Summary of MEDIALINK WORLDWIDE INC

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Certain statements made in this Quarterly Report on Form 10-Q are "forward looking" statements (within the meaning of the Private Securities Litigation Reform Act of 1995, as amended). Such statements involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, the Company's actual results could differ materially from those set forth in the forward-looking statements. See Part II Item 1A "Risk Factors" below and Item I Part 1A in the Company's annual report on Form 10-K for the year ended December 31, 2007, for a description of certain factors that might cause such a difference.

In August 2008, the Company transferred its ownership interests in TTX (US) LLC and TTX Limited (collectively, "Teletrax"), the two subsidiaries that comprised the Company's digital video monitoring services business, to Philips Electronics North America Corporation and Koninklijke Philips Electronics N.V. (collectively, "Philips"), respectively.

In October 2008, the Company sold the client list of Medialink UK Limited ("Medialink UK"), its UK-based media communications services subsidiary, to World Television Group plc ("World"). In contemplation of this transaction, the Company began winding down the operations of Medialink UK in August 2008.

The unaudited consolidated financial statements contained in this Form 10-Q reflect Teletrax as a discontinued operation and include Medialink UK as a component of continuing operations. The following discussion and analysis (in thousands of dollars) should be read in conjunction with the Company's unaudited consolidated financial statements and notes thereto.

Results of Operations

Nine months ended September 30, 2008, compared to nine months ended September 30, 2007

Revenues for the nine months ended September 30, 2008, decreased by $5,246, or 23.7%, as compared to the 2007 period. Revenues from the Company's US-based media communications services business decreased by $969, or 6.2%. Revenues in the 2008 and 2007 periods include $466 and $631, respectively, of service revenues recognized under a minimum commitment arrangement for which no services were provided. Revenues from Medialink UK decreased by $4,277, or 65.4%, as a result of a decline in business and winding down this operation during the period.

Direct costs decreased by $3,260 in the first nine months of 2008, and as a percentage of revenue decreased to 39.1% from 44.6% in the comparable 2007 period. The decrease as a percentage of revenue was primarily the result of certain cost cutting initiatives in the US-based media communications services business.

Selling, general, and administrative ("SG&A") expenses in the first nine months of 2008 decreased by $2,041 as compared to the 2007 period, but as a percentage of revenue increased to 78.2% from 68.9%. SG&A expenses decreased by $808 in Medialink UK as a result of cost reductions achieved and the winding down of the business. SG&A expenses decreased by $1,233 in the remaining business from a decrease in payroll costs as a result of headcount reductions, a decrease in occupancy costs as a result of consolidating certain offices, and lower marketing costs incurred in the 2008 period.

As a result of the Company's planned actions with regard to Teletrax and Medialink UK, and the continued decline in the US-based media communications services business, the Company determined that its goodwill, all of which related to the media communications services business, should be tested for impairment prior to the annual testing date of September 30. Based on this goodwill impairment test, the Company determined that the carrying value of its goodwill exceeded its fair value. Accordingly, the Company incurred a goodwill impairment charge of $3,429 as of June 30, 2008, resulting in no goodwill remaining as of that date.

Based on the Company's planned actions with regard to Teletrax and Medialink UK, and other market factors related to both Teletrax and Medialink UK, the Company determined that the carrying value of the long-lived assets used in these businesses was not recoverable and exceeded the fair value of such assets. In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the Company recognized impairment charges as of June 30, 2008, totaling $2,413, which consisted of an impairment charge of $605 related to Medialink UK property and equipment and an impairment charge of $1,808 related to Teletrax property and equipment, which is included as a component of the loss from operations of discontinued operations.

The Company had an operating loss of $7,993 in the first nine months of 2008 as compared to an operating loss of $3,872 in the comparable period in 2007.

The Company had net interest expense of $399 in the first nine months of 2008, as compared to net interest income of $54 in the 2007 period. This increase in net interest expense is due primarily to a reduction in interest income earned as a result of the Company's declining cash balances.

On August 29, 2008, the Company transferred its ownership interests in Teletrax to Philips. Upon consummation of the transaction, the Company has no further involvement in the digital video monitoring services business and no further funding obligations for Teletrax. In exchange for the ownership interests in Teletrax, Philips reimbursed the Company approximately $284 for net operating costs incurred prior to closing and $129 for cash balances transferred at closing, and the Company reimbursed Philips approximately $468 representing an adjustment related to working capital, resulting in a payment by the Company of $55 to Philips, which was paid in November 2008. The results of operations for the nine months ended September 30, 2008, included a loss from discontinued operations of $3,326 related to Teletrax, which consisted of a loss from operations of $3,738 and a gain on disposal of $412.

In February 2007, the sale price of U.S. Newswire, the Company's wire distribution and photography services business that was sold in September 2006, was finalized and determined to be $22,577. The Company received additional cash proceeds in February 2007 totaling $4,427, of which $3,307 represented additional sale price received directly from the buyer, $1,000 represented the release of an escrow balance representing deferred purchase price at closing, and $120 represented an adjustment for additional working capital. The results of operations for the nine months ended September 30, 2007, included income from discontinued operations of $441, which consisted of a loss from operations of Teletrax of $2,177 and a gain on the sale of U.S. Newswire, net of tax, of $2,618.

