<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 SEPTEMBER 30, 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)
Delaware 13-4037641
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 November 13, 2000, is 10,516,196 shares.
<PAGE>
Medium4.com, Inc.
-----------------
INDEX TO FORM 10-Q
September 30, 2000
<TABLE>
<CAPTION>
PART I. Financial Information Page #
<S> <C> <C>
Item 1. Financial Statements (unaudited):
Consolidated Balance Sheet
September 30, 2000 3
Consolidated Statements of Operations
Three months ended September 30, 2000 4
Nine months ended September 30, 2000 5
Consolidated Statements of Cash Flows 6
Nine months ended September 30, 2000
Notes to Consolidated Financial Statements
(unaudited) 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. Other Information
Item 3. Quantitative and Qualitative Information About
Market Risk 14
Item 2. Changes in Securities and Use of Proceeds 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
</TABLE>
<PAGE>
Medium 4. Com, Inc.
( A Development Stage Enterprise )
Balance Sheets
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
30-Sep-00 31-Dec-99
(Unaudited) (Audited)
--------------- ---------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 539,830 $ 103,364
Accounts receivable, net of allowance for doubtful accounts 24,905 12,800
Marketable securities 273,616 4,159,418
Other current assets 291,656 378,823
--------------- ---------------
Total Current Assets 1,130,007 4,654,405
--------------- ---------------
LEASEHOLD IMPROVEMENTS AND EQUIPMENT, Net 1,192,495 1,130,610
--------------- ---------------
SOFTWARE DEVELOPMENT COSTS,NET 975,289 538,040
--------------- ---------------
OTHER ASSETS:
Investment in Affiliate 159,000 159,000
Security deposit 138,178 -
Intangibles 64,946 -
--------------- ---------------
Total Other Assets 362,124 159,000
--------------- ---------------
TOTAL ASSETS $ 3,659,915 $ 6,482,055
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 620,794 $ 256,394
Accrued liabilities 278,498 233,307
Deferred revenue 450,000 -
--------------- ---------------
Total Current Liabilities 1,349,292 489,701
--------------- ---------------
TOTAL LIABILITIES 1,349,292 489,701
--------------- ---------------
STOCKHOLDERS' EQUITY:
Preferred Stock, $ .01 par value, 5,000 shares authorized, 0 shares
issued and outstanding - -
Common stock, $ .01par value, 30,000,000 shares authorized, 10,516,196 and
10,178,433 issued and outstanding, respectively 105,162 101,784
Additional paid-in capital 12,941,018 11,789,014
Retained earnings (9,509,682) (3,760,177)
Unearned compensation (1,212,123) (2,121,215)
Other accumulated comprehensive income (13,752) (17,052)
--------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 2,310,623 5,992,354
---------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,659,915 $ 6,482,055
=============== ===============
</TABLE>
See notes to financial statements.
3
<PAGE>
Medium 4. Com, Inc.
( A Development Stage Enterprise )
Statements of Operations
For the Three Months Ended September 30, 2000 and 1999
(Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
--------------- ----------------
<S> <C> <C>
NET SALES $ 311,805 $ 5,000
--------------- ----------------
PRODUCTION EXPENSES:
Production 390,867 -
Depreciation and amortization 198,750 67,475
General and administrative 1,695,714 1,316,455
--------------- ----------------
TOTAL EXPENSES 2,285,331 1,383,930
--------------- ----------------
OPERATING INCOME (LOSS) (1,973,526) (1,378,930)
-----------------------------------
OTHER INCOME (EXPENSES)
Interest income 12,237 95,934
Loss on marketable securities (291) (33,980)
--------------- ----------------
TOTAL OTHER INCOME (EXPENSES) 11,946 61,954
--------------- ----------------
INCOME (LOSS) BEFORE INCOME TAXES (1,961,580) (1,316,976)
INCOME TAXES - -
--------------- ----------------
NET INCOME (LOSS) $ (1,961,580) $ (1,316,976)
=============== ================
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 5,997 (4,147)
--------------- ----------------
TOTAL COMPREHENSIVE INCOME (LOSS) $ (1,955,583) (1,321,123)
=============== ================
Net Loss Per Share (Basis and Diluted) $ (0.19) $ (0.13)
=============== ================
Weighted Average Common Shares Outstanding 10,486,196 9,978,433
=============== ================
</TABLE>
See notes to financial statements.
