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 March 31, 2014.

 

or

 

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

 

Commission file number: 000-26393

 

Mediabistro Inc.

(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 o

 

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 o

 

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 o  No x

 

The number of outstanding shares the Registrant’s common stock, par value $0.01 per share, as of May 9, 2014 was 6,057,662.

 

Mediabistro Inc.

Index

 

		Page
PART I. Financial Information
Item 1.	Financial Statements	3
	Consolidated Condensed Balance Sheets – March  31, 2014 (unaudited) and December 31, 2013	3
	Unaudited Consolidated Condensed Statements of Operations – For the Three Months Ended March 31, 2014 and 2013	4
	Unaudited Consolidated Condensed Statements of Cash Flows – For the Three Months Ended March 31, 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	13
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	18
Item 4.	Controls and Procedures	18
PART II. Other Information
Item 1.	Legal Proceedings	19
Item 1A.	Risk Factors	19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 3.	Defaults Upon Senior Securities	19
Item 4.	Mine Safety Disclosures	19
Item 5.	Other Information	19
Item 6.	Exhibits	19
Signatures		20

 

 

PART I - FINANCIAL INFORMATION

 

Item 1.

Financial Statements

  

Mediabistro Inc.

Consolidated Condensed Balance Sheets

March 31, 2014 and December 31, 2013

(in thousands, except share and per share amounts)

 

		March 31, 2014				December 31, 2013
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	746			$	1,232
Accounts receivable, net of allowances of $8 and $3, respectively			563				557
Prepaid expenses and other current assets			1,467				769
Total current assets			2,776				2,558
Property and equipment, net of accumulated depreciation of $1,564 and $1,530, respectively			397				430
Intangible assets, net			1,800				1,946
Goodwill			6,633				6,633
Investments and other assets			630				637
Total assets		$	12,236			$	12,204
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	646			$	445
Accrued payroll and related expenses			331				511
Accrued expenses and other current liabilities			1,068				1,092
Deferred revenues			1,828				1,120
Total current liabilities			3,873				3,168
Loan from related party, net of discount			8,345				8,341
Deferred revenues			16				16
Deferred income taxes			493				481
Total liabilities			12,727				12,006
Commitments and contingencies (see note 11)
Stockholders’ equity:
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, 6,176,804 and 6,176,661 shares issued and 6,057,519 and 6,057,376 shares outstanding at March 31, 2014 and December 31, 2013, respectively			62				62
Additional paid-in capital			290,677				290,620
Accumulated deficit			(290,734	)			(289,988	)
Treasury stock, 119,285 shares, at cost			(496	)			(496	)
Total stockholders’ equity (deficit)			(491	)			198
Total liabilities and stockholders’ equity		$	12,236			$	12,204

 

See notes to unaudited consolidated condensed financial statements.

 

 

Mediabistro Inc.

Unaudited Consolidated Condensed Statements of Operations

For the Three Months Ended March 31, 2014 and 2013

(in thousands, except per share amounts)

 

		Three Months Ended March 31,
		2014				2013
Revenues		$	3,159			$	2,520
Cost of revenues			1,821				1,557
Advertising, promotion and selling			575				476
General and administrative			1,100				1,160
Depreciation			37				64
Amortization			96				109
Total operating expenses			3,629				3,366
Operating loss			(470	)			(846	)
Other loss, net			(136	)			(4	)
Interest income			–				1
Interest expense			(127	)			(63	)
Loss before income taxes			(733	)			(912	)
Provision for income taxes			13				12
Net loss		$	(746	)		$	(924	)
Loss per share:
Basic net loss		$	(0.12	)		$	(0.15	)
Diluted net loss		$	(0.12	)		$	(0.15	)
Weighted average shares used in computing loss per share:
Basic			6,057				6,023
Diluted			6,057				6,023

  

See notes to unaudited consolidated condensed financial statements.

 

 

Mediabistro Inc.

