<PAGE> 1
United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 For the Period Ended September 30, 1997.
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 For the Transition Period From ________________to
_______________.
Commission file number 333-25937
DIDAX INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 54-1831588
- - - ---------------- ------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4501 Daly Dr., Suite 103
Chantilly, VA 20151
- - - -------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(703-968-4808)
- - - -------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Not applicable
- - - -------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter periods 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 practical date:
<TABLE>
<S> <C>
Common Stock, $ .01 Par Value: 1,202,588 shares outstanding as of September 30, 1997
3,542,588 shares outstanding as of October 3, 1997 (See pro-forma)
</TABLE>
Transitional Small Business Disclosure Format (check 0ne):
Yes No X
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<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Part I. FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1. Financial Statements
Balance Sheets--September 30, 1997 and October 3, 1997 pro forma 3
Statements of Operations--Three Months and Nine Months Ended
September 30, 1996 and 1997, and May 12, 1993 to September 30, 1997
Cumulative from Inception 4
Statements of Cash Flows--Three Months and Nine Months Ended
September 30, 1996 and 1997, and May 12, 1993 to September 30, 1997
Cumulative from Inception 5
Notes to Financial Statements--September 30, 1997 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 9
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 16
</TABLE>
<PAGE> 3
DIDAX INC.
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, October 3,
1997 1997
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(unaudited) Pro-Forma
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $9,827 $6,554,964
Accounts receivable 71,658 71,658
Advances due from officer 10,000 10,000
Deferred costs, net 638,149 --
------------- ------------
Total current assets 729,634 6,636,622
PROPERTY AND EQUIPMENT, net 124,622 124,622
OTHER ASSETS
Deposits 9,553 9,553
------------- ------------
Total other assets 9,553 9,553
------------- ------------
TOTAL ASSETS $863,809 $6,770,797
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Short-term debt, officer and directors $873,000 $ --
Accounts payable 302,923 302,923
Accrued liabilities 555,291 480,181
Deferred revenue 5,632 5,632
------------- ------------
Total current liabilities 1,736,846 788,736
LONG-TERM DEBT 1,700,000 --
------------- ------------
Total liabilities 3,436,846 788,736
COMMITMENTS AND CONTINGENCIES -- --
COMMON STOCK SUBJECT TO POSSIBLE
RECISSION, $.01 par value, 580,433 shares issued
and outstanding 1,743,399 1,743,399
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value, 20,000,000 shares
authorized; 622,155 shares issued and outstanding 6,222 29,622
Common stock warrants 127,659 666,722
Additional paid-in capital 933,697 10,731,921
Deficit accumulated during development stage (5,384,014) (7,189,603)
------------- ------------
Total stockholders' equity (deficit) (4,316,436) 4,238,662
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $863,809 $6,770,797
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 4
DIDAX INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months For the Nine Months Cumulative
Ended September 30, Ended September 30, from Inception
--------------------------- ---------------------------- (May 12, 1993) to
1996 1997 1996 1997 September 30, 1997
------------ ------------ ------------- ------------- ------------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Consulting services $ 25,147 $ 64,305 $ 34,936 $ 218,693 $ 309,264
Internet access 42,354 3,631 70,626 31,592 112,963
Retail sales 3,468 4,393 7,452 8,901 17,735
Advertising sales -- 3,425 -- 5,213 5,213
------------ ------------ ------------- ------------- -------------
Total revenues 70,969 75,754 113,014 264,399 445,175
OPERATING EXPENSES:
Cost of goods and services 70,833 31,142 131,847 131,931 358,151
Technical and development 155,721 137,938 528,829 425,918 1,453,454
Sales and marketing 238,091 210,576 849,536 881,020 2,202,619
General and administrative 142,260 204,908 557,891 585,229 1,632,668
------------ ------------ ------------- ------------- -------------
Total operating expenses 606,905 584,564 2,068,103 2,024,098 5,646,892
------------ ------------ ------------- ------------- -------------
LOSS FROM OPERATIONS (535,936) (508,810) (1,955,089) (1,759,699) (5,201,717)
OTHER INCOME (EXPENSE):
Interest income 105 527 10,868 15,980 31,745
Gain on exchange of assets 3,091 -- 3,091 -- 3,091
Miscellaneous income 519 63 520 584 1,332
Interest expense (21,208) (52,179) (21,208) (140,650) (218,465)
------------ ------------ ------------- ------------- -------------
Total other income (expenses) (17,493) (51,589) (6,729) (124,086) (182,297)
------------ ------------ ------------- ------------- -------------
NET LOSS $ (553,429) $ (560,399) $ (1,961,820) $ (1,883,785) $ (5,384,014)
============ ============ ============= ============= =============