4
<PAGE>
Medium 4. Com, Inc.
( A Development Stage Enterprise )
Statements of Operations
For the Nine Months Ended September 30, 2000 and 1999
(Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
----------------- -----------------
<S> <C> <C>
NET SALES $ 514,214 $ 5,000
----------------- -----------------
PRODUCTION EXPENSES:
Production 619,079 -
Depreciation and amortization 518,186 67,475
General and administrative 5,184,850 2,350,733
----------------- -----------------
TOTAL EXPENSES 6,322,115 2,418,208
----------------- -----------------
OPERATING INCOME (LOSS) (5,807,901) (2,413,208)
--------------------------------------
OTHER INCOME (EXPENSES)
Interest income 83,234 123,305
Loss on marketable securities (25,313) (90,450)
----------------- -----------------
TOTAL OTHER INCOME (EXPENSES) 57,921 32,855
----------------- -----------------
INCOME (LOSS) BEFORE INCOME TAXES (5,749,980) (2,380,353)
INCOME TAXES - 681
----------------- -----------------
NET INCOME (LOSS) $ (5,749,980) $ (2,381,034)
================= =================
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 5,997 (4,147)
----------------- -----------------
TOTAL COMPREHENSIVE INCOME (LOSS) $ (5,743,983) $ (2,385,181)
================= =================
Net Loss Per Share (Basis and Diluted) $ (0.55) $ (0.26)
================= =================
Weighted Average Common Shares Outstanding 10,351,867 9,139,217
================= =================
</TABLE>
See notes to financial statements.
5
<PAGE>
Medium 4. Com, Inc.
( A Development Stage Enterprise )
Statements of Cash Flows
For the Nine Months Ended September 30, 2000 and 1999
(Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ (5,749,980) $ (2,381,034)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amoritzation 518,186 67,475
Allowance for doubtful accounts 20,000
Stock based compensation 909,092 -
Changes in operating assets and liabilities:
Accounts receivable (32,105) -
Other assets (19,666) (109,695)
Prepaid expenses and other current assets 87,167 (99,497)
Accounts payable 364,400 152,549
Accrued expenses 45,191 130,806
Deferred revenue 450,000 -
---------------- ----------------
CASH FLOW PROVIDED BY (USED IN) OPERATING ACTIVITIES (3,407,715) (2,239,396)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (370,266) (1,022,765)
Costs incurred in software development (830,038) -
Sales (purchases) of marketable securities, net 3,885,802 (4,482,422)
---------------- ----------------
CASH FLOW PROVIDED BY (USED IN) INVESTING ACTIVITIES 2,685,498 (5,505,187)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 1,155,382 8,803,053
Decrease in subscription receivable - 83,000
Changes in accumulated other comprehensive income 3,301 (4,147)
---------------- ----------------
CASH FLOW PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,158,683 8,881,906
---------------- ----------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 436,466 1,137,323
CASH AND CASH EQUIVALENTS, Beginning of the year 103,364 -
---------------- ----------------
CASH AND CASH EQUIVALENTS, Ending for the period $ 539,830 $ 1,137,323
================ ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the periods for:
Interest $ - $ -
================ ================
Taxes $ 10,850 $ 681
================ ================
</TABLE>
See notes to financial statements.
