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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 2003
or
[_] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the transition period from _________ to _________
Commission file number: 333-76331
JUPITERMEDIA CORPORATION
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(Exact name of Registrant as specified in its charter)
DELAWARE 06-1542480
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
23 OLD KINGS HIGHWAY SOUTH
DARIEN, CONNECTICUT 06820
- ------------------------------- -------------------------------
(Address of principal (Zip Code)
executive offices)
(203) 662-2800
----------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [_] No [X]
The number of outstanding shares the Registrant's common stock, par value $.01
per share, as of May 12, 2003 was 25,365,394.
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JUPITERMEDIA CORPORATION
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
December 31, 2002 and March 31, 2003 .......................... 3
Consolidated Statements of Operations -
For the Three Months Ended March 31, 2002 and 2003 ............ 4
Consolidated Statements of Cash Flows -
For the Three Months Ended March 31, 2002 and 2003 ............ 5
Notes to Consolidated Financial Statements .................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk .... 15
Item 4. Controls and Procedures ....................................... 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ............................................. 18
Item 2. Changes in Securities ......................................... 18
Item 3. Defaults Upon Senior Securities ............................... 18
Item 4. Submission of Matters to a Vote of Security Holders ........... 18
Item 5. Other Information ............................................. 19
Item 6. Exhibits and Reports on Form 8-K .............................. 19
Signatures ................................................................. 20
Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 ... 21
2
JUPITERMEDIA CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND MARCH 31, 2003
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
DECEMBER 31, MARCH 31,
2002 2003
------------ ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents .......................... $ 25,451 $ 25,219
Accounts receivable, net of allowances of $1,056
and $1,028, respectively ......................... 7,521 6,109
Unbilled accounts receivable ....................... 1,999 753
Prepaid expenses and other ......................... 794 1,116
------------ ------------
Total current assets ........................... 35,765 33,197
Property and equipment, net of accumulated
depreciation of $7,656 and $8,010, respectively .... 1,924 1,646
Intangible assets, net ................................ 1,473 1,482
Goodwill .............................................. 8,377 8,422
Investments and other assets .......................... 1,768 1,741
------------ ------------
Total assets ................................... $ 49,307 $ 46,488
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................... $ 1,386 $ 1,505
Accrued payroll and related expenses ............... 2,014 1,380
Accrued expenses and other ......................... 3,823 3,028
Deferred revenues .................................. 7,230 7,023
------------ ------------
Total current liabilities ...................... 14,453 12,936
------------ ------------
Total liabilities .............................. 14,453 12,936
------------ ------------
Stockholders' equity:
Preferred stock, $.01 par value, 4,000,000
shares authorized, no shares issued ............. -- --
Common stock, $.01 par value, 75,000,000 shares
authorized, 25,342,017 and 25,352,941 shares
issued at December 31, 2002 and March 31,
2003, respectively .............................. 253 254
Additional paid-in capital ......................... 175,487 175,508
Accumulated deficit ................................ (140,809) (142,139)
Treasury stock, 65,000 shares at cost .............. (106) (106)
Accumulated other comprehensive income ............. 29 35
------------ ------------
Total stockholders' equity ..................... 34,854 33,552
------------ ------------
Total liabilities and stockholders' equity ..... $ 49,307 $ 46,488
============ ============
See notes to consolidated financial statements.
3
JUPITERMEDIA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2003
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED MARCH 31,
------------------------------
2002 2003
------------ ------------
Revenues ........................................... $ 8,676 $ 8,245
Cost of revenues ................................... 3,534 4,672
------------ ------------
Gross profit ....................................... 5,142 3,573
------------ ------------
Operating expenses:
Advertising, promotion and selling .............. 3,365 2,722
General and administrative ...................... 1,743 1,593
Depreciation .................................... 657 363
Amortization .................................... 172 240
------------ ------------
Total operating expenses ........................... 5,937 4,918
------------ ------------
Operating loss ..................................... (795) (1,345)
Loss on investments and other, net ................. (109) (55)
Interest income .................................... 104 89
------------ ------------
Loss before income taxes, minority interests and
equity loss from venture fund investments ....... (800) (1,311)
Provision for income taxes ......................... 6 --
Minority interests ................................. 1 4
Equity loss from venture fund investments, net ..... (226) (23)
------------ ------------
Net loss ........................................... $ (1,031) $ (1,330)
============ ============
Basic and diluted net loss per share ............... $ (0.04) $ (0.05)
============ ============
Weighted average number of common shares outstanding 25,333 25,283
============ ============
See notes to consolidated financial statements.