Net loss per common share ($0.98) ($0.85) ($3.54) ($2.97)
============ ============ ============= =============
Weighted average number of
common shares and common share
equivalents outstanding 569,557 662,199 554,370 634,512
============ ============ ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 5
DIDAX INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Three Months For the Nine Months Cumulative
Ended September 30, Ended September 30, from Inception
------------------------ --------------------------- (May 12, 1993) to
1996 1997 1996 1997 September 30, 1997
----------- ----------- ------------- ------------ ------------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (553,429) $ (560,399) $ (1,961,820) $ (1,883,785) $ (5,384,014)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 18,816 32,506 47,208 93,467 178,237
Amortization of debt discount charged
to interest expense 13,593 30,676 13,593 86,270 127,660
Common stock issued in lieu of cash for
professional services -- -- -- 11,062 36,062
Common stock donated -- -- -- 200,000 200,000
Changes in assets and liabilities affecting
operations:
Accounts receivable (12,787) 11,371 (45,432) (25,208) (71,658)
Inventory 4,105 -- (64,571) -- --
Advances due from officer -- -- 30,000 -- (10,000)
Prepaid expenses (600) 400 (1,000) 10,800 (9,553)
Accounts payable 20,414 72,885 279,163 44,026 302,923
Accrued liabilities 5,791 260,032 (25,688) 384,456 555,292
Deferred revenue 479 3,137 8,630 1,507 5,632
---------- ---------- ------------ ------------ ------------
Net cash used by operating
activities: (503,618) (149,392) (1,719,917) (1,077,405) (4,069,419)
---------- ---------- ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment 3,109 (1,146) (164,880) (14,842) (263,184)
---------- ---------- ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt -- -- -- 1,700,000 1,700,000
Proceeds from short term debt, officer and director 476,000 250,000 476,000 250,000 873,000
Proceeds from advances due to officer and director (1,000) -- 4,000 -- 242,000
Repayment of advances due to officer and director (30,000) -- (30,000) (212,000) (242,000)
Net proceeds from issuance of common stock -- -- 1,213,399 -- 2,447,256
Deferred costs (9,216) (260,054) (10,054) (637,858) (677,826)
---------- ---------- ------------ ------------ ------------
Net cash provided by (used in) financing
activities 435,784 (10,054) 1,653,345 1,100,142 4,342,430
---------- ---------- ------------ ------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (64,725) (160,592) (231,452) 7,895 9,827
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 80,590 170,419 247,317 1,932 --
---------- ---------- ------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 15,865 $ 9,827 $ 15,865 $ 9,827 $ 9,827
---------- ---------- ------------ ------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
INFORMATION:
Interest paid $ -- $ -- $ -- $ 2,238 $ 7,122
---------- ---------- ------------ ------------ ------------
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Common Stock totaling $2,000 were issued in 1995 in settlement
of a loan from an officer.
The accompanying notes are an integral part of these financial statements
<PAGE> 6
NOTES TO FINANCIAL STATEMENTS
(unaudited)
SEPTEMBER 30, 1997
A. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310 (b) of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine month period
ended September 30, 1997 are not necessarily indicative of the results that may
be expected for the year ended December 31, 1997. For further information,
refer to the financial statements and footnotes thereto included in DIDAX
INC.'s registration statement on Form SB-2 dated September 23, 1997.
A pro-forma balance sheet for the period ended October 3, 1997, is included to
show the effect of the net proceeds received from DIDAX INC.'s initial public
offering, filed with the Securities and Exchange Commission ("SEC") and listed
on the Nasdaq Small Cap Market, which closed on that date. (See Note B.)
B. THE COMPANY AND INITIAL PUBLIC OFFERING
DIDAX INC. is presented in the accompanying financial statements and prior to
April 11, 1997, includes the accounts of Didax On-Line, L.C. ("DIDAX ON-LINE"),
a Virginia limited liability company incorporated in Virginia on January 12,
1995, and Didax, Inc. an S-Corporation ("DIDAX, Inc.") incorporated on May 12,
1993 in Virginia. The assets and liabilities of DIDAX ON-LINE were previously
held by DIDAX, Inc. The net assets of DIDAX, Inc. were contributed to DIDAX
ON-LINE in exchange for 366,193 membership units in DIDAX ON-LINE on January
12, 1995. The members of DIDAX ON-LINE and the stockholders of DIDAX, Inc.
voted to merge into DIDAX INC., a Delaware corporation ("DIDAX" or "the
Company"). All references to number of shares, per share amounts, stock option
data, and market prices of Common Stock for the three months and the nine
months ended September 30, 1996, were restated to reflect the merger which was
effective on April 11, 1997. Under the terms of this merger, the Company, among
other things, issued a total of 1,160,376 shares of its Common Stock,
representing 100% of its outstanding Common Stock subsequent to the Merger.
