SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark one)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from________to_______.
Commission File Number 1-11624
------------
HyperMedia Communications, Inc.
(Exact name of registrant as specified in its charter)
California 94-3104247
- - ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
901 Mariner's Island Blvd., Suite 365,
San Mateo, California 94404
- - ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(415) 573-5170
(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 such
filing requirements for the past 90 days. Yes X No _
As of May 9, 1996, 3,019,004 shares of the Registrant's common stock were issued
and outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
HYPERMEDIA COMMUNICATIONS, INC.
BALANCE SHEET
(UNAUDITED)
March 31, December 31,
1996 1995
------------ -------------
ASSETS
Current assets:
Cash ........................................... $ 354,000 $ 275,000
Accounts receivable, net of allowance for
doubtful accounts of $267,000 and $338,000 .. 1,188,000 925,000
Prepaid expenses and other assets .............. 568,000 358,000
------------ -------------
Total current assets ........................ 2,110,000 1,558,000
Property and equipment, net ...................... 643,000 668,000
Intangibles and other assets ..................... 18,000 21,000
------------ -------------
$ 2,771,000 $ 2,247,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................... $ 926,000 $ 691,000
Accrued liabilities ............................ 350,000 284,000
Deferred revenue ............................... 390,000 187,000
Note payable ................................... -- --
------------ -------------
Total current liabilities ................... 1,666,000 1,162,000
------------ -------------
Shareholders' equity:
Convertible Preferred Stock, $.001 par value;
10,064,516 shares authorized; 8,146,766 and
8,064,516 shares outstanding ................. 1,211,000 1,000,000
Common Stock, $.001 par value; 50,000,000 shares
authorized; 3,019,004 and 3,011,433 shares
outstanding .................................. 10,377,000 10,375,000
Shareholder note receivable .................... (42,000) (63,000)
Accumulated deficit ............................ (10,441,000) (10,227,000)
------------ -------------
Total shareholders' equity .................. 1,105,000 1,085,000
------------ -------------
$ 2,771,000 $ 2,247,000
============ ============
See the accompanying condensed notes to these financial statements.
<PAGE>
HYPERMEDIA COMMUNICATIONS, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
Three months ended March 31,
-----------------------------
1996 1995
----------- -----------
Revenues ................................... $ 2,175,000 $ 2,324,000
Expenses:
Editorial ................................ 344,000 311,000
Production ............................... 780,000 666,000
Circulation .............................. 532,000 563,000
Sales and marketing ...................... 493,000 690,000
Product development ...................... 7,000 16,000
General and administrative ............... 229,000 389,000
----------- -----------
Total expenses ....................... 2,385,000 2,635,000
----------- -----------
Loss from operations ....................... (210,000) (311,000)
Interest and other expense, net ............ 4,000 4,000
----------- -----------
Net loss ................................... $ (214,000) $ (315,000)
=========== ===========
Net loss per common share (Note 2) ......... $ (0.07) $ (0.10)
=========== ===========
Weighted average common shares ............. 3,019,004 3,011,433
=========== ===========
See the accompanying condensed notes to these financial statements.
<PAGE>
HYPERMEDIA COMMUNICATIONS, INC.
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
(UNAUDITED)
Three months ended March 31,
----------------------------
1996 1995
--------- ---------
Cash flow from operating activities:
Net loss .......................................... $(214,000) $(315,000)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization .................... 64,000 80,000
Allowance for doubtful accounts .................. (50,000) 61,000
Other ............................................ 21,000 --
Change in assets and liabilities:
Accounts receivable ............................. (213,000) 430,000
Prepaid expenses and other assets ............... (210,000) (205,000)
Accounts payable ................................ 235,000 (273,000)
Accrued liabilities ............................. 66,000 284,000
Deferred revenue ................................ 203,000 78,000
--------- ---------
Net cash provided by (used in) operating activities (98,000) 140,000
--------- ---------
Net cash used in investing activities for purchase
of fixed assets ................................... (36,000) (1,000)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of preferred stock ......... 211,000 --
Proceeds from issuance of common stock ............ 2,000 --
Repayment of note payable ......................... -- (100,000)
--------- ---------
Net cash used in financing activities .............. 213,000 (100,000)
--------- ---------
Net increase in cash ............................... 79,000 39,000
Cash at beginning of period ........................ 275,000 202,000
--------- ---------
Cash at end of period .............................. $ 354,000 $ 241,000
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest .......... $ 4,000 $ 2,000
========= =========
See the accompanying condensed notes to these financial statements.
