<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, 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
Crosswalk.com, 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.)
4100 Lafayette Drive Suite110
Chantilly, VA 20151
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(703-968-4808)
- --------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
DIDAX, INC.
4206 Technology Court
Chantilly, VA 20151
- --------------------------------------------------------------------------------
(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: 7,541,286 shares outstanding as of September 30,
1999
Transitional Small Business Disclosure Format (check 0ne):
Yes No X
-------------- -------------
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Part I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements
Balance Sheets--September 30, 1999 3
Statements of Operations--Three Months and Nine Months Ended
September 30, 1998 and 1999
4
Statements of Cash Flows--Nine Months Ended September 30, 1999
5
Notes to Financial Statements--September 30, 1999 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 10
Part II. OTHER INFORMATION
Item 6. Including Exhibits and Reports on Form 8-K 17
Signatures 19
</TABLE>
2
<PAGE> 3
CROSSWALK.COM AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AT SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $4,629,137
Short-term investments 3,553,951
Accounts receivable including unbilled of $723,361, net of allowance for 2,179,279
doubtful accounts of $173,500 at September 30, 1999
Deposits 3,172
Inventory 12,390
Deferred costs 156,449
Notes receivable from officers 93,000
Other assets 14,850
------------------
Total current assets 10,642,228
LONG TERM INVESTMENTS 4,445,831
PROPERTY AND EQUIPMENT, net 1,628,332
OTHER ASSETS:
Deposits 60,209
Deferred costs 18,216
Intangible assets, net 6,642,195
------------------
Total other assets 6,720,620
------------------
$23,437,011
==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $1,085,814
Accrued liabilities 700,166
Deferred revenue 73,954
------------------
Total current liabilities 1,859,934
OTHER LIABILITIES:
Accounts payable 66,469
------------------
Total liabilities 1,926,403
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value, 5,000,000 shares authorized, no shares
issued and outstanding at September 30, 1999
Common stock, $.01 par value, 20,000,000 shares
authorized 7,541,286 shares issued and outstanding at September 30, 1999 75,413
Common stock warrants 127,659
Additional paid-in capital 37,979,486
Accumulated deficit (16,633,436)
Accumulated other comprehensive income/(loss):
Net unrealized loss on available-for-sale securities (38,514)
------------------
Total stockholders' equity 21,510,608
------------------
$23,437,011
==================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
CROSSWALK.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months For the Nine Months
Ended September 30, Ended September 30,
1998 1999 1998 1999
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Sponsorship/advertising sales $ 152,233 $ 2,038,602 $ 267,673 $ 4,513,267
Retail sales 40,435 96,882 100,330 222,645
Internet services 53,375 31,363 134,161 145,160
-------------------- ------------------ ------------------ -----------------
Total operating revenues 246,043 2,166,847 502,164 4,881,072
OPERATING EXPENSES:
Cost of goods and services 106,911 1,064,300 205,174 2,566,382
Crosswalk operations 421,981 1,377,257 980,280 3,199,966
Sales and marketing 163,771 1,661,416 641,521 3,001,502
General and administrative 307,854 761,091 1,047,358 1,671,783
------------------- ------------------ ----------------- -----------------
Total operating expenses 1,000,517 4,864,064 2,874,333 10,439,633
------------------- ------------------ ----------------- -----------------
LOSS FROM OPERATIONS (754,474) (2,697,217) (2,372,169) (5,558,561)
OTHER INCOME (EXPENSE):
Interest income 63,616 158,766 183,971 510,483
Gain/(loss) on assets - - - (2,554)
Miscellaneous income/expense 1 (186,525) (6) (186,525)
Interest expense - (73) (1,947) (73)
------------------ ------------------ ----------------- -----------------
Total other income (expense) 63,617 (27,832) 182,018 321,331
------------------ ------------------ ----------------- -----------------
NET LOSS $ (690,857) $ (2,725,049) $ (2,190,151) $ (5,237,230)
================== ================== ================= =================
Net loss per common share (basic) ($0.19) ($0.37) ($0.63) ($0.80)
================== ================== ================= =================
Weighted average number of common
shares outstanding 3,654,619 7,300,619 3,494,585 6,571,129
================== ================== ================= =================
Net loss per common share (diluted) ($0.19) ($0.37) ($0.63) ($0.80)
================== ================== ================= =================
Weighted average number of common
shares outstanding 3,654,619 7,300,619 3,494,585 6,571,129
================== ================== ================= =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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CROSSWALK.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
--------------------------------------------
1998 1999
-------------------- --------------------
<S> <C> <C>
CASH FLOWS FOR OPERATING ACTIVITIES:
Net loss $ (2,190,150) $ (5,237,230)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 93,941 433,737
Disposal of fixed assets - 2,522
Common Stock issued in lieu of cash for professional services - 40,000
Common Stock issued in lieu of cash for salaries - 38,654
Changes in assets and liabilities affecting operations:
Accounts receivable (100,446) (1,826,871)
Prepaid expenses - (952)
Deposits (8,384) (4,146)
Inventory - (4,571)
Deferred costs (76,138) (129,735)
Other Assets - (14,850)
Accounts payable 90,828 995,365
Accrued liabilities 64,911 158,725
Deferred revenue (1,270) 49,224
---------------- ---------------
Net cash used in operating activities (2,126,708) (5,500,128)
---------------- ---------------
CASH FLOWS FOR INVESTING ACTIVITIES:
Purchases of property and equipment (238,126) (1,589,457)
Purchase of intangible asset (5,000) (1,851,612)
Sales and maturities of investments - 5,072,145
Purchase of investments - (10,367,164)
---------------- ---------------
Net cash used in investing activities (243,126) (8,736,088)
---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock and warrants (22,414) 17,630,901
Repayment of notes payable (82,230) -
---------------- ---------------
Net cash (used in) provided by financing activities (104,644) 17,630,901
---------------- ---------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (2,474,478) 3,394,686
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,443,781 1,234,451
---------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,969,303 $ 4,629,137
================ ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
INFORMATION:
Interest paid $ 3,508 $ 73
================ ================
</TABLE>
SUPPLEMENTAL DISCLOSURE ON NON-CASH INVESTING AND FINANCING ACTIVITIES:
Purchase of "Investigator" software methodology for Common Stock totaling $50
and Additional Paid in Capital of $49,950 in August of 1998
Purchase of "GraceWeb" Web site for Common Stock totaling $100 and Additional
Paid in Capital of $97,400 in August
Purchase of "Wike Associates" for Common Stock totaling $4,948 and Additional
Paid in Capital of $4,795,049 in August
The accompanying notes are an integral part of these consolidated financial
statements.
