Overview

WebMediaBrands is an Internet media company that provides content, education and career services to social media, traditional media and creative professionals through a portfolio of vertical online properties, communities and trade shows. Our online business includes:

· mediabistro.com, a blog network providing content, education, community resources and career resources about major media industry verticals including new media, social media, Facebook, Twitter, TV news, advertising, public relations, publishing, design and mobile that includes the following:

10,000Words AppNewser GalleyCat SocialTimes AgencySpy FishbowlDC LostRemote TVNewser AllFacebook FishbowlLA MediaJobsDaily TVSpy AllTwitter FishbowlNY PRNewser UnBeige

The mediabistro.com business also includes an industry-leading job board for media and business professionals focusing on job categories such as social media, online/new media, publishing, public relations/marketing, advertising, sales, design, web development, television and more;

· InsideNetwork.com, a network of online properties dedicated to providing original market research, data services, news, events and job listings on the Facebook platform, on social gaming and on mobile applications ecosystems that includes the following:

AppData Inside Mobile Apps Inside Virtual Goods GPlusData Inside Social Commerce PageData Inside Facebook Inside Social Games The Facebook Marketing Bible

· SemanticWeb.com, a blog providing content, education, community resources and career resources on the commercialization and application of Semantic Technologies, Linked Data and Big Data; and

· AllCreativeWorld.com, a network of online properties providing content, education and community, career and other resources for creative and design professionals along with a marketplace for designing and purchasing logos that includes the following:

AdsoftheWorld DynamicGraphics LiquidTreat BrandsoftheWorld Graphics.com StockLogos Creativebits GraphicsDesignForum

Stocklogos.com is the world's largest identity design community offering creative, high quality and affordable logos.

Our online business also includes community, membership and e-commerce offerings including a freelance listing service and premium membership services.

Our education business features online and in-person courses and online conferences (including our Facebook Marketing and Social Media Marketing Boot Camps) for social media and traditional media professionals. Online education conferences combine the concepts of a large-scale event and a small group educational workshop that offers attendees the opportunity to learn in a dynamic online setting with live weekly instruction via webcast, discussion forums, homework assignments, and small group interaction where students receive one-on-one guidance and instruction from an advisor.

Our trade shows include, among others, Inside 3D Printing Conference & Expo, the Semantic Technology and Business Conference, Inside Social Apps Conference & Expo, Social Gambling & Gaming Summit and the AllFacebook Marketing Conference.

Our businesses cross-leverage and cross-promote our content, product and service offerings. For example, users of our Websites read our content, search for jobs on our job boards, attend our trade shows, subscribe to and purchase products and services and take continuing education courses.

We generate revenues from:

· fees charged for online job postings;

· advertising on our Websites and e-mail newsletters;

· attendee registration fees for our online and in-person education courses and online conferences;

· fees for social media-related market research and data services products;

· attendee registration fees to our trade shows;

· exhibition space fees and vendor sponsorships to our trade shows;

· subscription sales from our paid membership services; and

· granting rights to use logos that are downloaded from our stocklogos.com website.

Customers generally post more job listings during the first calendar quarter and fewer job listings during the fourth calendar quarter. Also, advertisers generally place fewer advertisements during the first and third calendar quarters of each year, which, together with fluctuations in online job postings, directly affect our business. Our results will also be impacted by the number and type of education courses we offer and by the number and size of trade shows we hold in each quarter. In addition, there may be fluctuations as trade shows held in one period in the current year may be held in a different period in future years.

The principal costs of our business relate to: payroll and benefits costs for our personnel; technology-related costs; facilities and equipment; and venue, speaker and advertising expenses for our trade shows and courses.

Acquisition

On May 11, 2011, we acquired all of the shares of Inside Network, Inc. ("Inside Network") for $7.5 million in cash plus an aggregate of 597,590 newly issued shares of our common stock to the stockholders of Inside Network.

Results of Operations

Revenues

Revenues were $14.0 million for the year ended December 31, 2012 and $12.4 million for the year ended December 31, 2011, representing an increase of 12%. This change was primarily due to the growth of our research, trade show, and advertising revenues offset by the reduction in job postings. Research revenues relate to Inside Network's original market research and data services, which includes AppData. The acquisition of Inside Network contributed $3.2 million to our revenues during the year ended December 31, 2012 compared to $1.5 million for the same period in 2011.

