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, 1998
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 March 31, 1998, was 8,344,260.
MECKLERMEDIA CORPORATION AND SUBSIDIARIES
-----------------------------------------
INDEX
-----
Page
--------
PART I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -- March 31, 1998
and September 30, 1997 3-4
Consolidated Statements of Operations -- Three and
Six Months Ended March 31, 1998 and 1997 5
Consolidated Statements of Cash Flows -- Six Months
Ended March 31, 1998 and 1997 6
Notes to Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-13
PART II. Other Information 14-15
Signatures 16
EXHIBIT 11. STATEMENT REGARDING COMPUTATION OF
PER SHARE EARNINGS 17
EXHIBIT 27. FINANCIAL DATA SCHEDULE 18
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MECKLERMEDIA CORPORATION AND SUBSIDIARIES
-----------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
MARCH 31, 1998 AND SEPTEMBER 30, 1997
-------------------------------------
(In thousands)
--------------
March 31, September 30,
1998 1997
----------------- ------------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $18,796 $23,971
Accounts receivable, less allowances
of $781 and $670, respectively 5,754 3,960
Advanced billings for trade shows 8,952 9,497
Inventory 451 1,074
Prepaid trade show expenses 2,277 3,198
Deferred income taxes 518 1,715
Prepaid expenses and other 750 1,824
------------------- -------------------
Total current assets 37,498 45,239
PROPERTY AND EQUIPMENT:
Computer equipment 2,688 2,594
Furniture, fixtures and equipment 1,110 986
Leasehold improvements 354 341
------------------- -------------------
4,152 3,921
Less: Accumulated depreciation and amortization (1,554) (1,393)
------------------- -------------------
2,598 2,528
INTANGIBLE ASSETS, net of accumulated amortization
of $1,800 and $1,026, respectively 6,991 3,760
OTHER ASSETS 486 254
------------------- -------------------
Total assets $47,573 $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
---------------------------
MARCH 31, 1998 AND SEPTEMBER 30, 1997
-------------------------------------
(In thousands, except share and per share amounts)
--------------------------------------------------
March 31, September 30,
1998 1997
--------------- ---------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,651 $ 4,219
Accrued expenses 6,747 3,708
Accrued income taxes 2,393 72
Deferred trade show revenue 11,952 21,406
Deferred magazine revenue 462 2,640
------------------- ------------------
Total current liabilities 24,205 32,045
DEFERRED MAGAZINE REVENUE - LONG-TERM - 320
------------------- ------------------
Total liabilities 24,205 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,
8,344,260 and 8,526,896 shares issued and outstanding
at March 31, 1998 and September 30, 1997, respectively) 83 85
Additional paid-in capital 25,843 24,857
Treasury stock, at cost (260,000 and 10,000 shares at
March 31, 1998 and September 30, 1997, respectively) (5,272) (172)
Retained earnings (deficit) 2,841 (5,306)
Foreign currency translation adjustment (127) (48)
------------------- ------------------
Total stockholders' equity 23,368 19,416
------------------- ------------------
Total liabilities and stockholders' equity $47,573 $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 AND SIX MONTHS ENDED MARCH 31, 1998 AND 1997
--------------------------------------------------
(UNAUDITED)
-----------
(In thousands, except per share amounts)
----------------------------------------
Three Months Ended Six Months Ended
March 31 March 31
---------------------------- -----------------------------
1998 1997 1998 1997
--------- ----------- ---------- -----------
REVENUES:
Trade shows $16,847 $14,925 $34,065 $26,122
Print publishing 2,691 4,765 7,506 10,293
Web sites 830 344 1,599 668
Other 364 482 822 919
--------- --------- --------- ---------
20,732 20,516 43,992 38,002
--------- --------- --------- ---------
COST OF SALES AND DIRECT COSTS:
Trade shows 7,135 7,200 14,397 13,470
Print publishing 2,658 3,380 6,411 6,460
Web sites 541 322 860 561
Other 92 103 223 289
--------- --------- --------- ---------
10,426 11,005 21,891 20,780
--------- --------- --------- ---------
Gross profit after cost of sales and direct costs 10,306 9,511 22,101 17,222
OPERATING EXPENSES:
Advertising, promotion and selling 1,970 3,667 6,303 7,255
General and administrative 2,252 2,452 4,992 4,648
--------- --------- --------- ---------
Operating income 6,084 3,392 10,806 5,319
--------- --------- --------- ---------
Interest income 225 274 514 546
Gain on sale of assets 2,036 - 2,036 -
--------- --------- --------- ---------
