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: December 31, 1997
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: 0-23364
MECKLERMEDIA CORPORATION
------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 06-1385519
________________________________________ ____________________________________
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
20 KETCHUM STREET
WESTPORT, CONNECTICUT 06880
________________________________________ ____________________________________
(Address of principal executive offices) (Zip Code)
(203) 226-6967
---------------
(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___
---
The number of outstanding shares the Registrant's common stock, par
value $.01 per share, as of December 31, 1997, was 8,297,701.
MECKLERMEDIA CORPORATION AND SUBSIDIARIES
-----------------------------------------
INDEX
-----
Page
----
PART I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - December 31, 1997
and September 30, 1997 3-4
Consolidated Statements of Operations - Three Months
Ended December 31, 1997 and 1996 5
Consolidated Statements of Cash Flows - Three Months
Ended December 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-11
PART II. Other Information 12
Signatures 13
EXHIBIT 11. STATEMENT REGARDING COMPUTATION OF
PER SHARE EARNINGS 14
EXHIBIT 27. FINANCIAL DATA SCHEDULE 15
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MECKLERMEDIA CORPORATION AND SUBSIDIARIES
-----------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
DECEMBER 31, 1997 AND SEPTEMBER 30, 1997
----------------------------------------
(In thousands)
--------------
December 31, September 30,
1997 1997
------------ -------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $18,197 $23,971
Accounts receivable, less allowances
of $846 and $670, respectively 5,486 3,960
Advanced billings for trade shows 8,680 9,497
Current note receivable 234 230
Inventory 1,102 1,074
Prepaid trade show expenses 2,755 3,198
Deferred income taxes 593 1,715
Prepaid expenses and other 569 1,594
--------- ------------
Total current assets 37,616 45,239
PROPERTY AND EQUIPMENT:
Computer equipment 2,382 2,594
Furniture, fixtures and equipment 1,025 986
Leasehold improvements 341 341
--------- ------------
3,748 3,921
Less: Accumulated depreciation and amortization (1,293) (1,393)
--------- ------------
2,455 2,528
INTANGIBLE ASSETS, net of accumulated amortization
of $1,396 and $1,026, respectively 5,979 3,760
OTHER ASSETS 413 254
--------- ------------
Total assets $46,463 $51,781
========= ============
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
3
MECKLERMEDIA CORPORATION AND SUBSIDIARIES
-----------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
DECEMBER 31, 1997 AND SEPTEMBER 30, 1997
----------------------------------------
(In thousands, except share and per share amounts)
--------------------------------------------------
December 31, September 30,
1997 1997
------------ -------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,758 $ 4,219
Accrued expenses 7,555 3,780
Deferred trade show revenue 14,750 21,406
Deferred magazine revenue 2,470 2,640
-------------- --------------
Total current liabilities 28,533 32,045
DEFERRED MAGAZINE REVENUE - LONG-TERM 322 320
-------------- --------------
Total liabilities 28,855 32,365
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY:
Preferred stock ($.01 par value, 1,000,000 shares authorized,
no shares issued and outstanding) - -
Common stock ($.01 par value, 35,000,000 shares authorized,
8,297,701 and 8,526,896 shares issued and outstanding
at December 31, 1997 and September 30, 1997, 85 85
respectively)
Additional paid-in capital 25,142 24,857
Treasury stock, at cost (260,000 and 10,000 shares at
December 31, 1997 and September 30, 1997, respectively) (5,272) (172)
Accumulated deficit (2,249) (5,306)
Foreign currency translation adjustment (98) (48)
-------------- --------------
Total stockholders' equity 17,608 19,416
-------------- --------------
Total liabilities and stockholders' equity $46,463 $51,781
============== ==============
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
4
MECKLERMEDIA CORPORATION AND SUBSIDIARIES
-----------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
---------------------------------------------
(UNAUDITED)
-----------
(In thousands, except per share amounts)
----------------------------------------
Three Months Ended
December 31
-----------------------------
1997 1996
---------- ---------
REVENUES:
Trade shows $ 17,218 $ 11,197
Print publishing 4,815 5,528
Web sites 769 323
Other 458 438
---------- ---------
23,260 17,486
---------- ---------
COST OF SALES AND DIRECT COSTS:
Trade shows 7,262 6,270
Print publishing 3,753 3,153
Web sites 319 239
Other 131 113
