)
============ ============ ============ ============
Basic net income (loss) per share $ 0.01 $ 0.03 $ (0.04) $ (0.03)
============ ============ ============ ============
Basic weighted average number of common
shares outstanding 25,329 25,800 25,332 25,463
============ ============ ============ ============
Diluted net income (loss) per share $ 0.01 $ 0.02 $ (0.04) $ (0.03)
============ ============ ============ ============
Diluted weighted average number of common
shares outstanding 25,374 27,496 25,332 25,463
============ ============ ============ ============
See notes to consolidated financial statements.
4
JUPITERMEDIA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2003
(UNAUDITED)
(IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
2002 2003
------------ ------------
Cash flows from operating activities:
Net loss $ (969) $ (788)
Adjustments to reconcile net loss to net cash provided by operating activities-
Depreciation and amortization 2,332 2,121
Barter transactions, net (957) (684)
(Provision) benefit for losses on accounts receivable (100) 40
Minority interests 11 (22)
Equity loss from venture fund investments and other, net 563 193
Income (loss) on investments and other, net 170 (29)
Changes in current assets and liabilities (net of businesses acquired):
Accounts receivable 810 861
Unbilled accounts receivable 94 1,169
Prepaid expenses and other (256) (668)
Accounts payable and accrued expenses 42 (1,447)
Deferred revenues (696) (380)
------------ ------------
Net cash provided by operating activities 1,044 366
------------ ------------
Cash flows from investing activities:
Additions to property and equipment (158) (211)
Acquisitions of businesses and other (1,590) (17,016)
Distribution from internet.com venture funds 88 --
Proceeds from sales of assets and other 296 94
------------ ------------
Net cash used in investing activities (1,364) (17,133)
------------ ------------
Cash flows from financing activities:
Purchase of treasury stock (106) --
Proceeds from exercise of stock options 5 305
------------ ------------
Net cash provided by (used in) financing activities (101) 305
------------ ------------
Net decrease in cash and cash equivalents (421) (16,462)
Cash and cash equivalents, beginning of period 25,100 25,451
------------ ------------
Cash and cash equivalents, end of period $ 24,679 $ 8,989
============ ============
Supplemental disclosures of cash flow:
Cash paid for income taxes $ 31 $ --
============ ============
Cash paid for interest $ -- $ 10
============ ============
See notes to consolidated financial statements.
5
JUPITERMEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(UNAUDITED)
1. THE COMPANY
Jupitermedia is a provider of global real-time news, information, research
and media resources for information technology ("IT"), Internet industry and
graphics professionals. Jupitermedia includes the internet.com, EarthWeb.com,
DevX.com and ArtToday.com networks of over 165 Web sites and nearly 200 e-mail
newsletters that generate over 275 million page views monthly. Our network is
organized into 16 subject areas, or vertical content channels. These vertical
content channels serve our Internet users, which include IT, Internet industry
and graphics professionals. Jupitermedia also includes Jupiter Research, an
international research advisory organization specializing in business and
technology market research in 18 business areas and 14 vertical markets. In
addition, Jupiter Events produces offline conferences and trade shows focused on
IT and business-specific topics.
2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared from the books and records of Jupitermedia in accordance with
accounting principles generally accepted in the United States of America for
interim financial information and with the instructions to Form 10-Q.
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 statements of operations for the
three months and nine months ended September 30, 2003 are not necessarily
indicative of the results to be expected for the full year. These unaudited
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in Jupitermedia's
Annual Report on Form 10-K for the year ended December 31, 2002. In the opinion
of management, all adjustments, consisting only of a normal and recurring
nature, considered necessary for a fair presentation of the results for the
interim periods presented have been reflected in such consolidated financial
statements.
The consolidated financial statements include the accounts of Jupitermedia
and its majority-owned and wholly-owned subsidiaries. All intercompany
transactions have been eliminated.
3. STOCK BASED COMPENSATION
Jupitermedia grants stock options with an exercise price equal to the fair
value of the shares at the date of grant. Jupitermedia accounts for stock option
grants in accordance with Accounting Principles Board Opinion ("APB") 25,
"Accounting for Stock Issued to Employees", and accordingly, recognizes no
compensation expense for such grants. If Jupitermedia determined compensation
cost for its stock options based on the fair value at the date of grant under
the provisions of Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation", its pro forma net loss and loss per
share would be as follows (in thousands, except per share amounts):
6
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
2002 2003 2002 2003
-------- -------- -------- --------
Net income (loss) $ 244 $ 653 $ (969) $ (788)
Deduct: Total stock-based employee
compensation expense determined
under fair value based method
for all awards (2,031) (1,273) (6,666) (3,787)
-------- -------- -------- --------
Pro forma net loss $ (1,787) $ (620) $ (7,635) $ (4,575)
======== ======== ======== ========
Basic net income (loss) per share
As reported $ 0.01 $ 0.03 $ (0.04) $ (0.03)
======== ======== ======== ========
Pro forma $ (0.07) $ (0.02) $ (0.30) $ (0.18)
======== ======== ======== ========
Diluted net income (loss) per share
As reported $ 0.01 $ 0.02 $ (0.04) $ (0.03)
======== ======== ======== ========
Pro forma $ (0.07) $ (0.02) $ (0.30) $ (0.18)
======== ======== ======== ========
Those pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over the
vesting period and additional options may be granted in future years.
4. RECENT ACCOUNTING PRONOUNCEMENTS
In December 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 148, "Accounting for Stock-Based Compensation Transition and
Disclosure, and Amendment of SFAS No. 123," to provide alternative methods for
an entity that voluntarily changes to the fair value based method of accounting
for stock-based employee compensation as required by SFAS No. 123. SFAS No. 148
also amends the disclosure provisions of SFAS No. 123 and Accounting Principles
Board ("APB") Opinion No. 28, "Interim Financial Reporting," to require
disclosure in the summary of significant accounting policies of the effect of
stock-based compensation on reported net income and earnings per share in annual
and interim financial statements. While SFAS No. 148 does not amend SFAS No. 123
to require companies to account for employee stock options using the fair value
method, the disclosure provisions of SFAS No. 148 are applicable to all
companies with stock-based employee compensation, regardless of whether they
account for that compensation using the fair value method of SFAS No. 123 or the
intrinsic value method of APB No. 25. Since Jupitermedia accounts for our
stock-based compensation under APB No. 25, and has no current plans on switching
to SFAS No. 123, the impact of SFAS No. 148 will be limited to the annual and
interim reporting of the effects on net income (loss) and earnings (loss) per
share as if Jupitermedia accounted for stock-based compensation under SFAS No.
