<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 March 31, 1999.
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.)
4206F Technology Court
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:
Common Stock, $ .01 Par Value: 6,588,354 shares outstanding as of March 31,
1999
Transitional Small Business Disclosure Format (check 0ne):
Yes No X
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INDEX
<TABLE>
<CAPTION>
Part I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements
Balance Sheet--March 31, 1999 3
Statements of Operations--Three Months Ended March 31, 1998 and 1999 4
Statements of Cash Flows--Three Months Ended March 31, 1998 and 1999 5
Notes to Financial Statements--March 31, 1999 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 9
Part II. OTHER INFORMATION
Items 1-6 Including Exhibits and Reports on Form 8-K 14
Signatures 16
</TABLE>
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DIDAX INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AT MARCH 31, 1999 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,086,280
Short-term investments 4,562,076
Accounts receivable including unbilled of $283,345
at March 31, 1999 875,300
Prepaid expenses 10,207
Deposits 965
Inventory 16,501
Deferred costs 51,360
Notes receivable from officers 93,000
------------
Total current assets 11,695,689
LONG TERM INVESTMENTS 6,367,348
PROPERTY AND EQUIPMENT, net 403,972
OTHER ASSETS:
Prepaid expenses 2,000
Deposits 55,893
Deferred costs 18,216
Intangible assets, net 44,034
------------
Total other assets 120,143
------------
$ 18,587,152
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 496,696
Accrued liabilities 481,701
Deferred revenue 64,147
------------
Total current liabilities 1,042,544
OTHER LIABILITIES:
Accounts payable 55,734
------------
Total liabilities 1,098,278
COMMITMENTS AND CONTINGENCIES -
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 20,000,000 shares
authorized 6,588,354 shared issued and outstanding at March 31, 1999 65,883
Common stock warrants 666,722
Additional paid-in capital 29,429,709
Accumulated deficit (12,657,004)
Accumulated other comprehensive income/(loss):
Net unrealized loss on available-for-sale securities (16,436)
------------
Total stockholders' equity 17,488,874
------------
$ 18,587,152
============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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DIDAX INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
-------------------------------
1998 1999
------------ -----------
OPERATING REVENUES:
<S> <C> <C>
Sponsorship/Advertising sales $ 15,730 $ 973,470
Retail sales 26,120 48,188
Consulting services 47,953 53,401
----------- -----------
Total operating revenues 89,803 1,075,059
OPERATING EXPENSES:
Cost of goods and services 39,401 653,490
Crosswalk operations 236,522 768,785
Sales and marketing 249,626 659,903
General and administrative 372,354 390,570
----------- -----------
Total operating expenses 897,903 2,472,748
----------- -----------
LOSS FROM OPERATIONS (808,100) (1,397,689)
OTHER INCOME (EXPENSE):
Interest income 58,132 139,446
Gain/(loss) on disposal of assets - (2,554)
Interest expense (1,752) -
----------- -----------
Total other income (expense) 56,380 136,892
----------- -----------
NET LOSS $ (751,720) $(1,260,797)
=========== ===========
Net loss per common share (basic) $ (0.24) $ (0.23)
=========== ===========
Weighted average number of common
shares outstanding 3,172,204 5,439,853
=========== ===========
Net loss per common share (diluted) $ (0.24) $ (0.23)
=========== ===========
Weighted average number of common
shares outstanding 3,172,204 5,439,853
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 5
DIDAX INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------------------
1998 1999
-------------- --------------
CASH FLOWS FOR OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (751,720) $ (1,260,797)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 24,917 43,349
Disposal of fixed assets - 2,554
Changes in assets and liabilities affecting operations:
Accounts receivable 20,649 (522,892)
Prepaid expenses 6,623 (9,987)
Deposits - (795)
Inventory - (8,682)
Deferred costs - (34,646)
Accounts payable 145,389 395,512
Accrued liabilities 34,135 (59,740)
Deferred revenue (9,558) 39,417
------------ ------------
Net cash used in operating activities (529,565) (1,416,707)
------------ ------------
CASH FLOWS FOR INVESTING ACTIVITIES:
Purchases of property and equipment (108,041) (125,495)
Purchase of investments - (8,202,583)
------------ ------------
Net cash used in investing activities (108,041) (8,328,078)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock and warrants (2,125) 14,586,614
Deferred costs (1,205) 10,000
------------ ------------
Net cash (used in) provided by financing activities (3,330) 14,596,614
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (640,936) 4,851,829
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 5,443,781 1,234,451
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,802,845 $ 6,086,280
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
INFORMATION:
Interest paid $ 1,756 $ -
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 6
DIDAX INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1999
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 three month period ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999. For further information, refer to the financial statements
and footnotes thereto included in DIDAX INC's 1998 Form 10-KSB.