The following table sets forth, for the periods indicated, a year-over-year comparison of our revenues by components (dollars in thousands):

                        Year Ended December 31,          2012 vs. 2011
                          2012             2011            $          %
Online job postings   $      3,861       $   4,263     $    (402 )     (9 )%
Advertising                  2,751           2,339           412       18
Trade shows                  2,491           1,849           642       35
Education                    1,998           2,000            (2 )      -
Research                     1,733             962           771       80
Other                        1,128           1,016           112       11
Total                 $     13,962       $  12,429     $   1,533       12 %

Other revenues include subscription sales from our paid membership services and sales of logos through stocklogos.com.

Cost of revenues

Cost of revenues primarily consists of payroll and benefits costs for technology and editorial personnel, freelance costs, communications infrastructure and trade show and education operations. Cost of revenues excludes depreciation and amortization. Cost of revenues was $7.9 million for the year ended December 31, 2012 and $7.2 million for the year ended December 31, 2011, representing an increase of 11%. This change was primarily due to the full period impact of the acquisition of Inside Network, which contributed $1.4 million to cost of revenues during the year ended December 31, 2012 compared to $567,000 for the same period in 2011.

We intend to make investments through internal development and, where appropriate opportunities arise, through targeted asset acquisitions to continue to expand our content offerings. We might need to increase our spending in order to create additional content related to new topics or offerings.

Advertising, promotion and selling

Advertising, promotion and selling expenses primarily consist of payroll and benefit costs for sales and marketing personnel, sales commissions and promotion costs. Advertising, promotion and selling expenses were $2.7 million for the year ended December 31, 2012 and $2.1 million for the year ended December 31, 2011, representing an increase of 29%. This change was primarily due to the full period impact of the acquisition of Inside Network, which contributed $787,000 to advertising, promotion and selling expenses during the year ended December 31, 2012 compared to $196,000 for the same period in 2011.

General and administrative

General and administrative expenses consist primarily of payroll and benefits costs for administrative personnel, office-related costs and professional fees. General and administrative expenses were $5.1 million for the year ended December 31, 2012 and $5.5 million for the year ended December 31, 2011, representing a decrease of 7%. This decrease was due primarily to a decrease in stock-based compensation of $391,000 and a decrease in acquisition-related costs of $312,000 offset by an increase in severance-related costs of $134,000. Stock-based compensation during the year ended December 31, 2011 included $460,000 in non-cash expense related to the issuance of a fully vested option to purchase 142,858 shares of common stock to our Chief Executive Officer, Alan M. Meckler. See Related Party Transactions below for further information. Acquisition-related costs during the year ended December 31, 2011 related primarily to the acquisition of Inside Network.

Depreciation and amortization

Depreciation expense was $309,000 and $319,000 for the years ended December 31, 2012 and 2011, respectively, representing a decrease of 3%. This decrease was due primarily to certain assets becoming fully depreciated.

Amortization expense was $540,000 and $513,000 for the years ended December 31, 2012 and 2011, respectively, representing an increase of 5%. This increase was due primarily to the acquisition of Inside Network.

Our depreciation and amortization expenses might vary in future periods based upon a change in our capital expenditure levels or any future acquisitions.

Impairment

During the years ended December 31, 2012 and 2011, in conjunction with our annual impairment test, we identified indicators that our goodwill was impaired. These indicators included a decline in our stock price. As a result, for the years ended December 31, 2012 and 2011, we recorded a non-cash impairment charge of $5.5 million and $8.3 million, respectively, to reduce the carrying amount of goodwill to fair value.

Contingent acquisition consideration

During the fourth quarter of 2009, we entered into two asset purchase agreements. Both of these purchase agreements included a two year earn-out that could require us to pay additional cash consideration. We recorded a liability of $1.6 million as of December 31, 2009 for the estimated consideration to be paid. During the year ended December, 31, 2011, we made our final earn-out payment related to these acquisitions. The total additional cash consideration we paid during the two year earn-out period was $1.9 million and resulted in $329,000 being recorded as contingent acquisition consideration during the year ended December 31, 2011.

Other loss, net

Other loss of $240,000 for the year ended December 31, 2012 was primarily related to the sale of our 33% investment in Social.Media.Tracking GmbH. Other loss of $9,000 for the year ended December 31, 2011 was primarily related to foreign currency transaction losses.

Interest income and interest expense

The following table sets forth, for the periods indicated, a year-over-year comparison of our interest income and interest expense (dollars in thousands):

Year Ended
December 31, 2012 vs. 2011 2012 2011 $ % Interest income $ 4 $ 86 $ (82 ) (95 )% Interest expense $ (271 ) $ (657 ) $ 386 59

Interest expense during the years ended December 31, 2012 and 2011 relates primarily to costs associated with our loans from a related party. The reduction in interest expense during the year ended December 31, 2012 was due to the 2nd Note Modification the Company entered into on November 14, 2011 along with the 3rd Note Modification Agreement that was entered into on July 27, 2012. See "Related Party Transactions" for a description of the loans and the 2nd and 3rd Note Modification Agreements.