6
<PAGE>
Medium4.com, Inc and Subsidiaries
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Note 1. Basis of Presentation:
The accompanying unaudited 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
prepare them for inclusion as part of the Form 10Q. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The financial
statements for the periods ended September 30, 2000 and 1999 are unaudited and
include all adjustments necessary to a fair statement of the results of
operations for the periods then ended. All such adjustments are of a normal
recurring nature. The results of the Company's operations for any interim period
are not necessarily indicative of the results of the Company's operations for a
full fiscal year. For further information, refer to the financial statements and
footnotes thereto included in the Company's annual report (Form 10K) filed
with the Securities and Exchange Commission for the year ended December 31,
1999.
Note 2. The Company:
The Company is engaged in the business of developing opportunities as an
Internet broadcaster of international and niche content.
Note 3. Income (Loss) Per Share:
The Company adopted SFAS No. 128, "Earnings per Share". SFAS No. 128
eliminates the presentation of primary and fully dilutive earnings per share
("EPS") and requires presentation of basic and diluted EPS. Basic EPS is
computed by dividing income (loss) available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS
is based on the weighted-average number of shares of common stock and common
stock equivalents outstanding at year-end.
Note 4. Equity Transactions.
a. During the first quarter of 2000 the Company sold 47,500 shares of common
stock pursuant to a private placement at $3.00 per share. During the second
quarter of 2000, the Company sold 30,000 shares of common stock pursuant to
a private placement at $3.00 per share.
b. In March 2000, the Company sold 105,263 shares of common stock to Advanced
Multimedia Group, Inc. at $4.75 per share and issued such entity warrants
to purchase another 105,263 shares of common stock for $9.00 per share for
a period of four years. In addition this entity
7
<PAGE>
was issued warrants to purchase 600,000 shares of common stock for $1.00
per share subject to certain performance criteria, hereafter referred to as
the "Performance Warrants". These Performance Warrants vest based on
certain performance criteria, and therefore will be valued at the time of
vesting, based on the then trading prices of the Company's common stock.
c. In July 2000, the Company sold 11 equity units, each unit consisting of
10,000 shares of common stock, 10,000 Series A redeemable common stock
purchase warrants exercisable into common stock at a purchase price of
$7.00 per share for three years and 10,000 Series B redeemable common stock
at a purchase price of $11.00 per share for three years to a single
investor for $495,000. The Company anticipates that it will shortly
conclude an agreement with this investor, with retroactive effect, whereby,
in consideration for an additional investment of $255,000, the Company will
sell an additional 640,000 shares of common stock and issue to the
investor a total of 750,000 New Series A redeemable common stock purchase
warrants, exercisable for a term of three (3) years at an exercise price of
$3.00 per share, upon surrender and cancellation of the Series A and Series
B Warrants that were previously issued to it.
d. In September 2000, the Company sold 45,000 shares at $2.00 to a single
investor.
5. Deferred Revenue.
In May 2000, the Company entered into a master affiliate agreement with
Windfire International Corporation, Ltd., "Windfire", a British Virgin Islands
Corporation, pursuant to which the Company granted Windfire the exclusive right
for an initial term of five years to grant licenses solely to persons and
entities acceptable to the Company for the establishment and operation within
the nations of Brunei, Indonesia, Kenya, Malaysia, the Philippines, Singapore,
South Africa, Tanzania, Thailand and Uganda of Internet sites that will comprise
discrete channels upon one or more of our network of web sites. The master
affiliate agreement requires Windfire to pay the Company a one time fee of
$1,500,000, of which $500,000 has been received to date. Windfire has also
agreed to pay us commissions over the term of the master affiliation agreement
calculated upon specified percentages of annual gross revenues, as defined in
the agreement, received by Windfire from its licensees. These commissions, which
are payable on a quarter-annual basis, will range from 10% to 30% of annual
gross revenues, depending on the specific nation for which a license has been
granted and the year during the term of the agreement to which such revenues are
attributable. The revenues paid to date by Windfire are being recognized on a
straight-line basis over the term of this agreement.
Windfire refused to pay the balance of the master license fee. Windfire
submitted a claim to declare the agreement void and recover the $500,000 payment
to arbitration pending before the American Arbitration Association, New York
Region. The Company asserted a counterclaim to recover the $1,000,000 balance of
the master license fee, still owed under the master affiliate agreement.