B. THE COMPANY AND ACQUISITION
On February 23, 1998, DIDAX INC. ("DIDAX") purchased all of the outstanding
shares of gofishnet.com, inc. for 130,292 shares of DIDAX's common stock.
gofishnet.com, inc. ("gofishnet"), an Internet retailer of Christian music and
videos, operates as a wholly owned subsidiary of DIDAX. DIDAX accounted for the
merger as a pooling of interests based on the guidelines described in Accounting
Principles Board No. 16, "Business Combinations". Accordingly, the financial
statements presented for the three months ended March 31, 1998 and 1999,
respectively are presented on a consolidated basis.
DIDAX's and gofishnet's (collectively "the Company") business includes the
development and aggregation of Internet content and services; advertising,
sponsorship and royalty sales; and the resale of products specifically designed
to meet the needs of Christian users of the Internet and World Wide Web. 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 market awareness and
acceptance of its product, the website www.crosswalk.com(TM) ("crosswalk.com"),
through marketing and sales initiatives planned by the Company.
In prior periods, the Company was considered a development stage entity
according to Statement of Financial Accounting Standard ("SFAS") No. 7,
"Accounting and Reporting by Development Stage Enterprises." SFAS No. 7 states
that a development stage enterprise is one in which either the "planned
principal operations have not commenced" or "planned principal operations have
commenced, but there has been no significant revenues therefrom." DIDAX INC. was
previously categorized as a development stage entity based on the second
criterion. It is management's opinion that the Company no longer meets the
criteria of SFAS No. 7 and therefore is no longer considered a development stage
enterprise. Accordingly, the Company's financials no longer include the
cumulative-to-date information that is required to be disclosed by development
stage companies.
C. CASH AND CASH EQUIVALENTS, SHORT AND LONG-TERM INVESTMENTS
The Company invests in U.S. government bonds and treasury notes and corporate
bonds. All highly liquid instruments with an original maturity of three months
or less are considered cash equivalents, those with original maturities greater
than three months and current maturities less than twelve months from the
balance sheet date are considered short-term investments, and those with
maturities greater than twelve months from the balance sheet date are considered
long-term investments.
The Company's marketable securities are classified as available-for-sale as of
the balance sheet date and are reported at fair value, with unrealized gains and
losses, net of tax, recorded in shareholders' equity. Realized gains or losses
and permanent declines in value, if any, on available-for-sale securities are
reported in other income or expense as incurred.
Securities available-for-sale in the accompanying balance sheet at March 31,
1999 include $8,426,455 (of which $3,864,379 are included in Cash and Cash
Equivalents since they have original maturities of three months or less), with
contractual maturities of one year or less, and $6,367,348, with contractual
maturities of one through five years. Expected maturities may differ from
contractual maturities as a result of the Company's intent to sell these
securities prior to maturity. The Company did not earn any realized gains and
losses for the three months ended March 31, 1999, as none of the investments
were sold during the period. The Company's has recorded unrealized losses of
$16,436 as of March 31, 1999.
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DIDAX INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1999
C. CASH AND CASH EQUIVALENTS, SHORT AND LONG-TERM INVESTMENTS
(CONTINUED)
The aggregate market value, cost basis, and unrealized gains and losses of
securities available for sale, by major security type, as of March 31, 1998 and
1999, are as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized
Market Value Cost Basis Gains Losses
------------ ---------- ----- ------
<S> <C> <C> <C> <C>
Total at March 31, 1998 $ -- $ --- $ --- $ ---
================= ================= ======== ========
U.S. Govt. Debt Securities $ 10,332,239 $ 10,344,651 $ 4,363 $(16,775)
Corporate Debt Securities 4,461,564 4,465,588 --- (4,024)
----------------- ----------------- -------- --------
Total at March 31, 1999 $ 14,793,803 $ 14,810,239 $ 4,363 $(20,799)
================= ================= ======== ========
</TABLE>
The above table discloses the values of the Company's total investment
portfolio, which is comprised of $3,864,379 in Cash and Cash Equivalents,
$4,562,076 in Short-term Investments, and $6,367,348 in Long-Term Investments,
for a total fair value of $14,793,803.
D. COMPREHENSIVE INCOME
During the period ended March 31, 1999, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." This pronouncement established standards for
the reporting and display of comprehensive income and its components in the
financial statements. Comprehensive income is defined as the change in equity of
a business enterprise during a period from transactions and other events and
circumstances from non-owner sources. Accordingly, the Company presents the
elements of comprehensive income, which included net income and unrealized
losses on available-for-sale securities. For the three months ended March 31,
1999, the Company recorded a comphensive loss of $1,277,233.
