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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended December 31, 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
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 Number)
901 Mariner's Island Boulevard, Suite 365
San Mateo, California 94404
(Address of principal executive offices)
Registrant's telephone number, including area code: (650) 573-5170
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of Class)
Indicate by check mark whether the registrant (1) ha s 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the registrant, based upon the closing sale price of the Common Stock on
March 22, 1999, in the OTC:BB Market, was approximately $509,000. For purposes
of this disclosure, shares of Common Stock, Series E Preferred Stock, Series F
Preferred Stock, Series G Preferred Stock, Series H Preferred Stock, Series I
Preferred Stock and Series J Preferred Stock held by each officer and director
of the registrant and by each person who owns 5% or more of the outstanding
voting stock have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
As of March 22, 1999, the registrant had 3,200,137 shares of Common
Stock, 8,064,516 shares of Series E Preferred Stock, 82,250 shares of Series F
Preferred Stock, 50,344 shares of Series G Preferred Stock, 117,000 shares of
Series H Preferred Stock, 28,800 shares of Series I Preferred Stock and
169,281,000 shares of Series J Preferred Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's Proxy Statement for the Annual Meeting of Shareholders
to be held on June 7, 1999, is incorporated by reference into Part III of this
Form 10-K to the extent stated herein.
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TABLE OF CONTENTS
Page
----
PART I ................................................................... 2
ITEM 1. BUSINESS ............................................... 2
ITEM 2. PROPERTIES ............................................. 10
ITEM 3. LEGAL PROCEEDINGS ...................................... 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .... 10
PART II ................................................................... 11
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS ............................ 11
ITEM 6. SELECTED FINANCIAL DATA ................................ 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS .................... 14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ............ 25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE .................... 25
PART III .................................................................. 26
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ..... 26
ITEM 11. EXECUTIVE COMPENSATION ................................. 27
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT ............................................. 27
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ......... 27
PART IV ................................................................... 28
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K ............................................ 28
REPORT OF INDEPENDENT ACCOUNTANTS ......................................... 32
BALANCE SHEET. ............................................................ 33
STATEMENT OF OPERATIONS.................................................... 34
STATEMENT OF SHAREHOLDERS' EQUITY.......................................... 35
STATEMENT OF CASH FLOWS ................................................... 36
NOTES TO FINANCIAL STATEMENTS ............................................. 37
SIGNATURES ................................................................ 46
INDEX TO EXHIBITS ......................................................... 47
<PAGE>
PART I
ITEM 1. BUSINESS
THIS BUSINESS SECTION AND OTHER PARTS OF THIS ANNUAL REPORT ON FORM
10-K CONTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES.
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" AND
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS." FORWARD-LOOKING STATEMENTS ARE INDICATED WITH AN ASTERISK ("*").
THE COMPANY
HyperMedia Communications, Inc. (the "Company" or "HyperMedia"),
incorporated in California in August 1989, provides integrated information
services to the corporate digital content market. "Digital content" is
information created using computer-based video, audio, graphics, animation and
Internet technologies. Companies use digital content in building brand awareness
through marketing, advertising, promotions, corporate presentations and sales
and technical training. Corporate digital content creators utilize 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. Digital
professionals are expected to spend more than $25 billion on computers,
software, peripherals, learning and support for digital content production in
1999, according to a report prepared by GISTICS Incorporated.* The highest paid
digital professionals will have the greatest influence on these expenditures.
Digital media output is actively employed in a broad range of businesses and
disciplines, such as brand identity (including presentations, training and
collateral), advertising, publishing, brand merchandising, entertainment, and
electronic commerce. More than 86% of all digital media output is connected to
branding identity and advertising.
HyperMedia publishes NEWMEDIA Magazine ("NEWMEDIA"), the largest
publication serving the corporate digital content market, serving more than
215,000 digital content professionals. According to a recent analysis conducted
for the Company by BPA International ("BPA") of NEWMEDIA subscriber demographic
data, the average subscriber to the publication has represented that they are
personally involved in the purchase of approximately $1,000,000 worth of digital
content-related hardware, software and services in a twelve-month period.
NEWMEDIA'S mission is to give its readers the tools to be successful digital
content professionals by identifying the newest products, technologies and
strategies that will keep their businesses competitive.* Revenue from NEWMEDIA
is derived primarily through the sale of advertisements in the magazine.
