CROSSWALK COM
10-Q, 2000-08-11
COMPUTER PROGRAMMING SERVICES
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<PAGE>   1
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q


                                   (Mark One)

    /X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
            ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
   / / TRANSITION REPORT UNDER 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 REGISTRANT AS SPECIFIED IN ITS CHARTER)

         DELAWARE                                           54-1831588
-------------------------------                      ---------------------
(State or other jurisdiction of                         (I.R.S. Employer
incorporation or organization)                       Identification Number)


                       4100 Lafayette Center Dr. Suite 110
                               Chantilly, VA 20151
                         -------------------------------
                    (Address of principal executive offices)

                                 (703) 968-4808
                         -------------------------------
              (Registrant's telephone number, including area code)


Check whether the registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.

(1) Yes X No


As of August 7, 2000 there were 7,798,846 shares of the Registrant's common
stock outstanding.


<PAGE>   2

<TABLE>
<CAPTION>



                                                                                           PAGE
                                                                                          NUMBER
PART I               FINANCIAL INFORMATION

ITEM 1:     Financial Statements (Unaudited)
<S>                                                                                         <C>
            Consolidated Balance Sheets as of December 31, 1999
                     and June 30, 2000.............................................          3
            Consolidated Statements of Operations for the three months
                     and six months ended June 30, 1999 and 2000...................          4
            Consolidated Statements of Cash Flows for the three months
                     and six months ended June 30, 1999 and 2000...................          5
            Notes to Consolidated Financial Statements.............................          6

ITEM 2:     Management's Discussion and Analysis of Financial
                     Condition and Results of Operations...........................         10

ITEM 3:     Quantitative and Qualitative Disclosures about Market Risk............          17

PART II              OTHER INFORMATION

ITEM 1:     Legal Proceedings......................................................         17

ITEM 2:     Changes in Securities and Use of Proceeds..............................         17

ITEM 3:     Defaults Upon Senior Securities........................................         17

ITEM 4:     Submission of Matters to a Vote of Security Shareholders..............          17

ITEM 5:     Other Information......................................................         18

ITEM 6:     Exhibits and Reports on Form 8-K.......................................         18

            SIGNATURES and EXHIBITS................................................         19

</TABLE>






<PAGE>   3
CROSSWALK.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION


                                                                                        December 31,             June 30,
                                                                                            1999                  2000
                                                                                      -------------------   -------------------
                                                                                                               (unaudited)

ASSETS

CURRENT ASSETS:
<S>                                                                                     <C>                  <C>
   Cash and cash equivalents                                                             $1,641,157           $1,297,233
   Short-term investments                                                                 4,538,906              857,385
   Accounts receivable including unbilled receivables of $566,515 and
      $82,640 at December 31, 1999 and June 30, 2000, respectively                        2,155,555            1,276,421
   Deferred costs                                                                           142,910              436,972
   Notes receivable from officers                                                            37,500               23,165
   Other current assets                                                                      27,750               27,752
                                                                                      -------------      ---------------
        Total current assets                                                              8,543,778            3,918,928

LONG TERM INVESTMENTS                                                                     2,774,747            1,580,375

PROPERTY AND EQUIPMENT, net                                                               1,847,703            1,733,602

OTHER ASSETS:
   Deposits                                                                                 161,275              118,396
   Deferred costs                                                                            18,216              189,923
   Intangible assets, net                                                                 6,438,697            5,847,880
                                                                                      -------------      ---------------
        Total other assets                                                                6,618,188            6,156,199
                                                                                      -------------      ---------------

TOTAL ASSETS                                                                            $19,784,416          $13,389,104
                                                                                      ==============     ===============
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
   Accounts payable                                                                      $2,527,650             $641,333
   Accrued liabilities                                                                      861,451              691,186
   Deferred revenue                                                                          64,005              816,911
                                                                                      -------------      ---------------
        Total current liabilities                                                         3,453,106            2,149,430

OTHER LIABILITIES:
   Accounts payable - Long Term                                                              72,210               87,952
   Deferred Revenue - Long Term                                                                                  457,090
   Other Liabilities - Long Term                                                                                  30,000

COMMITMENTS

STOCKHOLDERS' EQUITY
   Preferred stock, $.001 par value, 5,000,000 shares authorized, no shares issued
      and outstanding at December 31, 1999 and June 30, 2000
   Common stock, $.01 par value, 20,000,000 shares authorized
      7,592,972 and 7,708,744 shares issued and outstanding
      at December 31, 1999 and at June 30, 2000, respectively                                75,930               77,087
   Common stock warrants                                                                    127,660              127,660
   Additional paid-in capital                                                            38,156,922           38,737,762
   Accumulated deficit                                                                 (22,046,933)         (28,247,522)
   Accumulated other comprehensive loss:
     Net unrealized loss on available-for-sale securities                                  (54,479)             (30,355)
                                                                                      -------------      ---------------
        Total stockholders' equity                                                       16,259,100           10,664,632
                                                                                      -------------      ---------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                              $19,784,416          $13,389,104
                                                                                      =============      ===============
</TABLE>

See accompanying notes.