E. BARTER TRANSACTIONS
Barter transactions, amounting to forty-nine percent of revenues for the three
months ended March 31, 1999, are recorded at the lower of the estimated fair
value of the goods or services received or the estimated fair value of the
services given. Barter transactions consist of providing hosting services in
return for product price discounts, web development services in return for
advertising space in the customer's magazine, and website presence on
crosswalk.com in exchange for advertising space on the customer's website, other
web related services, magazine advertisements, promotions at conferences or
other related marketing services. The revenues and equivalent cost of sales from
these barter transactions are recorded in the month in which the services are
provided and/or received and are recorded in the revenue category commensurate
with the product or service rendered.
F. NOTES PAYABLE
In the first quarter of 1997, gofishnet borrowed $37,230 at an interest rate of
7% from a former principal. gofishnet borrowed an additional $45,000 at an
interest rate of 10% from the same source during the third and fourth quarters
of 1997. gofishnet recognized $1,756 interest expense for the three months ended
March 31, 1998, in connection with these notes. Both notes were due and repaid
in full on April 1, 1998.
G. RELATED PARTY TRANSACTIONS
At March 31, 1998 and 1999, the Company had notes receivable due from officers
of the Company totaling $93,000. The Company is collecting interest on these
notes through payroll deductions at the minimum federal statutory rate at the
time of issuance of 5.7%. The notes are due to be repaid on October 31, 1999.
In the first quarter of 1997, gofishnet borrowed $37,230 at an interest rate of
7% from a former majority shareholder. gofishnet borrowed an additional $45,000
at an interest rate of 10% from the same individual during the third and fourth
quarters of 1997. Both notes were due and repaid in full on April 1, 1998. See
Note G.
To enhance process and achieve product efficiencies, the Company hired Corporate
Resource Development, Inc. ("CRD") in February 1998, for consulting services for
the period March 1, 1998 through May 31, 1998. A member of DIDAX's board of
directors is
7
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DIDAX INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1999
G. RELATED PARTY TRANSACTIONS (CONTINUED)
CRD's Chairman and CEO. The Company paid out a total of $62,500, plus out of
pocket expenses and granted options to purchase a total of 17,145 shares of the
Company's Common Stock at $2.185 per share, which was the market price at the
time of the grant.
In 1998, gofishnet rented office space and equipment from a company whose
principals are also former principals of gofishnet and current shareholders of
DIDAX. The Company believes that the cost incurred for the use of this office
space and equipment was at fair market value.
I. NET LOSS PER COMMON SHARE
As required by SFAS No. 128, the following is a reconciliation of the basic and
diluted EPS calculations for the periods presented:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Net loss (numerator) $ (751,720) $(1,260,797)
Weighted average shares (denominator) 3,172,204 5,439,853
Basic net loss per share $ (0.24) $ (0.23)
=========== ===========
Dilutive shares (denominator) 3,172,204 5,439,853
Diluted net loss per share $ (0.24) $ (0.23)
=========== ===========
</TABLE>
As required by Securities and Exchange Commission (SEC) Staff Accounting
Bulletin No. 98, the above calculation of EPS is based on SFAS No. 128 "Earnings
Per Share." Thus, 55,414 stock options and purchase warrants granted at below
market prices outstanding in the three months ended March 31, 1998, and 1999,
are not included in the calculation of diluted EPS as their inclusion would be
anti-dilutive.
J. SUBSEQUENT EVENTS
TECHNOLOGY
The Company believes that its future success is dependent on its ability to
continuously improve the speed and reliability of crosswalk.com, enhance
communications functionality with its consumers and maintain the highest level
of information privacy and transaction security. Continuous system enhancements
are primarily intended to accommodate increased traffic across the Company's Web
site, improve the speed with which purchase requests are processed and heighten
Web site security, which will be increasingly important as the Company offers
new services. With this in mind, the Company began implementing, in April 1999,
the migration of database systems from Windows NT and SQL Server to an Oracle8
Enterprise UNIX based environment served by SUN Microsystems hardware
technology. The 1999 cost of this migration will be approximately $433,000 for
the related software licenses, training, and technical support and approximately
$51,000 for the related hardware. For the years 2000 through 2002, the Company
expects to incur a total approximately $241,000 for technical support, this
means that the migration and related services will cost a total of approximately
$725,000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
BACKGROUND
DIDAX INC. ("the Company") is primarily known as the creator of
crosswalk.com(TM) (WWW.CROSSWALK.COM). crosswalk.com(TM) ("crosswalk.com") is an
interactive Web site, which provides information and resources that the Company
believes generally appeals to the Christian community. The information and
resources are developed and made available both by the Company and by Christian
and secular retailers, publishers, charities and ministries. The Company
generates revenues through the sale of sponsorships and advertising; the online
retailing of Christian and family-friendly products manufactured or developed by
others (primarily CDs, tapes, and other articles generally appealing to the
Christian marketplace); royalties and referral fees from co-marketing
relationships; and to a lesser extent, the continuing provision of technology
services, including services related to Web site development and hosting, to
Christian organizations (the "Consulting Services"). On Wednesday, May 5, 1999,
the Company's shareholders of record, as of the close of business on March 19,
1999, approved an amendment to the Company's Certificate of Incorporation to
change the name of the Company to crosswalk.com. As a result, the Company will
be reporting as crosswalk.com in future quarters.
