ANNUAL REPORT FOR SMALL BUSINESS ISSUERS SUBJECT
TO THE 1934 ACT REPORTING REQUIREMENTS
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000
-------------------------
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________to________________________
Commission file number____________________________________________________
Streamedia Communications, Inc.
--------------------------------------------------
(Exact name of small business issuer in its charter)
Delaware 22-3622272
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
244 West 54th Street New York, New York 10019
--------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (212) 445-1700
--------------
Securities registered under Section 12(b) of the Act: None
Title of each class Name of each exchange
on which registered
------------------------------ ---------------------------------
------------------------------ ---------------------------------
Check whether the issuer (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
twelve 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.
Yes_X__. No____.
<PAGE>
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13, or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes____ No ____
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's class of
common equity, as of the last practicable date: As of August 14, 2000, the
Company had 4,730,044 shares of Common Stock issued and outstanding.
Transitional Small Business Disclosure Format (check one): ____ ____
<PAGE>
ITEM I. FINANCIAL INFORMATION
<TABLE>
Streamedia Communications, Inc.
(A Development Stage Company)
BALANCE SHEETS
(unaudited)
<CAPTION>
JUNE 30, December 31,
ASSETS 2000 1999 (a)
------------ ------------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,776,392 $ 6,693,061
Accounts receivable 106,020
Licenses, net of accumulated amortization of $264,000 and $79,000
at June 30, 2000 and December 31, 1999, respectively 184,403 392,363
Prepaid expenses 87,878 142,207
------------ ------------
Total current assets 2,154,693 7,227,631
PROPERTY AND EQUIPMENT
Computer equipment and software 1,537,793 751,297
Software development costs 507,800 150,513
Leasehold improvements 327,480 127,352
Furniture and fixtures 21,977 19,841
------------ ------------
2,395,050 1,049,003
Less accumulated depreciation and amortization (442,457) (167,494)
------------ ------------
1,952,593 881,509
OTHER ASSETS 32,850 7,000
------------ ------------
$ 4,140,136 $ 8,116,140
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of capital lease obligations $ 31,740 $ 31,740
Accounts payable and accrued expenses 402,726 429,265
Accrued license fees 436,941
Accrued software costs 304,519
Accrued payroll 137,747
Accrued offering costs 64,500
Accrued professional fees 130,737 43,623
Accrued consulting fees 187,274 132,144
------------ ------------
Total current liabilities 752,477 1,580,479
CAPITALIZED LEASE OBLIGATIONS, less current maturities 13,106 24,234
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value; authorized - 100,000
shares; none issued and outstanding
Common stock, $.001 par value; authorized - 20,000,000 shares; issued and
outstanding - 4,730,044 and 4,624,844 shares at
June 30, 2000 and December 31, 1999, respectively 4,730 4,625
Additional paid-in capital 11,337,040 10,720,846
Deficit accumulated during development stage (7,967,217) (4,214,044)
------------ ------------
Total stockholders' equity 3,374,553 6,511,427
------------ ------------
$ 4,140,136 $ 8,116,140
============ ============
</TABLE>
(a) Retroactively restated to combine the financial position of Streamedia
Communications, Inc. ("Streamedia") with that of Eons Ahead, Inc., which
was acquired by Streamedia in March 2000 and accounted for as a pooling of
interests.
The accompanying notes are an integral part of these statements.
