<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 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 June 30, 1998, was 9,099,860.
<PAGE>
MECKLERMEDIA CORPORATION AND SUBSIDIARIES
-----------------------------------------
INDEX
-----
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
PART I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets June 30, 1998
and September 30, 1997 3-4
Consolidated Statements of Operations -- Three and Nine Months
Ended June 30, 1998 and 1997 5
Consolidated Statements of Cash Flows Nine Months
Ended June 30, 1998 and 1997 6
Notes to Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-15
PART II. Other Information 16
Signatures 17
EXHIBIT 11. STATEMENT REGARDING COMPUTATION OF
PER SHARE EARNINGS (LOSS) 18
EXHIBIT 27. FINANCIAL DATA SCHEDULE 19
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MECKLERMEDIA CORPORATION AND SUBSIDIARIES
-----------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
JUNE 30, 1998 AND SEPTEMBER 30, 1997
------------------------------------
(In thousands)
--------------
<TABLE>
<CAPTION>
June 39, 1998 September 30, 1997
------------- ------------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,456 $23,971
Accounts receivable, less allowances
of $934 and $670, respectively 6,214 3,960
Advanced billings for trade shows 10,900 9,497
Inventory 412 1,074
Prepaid trade show expenses 4,310 3,198
Deferred income taxes 603 1,715
Prepaid expenses and other 613 1,824
------------------- -------------------
Total current assets 29,508 45,239
PROPERTY AND EQUIPMENT:
Computer equipment 3,160 2,594
Furniture, fixtures and equipment 1,236 986
Leasehold improvements 413 341
------------------- -------------------
4,809 3,921
Less: Accumulated depreciation and amortization (1,833) (1,393)
------------------- -------------------
2,976 2,528
INTANGIBLE ASSETS, net of accumulated amortization
of $2,482 and $1,026, respectively 37,825 3,760
OTHER ASSETS 634 254
------------------- -------------------
Total assets $70,943 $51,781
=================== ===================
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
3
<PAGE>
MECKLERMEDIA CORPORATION AND SUBSIDIARIES
-----------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
JUNE 30, 1998 AND SEPTEMBER 30, 1997
------------------------------------
(In thousands, except share and per share amounts)
--------------------------------------------------
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
-------- -------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,074 $ 4,219
Accrued expenses 5,517 3,708
Accrued income taxes 893 72
Deferred trade show revenue 23,622 21,406
Deferred magazine revenue 536 2,640
------------------- ------------------
Total current liabilities 33,642 32,045
DEFERRED MAGAZINE REVENUE - LONG-TERM 132 320
------------------- ------------------
Total liabilities 33,774 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,
9,099,860 and 8,526,896 shares issued and outstanding
at June 30, 1998 and September 30, 1997, respectively) 91 85
Additional paid-in capital 41,365 24,857
Treasury stock, at cost (260,000 and 10,000 shares at
June 30, 1998 and September 30, 1997, respectively) (5,272) (172)
Retained earnings (deficit) 1,101 (5,306)
Foreign currency translation adjustment (116) (48)
------------------- ------------------
Total stockholders' equity 37,169 19,416
------------------- ------------------
Total liabilities and stockholders' equity $70,943 $51,781
=================== ==================
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
4
<PAGE>
MECKLERMEDIA CORPORATION AND SUBSIDIARIES
-----------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
THREE AND NINE MONTHS ENDED JUNE 30, 1998 AND 1997
--------------------------------------------------
(UNAUDITED)
-----------
(In thousands, except per share amounts)
----------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
REVENUES:
<S> <C> <C> <C> <C>
Trade shows $ 2,366 $ 865 $36,431 $26,987
Print publishing 2,232 4,524 9,738 14,817
Web sites 971 349 2,570 1,017
Other 274 532 1,096 1,451
--------------- --------------- -------------- --------------
5,843 6,270 49,835 44,272
--------------- --------------- -------------- --------------
COST OF SALES AND DIRECT COSTS:
Trade shows 1,917 128 16,314 13,598
Print publishing 1,815 3,961 8,226 10,421
Web sites 558 282 1,418 843
Other 73 122 296 411
--------------- --------------- -------------- --------------
4,363 4,493 26,254 25,273
--------------- --------------- -------------- --------------
Gross profit after cost of
sales and direct costs 1,480 1,777 23,581 18,999
OPERATING EXPENSES:
