News Column

MECKLERMEDIA CORP - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

August 14, 2014

The following discussion should be read in conjunction with our unaudited consolidated condensed financial statements and the accompanying notes that appear elsewhere in this filing. Statements in this Form 10-Q that are not historical facts are "forward-looking statements" under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those described. The potential risks and uncertainties address a variety of subjects including, for example: general economic conditions; the competitive environment in which Mecklermedia competes; the unpredictability of Mecklermedia's future revenues, expenses, cash flows and stock price; Mecklermedia's potential need for additional capital; Mecklermedia's ability to integrate acquired businesses products and personnel into its existing businesses; Mecklermedia's dependence on a limited number of advertisers; Mecklermedia's ability to maintain its listing on the OTCQX Stock Market; and Mecklermedia's ability to protect its intellectual property. For a more detailed discussion of these risks and uncertainties, refer to Mecklermedia's other reports filed with the Securities and Exchange Commission pursuant to 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,

except as required by law. Recent Developments On May 28, 2014, the Company entered into a definitive asset purchase agreement to sell all of its assets related to the Business (the "Business Assets") to PGM-MB, LLC, Delaware limited liability company ("PGM-MB"). The "Business" refers to the Company's business of providing online publishing of editorial content, e-commerce offerings, an online job board, online education and certificate programs for social media, traditional media and creative professionals and bundled subscription services of the foregoing. For more detail and a copy of the asset purchase agreement, see the Company's Current Report on Form 8-K dated June 2, 2014.



In conjunction with the sale of the Business Assets, the Company changed its name to Mecklermedia Corporation from Mediabistro Inc. effective August 8, 2014.

The asset purchase agreement provides that, upon the terms and subject to the conditions set forth in the purchase agreement, PGM-MB will purchase from the Company, and the Company will sell, assign, transfer, convey and deliver to PGM-MB, the Business Assets, and PGM-MB will assume specified liabilities related to the Business. Prometheus Global Media, LLC, a Delaware limited liability company and parent company of PGM-MB, has irrevocably guaranteed the full and punctual payment and performance of certain obligations of PGM-MB set forth in the Agreement, including the payment by PGM-MB of the purchase price at the closing of the transaction. As of the time of the filing, the stockholders have approved the sale of the Business Assets, but the sale has not yet been consummated.



The following disclosure describes the Company's business as of June 30, 2014 without giving effect to the sale of the Business Assets.

Overview Mecklermedia Corporation ("Mecklermedia" or the "Company") is an Internet media company that provides services for social media, traditional media and creative professionals, as well as for innovators in the 3D printing and Bitcoin trade shows. Our service offerings include an online job board, news and analysis, trade shows and events, online and in-person courses, and research and data services products. Our online job board, a leader in the media industry, has an audience of social media, gaming, mobile, publishing, public relations, journalism, advertising, graphic design, web development and television professionals.



Our trade shows include, among others, Inside 3D Printing Conference & Expo, Inside Bitcoins and AllFacebook Marketing Conference.

Our education business features online and in-person courses and online conferences 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. We also provide original and in-depth daily coverage of the latest developments in social media, advertising and public relations, television and video, mobile apps, 3D printing, publishing and design. In addition, we feature a marketplace for designing and purchasing logos through Stocklogos.com. 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 courses.



We generate our revenues from:

fees charged for online job postings; attendee registration fees to our trade shows; advertising on our websites and e-mail newsletters; exhibition space fees and vendor sponsorships to our trade shows; attendee registration fees for our online and in-person education courses and conferences; fees for social media and mobile-related market research and data services products; subscription sales from our paid membership services; and



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

website. 14 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. Results of Operations



All amounts below are in thousands, except share and per share amounts.