5
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CROSSWALK.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1999
A. BASIS OF PRESENTATION
The accompanying unaudited consolidated 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 and the nine month periods ended
September 30, 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 consolidated financial statements and footnotes thereto included in
Crosswalk.com's ("Crosswalk") (formerly DIDAX) 1998 Form 10-KSB.
B. THE COMPANY
On August 13, 1999, Crosswalk completed the purchase of Wike Associates, Inc.
(dba "Media Management, Inc."), proprietors of the GOSHEN.net Web site for an
aggregate purchase price of $6,782,394, excluding closing costs, payable in
494,845 restricted and non-registered shares of the Company's common stock and
$1,982,397 cash. The transaction was treated as a purchase based on the
provisions outlined in APB No.16, "Business Combinations". The purchase
consisted primarily of intangible assets which will be amortized over five to
ten years. Pursuant to the terms of the agreement, Mr. Stephen Wike, President
of Wike Associates, Inc. joined the Company as Editor-in-Chief of Crosswalk.com
and was appointed a member of the Company's Board of Directors. Other key
employees have also executed employment agreements with the Company.
Prior to January 1, 1999, 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." The Company
was previously categorized as a development stage entity based on the second
criterion. In the first quarter of 1999, management determined that the Company
no longer met the criteria of SFAS No. 7 and therefore should no longer be
considered a development stage enterprise. Accordingly, the Company's
consolidated financial statements no longer include the cumulative-to-date
information that is required to be disclosed by development stage companies.
On February 23, 1998, Crosswalk purchased all of the outstanding shares of
gofishnet.com, inc. for 130,292 shares of Crosswalk's common stock.
gofishnet.com, inc. ("gofishnet"), an Internet retailer of Christian music and
videos, operates as a wholly owned subsidiary of Crosswalk. Crosswalk accounted
for the merger as a pooling of interests based on the guidelines described in
Accounting Principles Board ("APB") No. 16, "Business Combinations". The
financial statements presented for the three months and the nine months ended
September 30, 1998 and 1999, respectively are presented on a consolidated basis.
Crosswalk's, gofishnet's, and Media Management'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
the 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.
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.
6
<PAGE> 7
CROSSWALK.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1999
C. CASH AND CASH EQUIVALENTS, SHORT AND LONG-TERM INVESTMENTS
(CONTINUED)
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 September 30,
1999 include $9,745,026 of which $1,845,244 are included in Cash and Cash
Equivalents since they have original maturities of three months or less,
$3,553,951 with contractual maturities of one year or less, and $4,345,831 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 incurred a realized gain of $15,236
and $10,983 in the three months and the nine months ended September 30, 1999,
respectively. The Company has recorded an unrealized loss of $ 38,514 as of
September 30, 1999.
The aggregate market value, cost basis, and unrealized gains and losses of
securities available for sale, by major security type, as of September 30, 1999,
are as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized
Market Value Cost Basis Gains (Losses)
------------ ---------- ----- --------
<S> <C> <C> <C> <C>
U.S. Govt. Debt Securities $ 3,695,827 $ 3,714,953 $ --- $ (19,126)
Corporate Debt Securities 6,049,199 6,068,587 --- (19,388)
-------------- -------------- ----------- ----------
Total at September 30, 1999 $ 9,745,026 $ 9,783,540 $ --- $ (38,514)
============== ============== =========== ==========
</TABLE>
The above table discloses the values of the Company's total investment portfolio
at September 30, 1999, which is comprised of $1,845,244 in Cash and Cash
Equivalents, $3,553,951 in Short-term Investments, and $4,345,831 in Long-Term
Investments, for a total fair value of $ 9,745,026.
D. INTANGIBLE ASSETS
WIKE ASSOCIATES
On August 13, 1999, Crosswalk completed the purchase of Wike Associates, Inc.
(dba "Media Management, Inc."), proprietors of the GOSHEN.net Web site for an
aggregate purchase price of $6,782,394, excluding closing costs, payable in
494,845 restricted and non-registered shares of the Company's common stock and
$1,982,397 cash. Closing costs directly related to this transaction amounted to
$133,100 and Wike Associates net tangible assets on the closing were $265,222
leaving $6,650,272 in intangible assets. The transaction was treated as a
purchase based on the provisions outlined in APB No.16, "Business Combinations",
and the intangible assets will be amortized over five to ten years. Pursuant to
the terms of the agreement, Mr. Stephen Wike, President of Wike Associates, Inc.
joined the Company as Editor-in-Chief of Crosswalk.com and was appointed a
member of the Company's Board of Directors. Other key employees have also
executed employment agreements with the Company.
TRINITYZONE
In May 1999, the Company purchased the proprietary databases and methodology
underlying the online Christian bookstore known as TrinityZone.com, the
TrinityZone.com trade name, and the website by the same title
(www.trinityzone.com), for 10,000 five year options to purchase shares of the
Company's common stock at the then market price of $15.34 per share. In
addition, the Company has executed an employment agreement with a principal of
TrinityZone.com.
GRACEWEB AND LISTFARM
In June 1999, the Company purchased the proprietary databases and methodology
underlying the online marketing services known as GraceWeb and ListFarm, the
GraceWeb and ListFarm trade names, and the websites (referred to collectively as
"GraceWeb") by the same titles (www.graceweb.org and www.listfarm.com) for
10,000 restricted and unregistered shares of the Company's common stock.
7
<PAGE> 8
CROSSWALK.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1999
D. INTANGIBLE ASSETS (CONTINUED)
Based on the guidance provided in SFAS No. 123 "Accounting of Stock Based
Compensation," the Company determined the value of GraceWeb at $97,500, using
the Company's closing stock price on June 30, 1999 of $9.75, the transaction's
closing date. GraceWeb will be amortized over five years.