Management believes the Company will prevail in the Arbitration.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
Item 2.
-------
We are a developmental stage company that was founded on November 12, 1998.
As of the end of the three-month fiscal period ended September 30, 2000, we have
not generated 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 current business plan
assumes that we will not derive any significant revenues from advertising,
sales, e-commerce or other activities prior to the year 2001, or even later. Our
business plan further assumes that we will continue to invest and disburse
substantial funds to continue current operations and to build the infrastructure
of our large-scale streaming-video broadcasting business on the World Wide Web,
for which purpose we will require infusion of capital investments.
Remaining a going concern will require additional financing until such time
as sufficient cash flows are generated from operations. Although we anticipate
certain additional debt and equity financings, there can be no assurances that
we will be able to obtain such financing to execute our business model, which is
still evolving. However, management believes that it will be able to secure
sufficient funding for operations until into January 2001. Cash available at
September 30, 2000, together with cash from anticipated financing and revenues,
is expected to be able to support our operations through the end of the year
2000 and the beginning of the first quarter of the year 2001. We will require
substantial additional financing in order to continue, expand our operations,
sustain our cash flow, and to become a meaningful competitor in the Internet
broadcast industry. We do not know if additional financing, in excess of what is
currently anticipated, will be available to us or, if it is available, whether
it will be available on commercially reasonable terms.
Except as discussed herein, we have no additional current definitive
arrangements with respect to additional financing and there can be no assurance
that any such financing will be available to us on commercially reasonable
terms, or at all. Moreover, if we raise additional capital through borrowing or
other debt financing, we would incur substantial interest expense. Sales of
additional equity securities will dilute on a pro rata basis the percentage
ownership of all holders of common stock. If we do raise more capital in the
future, it is likely that it will result in substantial dilution to our present
stockholders. We may seek to sell one or more of our business segments in an
effort to raise funds for the Company. Any inability to obtain additional
financing or find a buyer for one or more of our business segments will
materially adversely affect us, including possibly requiring us to significantly
curtail or cease business operations.
9
<PAGE>
Results of Operations
---------------------
Fiscal Quarter ended September 30, 2000
We sustained a net loss of $1,941,580 for the three-month fiscal period
ended September 30, 2000 on revenues of approximately $311,805. Such revenues
were derived from advertising, the production of infomercials, and from
licensing fees derived from our affiliate program.
The production costs for the development of our original content for the
three month period ended September 30, 2000, were approximately $390,867. 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. This amount, however, does not include the expenses of hiring and
compensating employees who handle production and delivery of our 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
$1,695,714 for the three-month fiscal period ended September 30, 2000,
consisting primarily of $866,731 in personnel costs, $145,019 in professional
and consulting fees, $197,927 in rent, overhead, equipment and depreciation,
$111,196 in sales and marketing costs, and $293,169 in other general and
administrative costs. Internet domain and Web service costs, together with
miscellaneous expenses, accounted for the balance.
We incurred depreciation and amortization expense of $198,750 for the
three-month fiscal period ended September 30, 2000. This was derived primarily
from depreciation relating to our leasehold improvements and furniture, computer
and camera equipment purchases.
Our net losses were partially offset by interest earnings on our investment
grade securities, cash and cash equivalents amounting to $12,237 in the three-
month fiscal period ended September 30, 2000.
In October 2000, the Company entered into an understanding with a group of
investors, based in Japan, who agreed to invest $600,000 over a period of three
months, of which $200,000 has already been received, as of the date of this
disclosure, and the Company is finalizing the terms of the funding, which is
expected to include the sale of equity shares in the Company.