<PAGE>   4
CROSSWALK.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

<TABLE>
<CAPTION>

                                                         For the Three Months                       For the Six Months
                                                            Ended June 30,                            Ended June 30,
                                                        1999               2000                   1999               2000


OPERATING REVENUES:
<S>                                                    <C>                <C>                    <C>                <C>
   Advertising/Sponsorship sales                        $1,501,214         $1,716,997             $2,474,683         $3,216,692
   Retail sales                                             77,574             84,789                125,762            220,785
   Internet services                                        60,397             29,742                113,797             45,741
                                                  ------------------- ------------------     -------------------- ------------------
        Total operating revenues                         1,639,185          1,831,528              2,714,242          3,483,218

OPERATING EXPENSES:

   Cost of goods and services                              848,593            686,449              1,502,082          1,495,171
   Crosswalk operations                                    893,835          1,257,961              1,662,620          2,857,665
   Sales and marketing                                     832,123            772,879              1,492,027          2,013,976
   General and administrative                              529,198          1,193,089                919,767          2,027,861
                                                  ------------------- ------------------     -------------------- ------------------
        Total operating expenses                         3,103,749          3,910,378              5,576,496          8,394,673
                                                  ------------------- ------------------     -------------------- ------------------

LOSS FROM OPERATIONS                                   (1,464,564)        (2,078,850)            (2,862,254)        (4,911,455)

OTHER INCOME NET                                           212,270             63,546                347,171            118,454

Net loss before cumulative effect of a
change in accounting practice                         ($1,252,294)       ($2,015,304)           ($2,515,083)       ($4,793,001)
Cumulative effect of a one-time adjustment to
reflect change in revenue and cost recognition                  --                 --                     --       ($1,407,589)
                                                  -----------------  -----------------      -----------------  -----------------

Net loss                                              ($1,252,294)       ($2,015,304)           ($2,515,083)       ($6,200,590)
                                                  =================  =================      =================  =================

Amounts per common share:
Net loss before cumulative effect of a
change in accounting practice                              ($0.18)            ($0.26)                ($0.41)            ($0.62)
Cumulative effect of a one-time adjustment to
reflect change in revenue and cost recognition                  --                 --                     --            ($0.19)
                                                  -----------------  -----------------      -----------------  -----------------

Net loss per common share (basic and diluted)              ($0.18)            ($0.26)                ($0.41)            ($0.81)
                                                  =================  =================      =================  =================


Weighted average number of common
   shares outstanding                                    6,893,720          7,703,005              6,198,279          7,663,288
                                                  =================  =================      =================  =================
</TABLE>

See accompanying notes.





<PAGE>   5
CROSSWALK.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>

                                                                             For the Six Months
                                                                               Ended June 30,
                                                                   ----------------------------------------
                                                                         1999                  2000
                                                                   -----------------    -------------------
OPERATING ACTIVITIES:

<S>                                                                <C>                  <C>
Net loss                                                             $   (2,515,083)      $    (6,200,590)
Adjustments to reconcile net loss to net cash
   used in operating activities:
   Depreciation                                                             128,504               379,245
   Amortization                                                               4,998               590,817
   Loss on disposal of property and equipment                                 2,554                  (257)
   Stock compensation expense                                                     -                 7,693
   Common stock issued in lieu of cash for advertising                            -               532,750
   Changes in operating assets and liabilities:
      Accounts receivable                                                (1,337,292)              893,469
      Deposits                                                               (4,146)               42,879
      Other current assets                                                   (6,974)                   (2)
      Deferred costs                                                       (157,474)             (465,769)
      Accounts payable                                                      373,384            (1,840,575)
      Accrued liabilities                                                    17,838              (170,265)
      Deferred revenue                                                       29,024             1,209,996
                                                                     --------------       ---------------
         Net cash used in operating activities                           (3,464,667)           (5,020,609)
                                                                     --------------       ---------------

INVESTING ACTIVITIES:
   Purchases of property and equipment                                   (1,107,331)             (264,887)
   Purchase of Intangible Assets                                            (97,500)                    -
   Sales and maturities of investments                                    2,102,902             4,900,017
   Purchase of investments                                               (9,494,266)                    -
                                                                     --------------       ---------------
      Net cash (used in) provided by investing activities                (8,596,195)            4,635,130
                                                                     --------------       ---------------

FINANCING ACTIVITIES:
   Net proceeds from issuance of common stock and warrants               17,676,958                52,784
   Cost of issuing common stock in lieu of cash                                   -               (11,229)
                                                                     ---------------      ---------------
     Net cash  (used in) provided by financing activities                17,676,958                41,555
                                                                     --------------       ---------------

NET CHANGE IN CASH AND CASH EQUIVALENTS                                   5,616,096              (343,924)

CASH AND CASH EQUIVALENTS,
   BEGINNING OF PERIOD                                                    1,234,451             1,641,157
                                                                     --------------       ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                             $    6,850,547       $     1,297,233
                                                                     ==============       ===============
</TABLE>

See accompanying notes.











<PAGE>   6
                      CROSSWALK.COM, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  JUNE 30, 2000



A.       THE COMPANY AND BASIS OF PRESENTATION

Crosswalk.com, Inc. (including its subsidiaries, "Crosswalk" or the "Company")
is the creator of its Web site www.crosswalk.comTM ("crosswalk.com"), which the
Company believes is the premier portal site for the online Christian and
family-friendly community, with a focus on "the intersection of faith and life",
covering a growing spectrum of everyday life within a Christian context.
Crosswalk.com offers to members and visitors channels targeting music, personal
finance, careers, sports, homeschooling, and health; lifestyle channels focusing
on men, women, families and spiritual life; and services ranging from free Web
access filtering, a full-Web filtered search engine, and "mycrosswalk"
customized start pages to online shopping, family-friendly movie reviews, bible
study, greeting cards, games, chat, forums, local events, news, free email and
more.

The Company's business includes the development and aggregation of Internet
content and services; advertising 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 build traffic and membership to
crosswalk.com through efficient marketing and product development activities,
with the goal of building market awareness and acceptance of its product, which
it believes will result in revenue growth and profitability. The Company
operates in one business segment.