1
<PAGE>
<TABLE>
Streamedia Communications, Inc.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(unaudited)
<CAPTION>
Cumulative
from
January 13,
Six months Three months ended 1998 (date of
ended June 30, June 30, inception) to
------------------------------ ------------------------------ June 30,
2000 1999 (a) 2000 1999 (a) 2000 (a)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $ 130,830 $ 52,109 $ 123,486 $ 31,268 $ 361,255
----------- ----------- ----------- ----------- -----------
Operating expenses
Payroll and related expenses 1,861,114 440,469 1,093,651 284,245 3,256,586
Product development 23,024 542,501
General and administrative 2,106,982 177,533 1,212,541 89,695 4,028,288
----------- ----------- ----------- ----------- -----------
Total operating expenses 3,991,120 618,002 2,306,192 373,940 7,827,375
----------- ----------- ----------- ----------- -----------
Operating loss (3,860,290) (565,893) (2,182,706) (342,672) (7,466,120)
----------- ----------- ----------- ----------- -----------
Other income (expense)
Interest expense (9,020) (4,359) (2,444) (4,359) (621,854)
Interest income 116,137 1,995 44,324 1,995 120,757
----------- ----------- ----------- ----------- -----------
Total other income (expense) 107,117 (2,364) 41,880 (2,364) (501,097)
----------- ----------- ----------- ----------- -----------
NET LOSS $(3,753,173) $ (568,257) $(2,140,826) $ (345,036) $(7,967,217)
=========== =========== =========== =========== ===========
Basic and diluted loss per common
share $ (.80) $ (.17) $ (.45) $ (.11) $ (2.50)
=========== =========== =========== =========== ===========
Weighted average shares outstanding,
basic and diluted 4,699,347 3,247,717 4,730,044 3,282,678 3,189,761
=========== =========== =========== =========== ===========
</TABLE>
(a) Retroactively restated to combine the results of operations of Streamedia
with those of Eons Ahead, Inc., which was acquired by Streamedia in March
2000 and accounted for as a pooling of interests.
The accompanying notes are an integral part of these statements.
2
<PAGE>
<TABLE>
Streamedia Communications, Inc.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited)
<CAPTION>
Deficit
accumulated
Preferred stock Common stock Additional during
--------------------- --------------------- paid-in development
Shares Amount Shares Amount capital stage Total
--------- --------- --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 2000 (a) -- $ -- 4,624,844 $ 4,625 $10,720,846 $(4,214,044) $ 6,511,427
Issuance of common stock for services 7,700 8 39,105 39,113
Issuance of common stock pursuant to
the exercise of stock options 37,500 37 74,963 75,000
Issuance of common stock in connection
with the overallotment option of the
initial public offering, net of
underwriting discounts of $40,800 40,000 40 299,160 299,200
Compensatory stock option expense 126,100 126,100
Issuance of common stock for business
acquisition 20,000 20 76,866 76,886
Net loss for the period (3,753,173) (3,753,173)
--------- --------- --------- --------- ----------- ----------- -----------
Balance at June 30, 2000 $ 4,730,044 $ 4,730 $11,337,040 $(7,967,217) $ 3,374,553
========= ========= ========= ========= ----------- =========== ===========
</TABLE>
(a) Retroactively restated to combine the financial position of Streamedia with
that of Eons Ahead, Inc., which was acquired by Streamedia in March 2000
and accounted for as a pooling of interests.
The accompanying notes are an integral part of this statement.
3
<PAGE>
<TABLE>
Streamedia Communications, Inc.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Cumulative
from
January 13,
Six months 1998 (date of
June 30, inception) to
-------------------------------- June 30,
2000 1999(a) 2000 (a)
----------- ----------- -----------
Cash flows from operating activities
<S> <C> <C> <C>
Net loss $(3,753,173) $ (568,257) $(7,967,217)
Adjustments to reconcile net loss to net cash used in operating
activities
Common stock issued for services 39,113 12,000 231,113
Stock option granted for services 20,250 834,650
Compensatory stock option expense 126,100 206,250 332,350
Amortization of debt discount 272,250
Amortization and write-off of deferred financing costs 231,500
Depreciation and amortization 459,423 1,757 706,687
Changes in operating assets and liabilities
Accounts receivable (106,020) (69,266)
Prepaid expenses and other current assets 77,829 (536,511)
Other assets (25,850) (4,668) (32,850)
Accounts payable and accrued expenses (26,539) 6,583 402,726
Accrued license fees (436,941)
Accrued software costs (304,519)
Accrued payroll (137,747) 23,954
Accrued offering costs (64,500)
Accrued professional fees 87,114 (8,635) 130,737
Accrued consulting fees 55,130 (38,500) 187,274
----------- ----------- -----------
Net cash used in operating activities (4,010,580) (349,266) (5,313,311)
----------- ----------- -----------
Cash flows from investing activities
Purchase of property and equipment (1,269,161) (18,805) (2,262,191)
----------- ----------- -----------
Net cash used in investing activities (1,269,161) (18,805) (2,262,191)
----------- ----------- -----------
Cash flows from financing activities
Issuance of common stock, net of associated costs 299,200 523,980 828,809
Issuance of common stock in Offering, net of associated costs 8,446,777
Proceeds from the exercise of stock options 75,000 75,000
Proceeds of notes payable and common stock warrants, net of
associated costs 1,583,500
Repayments of notes payable (1,815,000)
Deferred offering costs (187,432) 50,000
Conversion of stockholder loan into Capital 31,320 193,936
Principal payments on capital lease obligations (11,128) (11,128)
----------- ----------- -----------
Net cash provided by financing activities 363,072 367,868 9,351,894
----------- ----------- -----------
Net (decrease) increase in cash (4,916,669) (203) 1,776,392
Cash at beginning of period 6,693,061 9,691 --
----------- ----------- -----------
Cash at end of period $ 1,776,392 $ 9,488 $ 1,776,392
=========== =========== ===========
</TABLE>
(a) Retroactively restated to combine the financial position of Streamedia with
that of Eons Ahead, Inc., which was acquired by Streamedia in March 2000
and accounted for as a pooling of interests.
