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, 1997
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
- ------------------------------- ----------------
(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
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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, 1997, 3,200,137 shares of the Registrant's common stock were
issued and outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
HYPERMEDIA COMMUNICATIONS, INC.
BALANCE SHEET
(UNAUDITED)
<CAPTION>
September 30, December 31,
1997 1996
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<S> <C> <C>
ASSETS
Current assets:
Cash $ 95,000 $ 107,000
Accounts receivable, net of allowance for
doubtful accounts of $117,000 and $180,000 1,327,000 1,294,000
Prepaid expenses and other assets 606,000 557,000
------------ ------------
Total current assets 2,028,000 1,958,000
Property and equipment, net 480,000 622,000
Intangibles and other assets 0 4,000
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$ 2,508,000 $ 2,584,000
============ ============
Current liabilities:
Accounts payable $ 658,000 $ 822,000
Accrued liabilities 415,000 326,000
Deferred revenue 363,000 33,000
Note payable 50,000 335,000
------------ ------------
Total current liabilities 1,486,000 1,516,000
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Shareholders' equity:
Convertible Preferred Stock, $.001 par value; 10,064,516
shares authorized; 8,314,110 and 8,146,766 shares 1,557,000 1,209,000
issued and outstanding
Common Stock, $.001 par value; 50,000,000 shares
authorized; 3,200,137 and 3,019,004 shares 10,427,000 10,377,000
issued and outstanding
Accumulated deficit (10,962,000) (10,518,000)
------------ ------------
Total shareholders' equity 1,022,000 1,068,000
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$ 2,508,000 $ 2,584,000
============ ============
</TABLE>
<PAGE>
<TABLE>
HYPERMEDIA COMMUNICATIONS, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three months ended September 30, Nine months ended September 30,
-----------------------------------------------------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 1,721,000 $ 2,059,000 $ 5,437,000 $ 6,642,000
----------- ----------- ----------- -----------
Expenses:
Editorial 294,000 283,000 869,000 959,000
Production 481,000 508,000 1,428,000 1,874,000
Circulation 501,000 520,000 1,597,000 1,549,000
Sales and marketing 434,000 460,000 1,238,000 1,864,000
Product development 10,000 9,000 29,000 21,000
General and administrative 246,000 261,000 699,000 664,000
----------- ----------- ----------- -----------
Total expenses 1,966,000 2,041,000 5,860,000 6,931,000
----------- ----------- ----------- -----------
Income (loss) from operations (245,000) 18,000 (423,000) (289,000)
Interest and other expense, net 4,000 7,000 21,000 13,000
----------- ----------- ----------- -----------
Net income (loss) $ (249,000) $ 11,000 $ (444,000) $ (302,000)
=========== =========== =========== ===========
Net income (loss) per common share $ (0.08) $ 0.00 $ (0.14) $ (0.10)
=========== =========== =========== ===========
and equivalents (Note 2)
Weighted average common shares
and equivalents 3,200,137 3,264,206 3,200,137 3,019,004
=========== =========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
HYPERMEDIA COMMUNICATIONS, INC.
STATEMENT OF CASH FLOWS
(Decrease) Increase in Cash
(UNAUDITED)
<CAPTION>
Nine months ended September 30,
---------------------------------
1997 1996
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<S> <C> <C>
Cash flow from operating activities:
Net loss $(444,000) $(302,000)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 175,000 176,000
Allowance for doubtful accounts (64,000) (149,000)
Other 20,000 63,000
Change in assets and liabilities:
Accounts receivable 31,000 (165,000)
Prepaid expenses and other assets (70,000) (102,000)
Accounts payable (164,000) (75,000)
Accrued liabilities 90,000 109,000
Deferred revenue 329,000 (163,000)
--------- ---------
Net cash (used in) provided by operating activities (97,000) (608,000)
Net cash used in investing activities for purchase of
fixed assets (28,000) (125,000)
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Cash flows from financing activities:
Proceeds from issuance of Preferred stock 348,000 211,000
Proceeds from issuance of common stock 50,000 2,000
Note payable borrowings (285,000) 295,000
--------- ---------
Net cash provided by (used in) financing activities 113,000 508,000
Net (decrease) increase in cash (12,000) (225,000)
Cash at beginning of period 107,000 275,000
--------- ---------
Cash at end of period $ 95,000 $ 50,000
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 21,000 $ 13,000
========= =========
</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, 1997 and 1996 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, 1996 and notes thereto included in
the Company's Form 10-K. The results of operations for the three and nine months
ended September 30, 1997 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. 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 from the computation for the
three month periods ending September 30, 1997 and for the nine month periods
ended September 30, 1997 and 1996 as their effect is anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). SFAS supersedes
Accounting Principles Board Opinion No. 15, "Earnings Per Share" and is
effective for financial statements for both interim and annual periods ending
after December 15, 1997. Under SFAS 128, the pro forma net loss per share for
the three month period ended September 30, 1997 was $(0.08) and for the nine
month period ended September 30, 1997 was $(0.14) for both basic and diluted
earnings per share.