<PAGE>
HYPERMEDIA COMMUNICATIONS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
NOTE 1 - GENERAL
The financial statements of HyperMedia Communications, Inc. (the "Company") as
of March 31, 1996 and 1995 and for the three months then ended are unaudited,
and in the opinion of management, all adjustments (consisting of only normal
recurring items) necessary for the fair presentation of the financial position
and results of operations for the interim periods have been included. These
financial statements should be read in conjunction with the Financial Statements
for the year ended December 31, 1995 and notes thereto included in the Company's
Form 10-K. The results of operations for the three months ended March 31, 1996
are not necessarily indicative of the results expected for the entire year.
The preparation of these 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.
NOTE 2 - NET LOSS PER SHARE
Net loss per common share is based upon the weighted average number of
outstanding shares of Common Stock. Common stock equivalent shares from
Convertible Preferred Stock (using the if-converted method) and stock options
and warrants (using the treasury stock method) have been excluded from the
computation for the three months ended March 31, 1996 and 1995 as their effect
is anti-dilutive.
<PAGE>
Item 2. - Management's Discussion and Analysis of Financial Condition
and Results of Operations
This section and other parts of this Quarterly Report on Form 10-Q contain
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ significantly from those anticipated in these
forward-looking statements as a result of the factors set forth below and in
"Factors Affecting Operating Results and Market Price of Stock". Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. Forward-looking statements are indicated by an
asterisk (*).
General
HyperMedia Communications, Inc. ("the Company") serves the new media industry
primarily through the development, production, marketing and sales of its
magazine, NewMedia(R), and its Internet World Wide Web site, Hyperstand, and in
the development of new publications. The new media industry consists of
professionals who develop multimedia and Internet projects for the business,
government, education, and consumer markets. The Company also produces an annual
awards competition, the NewMedia Invision Awards program, which honors
professionals who employ new media technology in the development of
communications applications. The Company publishes the Macromedia User Journal
for multimedia developers and users of Macromedia, Inc. products. Macromedia
User Journal is published on a monthly basis.
Commencing with the 1996 publishing schedule, the Company made several changes
to the publishing plan for NewMedia. These changes were designed to focus the
publication on serving the market for professional new media development
platforms and tools, including Internet products and services. The Company will
publish 16 issues in 1996, an increase of three issues over the 13 issues
published in 1995.* Four issues of NewMedia were published during the first
quarter of 1996 as compared to three issues in the comparable period of 1995. In
1996, subscribers will be required to meet significantly more stringent
qualification criteria than those in effect in 1995.* The Company estimates that
as a result of these new criteria, the purchasing power of the average
subscriber will increase from less than $200,000 in 1995 to more than $400,000
in 1996, an increase of approximately 100%.* As part of the publishing strategy
to emphasize the professional market for new media technology and to meet the
more stringent qualification criteria mentioned above, NewMedia's guaranteed
average circulation was reduced to 215,000 qualified subscribers in 1996 from to
250,000 qualified subscribers in 1995.*
- - ---------------
* This statement is a forward looking statement reflecting current expectations.
There can be no assurance that the Company's actual performance will meet the
Company's current expectations. Investors are strongly encouraged to review the
sections entitled "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
<PAGE>
In the fourth quarter of 1995, the Company began to enhance its sales force by
hiring more experienced Senior Account Managers. When this hiring was completed
in the first quarter of 1996, the Senior Account Managers averaged over 10 years
of magazine advertising selling experience.
Results of Operations
The Company's revenues were $2,175,000 and $2,324,000 for the quarters ended
March 31, 1996 and 1995, respectively. The decrease of $149,000, or 6%, in
revenues the first quarter of 1996 as compared to the first quarter of 1995 is
primarily attributable to a decline in advertising from companies serving the
consumer market segment in categories such as multimedia upgrade kits and CD-ROM
titles.
The Company's total expenses were $2,385,000 and $2,635,000 for the quarters
ended March 31, 1996 and 1995, respectively. The decrease of $250,000, or 9%, in
total expenses the first quarter of 1996 as compared to the first quarter of
1995 is primarily attributable to strong cost control measures. Costs excluding
variable production costs were reduced by approximately $350,000, or 18%.
