FORM 10QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the Transition Period From ... to ...
Commission File No. 1-11873
K2 DESIGN, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 13-3886065
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
number)
55 BROAD STREET
NEW YORK, NEW YORK 10004
(Address of principal executive
offices)
Issuer's telephone number: (212) 547-5234
Check whether the issuer (1) has filed all reports required by
Section 13 or 15(d) of the Exchange Act 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
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.
CLASS OUTSTANDING AT JUNE 30, 1997
Common stock, par value $.01 3,645,421
Common stock redeemable purchase warrants 1,000,000
Transitional Small Business Disclosure Format (check one):
Yes_____ No X
<PAGE>
K2 DESIGN, INC. AND SUBSIDIARY
INDEX
Page
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheets - June 30, 1997 (unaudited) ...................3
Consolidated statements of operations - three
and six months ended June 30, 1997 (unaudited)
and June 30, 1996 (unaudited)............................................4
Consolidated statements of cash flows -
six months ended June 30, 1997 (unaudited) and
June 30, 1996 (unaudited)................................................5
Notes to consolidated financial statements.................................7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition.........................................8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..................................................13
Item 2. Changes in Securities..............................................13
Item 3. Defaults Upon Senior Securities....................................13
Item 4. Submission of Matters to a Vote of Security Holders................13
Item 5. Other Information..................................................13
Item 6. Exhibits and Reports on Form 8-K...................................13
Exhibit 27.1 Financial Data Schedule...............................14
SIGNATURES..................................................................13
<PAGE>
K2 DESIGN, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30,
ASSETS 1997
<S> <C>
(unaudited)
CURRENT ASSETS:
Cash $2,284,305
Accounts receivable 1,649,880
Prepaid and other assets 355,327
Total current assets $4,289,512
EQUIPMENT AND LEASEHOLD IMPROVEMENTS $1,039,893
RESTRICTED CASH $668,614
OTHER ASSETS $10,222
Total assets $6,008,241
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of capital lease obligations $66,993
Current portion of long-term debt 100,000
Accounts payable 436,996
Accrued professional fees 12,088
Accrued compensation 111,582
Accrued taxes 71,205
Other accrued expenses 115,871
Total current liabilities $914,735
LONG TERM DEBT AND CAPITAL LEASE OBLIGATIONS $472,485
STOCKHOLDERS' EQUITY:
Common stock $36,454
Additional paid-in capital 6,281,183
Retained earnings (deficit) (1,696,616)
Total stockholders' equity $4,621,021
Total liabilities and stockholders' equity $6,008,241
</TABLE>
<PAGE>
K2 DESIGN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
JUNE 30, JUNE 30,
<S> <C> <C> <C> <C>
1997 1996 1997 1996
(unaudited)
REVENUES $1,162,902 $498,050 $2,828,300 $1,010,484
DIRECT SALARIES AND COSTS 856,825 607,066 2,048,215 $1,106,174
SELLING, GENERAL AND 745,114 260,626 1,526,395 386,583
ADMINISTRATIVE EXPENSES
DEPRECIATION 61,876 14,221 118,808 23,334
Income (loss) from operations (500,913) (383,863) (865,118) (505,607)
INTEREST INCOME 41,098 0 81,807 0
INTEREST EXPENSE (9,608) (6,780) (12,932) (7,762)
PROVISION FOR INCOME TAXES (3,920) (2,197) (4,956) (2,197)
Net income (loss) $(473,343) $(392,840) $(801,199) $(515,566)
NET LOSS PER COMMON SHARE $(0.13) $(0.17) $(0.22) $(0.24)
WEIGHTED AVERAGE NUMBER OF 3,645,421 2,374,281 3,645,421 2,192,962
COMMON SHARES OUTSTANDING
</TABLE>
<PAGE>
K2 DESIGN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
<S> <C> <C>
1997 1996
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(801,199) $(515,566)
Adjustments to reconcile net loss to net cash
used in operating activities-
Depreciation 118,807 23,334
Changes in-
Accounts receivable 417,835 (153,915)
Deferred offering costs 0 (330,132)
Prepaid and other assets (43,845) (123,138)
Restricted cash (638,614) (30,000)
Other assets 400 0
Accounts payable (307,567) 186,365
Accrued professional fees (22,912) 56,348
Accrued compensation (13,211) 6,392
Accrued taxes (26,060) 15,926
