FORM 10-QSB
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 September 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, 7TH FLOOR
NEW YORK, NEW YORK 10004
(Address of principal executive
offices)
Issuer's telephone number: (212) 547-5234
Check whether the issuer (1) 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
Applicable only to Corporate Issuers:
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 SEPTEMBER 30, 1997
Common stock, par value $.01 3,680,671
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 sheet - September 30, 1997 (unaudited)........3
Consolidated statements of operations - three and nine months
ended September 30, 1997 (unaudited) and September 30, 1996
(unaudited)........................................................4
Consolidated statements of cash flows - nine months ended
September 30, 1997 (unaudited) and September 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>
September 30,
ASSETS 1997
<S> <C>
(unaudited)
CURRENT ASSETS:
Cash $1,746,917
Accounts receivable 1,359,502
Prepaid and other assets 1,105,112
------------
Total current assets $4,211,531
EQUIPMENT AND LEASEHOLD IMPROVEMENTS $1,069,531
RESTRICTED CASH $668,614
OTHER ASSETS $10,022
------------
Total assets $5,959,698
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of capital lease obligations $65,432
Current portion of long-term debt 100,000
Accounts payable 252,530
Accrued professional fees 23,314
Accrued compensation 230,107
Accrued taxes 14,732
Other accrued expenses 460,741
Deferred revenue 324,900
Customer advances 554
------------
Total current liabilities $1,472,310
------------
LONG TERM DEBT AND CAPITAL LEASE OBLIGATION $424,626
------------
STOCKHOLDERS' EQUITY
Common stock $36,807
Additional paid-in capital 6,317,555
Retained earnings (deficit) (2,291,600)
-------------
Total stockholders' equity $4,062,762
-------------
Total liabilities and stockholders' equity $5,959,698
=============
</TABLE>
<PAGE>
K2 DESIGN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
SEPTEMBER 30, SEPTEMBER 30,
<S> <C> <C> <C> <C>
1997 1996 1997 1996
(unaudited)
REVENUES $1,794,498 $825,348 $4,622,798 $1,835,833
DIRECT SALARIES AND COSTS 1,331,665 785,245 3,379,881 1,891,419
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 984,926 220,948 2,511,320 607,532
DEPRECIATION 88,881 23,626 207,689 49,960
---------- ---------- ----------- ----------
Income (loss) from operations (610,974) (204,471) (1,476,092) (710,078)
---------- ---------- ----------- ----------
INTEREST INCOME 38,618 41,026 120,426 41,036
INTEREST EXPENSE (13,615) (5,480) (26,547) (13,252)
PROVISION FOR INCOME TAXES (9,014) (13,356) (13,970) (15,553)
---------- ---------- ------------ ----------
Net income (loss) $(594,985) $(182,281) $(1,396,183) $(697,847)
========== ========== ============ ==========
NET LOSS PER COMMON SHARE $(0.16) $(0.06) $(0.38) $(0.27)
========== ========== ============ ==========
WEIGHTED AVERAGE NUMBER OF 3,680,671 3,326,945 3,657,433 2,573,715
COMMON SHARES OUTSTANDING
========== ========== ============ ==========
</TABLE>
<PAGE>
K2 DESIGN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
<S> <C> <C>
1997 1996
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,396,183) $(693,139]
Adjustments to reconcile net loss to net cash
used in operating activities-
Depreciation 207,689 42,252
Changes in-
Accounts receivable 708,213 (378,508)
Prepaid and other assets (793,631) (145,170)
Restricted cash (638,614) (30,000)
Other assets 600 2,375
Accounts payable (492,033) 139,029
Accrued professional fees (11,686) 111
Accrued compensation 105,314 41,583
Accrued taxes (82,533) 43,830
Other accrued expenses 285,957 44,538
Deferred Revenues 324,900 0
Customer advances (165,615) 6,443
-------------- ----------
Net cash (used in) operating activities (1,947,622) (926,656)
-------------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES --
Purchase of equipment (629,203) (397,005)
-------------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 36,725 6,352,618
Principal payments on capital lease obligations (47,080) (23,772)
Proceeds from notes payable 466,667 0
-------------- ----------
Net cash provided by financing activities 456,312 6,328,846
-------------- ----------
Net increase (decrease) in cash (2,120,513) 5,005,185
-------------- ----------
CASH, beginning of period 3,867,430 17,756
-------------- ----------
CASH, end of period $1,746,917 $5,022,941
============== ==========
</TABLE>
<PAGE>
K2 DESIGN, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
<S> <C> <C>
1997 1996
(unaudited)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for-
Interest $26,547 $13,252
State income taxes 13,970 15,553
======= =======
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Assets acquired under capital lease obligations $39,212 $56,261
</TABLE>
<PAGE>
K2 DESIGN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 nine
month periods ended September 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 nine
month periods ended September 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 common 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 for 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, on-line and traditional media placement
in connection with 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
in the three and nine months ended September 30, 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 has 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 reduce its current expense levels. The
Company's failure to reduce expense levels in an efficient manner would have
a material adverse effect on the Company's business, operating results and
financial condition.
