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 September 30, 1996
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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
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HyperMedia Communications, Inc.
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(Exact name of registrant as specified in its charter)
California 94-3104247
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
901 Mariner's Island Blvd., Suite 365,
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San Mateo, California 94404
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(Address of principal executive offices) (Zip Code)
(415) 573-5170
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(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 November 6, 1996, 3,019,004 shares of the Registrant's common stock were
issued and outstanding.
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
HYPERMEDIA COMMUNICATIONS, INC.
BALANCE SHEET
(UNAUDITED)
<CAPTION>
September 30, December 31,
1996 1995
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<S> <C> <C>
ASSETS
Current assets:
Cash $ 50,000 $ 275,000
Accounts receivable, net of allowance for
doubtful accounts of $188,000 and $338,000 1,239,000 925,000
Prepaid expenses and other assets 460,000 358,000
------------ ------------
Total current assets 1,749,000 1,558,000
Property and equipment, net 626,000 668,000
Intangibles and other assets 12,000 21,000
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$ 2,387,000 $ 2,247,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 616,000 $ 691,000
Accrued liabilities 393,000 284,000
Deferred revenue 24,000 187,000
Note payable 295,000 --
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Total current liabilities 1,328,000 1,162,000
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Shareholders' equity:
Convertible Preferred Stock, $.001 par value; 10,064,516
shares authorized; 8,146,766 and 8,064,516 1,211,000 1,000,000
shares outstanding
Common Stock, $.001 par value; 50,000,000 shares
authorized; 3,019,004 and 3,011,433 shares 10,377,000 10,375,000
outstanding
Shareholder note receivable -- (63,000)
Accumulated deficit (10,529,000) (10,227,000)
------------ ------------
Total shareholders' equity 1,059,000 1,085,000
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$ 2,387,000 $ 2,247,000
============ ============
<FN>
See the accompanying condensed notes to these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
HYPERMEDIA COMMUNICATIONS, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three months ended September 30, Nine months ended September 30,
-------------------------------- ---------------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 2,059,000 $ 2,193,000 $ 6,642,000 $ 7,435,000
----------- ----------- ----------- -----------
Expenses:
Editorial 283,000 322,000 959,000 964,000
Production 508,000 751,000 1,874,000 2,080,000
Circulation 520,000 531,000 1,549,000 1,701,000
Sales and marketing 460,000 457,000 1,864,000 2,069,000
Product development 9,000 6,000 21,000 29,000
General and administrative 261,000 292,000 664,000 1,057,000
----------- ----------- ----------- -----------
Total expenses 2,041,000 2,359,000 6,931,000 7,900,000
----------- ----------- ----------- -----------
Income (loss) from operations 18,000 (166,000) (289,000) (465,000)
Interest and other expense, net 7,000 2,000 13,000 7,000
----------- ----------- ----------- -----------
Net income (loss) $ 11,000 $ (168,000) $ (302,000) $ (472,000)
=========== =========== =========== ===========
Net income (loss) per common share $ 0.00 $ (0.06) $ (0.10) $ (0.16)
and equivalents (Note 2) =========== =========== =========== ===========
Weighted average common shares
and equivalents 3,264,206 3,011,433 3,019,004 3,011,433
=========== =========== =========== ===========
<FN>
See the accompanying condensed notes to these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
HYPERMEDIA COMMUNICATIONS, INC.
STATEMENT OF CASH FLOWS
(Decrease) Increase in Cash
(UNAUDITED)
<CAPTION>
Nine months ended September 30,
--------------------------------
1996 1995
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<S> <C> <C>
Cash flow from operating activities:
Net loss $(302,000) $(472,000)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 176,000 194,000
Allowance for doubtful accounts (149,000) (8,000)
Other 63,000 --
Change in assets and liabilities:
Accounts receivable (165,000) 803,000
Prepaid expenses and other assets (102,000) 215,000
Accounts payable (75,000) (249,000)
Accrued liabilities 109,000 88,000
Deferred revenue (163,000) (365,000)
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Net cash (used in) provided by operating activities (608,000) 206,000
--------- ---------
Net cash used in investing activities for purchase of
fixed assets (125,000) (87,000)
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Cash flows from financing activities:
Proceeds from issuance of Preferred stock 211,000 --
Proceeds from issuance of common stock 2,000 --
Note payable borrowings 295,000 (100,000)
--------- ---------
Net cash provided by (used in) financing activities 508,000 (100,000)
--------- ---------
Net (decrease) increase in cash (225,000) 19,000
Cash at beginning of period 275,000 202,000
--------- ---------
Cash at end of period $ 50,000 $ 221,000
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 13,000 $ 4,000
========= =========
<FN>
See the accompanying condensed notes to these financial statements.