The accompanying notes are an integral part of these statements.
4
<PAGE>
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 2000
(unaudited)
NOTE A - BASIS OF PRESENTATION
The interim unaudited financial statements include the accounts of
Streamedia Communications, Inc. ("Streamedia" or the "Company") and the
accounts of companies acquired in business combinations accounted for under
(1) the purchase method from their respective acquisition date and (2) the
pooling of interests method, giving retroactive effect for all periods
presented. See Note C for the effects of the pooling on previously reported
revenues, net loss and loss per share resulting from the business
combination with Eons Ahead, Inc., which was acquired by the Company during
March 2000 and accounted for as a pooling of interests.
The balance sheet as of June 30, 2000 and the related statements of
operations for the six- and three-month periods ended June 30, 2000 and
1999 and cumulative from January 13, 1998 (date of inception) to June 30,
2000, stockholders' equity for the six-month period ended June 30, 2000 and
cash flows for the six-month periods ended June 30, 2000 and 1999 have been
prepared by the Company without audit. In the opinion of management, all
adjustments (which include only normal, recurring accrual adjustments)
necessary to present fairly the financial position as of June 30, 2000 and
for all periods presented have been made.
Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These financial
statements should be read in conjunction with the financial statements and
notes thereto included in the Annual Report on Form 10-KSB for the year
ended December 31, 1999. Results of operations for the period ended June
30, 2000 are not necessarily indicative of the operating results expected
for the full year.
NOTE B - NATURE OF OPERATIONS
Streamedia was incorporated in the State of Delaware and is positioning
itself as a vertically integrated New Media content generator, enabler and
aggregator. The Company's two divisions are Streamedia Networks and
Business Services. In December 1999, the Company completed its initial
public offering (the "Offering"). The net proceeds from the Offering were
approximately $8,447,000.
5
<PAGE>
Streamedia Communications, Inc
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000
(unaudited)
NOTE B (CONTINUED)
The Company is in the development stage. Streamedia Networks consist of a
suite of topical broadcast networks to deliver or "stream" live and
on-demand audio and video programming. The Streamedia Networks sites intend
to offer programming in Streamedia Communications, Inc. areas such as, but
not limited to, business, sports, women's issues, parenting, travel,
education, religion, politics, health, teen and children's interests,
shopping, real estate, music, technology, personal fitness, movies,
entertainment and lifestyles. The Company has chosen "Crime Broadcast,"
"Sports Style," "Motion Arts" and "Women on the Edge" as its initial
network launches. The Streamedia Networks will include StreamWire which
will consist of a series of focused, subject-oriented, edited news and
information products, such as wires devoted to NASDAQ or Amex-listed
companies.
Streamedia Business Services division will market Internet and intranet
broadcasting services to a wide spectrum of enterprises, such as, but not
limited to, businesses, associations, electronic publishers and "off-line"
media generators, who are attempting to obtain an Internet broadcast
presence.
The division will attempt to deliver multimedia and text through a variety
of push, poll and proprietary electronic mail mechanisms. The Company's
operations are subject to certain risks and uncertainties, including actual
and potential competition by entities with greater financial resources,
experience and market presence, risks associated with the development of
the Internet markets, risks associated with consolidation in the industry,
the need to manage growth and expansions, certain technology and regulatory
risks and dependence upon sole and limited suppliers.
The accompanying financial statements have been prepared on the basis that
the Company will continue as a going concern which assumes the realization
of assets and settlement of liabilities in the normal course of business.