The Company has transitioned from deriving the majority of its revenues from
providing Consulting Services to Christian organizations as mentioned above, to
revenue generation through: the sale of sponsorship and advertising
opportunities on crosswalk.com, direct retail sales, and royalties/fees from the
sale of Christian interest products manufactured or developed by others
(primarily CDs, tapes, and other articles generally appealing to the Christian
marketplace). The Company's strategy going forward is one of making
crosswalk.com a community portal with deep Channel content and a breadth of
information for Christians, not just Christian information. It is the Company's
belief that this strategy, coupled with crossmedia marketing and promotional
activities, will accelerate traffic resulting in revenue growth over time. The
Company plans to continue enhancing crosswalk.com in order to become the
preferred online resource for Christians in search of information, interaction
and involvement opportunities that help them apply a Christian world view across
the breadth of their life and interests.
95% of the Company's first quarter 1999 revenue was generated from sponsorships
and advertising and retail sales, as compared to 46% in the first quarter of
1998. Additionally, the Company's progress in developing crosswalk.com is
evidenced by the growth in membership and page views. Membership in
crosswalk.com is free and simply requires filling out an online registration
form with one's name, e-mail address, and limited demographic data. Page views
are a measure of total pages viewed by visitors to crosswalk.com in a month. At
March 31, 1999, the Company had 187,500 members as compared to 74,287 members at
March 31, 1998, an annual growth rate of 252%. Average monthly page views
tallied in the first quarter of 1999 reached 4,150,000, up from 601,300 for the
comparable quarter a year earlier, for a growth of 690% from first quarter 1998
to first quarter 1999. To the extent membership in crosswalk.com continues to
increase, and the Company continues to generate sponsorships and place
advertisements on crosswalk.com, management believes that crosswalk.com's
sponsorship and advertising revenues should increase. The opportunity for the
Company to begin generating significant sponsorship and advertising and retail
revenues is predicated upon increasing membership and traffic in the form of
page views on crosswalk.com.
During the first quarter of 1999, the Company enhanced crosswalkMoney(TM) and
crosswalkCareers(TM). crosswalkMoney(TM) provides members with information for
Biblical financial stewardship and opportunities to invest their money
consistent with Christian values. Some new crosswalkMoney(TM) sponsorships and
services include: online banking provided by Security First Network Bank, online
tax preparation provided by Tax Prep 1, online trading provided by National
Discount Brokers, mortgage relocation services provided by Home Buyers Fair, an
online educational stock market game provided by VirtualStockExchange.com(TM),
hedge fund investment opportunities provided by Genesis Social Fund Management,
Inc. ("Genesis"), and financial advice from Christian Financial Concepts
("CFC"). In addition to career counseling services, job postings, and resume
posting opportunities, crosswalkCareers(TM) now provides personalized counseling
services and enhanced content from Alston-Kline, Inc.. In addition, the Company
launched a beta version of the HomeSchool(TM) Channel, improved the Spiritual
Life(TM) channel, and began development of the Health Channel. The
HomeSchool(TM)Channel includes reviews of curriculums; the sale of curriculums;
information explaining how to start homeschooling, including access to state and
federal home school organizations; an online support group; and continuously
fresh content such as the Backyard Scientist, a column describing science
experiments that can be performed at home with household
9
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elements. In March 1999, the Company signed a sponsorship agreement with Lean
Bodies Holdings Ltd. ("Lean Bodies") of Dallas, Texas, that includes joint
development of and revenue-sharing in the Health Channel. Lean Bodies will
provide editorial direction, initial development funding, and ongoing
sponsorship of the channel; the Company will manage the business, technical and
marketing responsibilities. The Health Channel will also serve as a Web retail
presence for Lean Bodies' "Anywhere Bars," a low-fat protein/carbohydrate based
energy snack, and the upcoming Lean Bodies "Anywhere Meals" infomercial
campaign. Anywhere Meals are a unique new collection of "real food" meals that
are shelf-stable and heat up in the box with no electricity required, making
them attractive to consumers focused on healthy diets, convenience, and energy
conservation, as well as on year 2000 preparations. Also, in the first quarter
of 1999, the Company provided the first ever netcast of the 30th Annual Dove
Awards. Approximately 16,000 visitors "attended" the netcast on
crosswalkMusic(TM), which was the only place where the awards could be seen
live. This was pronounced a success by RealNetworks, Inc., which provided the
audio-only and video formats of the netcast, based on the recorded audience
size. In addition, crosswalkMusic(TM) was named the "#1 Christian Music Web
Site" by the Mining Company, an Internet watchdog. Multi-year contracts, such
as CFC, Lean Bodies, and Genesis, should provide on-going revenues, content,
and increased traffic on crosswalk.com.