123 as set forth in Note 3.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS
No. 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. SFAS
No. 150 requires that an issuer classify a financial instrument that is within
its scope as a liability (or an asset in some circumstances). Many of those
instruments were previously classified as equity. The provisions of SFAS No. 150
are effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption of SFAS No. 150 did not have an
impact on Jupitermedia's financial statements.
7
5. INTANGIBLE ASSETS AND GOODWILL
Intangible assets and goodwill include the preliminary allocation of the
purchase prices relating to the acquisition of ArtToday, Inc., which took place
on June 30, 2003, and the acquisition of the assets of DevX.com, Inc., which
took place on July 11, 2003. These amounts are subject to change in each case
pending the final purchase price allocation. See Note 7 for additional
disclosure information.
AMORTIZED INTANGIBLE ASSETS
The following table sets forth the intangible assets that are subject to
amortization, including the related accumulated amortization (in thousands):
DECEMBER 31, 2002
-----------------------------------------------
ACCUMULATED NET CARRYING
COST AMORTIZATION VALUE
------------ ------------ ------------
Trademarks $ 1,921 $ (829) $ 1,092
Web site development costs 1,246 (866) 380
Other 139 (138) 1
------------ ------------ ------------
Total $ 3,306 $ (1,833) $ 1,473
============ ============ ============
SEPTEMBER 30, 2003
-----------------------------------------------
ACCUMULATED NET CARRYING
COST AMORTIZATION VALUE
------------ ------------ ------------
Image library $ 3,118 $ (42) $ 3,076
Customer lists 1,483 (63) 1,420
Web site development costs 2,452 (1,216) 1,236
Trademarks 2,270 (1,326) 944
Non-compete agreements 298 (26) 272
Other 173 (173) --
------------ ------------ ------------
Total $ 9,794 $ (2,846) $ 6,948
============ ============ ============
Intangibles that are subject to amortization are amortized on a
straight-line basis. The image library is amortized over fifteen years, customer
lists are amortized over seven years, Web site development costs are amortized
over three or five years and trademarks and non-compete agreements are amortized
over three years. Estimated amortization expense for intangible assets subject
to amortization is as follows (in thousands):
YEAR ENDING DECEMBER 31,
------------------------
2003 $ 375
2004 1,335
2005 1,084
2006 789
2007 519
Thereafter 2,846
-------
$ 6,948
=======
8
UNAMORTIZED INTANGIBLE ASSETS
DECEMBER 31, SEPTEMBER 30,
2002 2003
------------ ------------
Domain names $ -- $ 1,355
------------ ------------
Total $ -- $ 1,355
============ ============
GOODWILL
The changes in the carrying amount of goodwill for the nine months ended
September 30, 2003, are as follows:
ONLINE
MEDIA RESEARCH EVENTS TOTAL
-------- -------- -------- --------
Balance as of December 31, 2002 $ 5,254 $ 3,074 $ 49 $ 8,377
Goodwill acquired during period 13,064 -- -- 13,064
Purchase accounting adjustments (45) (442) -- (487)
-------- -------- -------- --------
Balance as of September 30, 2003 $ 18,273 $ 2,632 $ 49 $ 20,954
======== ======== ======== ========
Purchase accounting adjustments pertain primarily to adjustments made to
the fair value of certain assets purchased in conjunction with the acquisition
of Jupiter Research. Jupiter Research was acquired in the third quarter of 2002.
6. COMPUTATION OF NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed using the weighted average
number of common shares outstanding during the period. Diluted net income (loss)
per share is computed using the weighted average number of common and dilutive
common equivalent shares outstanding during the period. Common equivalent shares
consist of the incremental common shares that may be issued upon the exercise of
stock options. Common equivalent shares are excluded from the calculation if
their effect is anti-dilutive.
Computations of basic and diluted net income (loss) per share for the
three and nine months ended September 30, 2002 and 2003 are as follows (in
thousands, except per share amounts):
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- ---------------------
2002 2003 2002 2003
-------- -------- -------- --------
Numerator: Net income (loss) $ 244 $ 653 $ (969) $ (788)
Denominator: Basic weighted average
number of common shares outstanding 25,329 25,800 25,332 25,463
-------- -------- -------- --------
Basic net income (loss) per share $ 0.01 $ 0.03 $ (0.04) $ (0.03)
======== ======== ======== ========
9
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- ---------------------
2002 2003 2002 2003
-------- -------- -------- --------
Numerator: Net income (loss) $ 244 $ 653 $ (969) $ (788)
Denominator: Diluted weighted average
number of common shares outstanding 25,374 27,496 25,332 25,463
-------- -------- -------- --------
Diluted net income (loss) per share $ 0.01 $ 0.02 $ (0.04) $ (0.03)
======== ======== ======== ========
Due to the net losses for the nine months ended September 30, 2002 and
2003, outstanding options to purchase 5,886,810 and 7,471,923 shares of common
stock, respectively, were excluded from the calculations of diluted earnings per
share for those periods, as the result would have been anti-dilutive.
7. ACQUISITIONS
On June 30, 2003 (the "Closing Date"), Jupitermedia acquired (the
"ArtToday Acquisition") all of the stock of ArtToday, Inc. ("ArtToday"), an
Arizona corporation, pursuant to a stock purchase agreement, dated as of June
24, 2003, by and between Jupitermedia and International Microcomputer Software,
Inc. ("IMSI").
The consideration paid in the ArtToday Acquisition (which was determined
as a result of arms'-length negotiations) consisted of cash in the amount of
$13,000,000 and 250,000 unregistered shares of Jupitermedia's common stock. The
purchase price is subject to adjustment after the Closing Date based on the
adjusted net assets of ArtToday as of the Closing Date. Furthermore, additional
cash earn out payments may be made based on net revenue targets achieved by
ArtToday for the period from July 1, 2003 to December 31, 2003; for the period
from January 1, 2004 to June 30, 2004; and for the period from July 1, 2004 to
June 30, 2005.