</FN>
</TABLE>
<PAGE>
HYPERMEDIA COMMUNICATIONS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
NOTE 1 - GENERAL
The financial statements of HyperMedia Communications, Inc. (the "Company") as
of September 30, 1996 and 1995 and for the three and nine 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 and nine months
ended September 30, 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 INCOME (LOSS) PER SHARE
Net income (loss) per common share is based upon the weighted average number of
outstanding shares of Common Stock. Additionally, 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 included for
the three month period ending September 30, 1996 and excluded for the three
month period ending September 30, 1995 and for the nine month periods ended
September 30, 1996 and 1995 as their effect is anti-dilutive.
NOTE 3 - STATEMENT OF SHAREHOLDER'S EQUITY
During the quarter ended June 30, 1996, the Board of Directors approved the
issuance of the Series G Preferred Stock. The Series G Preferred Stock ranks
pari passu with the Series F Preferred Stock. No Series G Preferred Stock shares
are outstanding as of November 6, 1996.
<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. NewMedia Magazine is positioned as "The
Magazine for Creators of the Digital Future." 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.
Commencing with the 1996 publishing schedule, the Company made several changes
to the publishing plan for NewMedia Magazine. 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.* During the first three fiscal quarters of 1996, four
issues of NewMedia Magazine were published per quarter as compared to three
issues in the comparable periods of 1995. In 1996, subscribers are 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 has increased from less than $200,000
in 1995 to more than $450,000 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 Magazine's guaranteed average circulation was reduced to 215,000
qualified subscribers in 1996 from 250,000 qualified subscribers in 1995.*
In the third fiscal quarter, NewMedia Magazine participated in the IntelliQuest
Computer Industry Media Study (CIMS (TM)) which is used by the technology
industry as a media buying and marketing tool. In this study, NewMedia Magazine
ranked number one among the competitive technology magazines in reaching
business leaders responsible for the development of corporate Internet Web
sites. In the categories relating to the authorization of Internet Web-site
development and expenditures for their companies' Web sites and purchasing
Internet development tools and telecommunications/on-line services for these Web
sites, readers of NewMedia Magazine consistently outpaced readers of InfoWorld,
Macweek, Internet World, NetGuide and Wired. Thirty-two percent of NewMedia
Magazine readers have Web-server hardware installed in their organizations which
was higher than all computer publications measured in the study. Among NewMedia
Magazine's competitive set of technology magazines, NewMedia Magazine had the
highest percentage of readers who read or looked at all or most of the
magazine's pages in the course of reading a typical issue.
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* 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. Since this hiring was completed
in the first quarter of 1996, the Senior Account Managers average over 10 years
of magazine advertising selling experience.
Results of Operations
The Company's revenues were $2,059,000 and $2,193,000 for the quarters ended
September 30, 1996 and 1995, respectively, and $6,642,000 and $7,435,000 for the
nine months then ended. This represented a $134,000, or 6%, and $793,000, or
11%, decrease in revenue as compared to the similar prior period in the third
fiscal quarter and the first nine months of 1995, respectively. The reduction in
revenue 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, partially offset by sales of new advertising to leading
companies serving the professional new media market segment.* New advertising
commitments have been received in the second, third and fourth quarters of 1996
from leading companies such as Texas Instruments, Microsoft, Silicon Graphics,
Digital Equipment Corporation, Apple Computer, 3M, Power Computing, Sigma
Designs, Iomega, Quark, Lockheed Martin, Micropolis, Micronet, mFactory and
others. * As a primary result of these new advertising commitments, advertising
pages and associated advertising revenues increased from the second to the third
fiscal quarters of 1996.
