<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR QUARTERLY PERIOD ENDING MARCH 31, 2000
( ) TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 001-15863
Medium4.com, Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 13-4037641
----------- --------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
120 Fifth Avenue, Seventh Floor, New York, NY 10011
-------------------------------------------------
(Address of principal executive offices)
(212) 993-9400
-------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has 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 period that the registrant was
required to file such reports) and (2) has been subject to filing requirements
for the past 90 days.
Yes X No___
--
The number of shares of Common Stock, par value $ .01 per share, outstanding as
of May 12, 2000 is 10,215,933 shares.
<PAGE>
Medium4.com, Inc.
-----------------
INDEX TO FORM 10-Q
March 31, 2000
<TABLE>
<CAPTION>
PART I. Financial Information Page #
<S> <C> <C>
Item 1. Financial Statements (unaudited):
Consolidated Balance Sheet
March 31, 2000 3
Consolidated Statements of Operations (Unaudited)
Three months ended March 31, 2000 4
Consolidated Statements of Cash Flows (Unaudited)
Three months ended March 31, 2000 5
Consolidated Statement of Shareholders' Equity 6
Notes to Consolidated Financial Statements
(unaudited) 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 2. Changes in Securities and Use of Proceeds 10
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
</TABLE>
2
<PAGE>
MEDIUM4.COM, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------------- ------------------
(unaudited) (audited)
ASSETS
------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 683,229 $ 103,364
Marketable securities 2,340,210 4,159,418
Accounts receivable 61,500 12,800
Other current assets 136,436 378,824
------------------ -------------------
Total Current Assets 3,221,375 4,654,406
INVESTMENT IN AFFILIATE 159,000 159,000
LEASEHOLD IMPROVEMENTS AND EQUIPMENT, NET 1,176,712 1,130,610
SOFTWARE, NET 710,016 354,582
OTHER ASSETS 202,794 183,458
------------------ -------------------
$ 5,469,897 $ 6,482,056
================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $ 328,494 $ 256,394
Accrued expenses 124,594 233,307
------------------ -------------------
Total Current Liabilities 453,088 489,701
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stock $.01 par value 5,000 shares authorized
issued and outstanding -0- shares - -
Common stock, $.01 par value; 30,000,000 shares authorized,
10,331,196 and 10,178,433 issued and outstanding,
respectively 103,312 101,784
Paid in capital 12,429,986 11,789,014
Accumulated deficit (5,682,364) (3,760,176)
Unearned compensation expense (1,818,184) (2,121,215)
Accumulated other comprehensive income (15,941) (17,052)
------------------ -------------------
Total Stockholder's Equity 5,016,809 5,992,355
------------------ -------------------
$ 5,469,897 $ 6,482,056
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
MEDIUM4.COM, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 2000 March 31, 1999
----------------------- ----------------------
<S> <C> <C>
REVENUE $ 66,911 $ -
EXPENSES:
Production 145,517 -
Amortization of software 44,322 -
Selling, general and administrative expenses 1,826,893 77,783
------------------- ------------------
Total expenses 2,016,732 77,783
------------------- ------------------
LOSS FROM OPERATIONS (1,949,821) (77,783)
OTHER INCOME
Interest income 48,963 -
Loss on marketable securities (21,330) -
------------------- ------------------
Total other income 27,633 -
------------------- ------------------
LOSS BEFORE TAXES (1,922,188) (77,783)
INCOME TAX EXPENSE - 681
------------------- ------------------
NET LOSS $ (1,922,188) $ (78,464)
=================== ==================
Other comprehensive income, net of tax:
Foreign currency translation adjustments 1,111
Comprehensive Income $ (1,921,072) $ (78,464)
=================== ==================
Weighted average shares of common stock
outstanding 10,216,624 9,139,217
Net loss per share $ (0.19) $ (0.01)
=================== ===================
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
MEDIUM4.COM, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months March 31,
2000 1999
-------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,922,188) $ ( 78,464)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 90,607 -
Amortization 44,322 -
Increase in accounts receivable (48,700) -
Increase in other current assets 242,388 (66,632)
Increase in accounts payable 72,100 -
Increase in accrued expenses (108,713) 133,551
-------------- -------------
NET CASH USED BY OPERATIONS (1,630,184) (11,545)
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in due to related parties - (6,670)