---------- ---------
11,465 9,775
---------- ---------
Gross profit after cost of sales and direct costs 11,795 7,711
OPERATING EXPENSES:
Advertising, promotion and selling 4,333 3,588
General and administrative 2,740 2,195
---------- ---------
Operating income 4,722 1,928
---------- ---------
Interest income 289 272
---------- ---------
Income before income taxes 5,011 2,200
Provision for income taxes 1,954 116
---------- ---------
Net income $ 3,057 $ 2,084
========== =========
Basic earnings per share $ 0.36 $ 0.25
========== =========
Diluted earnings per share $ 0.35 $ 0.24
========== ==========
Weighted average number of common shares 8,512 8,486
========== =========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
5
MECKLERMEDIA CORPORATION AND SUBSIDIARIES
-----------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
---------------------------------------------
(UNAUDITED)
-----------
(Dollars in thousands)
--------------------
Three Three
Months Ended Months Ended
December 31, December 31,
1997 1996
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,057 $ 2,084
Adjustments to reconcile net cash provided by (used in)
operations-
Depreciation and amortization 685 298
Deferred income tax provision 1,070 -
Changes in assets and liabilities -
(Increase) in accounts receivable and advance
billings for trade shows (709) (3,902)
(Increase) in inventory (28) (154)
Decrease in prepaid trade show expenses 443 375
Decrease in prepaid expenses and other 918 190
Increase in accounts payable and accrued expenses 3,314 5,468
(Decrease) in deferred trade show revenue (6,656) (430)
Increase (decrease) in deferred magazine revenue (168) 260
------------ ------------
Net cash provided by (used in) operating activities 1,926 4,189
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (246) (579)
Acquisitions of Web sites, trade shows, and other (2,589) (1,439)
------------ ------------
Net cash provided by (used in) investing activities (2,835) (2,018)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options 285 184
Purchase of common stock for treasury (5,100) -
------------ ------------
Net cash provided by (used in) financing activities (4,815) 184
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (50) (137)
------------ ------------
Net increase (decrease) in cash and cash equivalents (5,774) 2,218
------------ ------------
CASH AND CASH EQUIVALENTS, beginning of period 23,971 19,859
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $18,197 $22,077
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW:
Cash paid for interest $ - $ -
Cash paid for income taxes $ 324 $ -
The accompanying notes to consolidated financial statements
are an integral part of these statements.
6
MECKLERMEDIA CORPORATION AND SUBSIDIARIES
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 31, 1997
-----------------
(UNAUDITED)
---------
(In thousands, except per share data)
-----------------------------------
(1) The Company:
-----------
The Company is a leading provider of information about the Internet through its
(i) INTERNET WORLD trade shows and conferences, (ii) publication of INTERNET
WORLD, a weekly business-to-business controlled circulation print publication
and (iii), INTERNET.COM (formerly iWORLD), the Company's Web site for Internet
news and information resources. Since all of the Company's products and services
relate to providing Internet-related information to business and information
technology professionals and consumers, the Company's success is dependent on
the continued growth of the Internet.
(2) Basis of Presentation:
---------------------
The accompanying unaudited financial statements have been prepared from the
books and records of the Company in accordance with generally accepted
accounting principles 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 generally accepted accounting principles
for complete financial statements. It is suggested that these unaudited
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the fiscal year ended September 30, 1997. 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 financial
statements. Certain of the Company's operations are cyclical in nature. The
number and size of INTERNET WORLD trade shows held in the United States in a
particular quarter has and will continue to significantly impact the Company's
quarterly results. Accordingly, presentation of quarterly results of operations
is not necessarily indicative of annual results or trends.
Certain amounts have been reclassified in the prior year statements to conform
to the current year presentation.
The Company does not believe any recently issued accounting standards will have
a material impact on its financial condition or results of operations.