Since its inception, the Company has been engaged in organizational and
pre-operating activities. Further, the Company has generated nominal
revenues and incurred losses. Continuation of the Company's existence is
dependent upon its ability to obtain additional capital, secure and execute
strategic alliances to develop news and information content and sustain
profitable operations. The uncertainty related to these conditions raises
substantial doubt about the Company's ability to continue as a going
concern. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
6
<PAGE>
Streamedia Communications, Inc
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000
(unaudited)
NOTE C - BUSINESS COMBINATIONS
During March 2000, the Company completed the acquisition of Eons Ahead,
Inc. ("Eons") through a stock-for-stock merger. Under the terms of the
acquisition, accounted for as a pooling of interests, the Company exchanged
129,354 shares of Company common stock for all of Eons common stock. Eons
is a technology-based company, incorporated on January 13, 1998, which
designs, markets and develops strategies for other entities.
The reconciliation below details the effects of the pooling on previously
reported revenues, net loss and loss per share of the separate companies
for the period from April 29, 1998 (date of inception) to December 31,
1998, year ended December 31 1999 and cumulative from January 13, 1998
(date of inception) to December 31, 1999.
<TABLE>
<CAPTION>
Cumulative
Period from from
April 29, 1998 January 13,
(date of 1998 (date of
inception) to Year ended inception) to
December 31, December 31, December 31,
1998 1999 1999
----------- ----------- -----------
Revenues
<S> <C> <C> <C>
Streamedia $ -- $ -- $ --
Eons 18,286 212,140 230,426
----------- ----------- -----------
Combined $ 18,286 $ 212,140 $ 230,426
=========== =========== ===========
Net loss
Streamedia $ (296,760) (3,784,911) $(4,081,671)
Eons (131,460) (913) (132,373)
----------- ----------- -----------
Combined $ (428,220) $(3,785,824) $ 4,214,044
=========== =========== ===========
Loss per share
Streamedia $ (.14) $ (1.12) $ (1.47)
Eons (.06) -- (.05)
----------- ----------- -----------
Combined $ (.20) $ (1.12) $ (1.52)
=========== =========== ===========
</TABLE>
7
<PAGE>
Streamedia Communications, Inc
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000
(unaudited)
NOTE C (CONTINUED)
On March 31, 2000, the Company purchased certain web site domains and
production assets from Kudzu NewMedia and Bijou Cafe.com (collectively,
"Bijou") for 20,000 shares of the Company's stock, valued on the effective
date of agreement at approximately $76,000, representing the fair market
value of the assets acquired. The acquisition was accounted for as a
purchase, and accordingly, the statements of operations include the results
of operations of Bijou since acquistion. The operations of Bijou are not
significant to the Company's operations.
NOTE D - LOSS PER SHARE
Basic and diluted net loss per share are presented in conformity with
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"),
"Earnings Per Share," and SEC Staff Accounting Bulletin No. 98 ("SAB 98").
Under SFAS No. 128 and SAB 98, basic net loss per share is computed by
dividing net income (loss) by the weighted-average number of common shares
outstanding for the period. It also requires a reconciliation of the
numerator and denominator of the basic net loss per share to the numerator
and denominator of the diluted net loss per share. As of June 30, 2000, the
calculation of diluted net loss per share excludes an aggregate of
3,152,908 shares of common stock issuable upon exercise of warrants and
employee stock options, as the effect of such shares would be antidilutive
for all periods presented.
NOTE E - STOCKHOLDERS' EQUITY
Initial Public Offering
On December 27, 1999, the Company completed its Offering, which consisted
of 1,200,000 units, each unit consisting of one share of common stock and
one redeemable warrant, at an offering price of $8.50 per unit. Each
redeemable warrant entitles the holder to purchase one share of common
stock at $12.75 per share, at any time from issuance until December 21,
2004. Such warrants are redeemable by the Company, with the prior written
consent of the underwriter, at a redemption price of $.05 commencing May
17, 2000 provided that the closing price of the common stock is at least
$12.75 per share for 10 (ten) consecutive trading days. In addition, there
was an overallotment option for 180,000 units, of which 40,000 units were
exercised by the underwriter in January 2000, for net aggregate proceeds of
$299,200.