Other accrued expenses (58,913) 154,693
Customer advances (166,169) 6,443
Net cash (used in) operating activities (1,541,448) (703,250)
CASH FLOWS FROM INVESTING ACTIVITIES --
Purchase of equipment (509,537) (41,177)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 0 919,475
Payments on line of credit 0 (1,871)
Principal payments on capital lease obligations (32,140) (46,858)
Proceeds from notes payable 500,000 0
Net cash provided by financing activities 467,860 870,746
Net increase (decrease) in cash (1,583,125) 126,319
CASH, beginning of period 3,867,430 17,756
CASH, end of period $2,284,305 $144,075
</TABLE>
K2 DESIGN, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Six Months Ended
June 30,
<S> <C> <C>
1997 1996
(unaudited)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for-
Interest $12,932 $7,774
State income taxes 4,956 10,505
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Assets acquired under capital lease obligations $41,731 $76,068
</TABLE>
<PAGE>
K2 DESIGN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
(1) BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial
statements have been prepared by the Company and reflect all
adjustments, consisting of only normal recurring adjustments,
which are, in the opinion of management, necessary for a fair
presentation of financial results for the three month and six
month period ended June 30, 1997 and 1996, in accordance with
generally accepted accounting principles for interim financial
reporting and pursuant to Form 10-QSB and Regulation SB. Certain
information and footnote disclosures normally included in the
Company's annual audited consolidated financial statements have
been condensed or omitted pursuant to such rules and regulations.
The results of operations for the three month and six month
period ended June 30, 1997 and 1996 are not necessarily indicative
of the results of operations to be expected for a full fiscal
year. These interim condensed consolidated financial statements
should be read in conjunction with the audited consolidated
financial statements for the fiscal year ended December 31, 1996,
which are included in the Company's Form 10-KSB filed with the
Securities and Exchange Commission.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and disclosures of contingent assets and liabilities at the
dates of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
(2) NET LOSS PER COMMON SHARE:
Net loss per common share has been computed by dividing net
loss by the weighted average number of common shares outstanding.
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" which becomes effective for the period ending after
December 15, 1997, establishes new standards for computing and
presenting earnings per share (EPS). The new standard requires
the presentation of basic EPS and diluted EPS. Basic EPS is
calculated by dividing income available to common shareholders by
the weighted average number of shares of common stock outstanding
during the period. Diluted EPS is calculated by dividing income
available to comon shareholders by the weighted average number of
common shares outstanding adjusted to reflect potentially dilutive
securities. Previously, reported EPS amounts must be restated
under the new standard when it becomes effective. As a result of
the loss of the period presented, the adoption of this Standard
will not have a material impact on earnings per share.
(3) LONG TERM DEBT
In May 1997, the Company borrowed $500,000 from
a bank in order to finance furniture and leasehold improvements to
its new office at 30 Broad Street. The loan has a two-year term,
bears interest at a rate of 8.4% per year, is payable in 23 equal
monthly installments of $8,333 and a final payment of $308,333.
This loan is secured by all of the Company's assets on deposit
with the bank, which includes substantially all of the Company's
cash and its operating accounts.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
This section and other parts of this Report contain forward-looking
statements that involve risks and uncertainties. The Company's actual
results may differ significantly from the results discussed in the forward-
looking statements. Readers are encouraged to refer to the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1996 for a
further discussion of the Company's business risks and opportunities
attendant thereto, in addition to these set forth under "--Fluctuations in
Quarterly Operating Results."