The total purchase price has been allocated to the assets and liabilities
based on estimates of their respective fair values. Based on preliminary
estimates, the aggregate purchase price was allocated as $11.2 million to
goodwill, $4.5 million to intangible assets, $698,000 to assets other than
goodwill and intangible assets and $2.5 million to liabilities. The intangible
assets subject to amortization are being amortized on a straight-line basis over
periods ranging from three to fifteen years. The purchase accounting for the
ArtToday Acquisition will be finalized at a later date not to exceed one year
from the acquisition date.
On July 11, 2003, Jupitermedia acquired the assets (the "DevX
Acquisition") of DevX.com from DevX.com, Inc., a Delaware corporation (n/k/a XD
Remainder Corp.) ("DevX"), pursuant to an asset purchase agreement, dated July
11, 2003, between DevX and Jupitermedia.
The consideration paid in the DevX Acquisition (which was determined as a
result of arms'-length negotiations) consisted of cash in the amount of
$2,250,000 and 200,000 unregistered shares of Jupitermedia's common stock plus
the assumption of certain liabilities including accounts payable and obligations
to fulfill contractual commitments.
The total purchase price has been allocated to the assets and liabilities
based on estimates of their respective fair values. Based on preliminary
estimates, the aggregate purchase price was allocated as $2.1 million to
intangible assets, $1.1 million to goodwill, $1.3 million to assets other than
goodwill and intangible assets and $1.5 million to liabilities. The intangible
assets subject to amortization are being amortized on a straight-line basis over
periods ranging from three to seven years. The purchase accounting for the DevX
Acquisition will be finalized at a later date not to exceed one year from the
acquisition date.
On August 27, 2003, Jupitermedia filed a registration statement on Form
S-3 with the Securities and Exchange Commission to permit the resale from time
to time of the shares of common stock issued to IMSI and DevX in connection with
10
the ArtToday Acquisition and the DevX Acquisition, respectively. On September
10, 2003, the SEC declared such registration statement effective.
The unaudited pro forma information below presents results of operations
as if the acquisitions had occurred as of January 1, 2002. The unaudited pro
forma information is not necessarily indicative of the results of operations of
the combined companies had these events occurred at the beginning of the periods
presented nor is it indicative of future results (in thousands, except per share
amounts):
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- ---------------------
2002 2003 2002 2003
-------- -------- -------- --------
Revenues $ 12,483 $ 13,468 $ 36,139 $ 37,649
======== ======== ======== ========
Net income (loss) $ (579) $ 685 $ (3,035) $ (1,017)
======== ======== ======== ========
Basic net income (loss) per share $ (0.02) $ 0.03 $ (0.12) $ (0.04)
======== ======== ======== ========
Diluted net income (loss) per share $ (0.02) $ 0.02 $ (0.12) $ (0.04)
======== ======== ======== ========
8. SEGMENT INFORMATION
Jupitermedia has three reportable segments: Online Media, Research and
Events. The Online Media segment derives its revenues primarily from the sale of
advertising and from paid subscription services on Jupitermedia's internet.com,
EarthWeb.com, DevX.com and ArtToday.com Networks. Research represents the
Jupiter Research division. Jupiter Research was acquired in the third quarter of
2002. The Events segment includes offline conferences and trade shows that
generate revenues from attendee registrations, exhibition space and from
advertiser and vendor sponsorships. Jupitermedia evaluates segment performance
based on income or loss from operations. Other includes corporate overhead,
depreciation, amortization and venture fund related activities.
Summary information by segment for the three months and nine months ended
September 30, 2002 and 2003 is as follows (in thousands):
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- ---------------------
2002 2003 2002 2003
-------- -------- -------- --------
Revenues:
Online Media $ 6,526 $ 8,907 $ 21,488 $ 19,586
Research 2,179 2,134 2,179 6,567
Events 1,458 2,134 4,409 5,187
Other 315 153 964 453
-------- -------- -------- --------
$ 10,478 $ 13,328 $ 29,040 $ 31,793
-------- -------- -------- --------
Cost of revenues and
operating expenses:
Online Media $ 4,665 $ 5,531 $ 16,623 $ 13,681
Research 1,749 1,996 1,749 6,860
Events 1,352 2,987 4,370 6,530
Other 2,390 2,073 6,790 5,532
-------- -------- -------- --------
$ 10,156 $ 12,587 $ 29,532 $ 32,603
-------- -------- -------- --------
Operating income (loss):
Online Media $ 1,861 $ 3,376 $ 4,865 $ 5,905
Research 430 138 430 (293)
Events 106 (853) 39 (1,343)
Other (2,075) (1,920) (5,826) (5,079)
-------- -------- -------- --------
$ 322 $ 741 $ (492) $ (810)
======== ======== ======== ========
11
9. COMMITMENTS AND CONTINGENCIES
Messrs. Alan M. Meckler and Christopher S. Cardell, who are stockholders,
executive officers and directors of Jupitermedia, were stockholders, executive
officers and directors of Mecklermedia Corporation prior to its acquisition by
Penton Media in November 1998. In addition, Messrs. Gilbert F. Bach and Michael
J. Davies, who are directors of Jupitermedia, were directors of Mecklermedia
Corporation prior to its acquisition by Penton Media. A complaint seeking class
action status was filed in Delaware Chancery Court on September 16, 1999 by a
former stockholder of Mecklermedia Corporation alleging that Messrs. Meckler,
Cardell, Bach and Davies, as well as the other directors of Mecklermedia
Corporation, breached their fiduciary duties of care, candor and loyalty in
connection with the approval of the sale of Mecklermedia Corporation to Penton
Media at the price paid by Penton Media and the related sale of 80.1% of the
Internet business of Mecklermedia Corporation to Mr. Meckler at the price paid
by Mr. Meckler. Among other things, this plaintiff has alleged that the price
paid by Penton Media for the purchase of Mecklermedia Corporation, and the price
paid by Mr. Meckler for an 80.1% stake in the Internet business of Mecklermedia
Corporation, were inadequate. This former stockholder of Mecklermedia
Corporation has asserted claims for unspecified damages. The plaintiff also
named Jupitermedia Corporation as a defendant seeking that a constructive trust
be established consisting of any benefits derived by the defendants in respect
of the allegations set forth in the complaint.