In September 2000, we moved our encoding, editing, production and other
operating facilities to offices located at 1220 Collins Avenue Suite, 100, Miami
Beach, Florida 33139, without material interruption of our Internet broadcasting
operations. The rent payable by the Company in connection with the Miami Beach
facilities is considerably less than the rent payable for the Company's
headquarters in New York City. We subsequently sub-let the New York City
premises, along with some of our furniture and equipment, for a premium and our
portion of the premium covers a substantial portion of the Miami Beach rent. In
the wake of the move of operations to Miami Beach, approximately half of our
employees left the Company, including our
10
<PAGE>
former President, Mr. Graham Cannon, and our Senior Vice President -
Entertainment, Mr. Dennis Oppenheimer.
The move of operations to Miami and the reduction of our workforce,
together with other measures implemented by the Company, has significantly
reduced our monthly operation costs.
In order to develop and implement our business as an Internet broadcaster,
we developed proprietary streaming media technology solutions - PLS - Private
Label StreamingTM - to provide back-end content encoding, hosting and content
streaming capabilities in connection with our audio and video content,
publishing and encoding. We have been developing strategies for exploiting and
commercializing the technology embodied in its PLS(TM) system, including the
possible manufacture and sale of encoding suite units utilizing the PLS(TM)
system. We have received a down payment of $10,000 towards the sale of one
encoding suite unit, inclusive of training hours, at an anticipated sales price
that will rnage from $75,000 to $90,000 (depending on the amount of training
hours required). We have also entered into additional discussions with potential
purchasers of such units.
Our initial testing of revenue-generating advertising solutions has
indicated the potential success of various methods of advertising including: (a)
rotating and permanent placement of buttons, logos and banners, integrated
gateway and multimedia banner ads; (b) broadcasts of "infomercials"; (c)
sponsorships sold for part or all of a channel and (d) audio and video
advertising integrated into our content, especially "streaming advertising",
which combines the strength of traditional linear television with the power of
targeted on-demand video streaming. Streaming advertising can yield advertising
rates that are several times greater than traditional Internet banner. We expect
to derive revenues from the sale of advertising space on our channels, using
customized advertisements, and we believe that we will have the ability to
brand entire sections of our networks and channel sites. In May 2000, we entered
into an agreement with iBeam Broadcasting Corp. for streaming of advertising
with our content, and, during the summer and fall of this year, we began to take
significant steps to develop and begin the implementation of streaming
advertising. Our sales efforts have already resulted in advertising from one
national brand, the Energizer(R) battery. No assurances can be given that
significant advertising revenues will be generated from these sources prior to
the year 2001.
In July 2000, the Company entered into an agreement with our 10% held
Japanese affiliate, ForeignTV, Inc., amending our affiliate program in Japan.
Under the amended agreement, the Japanese affiliate program participant agreed
to double the affiliate license fees payable under the original agreement and to
pay a $300,000 lump sum on account of the increase.
As previously reported, we had entered into a master affiliate agreement
with Windfire International Corporation, Ltd., a British Virgin Islands
corporation, pursuant to which we granted Windfire the exclusive right for an
initial term of five years to grant licenses solely to persons and entities
acceptable to us for the establishment and operation within the nations of
Brunei, Indonesia, Kenya, Malaysia, the Philippines, Singapore, South Africa,
Tanzania, Thailand and Uganda of Internet sites that will comprise discrete
channels upon one or more of our networks of streaming media web sites. The
master affiliate agreement required Windfire to pay us a one-time master license
fee of $1,500,000 on or before June 30, 2000, of which $500,000 has been
received
11
<PAGE>
to date. Windfire also agreed to pay us commissions over the term of the master
affiliation agreement calculated upon specified percentages of annual gross
revenues received by Windfire from its licensees. Windfire refused to pay the
balance of the master license fee. Windfire's claim to declare the agreement
void and recover $500,000, and our counterclaim to recover the $1,000,000
balance of the master license fee, still owed to us are the subject matter of an
arbitration pending before the American Arbitration Association, New York
Region. The arbitration, as well as a separate lawsuit involving an affiliate of
Windfire, is more fully disclosed in our most recent Current Report on SEC Form
8-K that was filed on November 1, 2000. With respect to the said litigation,
which was also brought against three of our current or former directors and
officers (Jonathan Braun, David Badner, and Marc Leve), the Company has agreed
to idemnify, advance and guarantee the costs of their respective legal defences
in this action and has made a claim on its insurance carriers in connection with
same. Our management believes that the Company will prevail in the arbitration
and in the litigation.