Increase in other assets (19,336) (44,864)
Purchases of capital expenditures (536,465) -
Increase in marketable securities 1,819,208 -
-------------- -------------
NET CASH USED BY INVESTING ACTIVITIES 1,263,407 (51,534)
-------------- -------------
CASH PROVIDED BY FINANCING ACTIVITIES:
Sale of common stock 642,500 65,236
Change in subscription receivable - 10,694
Unearned compensation expense 303,031 -
Accumulated other comprehensive income 1,111 -
-------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 946,642 75,930
-------------- -------------
NET INCREASE IN CASH 579,865 12,851
CASH, beginning of the period 103,364 -
-------------- -------------
CASH, end of the period $ 683,229 $ 12,851
================ =============
Supplemental disclosures of cash flow information:
Taxes paid $ 10,850 681
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
<TABLE>
<CAPTION>
MEDIUM4.COM, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
Accumulated
Common Stock Additional Other
-------------------------------------- Paid in Accumulated Compensation
Shares Amount Capital Deficit Income
------------------ ----------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance as of December 31, 1999 10,178,433 $ 101,784 $ 11,789,014 $ (3,760,176) $ (17,052)
Receipt of stock subscription - - - - -
Sale of common stock 152,763 1,528 640,972 - -
Accumulated other comprehensive
income - - - - 1,111
Unearned Compensation
expense - - - - -
Net loss - - - (1,922,188) -
--------------- --------------- ------------------ ------------ ----------------
10,331,196 $ 103,312 $ 12,429,986 $ (5,682,364) (15,941)
=============== =============== ================== =========== ================
</TABLE>
<TABLE>
<CAPTION>
Unearned Total
Compensation Stockholders
Expense Equity
----------------- ----------------
<S> <C> <C>
Balance as of December 31, 1999 $ (2,121,215) $ 5,992,355
Receipt of stock subscription - -
Sale of common stock - 642,500
Accumulated other comprehensive
income - 1,111
Unearned Compensation
expense 303,031 303,031
Net loss - (1,922,188)
----------------- ---------------
$ (1,818,184) $ 5,016,809
================= ===============
</TABLE>
See notes to consolidated financial statements
<PAGE>
Medium4.com, Inc and Subsidiaries
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Basis of Presentation
- ---------------------------------
The accompanying unaudited consolidated financial statements of
Medium4.com, Inc. (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
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 considered necessary for a fair
presentation (consisting of normal recurring accruals) have been included. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Operating results for
expected for the three months period ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000. For further information, refer to the financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999. Per share data for the periods are based upon the weighted
average number of shares of common stock outstanding during such periods, plus
net additional shares issued upon exercise of options and warrants.
Note 2. Equity Transactions
- -------------------------------
a. During the first quarter of 2000 the Company privately sold 47,500 shares of
common stock at $3.00 per share.
b. In March 2000, the Company privately sold to a single corporate purchaser
105,263 shares of common stock together with four-year warrants to purchase
an additional 105,263 shares of common stock exercisable at $9.00 per share,
for an aggregate consideration of $500,000. In addition, this entity was
issued warrants to purchase 600,000 shares of common stock exercisable at
$1.00 per share, with exercisability predicated upon its achievement of
certain performance criteria. These Performance Warrants vest based on
certain future performance criteria, therefore will be valued at the time
such warrants vest based on the then trading prices of the Company's common
stock.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
We are a developmental stage company that was founded on November 12, 1998.
As of the end of the three-month fiscal period ended March 31, 2000, we had not
generated any material revenues. In view of the rapidly evolving nature of our
business and our limited operating history, we believe that a description of our
revenues and operating results is not necessarily meaningful and should not be
relied upon as indications of future performance. Our business plan assumes
that we will not derive any significant revenues from advertising, sales, e-
commerce or other activities prior to April 2000. Our business plan further
assumes that we will continue to invest and disburse substantial funds to build
the infrastructure of our large-scale streaming-video broadcasting business on
the World Wide Web.