In June 1997, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 130, "Reporting Comprehensive Income." The adoption of
the standard is required for fiscal years beginning after December 15, 1997.
Under SFAS No. 130, companies are required to report on their financial
statements, in addition to net income, comprehensive income including, as
applicable, foreign currency items, minimum pension liability adjustments and
unrealized gains and losses on certain investments in debt and equity
securities. The Company does not expect the adoption of SFAS No. 130 to have a
material impact on the Company's financial statements.
<PAGE>
NOTE 3 - STATEMENT OF SHAREHOLDER'S EQUITY
In 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. 50,344 Series G Preferred Stock shares were issued during the quarter
ended June 30, 1997.
In the third quarter of 1997, the Board of Directors approved the issuance of
the Series H Preferred Stock. The Series H Preferred Stock ranks pari passu with
the Series G Preferred Stock. 117,000 Series H Preferred Stock shares were
issued during the quarter ended September 30, 1997.
<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" or "HyperMedia") publishes
NewMedia Magazine ("NewMedia"), the first periodical publication dedicated
solely to the professional market for new media technology. "New media" is a
term applied to a wide array of digital communications technologies, including
Internet development tools and services, desktop and portable personal
computers, workstations, servers, audio/video compression and editing equipment,
graphics hardware and software, high-density storage devices, and video
conferencing systems. Professional new media technology is actively employed in
a broad range of communications-related businesses and disciplines such as
publishing, advertising, sales, marketing, film production, broadcasting, game
development, education, and training. Many large multinational technology
corporations are developing and marketing products specifically targeted to the
professional market.
HyperMedia also publishes Hyperstand, an electronic service on the Internet for
professionals who develop new media content and applications, particularly World
Wide Web sites. 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.
NewMedia is published 16 times per year and is distributed to more than 215,000
professionals who develop new media content and applications for the business,
government, education and consumer markets. According to a recent analysis
conducted by the Company of NewMedia subscriber demographic data, the
subscribers on the average represent that they are personally involved in the
purchase of over $600,000 worth of new media-related hardware, software, and
services in a twelve-month period.* The magazine's primary mission is to rate
and review new professional-level products used in the development of new media
content and applications.
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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" for a discussion of factors that could affect future performance.
<PAGE>
Results of Operations
The Company's gross revenues were $1,721,000 and $2,059,000 for the quarters
ended September 30, 1997 and 1996, respectively, and $5,437,000 and $6,642,000
for the nine months then ended. There were three principal reasons for these
decreases. First, in 1996, the NewMedia INVISION Awards program was part of
Spring Comdex held in June 1996 and generated sponsorship (and associated)
revenue of approximately $580,000. In 1997, the NewMedia INVISION Awards program
will be a three-day festival presented November 10-12, 1997, at the Center for
the Arts in Yerba Buena Gardens in San Francisco. * Sponsors for the event
include Microsoft, Silicon Graphics, Ziff-Davis TV, Apple, Macromedia and
others. Consequently, revenues from the 1997 program will not be recognized
until the fourth quarter. * Second, the Company's revenues in the quarters ended
March 31, 1996 and June 30, 1996 reflected one-time advertising promotions from
polybagging campaigns by online services. The costs of these promotions were
passed through to the customer and resulted in a disproportionate increase in
revenues. Third, net advertising revenue for NewMedia magazine (after one-time
advertising promotions) increased by 1% for the nine months ending September 30,
1997 but decreased by 8% for the three months ending September 30, 1997. Net
advertising revenue increased in the first 9 months of 1997 versus the same
period of 1996 on the strength of a 30% increase in advertising from computer
systems manufacturers. The increase in advertising from computer systems
manufacturers may be attributable to the IntelliQuest results described below.