Editorial expenses, comprised principally of salaries and fees paid to the
writers for the Company's publications, were $344,000 for the quarter ended
March 31, 1996, as compared to $311,000 for the same quarter in 1995. Editorial
expenses grew because of the increased number of issues of NewMedia published.
As a percentage of revenues, editorial expenses increased from 13% in the first
quarter of 1995 to 16% in the first quarter of 1996. With the increased
publishing schedule of 16 NewMedia issues in 1996 as compared to 13 in 1995, the
Company expects editorial costs to rise in 1996.*
Production expenses, including costs for design, materials and printing of the
Company's publications, were $780,000 for the quarter ended March 31, 1996. This
compares to $666,000 for the quarter ended March 31, 1995. The increase of
$114,000, or 17%, is primarily attributable to the increased number of issues of
NewMedia published and costs associated with polybagging all 4 issues of
NewMedia for various online services partially offset by the decreased print
orders. Production expenses represented 36% of revenues for the first fiscal
quarter of 1996 as compared to 29% for the similar period in 1995. Production
expenses are expected to decrease for the balance of 1996 as a result of the
reduced guaranteed average circulation of 215,000 which will be partially offset
by additional design and printing costs associated with the higher 16 issue
frequency of NewMedia.*
- - ---------------
* This statement is a forward looking statement reflecting current expectations.
There can be no assurance that the Company's actual performance will meet the
Company's current expectations. Investors are strongly encouraged to review the
sections entitled "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
<PAGE>
Circulation expenses, consisting primarily of costs associated with subscription
fulfillment, mailing and the direct mail promotions of the Company's
publications, were $532,000 and $563,000 for the quarters ended March 31, 1996
and 1995, respectively. The Company currently capitalizes its circulation
development expenditures and amortizes them over a 12 month period. The decrease
of $31,000, or 6%, is primarily attributable to the smaller amount of
circulation development expenditure amortization included in the first quarter
of 1996 as compared to the same period in 1995 partially offset by increased
fulfillment and mailing costs associated with the increased publishing schedule
of NewMedia. Circulation expenses represented 24% of revenues for both periods.
The Company expects circulation expenses to remain relatively flat in 1996 with
decreased costs associated with a reduced guaranteed average circulation base
offset by the increasing expenditures related to the higher 16 issue frequency
rate and the higher minimum qualifications to receive the magazine.*
Sales and marketing expenses were $493,000 for the quarter ended March 31, 1996,
as compared to $690,000 for the same quarter in 1995. The decrease of $197,000,
or 29%, is attributable to cost controls measures and lower trade show
expenditures. Sales and marketing expenses represented 23% of revenues for the
first quarter of 1996 as compared to 30% of revenues for the same period of
1995. Sales and marketing costs are expected to increase in the balance of 1996
with the expenses associated with a more experienced sales force partially
offset by cost control measures.*
Product development costs, consisting of costs incurred in the development of
new multimedia related information products were, $7,000 and $16,000 for the
quarters ended March 31, 1996 and 1995, respectively. The decrease of $9,000, or
56%, relates to cost control measures.
General and administrative expenses were $229,000 and $389,000 for the quarters
ended March 31, 1996 and 1995, respectively. The decrease of $160,000, or 41%,
primarily reflects the Company's stronger credit and collection procedures which
resulted in a smaller bad debt expense. General and administrative expenses
represented 11% of revenues for the first quarter of 1996 as compared to 17% for
the same period in 1995. General and administrative costs are expected to
decrease in 1996 with any cost and credit control measures being partially
offset by expected increases in bad debt expenses that accompany increased
revenues, if any.*
The Company incurred a net loss of $214,000 and $315,000 in the first quarters
of 1996 and 1995, respectively. The 32% decrease in net loss in the first
quarter of 1996 as compared to 1995 is primarily a result of reduced total
expenses as a result of cost controls across most non-production expense areas.
- - ---------------
* This statement is a forward looking statement reflecting current expectations.
There can be no assurance that the Company's actual performance will meet the
Company's current expectations. Investors are strongly encouraged to review the
sections entitled "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
<PAGE>
Liquidity and Capital Resources
At March 31, 1996, the Company had approximately $444,000 in working capital and
its principal sources of liquidity consisted of approximately $354,000 in cash
and a $1 million line of credit secured by 70% of qualified accounts receivable.