Unaudited Consolidated Condensed Statements of Cash Flows

For the Three Months Ended March 31, 2014 and 2013

(in thousands)

 

		Three Months Ended March 31,
		2014				2013
Cash flows from operating activities:
Net loss		$	(746	)		$	(924	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			133				173
Stock-based compensation			55				81
Provision for losses on accounts receivable			–				5
Other, net			140				3
Amortization of debt issuance costs and debt discount			6				10
Deferred income taxes			12				10
Changes in assets and liabilities:
Accounts receivable, net			(6	)			68
Prepaid expenses and other current assets			(760	)			(257	)
Accounts payable, accrued expenses and other liabilities			(6	)			(123	)
Deferred revenues			708				423
Net cash used in operating activities			(464	)			(531	)
Cash flows from investing activities:
Purchases of property and equipment			(9	)			(12	)
Acquisitions of intangible assets and other development costs			(13	)			(48	)
Net cash used in investing activities			(22	)			(60	)
Cash flows from financing activities:
Proceeds from exercise of stock options			–				7
Net cash provided by financing activities			–				7
Net decrease in cash and cash equivalents			(486	)			(584	)
Cash and cash equivalents, beginning of period			1,232				2,210
Cash and cash equivalents, end of period		$	746			$	1,626
Supplemental disclosure of cash flow:
Cash paid for interest		$	121			$	54

  

See notes to unaudited consolidated condensed financial statements.

 

 

Mediabistro Inc.

Notes to Unaudited Consolidated Condensed Financial Statements

March 31, 2014

 

1. THE COMPANY

 

Mediabistro Inc. (f/k/a WebMediaBrands Inc.) (“Mediabistro” or the “Company”) is an Internet media company that provides services for social media, traditional media and creative professionals. Mediabistro 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 Bitcoins, and AllFacebook Marketing Conference.

 

Mediabistro’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. The Company’s research products and services, including AppData, provide key data, insights and resources for app and social media professionals. In addition, Mediabistro 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 March 31, 2014, will be sufficient to meet current obligations and fund its operating activities through December 31, 2014.

 

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 15 months, if deemed necessary, to absorb any cash flow shortages that the Company may sustain.

 

2. BASIS OF PRESENTATION

 

The accompanying unaudited consolidated condensed financial statements have been prepared from the books and records of Mediabistro 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 months ended March 31, 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 financial statements and notes thereto included in Mediabistro’s Annual Report on Form 10-K for the year ended December 31, 2013. Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation. In the opinion of management, all adjustments considered necessary for a fair presentation of the results for the interim periods presented have been reflected in such consolidated condensed financial statements.

 

The consolidated condensed financial statements include the accounts of Mediabistro and its wholly-owned subsidiaries: 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 July 2013, the Financial Accounting Standard Board issued Accounting Standards Update (“ASU”) No. 2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Credit Carryforward Exists.” ASU No. 2013-11 provides explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The amendments in this update are effective for fiscal years and interim reporting periods beginning after December 15, 2013. Early adoption is permitted. The amendments should be applied prospectively for all unrecognized tax benefits that exist as of the effective date. Retrospective application is permitted. This pronouncement did not have a material effect on the Company’s consolidated financial statements.

 

4. SEGMENT INFORMATION

 

Segment information is presented in accordance with ASC Topic 280, “Segment Reporting”. ASC Topic 280 is typically based on a management approach that designates the internal organization used for making operating decisions and assessing performance. Operating segments are defined as business areas or lines of an enterprise about which financial information is available and evaluated on a regular basis by the chief operating decision-makers, or decision-making groups, in deciding how to allocate capital and other resources to such lines of business. The Company operates in one reportable segment. The Company is affected by seasonality as customers generally post more job listings during the first calendar quarter and fewer job listings during the fourth calendar quarter. Also, advertisers generally place fewer advertisements during the first and third calendar quarters of each year, which together with fluctuations in online job postings, directly affect our business. The Company’s results will also be impacted by the number and type of education courses offered and by the number and size of trade shows held in each quarter. In addition, there may be fluctuations as trade shows held in one period in the current year may be held in a different period in future years.