The decrease in net advertising revenues for the 3 months ending September 30,
1997 was due to a decrease in advertising revenue associated with the market for
Macintosh-related hardware and software and due to a decrease in revenues in the
two largest sales territories, Silicon Valley and East Coast.
In the third fiscal quarter of 1997, NewMedia Magazine participated again 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 beats InfoWorld, PC Week, MacWeek, and PC Magazine in the
percentage of readers who plan to spend $50,000 or more in the next twelve
months on desktop personal computers and workstations.
In the fourth quarter of 1997, the Company announced key personnel changes in
NewMedia magazine's two largest advertising sales territories. Tom Hernandez was
appointed East Coast Advertising Director and Maureen O'Sullivan was named
Silicon Valley Senior Advertising Manager. The Company intends to increase
advertising sales personnel in the fourth quarter of 1997 in an effort to take
advantage of anticipated growth in digital content advertising in 1998.*
The Company's total expenses were $1,966,000 and $2,041,000 for the quarters
ended September 30, 1997 and 1996, respectively, and $5,860,000 and $6,931,000
for the nine months then ended. After factoring out the one-time advertising
promotions, change in dates and venue for the NewMedia INVISION Awards program
and variable costs, corporate expenses decreased by approximately 4% for the
quarter ended September 30, 1997 and by approximately 5% for the nine months
then ended. The decrease in corporate expenses year-over-year for both periods
was primarily due to continued expense control programs.
- ---------------
* 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 for a discussion of factors that could affect future performance.
<PAGE>
The net loss of $444,000 for the first nine months of 1997 increased by 47% as
compared to the loss of $302,000 for the first nine months of 1996. The Company
posted a net loss of $249,000 in the third quarter of 1997 as compared to a net
income of $11,000 for the same period of 1996. The decrease in NewMedia Magazine
net revenue in the third fiscal quarter, partially offset by continued strong
cost controls in the first nine months of 1997, was the primary contributor to
the loss in the third fiscal quarter of 1997 which also impacted the results for
the first nine months of 1997.
Editorial expenses, comprised principally of salaries and fees paid to the
writers for the Company's publications, were $294,000 and $283,000 for the
quarters ended September 30, 1997 and 1996, respectively, and $869,000 and
$959,000 for the nine-month periods then ended. The reductions in editorial
expenses for the first nine months in 1997 as compared to the similar period in
1996 are primarily attributable to cost control programs and the sale of the
Macromedia User Journal ("MUJ") in the third quarter of 1996, partially offset
by increased expenses associated with Hyperstand. The slight increase in
editorial expenses in the third fiscal quarter of 1997 is primarily the result
of increased expenses associated with Hyperstand. Editorial expenses represented
17% and 14% of revenue for the quarters ended September 30, 1997 and 1996,
respectively. The Company expects editorial costs to rise in the balance of 1997
as a result of higher paid contributor and staffing costs associated with
NewMedia and the expansion of the Internet World Wide Web site, Hyperstand. *
Production expenses, which include costs for design, materials and printing of
the Company's publications, were $481,000 and $508,000 for the quarters ended
September 30, 1997 and 1996, respectively, and $1,428,000 and $1,874,000 for the
nine-month periods then ended. The decrease in production expenses for the first
nine months of 1997 as compared to 1996 is primarily attributable to the absence
in 1997 of the one-time advertiser promotion costs associated with polybagging
issues of NewMedia for various online services in 1996. Net production expenses
for NewMedia, excluding one-time advertiser promotion costs, decreased for both
periods primarily as a result of decreased year-over-year paper costs.