E. COMPREHENSIVE INCOME
According to the provisions of SFAS No. 130, "Reporting Comprehensive Income,"
the Company presents the elements of comprehensive income, which included net
income and unrealized losses on available-for-sale securities. For the three
months and the nine months ended September 30, 1999, the Company recorded
comprehensive losses of $ 2,709,813 and $ 5,275,744, respectively.
F. BARTER TRANSACTIONS
Barter transactions, amounting to forty-three percent and forty-seven percent of
revenues for the three months and the nine months ended September 30, 1999,
respectively, 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. The
Company enters into Barter transactions only when it believes that the services,
products and sponsorship received enhances the Company's brand recognition and
market share in a manner which the Company may not have been able to acquire
through other marketing or purchasing channels without incurring expense greater
than the value of the Barter received. Barter transactions consist of providing
website advertising, internet services, and access to proprietary software in
return for online and offline advertising, promotion and access to proprietary
software content. The revenues and equivalent cost of sales from these barter
transactions are recorded in the period in which the services are provided
and/or received and are recorded in the revenue category commensurate with the
product or service rendered.
G. RELATED PARTY TRANSACTIONS
At September 30, 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%. Notes in the amount of $55,500 are due to be repaid on October
31, 1999. Notes in the amount of $37,500 are due to be repaid on April 28, 2000.
Throughout 1998, gofishnet rented office space and equipment from a company
whose principals are also former principals of gofishnet and current
shareholders of Crosswalk. The Company believes that the cost incurred for the
use of this office space and equipment was at fair market value.
H. 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>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss (numerator) $ (690,857) $ (2,725,049) $ (2,190,151) $ (5,237,230)
Weighted average shares (denominator) 3,654,619 7,300,619 3,494,585 6,571,129
Basic net loss per share $ (0.19) $ (0.37) $ (0.63) $ (0.80)
---------- ------------- ------------ ------------
Dilutive shares (denominator) 3,654,619 7,300,619 3,494,585 6,571,129
Diluted net loss per share $ (0.19) $ (0.37) $ (0.63) $ (0.80)
========== ============ ============ ============
</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 and 47,498 stock options and purchase warrants granted
at below market prices outstanding in the three months and the nine months ended
September 30, 1998, and 1999, respectively, are not included in the calculation
of diluted EPS as their inclusion would be anti-dilutive.
8
<PAGE> 9
CROSSWALK.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1999
I. SUBSEQUENT EVENTS
RELOCATION
On November 1, 1999, the Company relocated it's corporate headquarters from 4206
F Technology Court, Chantilly, VA 20151 to 4100 Lafayette Center Drive, Suite
110, Chantilly, VA 20151, increasing the floor space from 6,100 square feet to
10,585 square feet with an additional 2,945 square feet opening later the same
month for total floor space of 13,530 square feet. Under the new lease, the
Company provided a $100,000 letter of credit to the lessor. The Company's new
monthly rent for the combined spaces is $21,422 whereas previously it was $8,805
per month.
ACQUISITION
On October 1, 1999, the Company purchased the "Laugh-A-Lot Mailing List" for
$8,272.25 cash. This asset will be amortized over five years. The list
encompasses 23,635 email addresses which the Company will be integrating into
crosswalk.com.
RELATED PARTY TRANSACTIONS
On November 10, 1999, the Company liquidated notes receivable due from officers
of the Company totaling $55,500.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
BACKGROUND
Crosswalk.com, Inc., gofishnet.com, inc. and Media Management, Inc.
(collectively "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 appeal 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 "Internet Services").
The Company's business model is based on making crosswalk.com a community portal
with deep Channel content and a breadth of information for Christians, not just
Christian information, drawing many from the broad Christian community offline
to an online experience where faith and life meet every day. 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.
In the third quarter of 1999, the Company completed the purchase of Wike
Associates dba Media Management including the Website GOSHEN.net, launched a
Family Channel sponsored by Family Life, a ministry of Campus Crusade for
Christ, launched a Sports Channel managed by former NFL quarterback Frank Reich,
released several new products, and continued to enhance its existing set of
service and product offerings. The Company added 25 new sponsors and advertisers
to crosswalk.com in the third quarter ended September 30, 1999, bringing to over
50, the number of organizations currently active on crosswalk.com.
The combination of these community building activities has been instrumental in
realizing increased traffic pattern on the crosswalk.com. Wike Associates dba
Media Management, was acquired on August 13, 1999. The acquisition was accounted
for as a purchase and the Company has established Media Management which
includes the Website GOSHEN.net, as a wholly owned subsidiary. The synergy of
this acquisition has already been seen as traffic on GOSHEN.net increased almost
forty percent during the third quarter. At GOSHEN.net which is now part of
crosswalk.com, there is an extensive searchable directory that can be used to
discover such Internet services as Web sites providing information about youth
group resources, or denominational publications, Christian support groups,
listings of various Christian radio shows, and even the personal pages of
Christian individuals and families. The Company believes that this Directory
containing approximately 20,000 listed, categorized and cross-referenced Web
sites, is a great tool for individuals to find services and products on the Web
that will be of interest to Christians. Through the acquisition crosswalk.com
enhanced its capability to provide some of the best resources for Bible study
available on the Internet and the prospects for increased ad sales and
e-commerce opportunities have been multiplied. Media Management also has an
advertising "card pack" business which is a proprietary distribution of ad
materials to 250,000 churches, pastors and leading laymen to which six mailings
are sent annually. The average card pack contains between 90-120 advertisements,
for which each advertiser pays approximately $2,400.