On or about November 7, 2000, defendants were served with an amended
complaint, which named three additional plaintiffs.
On or about October 9, 2001, with leave of the Delaware Chancery court,
plaintiffs filed a Second Amended Class Action Complaint ("SAC"). The SAC adds
allegations concerning defendants' alleged failure to disclose certain facts
concerning Mr. Meckler's role in the transactions, his role in negotiations with
a third party, and the valuation of the assets at issue. Defendants filed a
motion to dismiss the SAC on April 1, 2002. On November 6, 2002, the Court
issued an opinion denying the defendants' motion to dismiss the SAC. On December
13, 2002, all of the defendants, including Jupitermedia, served an answer to the
SAC generally denying the allegations therein, denying that the directors of
Mecklermedia breached any fiduciary duties, and asserting certain affirmative
defenses. All of the defendants intend to continue to vigorously defend
themselves.
12
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
financial statements and the accompanying notes, which appear elsewhere in this
filing. Statements in this Form 10-Q, which are not historical facts, are
"forward-looking statements" that are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve risks and uncertainties that could cause
actual results to differ materially from those described in the forward-looking
statements. The potential risks and uncertainties address a variety of subjects
including, for example: the competitive environment in which Jupitermedia
competes; the unpredictability of Jupitermedia's future revenues, expenses, cash
flows and stock price; Jupitermedia's ability to integrate acquired businesses,
products and personnel into its existing businesses; Jupitermedia's
international and venture investments; any material change in Jupitermedia's
intellectual property rights; and continued growth and acceptance of information
technology and the Internet. For a more detailed discussion of such risks and
uncertainties, refer to Jupitermedia's reports filed with the Securities and
Exchange Commission pursuant to the Securities Act of 1933 and 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.
OVERVIEW
Jupitermedia is a provider of global real-time news, information, research
and media resources for information technology ("IT"), Internet industry and
graphics professionals. We provide our community of users with the following
resources:
o real-time IT and Internet o information about emerging
industry news products and technologies
o business and technology o tutorials, training and
market research skills development
o IT and business-specific o discussion forums
conferences and trade shows o expert advice
o image and software downloads
o buyer's guides and products
reviews
SEGMENTS
Jupitermedia operates in three business segments (for additional
information - see also Note 8 of the Notes to Unaudited Consolidated Financial
Statements contained in Item 1 hereof):
o Online media
o Research
o Events
ONLINE MEDIA
Our online media business includes our internet.com, EarthWeb.com,
DevX.com and ArtToday.com networks of over 165 Web sites and nearly 200 e-mail
newsletters that generate over 275 million page views monthly. Our network is
organized into 16 vertical content categories, or channels that serve our users.
We generate our online media business revenues from :
ADVERTISING. We sell advertising on our Web sites, e-mail newsletters,
online discussion forums and moderated e-mail discussion lists. Advertising
revenue is recognized ratably in the period in which the advertising is
displayed, provided that no significant company obligations remain and
collection of the resulting receivable is probable. Company obligations
typically include guarantees of a minimum number of advertising impressions, or
times that an advertisement is viewed by users of our Web sites and related
media properties.
13
PAID SUBSCRIPTION SERVICES. Paid subscription services relate to customer
subscriptions to our paid e-mail newsletters and services, which are sold
through our network and through affiliate relationships. Paid subscription
services for our ArtToday.com Network include PHOTOS.COM, CLIPART.COM,
ANIMATIONS.COM, FLASHCOMPONENTS.COM and REBELARTIST.COM. Other paid subscription
services include SEARCHENGINEWATCH.COM, THECOUNTER.COM, WINDRIVERS.COM,
ALERTIPO.COM and THEGUESTBOOK.COM. Revenue from subscriptions is recognized
ratably over the subscription period. Deferred revenues relate to the portion of
collected subscription fees that has not yet been recognized as revenue.
E-COMMERCE AGREEMENTS AND OFFERINGS. We have entered into a number of
e-commerce agreements, which generally include either a fixed fee for
advertising, a bounty for new customer accounts or revenue sharing of 10% to 50%
of the sales made by the e-commerce vendor as a result of links from our
network, or in some cases combinations of advertising, bounties and revenue
sharing. E-commerce agreements typically are a minimum of three months in
duration. Revenues from these agreements are recognized in the month in which
they are earned.
PERMISSION BASED OPT-IN E-MAIL LIST RENTALS. We currently offer for rental
our permission based opt-in e-mail list names relating to over 230 IT and
Internet-specific topics. Members of our community of users volunteer, or
"opt-in," to be included on these lists to receive e-mail product offerings and
information relevant to their interests. Subscribers to these permission based
opt-in e-mail lists receive e-mail announcements of special offers relating to
each topic subscribed. Revenue from permission based opt-in list rentals is
recognized at the time of the use by the renter.
LICENSING AGREEMENTS. We license our editorial content and brands to third
parties for fixed fees and royalties based on the licensee's revenues generated
by the licensed content. We license selected portions of our editorial content
to print publishers. We license one-time rights to reprint individual articles,
online or in print, to third parties through licensing of reprints and copyright
permission requests. We also provide access to limited versions of our editorial
content to others at no charge, to promote our brands and generate traffic. Such
amounts are recognized as revenue in the month earned.
WEBINARS. Jupiter Webinars are objective, educational online forums that
provide focused research findings and analysis from Jupiter Research, as well as
other highly respected analysts, journalists and industry experts. These live
multimedia presentations provide actionable, unbiased information, as well as
the opportunity to interact with the analysts through live question and answer
segments. Jupiter Webinars are free to qualified professionals. We generate
revenue from advertiser sponsorships. Revenues are recognized in the period in
which the Webinar occurs.
ONLINE PRESS RELEASE DISTRIBUTION SERVICES. Through
INTERNETNEWSBUREAU.COM, we provide paid e-mail based press release distribution
services. These press releases are e-mailed to over 10,000 registered
journalists. Revenue from this service is recorded on a per use basis and
recognized at the time of distribution.
RESEARCH
Our Jupiter Research division provides market insight, data and objective
analysis for both end-user and vendor companies. Jupiter Research covers a
variety of sectors and industries to provide clients with information to
understand changes in the market. Jupiter Research provides objective insight
and analysis, backed by proprietary data in the form of forecasts, consumer
surveys and executive surveys. Jupiter Research analysts bring to clients domain
expertise, a crucial element to put into context both specific data and changing
events.