Revenues

Revenues were $3,674 for the three months ended June 30, 2014, representing a decrease of 7% compared to the same period of 2013. This change was primarily due to a decrease in online job postings and research revenues that was partially offset by an increase in advertising revenues. Revenues were $6,833 for the six months ended June 30, 2014 and $6,483 for the six months ended June 30, 2013, representing an increase of 5%. This change was primarily due to an increase in trade show revenues. We ran nine trade shows during the six months ended June 30, 2014 compared to eight tradeshows during the six months ended June 30, 2013. The following table sets forth, for the periods indicated, the components of our revenues: Three Months Ended



Six Months Ended

June 30, 2014 vs. 2013 June 30, 2014 vs. 2013 2014 2013 $ % 2014 2013 $ % Trade shows $ 1,414$ 1,390$ 24 2% $ 2,162$ 1,397$ 765 55% Online job postings 863 980 (117 ) (12 ) 1,801 1,921 (120 ) (6 ) Advertising 579 503 76 15 1,091 889 202 23 Education 428 496 (68 ) (14 ) 878 1,031 (153 ) (15 ) Research 124 316 (192 ) (61 ) 329 699 (370 ) (53 ) Other 266 278 (12 ) (4 ) 572 546 26 5 Total $ 3,674$ 3,963$ (289 ) (7)% $ 6,833$ 6,483$ 350 5%



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 $2,427 for the three months ended June 30, 2014 and $2,297 for the three months ended June 30, 2013, representing an increase of 6%. This change was primarily due to an increase in trade show operating costs of $241 and professional consulting costs of $99, offset by a decrease in employee-related costs of $234. Cost of revenues was $4,248 for the six months ended June 30, 2014 and $3,854 for the six months ended June 30, 2013, representing an increase of 10%. This change was primarily due to an increase in trade show operating costs of $740 and professional consulting costs of $124, offset by a decrease in employee-related costs of $510. 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, trade shows or offerings.



Advertising, promotion and selling

Advertising, promotion and selling expenses primarily consist of payroll and benefits costs for sales and marketing personnel, sales commissions and promotion costs. Advertising, promotion and selling expenses were $859 for the three months ended June 30, 2014 and $713 for the three months ended June 30, 2013, representing an increase of 20%. This increase was due primarily to an increase in trade show marketing costs of $226, offset by a decrease in employee-related costs of $77. Advertising, promotion and selling expenses were $1,434 for the six months ended June 30, 2014 and $1,189 for the six months ended June 30, 2013, representing an increase of 21%. This increase was due primarily to an increase in trade show marketing costs of $247, offset by a decrease in employee-related costs of

$49. 15 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 $1,205 for the three months ended June 30, 2014 and $1,147 for the three months ended June 30, 2013, representing an increase of 5%. This change was due to the costs related to legal and professional fees incurred in connection with the exploration of certain strategic alternatives of $302 and an increase in trade show partner fees of $41, offset by a decrease in employee-related costs of $245.



General and administrative expenses were $2,305 for the six months ended June 30, 2014 and $2,307 for the six months ended June 30, 2013.

Depreciation and amortization Depreciation expense was $36 for the three months ended June 30, 2014 and $41 for the three months ended June 30, 2013, representing a decrease of 12%. Depreciation expense was $73 for the six months ended June 30, 2014 and $105 for the six months ended June 30, 2013, representing a decrease of 30%. These decreases were due primarily to certain assets becoming fully depreciated. Amortization expense was $69 for the three months ended June 30, 2014 and $105 for the three months ended June 30, 2013, representing a decrease of 34%. Amortization expense was $165 for the six months ended June 30, 2014 and $214 for the six months ended June 30, 2013, representing a decrease of 23%. These decreases were due primarily to the sale of our Appdata property and to certain intangibles becoming fully amortized.



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

Other income (loss), net Other income of $26 during the three months ended June 30, 2014, related primarily to digital currency transaction gains. Other loss of $110 during the six months ended June 30, 2014, related primarily to digital currency transaction losses and the sale of certain assets. Other income was $8 and $4 during the three and six months ended June 30, 2013, respectively.