Advertising, promotion and selling 1,604 2,834 7,907 10,089
General and administrative 2,128 1,983 6,484 6,256
Amortization of intangibles 704 213 1,340 588
--------------- --------------- -------------- --------------
Operating income (loss) (2,956) (3,253) 7,850 2,066
--------------- --------------- -------------- --------------
Interest income 150 279 664 825
Gain on sale of assets - - 2,036 -
--------------- --------------- -------------- --------------
Income (loss) before income taxes (2,806) (2,974) 10,550 2,891
Provision (benefit) for income taxes (1,066) (1,046) 4,143 (773)
--------------- --------------- -------------- --------------
Net income (loss) ($1,740) ($1,928) $ 6,407 $ 3,664
=============== =============== ============== ==============
Basic earnings (loss) per share ($0.20) ($0.23) $0.75 $0.43
=============== =============== ============== ==============
Diluted earnings (loss) per share ($0.20) ($0.23) $0.73 $0.42
=============== =============== ============== ==============
Weighted average number of
common shares 8,724 8,516 8,526 8,502
=============== =============== ============== ==============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
5
<PAGE>
MECKLERMEDIA CORPORATION AND SUBSIDIARIES
-----------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
NINE MONTHS ENDED JUNE 30, 1998 AND 1997
----------------------------------------
(UNAUDITED)
-----------
(In thousands)
--------------
<TABLE>
<CAPTION>
Nine Nine
Months Ended Months Ended
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: $ 6,407 $ 3,664
Net income
Adjustments to reconcile net cash provided by (used in)
operations-
Depreciation and amortization 1,896 1,102
Accretion of interest income on note receivable (8) (20)
Deferred income taxes 985 (1,098)
Gain on sale of assets (2,036) -
Changes in assets and liabilities -
(Increase) in accounts receivable and advance billings
for trade shows (3,293) (10,136)
Decrease (increase) in inventory 662 (410)
(Increase) in prepaid trade show expenses (1,112) (780)
Decrease in prepaid expenses and other 728 407
(Decrease) increase in accounts payable, accrued
expenses and income taxes (639) 4,373
Increase in deferred trade show revenue 2,216 8,570
(Decrease) increase in deferred magazine revenue (256) 286
--------------------- --------------------
Net cash provided by (used in) operating
activities 5,550 5,958
--------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 300 -
Proceeds from note receivable 238 212
Additions to property and equipment (842) (1,385)
Acquisitions of trade shows, Web sites,
print publications, and other (18,638) (2,882)
--------------------- --------------------
Net cash provided by (used in) investing
activities (18,942) (4,055)
--------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options 1,045 483
Purchase of common stock for treasury (5,100) (172)
--------------------- --------------------
Net cash provided by (used in) financing
activities (4,055) 311
--------------------- --------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (68) (109)
--------------------- --------------------
Net increase (decrease) in cash and cash equivalents (17,515) 2,105
--------------------- --------------------
CASH AND CASH EQUIVALENTS, beginning of period 23,971 19,859
--------------------- --------------------
CASH AND CASH EQUIVALENTS, end of period $ 6,456 $ 21,964
===================== ====================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW:
Cash paid for interest $ - $ -
Cash paid for income taxes $ 2,628 $ 150
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
6
<PAGE>
MECKLERMEDIA CORPORATION AND SUBSIDIARIES
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 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 and ISPCON trade shows and conferences, (ii) publication of
INTERNET WORLD, a weekly controlled circulation newspaper, (iii) publication of
BOARDWATCH, a monthly general circulation magazine, (iv) publication of the
DIRECTORY OF INTERNET SERVICE PROVIDERS, a general circulation publication and
(v) INTERNET.COM, the Company's network of Web sites for Internet news and
information resources. Because 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 and ISPCON 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:
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
-------- -------------
<S> <C> <C>
Paper $ 247 $ 667
Work-in-process 165 407
------------- -------------
$ 412 $1,074
============= =============
</TABLE>
(4) Income Taxes:
-------------
Income taxes are provided at the projected annual effective tax rate. The
provision (benefit) 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.