The accompanying unaudited financial statements as of June 30, 2000 and 1999
have been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC"). In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. The balance sheet at December 31,
1999 has been derived from the audited financial statements at that date. These
financial statements should be read in conjunction with the Company's audited
financial statements and related notes included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1999. The results of operations for
the six months ended June 30, 2000 are not necessarily indicative of the results
to be expected for any subsequent quarter or for the entire fiscal year ending
December 31, 2000.

B.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation - The consolidated financial statements include the
financial statements of Crosswalk.com, Inc. and its wholly owned subsidiaries.
All significant intercompany balances and transactions have been eliminated in
consolidation.

Use of estimates - Management uses estimates and assumptions in preparing
financial statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities, and
the reported revenues and expenses. Actual results could vary from the estimates
that were used.

Cash equivalents - Cash and cash equivalents include cash and investments with
initial maturities of three months or less.

Short and long-term investments - The Company invests in U.S. government bonds
and treasury notes, municipal bonds, and corporate bonds. Investments with
current maturities greater than three months but less than twelve months from
the balance sheet date are considered short-term investments. Those investments
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 dates 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.

Depreciation and amortization - Property and equipment are stated at cost.
Depreciation is determined using the straight-line method over estimated useful
lives ranging from three to seven years. Leasehold improvements are amortized
over the life of the related lease. Intangible assets are amortized over useful
lives of five to ten years using the straight-line method.

Revenue recognition - As of January 1, 2000, the Company's revenues are
primarily derived from the sale of banner advertising. The Company's revenue
model prior to January 1, 2000 included significant revenues from third party
sponsorships for prime Web site exposure in which the Company recognized
nonrefundable revenue upon completing the integration of a sponsor's web based
material onto the Crosswalk.com site.

                                       6
<PAGE>   7

B.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Advertising revenues are recognized in the period in which the advertisement is
displayed, provided that no significant Company obligations remain and
collection of the resulting receivable is probable. Company obligations
typically include guarantees of minimum number of "impressions", or number of
times that an advertisement appears in pages viewed by users of Crosswalk.com.
To the extent that minimum guaranteed impressions are not met, the Company
defers recognition of the corresponding revenues until the remaining guaranteed
impression levels are achieved.

The Company previously recognized nonrefundable content integration and
development fees as revenue upon completion of content integration. Effective
January 1, 2000, the Company changed its method of accounting for nonrefundable
fees for Web integration contracts entered into prior to January 1, 2000, to
recognize such fees over the term of the related agreement, which is generally a
one to two year period when the Company is maintaining the integrated content.
The Company believes the change in accounting principle is preferable based on
guidance provided in SEC Staff Accounting Bulletin No. 101 - Revenue Recognition
in Financial Statements. The $1.4 million cumulative effect of the change in
accounting principle was reported as a charge in the quarter ended March 31,
2000, and represents the associated revenues and related direct and incremental
costs. The cumulative effect was initially recorded as deferred revenue that
will be recognized as revenue over the remaining contractual terms of the
agreements. During the six months ended June 30, 2000, the impact of the change
in accounting was to increase net loss by $.7 million, or $0.09 per share,
comprised of the $1.4 million cumulative effect of the change as described above
($0.19 per share), net of $.7 million of the related deferred revenue and cost
which was recognized as revenue and cost during the first six months ($0.10 per
share). Had the change in accounting been adopted as of January 1, 1999, net
loss for the six months ended June 30, 1999 would have increased by $.8 million,
or $0.13 per share.

Barter transactions, amounting to approximately eighteen percent of revenues for
the quarter ended June 30, 2000, are recorded at the lower of estimated fair
value of the goods or services received or the estimated fair value of the
services given based on like-cash transactions. Barter transactions consist of
providing 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.

Net loss per common share - The Company reports basic and diluted earnings per
share ("EPS"). Basic EPS excludes dilution and is computed by dividing net
income (loss) available to common stockholders by the weighted average number of
common shares outstanding during the period. Diluted EPS is computed by dividing
net income (loss) available to common stockholders, adjusted by the assumed
conversion of any potential common share equivalents, by the weighted number of
common shares and common share equivalents (unless their effect is
anti-dilutive) outstanding.

Capital structure - The Company's outstanding stock is completely comprised of
voting common stock. The Company has issued 2,841,526 shares of common stock
upon the exercise of 2,841,526 Redeemable Common Stock Purchase Warrants,
166,500 shares of common stock upon the exercise of 166,500 Common Stock
Underwriter Warrants, 195,000 shares of common stock upon the exercise of
195,000 Common Stock Warrant Underwriter Warrants, and 514,845 shares of common
stock for the purchase of intangible assets.

Comprehensive income - Effective January 1, 1998, 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 loss and unrealized losses
on available-for-sale securities. For the six months ended June 30, 2000 and
1999, the Company's comprehensive loss was $6,230,945 and $2,565,931,
respectively.

Stock-based compensation - The Company has elected to continue to account for
its stock-based compensation in accordance with APB 25, "Accounting for Stock
Issued to Employees", which uses the intrinsic value method, however, as
required by SFAS No. 123, "Accounting for Stock-Based Compensation", the Company
has disclosed the pro forma impact on the consolidated financial statements
assuming the measurement provisions of SFAS No. 123 had been adopted in the
Company's Annual Report of Form 10-K. The Company accounts for all other
issuances of equity instruments in accordance with SFAS No. 123.