8
<PAGE>
Streamedia Communications, Inc
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 2000
(unaudited)
NOTE E (CONTINUED)
In August 1999, the Company's Board of Directors granted stock options
pursuant to the Company's 1999 Incentive and Nonstatutory Option Plan (the
"1999 Plan") to an employee to purchase 110,000 shares of common stock at
an exercise price of $2.00 per share (a price below the estimated fair
market value of the Company's common stock of $7.50 on the date of
issuance). Of the 110,000 options, 75% vest ratably over three years from
the date of grant for which compensation expense of $453,750 is
recognizable over such period. The remaining 25% of such options vest upon
achieving certain performance-based criteria, which are expected to occur
during the year ending December 31, 2000. Compensation expense for these
options will be recognized based on the intrinsic value of such options at
the time the performance-based criteria are achieved. Compensation expense
relating to these options of approximately $126,100 was recognized for the
six months ending June 30, 2000.
In May 2000, the shareholders of the Company approved a 500,000 share
increase in the maximum number of common shares reserved for issuance under
the 1999 Plan.
For the six months ended June 30, 2000, the Company's Board of Directors
granted stock options under the 1999 plan to certain employees to purchase
an aggregate of 107,408 shares of common stock at exercise prices
representing the fair market value of the underlying common stock at the
time of the respective grants.
9
<PAGE>
ITEM 2. MANANGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our Financial
Statements and Notes thereto which appear elsewhere in this document. The
results shown herein are not necessarily indicative of the results to be
expected in any future periods. This discussion contains forward-looking
statements based on current expectations, which involve risks and uncertainties.
Actual results and the timing of events could differ materially from the
forward-looking statements as a result of a number of factors. Readers, however,
should carefully review factors set forth in other reports or documents that we
file from time to time with the Securities and Exchange Commission.
OVERVIEW
We were organized in the State of Delaware in 1998. From the date of our
inception through the present, we have considered ourselves a development stage
company. Our primary activities to date have consisted of the following:
Securing financing to begin the operating phase
We completed our Initial Public Offering on December 27, 1999. Prior to this
date we completed only limited build-out and development of our technological
infrastructure and recruited only a select few technical and managerial
employees. Subsequent to the completion of the offering we began an extensive
effort to develop a state-of-the-art infrastructure for video and audio
streaming and to recruit and hire technical personnel to design, implement, and
maintain these systems. The initial phase of this build-out was substantially
completed in the second quarter of 2000.
Building of streaming infrastructure and the web sites
The streaming infrastructure consists of various local and wide area networks
capable of streaming and storing large amounts of audio and video files. We have
implemented networked environments for development, staging, and actual
broadcast to the public over the Internet. The system combines a sophisticated
network architecture to develop and deliver our content as well as a system to
store files to be streamed.
10
<PAGE>
Recruiting technical and broadcast production talent
The area of streaming video and audio over the Internet is new and complex.
There is an extremely limited pool of talent available with expertise in this
field. We have spent a great deal of time recruiting and interviewing talent for
these positions. We have had success in attracting and retaining individuals
with the necessary talents and experience. We have approximately 36 employees
the majority of which are Network Producers, Video Editing Technicians, Digital
Asset Technicians, Web Designers, Web Developers, Programmers, and LAN and
Database Administrators.
Developing and refining our business model
We have devoted time to refining our business model prior to commencing actual
operations. Our business model has been built around multiple lines of product
and services with multiple revenue sources. We originally contemplated four
business lines, which have since been consolidated into two main revenue
divisions built around the types of clients that each division services. The
Streamedia Networks target the Internet users and our Business Services division
is aimed at corporate clients.
Establishing a network of industry partners
The Internet industry has been built around establishing partnering
arrangements with competitors and collaborators alike. In furtherance of our
plan and objectives, we have established partnering arrangements with Real
Networks, Inc., Real Media, Inc., Virage, Inc., Vignette, Inc., Screaming
Media, Inc., Accrue Software, Inc., COMTEX Scientific Corp., Intraware, Inc.,
and Video Corporation of America, Inc.
Planning and developing of the Streamedia Networks
The Streamedia Networks are the showcase of our abilities in webcasting,
streaming audio and video, and web site design and development. We have
evaluated, acquired, and installed hardware and software associated with the
development of the Networks including ad servers, syndication servers, database
servers, multimedia delivery, Internet broadcasting, online content syndication,
media asset management, online advertising and customer management.