Ninety-nine percent (99%) of the Company's third quarter 1999 revenue was
generated from Sponsorship/advertising and Retail sales, as compared to 79% in
the third quarter of 1998. Sponsorship/advertising sales in the first nine
months of 1999 has grown from $267,673 in 1998 to $4,513,267 in 1999. In the
same period Retail sales have grown 122% to $222,645 in 1999 from $100,330 in
1998. In the first nine months of 1999, Internet services have grown 8% to
$145,160 from $134,161 in
10
<PAGE> 11
1998. However, in this nine month period, Internet services as a portion of
total revenue has decreased from 27% in 1998 to 3% in 1999. 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 in some areas of the Web site, limited demographic data. Page views
are a measure of total pages viewed by visitors to crosswalk.com in a month. At
September 30, 1999, the Company had 603,566 members as compared to 123,274
members at September 30, 1998, an annual growth rate of 390%. Average monthly
page views tallied in the third quarter of 1999 reached 11,931,685, up from
1,273,460 for the comparable quarter a year earlier, for a growth of 837% from
third quarter 1998 to third quarter 1999. To the extent membership in
crosswalk.com and traffic in the form of page views on 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/advertising and Retail sales should increase.
During the third quarter of 1999, the Company welcomed Wright Investments,
WinBenefits, First Internet Bank and Covenant Capital as sponsors of the
crosswalkMoney(TM) Channel providing asset management, health benefit, online
banking and business news services respectively. CrosswalkMoney(TM) provides
members with information for Biblical financial stewardship, wealth creation
and opportunities to invest their money consistent with Christian values.
CrosswalkMoney(TM) also features the Investigator(TM) product which enables
members to ascertain whether companies within their mutual fund portfolio are
offering products or behaving in a manner consistent with several values-based
criteria, while providing alternative mutual funds with like returns. The
crosswalkFamily(TM) Channel was launched in the third quarter. The Channel will
serve as a Web retail presence for products to enhance family life with ad and
retail sale venues. The Channel is sponsored by FamilyLife, a division of
Campus Crusade for Christ that has hosted more than 875,000 people at
conferences designed to improve marriage relationships and parenting skills. In
addition FamilyLife has a daily radio program "Family Life Today" which is
broadcast in more than 450 markets nationwide. In the third quarter, the
Company also launched the Sports Channel. The Channel features interviews,
polls, and a "Beat the Pro" game that allows fans to match wits with former
Washington Redskins' coach Joe Gibbs. CrosswalkSports(TM) offers news, scores,
and information, with distinction in the ability to portray through content on
the site, how faith has impacted the performance of teams and organizations.
Sports Spectrum, a radio ministry with weekly programs heard on over 200
stations nationwide has become the first sponsor of CrosswalkSports(TM). At the
end of the quarter, inspirational publisher Guideposts with circulation of over
4.5 million became a sponsor of CrosswalkHomeschool(TM) where their Guideposts
for Kids Web site (www.gp4k.com) will be integrated. They will also be engaged
in sponsorship of CrosswalkSpritualLife(TM) and providing inspirational
content. Finally CrosswalkMusic(TM) has engaged in a strategic partnership that
the Company believes will expand the site's visibility through more than 100
noncommercial Christian radio and FM translator-repeater stations, primarily in
the West and Midwest. Educational Media Foundation (EMF), the parent company of
the K-LOVE and Air-1 Radio Networks will air promotional mentions of
crosswalk.com, publish print ads for the Crosswalk site in their newsletters,
and provide other promotional consideration. EMF, will revenue share with the
Company on all retail purchases on Crosswalk.com that link directly from the
K-LOVE and Air-1 web sites. EMF will also broadcast K-LOVE and Air-1 Radio
programming on CrosswalkMusic(TM), utilizing RealNetworks RealPlayer G2 and
SureStream technology.
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 September
30, 1999, the Company had an accumulated deficit of $16,633,436.
11
<PAGE> 12
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 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
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
NET LOSS
For the nine months ended September 30, 1999, the Company incurred a net loss of
$5,237,230 as compared to a net loss of $2,190,151 for the same period ended
September 30, 1998. This increased loss of $3,047,079 (140%) was due primarily
to an increase in expenditures, the details of which follow, offset to an extent
by an increase in gross margin and other income. The increased loss consisted of
a $7,565,300 (263%) increase in Operating Expenses for the nine months ended
September 30, 1999 ($10,439,633) as compared to the nine months ended September
30, 1998 ($2,874,333), offset to an extent by a $2,017,700 (680%) increase in
gross margin and a $139,313 (77%) increase in Other Income. Other Income
increased primarily as a result of a $326,512 (177%) increase in interest income
resulting from the investment of funds generated from the redemption of Purchase
Warrants and exercise of Underwriter Warrants issued in the Company's initial
public offering.
REVENUES
The Company earned $4,378,908 or 872% more revenue in the nine months ended
September 30, 1999 than in the same period in 1998. The $4,881,072 of revenue
earned in the first nine months of 1999 consisted of $4,513,267 from
Sponsorship/advertising sales, $222,645 from Retail sales, and $145,160 from
Internet services while the $502,164 of revenue earned in the first nine months
of 1998 consisted of $267,673 from Sponsorship/advertising sales, $100,330 from
Retail sales, and $134,161 from Internet services. The year on year change in
revenue mix is a 1,587% ($4,245,594) increase in Sponsorship/advertising sales,
a 122% ($122,315) increase in Retail sales, and a 9% ($10,999) increase in
Internet services. 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 Web sites, amounted to forty-seven percent of the
revenue earned in the nine months ended September, 1999 versus 22% of revenues
for the same period in 1998. The Company enters into Barter transactions only
when it believes that the services, products and sponsorship received enhances
the Company's brand recognition and market share in a manner which the Company
may not have been able to acquire through other marketing or purchasing channels
without incurring expense greater than the value of the Barter received.
Sponsorship/advertising sales increased due to the Company's growing traffic and
membership on the crosswalk.com Web site which is generally believed by the
Company, 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 nine month period
ended September 30, 1999, crosswalkMoney(TM) earned $2,209,390 of revenue,
crosswalkCareers(TM) earned $212,822 of revenue, and crosswalkMusic(TM) earned
$357,671 of revenue. Retail sales increased in the nine months ended September
30 1999 as compared to the nine months ended September 30 1998, due to increased
marketing efforts, product offerings, and revenue sharing arrangements
associated with many of the sponsorships. Internet services increased in the
nine months ended September 30, 1999, due to an increase in Website enhancements
for several organizations whose Websites the Company maintains. The Company
anticipates a decline in Internet services in future quarters due to the
transition to being a community builder from being a web development services
provider in 1998.