 

5. ACCOUNTING FOR EMPLOYEE STOCK-BASED COMPENSATION

 

Total employee stock-based compensation is as follows (in thousands):

 

		Three Months Ended March 31,
		2014				2013
Stock options for employees		$	55			$	80
Restricted stock for employees			–				1
Total employee stock-based compensation		$	55			$	81

 

Total employee stock-based compensation increased additional paid-in capital by $55,000 and $81,000 for the three months ended March 31, 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:

 

		Three Months Ended March 31,
		2014				2013
Risk-free interest rate			0.69%				0.35%
Expected life (in years)			3.4				3.4
Dividend yield			0%				0%
Expected volatility			135%				125%

 

The expected stock price volatility is based on the historical volatility of Mediabistro’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 calculated the expected term using the simplified method for options issued in 2011 and through the third quarter of 2012. The Company calculated the expected term for stock options issued in the fourth quarter of 2012 using historical data. In 2010, the Company began issuing stock options with a 10-year life. As a result, the Company did not have enough historical data to calculate the expected term and therefore relied on the simplified method for the calculation of the expected life until the fourth quarter of 2012.

 

The weighted-average grant date fair value of stock options granted during the three months ended March 31, 2014 and 2013 was $1.95 and $1.52, respectively.

 

 

The following table summarizes stock option activity during the three months ended March 31, 2014:

 

		Shares				Weighted Average Exercise Price				Weighted Average Remaining Contractual Term (years)				Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2013			793,169			$	5.59
Granted			87,300			$	2.44
Exercised			(286	)		$	1.82
Forfeited, expired or cancelled			(65,099	)		$	3.53
Outstanding at March 31, 2014			815,084			$	5.42				6.25			$	44,368
Vested and expected to vest at March 31, 2014			762,661			$	5.59				6.12			$	40,981
Exercisable at March 31, 2014			547,305			$	6.57				4.87			$	31,438

 

The aggregate intrinsic value in the table above is before income taxes, based on Mediabistro’s closing stock price of $2.43 as of March 31, 2014, the last trading day of the quarter. During the three months ended March 31, 2014 and 2013, the total intrinsic value of stock options exercised was $0 and $2,000, respectively.

 

As of March 31, 2014, there was $396,000 of total unrecognized compensation cost related to nonvested stock-based compensation arrangements granted under the Company’s stock incentive plan. The Company expects to amortize that cost over a weighted-average period of 2.5 years.

 

6. COMPUTATION OF LOSS PER SHARE

  

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

 

Computations of basic and diluted loss per share for the periods presented are as follows (in thousands, except per share amounts):

 

		Three Months Ended March 31,
		2014				2013
Net loss		$	(746	)		$	(924	)
Basic weighted average common shares outstanding			6,057				6,023
Effect of dilutive stock options			–				–
Total basic weighted average common shares and dilutive stock options			6,057				6,023
Basic and diluted loss per share		$	(0.12	)		$	(0.15	)

 

The following table summarizes the number of outstanding stock options excluded from the calculation of diluted loss per share for the periods presented because the result would have been anti-dilutive (in thousands, except weighted average exercise price):

  

		Three Months Ended March 31,
		2014				2013
Number of anti-dilutive stock options			815				824
Weighted average exercise price		$	5.42			$	5.90

 

 

7. INTANGIBLE ASSETS AND GOODWILL

 

Amortized Intangible Assets

 

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

 

		March 31, 2014
		Cost				Accumulated Amortization				Net Carrying Value
Website development costs		$	1,014			$	(627	)		$	387
Customer relationships			430				(174	)			256
Copyrights and trademarks			507				(296	)			211
Total		$	1,951			$	(1,097	)		$	854

  

		December 31, 2013
		Cost				Accumulated Amortization				Net Carrying Value
Website 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 development costs, customer relationships and copyrights and trademarks over three to seven years.

 

Amortization expense related to intangible assets subject to amortization was $96,000 and $109,000 for the three months ended March 31, 2014 and 2013, respectively. Estimated annual amortization expense for the next five years, including the remainder of 2014, is expected to be as follows (in thousands):

 

Years Ending December 31:
2014				$	277
2015					326
2016					164
2017					62
2018					25
				$	854

 

Unamortized Intangible Assets

 

The following tables set forth the intangible assets that are not subject to amortization (in thousands):

 

		March 31, 2014				December 31, 2013
Domain names		$	946			$	1,012

Goodwill

 

There were no changes in the carrying amount of goodwill for the three months ended March 31, 2014.