Jupiter Research consists of three main product lines: Syndicated
Research, Custom Research and Consulting, and A la Carte solutions.
SYNDICATED RESEARCH. Syndicated research delivers data and analysis via
written research reports and also analyst inquiry. Reports include forecasts and
survey data to understand consumers' behaviors and preferences, as well as how
executives are investing in particular technologies and platforms. Analyst
14
inquiry allows companies to look into a given subject one-on-one, to test ideas
and to add objective insight for specific industries and online circumstances.
Syndicated research is typically sold on a subscription basis and revenues are
deferred and then recognized over the term of the related contract as services
are provided.
CUSTOM RESEARCH AND CONSULTING. Our Custom Research and Consulting product
meets project-specific research needs. Strategic consulting projects utilize a
variety of research methodologies to provide proprietary recommendations; allow
clients to test specific hypotheses regarding how new technologies, competitive
forces and alternative go-to-market strategies affect their market position; and
expand on Jupiter Research's knowledge and data, often focusing on markets or
issues not directly covered in existing products. Types of custom research
projects include market opportunity assessments, leading practice analyses,
business evaluations, new business model assessments, multi-client studies and
site benchmarking. Revenues related to our Custom Research and Consulting
products are recognized over the period the service is provided.
A LA CARTE SOLUTIONS. Jupiter Research analysts provide additional
services to clients via our Web Site Review product and our speaker program.
Revenues from our A la Carte products are recorded at the time of sale.
Our Jupiter Research division also includes Jupiter Direct. Jupiter Direct
is an online outlet where customers can purchase copies of research reports and
briefings. Revenue from Jupiter Direct is recognized at the time of sale.
EVENTS
Our Jupiter Events division produces offline conferences and trade shows
focused on IT and business-specific topics that are of interest to our community
of users. Conferences and trade shows generate revenue from attendee
registrations, exhibition space and from advertiser and vendor sponsorships.
Revenue for conferences and trade shows is recognized in the period in which the
conference and trade show is held. Deferred revenues relate to the portion of
collected conference registration fees as well as exhibition space, advertiser
and vendor sponsorships that have been contracted prior to the commencement of
the conferences and trade shows.
VENTURE FUND INVESTMENTS
We are the portfolio manager of internet.com Venture Fund I LLC, a $5.0
million venture fund formed in March 1999, internet.com Venture Fund II LLC, a
$15.0 million venture fund formed in September 1999, and internet.com Venture
Partners III LLC, a $75.0 million venture fund formed in January 2000, all of
which invest in early-stage content-based Internet properties that are not
competitive with Jupitermedia. We earn management fees for the day-to-day
operation and general management of the funds. We are also entitled to 20% of
the realized gains on investments made by these funds. In February 2003, the
operating agreement of internet.com Venture Fund II LLC was amended to provide
for the dissolution of the fund by December 31, 2003. In October 2002, the
operating agreement of internet.com Venture Partners III was amended to reduce
the fund's committed capital from $75.0 million to $22.5 million and to provide
for the dissolution of the fund and the distribution of the fund assets by
December 31, 2003. We invested $700,000 in the initial fund, $1.8 million in the
second fund and $3.1 million in the third fund, all of which are now fully
invested. The remaining $4.3 million of capital raised and funded in the initial
fund, $13.2 million raised and funded in the second fund and $19.4 million
raised and funded in the third fund were sourced from third party investors. We
no longer have any outstanding capital commitments related to these three
venture funds.
15
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2003
REVENUES. Revenues were $10.5 million for the three months ended September
30, 2002 and $13.3 million for the three months ended September 30, 2003,
representing an increase of 27%. This change was primarily due to additional
revenues of $1.8 million and $1.0 million resulting from the acquisition of
ArtToday, Inc. ("ArtToday") and the acquisition of the assets of DevX.com, Inc.
("DevX"), respectively. ArtToday was acquired on June 30, 2003 and DevX was
acquired on July 11, 2003.
COST OF REVENUES. Cost of revenues primarily consists of expenses
associated with editorial, research, communications infrastructure, Web site
hosting and conferences and trade shows. Cost of revenues was $4.3 million for
the three months ended September 30, 2002 and $6.1 million for the three months
ended September 30, 2003, representing an increase of 44%. This change was
primarily due to an increase of $844,000 in event related costs mainly
attributable to the launch of Jupitermedia's Computer Digital Expo event as well
as the growth of the Search Engine Strategies and IT Service Management Forum
("ITSMF") events. The change in cost of revenues was also due to an increase of
$548,000 in salaries and benefits due to an increase in the number of employees
resulting from the acquisitions of ArtToday and DevX and $248,000 of additional
royalty expenses attributable to ArtToday. As a percentage of revenues, cost of
revenues was 41% for the three months ended September 30, 2002 and 46% for the
three months ended September 30, 2003.
ADVERTISING, PROMOTION AND SELLING. Advertising, promotion and selling
expenses primarily consist of costs related to sales and marketing staff, sales
commissions and promotion costs. Advertising, promotion and selling expenses
were $3.4 million for the three months ended September 30, 2002 and $4.0 million
for the three months ended September 30, 2003, representing an 18% increase.
This change was primarily due and an increase in conference and trade show
attendee marketing costs of $473,000, which was mainly attributable to the
launch of Jupitermedia's Computer Digital Expo event as well as the growth of
the Search Engine Strategies and ITSMF events, and an increase in salaries and
benefits of $457,000 resulting from the acquisitions of ArtToday and DevX. As a
percentage of revenues, advertising, promotion and selling expenses were 33% for
the three months ended September 30, 2002 and 30% for the three months ended
September 30, 2003.
GENERAL AND ADMINISTRATIVE. General and administrative expenses primarily
consist of salaries, professional fees, facilities costs and provisions for
losses on accounts receivable. General and administrative expenses were $1.7
million for the three months ended September 30, 2002 and $1.5 million for the
three months ended September 30, 2003, representing a 14% decrease. This change
was primarily due to a decrease of $716,000 in office related expenditures
resulting from the closing of certain office locations. This decrease was offset
by an increase in bad debt expense of $175,000, an increase in various employee
related costs of $170,000 and an increase in professional service costs of
$124,000. As a percentage of revenues, general and administrative expenses were
17% for the three months ended September 30, 2002 and 11% for the three months
ended September 30, 2003.