4
JUPITERMEDIA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2003
(UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED MARCH 31,
------------------------------
2002 2003
------------ ------------
Cash flows from operating activities:
Net loss ...................................................................... $ (1,031) $ (1,330)
Adjustments to reconcile net loss to net cash provided by operating activities-
Depreciation and amortization ............................................... 829 603
Barter transactions, net .................................................... (333) (228)
Provision for losses on accounts receivable ................................. 280 6
Minority interests .......................................................... (1) (4)
Equity loss from venture fund investments, net .............................. 226 23
Loss on investments and other, net .......................................... 109 55
Changes in current assets and liabilities (net of business acquired):
Accounts receivable ......................................................... 877 1,478
Unbilled accounts receivable ................................................ -- 1,273
Prepaid expenses and other .................................................. (231) (318)
Accounts payable and accrued expenses ....................................... (1,033) (1,400)
Deferred revenues ........................................................... 726 21
------------ ------------
Net cash provided by operating activities ................................ 418 179
------------ ------------
Cash flows from investing activities:
Additions to property and equipment ........................................... (108) (91)
Acquisitions of businesses and other .......................................... (444) (393)
Proceeds from sales of assets and other ....................................... 173 50
------------ ------------
Net cash used in investing activities .................................... (379) (434)
------------ ------------
Cash flows from financing activities:
Proceeds from exercise of stock options ....................................... -- 23
------------ ------------
Net cash provided by financing activities ................................ -- 23
------------ ------------
Net increase (decrease) in cash and cash equivalents .............................. 39 (232)
Cash and cash equivalents, beginning of period .................................... 25,100 25,451
------------ ------------
Cash and cash equivalents, end of period .......................................... $ 25,139 $ 25,219
============ ============
Supplemental disclosures of cash flow:
Cash paid for income taxes .................................................... $ 12 $ 3
============ ============
See notes to consolidated financial statements.
5
JUPITERMEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
(UNAUDITED)
1. THE COMPANY
Jupitermedia is a provider of global real-time news, information, research
and media resources for information technology ("IT") and Internet industry
professionals. Jupitermedia includes the internet.com and EarthWeb.com network
of over 150 Web sites and 200 e-mail newsletters that generate over 200 million
page views monthly. Our network is organized into 16 subject areas, or vertical
content channels. These vertical content channels serve our Internet users,
which include IT and Internet industry professionals. Jupitermedia also includes
Jupiter Research, an international research advisory organization specializing
in business and technology market research in 18 business areas and 11 vertical
markets. In addition, Jupiter Events include nearly 40 offline conferences and
trade shows focused on IT and business-specific topics.
Since all of Jupitermedia's products and services relate to providing
information to IT and Internet industry professionals, its success is dependent
on IT and the Internet.
2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared from the books and records of Jupitermedia in accordance with
accounting principles generally accepted in the United States of America for
interim financial information and with the instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States of America for
complete financial statements. The consolidated statement of operations for the
three months ended March 31, 2003 is not necessarily indicative of the results
to be expected for the full year. These unaudited consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto for the year ended December 31, 2002 included in
Jupitermedia's Annual Report on Form 10-K for the year ended December 31, 2002.
In the opinion of management, all adjustments considered necessary for a fair
presentation of the results for the interim periods presented have been
reflected in such consolidated financial statements.
The consolidated financial statements include the accounts of Jupitermedia
and its majority-owned and wholly-owned subsidiaries. All intercompany
transactions have been eliminated.
3. STOCK BASED COMPENSATION
Jupitermedia grants stock options with an exercise price equal to the fair
value of the shares at the date of grant. Jupitermedia accounts for stock option
grants in accordance with Accounting Principles Board Opinion (APB) 25,
"Accounting for Stock Issued to Employees", and accordingly, recognizes no
compensation expense for such grants. If Jupitermedia determined compensation
cost for its stock options based on the fair value at the date of grant under
the provisions of Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation", its pro forma net loss and loss per
share would be as follows (in thousands, except per share amounts):
6
THREE MONTHS ENDED MARCH 31,
2002 2003
------- -------
Net loss $(1,031) $(1,330)
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards (1) (10)
------- -------
Pro forma net loss $(1,032) $(1,340)
======= =======
Basic and diluted loss per share
As reported $ (0.04) $ (0.05)
======= =======
Pro forma $ (0.04) $ (0.05)
======= =======
Those pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over the
vesting period and additional options may be granted in future years.
4. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 143, "Accounting for Asset Retirement Obligations". SFAS No. 143 addresses
the financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. The standard is effective for fiscal years beginning after June 15, 2002.
Adoption of SFAS No. 143 did not have a material impact on Jupitermedia's
financial results.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". The standard is effective for fiscal years beginning after May 15,
2002. Adoption of SFAS No. 145 did not have a material impact on Jupitermedia's
financial results.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or
Disposal Activities". SFAS No. 146 became effective for Jupitermedia for
disposal activities initiated after December 31, 2002 and its adoption did not
have an impact on Jupitermedia's financial results.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation Transition and Disclosure, and Amendment of SFAS No.
123," to provide alternative methods for an entity that voluntarily changes to
the fair value based method of accounting for stock-based employee compensation
as required by SFAS No. 123. SFAS No. 148 also amends the disclosure provisions
of SFAS No. 123 and Accounting Principles Board ("APB") Opinion No. 28, "Interim
Financial Reporting," to require disclosure in the summary of significant
compensation on reported net income and earnings per share in annual and interim
financial statements. While SFAS No. 148 does not amend SFAS No. 123 to require
companies to account for employee stock options using the fair value method, the
disclosure provisions of SFAS No. 148 are applicable to all companies with
stock-based employee compensation, regardless of whether they account for that
compensation using the fair value method of SFAS No. 123 or the intrinsic value
method of APB No. 25. Since Jupitermedia accounts for our stock-based
compensation under APB No. 25, and has no current plans on switching to SFAS No.