7
<PAGE>
(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.
(6) Earnings (Loss) 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 June 30, 1998 and 1997
are as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, 1998
-------------------------------------------------------------
Income (Loss) Shares Per Share
(Numerator) (Denominator) Amount
---------------- ------------------- ----------------
<S> <C> <C> <C>
BASIC AND DILUTED LOSS PER SHARE
Net income (loss) available to common
stockholders ($1,738) 8,724 ($0.20)
================ =================== ================
<CAPTION>
Three Months Ended June 30, 1997
-------------------------------------------------------------
Income (Loss)
Shares Per Share
(Numerator) (Denominator) Amount
---------------- ------------------- ----------------
<S> <C> <C> <C>
BASIC AND DILUTED LOSS PER SHARE
Net income (loss) available to common
stockholders ($1,928) 8,516 ($0.23)
================ =================== ================
</TABLE>
For the three months ended June 30, 1998 and 1997, the weighted average number
of shares of common stock outstanding do not include the dilutive effect of
stock options as they would be anti-dilutive.
8
<PAGE>
Computations of basic and diluted earnings per share for the nine months ended
June 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Nine Months Ended June 30, 1998
-------------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
---------------- ------------------- ----------------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net income available to common
stockholders $6,407 8,526 $0.75
================
Effect of Dilutive Securities:
Stock options and warrants - 213
---------------- -------------------
DILUTED EARNINGS PER SHARE
Net income available to common
stockholders $6,407 8,739 $0.73
================ =================== ================
<CAPTION>
Nine Months Ended June 30, 1997
-------------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
---------------- ------------------- ----------------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net income available to common
stockholders $3,664 8,502 $0.43
================
Effect of Dilutive Securities:
Stock options and warrants - 216
---------------- -------------------
DILUTED EARNINGS PER SHARE
Net income available to common
stockholders $3,664 8,718 $0.42
================ =================== ================
</TABLE>
Options to purchase 135,000 and 45,000 shares of common stock at prices ranging
from $23.63-$28.75 and from $23.00-$27.50 were outstanding during the nine
months ended June 30, 1998 and June 30 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.
(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
<PAGE>
(8) Acquisition:
-----------
On May 15, 1998, the Company consummated the acquisition of all of the
outstanding capital stock of Boardwatch Magazine, Inc. ("Boardwatch") and One,
Inc. ("One"), each a Colorado corporation ("Boardwatch/One Acquisition"). The
consideration paid consisted of cash in the amount of $14.0 million and 750,000
shares of the Company's Common Stock. Boardwatch is the publisher of the
monthly trade magazine BOARDWATCH which has a circulation of approximately
25,000 readers. One is the organizer of the ISPCON trade shows, the largest
tradeshows in the Internet Service Provider industry. Boardwatch's Web site,
Boardwatch.com, and One's Web site, Ispcon.com, were included in the
acquisition. The accounting for this transaction is preliminary and is subject
to certain purchase accounting adjustments.
10
<PAGE>
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 trade shows held 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.
On May 15, 1998, the Company consummated the acquisition of all of the
outstanding capital stock of Boardwatch Magazine, Incorporated ("Boardwatch")
and One, Inc. ("One"), each a Colorado corporation ("Boardwatch/One
Acquisition"). The consideration paid consisted of cash in the amount of $14.0
million and 750,000 shares of the Company's Common Stock. Boardwatch is the
publisher of the monthly trade magazine BOARDWATCH which has a circulation of
approximately 25,000 readers. One is the organizer of the ISPCON trade shows,
the largest tradeshows in the Internet Service Provider industry. Boardwatch's
Web site, Boardwatch.com, and One's Web site, Ispcon.com, were included in the
acquisition.