Loss on disposition of assets

On May 30, 2014, we completed the sale of our AppData Research product to AppData, LLC for an aggregate purchase price of $190. AppData was part of the Inside Network business originally acquired on May 17, 2011. As part of the sale of AppData and in accordance with FASB ASC Topic 350, "Intangibles - Goodwill and Other" and ASC Topic 360, "Property, Plant and Equipment", we evaluated the remaining assets and liabilities within the Inside Network business for impairment and wrote those assets off concurrently with the sale of AppData. The carrying value of the net assets at the time of the sale were $553, resulting in a loss from disposition of assets of $363, which is recorded in loss on disposition of assets in the three and six months ended June 30, 2014 of the consolidated condensed statements of operations. Goodwill During the quarter ended June 30, 2014, concurrently with the sale of Inside Network's assets of AppData, we identified indicators that the Inside Network goodwill was impaired. As a result, we recorded a non-cash impairment charge of $3,717 related to the writedown of goodwill. This impairment charge is not tax deductible because the acquisitions that gave rise to most of the carrying value of our goodwill were structured as stock transactions.



Interest income and interest expense

The following table sets forth, for the periods indicated, a comparison of our interest income and interest expense:

Three Months Ended Six Months Ended June 30, 2014 vs. 2013 June 30, 2014 vs. 2013 2014 2013 $ % 2014 2013 $ % Interest income $ - $ 1$ (1 ) (100% ) $ - $ 2$ (2 ) (100% ) Interest expense $ (132 )$ (64 )$ (68 ) (106% ) $ (259 )$ (127 )$ (132 ) (104% ) Interest expense during the three and six months ended June 30, 2014 and 2013 relates primarily to costs associated with our loans from a related party. The increase in interest expense during the three and six months ended June 30, 2014 was due to the Restated Note that was entered into on November 1, 2013. See "Related Party Transactions" for a description of the loans and Restated Note. 16 Provision for income taxes We recorded a provision for income taxes of $15 and $28 during the three and six months ended June 30, 2014, respectively, and $11 and $23 during the three and six months ended June 30, 2013, respectively. Deferred tax assets of approximately $44,000 related to capital loss carryforwards will expire at the end of 2014 and will most likely go unutilized. There is deferred tax asset of approximately $30,000 for federal and state net operating loss carryforwards. The federal net operating loss carry forwards begin to expire in the year 2024, state net operating loss carry forwards generally start to expire in the year 2017. While we have no other limitations on the use of our net operating loss carry forwards, we are potentially subject to limitations if a change in control occurs pursuant to applicable statutory regulations. Based on current projections, management believes that it is more likely than not that we will have insufficient taxable income to allow recognition of our deferred tax assets. Accordingly, we have established a valuation allowance against deferred 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, we will incur an additional tax provision as the assets are amortized.



The total amount of unrecognized tax benefits was $61 as of June 30, 2014 and December 31, 2013, all of which would affect the effective tax rate, if recognized, as of June 30, 2014.

Liquidity and Capital Resources

The following table sets forth, for the periods indicated, a comparison of the key components of our liquidity and capital resources:

Six Months Ended June 30, 2014 vs. 2013 2014 2013 $ % Operating cash flows $ (1,529 )$ (351 )$ (1,178 ) (336 )% Investing cash flows 71 (194 ) 265 137 Financing cash flows 600 7 593 8,471 As of 2014 vs. 2013 June 30, December 31, 2014 2013 $ %



Cash and cash equivalents $ 374$ 1,232$ (858 ) (70 )% Working capital

(1,141 ) (610 ) (531 ) (87 ) Loan from related party 8,948 8,341 607

7



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 increased during the six months ended June 30, 2014 compared to the same period of 2013 due primarily to increased losses from operations. Investing activities.The amounts of cash used in investing activities vary in correlation to the number and cost of the acquisitions we complete. Net cash provided by investing activities during the six months ended June 30, 2014 related primarily to the net proceeds from the sale of our AppData property. Net cash used by investing activities during the six months ended June 30, 2013 related primarily to the purchase of certain intangible assets and website

and product development costs.



Financing activities. Cash provided by financing activities during the six months ended June 30, 2014 related to borrowings from a related party. See "Related Party Transactions" below. Cash provided by financing activities during the six months ended June 30, 2013 related to proceeds from stock option exercises.