The Company's initial public offering (IPO) of securities listed on the Nasdaq
Small Cap Market went effective on September 24, 1997. See the registration
statement filed with the SEC on Form SB-2. The IPO closed on October 3, 1997
with gross proceeds of $10,539,063, which is comprised of $10,000,000 from the
issuance of 2,000,000 shares of common stock, $468,750 from the issuance of
2,500,000 purchase warrants, and $70,313 for the over-allotment of an
additional 375,000 purchase warrants. Proceeds, net of underwriter commission
and offering costs, amounted to approximately $8,661,000. See Note C. The
proceeds from this offering were used to repay outstanding debt as discussed in
Notes D and E, which is also reflected in the October 3, 1997 pro-forma balance
sheet. The remaining funds have been invested in an interest bearing money
market account and will be used for continued product development and
marketing, working capital, and to facilitate the expansion of the Company's
business.
The Company intends to increase expenditures in connection with marketing and
product development activities. The Company anticipates that losses will
continue until such time as the Company is able to build an effective
marketing and sales organization, and achieve market acceptance of its products
and services.
<PAGE> 7
C. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Deferred costs at September 30, 1997 consisted of legal, accounting and other
expenses associated with (1) the December 3, 1996 private placement of units of
junior convertible subordinated notes which were amortized using the
straight-line method over the term of the notes, see Note E and the Pro-Forma
Balance Sheet dated October 3, 1997, and (2) the specific incremental costs
directly attributable to the IPO, which were charged against the gross proceeds
of the offering. See Note B. During the nine month period ended September 30,
1997, the Company incurred $128,511 and $509,895 of additional legal,
accounting and underwriting costs in connection with the December 3, 1996
private placement mentioned above and the IPO, respectively. In addition,
$1,345,816 of underwriter commission and offering costs were incurred at the
closing of the IPO. Accordingly, on October 3, 1997, the date of closing,
$1,878,375 of related IPO costs were charged to equity. See Note B and the
Pro-Forma Balance Sheet referred to above.
D. SHORT-TERM DEBT, OFFICER AND DIRECTOR
A director and an officer of the Company purchased junior subordinated notes in
conjunction with the Company's private placement offering dated August 16, 1996
in the aggregate face value amount of $623,000. As part of the purchase of
these junior subordinated debt securities, the purchasers earned warrants for
the right to purchase shares of the Company's Common Stock at $4.00 per share,
exercisable at the time of the IPO.
The portion of the proceeds of the above debt securities allocated to these
warrants, as estimated by the Company, is $127,659 and is included in
stockholders' equity in the accompanying financial statements. The Company
recognized interest expense of $86,270 and $13,593 for the nine months ended
September 30, 1997 and 1996, respectively, related to the amortization of this
discount. Included in accrued expenses at September 30, 1997 is interest
payable, at an effective rate of 17.8%, to the above officer and director in
the amount of $72,149, relating to the notes payable. The Company retired the
$623,000 junior subordinated notes when the IPO closed on October 3, 1997,
including interest accrued of $72,149, for a total of $695,149. This repayment
is reflected in the pro-forma balance sheet. Pursuant to the terms of the notes
(see above), the Company issued 172,638 warrants to purchase stock at a price
of $4.00. In accordance with the underwriting agreement underlying the initial
public offering of the Company's securities, the common stock issued from
exercise of these warrants is locked-up until March 24, 1999.
In August and September of 1997, an officer and three directors advanced
$250,000 to the Company at an interest rate of 11.5% to cover operating costs
during that period. During the nine months ended September 30, 1997, the
Company recognized related interest expense of $2,961. These advances and the
accrued interest were repaid from the IPO proceeds on October 3, 1997, and is
reflected in the pro-forma balance sheet.
E. LONG-TERM DEBT
On January 9, 1997, the Company closed on the minimum portion of a private
placement offering dated December 3, 1996, placed by the underwriter of the
Company's IPO, for units consisting of junior convertible subordinated notes
with total gross proceeds to the Company from this offering of $750,000. The
maximum portion of the offering for an additional $750,000 was oversubscribed
and the Company closed this offering on February 21, 1997, with $950,000 in
additional gross proceeds. In accordance with this offering, 340,000
unregistered shares were issued at no additional cost to the note holders at
the time of the IPO by dividing the principal of each holder's note by the IPO
price of $5 per share. The issuance of these shares was recognized as
$1,700,000 of interest expense, or the fair value of the shares issued,
representing an effective rate of interest of approximately 150%. Additionally,
the note holders were repaid the principal of $1,700,000 on the closing of the
IPO. These transactions are included in the pro-forma balance sheet. The
Company incurred total offering costs of $135,760 relating to this debt
placement, of which $30,170 were amortized as of September 30, 1997, leaving
$105,590, which was expensed at the closing of the IPO. See the pro-forma
balance sheet which reflects the liquidation of this long term debt and
corresponding interest expense. See also Note C.
<PAGE> 8
F. RELATED PARTY TRANSACTIONS
In 1996, the Company borrowed $623,000 from an officer and director. See Note
D.