12
<PAGE> 13
COST OF GOODS AND SERVICES
Cost of goods and services, consisting of costs related to the development and
integration of client services and content on crosswalk.com; retailing Christian
interest products on crosswalk.com; and development, maintenance, and support of
customer Websites; was $2,566,382 and $205,174 for the nine months ended
September 30, 1999 and 1998, respectively. The Company's gross margin for the
nine months ended September 30, 1999 decreased to 48% from 59% for the same
period in 1998. This decrease is due primarily to the increase in barter
transactions, which accounted for forty-seven percent of revenues in the nine
months ended September 30, 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 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 $3,199,966 for the nine months
ended September 30, 1999, as compared to $980,280 for the same period in 1998.
The cost of Crosswalk.com operations increased by 227% ($2,219,686) mostly due
to the Company's shift from being a consulting services company to being a
consumer focused community portal and increased headcount related to the growth
in crosswalk.com. The largest portion of the increase ($1,254,038 or 56% of the
increase) is due to increases in staffing and associated costs. Consulting
expenses related to database and server migration and other developmental needs
attributed to ($77,713 or 4%) of this increase. The Company has expanded its
consulting and development staff in order to provide continuous improvements of
crosswalk.com's products and services. The next largest increase in costs
($270,079 or 12%) was due to the increase in content expenses as the Company now
purchases a larger amounts 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. Also ($211,264 or 10%) of this increase was in
depreciation related expenses primarily resulting from capital acquisitions
underlying the Company's migration to an Oracle/Sun server architecture, and the
increase in headcount. Finally, with the increase in capacity and headcount and
associated software needs, licensing and maintenance fees made up ($79,894 or
4%) of this overall increase.
SALES AND MARKETING
For the nine months ended September 30, 1999, sales and marketing expenses were
$3,001,502 as compared to $641,521 for the same period of 1998. Sales and
marketing expenses increased 367% ($2,359,981) almost entirely due to the
Company's continued investment in its cross-media marketing campaign to promote
crosswalk.com which did not commence until the fourth quarter of 1998. In order
to generate continued growth and leadership position in this niche market, the
Company believes that it must increase investment in multimedia branding and
market awareness over the next year. In this regard, the Company is sponsoring
over 300 Christian concerts, advertising via print ads in select Christian
journals, and USA Today, running ads on Christian radio in over 150 markets and
nationwide on select secular conservative talk radio, and running keyword search
online banners on many of the larger portals. The Company also has a sponsorship
deal with Christian Network Inc. for exposure on PaxTV, and in the fourth
quarter, plans to run ad spots on national network television on programming the
Company believes attracts the Christian family-friendly niche.
GENERAL AND ADMINISTRATIVE
The Company increased its general & administrative (G&A) costs by 59% or
$624,425 in the nine months ended September 30, 1999 versus the same period in
1998 largely due to increased investor relations expenditure of ($234,463 or 38%
of the increase), increased legal and accounting expenditures ($127,721 or 21%),
increased facility related expenses of ($50,399 or 8%), and salaries of ($60,139
or 10%) offset to an extent by a reduction in consulting expenses of $102,271.
Amortization of intangible assets totaled $154,386 for the nine months ending
September 30, 1999 with no like activity in the same period in 1998.
13
<PAGE> 14
INTEREST INCOME AND OTHER EXPENSE
Interest income increased 177% to $510,483 from $183,971 for the nine months
ended September 30, 1999 and 1998, respectively. This $326,512 increase is due
primarily to the investment of the proceeds from the redemption of warrants
issued as part of the Company's initial public offering. Interest expense was
$73 and $1,947 for the nine months ended September 30, 1999 and 1998,
respectively. In addition, the Company posted a bad debt reserve in the amount
of $186,525 in the third quarter 1999.
THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
NET LOSS
For the quarter ended September 30, 1999, the Company incurred a net loss of
$2,725,049 as compared to a net loss of $690,857 for the same quarter in 1998.
This increased loss of $2,034,192 (295%) was due primarily to an increase in
Operating Expenses and Other Expenses offset in part by increases in revenues
and interest income. The increased loss consisted of a $3,863,547 (387%)
increase in Operating Expenses and $186,526 increase in Miscellaneous expense
consisting of a bad debt reserve for the three months ended September 30, 1999
as compared to the three months ended September 30, 1999, offset to an extent by
$963,415 (693%) increase in gross margin and a $95,150 (150%) increase in
Interest income.
REVENUES
The Company generated $1,920,804 or 781% more revenue in the three months ended
September 30, 1999 than in the same period in 1998. The $2,166.847 of revenue
earned in the third quarter of 1999 consisted of $2,038,602 from
Sponsorship/advertising sales, $96,882 from Retail sales, and $31,363 from
Internet services, while the $246,043 of revenue earned in the third quarter of
1998 consisted of $152,233 from Sponsorship/advertising sales, $40,435 from
Retail sales, and $53,375 from Internet services. The quarter on quarter change
in revenue mix is a 1,240% ($1,886,369) increase in Sponsorship/advertising
sales, a 140% ($56,447) increase in Retail sales, and a (42%) ($22,012) decrease
in Internet services. 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 Web sites, amounted to forty-three percent
of the revenue earned in the third quarter of 1999. The Company enters into
Barter transactions only when it believes that the services, products and
sponsorship received enhances the Company's brand recognition and market share
in a manner which the Company may not have been able to acquire through other
marketing or purchasing channels without incurring expense greater than the
value of the Barter received. Sponsorship/advertising sales increased due to the
Company's growing traffic and membership on the crosswalk.com Web site that is
generally believed by the Company, 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 quarter ended September 30, 1999, crosswalkMoneyTM generated $882,464 of
revenue, and crosswalkMusicTM earned $173,425 of revenue. Retail sales increased
in the third quarter of 1999 due to increased marketing efforts, product
offerings, and revenue sharing arrangements associated with many of the
sponsorships. Internet services have decreased in the three months ended
September 30, 1999, due to the transition to being a community builder from 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 services and content on crosswalk.com; retailing Christian
interest products on crosswalk.com; and development, maintenance, and support of
customer Web sites; was $1,064,300 and $106,911 for the quarters ended September
30, 1999 and 1998, respectively. The Company's gross margin for the quarter
ended September 30, 1999 decreased to 51% from 57% for the same period in 1998.