123, the impact of SFAS No. 148 will be limited to the annual and interim
reporting of the effects on net income (loss) and earnings (loss) per share as
if Jupitermedia accounted for stock-based compensation under SFAS No. 123 as set
forth in Note 3.
7
5. INTANGIBLE ASSETS AND GOODWILL
INTANGIBLE ASSETS
The following table sets forth the intangible assets that are subject to
amortization, including the related accumulated amortization (in thousands):
WEB SITE
DEVELOPMENT
TRADEMARKS COSTS OTHER TOTAL
------- ------- ------- -------
DECEMBER 31, 2002
Cost $ 1,921 $ 1,246 $ 139 $ 3,306
Accumulated amortization (829) (866) (138) (1,833)
------- ------- ------- -------
Net carrying value $ 1,092 $ 380 $ 1 $ 1,473
======= ======= ======= =======
MARCH 31, 2003
Cost $ 2,145 $ 1,268 $ 142 $ 3,555
Accumulated amortization (984) (947) (142) (2,073)
------- ------- ------- -------
Net carrying value $ 1,161 $ 321 $ -- $ 1,482
======= ======= ======= =======
Estimated amortization expense for intangible assets subject to
amortization is as follows (in thousands):
YEAR ENDING DECEMBER 31,
------------------------
2003 $ 719
2004 524
2005 223
2006 16
------
$1,482
======
GOODWILL
The changes in the carrying amount of goodwill for the three months ended
March 31, 2003, are as follows:
ONLINE
MEDIA RESEARCH EVENTS TOTAL
------- ------- ------- -------
Balance as of December 31, 2002 $ 5,254 $ 3,074 $ 49 $ 8,377
Goodwill acquired during period 143 -- -- 143
Purchase price adjustment -- (98) -- (98)
------- ------- ------- -------
Balance as of March 31, 2003 $ 5,397 $ 2,976 $ 49 $ 8,422
======= ======= ======= =======
6. COMPUTATION OF NET LOSS PER SHARE
Basic net loss per share is computed using the weighted average number of
common shares outstanding during the period. Diluted net loss per share is
computed using the weighted average number of common and dilutive common
equivalent shares outstanding during the period. Common equivalent shares
consist of the incremental common shares issuable upon the exercise of stock
options. Common equivalent shares are excluded from the calculation if their
effect is anti-dilutive.
Computations of basic and diluted net loss per share for the three months
ended March 31, 2002 and 2003 are as follows (in thousands, except per share
amounts):
8
THREE MONTHS ENDED
MARCH 31,
-------------------------
2002 2003
-------- --------
Numerator: Net loss $ (1,031) $ (1,330)
Denominator: Basic and diluted weighted average
number of common shares outstanding 25,333 25,283
-------- --------
Basic and diluted net loss per share $ (0.04) $ (0.05)
======== ========
Due to the net loss for the three months ended March 31, 2002 and 2003,
outstanding options to purchase 4,168,207 and 5,521,169 shares of common stock,
respectively, were excluded from the calculation of diluted earnings per share
for those periods, as the result would have been anti-dilutive.
7. SEGMENT INFORMATION
Jupitermedia has three reportable segments: Online Media, Research and
Events. The Online Media segment derives its revenues primarily from the sale of
advertising on Jupitermedia's internet.com and EarthWeb.com Network of over 150
Web sites and over 200 e-mail newsletters. Research represents the Jupiter
Research division. Jupiter Research provides advisory reports in business and
technology market research in 18 business areas and 11 vertical markets. The
Events segment includes offline conferences and trade shows that generate
revenues from attendee registrations, exhibition space and from advertiser and
vendor sponsorships. Jupitermedia evaluates segment performance based on income
or loss from operations. Other includes corporate overhead, depreciation,
amortization and venture fund related activities.
Summary information by segment for the three months ended March 31, 2002
and 2003 is as follows (in thousands):
THREE MONTHS ENDED
MARCH 31,
-------------------------
2002 2003
-------- --------
Revenues:
Online Media $ 7,345 $ 4,645
Research -- 2,276
Events 1,006 1,177
Other 325 147
-------- --------
$ 8,676 $ 8,245
-------- --------
Cost of revenues and operating expenses:
Online Media $ 6,290 $ 4,092
Research -- 2,587
Events 1,180 1,313
Other 2,001 1,598
-------- --------
$ 9,471 $ 9,590
-------- --------
Operating income (loss):
Online Media $ 1,055 $ 553
Research -- (311)
Events (174) (136)
Other (1,676) (1,451)
-------- --------
$ (795) $ (1,345)
======== ========
9
8. COMMITMENTS AND CONTINGENCIES
Messrs. Alan M. Meckler and Christopher S. Cardell, who are stockholders,
executive officers and directors of Jupitermedia, were stockholders, executive
officers and directors of Mecklermedia Corporation prior to its acquisition by
Penton Media in November 1998. In addition, Messrs. Gilbert F. Bach and Michael
J. Davies, who are directors of Jupitermedia, were directors of Mecklermedia
Corporation prior to its acquisition by Penton Media. A complaint seeking class
action status was filed in Delaware Chancery Court on June 16, 1999 by a former
stockholder of Mecklermedia Corporation alleging that Messrs. Meckler, Cardell,
Bach and Davies, as well as the other directors of Mecklermedia Corporation,
breached their fiduciary duties of care, candor and loyalty in connection with
the approval of the sale of Mecklermedia Corporation to Penton Media at the
price paid by Penton Media and the related sale of 80.1% of the Internet
business of Mecklermedia Corporation to Mr. Meckler at the price paid by Mr.