Income before income taxes 8,345 3,666 13,356 5,865
Provision for income taxes 3,255 158 5,209 273
--------- --------- --------- ---------
Net income $ 5,090 $ 3,508 $ 8,147 $ 5,592
========= ========= ========= =========
Basic earnings per share $0.61 $0.41 $0.97 $0.66
========= ========= ========= =========
Diluted earnings per share $0.59 $0.40 $0.94 $0.64
========= ========= ========= =========
Weighted average number of common shares 8,340 8,500 8,427 8,494
========= ========= ========= =========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
5
MECKLERMEDIA CORPORATION AND SUBSIDIARIES
-----------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
SIX MONTHS ENDED MARCH 31, 1998 AND 1997
----------------------------------------
(UNAUDITED)
-----------
(Dollars in thousands)
----------------------
Six Six
Months Ended Months Ended
March 31, 1998 March 31, 1997
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,147 $ 5,592
Adjustments to reconcile net cash provided by (used in)
operations-
Depreciation and amortization 1,381 686
Accretion of interest income on note receivable (8) (16)
Deferred income taxes 1,070 -
Gain on sale of assets (2,036) -
Changes in assets and liabilities -
(Increase) in accounts receivable and advance billings
for trade shows (1,249) (5,750)
Decrease (increase) in inventory 623 (18)
Decrease in prepaid trade show expenses 921 1,193
Decrease in prepaid expenses and other 764 19
Increase in accounts payable and accrued expenses 3,492 5,068
(Decrease) in deferred trade show revenue (9,454) (1,856)
(Decrease) increase in deferred magazine revenue (462) 569
------------- -------------
Net cash provided by (used in) operating
activities 3,189 5,487
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 300 -
Proceeds from note receivable 213 213
Additions to property and equipment (677) (883)
Acquisitions of Web sites, trade shows, and other (4,005) (1,771)
------------- -------------
Net cash provided by (used in) investing
activities (4,169) (2,441)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options 984 443
Purchase of common stock for treasury (5,100) -
------------- -------------
Net cash provided by (used in) financing activities (4,116) 443
------------- -------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (79) (81)
------------- -------------
Net increase (decrease) in cash and cash equivalents (5,175) 3,408
------------- -------------
CASH AND CASH EQUIVALENTS, beginning of period 23,971 19,859
------------- -------------
CASH AND CASH EQUIVALENTS, end of period $18,796 $23,267
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW:
Cash paid for interest $ - $ -
Cash paid for income taxes $ 1,818 $ 92
The accompanying notes to consolidated financial statements
are an integral part of these statements.
6
MECKLERMEDIA CORPORATION AND SUBSIDIARIES
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 1998
--------------
(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 network of Web sites 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 :
March 31, September 30,
1998 1997
--------- -------------
Paper $ 398 $ 667
Work-in-process 53 407
----- ------
$ 451 $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 March 31, 1998 and
1997 are as follows:
Three Months Ended March 31, 1998
-------------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
---------------- ------------------- ----------------
BASIC EARNINGS PER SHARE
Net income available to common
stockholders $5,090 8,340 $0.61
================
Effect of Dilutive Securities:
Stock options and warrants - 301
---------------- -------------------
DILUTED EARNINGS PER SHARE
Income available to common
stockholders $5,090 8,641 $0.59
================ =================== ================
Three Months Ended March 31, 1997
-------------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
---------------- ------------------- ----------------
BASIC EARNINGS PER SHARE
Net income available to common
stockholders $3,508 8,500 $0.41
================
Effect of Dilutive Securities:
Stock options and warrants - 286
---------------- -------------------
DILUTED EARNINGS PER SHARE
Income available to common
stockholders $3,508 8,786 $0.40
================ =================== ================
Options to purchase 42,366 and 21,800 shares of common stock at prices ranging
from $26.90-$28.75 and from $23.63-$27.50 were outstanding during the quarters
ended March 31, 1998 and March 31, 1997, respectively, 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 stock. These
options which begin expiring in February 2000, were outstanding at March 31,
1998 and March 31, 1997, respectively.