This decrease is due primarily to the increase in barter transactions, which
accounted for forty-three percent of revenues in the three months ended
September 30, 1999.
14
<PAGE> 15
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 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
interactive Web site (crosswalk.com), increased to $1,377,257 for the three
months ended September 30, 1999, as compared to $421,981 for the same period in
1998. The cost of Crosswalk.com operations increased by 226% ($955,276) mostly
due to the Company's shift from being a consulting services company to being a
consumer focused community portal and increased headcount related to the growth
in crosswalk.com. The largest portion of the increase ($530,505 or 56% of the
increase) is due to increased staffing and associated costs. Consulting expenses
related to database and server migration and other developmental needs
attributed to ($25,002 or 3%) of this increase. The Company has expanded its
consulting and development staff in order to provide continuous improvements of
crosswal.k.com's products and services. Another increase in costs ($99,948 or
10%) was in depreciation expense primarily resulting from capital acquisitions
underlying the Company's migration to an Oracle/Sun server architecture. In
additional, ($101,717 or 11%) of the increase consisted of content expenses as
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. Finally, with the increase in capacity
and headcount and associated software needs, licensing and maintenance fees made
up ($55,198 or 6%) of this overall increase.
SALES AND MARKETING
In the third quarter of 1999, sales and marketing expenses were $1,661,416 as
compared to $163,771 in the third quarter of 1998. Sales and marketing expenses
increased 915% ($1,497,645) largely due to the Company's continued investment in
its cross-media marketing campaign to promote crosswalk.com. In order to
generate continued growth and leadership position in this niche market, the
Company believes that it must increase investment in multimedia branding and
market awareness over the next year. In this regard, the Company is sponsoring
over 300 Christian concerts, advertising via print ads in select Christian
journals, and USA Today, running ads on Christian radio in over 150 markets and
nationwide on select secular conservative talk radio, and running keyword search
online banners on many of the larger portals. The Company also has a sponsorship
deal with Christian Network Inc. for exposure on PaxTV, and in the fourth
quarter, plans to run ad spots on national network television on programming the
Company believes attracts the Christian family-friendly niche.
GENERAL AND ADMINISTRATIVE
The Company increased its general & administrative (G&A) costs in the third
quarter of 1999 to $761,091 from $307,854 in the third quarter of 1998. This
148% increase ($453,237) is due largely to increases in office operating costs,
investor relations expenses, satellite locations, the one time cost of
escalation to being listed on the Nasdaq National Market System and bandwidth
required to support traffic growth on crosswalk.com. In addition, the Company
posted amortization of Intangible Assets in the amount of $151,887 in the third
quarter of 1999 with no like activity in 1998.
INTEREST INCOME AND OTHER EXPENSE
Interest income increased 150% to $158,766 from $63,616 for the quarters ended
September 30, 1999 and 1998, respectively. This $95,150 increase is due
primarily to the investment of the proceeds from the redemption of warrants
issued as part of the Company's initial public offering. The Company is debt
free and thus incurred no interest expense. In addition, the Company posted a
bad debt reserve in the amount of $186,525 in the third quarter 1999.
15
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1999 and 1998, net cash used in
operating activities was $5,500,128 and $2,126,708, respectively. Net cash used
in investment activities was $8,736,088 and $243,126 for the nine months ended
September 30, 1999 and 1998, respectively. In the nine months ended September
30, 1999, cash provided by financing activities consists of the receipt of
$17,630,901 from the exercise of 2,561,400 Common Stock Purchase Warrants,
317,500 Underwriter Warrants and 143,252 Common Stock Options. The Common Stock
Purchase Warrants were exercised after the Company exercised its right to call
them based on the terms of the Purchase Warrant Agreement. The redemption date
was February 12, 1999. In the nine months ended September 30, 1999, the Company
invested these proceeds in U.S. government bonds and treasury notes and Standard
and Poors A-1 or AA rated corporate bonds. Net cash used by financing activities
was $104,644 for the nine months ended September 30, 1998. This usage consisted
of the Company's repayment of $82,230 of long term debt.
The Company currently anticipates that its $8,782,294 working capital balance at
September 30, 1999, consisting primarily of the proceeds from the exercise of
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
nine 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 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.
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 fluctuation 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 to the best of its knowledge, that there are no material year 2000
issues within the Company's current systems or services. All hardware and
software currently in use by the Company has been year
16
<PAGE> 17
2000 certified by the manufacturer. The Company is acting on replies from its
customers, vendors and financial service providers to limit the extent of any
risk of year 2000 issues with all such organizations which the Company deems to
be critical having favorably responded. 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. 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.
17
<PAGE> 18
PART II
ITEM 1. LEGAL PROCEEDINGS
None to report.
ITEM 2. CHANGE IN SECURITIES
In August, 1999, in connection with the Company's acquisition of Wike
Associates, the Company issued an aggregate of 494,845 restricted and
unregistered shares of the Company's common stock in a private transaction
pursuant to Section 4(2) of the Securities Act of 1933 and Regulation D. The
aggregate purchase price was $6,782,394, excluding closing costs, payable in
494,845 restricted and non-registered shares of the Company's common stock and
$1,982,397 cash.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None to report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None 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
27.1 Financial Data Schedules - For the Three Months Ended September 30, 1999
27.2 Financial Data Schedules - For the Nine Months Ended September 30, 1999
</TABLE>
(b) Reports on Form 8-K
The following report on Form 8-K was filed during the quarter ended September
30, 1999:
On August 25, 1999, the Company filed a Form 8-K pursuant to Item 2 of such Form
regarding the consummation on a Plan and Reorganization and Agreement (the
"Agreement") entered into on July 30, 1999, by and among the Company, Media
Management, Inc., (Media), a Virginia corporation and a wholly-owned subsidiary
of the Company, Wike Associates, Inc., (Wike), a Virginia Corporation, and its
sole stockholder, Stephen M. Wike (Stockholder), providing for Wike to become a
wholly-owned subsidiary of the Company by merger of Wike with and into Media,
and for Stockholder, by such merger to become a stockholder of the Company.