Meckler. Among other things, this plaintiff has alleged that the price paid by
Penton Media for the purchase of Mecklermedia Corporation, and the price paid by
Mr. Meckler for an 80.1% stake in the Internet business of Mecklermedia
Corporation, were inadequate. This former stockholder of Mecklermedia
Corporation has asserted claims for unspecified damages. The plaintiff also
named Jupitermedia Corporation as a defendant seeking that a constructive trust
be established consisting of any benefits derived by the defendants in respect
of the allegations set forth in the complaint.
On or about November 7, 2000, defendants were served with an amended
complaint, which named three additional plaintiffs.
On or about October 9, 2001, with leave of the Delaware Chancery court,
plaintiffs filed a Second Amended Class Action Complaint ("SAC"). The SAC adds
allegations concerning defendants' alleged failure to disclose certain facts
concerning Mr. Meckler's role in the transactions, his role in negotiations with
a third party, and the valuation of the assets at issue. Defendants filed a
motion to dismiss the SAC on April 1, 2002. On November 6, 2002, the Court
issued an opinion denying the defendants' motion to dismiss the SAC. On December
13, 2002, all of the defendants, including Jupitermedia, served an answer to the
SAC generally denying the allegations therein, denying that the directors of
Mecklermedia breached any fiduciary duties, and asserting certain affirmative
defenses. All of the defendants intend to continue to vigorously defend
themselves.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with our unaudited
financial statements and the accompanying notes, which appear elsewhere in this
filing. Statements in this Form 10-Q, which are not historical facts, are
"forward-looking statements" that are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve risks and uncertainties that could cause
actual results to differ materially from those described in the forward-looking
statements. The potential risks and uncertainties address a variety of subjects
including, for example: the competitive environment in which Jupitermedia
competes; the unpredictability of Jupitermedia's future revenues, expenses, cash
flows and stock price; Jupitermedia's ability to integrate acquired businesses,
products and personnel into its existing businesses; Jupitermedia's
international and venture investments; any material change in Jupitermedia's
intellectual property rights; and continued growth and acceptance of information
technology and the Internet. For a more detailed discussion of such risks and
uncertainties, refer to Jupitermedia's reports filed with the Securities and
Exchange Commission pursuant to the Securities Act of 1933 and the Securities
Exchange Act of 1934. The forward-looking statements included herein are made as
of the date of this Form 10-Q, and we are under no obligation to update the
forward-looking statements after the date hereof.
OVERVIEW
Jupitermedia is a provider of global real-time news, information, research
and media resources for information technology ("IT") and Internet industry
professionals. We provide our community of users with the following resources:
o real-time IT and Internet o tutorials, training and
industry news skills development
o business and technology market o buyer's guides and
research products reviews
o IT and business-specific o discussion forums
conferences and trade shows o software downloads
o information about emerging o expert advice
products and technologies
SEGMENTS
Jupitermedia operates in three business segments (for additional
information - see also Note 7 of the Notes to Unaudited Consolidated Financial
Statements contained in Item 1 hereof):
o Online media
o Research
o Events
ONLINE MEDIA
Our online media business includes our internet.com and EarthWeb.com
network of over 150 Web sites and 200 e-mail newsletters that generate over 200
million page views monthly. Our network is organized into 16 vertical content
categories, or channels that serve our users.
We generate our online media business revenues from :
ADVERTISING. We sell advertising on our Web sites, e-mail newsletters,
online discussion forums and moderated e-mail discussion lists. Advertising
revenue is recognized ratably in the period in which the advertising is
displayed, provided that no significant company obligations remain and
collection of the resulting receivable is probable. Company obligations
typically include guarantees of a minimum number of advertising impressions, or
times that an advertisement is viewed by users of our Web sites and related
media properties.
11
E-COMMERCE AGREEMENTS AND OFFERINGS. We have entered into a number of
e-commerce agreements, which generally include either a fixed fee for
advertising, a bounty for new customer accounts or revenue sharing of 10% to 50%
of the sales made by the e-commerce vendor as a result of links from our
network, or in some cases combinations of advertising, bounties and revenue
sharing. E-commerce agreements typically are a minimum of three months in
duration. Revenues from these agreements are recognized in the month in which
they are earned.
PERMISSION BASED OPT-IN E-MAIL LIST RENTALS. We currently offer for rental
our permission based opt-in e-mail list names relating to over 270 IT and
Internet-specific topics. Members of our community of users volunteer, or
"opt-in," to be included on these lists to receive e-mail product offerings and
information relevant to their interests. Subscribers to these permission based
opt-in e-mail lists receive e-mail announcements of special offers relating to
each topic subscribed. Revenue from permission based opt-in list rentals is
recognized at the time of the use by the renter.