Provision (benefit) for income taxes

We recorded an income tax provision of $34,000 during the year ended December 31, 2012 and an income tax benefit of $403,000 during the year ended December 31, 2011. During the year ended December 31, 2012, the income tax provision consisted primarily of additional income tax expense for tax amortization on indefinite lived assets. During the year ended December 31, 2011, the income tax benefit consisted primarily of a $444,000 income tax benefit, which was due to the release of valuation allowance against deferred income tax assets as a result of additional deferred income tax liabilities that we recorded as part of our acquisition of Inside Network. This income tax benefit was partially offset by $34,000 of additional income tax expense for tax amortization on indefinite lived assets and $7,000 of additional income tax expense for uncertain tax positions.

Based on current projections, management believes that it is more likely than not that we will have insufficient taxable income to allow recognition of its deferred tax assets. Accordingly, we established a valuation allowance against deferred income tax assets to the extent that deductible temporary differences cannot be offset by taxable temporary differences. To the extent that the net book value of indefinite lived assets exceeds the net tax value of indefinite lived assets, an additional tax provision will be incurred as the assets are amortized.

The total amount of unrecognized tax benefits was $100,000 as of December 31, 2012 and $85,000 as of December 31, 2011, all of which would affect the effective tax rate, if recognized, as of December 31, 2012.

At December 31, 2012, we had deferred income tax assets associated with federal and state net operating loss ("NOL") carryforwards of $27.1 million. Realization of the deferred tax assets is dependent on generating sufficient taxable income in future years. We have established an additional valuation allowance of $1.1 million against the deferred income tax assets attributable to NOL carryforwards during 2012.

Liquidity and Capital Resources

The following table sets forth, for the periods indicated, a year-over-year comparison of the key components of our liquidity and capital resources (dollars in thousands):

                                                              2012 vs. 2011
For the Year Ended December 31:     2012         2011          $           %
Operating cash flows              $ (1,143 )   $ (1,843 )   $    700        38 %
Investing cash flows              $   (205 )   $ (9,119 )   $  8,914        98 %
Financing cash flows              $    120     $  1,430     $ (1,310 )     (92 )%

As of December 31:
Cash and cash equivalents         $  2,210     $  3,438     $ (1,228 )     (36 )%
Working capital                   $    292     $  1,794     $ (1,502 )     (84 )%
Loan from related party           $  7,647     $  7,647     $      -         - %

Since inception, we have funded operations through various means, including public offerings of our common stock, the sales of certain of our businesses, including our Online images and Internet.com businesses in 2009, as well as credit agreements and cash flows from operating activities.

Operating activities.Cash used in operating activities decreased during 2012 compared to 2011 due primarily to reduced losses from operations.

Investing activities.The amounts of cash used in investing activities vary in correlation to the number and cost of the acquisitions consummated. Net cash used in investing activities during 2012 related primarily to the purchase of certain assets and website development costs. Net cash used in investing activities during 2011 related primarily to the acquisition of Inside Network.

Financing activities.Cash provided by financing activities during 2012 relates primarily to proceeds from stock option exercises partially offset by debt issuance costs incurred with the 3rd Note Modification Agreement entered into on July 27, 2012. See "Related Party Transactions" below. Cash provided by financing activities during 2011 relates primarily to borrowings from a related party partially offset by the purchase of common stock pursuant to our repurchase plan.

We expect to continue our investing activities on a limited basis for the foreseeable future, which includes the potential to strategically acquire content that is complementary to our business. We expect to finance any near-term acquisitions with cash on hand.

Our existing cash balances might decline during 2013 in the event of a downturn in the economy or changes in our planned cash outlay. However, we believe the remaining cash flow together with our existing cash balances, our current business plan and our current revenue prospects will be sufficient to meet the working capital and operating requirements of our business for at least the next 12 months.

Off-Balance Sheet Arrangements

We have not entered into off-balance sheet arrangements or issued guarantees to third parties.