Results of Operations
- ---------------------
Fiscal Quarter ended March 31, 2000
We sustained a net loss of $1.92 million for the three month fiscal period
ended March 31, 1999 on revenues of approximately $66,911. Such revenues were
derived from advertising, the production of infomercials and from our affiliate
program licensing fees.
The production costs for the development of our original content for the
three month period ended March 31, 2000, were approximately $145,517. This
amount includes the cost of (i) data communications, (ii) software license fees
and (iii) content license fees, where necessary in order to acquire additional
content. As our user traffic increases and as the number of services we offer
increases, we expect these expenditures to increase.
Our selling, general and administrative expenses were approximately $1.83
million for the three-month fiscal period ended March 31, 2000, consisting
primarily of $795,573 in personnel costs, $432,932 in professional and
consulting fees, $180,238 in rent, overhead, equipment and depreciation, $66,476
in sales and marketing costs, and $276,996 in other general and administrative
costs. Internet domain and Web service costs, together with miscellaneous
expenses, accounted for the balance.
We had depreciation and amortization expense of $134,929 for the three-
month fiscal period ended March 31, 2000. This was derived primarily from
depreciation relating to our leasehold improvements and furniture, computer and
camera equipment purchases, and amortization of software.
Our net losses were partially offset by interest earnings on our investment
grade securities, cash and cash equivalents amounting to approximately $48,963
in the three-month fiscal period ended March 31, 2000.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through sales of
our common stock and warrants in our IPO and in two private placements between
December 1999 and March
8
<PAGE>
2000. Net proceeds from these sales have totaled approximately $10.1 million,
with $8.8 million raised in the IPO and $1.3 million raised in the two private
placements.
For the three-month period ended March 31, 2000, we used approximately $1.6
million in connection with our operating activities. Such amount was primarily
attributable to net losses, offset in part by increases in accounts payable,
accrued liabilities and deferred revenue.
For the three-month period ended March 31, 2000, we used approximately
$0.54 million in in connection with our investing activities, purchases of
property and equipment, production of encoded videos, which are treated as
software development, and registration costs relating to our library of domain
names.
We believe that our success will depend largely on our ability to become a
leading source for streaming media broadcasting of international and other niche
programming on the Web. Accordingly, we intend to invest heavily in order to
develop our network infrastructure, acquire content and in sales and marketing.
We expect to continue to incur substantial operating losses for the foreseeable
future. During the three-month fiscal period ended March 31, 2000, we continued
to invest heavily in and incurred significant expenditures and costs for
expanding our network infrastructure required for large-scale streaming media
broadcasts and in implementing our business plan.
At March 31, 2000, we had $3.33 million of cash and cash equivalents. We
believe that current cash and cash equivalents will be sufficient to meet our
anticipated cash needs for working capital and capital expenditures for the next
twelve months. However, the growth of our business, if sustained, may require us
to raise additional capital. We can give no assurance that we will able to
obtain such additional financing, if needed, on terms attractive to us, if at
all. Failure to raise capital when needed could adversely affect our future
operations and prospects. If we raise additional funds through the issuance of
equity securities, then our current stockholders would have their percentages of
equity ownership of Medium4.com reduced. Furthermore, such equity securities
might have rights, preferences or privileges senior to those of our common
stock.
Year 2000
To date our systems and computer software and hardware have not experienced
any material disruption due to the onset of the Year 2000. However, we cannot
assure that we will not experience disruptions in the future as a consequence of
Year 2000 issues. We cannot quantify the amount of our potential exposure, but
do not believe it to be material.