The Company's total expenses were $2,041,000 and $2,359,000 for the quarters
ended September 30, 1996 and 1995, respectively, and $6,931,000 and $7,900,000
for the nine months then ended. This represents a $318,000, or 13%, and a
$969,000, or 12%, decrease in expenses as compared to the similar prior period
in the third fiscal quarter and the first nine months of 1995, respectively.
Overall corporate expenses for the first three quarters of 1996 decreased by
almost $1,000,000 due to expense control programs that produced savings across
all functional areas.
The Company incurred a net loss of $302,000 for the first nine months of 1996 as
compared to the loss of $472,000 for the first nine months of 1995. The Company
posted a net profit of $11,000 in the third quarter of 1996 as compared to a net
loss of $168,000 for the same period of 1995. This was the first profitable
third quarter ever achieved by the company. Strong cost controls plus the sale
of the Macromedia User Journal ("MUJ") in the third quarter of 1996 offset lower
revenues resulting in a profitable third quarter of 1996 and improved net loss
results for the first nine months of 1996.
- ---------------
* 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>
Editorial expenses, comprised principally of salaries and fees paid to the
writers for the Company's publications, were $283,000 and $322,000 for the
quarters ended September 30, 1996 and 1995, respectively, and $959,000 and
$964,000 for the nine months then ended. Changes in editorial expenses are
primarily attributable to cost control programs offset by an increase in staff
and paid contributors for NewMedia Magazine and Hyperstand. Four issues of
NewMedia Magazine were published in each of the first three quarters of 1996 as
compared to three issues in those quarters in 1995. Hyperstand was first
launched in September 1995. Editorial expenses represented 14% and 15% of
revenue for the quarters ended September 30, 1996 and 1995, respectively. With
the editorial expenses associated with the addition of the new product,
Hyperstand, and the increased publishing schedule of 16 NewMedia Magazine issues
in 1996 as compared to 13 in 1995 offset by cost control measures and the sale
of the Macromedia User Journal, the Company expects editorial expenses to remain
relatively flat in 1996.*
Production expenses, including costs for design, materials and printing of the
Company's publications, were $508,000 and $751,000 for the quarters ended
September 30, 1996 and 1995, respectively and $1,874,000 and $2,080,000 for the
nine months then ended. The decrease in production expenses for the third fiscal
quarter of 1996 as compared to the same quarter of 1995 is primarily
attributable to a decrease in guaranteed average circulation from 250,000 to
215,000 and decreasing paper costs. Production expenses represented 25% of
revenue in the third quarter of 1996 compared to 34% for the same 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 and decreased
year-over-year paper costs.*
Circulation expenses, consisting primarily of costs associated with subscription
fulfillment, mailing and the direct mail promotions of the Company's
publications, were $520,000 and $531,000 for the quarters ended September 30,
1996 and 1995, respectively, and $1,549,000 and $1,701,000 for the nine months
then ended. The Company currently capitalizes its circulation development
expenditures and amortizes them over a 12 month period. The decrease of $11,000,
or 2%, in the third quarter of 1996 as compared to the same quarter in 1995 and
$152,000, or 9%, in the first nine months of 1996 as compared to the first nine
months of 1995 is primarily attributable to cost controls and smaller
circulation development expenditure amortization partially offset by increased
fulfillment and mailing costs associated with the increased publishing schedule
of NewMedia Magazine. Circulation expenses represented 25% and 24% of revenue
for the quarters ended September 30, 1996 and 1995, respectively. The Company
expects circulation expenses to decrease slightly in 1996 with decreased costs
associated with a reduced guaranteed average circulation base partially offset
by the increasing expenditures related to the higher 16 issue frequency rate and
the higher minimum qualifications to receive the magazine.*
- ---------------
* 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>
Sales and marketing expenses were $460,000 and $457,000 for the quarters ended
September 30, 1996 and 1995, respectively, and $1,864,000 and $2,069,000 for the
nine months then ended. The decrease of $205,000, or 10%, for the first nine
months of 1996 as compared to 1995 is primarily attributable to cost control
measures and lower trade show expenditures. Sales and marketing expenses were
comparable in the third quarters of 1995 and 1996. Sales and marketing expenses
represented 22% of revenue for the third quarter of 1996 as compared to 21% of
revenue for the same period of 1995. Sales and marketing expenses are expected
to increase in the balance of 1996 with the expenses associated with a more
experienced sales force, branding campaign and marketing programs partially
offset by cost control measures and lower trade show expenditures.*
Product development expenses, consisting of costs incurred in the development of
new multimedia related information products, were $9,000 and $6,000 for the
quarters ended September 30, 1996 and 1995, respectively, and $21,000 and
$29,000 for the nine months then ended.