8
Computations of basic and diluted earnings per share for the six months ended
March 31, 1998 and 1997 are as follows:
Six Months Ended March 31, 1998
-------------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
---------------- ------------------- ----------------
BASIC EARNINGS PER SHARE
Net income available to common
stockholders $8,147 8,427 $0.97
================
Effect of Dilutive Securities:
Stock options and warrants - 246
---------------- -------------------
DILUTED EARNINGS PER SHARE
Income available to common
stockholders $8,147 8,673 $0.94
================ =================== ================
Six Months Ended March 31, 1997
-------------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
---------------- ------------------- ----------------
BASIC EARNINGS PER SHARE
Net income available to common
stockholders $5,592 8,494 $0.66
================
Effect of Dilutive Securities:
Stock options and warrants - 253
---------------- -------------------
DILUTED EARNINGS PER SHARE
Income available to common
stockholders $5,592 8,747 $0.64
================ =================== ================
Options to purchase 130,166 and 31,800 shares of common stock at prices ranging
from $23.84-$28.75 and from $23.00-$27.50 were outstanding during the six months
ended March 31, 1998 and March 31 1997, respectively, 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 stock. These
options which begin expiring in February 2000, were outstanding at March 31,
1998 and March 31, 1997, respectively.
(7) Sale of Assets:
- --- --------------
On February 3, 1998, the Company sold the active subscriber list of the paid
monthly print publication formerly known as INTERNET WORLD to The McGraw-Hill
Companies, Inc. for cash and assumption of INTERNET WORLD's outstanding deferred
subscription liabilities. The Company recognized a gain on the sale of
approximately $2.0 million.
9
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 network of World-Wide Web sites (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 March 31, 1998 and 1997
Revenues. Revenues for the three months ended March 31, 1998, increased to
approximately $20.7 million from $20.5 million for the comparable period in
fiscal 1997. Trade show revenues for the three months ended March 31, 1998, of
approximately $16.8 million increased by approximately $1.9 million, from the
comparable period in fiscal 1997. This increase was due primarily to the
increase in revenues from Spring INTERNET WORLD 1998. Revenues from print
publishing decreased approximately $2.1 million due to the Company concentrating
its print publishing efforts into a single business-to-business publication
(INTERNET WORLD). Web site revenues increased to $830,000 for the three months
ended March 31, 1998, from $344,000 in the comparable period in fiscal 1997, due
to increased advertising from INTERNET.COM, the Company's network of Web sites
for Internet news and information resources. Other revenues decreased to
$364,000 for the three months ended March 31, 1998, from $482,000 in the
comparable period in fiscal 1997, due primarily to decreased 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 and Web sites. Cost of
sales and direct costs for the three months ended March 31, 1998, decreased to
approximately $10.4 million from $11.0 million for the comparable period in
fiscal 1997. Trade show cost of sales and direct costs for the three months
ended March 31, 1998, was $7.1 million compared to $7.2 million for same period
in the prior fiscal year. Gross profit after cost of sales and direct costs for
trade shows for the three months ended March 31, 1998, increased by $2.0 million
to approximately $9.7 million from $7.7 million for the comparable period in
fiscal 1997. This increase is primarily attributable to the increase in
revenues from the Spring INTERNET WORLD trade show. Print publishing cost of
sales and direct costs decreased by approximately $722,000 for the three month
period ended March 31, 1998, from the comparable period for fiscal 1997, as a
result of the Company concentrating its print publishing into a single business-
to-business publication (INTERNET WORLD). Web site cost of sales and direct
costs increased to $541,000 for the three months ended March 31,1998, from
$322,000 in the comparable period in fiscal 1997 due primarily to higher costs
to
10
support the expanded editorial content of INTERNET.COM. Cost of sales and
direct costs for other revenues decreased to $92,000 for the three month period
ended March 31, 1998, compared to $103,000 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. Advertising, promotion and selling expenses for
the three months ended March 31, 1998, decreased 46% to approximately $2.0
million from $3.7 million for the comparable period in fiscal 1997 due primarily
to the Company concentrating its print publishing efforts into a single
business-to-business publication.