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
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
(unaudited) (unaudited) (unaudited) (unaudited)
Revenues 100.00% 100.00% 100.00% 100.00%
----------- --------- ---------- -----------
Operating Expenses
Direct Salaries and Costs 74.2% 95.1% 73.1% 103.0%
Selling, General and
Administrative Expenses 54.8% 26.8% 54.3% 33.0%
Depreciation 5.0% 2.9% 4.5% 2.7%
---------- ---------- ---------- -----------
Total Operating Expenses 134.0% 124.8% 131.9% 138.7%
---------- ---------- ---------- -----------
Operating Income (loss) (34.0)% (24.8)% (31.9)% (38.7)%
---------- ---------- ---------- -----------
OTHER INCOME (EXPENSE) 1.4% 4.3% 2.0% 1.5%
INCOME (LOSS) BEFORE TAXES (32.6)% (20.5)% (29.9)% (37.2)%
INCOME TAXES (0.5)% (1.6)% (0.3)% (0.8)%
---------- ---------- ---------- -----------
Net income (Loss) (33.1)% (22.1)% (30.2)% (38.0)%
========== ========== ========== ===========
</TABLE>
<PAGE>
Revenues
Revenues for the three months ended September 30, 1997 and 1996 were
$1,794,498 and $825,348, respectively, or an increase of 117%. Revenues
for the nine months ended September 30, 1997 and 1996 were $4,622,798
and $1,835,833, respectively, or an increase of 152%. The increase in
revenues in the three months and nine months ended September 30, 1997 as
compared to the three months and nine months ended September 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, and (ii) the
Company increased its production capacity and sales and account
executive initiatives during the three months and nine months ended
September 30, 1997.
In the three months ended September 30, 1997, approximately 66% of revenues
were attributable to Web site design and creation services, 15% to media
placement and the remainder to the operation of Company-owned web site
advertising networks and traditional graphic design services. In the
nine months ended September 30, 1997, approximately 62% of revenues were
attributable to Web site design and creation services, 17% 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 nine months ended
September 30, 1996, approximately 72% and 81% of the Company's revenues,
respectively, were attributable to Web site design and creation
services, and the remainder was attributable to Web site hosting
traditional graphic design, and media placement services. Since the
Company's transition from a Web site design firm into a full service
interactive advertising agency 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 September 30, 1997, Cox Interactive Media,
Inc., Bell Communications Research Inc. and American Express Company,
Inc. accounted for approximately 23%, 19% and 14% of the Company's
revenues, respectively. During the three months ended September 30,
1996, America Online Incorporated ("AOL"), Toys "R" Us Corporation and
The Chase Manhattan Bank accounted for approximately 23%, 26% and 10% of
the Company's revenues, respectively. During the nine months ended
September 30, 1997, WavePhore, Inc., Toys "R" Us Corporation and Bell
Communications Research Inc. accounted for approximately 21%, 10% and
10% , respectively. During the nine months ended September 30, 1996,
International Business Machines, Inc., America Online Incorporated (AOL)
and Toys `R Us Corporation accounted for approximately 21%, 18%, and 12%
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. Direct
salaries and costs for the three months ended September 30, 1997 were
$1,331,665, as compared with $785,245 for the three months ended
September 30, 1996. In absolute dollars this increase was $543,420,
reflecting an increase of 70% due to increased cost of sales and labor
costs. As a percentage of revenues, direct salaries and costs have
decreased to 74.2% from 95.1% in the three months ended September 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 September
30, 1997 consisted primarily of approximately $492,000 paid as direct
salaries and $353,000 paid for media costs, and secondarily of
approximately $124,000 paid to freelance artists and other independent