Quantitative and Qualitative Information About Market Risk
We do not engage in trading market risk sensitive instruments and do not
purchase hedging instruments or "other than trading" instruments that are likely
to expose us to market risk, foreign currency exchange, commodity price or
equity price risk. We have purchased no options and entered into no swaps. We
have no bank borrowing facility which could subject us to the risk of interest
rate fluctuations. The predominant share of our funds are invested in interest-
bearing
9
<PAGE>
investment grade securities, the yield and value of which are subject to Federal
interest rate fluctuations. Due to fluctuations in the Federal interest rates,
the investment grade securities held by us experienced a decline of $21,330
(approximately 0.66%) at the end of the three-month fiscal period ended March
31, 2000.
Forward-Looking Statements
Management's Discussion and Analysis above contains certain forward-looking
statements and information relating to us and to our present and future business
operations within the meaning of Federal securities law. We have identified
these statements by using forward-looking terminology such as "may," "will,"
"expect," "anticipate," "estimate," "predict", "contemplate", "continue,"
"believe," "intend," or other similar words. These words, however, are not the
exclusive means by which you can identify these statements. You can also
identify forward-looking statements because they discuss future expectations,
contain projections of results of operations or of financial conditions,
characterize future events or circumstances or state other forward-looking
information.
These forward-looking statements included in Management's Discussion and
Analysis are based on our beliefs as well as assumptions made using information
currently available to us, and we assume no obligation to update any such
forward-looking statements. We believe that the expectations reflected in such
forward-looking statements are based on reasonable assumptions. However,
because these statements reflect our current views concerning future events,
these statements involve certain risks, uncertainties and assumptions. Actual
future results may differ materially and significantly from the results
projected and discussed in the forward-looking statements.
We caution you that our business and financial performance are subject to
substantial risks and uncertainties. Potential risks and uncertainties include,
among others, those risk factors set forth in our S-1 Registration Statement, as
amended, for our initial public offering that became effective on April 13, 1999
and our Annual Report on Form 10-K, as amended, for the Fiscal Year ended
December 31, 1999.
Item 2. Changes in Securities and Use of Proceeds
(a) None
(b) None
(c) (i) During the first quarter of 2000 we privately sold 47,500 shares
of common stock at $3.00 per share.
(ii) In March 2000, we privately sold to a single corporate purchaser
105,263 shares of common stock together with four-year warrants to purchase
an additional 105,263 shares of common stock exercisable at $9.00 per
share, for an aggregate consideration of $500,000. In addition, this entity
was issued warrants to purchase 600,000 shares of common stock exercisable
at $1.00 per share, with exercisability predicated upon its achievement of
certain performance criteria.
No underwriters were employed for these purposes. We sold these securities in
reliance upon the exemption from registration under the Securities Act of 1933
provided by Section 4(2) of the Act, on the basis that neither transaction
involved any public offering.
(d) On April 13, 1999, we commenced an initial public offering of our
securities, SEC file number 333-71733, resulting in net proceeds to us of
$8,792,552.
From April 13, 1999 through March 31, 2000, we expended $ 5,889,583 of such
net proceeds upon the development of our business, including $1,082,372 for the
payment of officers' salaries and consulting fees. The balance of such net
proceeds, inclusive of interest thereon, have been utilized to purchase
marketable securities, which will be liquidated as required for the further
development of our business and for working capital purposes.
10
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(27) Financial Data Schedule
(b) Reports on Form 8-K:
None.
11
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Medium4.com, Inc.
(registrant)
Dated: May 12, 2000 By: /s/ Harold I. Berliner
------------------------------------------
Harold I. Berliner, Treasurer and
Principal Financial and Accounting Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AT MARCH 31, 2000 AND THE CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE YEAR ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 683,229
<SECURITIES> 2,340,210
<RECEIVABLES> 61,500
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,221,375
<PP&E> 1,311,641
<DEPRECIATION> 134,929
<TOTAL-ASSETS> 5,469,897
<CURRENT-LIABILITIES> 453,088
<BONDS> 0
0
0
<COMMON> 103,312
<OTHER-SE> 4,913,497
<TOTAL-LIABILITY-AND-EQUITY> 5,469,897
<SALES> 66,911
<TOTAL-REVENUES> 66,911
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,016,732
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,922,188)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,922,188)
<EPS-BASIC> (0.19)
<EPS-DILUTED> 0
</TABLE>