Overview
K2 Design, Inc. (the "Company") was founded in 1993 as a general partnership
and initially operated as a traditional graphic design business. The
Company was hired to design a graphical user interface in March 1994 for
Sierra Magazine Online, a proprietary online service, and in August 1994 for
NetMarket Inc., the first company to perform a secure online transaction on
the Internet, at which time the Company shifted its principal business to
Web site design and creation. After the Company's initial public offering
("IPO") on July 26, 1996, the Company began to develop its vision to become
a full-service interactive marketing and communications firm, largely in
anticipation of demands from its customers for additional complementary
services. Complementary services the Company now provides include, among
others, development of CD-ROM discs, media placement on Web sites,
consulting services regarding Web site usage and user characteristics,
development and maintenance of Company-owned Web site advertising networks,
live Internet broadcasts and the development of brand strategies, intranet
design and print collateral systems.
As a result of the expansion of the Company's services beyond Web site
design and creation, the Company incurred significant expenses in 1996 and
the first half of 1997 in anticipation of future revenues. Since the
Company has engaged in Web site design and creation only for approximately
two years, and has been providing various other services for less than one
year, the Company has a limited operating history upon which an evaluation
of the Company and its prospects can be based. Management therefore
believes that period-to-period comparisons of the Company's results of
operations are not necessarily indicative of future results.
In January 1995, the Company was reorganized as a New York corporation that
elected to be treated as an S corporation for tax purposes. In January
1996, the Company was reorganized as a Delaware holding company and the New
York corporation became a wholly-owned operating subsidiary thereof and thus
ceased to be an S corporation for tax purposes. For financial reporting
purposes, the Company's Consolidated Financial Statements include the
Company and its wholly-owned subsidiary.
RESULTS OF OPERATIONS
General
Project-based work for which the Company has been engaged has generally been
completed within 16 weeks, although certain past, current and future
projects have taken and are expected to take longer to complete. Revenues
are recognized on a percentage of completion basis. Provisions for any
estimated losses on uncompleted projects are made in the period in which
such losses are determinable. A portion of the Company's revenues have
been generated on a fixed fee for service basis. The Company also provides
ongoing services to certain customers, including four customers for which
the Company is interactive agency-of-record. Additionally, the Company has
experienced and expects to continue to experience a longer sales cycle,
since its focus has broadened to encompass a comprehensive interactive
marketing initiative as compared to its former focus on project-based Web
site business.
The Company presently intends to maintain its current expense levels, which
to a large extent are fixed, based in part on expectations as to future
revenues and will base future expense levels similarly. These expenses are
related to, among other things, a substantial increase in the number of
employees, an increase in occupancy costs and investments in equipment. The
Company's failure to expand its business in an efficient manner could have a
material adverse effect on the Company's business, operating results and
financial condition. Although operating expenses as a percentage of
revenues have decreased in the three and six months ended June 30, 1997 as
compared to the prior comparable periods, there can be no assurance that the
Company's revenues will grow at a rate that will support its increased
levels.
The changes in the various line-items discussed below result from the
increase in the Company's expenses since it consummated a series of
securities offerings in 1996 and began to apply the proceeds to expand
services in anticipation of future revenues.
<PAGE>
K2 DESIGN, INC. AND SUBSIDIARY
PERCENTAGE OF REVENUES
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
<S> <C> <C> <C> <C>
1997 1996 1997 1996
(unaudited)
Revenues 100.00% 100.00% 100.00% 100.00%
Operating Expenses
Direct Salaries and Costs 73.7% 121.9% 72.4% 109.5%
Selling, General and
Administrative Expenses 64.1% 52.3% 54.0% 38.2%
Depreciation 5.3% 2.9% 4.2% 2.3%
Total Operating Expenses (143.1)% (177.1)% (130.6)% (150.0)%
Operating Income (loss) (43.1)% (77.1)% (30.6)% (50.0)%
OTHER INCOME (EXPENSE) 2.7% (1.3)% 2.4% (0.7)%
INCOME (LOSS) BEFORE TAXES (40.4)% (78.4)% (28.2)% (50.7)%
INCOME TAXES (0.3)% (0.4)% (0.2)% (0.3)%
Net income (Loss) (40.7)% (78.8)% (28.4)% (51.0)%
</TABLE>
<PAGE>
Revenues
Revenues for the three months ended June 30, 1997 and 1996 were
$1,162,902 and $498,050, respectively, or an increase of 133%. Revenues
for the six months ended June 30, 1997 and 1996 were $2,828,300 and
$1,010,484, respectively, or an increase of 180%. The increase in
revenues in the three months and six months ended June 30, 1997 as
compared to the three months and six months ended June 30, 1996 resulted
primarily because (i) the Company's executive management continues to
devote substantially more time to sales and marketing after the
Company's initial public offering on July 26, 1996, (ii) the Company
increased its production capacity and sales and account executive
initiatives during the three months and six months ended June 30, 1997,
and (iii) the brand strategy sales efforts have resulted in projects and
relationships of increasing average size.