On January 9, 1997, the Company borrowed $300,000 from a director of the
Company as part of the December 3, 1997 private placement offering of the
junior convertible subordinated notes. See Note E.
In August and September of 1997, an officer and three directors advanced
$250,000 to the Company. See Note D.
G. COMMITMENTS AND CONTINGENCIES
SECURITIES
In April of 1996, the Company became aware that certain prior private
placements may be deemed not to have been properly exempted from registration
under federal and/or state law. This may give rise to the opportunity for
certain stockholders and members to exercise rescission rights, if any, related
to their investment in the Company. The Company believes there may be valid
legal defenses to any and/or all such rescission actions, if initiated. The
potential of inadvertent exemption violations was communicated to the investors
concerned in August of 1996. Furthermore, in late December of 1996, each
stockholder and member who might have rescission rights was sent a written
request to waive such rights (if any) to rescission and other remedies in
connection with any past omissions or violations of federal or state securities
laws or regulations, and also to agree not to sue the Company or its directors
on the basis of such rights. Approximately 80% of the members responded with
waivers, representing approximately 89% of the outstanding shares. The value of
funds received of those that have not responded as of September 30, 1997 is
approximately $388,000. It is the Company's expectation (but there can be no
assurance) that only a minority of the investors concerned will elect to
exercise their rescission rights, if indeed any in fact elect so to exercise.
Any assertion of rescission rights will be evaluated at the time made, in light
of all the facts and circumstances. In September 1997, the Commonwealth of
Virginia ("the Commonwealth") ruled that solicitation of waivers in this case
to Virginia shareholders was in violation of Virginia Securities Law. As a
remedy, the Commonwealth required the Company to send written notice to said
investors to the effect that their rights remain unimpaired. As of September
30, 1997, $1,743,399 is the total amount of common stock subject to rescission
if all the waivers were deemed invalid as compared to $1,788,399 at June 30,
1997. This $45,000 reduction represents 27,000 shares which are now beyond the
three year statute of limitations for actions pursuant to Section 10b-5 of the
Securities and Exchange Act of 1934, which the Company uses as a reasonable
basis for establishing the potential exposure.
In October 1997, the Company completed the requirements imposed by the
Commonwealth with regard to the request for waivers of rescission rights
related to prior private placements. Pursuant to this action, this matter is
now considered closed by the Commonwealth and there are no further
investigations pending.
OTHER
50,000 common shares were reserved for donation to the Company's first customer
and ministry partner. 40,000 were donated to this customer and was reflected as
a marketing expense at a fair value of $200,000, equivalent to $5.00 per common
share, in April 1997. The remaining 10,000 common shares will be donated upon
completion of several customer tasks relevant to product promotion.
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
On October 3, 1997, DIDAX INC. ("the Company") completed the initial public
offering of its securities, issuing 2,000,000 shares of common stock at a price
of $5.00 per share and 2,875,000 purchase warrants at $.1875 per purchase
warrant. The purchase warrant grants the holder the right to purchase shares of
the Company's common stock for a five year period at a price of $5.75. The
gross proceeds of the offering were $10,539,063 and the proceeds net of
underwriting fees and offering costs were $8,660,688.
Founded in 1993, the Company has developed the Christian Community Network(TM)
(CCN) (WWW.CHRISTCOM.NET), an interactive website which provides content
material that the Company generally believes appeals to the Christian
community. This website provides Christian consumers with resources and
information made available by Christian and secular retailers, publishers,
charities and ministries. To date, the Company has derived most of its revenues
from providing Consulting Services to Christian organizations, such as Promise
Keepers, a nonprofit Christian ministry (PK Net, www.promisekeepers.org),
Christianity Today, Inc., a publisher of Christian periodicals
(www.christianity.net), and World Vision, an international Christian relief
agency (www.worldvision.org). The Company's website services and development
clients also include Maranatha! Music, the Salvation Army, Ministry Business
Services, Prison Fellowship, Family Research Council, Evangelical Council for
Financial Accountability (ECFA), Christian Liberty Academy, Billy Graham
Institute of Evangelism, and Presbyterian Church in America.
Subsequent to its IPO, the Company is being positioned to generate revenues
through the sales of advertising space on CCN, memberships in
Christianity-based affinity marketing programs (affording participants price
discounts and other benefits of group purchasing power), Christian interest
products manufactured or developed by others (primarily Christian books,
Christian music and other Christian articles) on CCN, and the continuing
provision of technology consulting services to Christian organizations.
The opportunity for the Company to begin generating significant advertising and
retail revenues is predicated on increasing the membership subscriptions and
traffic on CCN measured in "visits" and "add impressions". A visit is a
sequence of pages viewed by a single user within a defined time period,
normally 30 minutes. An ad impression is the display of a banner advertisement
to a site visitor. In the quarter ending September 30, 1997, the Company
experienced a 35% growth in membership (those who have entered their names in
the guest register of the website signifying their desire to receive the
benefits and obligations of being members of the community) to 8,900 this
quarter, compared to 6,600 the previous quarter. Visits increased 48% from
58,500 per month in the three months ended June 30, 1997 to 86,300 per month
in the three months ended September 30, 1997. During the same periods,
ad impressions grew 56% from 488,000 per month to 763,000 per month. To the
extent the Company continues to have advertisements on CCN for which it
receives a fee, in the event there is an increase in the website traffic on
CCN, the Company's revenues from advertising should increase.