Related Party Transactions

On May 29, 2009, we entered into a loan agreement in the amount of $7.2 million with our Chief Executive Officer, Alan M. Meckler (the "2009 Meckler Loan"). In conjunction with the 2009 Meckler Loan, we (1) entered into a promissory note jointly and severally payable by us and our subsidiary, Mediabistro, to Mr. Meckler (the "2009 Note"), (2) entered into a Security Agreement with Mr. Meckler (the "Security Agreement") pursuant to which we granted to Mr. Meckler a security interest in the our assets, (3) entered into an Intellectual Property Security Agreement with Mr. Meckler (the "IP Security Agreement") pursuant to which the we granted to Mr. Meckler a security interest in the our intellectual property, (4) entered into a Pledge Agreement by us in favor of Mr. Meckler (the "Pledge Agreement") pursuant to which we granted to Mr. Meckler a security interest in and an assignment of all of the shares of stock or other equity interest of Mediabistro owned by us, and (5) agreed to enter into a Blocked Account Control Agreement with Mr. Meckler and a depositary bank, to further secure the Note (the "Control Agreement," and together with the 2009 Note, the Security Agreement, the IP Security Agreement and the Pledge Agreement, the "Company Loan Documents").

Simultaneously, Mediabistro (1) entered into a Security Agreement with Mr. Meckler pursuant to which Mediabistro granted to Mr. Meckler a security interest in Mediabistro's assets (the "Mediabistro Security Agreement"), (2) entered into an Intellectual Property Security Agreement with Mr. Meckler pursuant to which Mediabistro granted to Mr. Meckler a security interest in Mediabistro's intellectual property (the "Mediabistro IP Security Agreement"), and (3) agreed to enter into a Blocked Account Control Agreement with Mr. Meckler and a depositary bank, to further secure the 2009 Note (the "Mediabistro Control Agreement" and, together with the Mediabistro Security Agreement and the Mediabistro IP Security Agreement, the "Mediabistro Documents").

To fund the 2009 Meckler Loan, Mr. Meckler used a portion of the proceeds of a residential mortgage loan that Bank of America, N.A. ("BOA") granted to Mr. Meckler and Mrs. Ellen L. Meckler (the "BOA Loan"). Pursuant to a Collateral Assignment of the 2009 Note dated May 29, 2009, by Mr. Meckler to BOA, Mr. Meckler collaterally assigned the 2009 Note to BOA as additional collateral for the BOA Loan. Payment terms of the 2009 Meckler Loan reflect pass through of the BOA Loan payment terms (excluding those funds borrowed pursuant to the BOA Loan for Mr. Meckler's personal use). As a result, the interest rate, amortization schedule and maturity date of each loan are identical.

On September 1, 2010, we entered into a note modification agreement with Mr. Meckler. The Note Modification Agreement reduced the interest rate of the 2009 Note from 4.7% to 3.4% per annum. Interest on the outstanding principal amount is due and payable on the first day of each calendar month through June 2014. Thereafter, principal and interest is due and payable in equal monthly payments in an amount sufficient to pay the loan in full based on an amortization term of 15 years. In addition to the interest rate reduction noted above, the note modification agreement also reduced the required minimum monthly principal and interest payments that commence on July 1, 2014.

On November 14, 2011, we along with Mediabistro, entered into a 2nd Note Modification Agreement with Mr. Meckler. The 2nd Note Modification Agreement amends the 2009 Note, which is described above. Under the 2nd Note Modification Agreement, the parties agreed to terminate our obligation to make a monthly accommodation fee of $40,000 to Mr. Meckler. As a result, the 2nd Note Modification Agreement reduces the effective interest payable on the 2009 Meckler Loan by $480,000 per year. We granted Mr. Meckler a fully vested stock option to purchase 142,858 shares of our common stock (after giving effect to the August 16, 2012 one-for-seven reverse stock split) pursuant to the terms of the 2008 WebMediaBrands Stock Option Plan. All other terms of the 2009 Meckler Loan remain unchanged.

Also on November 14, 2011, we, along with our wholly owned subsidiaries, Mediabistro and Inside Network: (1) entered into a promissory note jointly and severally payable by the Company, Mediabistro and Inside Network to Mr. Meckler (the "2011 Note"); (2) entered into a Security Agreement by and between the Company and Mr. Meckler (the "WEBM Security Agreement") pursuant to which the Company granted to Mr. Meckler a security interest in the Company's assets; (3) entered into an Intellectual Property Security Agreement by and between the Company and Mr. Meckler (the "2nd IP Security Agreement") pursuant to which the Company granted to Mr. Meckler a security interest in the Company's intellectual property; and (4) entered into a Pledge Agreement by the Company in favor of Mr. Meckler (the "2nd Pledge Agreement"), and together with the 2011 Note, the WEBM Security Agreement and the 2nd IP Security Agreement, (the "2011 Company Loan Documents") pursuant to which the Company granted to Mr. Meckler a security interest in and assignment of all of the shares of stock or other equity interest of Mediabistro and Inside Network owned by the Company.