Production expenses represented 28% of revenue in the third quarter of 1997
compared to 25% for the same period in 1996. Net production expenses are
expected to remain relatively flat as compared to 1996 for the balance of 1997
as a result of increased paper prices offset by various factors. *
- ---------------
* 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" 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 $501,000 and $520,000 for the quarters ended September 30,
1997 and 1996, respectively, and $1,597,000 and $1,549,000 for the nine-month
periods then ended. The Company currently capitalizes its circulation
development expenditures and amortizes them over a 12-month period. The decrease
of $19,000, or 4%, in the third quarter of 1997 as compared to the same quarter
in 1996 is primarily attributable to cost control programs and the sale of the
MUJ in the third quarter of 1996, partially offset by the larger amount of
circulation development expenditure amortization. The increase of $48,000, or
3%, in the first nine months of 1997 as compared to the same period in 1996 is
primarily attributable to the larger amount of circulation development
expenditure amortization, partially offset by the sale of the MUJ in the third
quarter of 1996. The larger amount of circulation development expenditure
amortization included in the third quarter and first nine months of 1997 as
compared to the same periods in 1996 as a result of the Company's publishing
strategy to increase the minimum readership qualifications to receive the
magazine. As a result of these new criteria, based on a recent analysis
conducted by the Company, the average subscriber purchasing power of new media
products and services increased approximately 200% to more than $600,000 at the
end of the second quarter of 1997 from less than $200,000 for 1995. The Company
intends to maintain the higher minimum readership qualifications throughout
1997. * Circulation expenses represented 29% of revenues for the third quarter
of 1997 as compared to 25% of revenues for the same period of 1996. The Company
expects circulation expenses to remain relatively flat for the balance of 1997.*
Sales and marketing expenses were $434,000 and $460,000 for the quarters ended
September 30, 1997 and 1996, respectively, and $1,238,000 and $1,864,000 for the
nine- month periods then ended. The decrease of $626,000, or 34%, for the first
nine months of 1997 as compared to 1996 is primarily attributable to the change
in dates and venue for the NewMedia INVISION Awards program. In 1996, the
NewMedia INVISION Awards program was part of Spring Comdex held during the
second quarter of 1996. In 1997, the NewMedia INVISION Awards program will be a
three-day festival presented November 10-12, 1997, at the Center for the Arts in
Yerba Buena Gardens in San Francisco. Sponsors for the event include Microsoft,
Silicon Graphics, Apple, Ziff-Davis TV, Macromedia and others. After excluding
the impact of the change in dates for the NewMedia INVISION Awards program,
sales and marketing expenses decreased in both periods primarily as a result of
lower marketing compensation expenses. Sales and marketing expenses represented
25% of revenue for the third quarter of 1997 as compared to 22% of revenue for
the same period of 1996. Sales and marketing expenses are expected to increase
during the balance of 1997, due to the NewMedia INVISION Awards program, higher
sales and marketing management compensation expenses, and higher expenditures on
sales and marketing programs, including expenses relating to the recent hiring
of new sales personnel. *
Product development expenses, consisting of costs incurred in the development of
new products, including the Internet World Wide Web site, Hyperstand, were
$10,000 and $9,000 for the quarters ended September 30, 1997 and 1996,
respectively, and $29,000 and $21,000 for the nine months then ended. The
Company plans to continue its product development efforts during 1997. *
---------------
* 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" for a discussion of factors that could affect future performance.