(3) Inventory:
---------
Components of inventory include :
December 31, September 30,
1997 1997
------------ -------------
Paper $ 568 $ 667
Work-in-process 534 407
------------ -------------
$1,102 $1,074
============ =============
(4) Income Taxes:
------------
Income taxes are provided at the projected annual effective tax rate. The
provision for income taxes for the fiscal 1997 interim period is less than the
federal statutory rate due primarily to the utilization of available net
operating loss carryforwards.
(5) Common Stock:
------------
On December 2, 1997, and December 30, 1997, the Company purchased an aggregate
of 250,000 shares of its common stock in private transactions for approximately
$5.1 million.
7
(6) Earnings Per Share:
------------------
Effective December 31, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128), which
requires the replacement of primary and fully diluted earnings per share with
basic and diluted earnings per share, respectively. FAS 128 also requires
restatement of previously reported earnings per share information for certain
periods presented in the accompanying statements of operations to ensure
consistency with currently reported amounts. Accordingly, the Company has
restated previously reported earnings per share amounts. Computations of basic
and diluted earnings per share for the three months ended December 31, 1997 and
1996 are as follows:
Three Months Ended December 31, 1997
------------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
---------------- ------------------ ----------------
BASIC EARNINGS PER SHARE
Net income available to common
stockholders $3,057 8,512 $0.36
================
Effect of Dilutive Securities:
Stock options and warrants - 240
---------------- ------------------
DILUTED EARNINGS PER SHARE
Income available to common
stockholders $3,057 8,752 $0.35
================ ================== ================
Options to purchase 87,800 shares of common stock at prices ranging from $23.00-
$27.50 were outstanding during the quarter ended December 31, 1997, but were not
included in the computation of diluted earnings per share because the options'
exercise prices were greater than the average market price of the common shares.
The options which expire, beginning in February 2007, were outstanding at
December 31, 1997.
Three Months Ended December 31, 1996
------------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
---------------- ------------------ ----------------
BASIC EARNINGS PER SHARE
Net income available to common
stockholders $2,084 8,486 $0.25
================
Effect of Dilutive Securities:
Stock options and warrants - 228
---------------- ------------------
DILUTED EARNINGS PER SHARE
Income available to common
stockholders $2,084 8,714 $0.24
================ ================== ================
8
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
INTRODUCTION
- ------------
Certain of the Company's operations are cyclical in nature. The number and size
of INTERNET WORLD trade shows held in the United States in a particular quarter
has and will continue to significantly impact the Company's quarterly results.
Accordingly, presentation of quarterly results of operations is not necessarily
indicative of annual results or trends.
Since 1993, the Company has focused its efforts toward the Internet, launching
its INTERNET WORLD print publication in August 1993. The Company launched its
INTERNET WORLD trade shows in 1994. In addition, the Company added its
INTERNET.COM World-Wide Web site (formerly iWORLD) in 1995.
In December 1997, the Company announced a strategic magazine initiative whereby
INTERNET WORLD became the new name of WEB WEEK effective with the February 2,
1998 issue. The paid circulation magazine previously known as INTERNET WORLD
ceased publishing effective with the February 1998 issue and INTERNET SHOPPER
magazine ceased publishing effective with the January 1998 issue. These changes
were effected to enable the Company to concentrate its print publishing efforts
into a single business-to-business publication, leveraging the INTERNET WORLD
brand name and further aligning the publishing focus with its INTERNET WORLD
trade shows.