We have incurred losses and negative cash flows from operations in recent quarters and expect to continue to incur operating losses until revenues from all sources reach a level sufficient to support our on-going operations. Our liquidity will largely be determined by our ability to raise capital from debt, equity, or other forms of financing, by the success of our product offerings, by developing additional product offerings, and/or by reducing expenses associated with operations. 17

In the absence of a sufficient increase in revenues, we will need to do one or more of the following in the next 12 months to meet our planned level of expenditures: (a) raise additional capital; (b) reduce spending on operations; or (c) restructure our operations. A capital raise could take any number of forms including but not limited to: additional debt, additional equity, asset sales, or other forms of financing as dictated by our needs and our view toward our overall capital structure. However, additional financing might not be available on acceptable terms, if at all, and such financing might only be available on terms dilutive or otherwise detrimental to our stockholders or

our business.



As of July 1, 2014, we entered into a 5th Restated Note Agreement with Mr. Meckler that provided additional capital of $300.

Our liquidity over the next 12 months could be materially affected by, among other things: our ability to increase revenues; costs related to our product development efforts; our ability to raise additional funds through debt, equity, or other financing alternatives; the strength of the United States job market, or other factors described under the risk factors set forth in "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2013.



Off-Balance Sheet Arrangements

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

Recent Accounting Pronouncements

We are required to adopt certain new accounting pronouncements. See note 3 to the consolidated condensed financial statements included in Item 1 of this

Form 10-Q. Related Party Transactions



On May 29, 2009, we entered into a loan agreement in the amount of $7,200 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, Mecklermedia.com Subsidiary Inc. ("MM Subsidiary"), 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 our assets, (3) entered into an Intellectual Property Security Agreement with Mr. Meckler (the "IP Security Agreement") pursuant to which we granted to Mr. Meckler a security interest in 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 MM Subsidiary 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, MM Subsidiary (1) entered into a Security Agreement with Mr. Meckler pursuant to which MM Subsidiary granted to Mr. Meckler a security interest in MM Subsidiary's assets (the "MM Subsidiary Security Agreement"), (2) entered into an Intellectual Property Security Agreement with Mr. Meckler pursuant to which MM Subsidiary granted to Mr. Meckler a security interest in MM Subsidiary's intellectual property (the "MM Subsidiary 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 "MM Subsidiary Control Agreement" and, together with the MM Subsidiary Security Agreement and the MM Subsidiary IP Security Agreement, the "MM Subsidiary 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 ("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 MM Subsidiary, 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 to Mr. Meckler. As a result, the 2ndNote Modification Agreement reduces the effective interest payable on the 2009 Meckler Loan by $480 per year. We granted Mr. Meckler a fully vested stock option to purchase 142,858 shares of our common stock pursuant to the terms of the 2008 Mecklermedia Stock Option Plan. All other terms of the 2009 Meckler Loan remain unchanged. 18

Also on November 14, 2011, we, along with our wholly owned subsidiaries, MM Subsidiary and Inside Network: (1) entered into a promissory note jointly and severally payable by the Company, MM Subsidiary and Inside Network to Mr. Meckler (the "2011 Note"); (2) entered into a Security Agreement by and between the Company and Mr. Meckler (the "MECK 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 MECK 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 MM Subsidiary and Inside Network owned by the Company. In the 2011 Note, Mr. Meckler loaned us $1,800 (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. In 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 may 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 MM Subsidiary, 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. On November 1, 2013, we along with our wholly-owned subsidiaries, MM Subsidiary and Inside Network entered into an Amended and Restated Promissory Note (the "Restated Note") with Mr. Meckler. The Restated Note combines, amends, restates and replaces, but does not extinguish, the obligations of the 2009 Note and