HyperMedia also produces the NEWMEDIA INVISION Awards Festival, the
largest juried digital media competition in the world. The program seeks out the
highest achievements in digital content creation for business, entertainment,
marketing, government and education. The 1998 NEWMEDIA INVISION
- ----------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "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.
2
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Festival included its gallery of award-winning entries, an evening International
showcase of digital content produced on four continents, and a two-day Digital
Insight conference.
HyperMedia also publishes newmedia.com, an award-winning World Wide Web
site of news, information, and product buying services for the digital content
creation market. The site features "i.Serv," an innovative electronic reader
service capability that uses the immediacy and interactivity of the Web to
respond to readers' product information requests in minutes instead of months.*
In 1998, HyperMedia launched the NEWMEDIA Business Solutions Series, a
series of custom-published supplements to NEWMEDIA magazine that focuses on
emerging technologies and trends in the field of digital content.
Custom-published supplements include paid, sponsored editorial content plus
advertising, and are written to the specifications of one or more sponsors. The
Company believes that custom publishing is a new critical element of its
integrated information services strategy, and will represent a significant new
line of business in 1999.*
HyperMedia is also exploring opportunities to expand its business by
developing new magazines, both print and electronic, events and other related
products aimed at the corporate digital content marketplace.*
MARKET BACKGROUND
THE DIGITAL CONTENT MARKET
In 1998, U.S. companies were expected to spend over $265 billion
producing digital content to promote their products and services, according to
the ANNUAL INTERACTIVE TELEMEDIA AND MULTIMEDIA INDUSTRY ASSESSMENT by GISTICS
Incorporated ("GISTICS"). The $265 billion figure is a 16% increase over 1997
projected spending on digital content production. Research results estimate that
spending on digital content production will reach approximately $317 billion by
1999.* The GISTICS report indicates that more than 87 percent of all digital
content production is connected to corporate branding activities, such as
marketing, advertising, promotions, corporate presentations, sales and technical
training.
Digital content creators are expected to spend approximately $25
billion in 1999 in areas such as computers, software, peripherals,
infrastructure, support and learning, according to the GISTICS study.* These
digital professionals are investing heavily in workstations, Internet tools,
networks and information. Digital spending is the greatest per person and
growing the fastest in larger organizations and companies.*
Many large multinational technology corporations, including Adobe,
Apple, Autodesk, Compaq, Dell, Digital, Epson, Fujitsu, Hewlett Packard, IBM,
Informix, Intel, Iomega, Macromedia, Microsoft, Mitsubishi, Oracle, Philips,
Sharp, Silicon Graphics, Sun Microsystems, Sybase, Texas Instruments, and 3M are
developing and marketing products specifically targeted to this market.*
THE DIGITAL ELITE
The top-paid digital content professionals are called the Digital Elite
because they disproportionately influence how companies spend money on digital
technology. According to the GISTICS study, in 1999 approximately 4 million
digital content professionals are expected to spend over $25 billion on digital
- ----------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "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.
3
<PAGE>
technology.* GISTICS forecasts that the top 10 percent best paid, most highly
motivated and technically advanced members of this group will control more than
50 percent of all such spending.*
Over 60 percent of the Digital Elite, according to the GISTICS
research, are advanced users of digital technology who create core applications
that drive business growth. The Digital Elite are also senior managers who lead
their organizations in purchasing digital technology. The Digital Elite are
primarily found in in-house branding organizations and large companies.
NEWMEDIA magazine reaches more members of the Digital Elite than any
other technology magazine, according to the GISTICS research study.
Approximately 45 percent of the Digital Elite read NEWMEDIA magazine. No other
cross-platform technology publication measured in the study had more than 15
percent coverage of the Digital Elite. Publications aimed at the information
systems marketplace, such as INFOWORLD, PC WEEK and PC MAGAZINE, had 8 percent
or less penetration into this market.
Research conducted by the Company shows that NEWMEDIA subscribers read
NEWMEDIA more avidly than any other technology publication. Approximately 75
percent of subscribers are reading four out of every four issues of NEWMEDIA,
according to a 1997 Readership Profile Survey conducted by the Company. By
comparison, less than 21 percent of subscribers read four out of every four of
other surveyed publications, including INFOWORLD, PC WEEK, WIRED and others.
COMPUTER-RELATED PERIODICALS
HyperMedia's primary product, NEWMEDIA, is a controlled-circulation
periodical publication serving corporate digital content professionals.