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 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 March 31,
1999, the Company had an accumulated deficit of $12,657,004.
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 may 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 sponsorships and advertising space
on and crosswalk.com and very limited sales of products via crosswalk.com. The
Company plans to significantly increase its sales and marketing efforts and fund
greater levels of crosswalk.com operations. 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
THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
NET LOSS
For the quarter ended March 31, 1999, the Company incurred a net loss of
$1,260,797 as compared to a net loss of $751,720 for the same quarter in 1998.
This increased loss of $509,077 (68%) was due primarily to an increase in
Operating Expenses, offset in part by increases in revenues and other income.
The increased loss consisted of a $960,756 (112%) increase in Operating Expenses
for the three months ended March 31, 1999 as compared to the three months ended
March 31, 1998, offset to an extent by $371,167 (736%) increase in gross margin
and an $80,512 (143%) increase in Other Income. Other Income increased largely
as a result of an $81,314 (140%) increase in interest income.
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REVENUES
The Company generated $985,256 or 1,097% more revenue in the three months ended
March 31, 1999 than in the same period in 1998. The $1,075,059 of revenue earned
in the first quarter of 1999 consisted of $973,470 from Sponsorships and
Advertising, $48,188 from Retail Sales, and $53,401 from Consulting Services,
while the $89,803 of revenue earned in the first quarter of 1998 consisted of
$15,730 from Sponsorships and Advertising, $26,120 from Retail Sales, and
$47,953 from Consulting Services. The quarter on quarter change in revenue mix
is a 6,089% ($957,740) increase in sponsorship/advertising revenue, an 84%
($22,068) increase in retail revenue, and an 11% ($5,448) increase in consulting
revenue. Barter agreements which allow for the exchange of goods and services
such as advertising, marketing, and content services on the Company's and the
customer's Internet websites, amounted to forty-nine percent of the revenue
earned in the first quarter of 1999. Sponsorship/advertising revenues increased
due to the Company's growing emphasis on establishing more topical channels
generally believed to be of interest to the Christian market niche. According to
the Company's business model, the Company plans to increase the number of
channels to cover all of life from the Christian perspective. In the period
ended March 31, 1999, crosswalk Money(TM) earned $529,305 of revenue,
crosswalkCareers(TM) earned $52,900 of revenue, and crosswalkMusic(TM)
earned $55,853 of revenue. The Company did not earn any sponsorship revenues in
the first quarter of 1998. Retail revenues increased in the first quarter of
1999 due to increased marketing efforts, product offerings, and site
enhancements. Consulting Service revenues increased slightly, in the three
months ended March 31, 1999, due to an increase in web development rates and the
use of consultants to perform a majority of the web development services for the
Company's clients. The use of consultants enabled the Company to complete a
greater amount of web development and thus bill a larger amount of web
development hours in the first quarter of 1999 as compared to the same quarter
in 1998. Internet access revenues are now being classified in Consulting
Services due to their immateriality. The decline in Internet acccess revenues
results from the Company's decision to discontinue marketing Internet Access
services in 1996. The Company also anticipates a decline in Consulting Services
revenues in future quarters due to the transition to being a community builder
from being a web development services provider in 1998. With continued growth in
site traffic, service enhancements, and marketing resources dedicated to retail,
sponsorship, and advertising revenue opportunities, the Company hopes to achieve
continued progress in these revenue streams.
COST OF GOODS AND SERVICES
Cost of goods and services, consisting of costs related to the development and
integration of client content on crosswalk.com; retailing Christian interest
products on crosswalk.com; and development, maintenance, and support of customer
websites; was $653,490 and $39,401 for the quarters ended March 31, 1999 and
1998, respectively. The Company's gross margin for the quarter ended March 31,
1999 decreased to 39% from 56% for the same period in 1998. This decrease is due
primarily to the increase in barter transactions, which accounted for forty-nine
percent of revenues in the three months ended March 31, 1999.
CROSSWALK.COM OPERATIONS
In the first quarter of 1999, the Company combined Product Development and
Crosswalk Operations under the management of one individual. As a result, the
two departments are now being reported externally under Crosswalk Operations.
Crosswalk.com operational expenses, consisting primarily of costs related to the
Company's development, maintenance, and enhancements for the Company's
intractive Web site (crosswalk.com), increased to $768,785 for the three months
ended March 31, 1999, as compared to $236,522 for the same period in 1998. The
cost of Crosswalk.com operations increased by 225% ($532,263) due to the
Company's shift from being a consulting services company to being a consumer
focused community portal. The largest portion of the increase ($297,187 or 164%)
is due to increases in staffing and wages. The Company has greatly expanded its
development staff in order to provide continuous improvements of crosswalk.com's
products and services. The next largest increase in costs ($70,385 or 511%) was
in content expense. The Company now purchases a larger amount of content from a
wider variety of sources and on many more topics due to the increased number of
channels and the depth of those channels on crosswalk.com. In addition, there
were increases in consulting, travel, health insurance, supplies, communications
and depreciation expense.