In the 2011 Note, Mr. Meckler loaned us $1,750,000 (the "2011 Meckler Loan"). The interest rate of the 2011 Note at the time of the loan was 3.10% per annum. Interest on the outstanding principal amount is due and payable monthly until August 2014. Thereafter, principal and interest is due and payable in equal monthly installments, with the outstanding principal amount, together with all accrued interest thereon, due and payable on August 18, 2016. The 2011 Note may be prepaid at any time without penalty or premium.

In partial consideration of the 2011 Note and the 2nd Note Modification Agreement, Inside Network entered into a Security Agreement by and between Inside Network and Mr. Meckler pursuant to which Inside Network granted to Mr. Meckler a security interest in Inside Network's assets (the "Inside Network Security Agreement") to secure Inside Network's obligations under the 2011 Note and the 2009 Note.

The 2011 Company Loan Documents and Inside Network Security Agreement contain customary terms for a loan transaction of this type. If an Event of Default (as defined in the 2011 Note) occurs and is continuing beyond a specified cure period, Mr. Meckler may declare the 2011 Meckler Loan immediately due and payable. The 2011 Meckler Loan also will become immediately due and payable upon certain events of bankruptcy or insolvency or in the event of a Change of Control (as defined in the 2011 Note) of Mediabistro, Inside Network, or the Company.

On July 27, 2012, we entered into a 3rd Note Modification Agreement with Mr. Meckler that reduces the interest rate (i) of the 2009 Note to 2.975% from 3.40% effective June 1, 2012, and (ii) of the 2011 Note to 2.40% from 3.10% effective on June 18, 2012. All other terms of the promissory notes remain unchanged.

Interest expense on the 2009 Meckler Loan and 2011 Meckler Loan was $235,000 and $624,000 during the years ended December 31, 2012 and 2011, respectively. There are no future minimum principal payments due under the 2009 Meckler Loan and the 2011 Meckler Loan for the year ended December 31, 2013. There are future minimum principal payments due to Mr. Meckler for the 2009 Meckler Loan and the 2011 Meckler Loan in the amount of $189,000 for the year ended December 31, 2014; $419,000 for the year ended December 31, 2015; and $7.0 million for the year ended December 31, 2016.

Recent Accounting Pronouncements

We are required to adopt certain new accounting pronouncements. See note 2 to the consolidated financial statements included in Item 8 of this Form 10-K.

Critical Accounting Estimates

Our significant accounting policies are described in note 2 to the consolidated financial statements included in Item 8 of this Form 10-K.

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our consolidated financial statements and the revenues and expenses reported during the period. Following are accounting policies that we believe are most important to the portrayal of our financial condition and results of operations and that require our most difficult judgments as a result of the need to make estimates and assumptions about the effects of matters that are inherently uncertain. Management has discussed these critical accounting estimates with our Audit Committee.

Impairment of Goodwill and Indefinite Lived Intangible Assets. We evaluate the carrying value of our goodwill and indefinite lived intangible assets annually in the fourth quarter and whenever events or circumstances make it more likely than not that an impairment may have occurred. We test goodwill and other intangible assets for impairment in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 350, "Intangibles - Goodwill and Other", and all other long-lived assets for impairment in accordance with ASC Topic 360, "Property, Plant, and Equipment." Long-lived assets, including goodwill and intangible assets were $12.1 million and $18.2 million as of December 31, 2012 and 2011, respectively.

ASC Topic 350 prescribes a two-step method for determining goodwill impairment. In the first step, we compare the estimated fair value of each reporting unit to its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds the estimated fair value, we complete step two to determine the amount of the impairment loss. Step two requires the allocation of the estimated fair value of the reporting unit to the assets, including any unrecognized intangible assets, and liabilities in a hypothetical purchase price allocation. Any remaining unallocated fair value represents the implied fair value of goodwill, which we compare to the corresponding carrying value of goodwill to compute the goodwill impairment amount.

The determination of reporting unit fair value is a matter of significant judgment and we employ, as appropriate, three different methodologies to make this determination. The income approach requires management to estimate a number of factors for each reporting unit, including projected future operating results, economic projections, anticipated future cash flows, discount rates, and the allocation of shared or corporate items. The market approach estimates fair value using comparable marketplace fair value data from within a comparable industry grouping. In the similar transactions method, consideration is given to . . .