At March 31, 1996, there were no monies outstanding under this line of credit.
As a result of the conditions of the line of credit and financial results of the
1996 first fiscal quarter, the Company had unused borrowing capacity of
$725,000. Partial usage of unused borrowing capacity could be restricted by
financial operating covenants.
The Company expects that it will continue to require significant amounts of cash
to finance operations.* The Company has not committed to make significant
capital expenditures, but may make such expenditures in the future.* The Company
believes that the existing cash balances, together with cash generated from
operations and borrowings available under its line of credit, will be sufficient
to meet its cash requirements through at least the end of 1996.* There can be no
assurance, however, that the Company's anticipation of its future cash
requirements will be correct. Thereafter, the Company may seek to raise
additional working capital, primarily through sales of debt or equity
securities.* In addition, the Company may seek to raise additional working
capital prior to the end of 1996 if it can raise such capital on acceptable
terms.* The terms of the Series E Preferred Stock, Series F Preferred Stock and
the Company's outstanding warrants grant the holders thereof certain
preferential rights including conversion and/or registration rights which may
have a dilutive effect on existing shareholders and may therefore limit the
availability of financing, particularly equity financing. The Company has no
commitments for any such financing and there can be no assurance that the
Company will be able to raise such working capital on reasonable terms or at
all. The Company's ability to borrow under the line of credit is subject to
compliance with certain financial covenants, including but not limited to,
quarterly profitability beginning in the second fiscal quarter of 1996. There
can be no assurance that the Company will be successful in complying with these
financial covenants. The Company's failure to comply with the financial
covenants could preclude it from utilizing the line of credit which would have a
material adverse effect on the Company's liquidity and financial condition. In
addition, the Company's inability to raise capital, if required, could have a
material adverse effect on the Company's business and results of operations.
- - ---------------
* This statement is a forward looking statement reflecting current expectations.
There can be no assurance that the Company's actual performance will meet the
Company's current expectations. Investors are strongly encouraged to review the
sections entitled "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
<PAGE>
The Company signed an agreement in March 1996 with its largest shareholder, MK
Global Ventures in association with its MK GVD Fund, to invest in additional
capital of the Company to finance operations. Under the Series F Preferred Stock
Purchase Agreement, MK GVD Fund agreed to invest up to $250,000 on or before
June 30, 1996. The price per share of this Series F Preferred Stock, which the
Company has not registered under the Securities Act of 1933, as amended, was 85%
of the fair market value of the Company's common stock based on the average of
the closing price per share for the ten trading days ending five business days
before the closing of the investment. The Company drew the entire $250,000
capital commitment in March 1996.
Factors Affecting Operating Results and Market Price of Stock
This section and other parts of this Quarterly Report on Form 10-Q contain
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ significantly from those anticipated in these
forward-looking statements as a result of the factors set forth below and in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations". Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of these date hereof.
Forward-looking statements are indicated by an asterisk (*).
Among the factors that could cause actual results to differ materially are those
listed below and those listed from time to time in the Company's SEC reports
including but not limited to the annual report on Form 10-K for the year ended
December 31, 1995.
Limited Operating History; History of Losses and Accumulated Deficits
The Company has a limited operating history and is subject to all the risks and
difficulties experienced by any new business. The Company's prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered in the establishment of a new business and a continually evolving
industry characterized by intense competition. The Company has incurred net
losses of $10,441,000 from inception to March 31, 1996, including net losses of
$214,000 for the quarter ended March 31, 1996. The Company may incur a loss for
the second quarter of 1996 as it continues to promote and expand its current
publications and develop and launch new products.* There can be no assurance
that during 1996 or thereafter the Company will be able to increase its revenues
or become profitable. The Company's potential future growth depends on many
factors, including the ability of the Company to attract sufficient advertising
customers for NewMedia, maintain the circulation base of NewMedia, control its
costs and successfully implement its marketing and product strategy.* There can
be no assurance that the Company will be successful in any of these efforts.
- - ---------------
* This statement is a forward looking statement reflecting current expectations.