In the quarter ending September 30, 1997, the Company released several products
which have been instrumental in generating this traffic pattern. CCN Chat has
been an active service allowing for discussion in a uniquely monitored
environment with safeguards in place to protect participants from language and
tone averse to the Christian mind set. In addition, a productivity enhancement
was introduced which provides for database driven distribution of content which
refreshes content without labor intensive efforts. Finally, the Company
launched a Marketspace offering products specifically targeted toward specific
ministries. Approximately $57,000 in sales activity was generated by this
marketspace in two months, for which the Company received a 5% royalty of
$2,850, which is included in the Company's Retail Sales.
The Company has an extremely limited operating history upon which an evaluation
of the Company and its business can be based. The Company's business must be
considered in light of the risks, expenses and problems frequently encountered
by companies in their early stage of development, particularly companies in new
and rapidly evolving markets, such as the Internet. The market for the
Company's services and products has only very recently begun to develop, is
rapidly evolving and is characterized by an increasing number of market
entrants who have introduced or developed services and products for use on the
Internet. As a result, the Company's mix of services and products may undergo
substantial changes as the Company reacts to competitive and other developments
in the overall
<PAGE> 10
Internet market. The Company has achieved only limited revenues to date, has
incurred net losses since inception and expects to continue to operate at a
loss until sufficient revenues are generated to cover expenses. As of September
30, 1997, the Company had an accumulated deficit of approximately $5,384,000.
As a result of the Company's extremely limited operating history, the Company
has no meaningful historical financial data upon which to base future operating
expenses. Accordingly, the Company's expense levels are based in part on
possible future revenues, of which there can be no assurance. A shortfall in
revenues would have an immediate adverse impact on the Company's business,
results of operations and financial condition. The Company has just recently
begun to generate revenue from the commercial sale of advertising space on CCN
and very limited sales of products via CCN. The Company plans to significantly
increase its sales and marketing efforts, and fund greater levels of product
development. The Company expects to experience significant fluctuations in
future quarterly operating results and believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as any indication of future performance.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
The Company incurred a loss of $1,883,785 for the nine months ended September
30, 1997, as compared to a loss of $1,961,820 for the same period ended
September 30, 1996. This decreased loss of $78,034 (3.98%) was due to increased
revenue and decreased payroll expenses which were offset by increases in
interest and franchise tax expense and the donation of stock to Promise
Keepers, Inc. During the nine month periods ended September 30, 1997 and 1996,
the Company donated to three separate Christian ministry customers unaffiliated
with the Company otherwise, salable computer consulting services valued at
approximately $48,000 and $209,000, respectively. Additionally, the period
ended September 30, 1997 includes a $200,000 expense for the market value of
40,000 shares of Common Stock donated.
In the nine-month periods ended September 30, 1997 and 1996, the Company earned
$264,399 and $113,014 of revenue, respectively. Of the revenue recognized
during the nine-month period ended September 30, 1997, $218,693 was generated
from Consulting Services, $31,592 from Internet Access, $8,901 from Retail
Sales, and $5,213 from Advertising. This compares to $34,936 of Consulting
Service revenue, $70,626 of Internet Access revenue, and $7,452 of Retail Sales
revenue for the comparable period in 1996. The $183,757 increase in Consulting
Service revenue is primarily due to a 77% decrease, or $161,000, in services
previously provided at no charge. The Company ceased to actively market
Internet Access in the fourth quarter of 1996, and there was no prior year
advertising revenue. Interest income was $15,980 for the nine-month period
ended September 30, 1997 compared to $10,868 for the nine-month period ended
September 30, 1996.
Cost of goods and services, consisting primarily of costs related to
development, maintenance and support of customer websites was $131,931 for the
nine-month period ended September 30, 1997 as compared to $131,847 for the nine
month period ended September 30, 1996. Although revenues increased by
approximately 134%, the corresponding costs remained constant since, as noted
above, the Company did not actively market Internet Access in 1997. The costs
associated with this business were substantial as compared to the revenues,
which is why the Company has minimized its efforts in this area in a manner
which is now profitable. Technical and development expenses, consisting
primarily of costs related to the Company's product development activities for
Christian Community Network(TM) (CCN), decreased to $425,918 for the nine-month
period ended September 30, 1997, as compared to $528,829 for the same period in
1996. This decrease is primarily due to a larger portion of these expenses now
being classified as cost of sales for they are directly related to revenue
generation. The remainder is associated with reduced salaries and head count.