Pursuant to this transaction, the Company purchased all outstanding shares of
common stock of Wike in exchange for 494,845 restricted and nonregistered shares
of Common Stock, par value $.01 per share, of the Company and $1,982,397 in
cash. The source of the cash consideration was the Company's working capital.
Mr. Wike has also been appointed to serve on the Company's Board of Directors.
18
<PAGE> 19
SIGNATURES
In accordance with the requirements of Securities Act of 1934,
Crosswalk.com, Inc., the registrant, has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CROSSWALK.COM, INC.
November 12, 1999 By: /s/ William M. Parker
---------------------
William M. Parker
Chief Executive Officer and President
November 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
27.1 Financial Data Schedule - For Three Months Ended September 30, 1999 3-5
27.2 Financial Data Schedule - For Nine Months Ended September 30, 1999 6-8
</TABLE>
19
<PAGE> 1
CROSSWALK.COM, INC.
COMPUTATION OF EARNINGS PER SHARE
30-SEP-99
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
BASIC EARNINGS PER SHARE:
Net Shares Total Grant/Purch.
Added Shares Date
----- ------ ----
<S> <C> <C> <C>
Beginning balance 4,034,956 01/01/99
Stock sold during the year:
Issuance for Board compensation 2,492 2,492 05/04/99
Issuance for Board compensation 920 920 08/05/99
AVI Asset Purchase 5,000 5,000 05/12/99
GraceWeb Stock Purchase 10,000 10,000 06/30/99
Wike Associates Purchase 494,845 494,845 08/13/99
Employee Compensation 247 247 05/14/99
Employee Compensation 292 292 05/28/99
Employee Compensation 364 364 06/11/99
Employee Compensation 402 402 06/25/99
Employee Compensation 691 691 07/27/99
Employee Compensation 389 389 08/12/99
Employee Compensation 468 468 08/23/99
Employee Compensation 493 493 09/14/99
Employee Compensation 524 524 09/20/99
Grant/Exercise of warrants:
Assumed issued and outstanding - beginning of period 55,414 55,414 01/01/98
(386) (386) 3/25/99
(453) (453) 3/26/99
(366) (366) 3/31/99
(193) (193) 04/08/99
(550) (550) 04/13/99
(5,000) (5,000) 04/22/99
(270) (270) 05/07/99
(178) (178) 07/01/99
(520) (520) 07/13/99
Purchase & Underwriter Warrants Exercised: 112,850 112,850 01/14/99
24,200 24,200 01/15/99
19,000 19,000 01/19/99
215,595 215,595 01/20/99
96,600 96,600 01/21/99
11,850 11,850 01/26/99
300 300 01/28/99
8,800 8,800 01/29/99
7,197 7,197 02/02/99
186,751 186,751 02/03/99
35,878 35,878 02/05/99
37,185 37,185 02/08/99
104,000 104,000 02/09/99
164,377 164,377 02/10/99
274,230 274,230 02/11/99
55,954 55,954 02/12/99
123,259 123,259 02/16/99
908,663 908,663 02/18/99
120,307 120,307 02/22/99
21,455 21,455 02/25/99
22,000 22,000 04/08/99
20,000 20,000 04/09/99
27,000 27,000 04/12/99
2,000 2,000 04/13/99
3,500 3,500 04/14/99
15,000 15,000 04/23/99
1,000 1,000 04/26/99
3,000 3,000 04/28/99
220,000 220,000 04/30/99
2,000 2,000 05/01/99
2,000 2,000 05/26/99
Options Exercised: 4,500 4,500 1/12/99
3,785 3,785 3/25/99
3,973 3,973 3/26/99
3,250 3,250 3/29/99
9,440 9,440 3/31/99
9,250 9,250 04/08/99
21,875 21,875 04/09/99
2,750 2,750 04/13/99
200 200 04/13/99
6,000 6,000 04/14/99
5,450 5,450 04/16/99
25,000 25,000 04/22/99
5,500 5,500 05/07/99
6,666 6,666 05/12/99
2,000 2,000 06/16/99
2,500 2,500 06/30/99
4,238 4,238 07/01/99
3,000 3,000 07/06/99
2,500 2,500 07/07/99
12,175 12,175 07/13/99
2,000 2,000 07/20/99
5,000 5,000 09/02/99
2,000 2,000 09/13/99
200 200 09/15/99
End of period
7,541,286
</TABLE>
<TABLE>
<CAPTION>
BASIC EARNINGS PER SHARE: Diluted Basic
Days Weighted Weighted
Outstanding Shares Shares
----------- ------ ------
<S> <C> <C> <C>
Beginning balance 272 1,097,508,032 1,097,508,032
Stock sold during the year:
Issuance for Board compensation 150 373,800 373,800
Issuance for Board compensation 57 52,440 52,440
AVI Asset Purchase 142 710,000 710,000
GraceWeb Stock Purchase 93 930,000 930,000
Wike Associates Purchase 49 24,247,405 24,247,405
Employee Compensation 140 34,580 34,580
Employee Compensation 126 36,792 36,792
Employee Compensation 112 40,768 40,768
Employee Compensation 98 39,396 39,396
Employee Compensation 66 45,606 45,606
Employee Compensation 50 19,450 19,450
Employee Compensation 39 18,252 18,252
Employee Compensation 17 8,381 8,381
Employee Compensation 11 5,764 5,764
Grant/Exercise of warrants:
Assumed issued and outstanding - beginning of period 272 15,072,608 -
190 (73,340) -
189 (85,617) -
184 (67,344) -
176 (33,968) -
171 (94,050) -
162 (810,000) -
147 (39,690) -
92 (16,376) -
80 (41,600) -
Purchase & Underwriter Warrants Exercised: 260 29,341,000 29,341,000
259 6,267,800 6,267,800
255 4,845,000 4,845,000
254 54,761,130 54,761,130
253 24,439,800 24,439,800
248 2,938,800 2,938,800
246 73,800 73,800
245 2,156,000 2,156,000