During the quarter ended June 30, 2000, we officially launched the Streamedia
Networks, which are our showcase for web design and broadcast programming. Each
Network is devoted to a specific category of programming, such as women's
issues or sports. Visitors to the Streamedia Networks are able to view live and
on-demand video and audio programming in an environment similar to that of cable
broadcasts, offering a wide scope of programming choices, interactive elements,
convenient access to retail opportunities, and numerous sources of news and
information in topics of interest. Much like cable and network television, we
produce, aggregate and distribute content in various categories. Currently, we
offer programming news and information on five Networks: Crimebroadcast, Motion
Arts, Women on the Edge, Sports Style and the Bijou Cafe.
11
<PAGE>
Planning and developing our Business Services
Our business services are designed to provide technology and consulting
expertise and services to traditional media companies, traditional businesses
with media assets, and online businesses and web sites. Our Streamedia Digital
Solutions includes encoding services, digital security, video indexing,
broadcasting production, and web design. In developing our business services
area, we have acquired and installed hardware and software that allows us to
perform these services for other companies.
During the quarter ended June 30, 2000, we also launched our Internet
professional services business and began producing revenues. The Internet
professional services business provide consulting and design services relating
to the construction of websites or Internet applications on the World Wide Web.
The launch of our professional services was subsequent to the launch of the
Streamedia Networks in May and was only operational for a portion of the
quarter.
RESULTS OF OPERATIONS
On March 31, 2000, we acquired Eons Ahead, Inc., a New York web design firm. The
financial statements presented with this discussion reflect this transaction as
a "pooling of interests" of Eons Ahead with our interests as the surviving
company. The discussion that follows, and all future discussions, will
exclusively address the financial statements of the "pooled" Company and
retroactively combine the financial positions of Streamedia with Eons Ahead,
Inc.
REVENUES. Revenues increased by $78,721 or 151% to $130,830 for the six months
ended June 30, 2000, as compared to $52,109 for the comparable period of 1999.
For the three months ended June 30, 2000, revenues increased by $92,218 or 295%
to $123,486, as compared to $31,268 for the comparable period in 1999. Revenues
for the three and six month periods ended June 30, 2000, were primarily
generated from our performance of Internet professional services, launched in
May 2000.
The revenues for the three and six month periods ended June 30, 1999, are due to
acquisition of Eons Ahead, Inc., in March 2000, which was accounted for as a
pooling of interests.
OPERATING EXPENSES. Total operating expenses increased by $3,373,118 or 546% to
$3,991,120 for the six months ended June 30, 2000, as compared to $618,002 for
the comparable period of 1999. For the three months ended June 30, 2000, total
operating expenses increased by $1,932,252 or 517% to $2,306,192, as compared to
$373,940, for the comparable period in 1999. The increases in operating expenses
for the three and six month periods ended June 30, 2000, were due to recruiting,
hiring, and training of additional technical and administrative employees,
product development costs, implementing of systems including our video storage
systems, Internet service provider costs, and other general and administrative
expenses.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES. We incurred net losses every quarter since our
inception. For the six months ended June 30, 2000, we incurred a net loss of
$3,753,173, an increase of 560% as compared to a net loss of $568,257, for the
six months ended June 30, 1999.
We have financed our operations primarily through sales of equity securities and
the private placement of debt instruments. For the six months ended June 30,
2000, we have raised $299,200 from the sale of common stock pursuant to the
exercise of the underwriters' overallotment option in connection to our initial
public offering. From January 13, 1998, the date of our inception, to June 30,
2000, we have raised a total of approximately $12.8 million from the sale of
common stock and the placement of debt (before underwriting discounts and
offering costs). We completed our initial public offering on December 27, 1999,
and repaid $1,878,125 in debt and interest. On June 30, 2000, our principal
source of liquidity is $1,776,392 of cash and cash equivalents.
During this fiscal year, we plan to implement several business strategies. These
include substantially adding to our library of broadcast content and to develop
our Internet professional services offerings. We intend to focus our efforts on
the expansion of our professional services since we believe that it represents
our best short-term path to profitability. The Network or Content portion of the
business will be built out more gradually, as our resources will be expended on
the areas representing the potential for greatest return.