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 March 31, 1998, decreased to approximately $2.3 million from $2.5 million
for the comparable period in fiscal 1997, as a result of the Company
concentrating its print publishing efforts into a single business-to-business
publication. This overall decrease was offset by increases in depreciation and
amortization expense of $307,000, as well as increased professional fees for
trademarks and other matters. 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 March 31, 1998,
increased to $6.1 million from $3.4 million for the comparable period in fiscal
1997. This increase is a result of higher trade show revenues for Spring
INTERNET WORLD 1998, combined with decreased advertising, promotion and selling
expenses as a result of the Company concentrating its print publishing efforts
into a single business-to-business publication.
Interest income. Interest income for the three months ended March 31,1998,
decreased to $225,000 from $274,000 for the comparable period in fiscal 1997,
due to the Company's use of funds to purchase $5.1 million of its common stock
for treasury and for the acquisition of Web sites and trade shows.
Gain on sale of assets. On February 3, 1998, the Company sold the active
subscriber list to the paid monthly print publication formerly known as INTERNET
WORLD to The McGraw-Hill Companies, Inc. for cash and assumption of INTERNET
WORLD's outstanding deferred subscription liabilities. The Company recognized a
gain on the sale of approximately $2.0 million.
Income taxes. For the three months ended March 31, 1998, income taxes are
provided at the projected annual effective tax rate. The provision for income
taxes for the fiscal 1997 interim period of $158,000, 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 $5.1 million for the three months ended March 31, 1998, from $3.5
million for the comparable period in fiscal 1997.
Comparison of the Six Months Ended March 31, 1998 and 1997
Revenues. Revenues for the six months ended March 31, 1998, increased 16% to
approximately $44.0 million from $38.0 million for the comparable period in
fiscal 1997. Trade show revenues for the six months ended March 31, 1998, of
approximately $34.1 million increased by approximately $7.9 million from the
comparable period in fiscal 1997. This increase was due primarily to the
increase in revenues from Fall INTERNET WORLD 1997 and Spring INTERNET WORLD
1998. Revenues from print publishing decreased approximately $2.8 million due to
the Company concentrating its print publishing efforts into a single business-
to-business publication. Web site revenues increased to $1.6 million for the six
months ended March 31, 1998, from $668,000 in the comparable period in fiscal
1997, due to increased advertising from INTERNET.COM, the Company's network of
Web sites for Internet news and information resources. Other revenues decreased
to
11
$822,000 for the six months ended March 31, 1998, from $919,000 in the
comparable period in fiscal 1997, due primarily to decreased 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 and Web sites. Cost of
sales and direct costs for the six months ended March 31, 1998, increased to
approximately $21.9 million from $20.8 million for the comparable period in
fiscal 1997. Trade show cost of sales and direct costs for the six months ended
March 31, 1998, of $14.4 million, increased by $927,000 from the comparable
period in fiscal 1997. The increase was due primarily to the increased costs
associated with the production of the larger Fall INTERNET WORLD 1997. Gross
profit after cost of sales and direct costs for trade shows for the six months
ended March 31, 1998, increased by $7.0 million to approximately $19.7 million
from $12.7 million for the comparable period in fiscal 1997. This increase is
primarily attributable to the increase in revenues from the Fall and Spring
INTERNET WORLD trade shows. Print publishing cost of sales and direct costs
decreased to approximately $6.4 million for the six month period ended March 31,
1998, from $6.5 million for the comparable period for fiscal 1997 as a result of
the Company concentrating its print publishing efforts into a single business-
to-business publication. Web site cost of sales and direct costs increased to
$860,000 for the six months ended March 31,1998, from $561,000 in the comparable
period in fiscal 1997 due primarily to higher costs to support the expanded
editorial content of INTERNET.COM. Cost of sales and direct costs for other
revenues increased to $223,000 for the six month period ended March 31, 1998,
compared to $289,000 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. Advertising, promotion and selling expenses
for the six months ended March 31, 1998, decreased 13% to approximately $6.3
million from $7.3 million for the comparable period in fiscal 1997, due
primarily to the Company concentrating its print publishing efforts into a
single business-to-business publication.
General and administrative expenses. General and administrative expenses
include salaries, depreciation, amortization, telecommunications, insurance and
professional fees. General and administrative expenses for the six months ended
March 31, 1998, increased 7% to approximately $5.0 million from $4.6 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. Increases in depreciation and
amortization expense of $694,000, 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 six months ended March 31, 1998,
increased to $10.8 million from $5.3 million for the comparable period in fiscal
1997. This increase is primarily a result of revenues increasing 16% to
approximately $44.0 million in the six months ended March 31, 1998, from $38.0
million in the comparable period in fiscal 1997.