 

8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

 

Accrued expenses and other current liabilities consist of the following (in thousands):

 

		March 31, 2014				December 31, 2013
Deferred rent		$	608			$	578
Customer overpayments			81				81
Accrued professional fees			51				63
Accrued property and capital taxes			41				49
Other			287				321
Total		$	1,068			$	1,092

 

 

9. DEBT

 

On May 29, 2009, Mediabistro entered into a loan agreement in the amount of $7.2 million with the Company’s Chief Executive Officer, Alan M. Meckler (the “2009 Meckler Loan”).

 

In conjunction with the 2009 Meckler Loan, the Company (1) entered into a promissory note jointly and severally payable by the Company and its subsidiary, Mediabistro.com Subsidiary Inc. (“MB 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 MB 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, MB Subsidiary (1) entered into a Security Agreement by and between MB Subsidiary and Mr. Meckler pursuant to which MB Subsidiary granted to Mr. Meckler a security interest in MB Subsidiary’s assets (the “MB Subsidiary Security Agreement”), (2) entered into an Intellectual Property Security Agreement by and between MB Subsidiary and Mr. Meckler pursuant to which MB Subsidiary granted to Mr. Meckler a security interest in MB Subsidiary’s intellectual property (the “MB Subsidiary IP Security Agreement”), and (3) agreed to enter into a Blocked Account Control Agreement by and among MB Subsidiary, Mr. Meckler and a depositary bank, to further secure the 2009 Note (the “MB Subsidiary Control Agreement” and, together with the MB Subsidiary Security Agreement and the MB Subsidiary IP Security Agreement, the “MB 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, Mediabistro 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 MB 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 $40,000 to Mr. Meckler.  As a result, the 2^nd Note Modification Agreement reduces the effective interest payable on the 2009 Meckler Loan by $480,000 per year.  The Company granted Mr. Meckler a fully vested stock option to purchase 142,858 shares of the Company’s common stock pursuant to the terms of the 2008 Mediabistro Stock Option Plan. All other terms of the 2009 Meckler Loan remain unchanged.

 

Also on November 14, 2011, Mediabistro and its wholly owned subsidiaries, MB Subsidiary and Inside Network: (1) entered into a promissory note jointly and severally payable by the Company, MB 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 “MBIS 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 MBIS 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 MB Subsidiary and Inside Network owned by the Company.

 

In the 2011 Note, Mr. Meckler loaned the Company $1,750,000 (the “2011 Meckler Loan”). The interest rate of the 2011 Note 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 will become immediately due and payable upon certain events of bankruptcy or insolvency or in the event of a Change of Control (as defined in the 2011 Note) of MB 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, MB 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 $7,794,604 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, MB 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 $8,794,604, a $1.0 million 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 $455,000. The discount is being amortized over the life of the 2^nd Restated Note, and the carrying amount of the discount was $450,000 as of March 31, 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 $9.1 million, a $300,000 increase. Additionally, Mr. Meckler agrees to loan the company up to an additional aggregate principal amount of $700,000 in one or more advances. All other terms of the promissory notes remain unchanged.

 

Interest expense on the 2^nd Restated Note was $121,000 during the three months ended March 31, 2014. Interest expense on the 2009 Meckler Loan and the 2011 Meckler Loan was $54,000 during the three months ended March 31, 2013.

 

 

10. INCOME TAXES

 

The Company recorded a provision for income taxes of $13,000 and $12,000 during the three months ended March 31, 2014 and 2013, respectively.

 

Based on current projections, management believes that it is more likely than not that Mediabistro 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 $61,000 as of March 31, 2014 and December 31, 2013, all of which would affect the effective tax rate, if recognized, as of March 31, 2014.

 

11. COMMITMENTS AND CONTINGENCIES

 

Mediabistro 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 Mediabistro.