DEPRECIATION. Depreciation of property and equipment was $494,000 for the
three months ended September 30, 2002 and $407,000 for the three months ended
September 30, 2003, representing an 18% decrease. This decline was a result of
an increase in assets being fully depreciated. As a percentage of revenues,
depreciation of property and equipment was 5% for the three months ended
September 30, 2002 and 3% for the three months ended September 30, 2003.
AMORTIZATION. Amortization of intangibles was $226,000 for the three
months ended September 30, 2002 and $517,000 for the three months ended
September 30, 2003, representing a 129% increase. This increase was due to
additional trademark purchases as well as intangible assets acquired from
ArtToday and DevX. As a percentage of revenues, amortization of intangibles was
2% for the three months ended September 30, 2002 and 4% for the three months
ended September 30, 2003.
16
INCOME (LOSS) ON INVESTMENTS AND OTHER, NET. During the three months ended
September 30, 2002 and September 30, 2003, Jupitermedia recognized income from
the sale of assets of $34,000 and $30,000, respectively.
INTEREST INCOME. Interest income was $90,000 for the three months ended
September 30, 2002 and $23,000 for the three months ended September 30, 2003.
This change was due to a reduction in cash resulting from the acquisitions of
ArtToday and DevX.
PROVISION FOR INCOME TAXES. Jupitermedia recorded a provision for income
taxes of $6,000 for the three months ended September 30, 2002 based upon
estimated foreign tax rates and did not record a provision for foreign income
taxes for the three months ended September 30, 2003, as Jupitermedia did not
have foreign income.
MINORITY INTERESTS. Minority interests represent the minority
stockholders' proportionate share of profits or losses of Jupitermedia's
majority-owned consolidated international subsidiaries.
EQUITY LOSS FROM VENTURE FUND INVESTMENTS AND OTHER, NET. Equity loss
represents Jupitermedia's net equity interests in the investments in
internet.com venture funds. Equity loss was $186,000 for the three months ended
September 30, 2002 and $143,000 for the three months ended September 30, 2003,
representing a 23% decrease. This change was primarily due to a reduction in the
write-downs of portfolio investments by the internet.com venture funds.
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2003
REVENUES. Revenues were $29.0 million for the nine months ended September
30, 2002 and $31.8 million for the nine months ended September 30, 2003,
representing an increase of 9%. This increase was primarily due to additional
research revenues of $4.3 million resulting from the acquisition of Jupiter
Research and additional subscription revenues of $1.8 million resulting from the
acquisition of ArtToday. Jupiter Research was acquired in the third quarter of
2002. This increase was partially offset by a reduction in barter revenue of
$2.7 million and a reduction in venture fund management fees of $513,000.
COST OF REVENUES. Cost of revenues primarily consists of expenses
associated with editorial, research, communications infrastructure, Web site
hosting and conferences and trade shows. Cost of revenues was $11.7 million for
the nine months ended September 30, 2002 and $15.3 million for the nine months
ended September 30, 2003, representing an increase of 31%. This change was
primarily due to an increase of $2.7 million in salaries and benefits due to an
increase in the number of employees resulting from the acquisitions of Jupiter
Research, ArtToday and DevX along with an increase of $864,000 in conference and
trade show costs, which was mainly attributable to the launch of Jupitermedia's
Computer Digital Expo event as well as the growth of the Search Engine
Strategies and ITSMF events. As a percentage of revenues, cost of revenues was
40% for the nine months ended September 30, 2002 and 48% for the nine months
ended September 30, 2003.
ADVERTISING, PROMOTION AND SELLING. Advertising, promotion and selling
expenses primarily consist of costs related to sales and marketing staff, sales
commissions and promotion costs. Advertising, promotion and selling expenses
were $10.4 million for the nine months ended September 30, 2002 and $10.3
million for the nine months ended September 30, 2003, representing a 1%
decrease. This change was primarily due to a reduction in barter advertising of
$2.5 million offset by an increase in salaries, benefits and other related costs
paid to the advertising and research sales personnel of $1.5 million due to an
increase in the number of employees resulting from the acquisitions of Jupiter
Research, ArtToday and DevX and an increase in conference and trade show
attendee marketing costs of $682,000. As a percentage of revenues, advertising,
promotion and selling expenses were 36% for the nine months ended September 30,
2002 and 32% for the nine months ended September 30, 2003.
GENERAL AND ADMINISTRATIVE. General and administrative expenses primarily
consist of salaries, professional fees, facilities costs and provisions for
losses on accounts receivable. General and administrative expenses were $5.1
million for the nine months ended September 30, 2002 and $4.9 million for the
17
nine months ended September 30, 2003, representing a decrease of 5%. This
decrease was primarily due to a reduction in professional service costs of
$689,000 and was partially offset by an increase in employee related costs of
$339,000 to due the increase in the number of employees resulting from the
acquisitions of Jupiter Research and ArtToday and an increase in bad debt
expense of $115,000. As a percentage of revenues, general and administrative
expenses were 18% for the nine months ended September 30, 2002 and 15% for the
nine months ended September 30, 2003.
DEPRECIATION. Depreciation of property and equipment was $1.7 million for
the nine months ended September 30, 2002 and $1.1 million for the nine months
ended September 30, 2003, representing a 36% decrease. This decline was a result
of an increase in assets being fully depreciated. As a percentage of revenues,
depreciation of property and equipment was 6% for the nine months ended
September 30, 2002 and 3% for the nine months ended September 30, 2003.
AMORTIZATION. Amortization of intangibles was $593,000 for the nine months
ended September 30, 2002 and $1.0 million for the nine months ended September
30, 2003, representing a 71% increase. This increase was due to additional
trademark purchases as well as intangible assets acquired from ArtToday and
DevX. As a percentage of revenues, amortization of intangibles was 2% for the
nine months ended September 30, 2002 and 3% for the nine months ended September
30, 2003.