241 1,734,477 1,734,477
240 44,820,240 44,820,240
238 8,538,964 8,538,964
235 8,738,475 8,738,475
234 24,336,000 24,336,000
233 38,299,841 38,299,841
232 63,621,360 63,621,360
231 12,925,374 12,925,374
227 27,979,793 27,979,793
225 204,449,175 204,449,175
221 26,587,847 26,587,847
218 4,677,190 4,677,190
176 3,872,000 3,872,000
175 3,500,000 3,500,000
172 4,644,000 4,644,000
171 342,000 342,000
170 595,000 595,000
161 2,415,000 2,415,000
158 158,000 158,000
156 468,000 468,000
154 33,880,000 33,880,000
153 306,000 306,000
128 256,000 256,000
Options Exercised: 262 1,179,000 1,179,000
190 719,150 719,150
189 750,897 750,897
186 604,500 604,500
184 1,736,960 1,736,960
176 1,628,000 1,628,000
175 3,828,125 3,828,125
171 470,250 470,250
171 34,200 34,200
170 1,020,000 1,020,000
168 915,600 915,600
162 4,050,000 4,050,000
147 808,500 808,500
142 946,572 946,572
107 214,000 214,000
93 232,500 232,500
92 389,896 389,896
87 261,000 261,000
86 215,000 215,000
80 974,000 974,000
73 146,000 146,000
29 145,000 145,000
18 36,000 36,000
16 3,200 3,200
------------------ ---------------
End of period 1,801,157,705 1,787,347,082
272 272
------------------ ---------------
6,621,903 6,571,129
(5,237,230) (5,237,230)
------------------ ---------------
(0.79) (0.80)
</TABLE>
<PAGE> 2
CROSSWALK.COM, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
30-SEP-99 THREE MONTHS ENDED SEPTEMBER 30, 1999
BASIC EARNINGS PER SHARE: Net Shares Total Grant/Purch.
Added Shares Date
----- ------ ----
<S> <C> <C> <C>
Beginning balance 7,011,843 07/01/99
Stock sold during the quarter:
Issuance for Board compensation 920 920 08/05/99
Wike Associates Purchase 494,845 494,845 08/13/99
Employee Compensation 691 691 07/27/99
Employee Compensation 389 389 08/12/99
Employee Compensation 468 468 08/23/99
Employee Compensation 493 493 09/14/99
Employee Compensation 524 524 09/20/99
Grant/Exercise of warrants:
Assumed issued and outstanding - beginning of period 48,196 48,196 01/01/98
(178) (178) 07/01/99
(520) (520) 07/13/99
Options Exercised: 4,238 4,238 07/01/99
3,000 3,000 07/06/99
2,500 2,500 07/07/99
12,175 12,175 07/13/99
2,000 2,000 07/20/99
5,000 5,000 09/02/99
2,000 2,000 09/13/99
200 200 09/15/99
End of period
7,541,286
</TABLE>
<TABLE>
<CAPTION>
Diluted Basic
BASIC EARNINGS PER SHARE: Days Weighted Weighted
Outstanding Shares Shares
----------- ------ ------
<S> <C> <C> <C>
Beginning balance 92 645,089,556 645,089,556
Stock sold during the quarter:
Issuance for Board compensation 57 52,440 52,440
Wike Associates Purchase 49 24,247,405 24,247,405
Employee Compensation 66 45,606 45,606
Employee Compensation 50 19,450 19,450
Employee Compensation 39 18,252 18,252
Employee Compensation 17 8,381 8,381
Employee Compensation 11 5,764 5,764
Grant/Exercise of warrants:
Assumed issued and outstanding - beginning of period 92 4,434,032 -
92 (16,376) -
80 (41,600) -
Options Exercised: 92 389,896 389,896
87 261,000 261,000
86 215,000 215,000
80 974,000 974,000
73 146,000 146,000
29 145,000 145,000
18 36,000 36,000
16 3,200 3,200
------------------ ---------------
End of period 676,033,006 671,656,950
92 92
------------------ ---------------
7,348,185 7,300,619
(2,725,049) (2,725,049)
------------------ ---------------
(0.37) (0.37)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 4,629,137
<SECURITIES> 6,625,110
<RECEIVABLES> 2,352,779
<ALLOWANCES> 173,500
<INVENTORY> 12,390
<CURRENT-ASSETS> 10,642,228
<PP&E> 1,821,009
<DEPRECIATION> (192,677)
<TOTAL-ASSETS> 23,437,011
<CURRENT-LIABILITIES> 1,859,934
<BONDS> 0
0
0
<COMMON> 38,054,899
<OTHER-SE> 127,659
<TOTAL-LIABILITY-AND-EQUITY> 23,437,011
<SALES> 96,882
<TOTAL-REVENUES> 2,166,847
<CGS> 44,849
<TOTAL-COSTS> 1,064,300
<OTHER-EXPENSES> 3,799,764
<LOSS-PROVISION> 186,525
<INTEREST-EXPENSE> 73
<INCOME-PRETAX> (2,725,049)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,725,049)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,725,049)
<EPS-BASIC> (0.37)
<EPS-DILUTED> (0.37)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 4,629,137
<SECURITIES> 6,625,110
<RECEIVABLES> 2,352,779
<ALLOWANCES> 173,500
<INVENTORY> 12,390
<CURRENT-ASSETS> 10,642,228
<PP&E> 1,821,009
<DEPRECIATION> (192,677)
<TOTAL-ASSETS> 23,437,011
<CURRENT-LIABILITIES> 1,859,934
<BONDS> 0
0
0
<COMMON> 38,054,899
<OTHER-SE> 127,659
<TOTAL-LIABILITY-AND-EQUITY> 23,437,011
<SALES> 222,645
<TOTAL-REVENUES> 4,881,072
<CGS> 101,787
<TOTAL-COSTS> 2,566,382
<OTHER-EXPENSES> 7,873,251
<LOSS-PROVISION> 186,525
<INTEREST-EXPENSE> 73
<INCOME-PRETAX> (5,237,230)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,237,230)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,237,230)
<EPS-BASIC> (0.80)
<EPS-DILUTED> (0.80)
</TABLE>