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 three private placements between
December 1999 and September 2000. Net proceeds from these sales have totaled
approximately $10.6 million, with $8.8 million raised in the IPO and $1.9
million raised in three private placements, the amount of $200,000 has been
received on account of a $600,000 financing commitment, and the total financings
immediately anticipated over the next two months is expected to be at least
$650,000.
For the three-month period ended September 30, 2000, we used approximately
$545,000 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 September 30, 2000, we used approximately
$84,000 in connection with 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 September 30, 2000, we
continued to invest 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 September 30, 2000, we had $539,830 of cash and cash equivalents and
$273,616 in marketable securities. We believe that current cash and cash
equivalents at hand, plus the amounts anticipated, will be sufficient to meet
our anticipated cash needs for working capital and capital expenditures until
into January 2001. However, the growth of our business, if sustained, will
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 cash
flow, future operations and prospects. If we raise additional funds through the
issuance of equity securities, then our current stockholders would have their
12
<PAGE>
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.
We will continue to explore various financings including private placements
and debt financings. If we are unable to obtain significant additional financing
or otherwise obtain working capital to fund our operations, we may seek to sell
one or more of our business segments in an effort to raise funds for the
Company. Any inability to obtain additional financing or find a buyer for one
of our business will materially adversely affect us, including possibly
requiring us to significantly curtail or cease business operations.
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, and we have completed
our Year 2000 preparedness activities. However, we cannot assure that we will
not experience disruptions in the future as a consequence of the Year 2000 bug.
We cannot quantify the amount of our potential exposure, but do not believe it
to be material.
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.
13
<PAGE>
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. Moreover, we will require substantial additional financing
in order to sustain our cash flow, continue our operations at current levels,
expand our business, and to become a meaningful competitor in the Internet
broadcast industry.
Item 3. 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 were invested in interest-
bearing 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 $291
at the end of the three-month fiscal period ended September 30, 2000.
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PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(a) None
(b) None
(c) (i) During the third quarter of 2000 we privately sold 45,000 shares
of common stock at $2.00 per share.
(ii) As previously reported in our quarterly report for the three-
month fiscal period ending June 30, 2000 on Form 10-Q, in June 2000, we
privately sold to a single corporate purchaser through a private placement
110,000 shares of common stock together with 110,000 Series A redeemable
common stock purchase warrants, exercisable for a term of three (3) years
at an exercise price of $7.00 per share and 110,000 Series B redeemable
common stock purchase warrants, identical in all respects to the Series A
Warrants, but exercisable at an exercise price of $11.00 per share, for an
aggregate consideration of $495,000. We used Westminster Securities
Corporation as placement agent and incurred commissions and expenses in
connection with this private placement of $67,550, not including certain
legal and accounting costs. We anticipate that we will soon conclude an
agreement with this investor, with retroactive effect, whereby, in
consideration for an additional investment of $255,000, we will issue an
additional 640,000 shares of common stock plus a total of 750,000 New
Series A redeemable common stock purchase warrants, exercisable for a term
of three (3) years at an exercise price of $3.00 per share, upon surrender
and cancellation of the Series A and Series B Warrants that were previously
issued.
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 September 30, 2000, we expended approximately
$8.96 million of such net proceeds upon the development of our business,
including approximately $2 million 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.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(27) Financial Data Schedule
(b) Reports on Form 8-K:
Item 5, on November 1, 2000.
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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: November 13, 2000 By: /s/ Harold I. Berliner
-------------------------------------
Harold I. Berliner, Treasurer and
Principal Financial and Accounting Officer
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