INCOME (LOSS) ON INVESTMENTS AND OTHER, NET. Jupitermedia determined that
the declines in value for certain of its investments in internet.com venture
fund portfolio companies were other than temporary. During the nine months ended
September 30, 2002, Jupitermedia recognized losses of $170,000 related to
investment impairment, net of a gain on the sales of assets. During the nine
months ended September 30, 2003, Jupitermedia recorded income on the sale of
assets of $29,000.
INTEREST INCOME. Interest income was $292,000 for the nine months ended
September 30, 2002 and $174,000 for the nine months ended September 30, 2003.
This change was due to a reduction in cash resulting from the acquisitions of
ArtToday and DevX.
PROVISION FOR INCOME TAXES. Jupitermedia recorded a provision for income
taxes of $25,000 for the nine months ended September 30, 2002 related to foreign
income taxes that were recorded based upon estimated foreign tax rates and did
not record a provision for foreign income taxes for the nine months ended
September 30, 2003, as Jupitermedia did not have foreign income.
MINORITY INTERESTS. Minority interests represent the minority
stockholders' proportionate share of losses of Jupitermedia's majority-owned
consolidated international subsidiaries.
EQUITY LOSS FROM VENTURE FUND INVESTMENTS AND OTHER, NET. Equity loss
represents net equity interests in the investments in internet.com venture
funds. Equity loss was $563,000 for the nine months ended September 30, 2002 and
$193,000 for the nine months ended September 30, 2003. This change was primarily
due to a reduction in the write-downs of portfolio investments by the
internet.com venture funds.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded operations primarily with cash from our
initial and follow-on public offerings of common stock. On September 25, 1999,
we completed our initial public offering of 3,400,000 shares of our common stock
at $14.00 per share. Net proceeds to Jupitermedia aggregated approximately $43.0
million. On February 1, 2000, we completed our follow-on public offering of
3,750,000 shares of common stock priced at $60.00 per share, of which 1,750,000
shares were sold by Jupitermedia and 2,000,000 shares were sold by Penton Media,
Inc. Net proceeds received by Jupitermedia from the follow-on offering were
approximately $98.3 million. Jupitermedia did not receive any of the proceeds
from the sale of shares by Penton Media, Inc.
As of September 30, 2003, Jupitermedia had total current assets of $19.3
million and total current liabilities of $15.9 million, or working capital of
approximately $3.4 million.
18
Net cash provided by operating activities was $1.0 million for the nine
months ended September 30, 2002 and $366,000 for the nine months ended September
30, 2003. Net cash provided by operating activities for the period ended
September 30, 2002 was primarily a result of our net losses adjusted for
depreciation and amortization and barter transactions as well as a decrease in
accounts receivable offset by decreases in deferred revenues. Net cash provided
by operating activities for the nine months ended September 30, 2003 was
primarily a result of our net losses adjusted for depreciation and amortization
and barter transactions as well as decreases in accounts receivable and unbilled
accounts receivable offset by decreases in accounts payable and accrued expenses
and an increase in prepaid expenses.
Net cash used in investing activities was $1.4 million for the nine months
ended September 30, 2002 and $17.1 million for the nine months ended September
30, 2003. Net cash used in investing activities was primarily a result of
acquisitions of businesses, including ArtToday and DevX in 2003, and capital
expenditures. Capital expenditures were $158,000 for the nine months ended
September 30, 2002 and $211,000 for the nine months ended September 30, 2003.
Net cash used in financing activities was $101,000 for the nine months
ended September 30, 2002 and was from the purchase of treasury stock offset by
proceeds received from the exercise of stock options. Net cash provided by
financing activities was $305,000 for the nine months ended September 30, 2003
and was from proceeds received from the exercise of stock options.
In October 2001, Jupitermedia announced that its Board of Directors had
authorized the expenditure of up to $1.0 million to repurchase the Company's
outstanding common stock. Any purchases under Jupitermedia's stock repurchase
program may be made, from time-to-time, in the open market, through block trades
or otherwise, at the discretion of Company management. Depending on market
conditions and other factors, these purchases may be commenced or suspended at
any time or from time-to-time without prior notice. In September 2002,
Jupitermedia announced that it purchased 65,000 shares of Jupitermedia common
stock at $1.60 per share as part of its stock repurchase program.
Jupitermedia believes the combination of cash on hand and operating cash
flow will provide sufficient liquidity for the next twelve months. However, if
there were to be a further downturn in the general economy, particularly related
to technology advertising, there would be a corresponding negative impact on
Jupitermedia's liquidity. In addition, any future acquisitions that require cash
may affect liquidity.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 148, "Accounting for Stock-Based Compensation Transition and
Disclosure, and Amendment of SFAS No. 123," to provide alternative methods for
an entity that voluntarily changes to the fair value based method of accounting
for stock-based employee compensation as required by SFAS No. 123. SFAS No. 148
also amends the disclosure provisions of SFAS No. 123 and Accounting Principles
Board ("APB") Opinion No. 28, "Interim Financial Reporting," to require
disclosure in the summary of significant accounting policies of the effect of
stock-based compensation on reported net income and earnings per share in annual
and interim financial statements. While SFAS No. 148 does not amend SFAS No. 123
to require companies to account for employee stock options using the fair value
method, the disclosure provisions of SFAS No. 148 are applicable to all
companies with stock-based employee compensation, regardless of whether they
account for that compensation using the fair value method of SFAS No. 123 or the
intrinsic value method of APB No. 25. Since Jupitermedia accounts for our
stock-based compensation under APB No. 25, and has no current plans on switching
to SFAS No. 123, the impact of SFAS No. 148 will be limited to the annual and
interim reporting of the effects on net income (loss) and earnings (loss) per
share as if Jupitermedia accounted for stock-based compensation under SFAS No.
123 as set forth in Note 3 in the consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS
19
No. 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. SFAS
No. 150 requires that an issuer classify a financial instrument that is within
its scope as a liability (or an asset in some circumstances). Many of those
instruments were previously classified as equity. The provisions of SFAS No. 150
are effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption of SFAS No. 150 did not have an
impact on Jupitermedia's financial statements.
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,
2002.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
We have no derivative financial instruments or derivative commodity
instruments. We invest our excess cash in debt instruments of the U.S.
Government and its agencies. Interest rates for our investments were
approximately 1.20% at September 30, 2002 and 0.75% at September 30, 2003 and
generally move with market rates.