Sales and marketing costs, which include CCN promotional costs, increased to
$881,020 during the nine month period ended September 30, 1997 from $849,536 in
the comparable period ended September 30, 1996. This marginal (3.7%) increase
is due to the $200,000 donation of common stock noted above which is offset by
the fact that the Company is no longer marketing Internet Access and a
reduction in head count and overall salary expense. The Company believes that
it will continue to incur substantial technical and marketing expenses as it
seeks to expand the market for CCN. General and administrative expenses, which
consist of payroll and related expenses and office overhead costs (including
rent), were $585,229 and $557,891 for the nine month periods ended September
30, 1997 and 1996. This $27,338 increase (or 4.9%) was largely due to the
<PAGE> 11
combined result of the aforementioned Delaware state franchise tax accrual of
approximately $60,000 and a voluntary decrease in salaries of approximately
$38,000. Since the Company is a newly formed Delaware corporation, franchise
tax is an expense that was not incurred in prior years.
Interest expense was $140,650 and $21,208 for the nine-month periods ended
September 30, 1997 and 1996. Borrowings of $476,000 and $359,000 during the
third and fourth quarters of 1996, respectively and $250,000 during the third
quarter of 1997, for a total of $1,085,000, account for $46,765 the increase in
interest expense. Additionally, included in the interest expense for the nine
month period ended 1997, is $86,270 of amortization of the discount on warrants
issued to an executive officer and a director of the Company as opposed to
$13,593 for the same period in 1996. See "Liquidity and Capital Resources"
below and Note D to the Financial Statements dated September 30, 1997.
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
The Company incurred a loss of $560,399 for the three months ended September
30, 1997, as compared to a loss of $553,429 for the same period in September
30, 1996. The marginal ($6,971 or 1.3%) increase in the loss was due to
increased revenue and decreased payroll expenses which were offset by increases
in interest and franchise tax expense. During the three month periods ended
September 30, 1997 and 1996 the Company donated to three separate Christian
ministry customers unaffiliated with the Company otherwise salable computer
consulting services valued at approximately $0 and $71,000, respectively.
In the three-month periods ended September 30, 1997 and 1996, the Company
earned $75,754 and $70,969 of revenue, respectively. Of the revenue recognized
during the three-month period ended September 30, 1997, $64,305 was generated
from Consulting Services, $3,631 from Internet Access, $4,393 from Retail
Sales, and $3,425 from Advertising. This compares to $25,147 of Consulting
Service revenue, $42,354 of Internet Access revenue, and $3,468 of Retail Sales
revenue for the comparable period in 1996. The $39,158 increase in Consulting
Service revenue is primarily due to the aforementioned decrease in services
previously provided at no charge. However, Consulting Service revenue increased
to a lesser extent due to a greater focus on the development of CCN services.
This management initiative in product investment to develop long term, high
leverage revenue opportunities utilized resources which would have otherwise
been dedicated to short term revenue generation.
Also during this period, resources were reallocated, and delays in marketing
initiatives were experienced, as the Company pursued the completion of an
initial public offering which went effective on September 23, 1997. The Company
ceased to actively market Internet Access in the fourth quarter of 1996, and
there was no prior year advertising revenue.
Cost of goods and services, consisting primarily of costs related to
development, maintenance and support of customer websites was $31,142 for the
three-month period ended September 30, 1997 as compared to $70,833 for the
comparable period in September 30, 1996. Although revenues increased by
approximately 7%, the corresponding costs decreased because, as noted in the
prior section (see "Nine Months Ended September 30, 1997 and 1996 (Unaudited)")
the Company did not actively market Internet Access in 1997. Technical and
development expenses, consisting primarily of costs related to the Company's
product development activities for CCN, decreased to $137,938 for the
three-month period ended September 30, 1997, as compared to $155,721 for the
same period in 1996. This decrease is primarily due to a larger portion of
these expenses now being classified as cost of sales for they are directly
related to revenue generation. The remainder is associated with reduced
salaries and head count. Sales and marketing costs, which include CCN
promotional costs, decreased to $210,576 from $238,091 during the three month
periods ended September 30, 1997 and 1996, respectively. This decrease occurred
because the Company is no longer marketing Internet Access and because of a
reduction in head count and overall salary expense which are somewhat offset by
increased CCN advertising and promotional costs. The Company believes that it
will continue to incur substantial technical and marketing expenses in the
foreseeable future. General and administrative expenses, which consist of
payroll and related expenses and office overhead costs (including rent), were
$204,908 and $142,260 for the three month periods ended September 30, 1997 and
1996. This $62,650 increase (or 44%) was due to the aforementioned Delaware
state franchise tax accrual of approximately $60,000. Since the Company is a
newly formed Delaware corporation, franchise tax expense was not incurred in
prior years.