In the three months ended June 30, 1997, approximately 63% of revenues
were attributable to Web site design and creation services, 30% to media
placement and the remainder to the operation of Company-owned web site
advertising networks and traditional graphic design services. In the
six months ended June 30, 1997, approximately 58% of revenues were
attributable to Web site design and creation services, 23% to media
placement, and the remainder to development of a CDROM disc, operation
of Company owned advertising networks, consulting services and
traditional graphic design services. In the three and six months ended
June 30, 1996, approximately 83% and 87% of the Company's revenues,
respectively, were attributable to Web site design and creation
services, and the remainder was attributable to Web site hosting and
traditional graphic design service. Since the Company's transition from
a Web site design firm into an integrated interactive marketing and
communications firm is ongoing, the Company is unable to predict the
relative percentage of its revenues that will be generated from each of
its various services.
During the three months ended June 30, 1997, WavePhore, Inc., Toys "R"
Us Corporation and Bell Communications Research Inc. accounted for
approximately 18%, 18% and 11% of the Company's revenues, respectively.
During the three months ended June 30, 1996, America Online Incorporated
("AOL"), Waterhouse Securities and MCI Telecommunications Corporation
accounted for approximately 27%, 13% and eight percent of the Company's
revenues, respectively. During the six months ended June 30, 1997,
WavePhore, Inc., Toys "R" Us Corporation and The Chase Manhattan Bank
accounted for approximately 31%, 17% and seven percent, respectively.
During the six months ended June 30, 1996, AOL, International Business
Machines, Inc. and Waterhouse Securities accounted for approximately
18%, 21%, and nine percent of the Company's revenues, respectively.
Direct Salaries and Costs
Direct salaries and costs include all direct labor costs and other
direct costs related to project performance, such as independent
contractors, freelance labor, supplies, and printing and equipment
costs. As a percentage of revenues, direct salaries and costs have
decreased to 73.7% from 121.9% in the three months ended June 30, 1997
as compared to the same period in 1996. The decrease resulted
principally from a shift in the responsibilities of certain personnel to
general and administrative functions commencing in late 1996.
The Company's direct salaries and costs for the three months ended June
30, 1997 and 1996 were $856,825 and $607,066, respectively. In the 1997
period, direct salaries and costs consisted primarily of approximately
$235,000 paid for media costs, $490,000 paid as direct salaries, and
secondarily of approximately $39,000 paid to freelance artists and other
independent contractors. In the 1996 period, direct salaries and costs
consisted primarily of approximately $327,000 paid as direct salaries,
and secondarily of approximately $151,000 paid to freelance artists and
other independent contractors (approximately $90,000 of which was paid
to vendors of complex computer programming services required for special
features on Web sites).