RESULTS OF OPERATIONS
- ---------------------
Comparison of the Three Months Ended December 31, 1997 and 1996
Revenues. Revenues for the three months ended December 31, 1997, increased 33%
to approximately $23.3 million from $17.5 million for the comparable period in
fiscal 1997. Trade show revenues for the three months ended December 31, 1997,
of approximately $17.2 million increased by approximately $6.0 million, from the
comparable period in fiscal 1997. This increase was due primarily to the
increase in exhibit space sales of Fall INTERNET WORLD 1997, which had paid
exhibition space of approximately 305,000 square feet compared to Fall INTERNET
WORLD 1996, which had paid exhibition space of 240,000 square feet. Revenues
from print publishing decreased approximately $713,000 due to lower circulation
revenues from INTERNET WORLD partially offset by the growth in advertising from
both INTERNET WORLD and WEB WEEK. The conversion of WEB DEVELOPER from a
bimonthly print magazine to an online daily publication in May 1997 also
contributed to the decrease in print publishing revenue. Web site revenues
increased to $769,000 for the three months ended December 31, 1997, from
$323,000 in the comparable period in fiscal 1997, due to increased advertising
from INTERNET.COM, the Company's Web site for Internet news and information
resources. Other revenues increased to $458,000 for the three months ended
December 31, 1997, from $438,000 in the comparable period in fiscal 1997, due
primarily to increased list rentals.
Cost of sales and direct costs. Cost of sales and direct costs include the
costs associated with producing trade shows and costs associated with editing,
producing and distributing the Company's publications. Cost of sales and direct
costs for the three months ended December 31, 1997, increased to approximately
$11.5 million from $9.8 million for the comparable period in fiscal 1997. Trade
show cost of sales and direct costs for the three months ended December 31,
1997, increased by $1.0 million to $7.3 million from the comparable period in
fiscal 1997. The increase was due to the increased costs associated with the
production of the larger Fall INTERNET WORLD 1997 trade show. Gross profit
after cost of sales and direct costs for trade shows for the three months ended
December 31, 1997, increased by $5.1 million to approximately $10.0 million from
$4.9 million for the comparable period in fiscal 1997. This increase is
primarily attributable to the increase in exhibition space sales of the Fall
INTERNET WORLD trade show. Print publishing cost of sales and direct
9
costs increased by approximately $600,000 for the three month period ended
December 31, 1997, from the comparable period for fiscal 1997. Of this increase,
$869,000 related to the change in publication frequency of WEB WEEK newspaper
from biweekly to weekly and to the launch of INTERNET SHOPPER in March 1997.
This was offset by a decrease in cost of sales and direct costs of $269,000
related to the conversion of WEB DEVELOPER from a bimonthly print magazine to an
online daily publication in May 1997. Cost of sales and direct costs associated
with print publishing increased from approximately 57% to 78% of print
publishing revenue. This percentage increase is a function of the increase in
frequency of WEB WEEK from biweekly to weekly, converting WEB DEVELOPER from a
bimonthly print magazine to an online daily publication in May 1997 and the
launch of INTERNET SHOPPER in March 1997. Gross profit after cost of sales and
direct costs for print publishing for the three months ended December 31, 1997,
decreased to approximately $1.1 million from $2.4 million for the comparable
period in fiscal 1997. Web site cost of sales and direct costs increased to
$319,000 for the three months ended December 31,1997, from $239,000 in the
comparable period in the fiscal 1997 due primarily to higher editorial costs.
Cost of sales and direct costs for other revenues increased to $131,000 for the
three month period ended December 31, 1997, compared to $113,000 in the
comparable period in fiscal 1997.
Advertising, promotion and selling expenses. Advertising, promotion and selling
expenses represent costs related to circulation and promotion, including direct
mail, newsstand promotion and fulfillment expense, sales commissions, and
advertising and marketing staff. In addition, advertising, promotion and
selling expenses include the amortization of deferred promotion costs.
Advertising, promotion and selling expenses for the three months ended December
31, 1997, increased 21% to approximately $4.3 million from $3.6 million for the
comparable period in fiscal 1997. Of this increase, $408,000 related to the
increase in publication frequency of WEB WEEK newspaper from biweekly to weekly
and $404,000 related to the launch of INTERNET SHOPPER magazine.