Three months ended September 30, 2008, compared to three months ended September 30, 2007

Revenues for the three months ended September 30, 2008, decreased by $2,085, or 28.4%, as compared to the 2007 period. Revenues from the Company's US-based media communications services business increased by $90, or 1.8%. Revenues in the 2008 and 2007 periods include $466 and $631, respectively, of service revenues recognized under a minimum commitment arrangement for which no services were provided. Revenues from Medialink UK decreased by $2,175, or 88.7%, as a result of winding down this operation during the period.

Direct costs decreased by $1,254 in the third quarter of 2008, and as a percentage of revenue decreased to 35.9% from 42.8% in the comparable 2007 quarter. The decrease as a percentage of revenue was primarily the result of certain cost cutting initiatives in the US-based media communications services business.

SG&A expenses in the third quarter of 2008 decreased by $1,031 as compared to the 2007 period, but as a percentage of revenue increased to 76.6% from 68.9%. SG&A expenses decreased by $371 in Medialink UK as a result of cost reductions achieved and the winding down of the business. SG&A expenses decreased by $660 in the remaining business from a decrease in payroll costs as a result of headcount reductions, a decrease in occupancy costs as a result of consolidating certain offices, and lower marketing costs incurred in the 2008 period.

The Company had an operating loss of $948 in the third quarter of 2008 as compared to an operating loss of $1,154 in the comparable quarter in 2007.

The Company had net interest expense of $151 in the third quarter of 2008, as compared to net interest expense of $7 in the 2007 quarter. This increase in net interest expense is due primarily to a reduction in interest income earned as a result of the Company's declining cash balances.

The results of operations for the three months ended September 30, 2008, included income from discontinued operations of $113 related to Teletrax, which consisted of a loss from operations of $299 and a gain on disposal of $412. The results of operations for the three months ended September 30, 2007, included a loss from discontinued operations of $731, which represented a loss from operations for Teletrax.

Financial Condition

The Company continues to finance its operations and capital investment requirements from its existing cash balances, which totaled $7,113 at September 30, 2008. Working capital in the first nine months of 2008 decreased by $4,685 primarily as a result of the Company funding operating losses and capital investments for both continuing operations and discontinued operations during the period.

Cash flows from operating activities of continuing operations increased by $2,882 during the first nine months of 2008 as compared to the comparable period in 2007 due primarily to tax payments in the 2007 period associated with the gain on sale of U.S. Newswire and increased accounts receivable collections in the 2008 period, partially offset by a decrease in cash generated from operations. During the first nine months of 2008 the Company invested $225 in new equipment and software development for its continuing operations and incurred fees related to the disposal of Teletrax of $192.

On October 6, 2008, the Company entered into Amendment and Waiver Agreements (the "Amendments") with each of the holders (the "Debenture Holders") of the Company's Variable Rate Convertible Debentures due November 9, 2009 (the "Debentures"). Under the terms of the Amendments, the Company made a $2,000 payment to the Debenture Holders, $1,700 of which was applied to principal outstanding and $300 of which satisfies the Company's future interest obligations on the Debentures for the fifteen-month period following the payment date. The Company amended the exercise price from $3.99 to $0.50 on 524,637 warrants to purchase the Company's common stock held by the Debenture Holders. In exchange for the foregoing, the maturity date of the remaining principal balance of the Debentures of $2,650 was extended to June 30, 2010, and certain definitions related to events of default under the Debentures were modified. In addition, simultaneous with the execution of the Amendments, the Company and the Debenture Holders entered into a Security Agreement pursuant to which the Company granted the Debenture Holders a security interest in the Company's assets. The Company expects to incur a loss on extinguishment of approximately $119 in connection with the prepayment of principal on the Debentures.

In addition to the $2,000 payment to the Debenture Holders in October 2008, over the next twelve months the Company expects to spend approximately $875 related to the wind down of Medialink UK, $175 for fees related to the disposal of Teletrax that have been accrued as of September 30, 2008, $475 related to existing severance obligations to terminated employees that are included as a component of "other liabilities", and $300 for capital improvements for modernization of its US-based media communications services business. Although the Company intends to finance these expenditures and its continuing operations with working capital, the recent volatility in domestic and international financial markets and deteriorating worldwide economic conditions could have an adverse effect on the Company's ability to do so.

The Company currently forecasts a decline in revenue from its US-based media communications services business of approximately $1,400 in the fourth quarter of 2008. If current economic conditions do not improve or deteriorate further, there could be further significant adverse effects on the Company's business and on the Company's ability to obtain additional financing if such need arises. The Company is exploring its strategic alternatives and will take actions as necessary in response to economic conditions.

Critical Accounting Policies

Management must make certain estimates and assumptions in preparing the financial statements of the Company. Certain of these estimates and assumptions relate to matters that are inherently uncertain as they pertain to future events. Management believes that the estimates and assumptions used in preparing the financial statements of the Company were the most appropriate at that time, although actual results could differ significantly from those estimates under different conditions. Note 2, "Summary of Significant Accounting Policies," to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2007, provides a detailed discussion of the various accounting policies of the Company. In addition, a summary of critical accounting policies is included in Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's Annual Report on Form 10-K for the year ended December 31, 2007. There have been no significant changes to the critical accounting policies previously disclosed.