<PAGE>
General and administrative expenses were $246,000 and $261,000 for the quarters
ended September 30, 1997 and 1996, respectively, and $699,000 and $664,000 for
the nine-month periods then ended. The increase of $35,000, or 5%, in the first
nine months of 1997 as compared to 1996 reflects increased bad debt expense
offset by lower consulting costs. The decrease of $15,000, or 6%, in the third
fiscal quarter of 1997 as compared to 1996 reflects lower consulting costs,
partially offset by various factors. General and administrative expenses
represented 14% of revenue for the third quarter of 1997 as compared to 13% for
the same period in 1996. General and administrative costs are expected to
decrease in the balance of 1997 as compared with 1996 as a result of continued
cost control programs.*
Liquidity and Capital Resources
At September 30, 1997, the Company had approximately $543,000 in net working
capital and its principal sources of liquidity consisted of approximately
$95,000 in cash, a $1 million line of credit limited to 70% of qualified
accounts receivable and an agreement with MK Global Ventures to purchase up to
$150,000 of the Company's Series H Preferred Stock at the Company's request at
any time up to and including June 30, 1998. At September 30, 1997, there was
$50,000 outstanding under the line of credit. As a result of the conditions of
the line of credit and financial results of the 1997 third fiscal quarter, the
Company had unused borrowing capacity of $721,000. Partial usage of unused
borrowing capacity could be restricted by financial operating covenants. In
September 1997, the bank extending the line of credit waived the covenant
requiring the Company to maintain profitability on a quarterly basis starting
with the third fiscal quarter of 1997. Therefore, the Company's net loss for the
third fiscal quarter did not violate such covenant.
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 borrowings available
under its line of credit and Series H Preferred Stock Agreement, will be
sufficient to meet its cash requirements through at least the end of 1997.*
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, prior to the end of 1997 if it can raise such capital on acceptable
terms.*
- ---------------
* 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" for a discussion of factors that could affect future performance.
<PAGE>
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. The Company
assumes no obligation to update such forward-looking statements or to update the
reasons actual results could differ materially from those anticipated in such
forward-looking statements. Forward-looking statements are indicated by an
asterisk (*).
History of Operating Losses; No Assurance of Profitability
The Company has incurred total net losses of $10,962,000 from inception in
August 1989 to September 30, 1997, including net losses of $291,000 for the year
ended December 31, 1996, net losses of $98,000 for the quarter ended March 31,
1997, net losses of $97,000 for the quarter ended June 30, 1997 and net losses
of $249,000 for the quarter ended September 31, 1997. The Company expects to
incur losses for at least the fourth quarter of 1997 as it continues to promote
and expand its current publications and develop and launch new products.* There
can be no assurance that during the remainder of 1997 or thereafter the Company
will be able to increase its revenues or become profitable. The Company's
potential future growth and profitability depends on many factors, including the
ability of the Company to attract sufficient advertising customers for NewMedia,
maintain the circulation base of NewMedia, have a productive advertising sales
force which includes recently-hired sales people, 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" for a discussion of factors that could affect future performance.
<PAGE>
Risks Associated with Transition to New Publishing Strategy
The key elements of the Company's publishing strategy are to focus on the
professional market for new media technology, to publish at a frequency of 16
times per year, to maintain the stringent minimum qualification criteria that
potential subscribers were required to meet in 1996 in order to qualify for a
subscription, and to maintain the guaranteed circulation base of 215,000
qualified NewMedia readers.* There can be no assurance that the Company's
publishing strategy will result in increased revenues or in profitability.
Certain components of production, circulation and editorial expenses associated
with this publishing strategy will increase.* The Company has been undergoing an
advertising category transition since the second half of 1995, away from the
consumer market and 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. There can be no assurance that the Company will
be able to sell a sufficient number of advertisements to the professional market
to make its strategy successful. Until the circulation direct mail (and
associated) campaigns 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 maintained with a reasonable level of
circulation expenditures.
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.
- ---------------
* 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" for a discussion of factors that could affect future performance.
<PAGE>
Risks Associated With Sales and Marketing Strategy
The Company's ability to achieve future profitability depends upon the success
of the Company's strategy to add sales personnel in key markets and to increase
the productivity of existing sales personnel. In October 1997, the Company
appointed a new East Coast Advertising Director and a Silicon Valley Senior
Advertising Manager, and the Company intends to hire additional advertising
sales personnel in future periods. New sales personnel typically take from six
to nine months to become fully productive, and therefore the Company's operating
results during such time may be adversely affected by the hiring of such
personnel. In addition, there can be no assurance that such new sales personnel
will achieve sufficient advertising revenue to become profitable for the Company
after the first six to nine months or at all. Any failure of one or more of the
new personnel to become productive will have a material adverse effect on the
Company's operating results. Furthermore, the Company's revenues from
advertising sales depends upon a small number of key sales personnel. Any
inability of such personnel to maintain or increase existing sales levels, or
any turnover in such personnel, would have a material adverse effect on the
Company's operating results.