PAID SUBSCRIPTION SERVICES. Paid subscription services relate to customer
subscriptions to our paid e-mail newsletters and services,
SEARCHENGINEWATCH.COM, THECOUNTER.COM, WINDRIVERS.COM, WALLSTREETRESEARCHNET.COM
and ALERTIPO.COM, which are sold through our network and through affiliate
relationships. Revenue from subscriptions is recognized ratably over the
subscription period. Deferred revenues relate to the portion of collected
subscription fees that has not yet been recognized as revenue.
LICENSING AGREEMENTS. We license our editorial content and brands to third
parties for fixed fees and royalties based on the licensee's revenues generated
by the licensed content. We license selected portions of our editorial content
to print publishers. We license one-time rights to reprint individual articles,
online or in print, to third parties through licensing of reprints and copyright
permission requests. We also provide access to limited versions of our editorial
content to others at no charge, to promote our brands and generate traffic. Such
amounts are recognized as revenue in the month earned.
WEBINARS. Jupiter Webinars are objective, educational online forums that
provide focused research findings and analysis from Jupiter Research, as well as
other highly respected analysts, journalists and industry experts. These live
multimedia presentations provide actionable, unbiased information, as well as
the opportunity to interact with the analysts through live question and answer
segments. Jupiter Webinars are free to qualified professionals. We generate
revenue from advertiser sponsorships. Revenues are recognized in the period in
which the Webinar occurs.
ONLINE PRESS RELEASE DISTRIBUTION SERVICES. Through
INTERNETNEWSBUREAU.COM, we provide paid e-mail based press release distribution
services. These press releases are e-mailed to over 5,900 registered
journalists. Revenue from this service is recorded on a per use basis and
recognized at the time of distribution.
RESEARCH
Our Jupiter Research division provides market insight, data and objective
analysis for both end-user and vendor companies. Jupiter Research covers a
variety of sectors and industries to provide clients with information to
understand changes in the market. Jupiter Research provides objective insight
and analysis, backed by proprietary data in the form of forecasts, consumer
surveys and executive surveys. Jupiter Research analysts bring to clients domain
expertise, a crucial element to put into context both specific data and changing
events.
Jupiter Research consists of three main product lines: Syndicated
Research, Custom Research and Consulting, and A la Carte solutions.
SYNDICATED RESEARCH. Syndicated research delivers data and analysis via
written research reports and also analyst inquiry. Reports include forecasts and
survey data to understand consumers' behaviors and preferences, as well as how
executives are investing in particular technologies and platforms. Analyst
inquiry allows companies to dig deeper into a given subject one-on-one, to test
ideas and to add objective insight for
12
specific industries and online circumstances. Syndicated research is typically
sold on a subscription basis and revenues are deferred and then recognized over
the term of the related contract as services are provided.
CUSTOM RESEARCH AND CONSULTING. Our Custom Research and Consulting product
meets project-specific research needs. Strategic consulting projects utilize a
variety of research methodologies to provide proprietary recommendations; allow
clients to test specific hypotheses regarding how new technologies, competitive
forces and alternative go-to-market strategies affect their market position; and
expand on Jupiter Research's knowledge and data, often focusing on markets or
issues not directly covered in existing products. Types of custom research
projects include market opportunity assessments, leading practice analyses,
business evaluations, new business model assessments, multi-client studies and
site benchmarking. Revenues related to our Custom Research and Consulting
products are recognized over the period the service is provided.
A LA CARTE SOLUTIONS. Jupiter Research analysts provide additional
services to clients via our Web Site Review product and our speaker program.
Revenues from our A la Carte products are recorded at the time of sale.
Our Jupiter Research division also includes Jupiter Direct. Jupiter Direct
is an online outlet where customers can purchase copies of research reports and
briefings. Revenue from Jupiter Direct is recognized at the time of sale.
EVENTS
Our Jupiter Events division includes nearly 40 offline conferences and
trade shows focused on IT and business-specific topics that are of interest to
our community of users. Conferences and trade shows generate revenue from
attendee registrations, exhibition space and from advertiser and vendor
sponsorships. Revenue for conferences and trade shows is recognized in the
period in which the conference and trade show is held. Deferred revenues relate
to the portion of collected conference registration fees as well as exhibition
space, advertiser and vendor sponsorships that have been contracted prior to the
commencement of the conferences and trade shows.