RESULTS OF OPERATIONS
- ---------------------
Comparison of the Three Months Ended June 30, 1998 and 1997
Revenues. Revenues for the three months ended June 30, 1998, increased to
approximately $5.8 million from $6.3 million for the comparable period in fiscal
1997. Trade show revenues for the three months ended June 30, 1998, of
approximately $2.4 million increased by approximately $1.5 million, from the
comparable period in fiscal 1997, reflecting the growth of Internet World U.K.
1998 and Internet World Mexico 1998. Due to the Company's increase in its
ownership of the U.K and Mexico events during fiscal 1998 to 100% and 51%,
respectively, these events are now consolidated for financial reporting
purposes. In the fiscal 1997 period these events were recorded as equity
investments. Revenues from print publishing decreased approximately $2.3
million due to the Company concentrating its print publishing efforts into a
single business-to-business publication (INTERNET WORLD), offset partially by
advertising revenue contributed by BOARDWATCH magazine, which was acquired
during the third quarter of fiscal 1998. Web site revenues increased to
approximately $1.0 million for the three months ended June 30, 1998, from
$349,000 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 $274,000 for the three
months ended June 30, 1998, from $532,000 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 June 30, 1998, decreased to
approximately $4.4 million
11
<PAGE>
from $4.5 million for the comparable period in fiscal 1997. Trade show cost of
sales and direct costs for the three months ended June 30, 1998, was $1.9
million compared to $128,000 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 June 30, 1998, decreased to approximately $449,000 from $737,000 for the
comparable period in fiscal 1997. This decrease is primarily attributable to
the increased costs associated with the Internet World U.K. trade show. Due to
the Company's increase in its ownership to 100% of this event in 1998, it is now
consolidated for financial reporting purposes. In fiscal 1997, this event was
recorded as an equity investment. Print publishing cost of sales and direct
costs decreased by approximately $2.1 million for the three month period ended
June 30, 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 $558,000 for the three months ended June 30,1998, from $282,000 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 decreased to $73,000 for the three month period ended June 30,
1998, compared to $122,000 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 June 30, 1998, decreased 43% to approximately $1.6
million from $2.8 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, partially offset by additional expenses from
BOARDWATCH magazine.
General and administrative expenses. General and administrative expenses
include salaries, depreciation, telecommunications, insurance and professional
fees. General and administrative expenses for the three months ended June 30,
1998, increased to approximately $2.1 million from $2.0 million for the
comparable period in fiscal 1997. The increase was primarily due to
approximately $200,000 in one-time professional fees related to litigation in
Germany where the Company succesfully defended its INTERNET WORLD trademark 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.
Amortization of intangibles. Amortization of intangibles increased to $704,000
for the three months ended June 30, 1998 from $213,000 for the three months
ended June 30, 1997. This increase is due to the amortization of goodwill
associated with the Boardwatch/One Acquisition along with increased amortization
of intangibles associated with the acquisitions of Web sites.
Operating loss. Operating loss for the three months ended June 30, 1998,
decreased to $3.0 million from $3.3 million for the comparable period in fiscal
1997. This decrease is a result of 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 June 30,1998,
decreased to $150,000 from $279,000 for the comparable period in fiscal 1997,
due to the Company's use of funds to purchase Boardwatch and One.
Income taxes. For the three months ended June 30, 1998, income taxes are
provided at the projected annual effective tax rate. The income tax benefit for
the three months ended June 30, 1997, of $1.0 million represents the elimination
of valuation allowances due to the anticipated utilization of net operating loss
carryforwards.