<PAGE> 12
Interest expense was $52,179 and $21,208 for the three-month periods ended
September 30, 1997 and 1996. See the prior section discussing the nine months
ended September 30, 1997 and 1996 for further information.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased from $18,816 in the three months ended
September 30, 1996, to $32,506 in the three months ended September 30, 1997.
For the nine month periods ended September 30, 1997 and September 30, 1996,
depreciation and amortization increased from $47,208 to $93,467. The 1997
increases are the result of increased amortization of common stock warrants and
depreciation expense related to 1996 investments in computer equipment.
LIQUIDITY AND CAPITAL RESOURCES
During the three month periods ended September 30, 1997 and September 30, 1996,
net cash used in operating activities was $149,392 and $503,618. During the
nine month periods ended September 30, 1997 and September 30, 1996, net cash
used in operating activities was $1,092,247 and $1,884,797 including $14,842
and $164,880 respectively, used in connection with investment activities.
Net cash provided by (used in) financing activities was ($10,054) and $435,784
for the three month periods ended September 30, 1997 and September 30, 1996
respectively. For the three month period ended September 30, 1997, the activity
consisted of $250,000 of proceeds in the form of short term debt from an
officer and directors which was offset by deferred costs incurred pursuant to
the initial public offering. $476,000 of proceeds from short term debt from an
officer and director offset by a $30,000 repayment of advances from an officer
and director contributed to the majority of the activity for the three month
period ended September 30, 1996. For the nine month periods ended September 30,
1997 and September 30, 1996, net cash provided by financing activities was
$1,100,142 and $1,653,345, respectively. For the nine month periods ended
September 30, 1997, in addition to the $250,000 of proceeds in the form of
short term debt from an officer and directors, the Company issued $1,700,000 of
long term debt, repaid $212,000 of advances from an officer and director, and
incurred $637,858 of deferred costs, of which $128,511 is related to the
issuance of the long term debt and the remaining $509,347 was incurred pursuant
to the initial public offering. For the nine month periods ended September 30,
1996, in addition to the three month activity noted above, net proceeds of
$1,213,399 was generated from private equity placements.
The October 3, 1997 pro forma balance sheet reflects the liquidation of all
short term debt to officers and directors in the amount of $873,000 and the
long term debt of $1,700,000 from the net proceeds of the Company's initial
public offering. The Company paid interest in the amount of $75,110 related to
the repayment of the short term debt to officers and directors and issued
warrants to purchase 172,639 vested shares of common stock at $4.00 per share.
These shares are subject to an eighteen month lockup agreement. The liquidation
of the long term debt was accompanied by an interest expense of $1,700,000
since the debt holders received a total of 340,000 shares of common stock,
derived by dividing this principal amount by the $5.00 initial public offering
price, in addition to the repayment of the principal. These shares are subject
to a twenty four month lockup agreement. $105,590 of unamortized deferred
offering costs related to the long term debt are also expensed in this pro
forma.
The Company currently anticipates that the $6,545,136 of remaining proceeds
from the Company's initial public offering after the debt liquidation, will be
sufficient to liquidate accrued offering costs, included in accounts payable
and accrued liabilities, and to meet the Company's anticipated working capital,
lease commitments, and capital expenditure requirements for the next two years.
However, the Company anticipates that it may seek to raise additional funds in
order to pursue acquisitions, or in the event that the Company's estimates of
operating losses and capital requirements change or prove inaccurate or in
order that the Company may respond to increased demand or to take advantage of
other unanticipated opportunities. There can be no assurance that additional
financing will be available to the Company or that such financing will be
available on acceptable terms.
<PAGE> 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed herewith:
Exhibit 11 Computation of Earnings per Share
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed no Reports on Form 8-K during the three months ended
September 30, 1997.
<PAGE> 14
SIGNATURES
In accordance with the requirements of the Securities Act of 1934,
DIDAX INC., the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
DIDAX INC.
November 10, 1997 By: /s/ Robert C. Varney
---------------------
Robert C. Varney,
Chairman and Chief Executive Officer
November 10, 1997 By: /s/ Gary A. Struzik
---------------------
Gary A. Struzik, Chief Financial Officer
and Secretary, Chief Accounting Officer
<PAGE> 1
DIDAX INC.