                                       7
<PAGE>   8

B.         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Deferred costs - Deferred costs at June 30, 2000 consisted of content fees,
conference fees, insurance costs, software maintenance, investor relations and
license fees and deferred barter costs associated with revenue deferred pursuant
to compliance with SEC Staff Accounting Bulletin No. 101. The software
maintenance and license fees are ratably expensed over the life of the
maintenance and license agreements. The content, conference and investor
relations fees are charged to expense once the services associated with these
fees have been delivered to the Company. Insurance costs are ratably expensed
over the life of the policy for which premiums have been paid. The barter costs
are recognized as services are rendered.

Income taxes - Crosswalk accounts for income taxes using the liability method.
Under this method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected.

Fair value of financial instruments - The carrying value of cash and cash
equivalents, investments, accounts receivable and notes payable approximate fair
value because of the relatively short maturity of these instruments.

Derivative instruments and hedging activities - In June 1998, the FASB issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 is required to be adopted by the Company in the first quarter of
fiscal year 2001. It establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. Management believes that the adoption of this
standard will not have a material effect on the Company's financial position or
results of operations.

Reclassifications - Certain balances have been reclassified to conform to the
current year presentation.

Advertising expense - All advertising costs are expensed when incurred.

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 June 30, 2000
with contractual maturities of one year of less are $2,643,318 which includes
$205,558 in Cash and Cash Equivalents since they have original maturities of
three months or less, and with contractual maturities of one through five years
are $1,580,375. Expected maturities may differ from contractual maturities as a
result of the Company's intent to sell these securities prior to maturity. The
Company has recorded an unrealized gain of $464 and an unrealized loss of
$30,819 as of June 30, 2000. The aggregate market value, cost basis, and
unrealized gains and losses of securities available for sale, by major security
type, as of June 30, 2000, 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              $ 1,122,439          $ 1,135,546       $     94               $ (13,201)
Municipal Debt Securities                   203,181              202,811            370                     ---
Corporate Debt Securities                 1,317,698            1,335,316            ---                 (17,618)
                                        -----------          -----------       --------               ---------
Total at June 30, 2000                  $ 2,643,318          $ 2,673,673       $    464               $ (30,819)
                                        ===========          ===========       =========              =========
</TABLE>

The Company recorded a net realized loss of $7,672 and $29,184 in the three
months and six months ended June 30, 2000 that is included in interest expense.

                                       8
<PAGE>   9

D.       RELATED PARTY TRANSACTIONS

At June 30, 2000, the Company had a Note receivable from a director of the
Company. The Company is charging interest on this Note at the minimum federal
statutory rate at the time of issuance of 5.7%. This Note is due to be repaid on
September 8, 2000.

E.       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 Six Months
                                                                  Ended June 30,                            Ended June 30,
                                                                  ---------------                           --------------

                                                            1999                 2000                 1999                 2000
                                                            ----                 ----                 ----                 ----
<S>                                                    <C>                <C>                    <C>                <C>
Net loss (numerator)                                    $(1,252,294)        $ (2,015,304)        $ (2,515,083)        $ (6,200,590)
Weighted average shares (denominator)                     6,893,720            7,703,005            6,198,279            7,663,288

Basic net loss per share                                  $   (0.18)             $ (0.26)        $      (0.41)        $      (0.81)
                                                           --------         ------------         ------------         ------------

Dilutive shares (denominator)                             6,893,720            7,703,005            6,198,279            7,663,288
Diluted net loss per share                                $   (0.18)          $    (0.26)        $      (0.41)        $      (0.81)
                                                           --------         ------------         ------------         ------------

</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 45,730 stock options and purchase warrants granted
at below market prices outstanding in the six months ended June 30, 1999 and
June 30, 2000, respectively, are not included in the calculation of diluted EPS
as their inclusion would be anti-dilutive.

F.       COMMITMENTS

In September 1999, the Company entered into a one-year Network Title Sponsorship
Agreement ("Agreement") with The Christian Network, Inc., which includes "Praise
on Pax" and "Worship on Pax." Under this Agreement, the Company is entitled to a
national title sponsorship on "Praise on Pax" telecasts and a national corporate
sponsorship on "Worship on Pax" telecasts. The Company also receives advertising
and promotional rights. The total cost for these sponsorship and advertising
rights is $1,025,000, payable quarterly in cash or, at the Company's option, in
shares of the Company's common stock having a fair market value equal to the
required payment. The Company is also obligated to issue additional shares of
common stock for each new member generated for Crosswalk.com as a result of
these sponsorship and advertising arrangements, based on a valuation of $1.00
for each member generated. In February, April and July 2000, respectively,
39,018, 52,196 and 90,102 shares of Crosswalk common stock were issued for
services rendered under this Agreement.

                                       9






<PAGE>   10


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS


BACKGROUND

Crosswalk.com, Inc. ("the Company") is primarily known as the creator of
crosswalk.com(TM), an interactive Web site, which provides information and
resources that the Company believes generally appeals to the Christian and
family friendly 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 advertising and sponsorship contracts ("Advertising/sponsorship sales");
select online retailing of Christian and family-friendly products (music, books,
apparel, gifts, etc.) manufactured or developed by others, and referral fees
from co-marketing relationships ("Retail sales"); and the provision of an array
of Internet services ("Internet services").