  

12. SUBSEQUENT EVENT

 

On April 29, 2014, Mediabistro entered into a 3^rd Restated Note Agreement with Mr. Meckler that increases the principal amount of the Restated Note to $9.1 million, a $300,000 increase. All other terms of the promissory notes remain unchanged and are described in Note 9 above.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

The following discussion should be read in conjunction with our unaudited consolidated condensed financial statements and the accompanying notes that appear elsewhere in this filing. Statements in this Form 10-Q that are not historical facts are “forward-looking statements” under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those described. The potential risks and uncertainties address a variety of subjects including, for example: general economic conditions; the competitive environment in which Mediabistro competes; the unpredictability of Mediabistro’s future revenues, expenses, cash flows and stock price; Mediabistro’s potential need for additional capital; Mediabistro’s ability to integrate acquired businesses products and personnel into its existing businesses; Mediabistro’s dependence on a limited number of advertisers; Mediabistro’s ability to maintain its listing on the Nasdaq Stock Market; and Mediabistro’s ability to protect its intellectual property. For a more detailed discussion of these risks and uncertainties, refer to Mediabistro’s other reports filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. The forward-looking statements included herein are made as of the date of this Form 10-Q, and we are under no obligation to update the forward-looking statements after the date hereof, except as required by law.

 

Overview

 

Mediabistro Inc. (f/k/a WebMediaBrands Inc.) (“Mediabistro” or the “Company”) is an Internet media company that provides services for social media, traditional media and creative professionals. We are a leading provider of 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, 3D printing 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. Our research products and services, including AppData, provide key data, insights and resources for app and social media professionals. 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;
	·	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;
	·	exhibition space fees and vendor sponsorships to our trade shows;
	·	granting rights to use logos that are downloaded from our stocklogos.com website; and
	·	subscription sales from our paid membership services.

 

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

      

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

 

 

Results of Operations

 

Revenues

 

Revenues were $3.2 million for the three months ended March 31, 2014 and $2.5 million for the three months ended March 31, 2013, representing an increase of 25%. This change was primarily due to increases in trade show and advertising revenues that were partially offset by decreases in research and education revenues. We ran three trade shows during the three months ended March 31, 2014 compared to no trade shows run during the three months ended March 31, 2013.

 

The following table sets forth, for the periods indicated, the components of our revenues (in thousands):

 

		Three Months Ended March 31,								2014 vs. 2013
		2014				2013				$				%
Online job postings		$	938			$	941			$	(3	)			–%
Trade shows			747				7				740				10,571
Advertising			513				386				127				33
Education			450				535				(85	)			(16	)
Other			306				268				38				14
Research			205				383				(178	)			(46	)
Total		$	3,159			$	2,520			$	639				25%

  

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 $1.8 million for the three months ended March 31, 2014 and $1.6 million for the three months ended March 31, 2013, representing an increase of 17%.  This change was primarily due to increases in trade show operating costs of $499,000 and editorial freelance cost of $44,000, offset by a decrease in employee-related costs of $277,000.

 

We intend to make investments through internal development and, where appropriate opportunities arise, through the expansion of our Inside 3D Printing and Inside Bitcoin trade show brands. 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 $575,000 and $476,000 for the three months ended March 31, 2014 and 2013, respectively, representing an increase of 21%. This change was due primarily to an increase in trade show costs of $74,000 and an increase in employee-related costs of $27,000.

 

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 $1.1 million and $1.2 million for the three months ended March 31, 2014 and 2013, respectively, representing a decrease of 5%. This change was due primarily to a decrease in employee-related costs of $52,000.

 

Depreciation and amortization

 

Depreciation expense was $37,000 for the three months ended March 31, 2014 and $64,000 for the three months ended March 31, 2013, representing a decrease of 42%. This decrease was due primarily to certain assets becoming fully depreciated.

 

Amortization expense was $96,000 for the three months ended March 31, 2014 and $109,000 for the three months ended March 31, 2013, representing a decrease of 12%. This decrease was primarily due 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 loss, net

 

Other loss of $136,000 during the three months ended March 31, 2014 was primarily related to losses on the sale of certain assets and digital currency transactions losses. Other loss was $4,000 during the three months ended March 31, 2013.

 

 

Interest income and interest expense

 

The following table sets forth, for the periods indicated, a comparison of our interest income and interest expense (dollars in thousands):

 

		Three Months Ended March 31,								2014 vs. 2013
		2014				2013				$				%
Interest income		$	–			$	1			$	(1	)			(100)%
Interest expense		$	(127	)		$	(63	)		$	(64	)			(102)%

 

Interest expense during the three months ended March 31, 2014 and 2013 related primarily to costs associated with our loans from a related party. The increase in interest expense during the quarter ended March 31, 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 $13,000 and $12,000 during the three months ended March 31, 2014 and 2013, respectively.