Net loss. Based upon the results discussed above, the Company's net loss
decreased to $1.7 million for the three months ended June 30, 1998, from $1.9
million for the comparable period in fiscal 1997.
12
<PAGE>
Comparison of the Nine Months Ended June 30, 1998 and 1997
Revenues. Revenues for the nine months ended June 30, 1998, increased 13% to
approximately $49.8 million from $44.2 million for the comparable period in
fiscal 1997. Trade show revenues for the nine months ended June 30, 1998, of
approximately $36.4 million increased by approximately $9.4 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 $5.1 million due to
the Company concentrating its print publishing efforts into a single business-
to-business publication. Web site revenues increased to $2.6 million for the
nine months ended June 30, 1998, from $1.0 million 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 $1.0 million for the nine months ended June 30, 1998, from
$1.5 million 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 nine months ended June 30, 1998, increased to
approximately $26.3 million from $25.3 million for the comparable period in
fiscal 1997. Trade show cost of sales and direct costs for the nine months ended
June 30, 1998, of $16.3 million, increased by $2.7 million 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 and Spring
INTERNET WORLD 1998. Gross profit after cost of sales and direct costs for
trade shows for the nine months ended June 30, 1998, increased to approximately
$20.1 million from $13.4 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 $8.2 million for the nine month period ended
June 30, 1998, from $10.4 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 $1.4 million for the nine months ended June 30,1998, from $843,000
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 decreased to $296,000 for the nine month period ended June
30, 1998, compared to $411,000 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 nine months ended June 30, 1998, decreased 22% to approximately $7.9
million from $10.1 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, telecommunications, insurance and professional fees.
General and administrative expenses for the nine months ended June 30, 1998,
increased 3% to approximately $6.4 million from $6.3 million for the comparable
period in fiscal 1997. This increase was due primarily to an increase in
depreciation expense of $375,000 and $210,000 for severance and other costs
related to the Company's strategic magazine initiative announced in December
1997. The increase was partially offset by a decrease in costs associated with
the Company concentrating its print publishing efforts into a single business-
to-business publication. 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.
Amortization of intangibles. Amortization of intangibles increased to $1.3
million for the nine months ended June 30, 1998 from $588,000 for the nine
months ended June 30, 1997. This increase is due to the amortization of
goodwill associated with the Boardwatch/One Acquisition along with increased
amortization of intangibles associated with the acquisitions of Web sites.
Operating income. Operating income for the nine months ended June 30, 1998,
increased to $7.9 million from $2.1 million for the comparable period in fiscal
1997. This increase is primarily a result of revenues increasing
13
<PAGE>
13% to approximately $49.8 million in the nine months ended June 30, 1998, from
$44.2 million in the comparable period in fiscal 1997.
Interest income. Interest income for the nine months ended June 30,1998,
decreased to $664,000 from $825,000 for the comparable period in fiscal 1997 due
to the Company's use of funds to purchase Boardwatch and ONE.
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.
Income taxes. For the nine months ended June 30, 1998, income taxes are provided
at the projected annual effective tax rate. The income tax benefit for the nine
months ended June 30, 1997 of $773,000, primarily relates to the elimination of
valuation allowances due to the anticipated utilization of the net operating
loss carryforwards in fiscal 1998, offset by foreign income taxes and state
capital taxes.
Net income. Based upon the results discussed above, the Company's net income
increased to $6.4 million for the nine months ended June 30, 1998, from $3.7
million for the comparable period in fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company had cash and cash equivalents of approximately $6.5 million at June
30, 1998, compared to $24.0 million at September 30, 1997. Operating activities
for the nine months ended June 30, 1998 provided approximately $5.5 million in
cash, due primarily to net income of approximately $6.4 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 $17.1 million at June 30, 1998, from $13.5 million at
September 30, 1997. Accounts payable and accrued expenses increased to
approximately $8.6 million primarily as a result of the timing of trade shows,
accruals for federal and state income taxes and for costs associated with the
Boardwatch/One acquisition. Deferred trade show revenue increased to $23.6
million at June 30, 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
INTERNET WORLD 1998, Fall ISPCON 1998, Fall INTERNET WORLD 1998, and Spring
INTERNET WORLD 1999.