There can be no assurance that the Company's actual performance will meet the
Company's current expectations. Investors are strongly encouraged to review the
sections entitled "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
<PAGE>
1996 Publishing Strategy; Sales and Marketing Strategy
The key elements of the 1996 publishing strategy are to focus on the
professional market for new media technology, to increase the frequency from 13
to 16 times per year and to increase the demographic criteria that potential
subscribers are required to meet in order to qualify for a subscription while
simultaneously reducing the guaranteed circulation base of NewMedia from 250,000
to 215,000 qualified readers.* There can be no assurance that the Company's 1996
publishing strategy will result in increased revenues or in profitability.
Certain components of production, circulation and editorial expenses will
increase associated with publishing additional issues of the magazine.* The
Company has been undergoing an advertising category transition since the second
half of 1995 away from the consumer market toward the above mentioned
professional market for new media technology. To replace these consumer market
advertisers and to grow advertising revenues, the Company needs to sell
advertisements oriented to the professional market for new media technology.
Also, advertisers may not immediately accept the increased frequency of the
magazine and adjust their advertising schedules accordingly. There can be no
assurance that the Company will be able to sell sufficient number of
advertisements to the professional market to make its strategy successful. Until
the circulation direct mail campaign for qualified readers using the new
qualification criteria is completed, there can be no assurance that the
estimated purchasing power of new media products and services will be achieved
with a reasonable level of circulation expenditures. The Company has enhanced
the experience level of its sales force through hiring new Senior Account
Managers in three of the Company's four territories during the fourth quarter of
1995 and the first quarter of 1996. New Senior Account Managers, even with
significant experience, can take from six to nine months to become fully
productive for the Company in the associated new media market. As a result the
Company does not expect growth in advertising revenues until at least the third
quarter of 1996, if at all.* See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
- - ---------------
* This statement is a forward looking statement reflecting current expectations.
There can be no assurance that the Company's actual performance will meet the
Company's current expectations. Investors are strongly encouraged to review the
sections entitled "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
<PAGE>
Highly Competitive Market
Revenues from NewMedia are derived primarily from the sale of advertising in the
magazine and will continue to be derived primarily from such sales in the
foreseeable future. The technology publishing industry is highly competitive.
Many of the Company's competitors have substantially greater financial, sales
and marketing resources than the Company. Although the market for new media
products is an evolving market, the Company competes for advertising revenue
with numerous magazines and newspapers, including personal computer magazines.
There can be no assurance that the Company will not experience increased
competition from new or existing technology periodicals or other media, such as
the Internet. Such increased competition, if experienced, would have a material
adverse impact on the Company's ability to increase its advertising revenues.
Growth of New Media Market
NewMedia is targeted toward users of new media products and services in
connection with computers. The computer industry has historically been
characterized by business cycles. To the extent that the computer industry or
new media market experiences a significant downturn, the Company would expect a
similar downturn in its business. The market for new media products and services
is in the early stages of development and predictions as to its size and the
factors which will affect it are inconclusive. To the extent that the new media
market does not develop as quickly as the Company anticipates or that it
experiences a significant downturn following growth, the Company's ability to
generate revenue or profits may be adversely affected. Furthermore, even if the
new media market does develop as anticipated, there can be no assurance that the
demand for NewMedia will also increase.
Dependence on Key Personnel
The Company's success depends to a large extent upon the efforts and abilities
of key managerial employees, including without limitation, Richard Landry and
Todd Hagen, the Chief Executive Officer and Chief Financial Officer,
respectively, of the Company. The loss of certain of these key managers could
have a material adverse effect on the Company. The Company has not entered into
employment agreements with its executive officers and carries no key man
insurance on their lives. The success of the Company's business will also depend
upon its ability to continue to attract and retain qualified employees. There
can be no assurance that the Company will be successful in attracting or
retaining such personnel.
- - ---------------
* This statement is a forward looking statement reflecting current expectations.
There can be no assurance that the Company's actual performance will meet the
Company's current expectations. Investors are strongly encouraged to review the
sections entitled "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) No reports on Form 8-K were filed by the Company during
the fiscal quarter ended March 31, 1996.
Items 1, 2, 3, 4, and 5 are not applicable and have been omitted.
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.
Date: May 14, 1996 HyperMedia Communications, Inc.
By: /s/ Todd Hagen________________
Todd Hagen
Vice President of Finance and
Administration and Chief Financial
Officer (Principal Financial and
Accounting Officer)
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Article 5 Fin. Data Schedule for the 1st Qtr 10-Q
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