General and administrative expenses. General and administrative expenses
include salaries, depreciation, amortization, telecommunications, insurance and
professional fees. General and administrative expenses for the three months
ended December 31, 1997, increased 25% to approximately $2.7 million from $2.2
million for the comparable period in fiscal 1997. Approximately $210,000 of this
increase was for severance and other costs related to the Company's strategic
magazine initiative announced in December 1997. Under this initiative, INTERNET
WORLD became the new name of WEB WEEK effective with the February 2, 1998
issue. The paid circulation magazine previously known as INTERNET WORLD ceased
publishing effective with the February 1998 issue and INTERNET SHOPPER magazine
ceased publishing effective with the January 1998 issue. Increases in
depreciation and amortization expense of $383,000, as well as increased
professional fees for trademarks and other matters, also contributed to the
increase. The Company anticipates that future general and administrative
expenses will increase in the aggregate, although such expenses are expected to
continue to decline as a percentage of revenue.
Operating income. Operating income for the three months ended December 31,
1997, increased to $4.7 million from $1.9 million for the comparable period in
fiscal 1997. This increase is a result of revenues increasing 33% to
approximately $23.0 million in the three months ended December 31, 1997, from
$17.5 million in the comparable period in fiscal 1997.
Interest income. Interest income for the three months ended December 31,1997,
increased to $289,000 from $272,000 for the comparable period in fiscal 1997.
Income taxes. For the three months ended December 31, 1997, income taxes are
provided at the projected annual effective tax rate. The provision for income
taxes for the fiscal 1997 interim period of $116,000, which was primarily for
foreign income taxes and for state capital taxes, is less than the federal
statutory rate due primarily to the utilization of available net operating loss
carryforwards.
Net income. Based upon the results discussed above, the Company's net income
increased to $3.1 million for the three months ended December 31, 1997, from
$2.1 million for the comparable period in fiscal 1997.
10
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Since the beginning of fiscal 1994, the Company's primary sources of liquidity
have been the proceeds from sales of assets, borrowing under lines of credit
that have been repaid, its public offerings in February 1994 and August 1995 and
operations. Through its public offerings, the Company realized net proceeds,
after offering expenses and underwriters' discounts, of approximately $20.7
million. At December 31, 1997, the Company had cash and cash equivalents of
approximately $18.2 million, compared to $24.0 million at September 30, 1997.
Operating activities for the three months ended December 31, 1997, provided
approximately $1.9 million in cash, due primarily to net income of approximately
$3.1 million for the period and changes in components of working capital.
The Company's accounts receivable and advanced billings for trade shows
increased to approximately $14.2 million at December 31, 1997, from $13.5
million at September 30, 1997. Accounts payable and accrued expenses increased
to approximately $11.3 million primarily as a result of expanded domestic and
international trade show activity. Deferred trade show revenue decreased to
$14.8 million at December 31, 1997, from $21.4 million at September 30, 1997,
primarily as a function of the production of the Fall INTERNET WORLD 1997 trade
show, offset partially by advanced billings for Spring 1998, Summer 1998, and
Fall INTERNET WORLD 1998 trade shows.
The Company had capital expenditures of approximately $246,000 for the three
months ended December 31, 1997. This was primarily due to an increase in
computer equipment and software purchases required for the Company's general
operating activities and its INTERNET.COM Web site. The Company anticipates
incurring a similar level of capital expenditures on a quarterly basis for the
remainder of fiscal 1998. During the three months ended December 31, 1997, the
Company also incurred approximately $2.6 million for trade show and Web site
acquisitions, and for expenditures to register its various trade names in the
United States and throughout the world.
The Company realized net proceeds from the exercise of stocks options of
$285,000 and expended $5.1 million for the purchase of its common stock for the
three months ended December 31, 1997.
The Company believes that funds available will be sufficient to meet its
obligations and its anticipated capital requirements for the foreseeable future.
11
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Not Applicable
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
Item 5. OTHER INFORMATION
Not Applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 - Statement Regarding Computation of Per Share Earnings
27 - Financial Data Schedule
(b) Reports on Form 8-K
None
12
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
MECKLERMEDIA CORPORATION
Dated: February 4, 1998 /s/Alan M. Meckler
---------------------------------------
Alan M. Meckler
Director, Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
Dated: February 4, 1998 /s/Christopher S. Cardell
---------------------------------------
Christopher S. Cardell
Director, President, Chief Operating
Officer and Chief Financial Officer
13