The Company had capital expenditures of $840,000 for the nine months ended June
30, 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 nine months ended June 30, 1998, the Company also expended $18.6 million for
trade show, Web site and print publication 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 $1.1
million and purchased $5.1 million of its common stock during the nine months
ended June 30, 1998.
The Company believes that funds available will be sufficient to meet its
obligations and its anticipated capital requirements for the foreseeable future.
14
<PAGE>
YEAR 2000
- ---------
The Company has performed a review of its computer systems to identify systems
that could be affected by the Year 2000 issue and is developing a plan to
resolve the issue. The Company is utilizing both internal and external resources
to identify, correct or reprogram, and test the systems to ensure Year 2000
compliance. Maintenance and modification costs will be expensed as incurred,
while costs of new software will be capitalized and amortized over the expected
useful life of the related software. The Company expects its Year 2000
conversion project to be completed on a timely basis. However, there can be no
assurance that the systems of other companies on which the Company's systems
rely also will be converted on a timely basis. A failure to convert successfully
by another company could have an adverse effect on the Company's systems. The
Company believes that the expense of the Year 2000 conversion project will not
materially affect the financial position of the Company.
15
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Not Applicable
Item 2. CHANGES IN SECURITIES
(a) Not Applicable
(b) Not Applicable
(c) On May 15, 1998, the Company consummated the acquisition of all of
the outstanding capital stock of Boardwatch Magazine, Inc. and One,
Inc., each a Colorado corporation. The consideration paid consisted
of cash in the amount of $14.0 million and 750,000 shares of the
Company's Common Stock the issuance of which was exempt from the
registration requirements of the Securities Act of 1933, as
amended, pursuant to Section 4(2) thereunder.
(d) 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) The following reports on Form 8-K were filed during the quarter
ended June 30, 1998:
On May 29, 1998, the Company filed a Form 8-K (as amended by
Form 8-K/A filed on July 28, 1998) pursuant to Items 2 and 7
of such Form regarding its acquisition of Boardwatch Magazine,
Inc. and One, Inc.
16
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
MECKLERMEDIA CORPORATION
Dated: August 6, 1998 /s/ Alan M. Meckler
------------------------------
Alan M. Meckler
Director, Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
Dated: August 6, 1998 /s/ Christopher S. Cardell
-------------------------------
Christopher S. Cardell
Director, President and
Chief Operating Officer
Dated: August 6, 1998 /s/ Christopher J. Baudouin
-----------------------------
Christopher J. Baudouin
Chief Financial Officer
17
<PAGE>
EXHIBIT 11
MECKLERMEDIA CORPORATION AND SUBSIDIARIES
-----------------------------------------
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (LOSS)
------------------------------------------------------------
(UNAUDITED)
-----------
See Footnote (6) to the notes to consolidated financial statements for the
computation of per share earnings (loss).
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MECKLERMEDIA
CORPORATION'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE
PERIOD ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 6,456
<SECURITIES> 0
<RECEIVABLES> 7,148
<ALLOWANCES> 934
<INVENTORY> 412
<CURRENT-ASSETS> 29,508
<PP&E> 4,809
<DEPRECIATION> 1,833
<TOTAL-ASSETS> 70,943
<CURRENT-LIABILITIES> 33,642
<BONDS> 0
91
0
<COMMON> 0
<OTHER-SE> 37,078
<TOTAL-LIABILITY-AND-EQUITY> 70,943
<SALES> 9,738
<TOTAL-REVENUES> 49,835
<CGS> 8,226
<TOTAL-COSTS> 41,947
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 10,550
<INCOME-TAX> 4,143
<INCOME-CONTINUING> 6,407
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,407
<EPS-PRIMARY> 0.75
<EPS-DILUTED> 0.73
</TABLE>