11
<PAGE> 12
SALES AND MARKETING
In the first quarter of 1999, sales and marketing expenses were $659,903 as
compared to $249,626 for the first quarter of 1998. Sales and marketing expenses
increased 164% ($410,277) largely due to the Company's continued investment in
its cross-media marketing campaign to promote the re-branded crosswalk.com. The
marketing campaign consisted of advertising and promotion in 150 Christian radio
markets, online links from search engines, and ads in Christian periodicals. The
Company believes that it will continue to incur substantial marketing expenses
as it seeks to increase market awareness of crosswalk.com.
GENERAL AND ADMINISTRATIVE
The Company increased its general & administrative (G&A) costs slightly in the
first quarter or 1999, to $390,570 from $372,354 in the first quarter of 1998.
This 5% increase ($18,216) is due largely to increases in office operating costs
due to increases in headcount, satellite locations, and bandwidth required to
support traffic growth on crosswalk.com.
INTEREST INCOME AND INTEREST EXPENSE
Interest income increased 140% to $139,446 from $58,132 for the quarters ended
March 31, 1999 and 1998, respectively. This $81,314 increase is due to the
investment of the proceeds from the redemption of the warrants and the Company's
IPO.
Interest expense was $ 0 and $1,752 for the quarters ended March 31, 1999 and
1998, respectively. The $1,752 (100%) decrease in interest expense is due to the
repayment, in April 1998, of the $82,230 note payable that was outstanding at
March 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
During the quarters ended March 31, 1999 and 1998, net cash used in operating
activities was $1,416,707 and $529,565, respectively. Net cash used in
investment activities was $8,328,078 and $108,041 for the quarters ended March
31, 1999 and 1998, respectively. In the three months ended March 31, 1999, the
Company invested the proceeds from the redemption of the warrants in U.S.
government bonds and treasury notes and Standard and Poors A-1 or AA rated
corporate bonds. Net cash provided by financing activities was $14,596,614 for
the quarter ended March 31, 1999. Net cash used by financing activities was
$3,330 for the quarter ended March 31, 1998. In the quarter ended March 31,
1999, cash provided by financing activities consists of the receipt of
$14,586,614 from the exercise of 2,561,400 Common Stock Purchase Warrants and
24,948 Common Stock Options. The Common Stock Purchase Warrants were exercised
after the Company exercised its right to call them based on the term's of the
Purchase Warrant Agreement. The redemption date was February 12, 1999.
The Company currently anticipates that its $10,653,145 working capital balance
at March 31, 1999, consisting primarily of the proceeds from the exercise of the
Common Stock Purchase Warrants, as previously described, and the remaining
proceeds from the Company's initial public offering after the debt liquidation
and liquidation of accrued offering costs, will be sufficient to meet the
Company's anticipated working capital, lease commitments, and capital
expenditure requirements for the next twelve months. However, the Company
anticipates that it may seek to raise additional funds in order to expand its
marketing campaign and crosswalk.com Channel deployment, and to pursue potential
leveraged joint marketing opportunities, 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.
12
<PAGE> 13
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
As a result of the Company's extremely limited operating history and the rapid
technological change experienced in the Internet industry generally, 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 its
expectations as to future revenues, of which there can be no assurance. There
can be no assurance that the Company will be able to accurately predict the
levels of future revenues, if any, and the failure to do so would have a
materially adverse effect on the Company's business, results of operations and
financial condition.
The Company expects to experience significant fluctuations in future quarterly
operating results that may be caused by multiple factors. Causes of such
significant fluctuations may include, among other factors, demand for the
Company's services, the number, timing and significance of new service
announcements by the Company and its competitors, acceptance of its marketing
initiatives, the ability of the Company to develop, market and introduce new and
enhanced versions of its services on a timely basis, the level of product and
price competition, changes in operating expenses, changes in service mix,
changes in the Company's sales incentive strategy, and general economic factors.
The Company's operating expense levels are based, in significant part, on the
Company's expectations of future revenue on a quarterly basis. If actual revenue
levels on a quarterly basis are below management's expectations, both gross
margins and results of operations are likely to be adversely affected because a
relatively small amount of the Company's costs and expenses varies with its
revenue in the short term.
YEAR 2000 COMPLIANCE STATUS
Many existing computer programs use only two digits to identify a year in the
date field. These programs, which were developed without considering the impact
of the upcoming change in the century, could fail or create erroneous results by
or at the year 2000. The Company has reviewed its internal programs, and has
determined that there are no material year 2000 issues within the Company's
current systems or services. The Company is in the process of soliciting replies
from its material customers, vendors and financial service providers to
determine any risk of year 2000 issues. As of the date herein, no material year
2000 issues have been identified, however, the Company cannot be certain that
its customers, vendors or financial services providers will not have year 2000
issues until evaluation of replies to the Company's year 2000 initiative is
complete. Should the issues as noted above, or any other year 2000 related
issues that are currently unknown to the Company occur, they could have a
material adverse effect on the Company's business, operating results and
financial condition.