The vast majority of the Company's revenue has been generated through the sale
of advertising and sponsorship opportunities on crosswalk.com; followed by
direct retail sales and royalties/fees from the sale of Christian interest
products (primarily CDs, tapes, books, and other articles) manufactured or
developed by others and 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 cost-effective multimedia marketing and promotional activities,
will accelerate traffic and thus revenue growth over time. The Company plans to
continue enhancing crosswalk.com in order to maintain its leadership position as
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 second quarter, the Company focused its resources on efficient viral
marketing, increasing cash revenues and reducing costs. One of these cost
cutting measures was to cease the operations of two retail stores on
crosswalk.com. The Company's main operating objective is to become cashflow
positive as soon as possible. The result is that for two consecutive quarters,
the Company has significantly reduced the monthly cash burn rate. In the second
quarter, the monthly cash burn was reduced by approximately 44% to under
$450,000. The first quarter 2000 reported monthly cash burn rate was about
$800,000. This reduction was akin to the 46% decrease generated in the first
quarter of this year.

One of the keys to achieving the goal of operating on a cashflow positive basis,
is to complete the transition from sponsorship revenues to higher margin cash
advertising revenues, and to reduce barter. Advertisers are organizations
placing ads on crosswalk.com, for which Crosswalk.com is paid a flat fee or a
fee per ad impression delivered. Sponsors are organizations that receive
premiere positioning for their content on various areas of crosswalk.com and in
effect become a "sponsor" of those areas, a service for which Crosswalk.com
receives a fee. The Company has not accepted any new barter arrangements in
2000, but is committed to performing on those previously contracted. The
progress of this transition is that cash revenues grew by 88% to approximately
$1,500,000 in the second quarter of 2000 versus $800,000 generated in the second
quarter of last year. In the second quarter of 2000, cash revenues grew 21% over
the first quarter of 2000. The Company's revenue generated from
Advertising/sponsorship sales for the second quarter 2000 was 94% of total
operating revenue, and represented an increase of 14% over the second quarter
1999 revenue that was 91% of total operating revenue for that quarter. With the
change in revenue mix to cash advertising from sponsorships and barter, the
Advertising/sponsorship revenue for the first six months of 2000 increased 30%
(or $742,009) over the first six months of 1999.

The Nielsen NetRatings data for May, 2000 also indicates the potential that the
Company has for providing value to advertisers. Crosswalk.com was ranked as the
number one "Family & Lifestyle" Web site in terms of repeat visits per person
and the 33rd largest "Family & Lifestyle" Web site overall based upon the number
of unique monthly visitors. Advertising click-thru rates (CTR) reported by
Nielsen ranked crosswalk.com higher than any site among the Web's 10 largest
advertising venues and more than twice as high as averages for the Top 10, 25,
and 50 advertising supported sites.
                                       10
<PAGE>   11

The Company's progress in developing crosswalk.com is also evidenced by the
growth in membership and average monthly page views on crosswalk.com and email
views, which has been targeted for growth beginning this year as part of the
Company's revenue transition, given the high margin ad revenue potential.
Membership is free and represents the number of registered users of the
Company's content or services. At June 30, 2000, the Company had 1,450,000
members as compared to just over 300,000 members at June 30, 1999, representing
an annual growth rate of 383%. The Company saw growth in membership despite a
significant purging of inactive members. This purging was deemed necessary in
order to maintain integrity with our advertisers. Page views and email views are
a measure of total pages viewed by visitors to crosswalk.com and the number of
emails sent at the request of Crosswalk.com's constituents in a month. Average
monthly page views tallied in the second quarter of 2000 reached approximately
18,400,000, up from 6,500,000 for the comparable second quarter a year earlier.
This represents an annual growth rate of 183%. Page views were essentially flat
quarter to quarter due to the impact on traffic of the Company's decision to
close two unprofitable online retail stores. Email views in the second quarter
of 2000 totaled approximately 11,000,000 versus 5,000,000 in the first quarter
of 2000. The opportunity for the Company to generate increasing revenues is
largely predicated upon increasing this membership and traffic.

The Company has a 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 incurred net losses since inception and expects to
continue to operate at a loss until sufficient revenues are generated to cover
expenses. As of June 30, 2000, the Company had an accumulated deficit of
$28,247,522.

The Company's expense levels are based in part on possible future revenues, of
which there can be no assurance. The Company's ability to generate revenue from
the commercial sale of advertising space on crosswalk.com is tied to its ability
to generate traffic on the Web site and emails, and the effectiveness of its
sale staff. The Company plans to significantly increase its sales efforts,
however a shortfall in revenues without commensurate reductions in cost, could
have an immediate adverse impact on the Company's business, results of
operations and financial condition. 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 SIX MONTHS ENDED JUNE 30, 2000 AND 1999

NET LOSS

For the six months ended June 30, 2000, the Company incurred a net loss before
cumulative effect of a change in accounting practice of $4,793,001, and a total
net loss after the cumulative effect of a change in accounting practice of
$6,200,590, as compared to a net loss of $2,515,083 for the same period ended
June 30, 1999. In the first quarter of 2000, the Company booked a ($1,407,589)
one-time adjustment in response to the Securities and Exchange Commission Staff
Accounting Bulletin 101 issued in December 1999. In this regard, the Company has
chosen to change its revenue and applicable cost recognition on the integration
and development fee portion of prior year sponsorship deals, to a more
preferable method of deferral ratably over the term of the contract. If this
accounting change had been implemented January 1, 1999, the net loss for the
first six months of 1999 would have been $3,340,593. The increased loss before
cumulative effect of a change in accounting practice for the first six months of
2000 over the first six months of 1999 was $2,277,918 (91%). It was due
primarily to an increase in operating expenses, offset in part by increases in
revenues. The increased loss consisted of a $2,825,088 (69%) increase in
operating expenses excluding cost of goods sold for the six months ended June
30, 2000 as compared to the six months ended June 30, 1999, and a $228,717 (66%)
decrease in other income offset to an extent by $775,887 (64%) increase in gross
margin.
                                       11
<PAGE>   12