contractors (approximately $40,000 of which was paid to vendors of
complex computer programming services required for special features on
Web sites). In the three months ended September 30, 1996, direct
salaries and costs consisted primarily of approximately $382,000 paid as
direct salaries, and secondarily of approximately $137,000 paid to
freelance artists and other independent contractors (approximately
$44,000 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 nine months ended September
30, 1997 and 1996 were $3,379,881 (73.1% of revenues) and $1,891,419
(103.0% of revenues), respectively. In absolute dollars, direct salaries
and costs increased by $1,488,462, or 78.7%, reflecting increases in
cost of sales and labor costs. In the 1997 period, direct salaries and
costs consisted primarily of approximately $1,358,000 paid as direct
salaries, $809,000 paid for media costs and approximately $449,000 paid
to freelance artists and other independent contractors (approximately
$135,000 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
$897,000 paid as direct salaries, and secondarily of approximately
$550,000 paid to freelance artists and other independent contractors
(approximately $348,000 of which was paid to vendors of complex computer
programming services required for special features on Web Sites). 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
September 30, 1997 and 1996 were approximately $984,926 (54.8% of
revenues) and $220,948 (26.8% 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 nine months ended
September 30, 1997 and 1996 were approximately $2,511,320 (54.3% of
revenues) and $607,532 (33.0% of revenues), respectively, and primarily
consisted of wages, 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. 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 $88,881 and $23,626 in the three months ended
September 30, 1997 and 1996, respectively, and related to depreciation
of equipment and leasehold improvements. Depreciation expense was
$207,689 and $49,960 in the nine months ended September 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 $1.7 million (at
September 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. The Company may 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 or to finance any expansion of its business.
Net cash (used) in the Company's operating activities was $(1,947,622) in
the nine months ended September 30, 1997 and related primarily to an
increase in restricted cash, a decrease in accounts payable offset by an
increase 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 nine months ended September 30, 1997 the Company made capital
expenditures of approximately $629,000 (of which approximately $119,000
were incurred in the quarter ended September 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 $123,392 at
September 30, 1997 and is payable in varying installments through the
year 2000.
<PAGE>
K2 DESIGN, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
Items 1., 2., 3., 4. & 5. Not applicable
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: November 19, 1997 /S/ DAVID J. CENTNER
--------------------------
David J. Centner
Chairman Of The Board, and
Principal Executive Officer
/S/ MATTHEW G. DE GANON
--------------------------
Matthew G. de Ganon
Principal Financial Officer
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 SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1997
<PERIOD-END> Sep-30-1997
<CASH> 1,746,917
<SECURITIES> 0
<RECEIVABLES> 1,509,502
<ALLOWANCES> 150,000
<INVENTORY> 0
<CURRENT-ASSETS> 4,211,531
<PP&E> 1,400,662
<DEPRECIATION> 331,131
<TOTAL-ASSETS> 5,959,699
<CURRENT-LIABILITIES> 742,862
<BONDS> 424,626
<COMMON> 36,807
0
0
<OTHER-SE> 4,062,762
<TOTAL-LIABILITY-AND-EQUITY> 5,959,699
<SALES> 0
<TOTAL-REVENUES> 4,622,798
<CGS> 3,379,881
<TOTAL-COSTS> 2,719,009
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,547
<INCOME-PRETAX> (1,476,092)
<INCOME-TAX> 13,970
<INCOME-CONTINUING> (1,490,062)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,396,183)
<EPS-PRIMARY> (0.38)
<EPS-DILUTED> (0.38)
</TABLE>