VENTURE FUND INVESTMENTS
We are the portfolio manager of internet.com Venture Fund I LLC, a $5.0
million venture fund formed in March 1999, internet.com Venture Fund II LLC, a
$15.0 million venture fund formed in September 1999, and internet.com Venture
Partners III LLC, a $75.0 million venture fund formed in January 2000, all of
which invest in early-stage content-based Internet properties that are not
competitive with Jupitermedia. We earn management fees for the day-to-day
operation and general management of the funds. We are also entitled to 20% of
the realized gains on investments made by these funds. In February 2003, the
operating agreement of internet.com Venture Fund II LLC was amended to provide
for the dissolution of the fund and distribution of the fund assets by December
31, 2003. In October 2002, the operating agreement of internet.com Venture
Partners III was amended to reduce the fund's committed capital from $75.0
million to $22.5 million and to provide for the dissolution of the fund and the
distribution of the fund assets by December 31, 2003. We no longer have any
outstanding capital commitments related to these three venture funds. We
invested $700,000 in the initial fund, $1.8 million in the second fund and $3.1
million in the third fund, each of which is now fully invested. The remaining
$4.3 million of capital raised and funded in the initial fund, $13.2 million
raised and funded in the second fund and $19.4 million raised and funded in the
third fund were sourced by third party investors.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002 AND 2003
REVENUES. Revenues were $8.7 million for the three months ended March 31,
2002 and $8.2 million for the three months ended March 31, 2003, representing a
decrease of 5%. This change was primarily due to a reduction in advertising
revenues, including a reduction in barter revenue of $1.0 million. This decrease
was
13
partially offset by an increase in research revenues of $2.3 million resulting
from the acquisition of Jupiter Research. Jupiter Research was acquired in the
third quarter of 2002.
COST OF REVENUES. Cost of revenues primarily consists of expenses
associated with editorial, research, communications infrastructure, Web site
hosting and conferences and trade shows. Cost of revenues was $3.5 million for
the three months ended March 31, 2002 and $4.7 million for the three months
ended March 31, 2003, representing an increase of 32%. This change was primarily
due to an increase of $1.1 million in salaries, benefits and other related costs
due to an increase in the number of employees resulting from the acquisition of
Jupiter Research. As a percentage of revenues, cost of revenues was 41% for the
three months ended March 31, 2002 and 57% for the three months ended March 31,
2003.
ADVERTISING, PROMOTION AND SELLING. Advertising, promotion and selling
expenses primarily consist of costs related to sales and marketing staff, sales
commissions and promotion costs. Advertising, promotion and selling expenses
were $3.4 million for the three months ended March 31, 2002 and $2.7 million for
the three months ended March 31, 2003, representing a 19% decrease. This change
was primarily due to a reduction in barter advertising of $850,000 offset by an
increase in salaries, benefits and other related costs paid to advertising and
research sales personnel of $300,000 due to an increase in the number of
employees resulting from the acquisition of Jupiter Research. As a percentage of
revenues, advertising, promotion and selling expenses were 39% for the three
months ended March 31, 2002 and 33% for the three months ended March 31, 2003.
GENERAL AND ADMINISTRATIVE. General and administrative expenses primarily
consist of salaries, professional fees, facilities costs and provisions for
losses on accounts receivable. General and administrative expenses were $1.7
million for the three months ended March 31, 2002 and $1.6 million for the three
months ended March 31, 2003, representing a 9% decrease. This change was
primarily due to a reduction in the provision for losses on accounts receivable
of $300,000 due to improved collection results. As a percentage of revenues,
general and administrative expenses were 20% for the three months ended March
31, 2002 and 19% for the three months ended March 31, 2003.
DEPRECIATION. Depreciation of property and equipment was $657,000 for the
three months ended March 31, 2002 and $363,000 for the three months ended March
31, 2003, representing a 45% decrease. This decline was a result of reduced
capital expenditures. As a percentage of revenues, depreciation of property and
equipment was 8% for the three months ended March 31, 2002 and 4% for the three
months ending March 31, 2003.
AMORTIZATION. Amortization of intangibles was $172,000 for the three
months ended March 31, 2002 and $240,000 for the three months ended March 31,
2003, representing a 40% increase. On January 1, 2002, Jupitermedia ceased
amortizing the remaining goodwill on acquired media properties in accordance
with SFAS No. 142. As a percentage of revenues, amortization of intangibles was
2% for the three months ended March 31, 2002 and 3% for the three months ended
March 31, 2003.
LOSS ON INVESTMENTS AND OTHER, NET. During the three months ended March
31, 2002, Jupitermedia determined that the declines in value from Jupitermedia's
accounting basis for certain of its investments in internet.com venture fund
portfolio companies was other than temporary. Jupitermedia recognized losses
totaling $109,000 related to investment impairment, net of a gain on the sales
of assets. During the three months ended March 31, 2003, Jupitermedia recorded a
net loss on the sale of assets of $55,000.
INTEREST INCOME. Interest income was $104,000 for the three months ended
March 31, 2002 and $89,000 for the three months ended March 31, 2003. This
change was due to a decline in interest rates.
PROVISION FOR INCOME TAXES. Jupitermedia recorded a provision for income
taxes of $6,000 for the three months ended March 31, 2002 based upon estimated
foreign tax rates and did not record a provision for foreign income taxes for
the three months ended March 31, 2003.
14
MINORITY INTERESTS. Minority interests represent the minority
stockholders' proportionate share of profits or losses of Jupitermedia's
majority-owned consolidated international subsidiaries.
EQUITY LOSS FROM VENTURE FUND INVESTMENTS, NET. Equity losses represent
Jupitermedia's net equity interests in the investments in internet.com venture
funds. Equity loss was $226,000 for the three months ended March 31, 2002 and
$23,000 for the three months ended March 31, 2003, representing a 90% decrease.