REVENUES

The Company generated $768,976 or 28% more revenue in the six months ended June
30, 2000 than in the same period in 1999. In the first six months of 2000, the
$3,483,218 revenue earned consisted of $3,216,692 from Advertising/sponsorships
sales, $220,785 from Retail sales, and $45,741 from Internet services, while in
the first six months of 1999, the $2,714,242 revenue earned consisted of
$2,474,683 from Advertising/sponsorships sales, $125,762 from Retail sales, and
$113,797 from Internet services. The year on year change in revenue mix is a 30%
($742,009) increase in Advertising/sponsorship sales, a 76% ($95,023) increase
in Retail sales, and a 60% ($68,056) decrease in Internet services 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 twenty-one percent of the revenue earned in the
first six months of 2000. This compared to fifty-one percent of revenue in the
first six months of 1999. Advertising/sponsorship sales increased due to the
Company's growing emphasis on leveraging content and attracting advertisers to
the loyal niche that crosswalk.com serves as indicated from the previously
mentioned Nielsen NetRatings. Retail sales increased by $95,023 in the first six
months of 2000 as compared to the six months ended June 30, 1999, due to
increased Web site traffic, site enhancements and product offerings. At the end
of the quarter, the Company closed two unprofitable online retail stores.
Internet Services revenues decreased by $68,056, in the six months ended June
30, 2000 over the same period last year, due to the emphasis being placed on
advertising and away from various Internet services for the Company's clients.

In response to the Securities and Exchange Commission Staff Accounting Bulletin
101 issued in December 1999, the Company has chosen to change its revenue
recognition on the integration and development fee portion of prior year
sponsorship deals, to a more preferable method of deferral ratably over the term
of the contract. If this accounting change had been implemented January 1, 1999,
the revenue for the first six months of 1999 would have been $1,197,132 versus
the $2,714,242 reported. Therefore, on a comparable basis, the first six months
of 2000 revenue would have been up $2,286,086 or 191% versus the first six
months of 1999.

The Company's emphasis going forward will be on leveraging what the Company
believes is robust content important to its niche, and the great affinity of
crosswalk members and the Christian community. This involves increasing the
number of advertisers, and focusing on high margin affiliate relations with less
emphasis on direct retail for commodity items. With continued growth in site
traffic, service enhancements, and successful viral marketing campaigns, 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 integration of
client content on crosswalk.com; retailing Christian interest products on
crosswalk.com; and, the provision of Internet services was $1,495,171 and
$1,502,082 for the six months ended June 30, 2000 and 1999, respectively. The
Company's gross margin for the six months ended June 30, 2000 increased to 57%
from 45% for the same period in 1999. This increase is due primarily to the
decrease in barter transactions, which accounted for less than 21% of revenues
in the six months ended June 30, 2000 versus 51% in the same period in 1999.

In response to the Securities and Exchange Commission Staff Accounting Bulletin
101 issued in December 1999, the Company has chosen to change its revenue and
applicable cost recognition on the integration and development fee portion of
prior year sponsorship deals, to a more preferable method of deferral ratably
over the term of the contract. If this accounting change had been implemented
January 1, 1999, the cost of goods and services for the first six months of 1999
would have been $810,842 versus the $1,502,082 reported. Therefore, on a
comparable basis, the first six months 1999 gross margin would have been 32%
versus the 45% reported.

CROSSWALK OPERATIONS

Crosswalk operations 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 $2,857,665 for the six months
ended June 30, 2000, as compared to $1,662,620 for the same period in 1999. The
72% ($1,195,045) increase in cost of Crosswalk operations was due to the growth
in the Channel content on crosswalk.com. The largest portion of the increase
($871,770 or 90%) is due to increases in staffing and related expenses. The
Company
                                       12
<PAGE>   13


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 ($250,741 or 195%) was in depreciation expense given
the Company's investment in technology assets necessary to support the growth of
crosswalk.com. Other expenses included in this category are content expenses,
software license and maintenance charges, consulting expenses and various other
staff related costs such as travel, office supplies, etc.

SALES AND MARKETING

In the first six months of 2000, sales and marketing expenses were $2,013,976 as
compared to $1,492,027 for the same period in 1999. Sales and marketing expenses
increased 35% ($521,949) largely due to the Company's continued investment in
its cross-media marketing campaign to promote crosswalk.com. The marketing
campaign consisted of advertising and promotion on Christian radio, select
network and cable television, contests, online links from search engines, and
ads in Christian periodicals. The Company believes that it will continue to
incur marketing expenses as it seeks to increase market awareness of
crosswalk.com.

GENERAL AND ADMINISTRATIVE

The Company increased its general & administrative costs in the first six months
of 2000, to $2,027,861 from $919,767 in the first six months of 1999. This 120%
increase ($1,108,094) is due largely to increases in office operating costs due
to increases in headcount, headquarter and satellite locations, and bandwidth
required to support traffic growth on crosswalk.com.

INTEREST INCOME

Interest income decreased 66% to $118,197 from $349,725 for the first six months
ended June 30, 2000 and 1999, respectively. This $231,528 decrease is due to the
use of investments for business expansion and operations.


THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999

NET LOSS

For the quarter ended June 30, 2000, the Company incurred a net loss before
cumulative effect of a change in accounting practice of $2,015,304, as compared
to a net loss of $1,252,294 for the same quarter in 1999. As stated earlier in
this report, the Company booked a ($1,407,589) one-time adjustment in the first
quarter of 2000. In response to the Securities and Exchange Commission Staff
Accounting Bulletin 101 issued in December 1999, the Company has chosen to
change its revenue and applicable cost recognition on the integration and
development fee portion of prior year sponsorship deals, to a more preferable
method of deferral ratably over the term of the contract. If this accounting
change had been implemented January 1, 1999, the net loss for the second of 1999
would have been $1,840,041.

The increased loss before cumulative effect of a change in accounting principle
for the second quarter of 2000 over the same period in 1999 was $763,010 (61%).
It was due primarily to an increase in operating expenses, offset in part by
increases in revenues. The increased loss consisted of a $968,773 (43%) increase
in operating expenses, excluding cost of goods sold for the three months ended
June 30, 2000 as compared to the three months ended June 30, 1999, a $148,724
(70%) decrease in other income, offset to an extent by $354,487 (45%) increase
in gross margin. The increase in operating expenses included the booking of a
$435,212 provision for bad debt.

REVENUES

The Company generated $192,343 or 12% more revenue in the three months ended
June 30, 2000 than in the same period in 1999. The $1,831,528 of revenue earned
in the second quarter of 2000 consisted of $1,716,997 from
Advertising/sponsorships sales, $84,789 from Retail sales, and $29,742 from
Internet services, while the $1,639,185 of revenue earned in the second quarter
of 1999 consisted of $1,501,214 from Advertising/sponsorships sales,

                                       13
<PAGE>   14

$77,574 from Retail sales, and $60,397 from Internet services. The quarter on
quarter change in revenue mix is a 14% ($215,783) increase in
Advertising/sponsorship sales, a 9% ($7,215) increase in Retail sales, and a 51%
($30,655) decrease in Internet services 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 eighteen percent of the revenue earned in the second quarter of 2000. This
compared to fifty-two percent in the second quarter of 1999. Because of this
reduction on barter recognition, cash revenues grew by 88% to approximately
$1,500,000 in the second quarter ended June 30, 2000,versus the $800,000
generated in the second quarter of 1999. In the second quarter of 2000, cash
revenues grew 21% over the first quarter of 2000. The Company's transition to
the advertising sales revenue model from a sponsorship sales model has led to
the increase in cash sales. Retail sales increased by $7,215 in the second
quarter of 2000 due to increased Web site traffic, site enhancements and product
offerings, despite the fact that at the end of the quarter, the Company closed
two unprofitable online retail stores. Internet Services revenues decreased by
$30,655, in the three months ended June 30, 2000, due to the emphasis being
placed on advertising and away from various Internet services for the Company's
clients.

In response to the Securities and Exchange Commission Staff Accounting Bulletin
101 issued in December 1999, the Company has chosen to change its revenue
recognition on the integration and development fee portion of prior year
sponsorship deals, to a more preferable method of deferral ratably over the term
of the contract. If this accounting change had been implemented January 1, 1999,
the revenue for the second quarter of 1999 would have been $749,928 versus the
$1,639,185 reported. Therefore, on a comparable basis, the second quarter 2000
revenue would have been up $1,081,600 or 144% versus the second quarter of 1999.

The Company's emphasis going forward will be on leveraging what the Company
believes is robust content important to its niche, and the great affinity of
crosswalk members and the Christian community by increasing the number of
advertisers, and focusing on high margin affiliate relations with less emphasis
on direct retail for commodity items. With continued growth in site traffic,
service enhancements, and successful viral marketing campaigns, 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 related to the
integration of client content on crosswalk.com; retailing Christian interest
products on crosswalk.com; and the provision of Internet services; was $686,449
and $848,593 for the quarters ended June 30, 2000 and 1999, respectively. The
Company's gross margin for the quarter ended June 30, 2000 increased to 63% from
48% for the same period in 1999. This increase is due primarily to the decrease
in barter transactions, which accounted for 18% of revenues in the three months
ended June 30, 2000 versus 52% in the same period in 1999.

In response to the Securities and Exchange Commission Staff Accounting Bulletin
101 issued in December 1999, the Company has chosen to change its revenue and
applicable cost recognition on the integration and development fee portion of
prior year sponsorship deals, to a more preferable method of deferral ratably
over the term of the contract. If this accounting change had been implemented
January 1, 1999, the cost of goods and services for the second quarter of 1999
would have been $547,123 versus the $848,593 reported. Therefore, on a
comparable basis, the second quarter 1999 gross margin would have been 27%
versus the 48% reported.

CROSSWALK OPERATIONS

Crosswalk operations 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 $1,257,961 for the three
months ended June 30, 2000, as compared to $893,835 for the same period in 1999.
This 41% ($364,126) increase in the cost of Crosswalk operations was due to the
growth in the Channel content on crosswalk.com. One of the single largest
increases in costs ($97,689 or 11%) was in depreciation expense given the
Company's investment in technology assets necessary to support the growth of
crosswalk.com. Crosswalk operations also experienced growth in content and
consulting expense of $145,348 or 134%. The Company purchased a larger amount of
content and utilized consultants from a wider variety of sources and on many
more topics due to the increased number of channels and the depth of those
channels and services on crosswalk.com. There was also an increase of $26,598 or

                                       14
<PAGE>   15

4% in staffing and related expenses. In addition, there were increases in
travel, supplies, and communications expense.

SALES AND MARKETING

In the three months of the second quarter of 2000, sales and marketing expenses
were $772,879 as compared to $832,123 for the same period of 1999. Sales and
marketing expenses decreased 7% ($59,244) largely due to the Company's change in
strategy to focus on cost efficient email and Internet viral marketing to
promote crosswalk.com. The Company believes that it will continue to incur
marketing expenses as it seeks to increase market awareness of crosswalk.com.