Interest income. Interest income for the six months ended March 31,1998,
decreased to $514,000 from $546,000 for the comparable period in fiscal 1997 due
to the Company's use of funds to purchase $5.1 million of its common stock for
treasury and for the acquisition of Web sites and trade shows.
Gain on sale of assets. On February 3, 1998, the Company sold the active
subscriber list of the paid monthly print publication formerly known as INTERNET
WORLD to The McGraw-Hill Companies, Inc. for cash and assumption of INTERNET
WORLD's outstanding deferred subscription liabilities. The Company recognized a
gain on the sale of approximately $2.0 million.
12
Income taxes. For the six months ended March 31, 1998, income taxes are provided
at the projected annual effective tax rate. The provision for income taxes for
the fiscal 1997 interim period of $273,000, 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 $8.1 million for the six months ended March 31, 1998, from $5.6
million for the comparable period in fiscal 1997.
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 March 31, 1998, the Company had cash and cash equivalents of
approximately $18.8 million, compared to $24.0 million at September 30, 1997.
Operating activities for the six months ended March 31, 1998, provided
approximately $3.2 million in cash, due primarily to net income of approximately
$8.1 million for the period and changes in components of working capital.
The Company's net accounts receivable and advanced billings for trade shows
increased to approximately $14.7 million at March 31, 1998, from $13.5 million
at September 30, 1997. Accounts payable and accrued expenses increased to
approximately $11.8 million primarily as a result of the timing of the Spring
and Canada INTERNET WORLD 1998 trade shows and accruals for federal and state
income taxes. Deferred trade show revenue decreased to $12.0 million at March
31, 1998, from $21.4 million at September 30, 1997, primarily as a function of
the production of the Fall INTERNET WORLD 1997 and Spring INTERNET WORLD 1998
trade shows, offset partially by advanced billings for Summer 1998, Fall 1998,
and Spring INTERNET WORLD 1999 trade shows.
The Company had capital expenditures of $677,000 for the six months ended March
31, 1998. 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 network of Web sites. The Company anticipates incurring a
similar level of capital expenditures for the remainder of fiscal 1998. During
the six months ended March 31, 1998, the Company also expended $4.0 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 stock options of $984,000
and purchased $5.1 million of its common stock during the six months ended March
31, 1998.
The Company believes that funds available will be sufficient to meet its
obligations and its anticipated capital requirements for the foreseeable future.
13
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
a) The Registrant's 1998 Annual Meeting of Stockholders (the "Annual
Meeting") was held on February 25, 1998.
b) Proxies were solicited by the Registrant's management pursuant to
Regulation 14A under the Securities Exchange Act of 1934; there was
no solicitation in opposition to management's nominees for director
as listed in the proxy statement; and all of such nominees were
elected for a one year term.
c) The following matters were voted upon at the Annual Meeting with the
voting results as indicated:
1. Proposal to approve the election of the individuals set forth
below to the Board of Directors of the Registrant to serve until
the 1999 Annual Meeting of Stockholders of the Registrant.
Nominee Votes For Votes Against Votes Withheld
------- ------------ -------------- --------------
Alan M. Meckler 7,504,803 - 1,597
Christopher S. Cardell 7,506,000 - 400
Wayne A. Martino 7,505,803 - 597
Michael J. Davies 7,503,800 - 2,600
Walter H. Lippincott 7,506,000 - 400
Gilbert F. Bach 7,506,000 - 400
Beverly C. Chell 7,503,800 - 2,600
2. Proposal to appoint Arthur Andersen LLP, independent accountants,
to act as auditors for the Registrant for the year ending
September 30, 1998.
Votes For Votes Against Abstain
--------- ------------- -------
7,504,506 1,500 394
There were no broker non-votes in connection with any of the
proposals listed above.
14
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
15
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: May 8, 1998 /s/ Alan M. Meckler
-----------------------------------------------
Alan M. Meckler
Director, Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
Dated: May 8, 1998 /s/ Christopher S. Cardell
-----------------------------------------------
Christopher S. Cardell
Director, President, Chief Operating
Officer and Chief Financial Officer
16