This change was primarily due to a reduction in the writedowns of portfolio
investments by the internet.com venture funds.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded operations primarily with cash from our
initial and follow-on public offerings of common stock. On June 25, 1999, we
completed our initial public offering of 3,400,000 shares of our common stock at
$14.00 per share. Net proceeds to Jupitermedia aggregated approximately $43.0
million. On February 1, 2000, we completed our follow-on public offering of
3,750,000 shares of common stock priced at $60.00 per share, of which 1,750,000
shares were sold by Jupitermedia and 2,000,000 shares were sold by Penton Media,
Inc. Net proceeds received by Jupitermedia from the follow-on offering were
approximately $98.3 million. Jupitermedia did not receive any of the proceeds
from the sale of shares by Penton Media, Inc.
As of March 31, 2003, Jupitermedia had total current assets of $33.2
million and total current liabilities of $12.9 million, or working capital of
approximately $20.3 million.
Net cash provided by operating activities was $418,000 for the three
months ended March 31, 2002 and $179,000 for the three months ended March 31,
2003. Net cash provided by operating activities for the period ended March 31,
2002 was primarily a result of our net losses adjusted for depreciation and
amortization as well as a decrease in accounts receivable and an increase in
deferred revenues offset by decreases in accounts payable and accrued expenses.
Net cash provided by operating activities for the three months ended March 31,
2003 was primarily a result of our net losses adjusted for depreciation and
amortization and non-cash barter transactions as well as decreases in accounts
receivable and unbilled accounts receivable offset by decreases in accounts
payable and accrued expenses.
Net cash used in investing activities was $379,000 for the three months
ended March 31, 2002 and $434,000 for the three months ended March 31, 2003. Net
cash used in investing activities was primarily a result of acquisitions of
businesses and capital expenditures. Capital expenditures were $108,000 for the
three months ended March 31, 2002 and $91,000 for the three months ended March
31, 2003.
Net cash provided by financing activities was $0 for the three months
ended March 31, 2002 and $23,000 for the three months ended March 31, 2003 and
was from proceeds received from the exercise of stock options.
In October 2001, Jupitermedia announced that its Board of Directors had
authorized the expenditure of up to $1.0 million to repurchase the Company's
outstanding common stock. Any purchases under Jupitermedia's stock repurchase
program may be made, from time-to-time, in the open market, through block trades
or otherwise, at the discretion of Company management. Depending on market
conditions and other factors, these purchases may be commenced or suspended at
any time or from time-to-time without prior notice. In September 2002,
Jupitermedia announced that it purchased 65,000 shares of Jupitermedia common
stock at $1.60 per share as part of its stock repurchase program.
Jupitermedia believes the combination of cash on hand and operating cash
flow will provide sufficient liquidity for the next twelve months. However, if
there were to be a further downturn in the general economy, particularly related
to technology advertising, there would be a corresponding negative impact on
Jupitermedia's liquidity. In addition, any future acquisitions that require cash
may affect our liquidity.
15
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 143, "Accounting for Asset Retirement Obligations". SFAS No. 143 addresses
the financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. The standard is effective for fiscal years beginning after June 15, 2002.
Adoption of SFAS No. 143 did not have a material impact on Jupitermedia's
financial results.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". The standard is effective for fiscal years beginning after May 15,
2002. Adoption of SFAS No. 145 did not have a material impact on Jupitermedia's
financial results.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or
Disposal Activities". SFAS No. 146 became effective for Jupitermedia for
disposal activities initiated after December 31, 2002 and its adoption did not
have an impact on Jupitermedia's financial results.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation Transition and Disclosure, and Amendment of SFAS No.
123," to provide alternative methods for an entity that voluntarily changes to
the fair value based method of accounting for stock-based employee compensation
as required by SFAS No. 123. SFAS No. 148 also amends the disclosure provisions
of SFAS No. 123 and Accounting Principles Board ("APB") Opinion No. 28, "Interim
Financial Reporting," to require disclosure in the summary of significant
compensation on reported net income and earnings per share in annual and interim
financial statements. While SFAS No. 148 does not amend SFAS No. 123 to require
companies to account for employee stock options using the fair value method, the
disclosure provisions of SFAS No. 148 are applicable to all companies with
stock-based employee compensation, regardless of whether they account for that
compensation using the fair value method of SFAS No. 123 or the intrinsic value
method of APB No. 25. Since Jupitermedia accounts for our stock-based
compensation under APB No. 25, and has no current plans on switching to SFAS No.
123, the impact of SFAS No. 148 will be limited to the annual and interim
reporting of the effects on net income (loss) and earnings (loss) per share as
if Jupitermedia accounted for stock-based compensation under SFAS No. 123 as set
forth in Note 3 of the Notes to Unaudited Consolidated Financial Statements
contained in Item 1 hereof.
CRITICAL ACCOUNTING POLICIES
There have been no changes to our critical accounting policies from those
included in our most recent Form 10-K for the year ended December 31, 2002.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
We have no derivative financial instruments or derivative commodity
instruments. We invest our excess cash in debt instruments of the U.S.