GENERAL AND ADMINISTRATIVE

The Company increased its general & administrative costs in the second quarter
of 2000 to $1,193,089 from $529,198 in the second quarter of 1999. This 125%
increase ($663,891) is due largely to increases in office operating costs due to
increased headquarter and satellite location floor space, the $435,000 provision
for bad debt expense, and increased bandwidth required to support traffic growth
on crosswalk.com. G&A expenses are expected to decline in the next quarter as
the Company has successfully sublet excess office space, and our client
relationships and contract processes have been strengthened to reduce potential
future bad debt expenses.

INTEREST INCOME

Interest income decreased 70% to $63,546 from $212,270 for the quarters ended
June 30, 2000 and 1999, respectively. This $148,724 decrease is due to the use
of investments for business expansion and operations.

LIQUIDITY AND CAPITAL RESOURCES

During the six months ending June 30, 2000 and 1999, net cash used in operating
activities was $5,020,609 and $3,464,667 respectively. Net cash provided by
investing activities was $4,635,130 for the first six months of 2000, and net
cash used in investment activities was $8,596,195 for the same period 1999. Net
cash provided in financing activities was $41,555 for the six months ended June
30, 2000. Net cash provided by financing activities was $17,676,958 for the six
months ended June 30, 1999 and consisted of the receipt of $17,676,958 from the
exercise of 2,561,400 Common Stock Purchase Warrants, 317,500 Underwriter
Warrants, and 112,139 Common Stock Options. In the six months ended June 30,
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.

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.

The Company currently anticipates that its $1,769,498 working capital balance at
June 30, 2000, consisting primarily of the proceeds from the exercise of Common
Stock Purchase Warrants, 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 may seek to raise additional funds (1) in order to
expand the overall marketing of crosswalk.com and to pursue potential leveraged
joint marketing opportunities, (2) in the event that the Company's estimates of
operating losses and capital requirements change or prove inaccurate, or (3) in
order that the Company may respond to increased demand or to take advantage of
other unanticipated opportunities. There can be no assurance that current
working capital will be sufficient to meet the Company's needs, or that
additional financing will be available to the Company or will be available on
acceptable terms.

POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS

As a result of the Company's limited operating history and the rapid
technological change experienced in the Internet industry generally, the Company
has limited 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

                                       15
<PAGE>   16

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.

FORWARD LOOKING STATEMENTS

Certain information in this quarterly report on Form 10-Q 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.



                                       16
<PAGE>   17



ITEM 3:  Quantitative and Qualitative Disclosures about Market Risk

None to report.

PART II  OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

None to report.


ITEM 2.  CHANGE IN SECURITIES

In September 1999, the Company entered into a one-year Network Title Sponsorship
Agreement ("Agreement") with The Christian Network, Inc., which includes "Praise
on Pax" and "Worship on Pax." Under this Agreement, the Company is entitled to a
national title sponsorship on "Praise on Pax" telecasts and a national corporate
sponsorship on "Worship on Pax" telecasts. The Company also receives advertising
and promotional rights. The total cost for these sponsorship and advertising
rights is $1,025,000, payable quarterly in cash or, at the Company's option, in
shares of the Company's common stock having a fair market value equal to the
required payment. The Company is also obligated to issue additional shares of
common stock for each new member generated for Crosswalk.com as a result of
these sponsorship and advertising arrangements, based on a valuation of $1.00
for each member generated. In February, April and July 2000, respectively,
39,018, 52,196 and 90,102 shares of Crosswalk common stock were issued for
services rendered under this Agreement.


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None to report.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(a) On Wednesday, May 3, 2000, 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
17, 2000, 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 2001 or until
his successor is duly elected and qualified:

James G. Buick
William M. Parker
Stephen M. Wike
Dane B. West
Robert C. Varney, Ph.D.
Bruce E. Edgington
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 6,970,011 shares for all members with 200,366 shares
withholding, and there were 466,744 Broker non-votes. Thus by plurality of the
votes cast, the Board stands elected.



                                       17
<PAGE>   18

The second 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 1,200,000 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 is administered by the Board of
Directors or by the Compensation Committee, at the directive of the Board of
Directors. The result of the election was 2,849,952 shares voting for the
proposal, 338,190 shares voted against, 29,645 shares voted to abstain and
4,419,344 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.

Lastly, the Stockholders approved the ratification of the selection of Ernst and
Young LLP as the Company's independent accountants. The result of the election
was 7,145,871 shares voting for the proposal, 14,535 shares voted against, 9,971
shares voted to abstain, and there were. 466,744 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
27.1              Financial Data Schedules - For the Three Months Ended June 30, 2000
27.2              Financial Data Schedules - For the Six Months Ended June 30, 2000
27.3              Financial Data Schedules - For the Three Months Ended June 30, 1999, restated
27.4              Financial Data Schedules - For the Six Months Ended June 30, 1999, restated
</TABLE>

(b) Reports on Form 8-K

None to report.

                                       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.


August 11, 2000             By: /s/ William M. Parker
                                ---------------------
                                    William M. Parker
                                    Chief Executive Officer and President



August 11, 2000             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 Schedules - For the Three Months Ended June 30, 2000               3-4
27.2              Financial Data Schedules - For the Six Months Ended June 30, 2000                   5
27.3              Financial Data Schedules - For the Three Months Ended June 30, 1999, restated     6-7
27.4              Financial Data Schedules - For the Six Months Ended June 30, 1999, restated         8
</TABLE>

                                       19






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