General and administrative expenses were $261,000 and $292,000 for the quarters
ended September 30, 1996 and 1995, respectively, and $664,000 and $1,057,000 for
the nine months then ended. The decrease of $393,000, or 37%, in the first nine
months of 1996 as compared to 1995 and $31,000, or 11%, in the third quarter of
1996 as compared to the same period in 1995 reflects the Company's cost control
measures and stronger credit and collection procedures which resulted in a lower
bad debt expense. General and administrative expenses represented 13% of revenue
for both the third quarter of 1996 and 1995. General and administrative expenses
are expected to decline slightly during the balance of 1996 due to cost control
measures and continued strong credit and collection procedures.*
Sale of the Macromedia User Journal
In September 1996, the Macromedia User Journal was sold to Pinnacle Publishing,
Inc. in exchange for a short term note and assumption of subscription
liabilities. The sale will enable the Company to concentrate on its core
products, NewMedia Magazine and Hyperstand. Payment of the short term note is
scheduled to be completed by March 1997. The financial results for the third
fiscal quarter and first nine months of 1996 contain a one time gain of
approximately $100,000 associated with the assumptions of the subscription
liabilities and short term note. This one time gain and other cost control
measures were integral to the profit generated in the third fiscal quarter.
Other than the one time gain, future revenue and operating results for the
Company will not be materially impacted by the sale of the Macromedia User
Journal.
- ---------------
* 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 September 30, 1996, the Company had approximately $421,000 in working capital
and its principal sources of liquidity consisted of approximately $50,000 in
cash and a $1 million line of credit secured by 70% of qualified accounts
receivable. At September 30, 1996, there was $295,000 outstanding under this
line of credit. As a result of the conditions of the line of credit and
financial results of the 1996 third fiscal quarter, the Company had unused
borrowing capacity of $332,000. 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
Series G 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. 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.
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* 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 July 1996 with its largest shareholder, MK
Global Ventures in association with its MK GVD Fund, providing for an investment
in additional capital of the Company to finance operations. Under the Series G
Preferred Stock Purchase Agreement, as amended, MK GVD Fund agreed to invest up
to $250,000 on or before June 30, 1997, at the Company's option. The price per
share of this Series G Preferred Stock, which the Company has not registered
under the Securities Act of 1933, as amended, will be 85% of the fair market
value of the Company's common stock based on the average of the closing bid
price per share for the ten trading days ending five business days before the
closing of the investment. The Company had not drawn on this capital commitment
as of November 6, 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 the 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 and the quarterly reports on Form 10-Q for the quarters ended
March 31, 1996 and June 30, 1996.
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 $10,529,000 from inception to September 30, 1996, including the net
profit of $11,000 for the quarter ended September 30, 1996. The Company may
incur a loss for the fourth quarter of 1996 as it continues to promote and
expand its current publications and develop and launch new products.* If the
Company incurs a loss in the fourth quarter of 1996, it would be in violation of
the profitability covenant in its bank line of credit which would prevent the
Company from further borrowing under the line of credit without a waiver. 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 Magazine, maintain the circulation
base of NewMedia Magazine, 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>
New Publishing Strategy; Sales and Marketing Strategy
The key elements of the Company's new 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 Magazine
from 250,000 to 215,000 qualified readers.* There can be no assurance that this
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 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 nine (or more) months to become fully productive for the
Company in the associated new media market. As a result, the Company does not
expect year-over-year growth in advertising revenues until at least the first
quarter of 1997, 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 Magazine 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 Magazine is targeted toward professional 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 the 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 Magazine
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 September 30, 1996.
Items 1 - 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: November 13, 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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