Government and its agencies. Interest rates for our investments were
approximately 1.20% at March 31, 2003 and generally move with market rates.
We invest in equity instruments of privately held, online media and
technology companies for business and strategic purposes. These investments are
included in Investments and other assets and are accounted for under the cost
method, as we do not have the ability to exert significant influence over the
investee or their operations. For these non-quoted investments, our policy is to
regularly review the assumptions underlying the operating performance and cash
flow forecasts in assessing the carrying values. We identify and record
impairment losses on long-lived assets when events and circumstances indicate
that such assets might be impaired.
Our transactions are generally conducted, and our accounts are
denominated, in United States dollars. Accordingly, we are not exposed to
significant foreign currency risk.
16
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Jupitermedia management,
including the Chief Executive Officer and Chief Financial Officer, have
conducted an evaluation of the effectiveness of disclosure controls and
procedures pursuant to Exchange Act Rule 13a-14. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the
disclosure controls and procedures are effective in ensuring that all material
information required to be filed in this quarterly report has been made known to
them in a timely fashion.
CHANGES IN INTERNAL CONTROLS. There have been no significant changes in
our internal controls or in factors that could significantly affect internal
controls subsequent to the date the Chief Executive Officer and Chief Financial
Officer completed their evaluation.
17
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Messrs. Alan M. Meckler and Christopher S. Cardell, who are
stockholders, executive officers and directors of Jupitermedia, were
stockholders, executive officers and directors of Mecklermedia
Corporation prior to its acquisition by Penton Media in November
1998. In addition, Messrs. Gilbert F. Bach and Michael J. Davies, who
are directors of Jupitermedia, were directors of Mecklermedia
Corporation prior to its acquisition by Penton Media. A complaint
seeking class action status was filed in Delaware Chancery Court on
June 16, 1999 by a former stockholder of Mecklermedia Corporation
alleging that Messrs. Meckler, Cardell, Bach and Davies, as well as
the other directors of Mecklermedia Corporation, breached their
fiduciary duties of care, candor and loyalty in connection with the
approval of the sale of Mecklermedia Corporation to Penton Media at
the price paid by Penton Media and the related sale of 80.1% of the
Internet business of Mecklermedia Corporation to Mr. Meckler at the
price paid by Mr. Meckler. Among other things, this plaintiff has
alleged that the price paid by Penton Media for the purchase of
Mecklermedia Corporation, and the price paid by Mr. Meckler for an
80.1% stake in the Internet business of Mecklermedia Corporation,
were inadequate. This former stockholder of Mecklermedia Corporation
has asserted claims for unspecified damages. The plaintiff also named
Jupitermedia Corporation as a defendant seeking that a constructive
trust be established consisting of any benefits derived by the
defendants in respect of the allegations set forth in the complaint.
On or about November 7, 2000, defendants were served with an amended
complaint, which named three additional plaintiffs.
On or about October 9, 2001, with leave of the Delaware Chancery
court, plaintiffs filed a Second Amended Class Action Complaint
("SAC"). The SAC adds allegations concerning defendants' alleged
failure to disclose certain facts concerning Mr. Meckler's role in
the transactions, his role in negotiations with a third party, and
the valuation of the assets at issue. Defendants filed a motion to
dismiss the SAC on April 1, 2002. On November 6, 2002, the Court
issued an opinion denying the defendants' motion to dismiss the SAC.
On December 13, 2002, all of the defendants, including Jupitermedia,
served an answer to the SAC generally denying the allegations
therein, denying that the directors of Mecklermedia breached any
fiduciary duties, and asserting certain affirmative defenses. All of
the defendants intend to continue to vigorously defend themselves.
Item 2. CHANGES IN SECURITIES
Not Applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
18
Item 5. OTHER INFORMATION
Not Applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following is a list of exhibits filed as part of this Report on
Form 10-Q. Where so indicated by footnote, exhibits, which were
previously filed, are incorporated by reference. For exhibits
incorporated by reference, the location of the exhibit in the
previous filing is indicated parenthetically except for in those
situations where the exhibit number was the same as set forth below.
Exhibit
Number Description
------------- -------------------------------------------------------
11 Statement Regarding Computation of Per Share Earnings
(Loss) (included in notes to consolidated financial
statements)
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
(b) Reports on Form 8-K
On May 6, 2003, Jupitermedia filed a Form 8-K announcing its
financial results for the quarter ended March 31, 2003.
19
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 15, 2003 Jupitermedia Corporation
/s/ Christopher S. Cardell
-------------------------------------------------
Christopher S. Cardell
Director, President and Chief Operating Officer
/s/ Christopher J. Baudouin
-------------------------------------------------
Christopher J. Baudouin
Senior Vice President and Chief Financial Officer
20
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Alan M. Meckler, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Jupitermedia
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared:
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in
this report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
/s/ Alan M. Meckler
Alan M. Meckler
Chairman and Chief Executive Officer
May 15, 2003
21
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Christopher J. Baudouin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Jupitermedia
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared:
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in
this report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
/s/ Christopher J. Baudouin
Christopher J. Baudouin
Senior Vice President and Chief Financial Officer
May 15, 2003
22