FORWARD LOOKING STATEMENTS
Certain information in this quarterly report on Form 10-QSB may contain
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. All statements other than statements of
historical fact are forward-looking statements for purposes of these provisions,
including any projections of earnings, revenues or other financial items, any
statements of the plans and objectives of management for future operations, any
statements concerning proposed new products or services, any statements
regarding future economic conditions or performance, and any statement of
assumptions underlying any of the foregoing. In some cases, forward-looking
statements can be identified by the use of terminology such as "may," "expects,"
"believes," "plans," "anticipates," "estimates," "potential," or "continue," or
the negative thereof or other comparable terminology. Although the Company
believes that the expectations reflected in its forward-looking statements are
reasonable, it can give no assurance that such expectations or any of its
forward-looking statements will prove to be correct, and actual results could
differ materially from those projected or assumed in the Company's
forward-looking statements.
13
<PAGE> 14
PART II
ITEM 1. LEGAL PROCEEDINGS
None to report.
ITEM 2. CHANGE IN SECURITIES
None to report.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None to report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On Wednesday, May 5, 1999, the Company held its Annual Meeting of
Stockholders. Proxies for the meeting were solicited pursuant to Regulation 14A
under the Exchange Act.
(b) The Company's shareholders of record, as of the close of business on March
19, 1999, approved the election of the following individuals to the Company's
Board of Directors, all of whom served as directors of the Company on the date
of the meeting and made up the entire Board of Directors. Each director will
hold office until the annual meeting of stockholders in the year 2000 or until
his successor is duly elected and qualified.:
James G. Buick
William M. Parker
Dane B. West
William H. Bowers
Robert C. Varney, Ph.D.
Bruce E. Edgington
John J. Meindl, Jr.
Clay T. Whitehead
Earl E. Gjelde
W.R. 'Max' Carey
(c) The results of the vote on the election of nominees to the Company's Board
of Directors was 5,661,128 shares for all members with 80,915 shares
withholding, and there were 825,963 Broker non-votes. Thus by plurality of the
votes cast, the Board stands elected.
The second matter voted upon was an amendment to the Company's Certificate of
Incorporation to change the name of the Company to crosswalk.com. The result of
the election was 5,729,463 shares voting for the proposal, 5,329 shares voted
against, 7,151 shares voted to abstain, and there were. 825,963 Broker
non-votes. Thus by majority of the votes cast, the amendment to the Company's
Certificate of Incorporation to change the name of the Company to crosswalk.com
was approved.
The third matter voted upon was an amendment to the 1998 Stock Option Plan
(the "1998 Plan") to add 400,000 shares to the 1998 Plan. The Common Stock (the
"shares") subject to the 1998 Plan that may be purchased (through the exercise
of options) shall not exceed in the aggregate 800,000 shares. If any stock
options granted under the 1998 Plan shall terminate, expire or be canceled as to
any shares, new stock options may thereafter be granted covering such shares. In
addition, any shares purchased under this 1998 Plan subsequently repurchased by
the Company pursuant to the terms hereof may again be granted under the 1998
Plan. The shares issued upon exercise of stock options under the 1998 Plan may,
in whole or in part, be either authorized but unissued shares or issued shares
reacquired by the Company. The 1998 Plan will be administered by the Board of
Directors or by the
14
<PAGE> 15
Compensation Committee, at the directive of the Board of Directors. The result
of the election was 2,605,235 shares voting for the proposal, 175,814 shares
voted against, 35,185 shares voted to abstain and 3,751,672 Broker non-votes.
Thus by majority of the votes cast, the amendment to the 1998 Stock Option Plan
to add 400,000 shares to the 1998 Plan was approved.
The fourth matter voted upon was an amendment to the Company's Certificate of
Incorporation to provide for an authorized class of Preferred Stock, consisting
of 5,000,000 shares of Preferred Stock, par value $.001 per share, with rights,
preferences, and designation of such shares to be determined by the Company's
Board of Directors. The result of the election was 2,249,329 shares voting for
the proposal, 523,428 shares voted against, 43,477 shares voted to abstain and
3,751,672 Broker non-votes. Thus by majority of the votes cast, the amendment to
the Company's Certificate of Incorporation to provide for an authorized class of
Preferred Stock, consisting of 5,000,000 shares of Preferred Stock, par value
$.001 per share, with rights, preferences, and designation of such shares to be
determined by the Company's Board of Directors was approved.