Computer-related periodicals typically adopt a strategy designed either to serve
subscribers in the broad consumer market or to reach subscribers in the more
targeted professional market. Whereas the consumer segment accounts for a high
volume of potential buyers of computer-related products and services, the
Company believes that the value of this segment is limited by the relatively low
volume of purchases made by each individual consumer, by the intense price- and
profit-margin pressures that characterize the segment, and by competition from
broad-based media, such as television, radio, general consumer magazines,
newspapers, and the Internet. By contrast, the Company believes the professional
segment is characterized by higher volume purchases per individual versus the
consumer segment, with potentially higher profit margins for computer-related
product vendors, due to the professional nature of the products.*
Periodicals are generally marketed as either paid-circulation
periodicals or controlled-circulation periodicals, such as NEWMEDIA. A
paid-circulation periodical is purchased by the reader, either through
subscription or by paying the newsstand price, and the publisher establishes no
other criteria for receipt of the publication. Paid-circulation publications
frequently compete on the basis of total audience size and on lowest cost, or
efficiency, of reaching the publication's readership.
A controlled-circulation periodical, by contrast, is generally provided
without charge to respondents who meet certain demographic criteria established
by the publisher. Publishers typically solicit subscriptions to
controlled-circulation periodicals through direct-mail campaigns targeted to
lists of subscribers of similar publications or customer lists of buyers of
related products. To qualify to obtain a controlled-circulation periodical, the
respondent must complete a questionnaire and meet certain criteria.
- ----------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "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.
4
<PAGE>
Upon return of the questionnaire, the publisher analyzes the responses and
determines whether the respondent has the desired characteristics to become a
qualified subscriber.
Since qualified subscribers exhibit a set of demographic
characteristics selected by the publisher for appropriateness to the advertising
client base of the publication, controlled-circulation magazines generally
command higher advertising rates than paid-circulation magazines and compete on
the basis of offering their advertisers the most effective means to reach their
target customers.
According to an analysis of NEWMEDIA subscriber demographic information
conducted for the Company by BPA, the average subscriber to NEWMEDIA during 1998
has represented that they will be personally involved in the purchase of
approximately $1,000,000 worth of digital media hardware, software, and services
during a twelve-month period.* The Company believes that this is the highest
purchase power established among digital content professional-related
publications in the U.S. market.
BUSINESS STRATEGY
NEWMEDIA MAGAZINE
The Company launched NEWMEDIA in January 1991. A controlled-circulation
periodical, NEWMEDIA targets professionals who are in the corporate digital
content professional marketplace. A significant portion of those readers are the
Digital Elite, who are the top 10 percent of digital professionals. They account
for more than 50 percent of digital technology purchases in their marketplace.*
"Digital content" is information created using computer-based video, audio,
graphics, animation and Internet technologies. Companies use digital content in
building brand awareness through marketing, advertising, promotions, corporate
presentations, sales and technical training, and electronic commerce. Corporate
digital content professionals utilize 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. The Company's business strategy is to position
NEWMEDIA as the leading periodical publication serving the corporate digital
content professional marketplace and to leverage this leadership position by
developing and launching* a slate of integrated information service offerings
for this market.* The Company's strategy for NEWMEDIA includes an emphasis on
editorial position, circulation size and demographic characteristics, and
branding programs.*
EDITORIAL POSITION
The primary mission of NEWMEDIA is to give readers the tools to be
successful digital content creators by identifying the newest products,
technologies and strategies that will keep their business competitive.*
NEWMEDIA'S editorial package focuses extensively on the products, technologies,
and business strategies that the subscribers need to know in order to help their
companies achieve success in creating dynamic Internet web sites and other
cutting-edge digital applications that drive corporate revenues.*
The editorial content includes case studies and analyses of the
cutting-edge of digital content creation in order to help readers better sell
and market goods and services, and communicate more effectively with customers,
- ----------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "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.
5
<PAGE>
suppliers and employees.* NEWMEDIA magazine features opinions from leading
commentators on the digital economy. Product comparisons include extensive
return on investment (ROI) information useful to managers.* Articles in the
magazine include extensive links to the Internet and to newmedia.com, NEWMEDIA
magazine's companion web site.*
The magazine specializes in comprehensive comparative product reviews
supported by the NewMedia Lab, a state-of-the-art digital content testing
studio. In 1994, the Company established the NewMedia Lab with the express
purpose of developing test suites and conducting comparative analyses of
professional new products that will help readers create successful digital
content.