The Company's direct salaries and costs for the six months ended June
30, 1997 and 1996 were $2,048,215 (72.4% of revenues) and $1,106,174
(109.5% of revenues), respectively. In the 1997 period, direct salaries
and costs consisted primarily of approximately $864,000 paid as direct
salaries, $456,000 paid for media costs and secondarily of approximately
$366,000 paid to freelance artists and other independent contractors
(approximately $121,000 of which was paid to vendors of complex computer
programming services required for special features on Web sites). In
the 1996 period, direct salaries and costs consisted primarily of
approximately $582,000 paid as direct salaries, and secondarily of
approximately $413,000 paid to freelance artists and other independent
contractors (approximately $300,000 of which was paid to vendors of
complex computer programming services required for special features on
Web Sites), and approximately $456,000 paid for media costs. The
Company has hired programmers in anticipation of future projects in an
effort to reduce reliance on outside vendors of complex computer
programming. Since the preceding sentence is forward looking, there can
be no assurance that the Company will successfully achieve a net savings
by bringing in-house more of the complex programming required in its
business. Among other things, the Company may not be able to attract
and retain personnel capable of performing these services at a rate less
than that provided by outside vendors and even if such persons can be
retained, their efforts may not entirely eliminate reliance on outside
vendors, especially if the Company's complex programming needs continue
to increase rapidly.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended
June 30, 1997 and 1996 were approximately $745,114 (64.1% of revenues)
and $260,626 (52.3% of revenues), respectively, and primarily consisted
of wages, professional fees, occupancy costs, travel, office expenses
and supplies and marketing and advertising, among other things. Selling
general and administrative expenses for the six months ended June 30,
1997 and 1996 were approximately $1,526,395 (54.0% of revenues) and
$386,583 (38.2% of revenues), respectively, and primarily consisted of
wage, professional fees, occupancy costs, travel, office expenses and
supplies and marketing and advertising, among other things. The
increases of selling, general and administrative expenses as a
percentage of revenues and in absolute dollars resulted principally from
a shift in the responsibilities of certain personnel to general and
administrative functions commencing in late 1996. These increases in
the Company's selling, general and administrative expenses are also the
result of the opening of additional offices and the increase in expenses
related thereto. In particular, the Company has opened an office at 30
Broad Street, New York, New York into which it has consolidated its 50
Broad Street office. The lease for 30 Broad Street has an initial term
of 6 years and provides for fixed rent of approximately $225,000 per
annum for the first three years of the lease and $245,000 per annum
thereafter. Under the lease, the Company is also responsible for
utilities and real estate taxes. The Company is seeking a sub-tenant to
sublet the 50 Broad Street location for the duration of that lease,
which terminates on January 31, 2002 and to sublet its Maryland office
(which the Company has closed) for the duration of that lease, which
terminates on October 31, 1999. As a result of the foregoing, the
Company's selling, general and administrative expenses (particularly
occupancy costs, personnel costs and office expenses and supplies) are
expected to increase. The Company has also ceased operations in its
Maryland office. The failure of the Company to sublet the 50 Broad
Street location or the Maryland location could also have a material
adverse effect on the Company.
Depreciation
Depreciation expense was $61,876 and $14,221 in the three months ended
June 30, 1997 and 1996, respectively, and related to depreciation of
equipment and leasehold improvements. Depreciation expense was $118,807
and $23,334 in the six months ended June 30, 1997 and 1996,
respectively. The Company's depreciation expenses in 1997 have
increased significantly as a result of the acquisition of additional
equipment and the relocation of its offices.
Income Taxes
Effective January 1995, the Company elected to be treated as an S
Corporation for federal income tax purposes. As a result, the
shareholders were individually liable for federal income tax on the
Company's taxable income. In January 1996, the Company began to be
treated as a C corporation for federal and state income tax purposes.
The Company is also liable for New York state and city income taxes, as
well as Maryland corporation and payroll taxes.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
Quarterly revenues and operating results have fluctuated and will
fluctuate as a result of a variety of factors. These factors, some of
which have affected the Company and some of which are beyond the
Company's control, include the timing of the completion, material
increase, reduction or cancellation of major projects, the gain or loss
of one or more customers or channel sources, timing of the receipt of
new business, timing of the hiring or loss of personnel, changes in the
pricing strategies and business focus of the Company or its competitors,
capital expenditures, operating expenses and other costs relating to the
expansion of operations, general economic conditions and acceptance and
use of the Internet. In addition, revenues and operating results are
difficult to forecast because of these fluctuations and because the
Company lacks historical financial data for a significant number of
periods. The Company may be unable to adjust spending in a timely
manner to compensate for any unexpected revenue shortfall. Any
significant shortfall of demand for the Company's services in relation
to the Company's expectations would have an adverse impact on the
Company's business, operating results and financial condition. The
Company's quarterly operating margins may also fluctuate from period to
period depending on the relative mix of lower cost full time employees
versus higher cost independent contractors.