We invest in equity instruments of privately held, online media and
technology companies for business and strategic purposes. These investments are
included in Investments and other assets and are accounted for under the cost
method, as we do not have the ability to exert significant influence over the
investee or their operations. For these non-quoted investments, our policy is to
regularly review the assumptions underlying the operating performance and cash
flow forecasts in assessing the carrying values. We identify and record
impairment losses on long-lived assets when events and circumstances indicate
that such assets might be impaired.
Our transactions are generally conducted, and our accounts are
denominated, in United States dollars. Accordingly, we are not exposed to
significant foreign currency risk.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Jupitermedia management,
including the Chief Executive Officer and Chief Financial Officer, have
conducted an evaluation of the effectiveness of disclosure controls and
procedures pursuant to Exchange Act Rule 13a-15. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the
disclosure controls and procedures are effective in ensuring that all material
information required to be filed in this quarterly report has been made known to
them in a timely fashion.
CHANGES IN INTERNAL CONTROLS. There have been no significant changes in
our internal controls or in factors that could significantly affect internal
controls subsequent to the date the Chief Executive Officer and Chief Financial
Officer completed their evaluation.
20
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Messrs. Alan M. Meckler and Christopher S. Cardell, who are
stockholders, executive officers and directors of Jupitermedia, were
stockholders, executive officers and directors of Mecklermedia
Corporation prior to its acquisition by Penton Media in November 1998.
In addition, Messrs. Gilbert F. Bach and Michael J. Davies, who are
directors of Jupitermedia, were directors of Mecklermedia Corporation
prior to its acquisition by Penton Media. A complaint seeking class
action status was filed in Delaware Chancery Court on September 16,
1999 by a former stockholder of Mecklermedia Corporation alleging that
Messrs. Meckler, Cardell, Bach and Davies, as well as the other
directors of Mecklermedia Corporation, breached their fiduciary duties
of care, candor and loyalty in connection with the approval of the
sale of Mecklermedia Corporation to Penton Media at the price paid by
Penton Media and the related sale of 80.1% of the Internet business of
Mecklermedia Corporation to Mr. Meckler at the price paid by Mr.
Meckler. Among other things, this plaintiff has alleged that the price
paid by Penton Media for the purchase of Mecklermedia Corporation, and
the price paid by Mr. Meckler for an 80.1% stake in the Internet
business of Mecklermedia Corporation, were inadequate. This former
stockholder of Mecklermedia Corporation has asserted claims for
unspecified damages. The plaintiff also named Jupitermedia Corporation
as a defendant seeking that a constructive trust be established
consisting of any benefits derived by the defendants in respect of the
allegations set forth in the complaint.
On or about November 7, 2000, defendants were served with an amended
complaint, which named three additional plaintiffs.
On or about October 9, 2001, with leave of the Delaware Chancery
court, plaintiffs filed a Second Amended Class Action Complaint
("SAC"). The SAC adds allegations concerning defendants' alleged
failure to disclose certain facts concerning Mr. Meckler's role in the
transactions, his role in negotiations with a third party, and the
valuation of the assets at issue. Defendants filed a motion to dismiss
the SAC on April 1, 2002. On November 6, 2002, the Court issued an
opinion denying the defendants' motion to dismiss the SAC. On December
13, 2002, all of the defendants, including Jupitermedia, served an
answer to the SAC generally denying the allegations therein, denying
that the directors of Mecklermedia breached any fiduciary duties, and
asserting certain affirmative defenses. All of the defendants intend
to continue to vigorously defend themselves.
Item 2. CHANGES IN SECURITIES
Not Applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
21
Item 5. OTHER INFORMATION
Not Applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following is a list of exhibits filed as part of this Report on
Form 10-Q. Where so indicated by footnote, exhibits, which were
previously filed, are incorporated by reference. For exhibits
incorporated by reference, the location of the exhibit in the previous
filing is indicated parenthetically except for in those situations
where the exhibit number was the same as set forth below.
Exhibit
Number Description
------- -------------------------------------------------------------
2.1 Stock Purchase Agreement, by and between ArtToday, Inc. and
Jupitermedia Corporation, dated as of June 24, 2003*
2.2 Asset Purchase Agreement, by and between DevX.com and
Jupitermedia Corporation, dated as of July 11, 2003**
11 Statement Regarding Computation of Per Share Earnings (Loss)
(included in notes to consolidated financial statements)
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
* Previously filed in the Current Report of Form 8-K filed by the
Registrant on July 1, 2003.
** Previously filed in the Current Report of Form 8-K filed by the
Registrant on July 16, 2003.
(b) Reports on Form 8-K
On July 1, 2003, Jupitermedia filed a form 8-K announcing its
acquisition of all of the stock of ArtToday, Inc., pursuant to a stock
purchase agreement dated June 24, 2003, between International
Microcomputer Software, Inc. and Jupitermedia had closed.
On July 16, 2003, Jupitermedia filed a form 8-K announcing it had
acquired the assets of DevX.com from DevX.com, Inc., pursuant to an
asset purchase agreement dated July 11, 2003, between DevX.com, Inc.
and Jupitermedia.
On August 6, 2003, Jupitermedia filed a Form 8-K announcing its
financial results for the quarter ended June 30, 2003.
On September 12, 2003, Jupitermedia filed a Form 8-K/A disclosing
certain historical and pro forma financial information related to its
acquisition of all of the stock of ArtToday, Incorporated pursuant to
a Stock Purchase Agreement dated June 24, 2003, between International
Microcomputer Software, Inc. and the Registrant.
22
On September 24, 2003, Jupitermedia filed a Form 8-K/A disclosing
certain historical and pro forma financial information related to its
acquisition of certain assets and the assumption of certain
liabilities of DevX.com, Incorporated pursuant to an Asset Purchase
Agreement dated July 11, 2003 between DevX.com, Inc. and the
Registrant.
On November 7, 2003, Jupitermedia filed a Form 8-K announcing its
financial results for the quarter ended September 30, 2003.
23
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 14, 2003 Jupitermedia Corporation
/s/ Christopher S. Cardell
------------------------------------------------------------
Christopher S. Cardell
Director, President and Chief Operating Officer
/s/ Christopher J. Baudouin
------------------------------------------------------------
Christopher J. Baudouin
Senior Vice President and Chief Financial Officer
24