 

Based on current projections, management believes that it is more likely than not that we will have insufficient taxable income to allow recognition of its 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, an additional tax provision will be incurred as the assets are amortized.

 

The total amount of unrecognized tax benefits was $61,000 as of March 31, 2014 and $61,000 as of December 31, 2013, all of which would affect the effective tax rate, if recognized, as of March 31, 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 (dollars in thousands):

 

		Three Months Ended March 31,								2014 vs. 2013
		2014				2013				$				%
Operating cash flows		$	(464	)		$	(531	)		$	67				13	%
Investing cash flows			(22	)			(60	)			38				63
Financing cash flows			–				7				(7	)			(100	)

   

		As of								2014 vs. 2013
		March 31, 2014				December 31, 2013				$				%
Cash and cash equivalents		$	746			$	1,232			$	(486	)			(39	)%
Working capital			(1,097	)			(610	)			(487	)			(80	)
Loan from related party			8,345				8,341				4				–

 

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 decreased during the three months ended March 31, 2014 compared to the same period of 2013 due primarily to an increase in revenues.

 

Investing activities. The amounts of cash used in investing activities vary in correlation to the number and cost of the acquisitions consummated and assets purchased or developed. Net cash used in investing activities during the three months ended March 31, 2014 and 2013, related primarily to the purchase of certain assets and website and product development costs.  

 

Financing activities. Cash provided by financing activities during the three months ended March 31, 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.

 

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 $7.2 million with our Chief Executive Officer, Alan M. Meckler (the “2009 Meckler Loan”).

 

In conjunction with the 2009 Meckler Loan, we (1) entered into a promissory note jointly and severally payable by us and our subsidiary, Mediabistro.com Subsidiary Inc. (“MB 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 MB 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, MB Subsidiary (1) entered into a Security Agreement with Mr. Meckler pursuant to which MB Subsidiary granted to Mr. Meckler a security interest in MB Subsidiary’s assets (the “MB Subsidiary Security Agreement”), (2) entered into an Intellectual Property Security Agreement with Mr. Meckler pursuant to which MB Subsidiary granted to Mr. Meckler a security interest in MB Subsidiary’s intellectual property (the “MB 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 “MB Subsidiary Control Agreement” and, together with the MB Subsidiary Security Agreement and the MB Subsidiary IP Security Agreement, the “MB 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 MB 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 $40,000 to Mr. Meckler. As a result, the 2^nd Note Modification Agreement reduces the effective interest payable on the 2009 Meckler Loan by $480,000 per year. We granted Mr. Meckler a fully vested stock option to purchase 142,858 shares of our common stock pursuant to the terms of the 2008 Mediabistro 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, MB Subsidiary and Inside Network: (1) entered into a promissory note jointly and severally payable by the Company, MB 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 “MBIS 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 MBIS 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 MB Subsidiary and Inside Network owned by the Company.

 

In the 2011 Note, Mr. Meckler loaned us $1,750,000 (the “2011 Meckler Loan”). The interest rate of the 2011 Note 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 will become immediately due and payable upon certain events of bankruptcy or insolvency or in the event of a Change of Control (as defined in the 2011 Note) of MB 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, MB 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 $7,794,604 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, MB 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 $8,794,604, a $1.0 million 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 $455,000. The discount is being amortized over the life of the 2^nd Restated Note, and the carrying amount of the discount was $450,000 as of March 31, 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 $9.1 million, a $300,000 increase. Additionally, Mr. Meckler agrees to loan the company up to an additional aggregate principal amount of $700,000 in one or more advances. All other terms of the promissory notes remain unchanged.

 

Interest expense on the 2^nd Restated Note was $121,000 during the three months ended March 31, 2014. Interest expense on the 2009 Meckler Loan and the 2011 Meckler Loan was $54,000 during the three months ended March 31, 2013.

 

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 March 31, 2014. Based on the Company’s evaluation, management concluded that our internal control over financial reporting was effective as of March 31, 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 quarter ended March 31, 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.

 

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.

 

		Mediabistro Inc.
Dated: May 15, 2014		/s/ Alan M. Meckler
		Alan M. Meckler Chairman of the Board, Chief Executive Officer (Principal Executive Officer and Principal Financial Officer)