Growth of New Media Market
NewMedia is targeted toward professionals 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 professional new media market experiences a significant downturn, the Company
would expect a similar downturn in its business. The professional 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 professional 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 professional new
media market does develop as anticipated, there can be no assurance that the
demand for NewMedia will also increase.
Dependence on Key Management and Sales Personnel
The Company's success depends to a large extent upon the efforts and abilities
of key managerial employees, including without limitation, Richard Landry, Todd
Hagen and Dan Ruby, the Chief Executive Officer, Chief Financial Officer and
Vice President, Editorial, respectively, of the Company. The Company's success
also depends on the performance of key sales personnel. The loss of any of these
key managers or sales personnel 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. Competition for such employees is
intense, and 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" for a discussion of factors that could affect future performance.
<PAGE>
Possible Delisting of Securities from Nasdaq SmallCap Market
While the Company's Common Stock meet the current Nasdaq listing requirements
and is currently included on the Nasdaq SmallCap Market ("Nasdaq"), there can be
no assurance that the Company will meet the criteria for continued listing.
Nasdaq has recently adopted more stringent financial requirements for listing on
Nasdaq. With respect to continued listing, such new requirements are (i) either
at least $2,000,000 in tangible assets, a $35,000,000 market capitalization or
net income of at least $500,000 in two of the three prior years, (ii) at least
500,000 shares in the public float valued at $1,000,000 or more, (iii) a minimum
Common bid price of $1.00, (iv) at least two active market makers, and (v) at
least 300 holders of the Common Stock. The Company will have to meet and
maintain such new requirements. The Company currently does not meet the tangible
assets, market capitalization or net income requirements. Although the Company
believes that it will meet the net tangible asset requirement by the time that
the new rules go into effect through the issuance of additional equity
securities, there can be no assurance that the Company will be able to close the
issuance and sale of the equity securities by that time or at all, in which case
the Company will be subject to delisting by Nasdaq. In the event of delisting by
Nasdaq, trading, if any, in the Common Stock would thereafter be conducted in
the over-the-counter market in the so-called "pink sheets" or the NASD's
"Electronic Bulletin Board." Consequently, the liquidity of the Company's
securities could be impaired, not only in the number of securities which could
be bought and sold, but also through delays in the timing of transactions and
lower prices for the Company's securities than might otherwise be attained.
- ---------------
* 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" for a discussion of factors that could affect future performance.
<PAGE>
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
The Company signed an agreement in September 1997 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 H Preferred Stock
Purchase Agreement, MK GVD Fund agreed to invest up to $400,000 on or before
June 30, 1998. The price per share of this Series H 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 bid price per share for the ten trading days ending five business
days before the closing of the investment. Shares of Series H Preferred Stock,
which carry a 5% dividend, are convertible at the option of the holder at any
time into shares of Common Stock in an amount equal to the Initial Sales Price
divided by the appropriate Conversion Price. In September 1997, the Company
issued 117,000 shares of Series H Preferred Stock under this agreement at a
price of $2.136 per share, for aggregate proceeds of approximately $250,000.
These proceeds will be primarily used by the Company to fund operating losses
and working capital requirements. This leaves a balance of up to approximately
$150,000 which the MK GVD Fund has agreed to invest in Series H Preferred Stock
on or before June 30, 1998.
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, 1997.
Items 1, 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: November 13, 1997 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 3rd Qtr 10-Q
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
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<PP&E> 1391
<DEPRECIATION> 911
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<CURRENT-LIABILITIES> 1485
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<COMMON> 10427
0
1557
<OTHER-SE> (10962)
<TOTAL-LIABILITY-AND-EQUITY> 2508
<SALES> 1721
<TOTAL-REVENUES> 1721
<CGS> 0
<TOTAL-COSTS> 1966
<OTHER-EXPENSES> 4
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> (249)
<INCOME-TAX> 0
<INCOME-CONTINUING> (249)
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