Lastly, the Stockholders ratified and approved the ratification of the
selection of Hoffman, Morrison and Fitzgerald, P.C. as the Company's independent
accountants. The result of the election was 5,618,085 shares voting for the
proposal, 62,715 shares voted against, 61,143 shares voted to abstain, and there
were. 825,963 Broker non-votes. Thus by majority of the votes cast, the
selection of independent auditor was ratified.
(d) There were no settlements to report.
ITEM 5. OTHER INFORMATION
None to report.
ITEM 6. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
11 Computation of Earnings Per Share
27 Financial Data Schedules - For the Three Months Ended March 31, 1999
</TABLE>
(b) Reports on Form 8-K
None to report.
15
<PAGE> 16
SIGNATURES
In accordance with the requirements of Securities Act of 1934, DIDAX
INC., the registrant, has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DIDAX INC.
May 12, 1999 By: /s/ William M. Parker
---------------------
William M. Parker
Chief Executive Officer and President
May 12, 1999 By: /s/ Gary A. Struzik
-------------------
Gary A. Struzik, Chief Financial Officer and
Secretary, Chief Accounting Officer
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- -------- ----------- ----
<S> <C> <C>
11 Computation of Earnings Per Share 1-2
27 Financial Data Schedule - For Three Months Ended March 31, 1999 3-5
</TABLE>
16
<PAGE> 1
EXHIBIT 11
DIDAX INC.
COMPUTATION OF EARNINGS PER SHARE
31-Mar-99
<TABLE>
<CAPTION>
BASIC EARNINGS PER SHARE: 04/01/99
Net Shares Total Grant/Purch. Days
Added Shares Date Outstanding
------ ------ ---- -----------
<S> <C> <C> <C> <C>
Beginning balance 4,034,956 01/01/99 92
Stock sold during the year:
Grant/Exercise of warrants:
Assumed issued and outstanding - beginning of period 55,414 55,414 01/01/98 92
Purchase Warrants Exercised: 112,850 112,850 01/14/99 77
24,200 24,200 01/15/99 76
19,000 19,000 01/19/99 72
215,595 215,595 01/20/99 71
96,600 96,600 01/21/99 70
11,850 11,850 01/26/99 65
300 300 01/28/99 63
8,800 8,800 01/29/99 62
7,197 7,197 02/02/99 58
186,751 186,751 02/03/99 57
35,878 35,878 02/05/99 55
37,185 37,185 02/08/99 52
104,000 104,000 02/09/99 51
164,377 164,377 02/10/99 50
274,230 274,230 02/11/99 49
55,954 55,954 02/12/99 48
123,259 123,259 02/16/99 44
908,663 908,663 02/18/99 42
120,307 120,307 02/22/99 38
21,455 21,455 02/25/99 35
Options Exercised: 4,500 4,500 1/12/99 79
3,785 3,785 3/25/99 7
3,973 3,973 3/26/99 6
3,250 3,250 3/29/99 3
9,440 9,440 3/31/99 1
End of period
</TABLE>
<TABLE>
<CAPTION>
BASIC EARNINGS PER SHARE: Diluted Basic
Weighted Weighted
Shares Shares
------ ------
<S> <C> <C>
Beginning balance 371,215,952 371,215,952
Stock sold during the year:
Grant/Exercise of warrants:
Assumed issued and outstanding - beginning of period 5,098,08 -
Purchase Warrants Exercised: 8,689,450 8,689,450
1,839,200 1,839,200
1,368,000 1,368,000
15,307,245 15,307,245
6,762,000 6,762,000
770,250 770,250
18,900 18,900
545,600 545,600
417,426 417,426
10,644,807 10,644,807
1,973,290 1,973,290
1,933,620 1,933,620
5,304,000 5,304,000
8,218,850 8,218,850
13,437,270 13,437,270
2,685,792 2,685,792
5,423,396 5,423,396
38,163,846 38,163,846
4,571,666 4,571,666
750,925 750,925
Options Exercised: 355,500 355,500
26,495 26,495
23,838 23,838
9,750 9,750
9,440 9,440
------------------------ -------------------------
End of period 505,564,596 500,466,508
92 92
------------------------ -------------------------
5,495,267 5,439,853
(1,233,919) (1,233,919)
------------------------ -------------------------
(0.22) (0.23)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 6,086,280
<SECURITIES> 4,562,076
<RECEIVABLES> 875,300
<ALLOWANCES> 0
<INVENTORY> 16,501
<CURRENT-ASSETS> 11,695,689
<PP&E> 711,469
<DEPRECIATION> 307,497
<TOTAL-ASSETS> 18,587,152
<CURRENT-LIABILITIES> 1,042,544
<BONDS> 0
0
0
<COMMON> 29,495,592
<OTHER-SE> 666,722
<TOTAL-LIABILITY-AND-EQUITY> 18,587,152
<SALES> 0
<TOTAL-REVENUES> 1,075,059
<CGS> 653,490
<TOTAL-COSTS> 1,819,258
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,260,797)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