the 2011 Note. The Restated Note combines the outstanding principal amounts of the 2009 Note and the 2011 Note along with applicable closing costs to $7,800 and extends the maturity date to September 1, 2043. Initially, interest accrues from August 27, 2013, at a rate of 5.5% per annum. Beginning September 1, 2018 ("Change Date"), the interest rate will convert to an adjustable rate based on a specified amount above LIBOR, initially not to exceed 7.5% per annum or be less than 5.5% per annum. Thereafter, the adjustable rate will never be increased or decreased on any single Change Date by more than 2.0% from the rate of interest that we paid for the preceding twelve months, and will never be less than 5.50% per annum or greater than 11.5% per annum. Interest only is payable in arrears beginning November 1, 2013 and each month thereafter until September 1, 2023. Beginning October 1, 2023 and continuing each month thereafter, the monthly payment will be in an amount sufficient to repay the principal and interest at the rate determined under the Restated Note in substantially equal installments by the maturity date. On November 15, 2013, we along with our wholly-owned subsidiaries, MM Subsidiary and Inside Network entered into a Second Amended and Restated Promissory Note (the "2nd Restated Note") with Mr. Meckler. The 2nd Restated Note increases the principal amount of the Restated Note to $8,800, a $1,000 increase. The terms of the 2nd Restated Note are otherwise substantially the same as the terms of

the Restated Note. In the event of change of control, Mr. Meckler may elect to make the remaining principal balance and all accrued and unpaid interest due and payable concurrently with the closing of the change of control event. A change of control includes a sale of our Company or either subsidiary to a third party or any merger, consolidation, restructuring or reorganization of our Company that results in the common stock holders immediately prior to the transaction possessing less than 50% of the voting power of the surviving entity. Upon the occurrence of an event of default, Mr. Meckler may, among other things, declare the entire outstanding balance under the 2nd Restated Note to be immediately due and payable, and/or exercise any other rights. Mr. Meckler funded a portion of the Restated Note with a portion of the proceeds of his personal loan from BOFI Federal Bank ("BOFI") with the intent that the principal and interest payments under the Restated Note will be utilized by Mr. Meckler to make payments under his note with BOFI. We must repay the 2nd Restated Note if Mr. Meckler is required to repay the BOFI note whether due to an event of default by Mr. Meckler under the BOFI note or otherwise. 19 To induce Mr. Meckler to enter into the 2nd Restated Note, pursuant to a Second Reaffirmation of Collateral Documents (the "Reaffirmation"), we reaffirmed our obligations under the collateral documents related to the Restated Note. To further induce Mr. Meckler to enter into the 2nd Restated Note, we issued to Mr. Meckler on November 14, 2013 a warrant for 301,124 shares of the Company's common stock. The warrant is exercisable at any time on or after November 14, 2013 until the close of business on November 13, 2018 at an exercise price per share of $2.00, which was 110% of the closing price of the Company's common stock on November 14, 2013. The exercise price and number of the shares of our common stock issuable upon the exercise of the warrant is subject to adjustment in the event of any stock dividend, stock split, recapitalization, reorganization or similar transaction. The warrant will terminate upon a fundamental transaction, which includes the acquisition of the Company or all or substantially all of its assets by another party.



We recorded a discount on the 2nd Restated Note based on the value of the warrants as of the date of issuance, which was $455. The discount is being amortized over the life of the 2nd Restated Note, and the carrying amount of the discount was $447 as of June 30, 2014.

Effective April 25, 2014, we entered into a 3rd Restated Note Agreement with Mr. Meckler that increases the principal amount of the Restated Note to $9,100, a $300 increase. All other terms of the promissory notes remain unchanged. Effective May 19, 2014, we entered into a 4th Restated Note Agreement with Mr. Meckler that increases the principal amount of the Restated Note to $9,400, a $300 increase. All other terms of the promissory notes remain unchanged. Effective July 1, 2014, we entered into a 5th Restated Note Agreement with Mr. Meckler that increases the principal amount of the Restated Note to $9,700, a $300 increase. Additionally, Mr. Meckler agrees to loan us up to an additional aggregate principal amount of $100 in one or more advances. All other terms of the promissory notes remain unchanged. Interest expense on the Restated Notes were $126 and $247 during the three and six months ended June 30, 2014, respectively. Interest expense on the 2009 Meckler Loan and the 2011 Meckler Loan was $54 and $108 during the three months and six months ended June 30, 2013, respectively. 20



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, 2013.


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