LIQUIDITY AND CAPITAL RESOURCES
The Company is dependent on its cash of approximately $2.3 million (at
June 30, 1997), together with cash generated by operations, if any, for
working capital in order to be competitive, to meet the increasing
demands for service, quality and pricing and for any expansion of its
business. While the Company believes that its cash position together
with cash expected to be generated by operations will be sufficient to
finance its operations for at least one year,* the Company may
nevertheless require future substantial alternative financing in order
to satisfy its working capital needs, which may be unavailable or
prohibitively expensive since the Company's only assets available to
secure additional financing are accounts receivable. Accordingly, the
Company may not have the funds to relieve any liquidity problems in the
next year and thereafter, or to finance any expansion of its business.
Net cash (used) in the Company's operating activities was $(1,541,448)
in the six months ended June 30, 1997 and related primarily to an
increase in restricted cash, a decrease in accounts payable offset by a
decrease in accounts receivable, and to the loss incurred during the
quarter. The increase in restricted cash relates to the cash, cash
equivalent and letter of credit security provided to the landlords of
two of the Company's offices.
In the six months ended June 30, 1997 the Company made capital
expenditures of approximately $510,000 (of which approximately $460,000
were incurred in the quarter ended June 30, 1997), consisting of
furniture, fixtures, equipment and leasehold improvements acquired and
made principally in connection with the Company's opening of its new
location 30 Broad Street. In May 1997, the Company also borrowed
$500,000 from a bank in order to finance furniture and leasehold
improvements to its new office at 30 Broad Street. The loan has a two-
year term, bears interest at a rate of 8.4% per year, is payable in 23
equal monthly installments of $8,333 and a final payment of $308,333.
This loan is secured by all of the Company's assets on deposit with the
bank, which includes substantially all of the Company's cash and its
operating accounts.
In addition, the Company financed the purchase of certain equipment
through capital leases. The principal balance of such leases was
$139,478 at June 30, 1997 and is payable in varying installments through
the year 2000.
*This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual
future performance will meet the Company's current expectations.
<PAGE>
K2 DESIGN, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
Items 1., 2., 3. & 5. Not applicable
Item 4. The Company's Annual Meeting of Stockholders was
held on June 12, 1997. In that meeting, the
stockholders (i) elected as director each of
David J. Centner, Matthew G. de Ganon, Douglas
E. Cleek and Bradley K. Szollose, by a vote of
3,132,036 shares in their favor and 11,300
shares withheld; and James A. Favia and Steven
N. Goldstein by a vote of 3,133,036 shares in
their favor and 10,300 withheld; (ii) approved
and ratified the selection by the Board of
Arthur Andersen LLP as independent accountants
for the Company's 1997 fiscal year by a vote of
3,130,589 shares for, 10,000 shares against and
2,747 shares abstain; and (iii) approved and
ratified the Company's 1997 Stock Incentive Plan
by a vote of 3,103,829 shares for, 34,710 shares
against and 4,797 shares abstain.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - Exhibit 27.1 - Final Data Schedule (included only in the
electronic filing with the Securities and Exchange
Commission)
(b) No reports on Form 8-K have been filed during the quarter for which
this report is filed.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
K2 DESIGN, INC.
Date: August 12, 1997 /S/ DAVID J. CENTNER
David J. Centner
Chairman Of The Board, and
Principal Executive Officer
/S/ NELSON C. HUNTER
Nelson C. Hunter
Principal Financial Officer
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
K2 DESIGN, INC. AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS FOR THE
QUARTER ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 2ND QTR
<FISCAL-YEAR-END> Dec-31-96
<PERIOD-START> Jan-01-97
<PERIOD-END> Jun-30-97
<CASH> 2,284,305
<SECURITIES> 0
<RECEIVABLES> 1,674,880
<ALLOWANCES> 25,000
<INVENTORY> 0
<CURRENT-ASSETS> 4,289,512
<PP&E> 1,282,145
<DEPRECIATION> 242,250
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0
0
<OTHER-SE> 4,584,567
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<NET-INCOME> (801,199)
<EPS-PRIMARY> (0.22)
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</TABLE>