To accomplish these objectives, we need to:
o Make substantial investments in capital equipment, such as web servers,
storage devices, and other specialized computer and communications equipment,
and
o Hire or otherwise contract with highly specialized personnel to develop,
configure, administer, and operate Web sites, broadcast equipment and
infrastructure for our company and our corporate clients.
While we are building and subsequently launching Network and Channel sites, we
will be purchasing, or otherwise producing or acquiring, audio and video
content. Such content needs to be prepared for delivery via a process known as
encoding. The encoding process is required to prepare the content for streaming,
or broadcasting, over the Internet. In addition to encoding out own material for
broadcast, we will also provide encoding services to outside parties for fees
based on the number of minutes encoded.
We plan to acquire additional content. Current industry conditions render it
difficult to secure "exclusive" rights to numerous classes of content suitable
for broadcasting over the Internet. To the extent to which we cannot capture
exclusive broadcast rights, we will be in competition with other web sites
attempting to attract audiences by offering some of the same programming.
We anticipate that any rise in our industry stature, such as by launching a
series of successful sites, selling business to business services, and supplying
third party sites with programming, will assist us to further market business to
business professional services, and thereby proportionately increase our
revenue. We expect expenditures to rise in proportion to each phase of our build
out. While we anticipate increased revenues concurrent with the build out,
delays in product development or the institution of marketing programs could
result in the risk of prolonged absence of revenues, profits, or working
capital.
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For the six months ended June 30, 2000, we expended approximately $1,269,000 for
property and equipment assets. This represents a substantial portion of our
technical capital infrastructure. We estimate we will spend an additional
$600,000 completing our infrastructure. We expect to complete this build-out in
the third and fourth quarters of fiscal 2000, at which time we anticipate that
the monthly rate of capital expenditures will significantly decrease.
Nevertheless, we believe that to accomplish our business objectives we will have
to continue to expand our operations. However, our limited operating history
makes predictions of our future results of operations difficult to access. We
have incurred net losses in each fiscal period since our inception and, as of
June 30, 2000, we had an accumulated deficit of $7,967,217. To date, although we
are beginning to generate revenues, we may never achieve profitable operations.
Our history of net losses raises doubt about our ability to continue operations.
Based upon our projected costs for the year 2000 and our past operating losses,
we will need to obtain sufficient additional financing or other working capital
to fund our operations.
If we do not obtain additional financing or working capital, we believe that
limiting our planned expansion and by reducing sales, marketing, and advertising
budgets, our cash and cash equivalents will be sufficient to meet our working
capital and capital expenditure requirements through at least the end of 2000.
Thereafter, if cash generated by operations is insufficient to satisfy our
liquidity requirements, we may need to sell additional equity or debt securities
to continue as a going concern.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We were not a party to any material legal proceedings as of June 30, 2000.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
RECENT SALES OF UNREGISTERED SECURITIES
There were no sales of unregistered securities in the quarter ended June 30,
2000.
USE OF PROCEEDS
As a result of our initial public offering we received $8,446,777 in net total
proceeds. As of June 30, 2000, we have used $211,379 for leasehold improvements,
building and facilities; $1,878,125 repayment of indebtedness; $1,876,906 for
hardware, video equipment, software, and associated licenses; $2,324,273 for
burdened payroll; and $787,085 for technical and financial consultants.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 17, 2000, we held our annual meeting of our shareholders. During our
annual meeting our shareholders approved the election of Gayle Essary, James
Rupp, Nicholas Malino, Robert Schroeder, David Simmonetti, Robert Shuey, III,
and Robert Wussler to serve as directors entitle the next annual meeting.
In addition, the shareholders approved a 500,000 share increase in the maximum
number of shares of Common Stock reserved for issuance under the Company's 1999
Incentive and Nonstatutory Stock Option Plan. The shareholders also ratified
Grant Thornton LLP as independent certified public accountants for the Company
for the year ending December 31, 2000.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit.
Exhibit 27 Financial Data Schedule.
(b) Reports of Form 8-K
There were no reports on Form 8-K filed by the Company during the quarter
ended June 30, 2000.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Streamedia Communications, Inc.
Date: August 14, 2000 By: /s/ James Rupp
-----------------------------
James Rupp
Chief Executive Officer
By: /s/ Nicholas Malino
-----------------------------
Nicholas Malino
Chief Financial Officer
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