COMPUTATION OF EARNINGS PER SHARE
9/30/97
<TABLE>
<CAPTION>
PRIMARY EARNINGS PER SHARE: THREE MONTHS ENDED SEPTEMBER 30, 1997
Common Exercise Assumed Assumed Net Shares Shares subject
Shares Price Proceeds IPO Price Treas. Stk. Added to Recission
------ ----- -------- --------- ----------- ----- ------------
<S> <C> <C> <C>
Common Stock
Assumed issued and outstanding - beginning of period 1,160,376 607,433
Rescission reduced on 8/1/97 by 6,000 shares 1,160,376 601,433
Rescission reduced on 8/4/97 by 6,000 shares 1,160,376 595,433
Rescission reduced on 9/5/97 by 25,000 shares 1,160,376 580,433
Stock sold during the year:
PK 40,000 0
Lasmanis 2,212 0
Grant/Exercise of warrants:
Assumed issued and outstanding - beginning of period 50,962 0
Detachable Warrants 22,259 4.00 89,036 5.00 17,807 4,452
End of period 09/30/97 Weighted average share outstanding
Net loss
Net loss per share
<CAPTION>
PRIMARY EARNINGS PER SHARE: THREE MONTHS ENDED SEPTEMBER 30, 1997 10/01/97
Total Grant/Purch. Days Weighted
Shares Date Outstanding Shares
------ ---- ----------- ------
<S> <C> <C> <C>
Common Stock
Assumed issued and outstanding - beginning of period 552,943 07/01/97 30 16,588,290
Rescission reduced on 8/1/97 by 6,000 shares 558,943 08/01/97 4 2,235,772
Rescission reduced on 8/4/97 by 6,000 shares 564,943 08/04/97 32 18,078,176
Rescission reduced on 9/5/97 by 25,000 shares 579,943 09/05/97 26 15,078,518
----------------------------
92 51,980,756
Stock sold during the year:
PK 40,000 07/01/97 92 3,680,000
Lasmanis 2,212 07/01/97 92 203,504
Grant/Exercise of warrants:
Assumed issued and outstanding - beginning of period 50,962 07/01/97 92 4,688,504
Detachable Warrants 07/10/97 83 369,499
--------------
60,922,263
92
--------------
End of period 09/30/97 Weighted average share outstanding 662,199
Net loss (560,399)
--------------
Net loss per share (0.85)
</TABLE>
<PAGE> 2
DIDAX INC.
COMPUTATION OF EARNINGS PER SHARE
9/30/97
<TABLE>
<CAPTION>
PRIMARY EARNINGS PER SHARE: NINE MONTHS ENDED SEPTEMBER 30, 1997
Common Exercise Assumed Assumed Net Shares Shares subject
Shares Price Proceeds IPO Price Treas. Stk. Added to Recission
------ ----- -------- --------- ----------- ----- ------------
<S> <C>
Common Stock
Assumed issued and outstanding - beginning of period 1,160,376 607,433
Rescission reduced on 8/1/97 by 6,000 shares 1,160,376 601,433
Rescission reduced on 8/4/97 by 6,000 shares 1,160,376 595,433
Rescission reduced on 9/5/97 by 25,000 shares 1,160,376 580,433
Stock sold during the year:
PK 40,000 0
Lasmanis 2,212 0
Grant/Exercise of warrants:
Assumed issued and outstanding - beginning of period 50,962 0
Detachable Warrants 22,259 4.00 89,036 5.00 17,807 4,452
End of period 09/30/97 Weighted average share outstanding
Net loss
Net loss per share
<CAPTION>
PRIMARY EARNINGS PER SHARE: NINE MONTHS ENDED SEPTEMBER 30, 1997 10/01/97
Total Grant/Purch. Days Weighted
Shares Date Outstanding Shares
------ ---- ----------- ------
<S> <C> <C> <C>
Common Stock
Assumed issued and outstanding - beginning of period 552,943 01/01/97 211 116,670,973
Rescission reduced on 8/1/97 by 6,000 shares 558,943 08/01/97 4 2,235,772
Rescission reduced on 8/4/97 by 6,000 shares 564,943 08/04/97 32 18,078,176
Rescission reduced on 9/5/97 by 25,000 shares 579,943 09/05/97 26 15,078,518
-------------------------------
273 152,063,439
Stock sold during the year:
PK 40,000 04/21/97 163 6,520,000
Lasmanis 2,212 04/23/97 161 356,132
Grant/Exercise of warrants:
Assumed issued and outstanding - beginning of period 50,962 01/01/97 273 13,912,626
Detachable Warrants 07/10/97 83 369,499
--------------
173,221,696
273
--------------
End of period 09/30/97 Weighted average share outstanding 634,512
Net loss (1,883,785)
--------------
Net loss per share (2.97)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JUL-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 0 9,827
<SECURITIES> 0 0
<RECEIVABLES> 0 71,658
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 729,634
<PP&E> 0 249,552
<DEPRECIATION> 0 124,930
<TOTAL-ASSETS> 0 863,809
<CURRENT-LIABILITIES> 0 1,736,846
<BONDS> 0 1,700,000
0 0
0 0
<COMMON> 0 2,683,318
<OTHER-SE> 0 127,659
<TOTAL-LIABILITY-AND-EQUITY> 0 863,809
<SALES> 0 0
<TOTAL-REVENUES> 75,754 264,399
<CGS> 31,142 131,931
<TOTAL-COSTS> 553,422 1,892,167
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 52,179 140,650
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (560,399) (1,883,785)
<EPS-PRIMARY> (.85) (2.97)
<EPS-DILUTED> (.85) (2.97)
</TABLE>