CIRCULATION
In 1996, as part of its publishing strategy to emphasize the
professional market for corporate digital content creation, the Company
established a guaranteed circulation base for NEWMEDIA of 215,000 qualified
subscribers and simultaneously increased the demographic criteria that potential
subscribers are required to meet in order to qualify to receive a subscription
to the periodical. When NEWMEDIA was launched in 1991, its circulation base was
17,000 qualified subscribers.
As a result of this strategy, the Company believes that NEWMEDIA
remains the highest circulation periodical serving the professional market for
corporate digital content creation and also that its subscriber base has been
qualified according to the highest purchase criteria established among
professional digital content creation-related publications in the U.S. market.
According to a recent analysis of NEWMEDIA subscriber demographic
information conducted for the Company by BPA, the average subscriber to NEWMEDIA
during 1998 has represented that they will be personally involved in the
purchase of approximately $1,000,000 worth of hardware, software, and services
during a twelve-month period.* This represents a more than 100 percent increase
from the approximate $500,000 average purchasing power for NEWMEDIA subscribers
in 1996.
To the Company's knowledge, no similar purchase criteria have been
verified by BPA for competing publications serving the new media market, such as
AV VIDEO/MULTIMEDIA PRODUCER, DV MAGAZINE, DCC MAGAZINE, INTERNET WORLD, or
INTERACTIVE WEEK. In the field of publications for the information systems
marketplace, periodicals exhibiting similar BPA-audited purchase criteria
include INFOWORLD and PC WEEK, which are generally considered the leading
periodical publications serving the office computing market.*
The Company intends to pursue this strategy by making a substantial
investment in solicitations to its target audience.* In 1997, the Company
expanded the methods to target potential subscribers (or to renew existing
customers), from primarily direct mail, to include the Internet, email,
telemarketing and faxing. To qualify to subscribe to NEWMEDIA, the respondent
must complete a questionnaire and meet certain criteria. Upon return of the
questionnaire, the publisher analyzes the responses and determines whether the
respondent has the desired characteristics to become a qualified subscriber. The
Company is a member of BPA International, an independent auditing organization
that verifies the Company's guaranteed average circulation base and demographic
data. While the Company believes that this strategy will improve the Company's
sales in the future, the Company has experienced decreased sales levels in
recent periods, and no assurance can be given that the Company's circulation
strategy will result in such improved sales levels in the future.*
- ----------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "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.
6
<PAGE>
PUBLISHING FREQUENCY
In order to better serve the professional market for corporate digital
content creation, in the second quarter of 1998, NEWMEDIA adopted a monthly
publishing schedule. The Company had increased the publishing frequency of
NEWMEDIA to 16 times per year from a monthly schedule (plus a tool guide) at the
beginning of 1996. The change back to a monthly publishing schedule reflects the
strong preference of NEWMEDIA advertising clients for a standard monthly
publishing frequency. Many advertising clients indicated a preference to appear
in every issue of NEWMEDIA, and a monthly publishing schedule is expected to
make this opportunity available to a larger number of them.* Although the
Company believes that its change back to a monthly publishing schedule responds
to client preferences, there can be no assurance that existing clients will
continue to advertise in NEWMEDIA at current rates or that the Company's
publishing strategy will be preferred by new advertising customers and
therefore, that the publishing strategy will result in improved sales levels.
BRANDING PROGRAMS
The Company has developed a number of branding programs that have the
effect of supporting its leadership position in the corporate digital content
marketplace. The Company believes these branding programs are critical elements
in its integrated information services strategy, and that one or more of these
programs have the potential to become significant new lines of business.*
First, companies whose products achieve certain performance goals in
product ratings published in NEWMEDIA magazine are permitted to use the
magazine's rating symbols within their advertisements and collateral marketing
materials. The Company believes that the magazine's "Awesome" rating symbol,
which signifies the highest rating a product can achieve in a NEWMEDIA product
review, is widely accepted among professionals who purchase new media products
as a symbol of product quality and value.
Second, on an annual basis the magazine confers its "Hyper" awards for
technical excellence to companies whose products achieve certain technical
criteria as established by the magazine's editorial staff. A branding program
similar to the "Awesome" award program exists for "Hyper" award winners.
In 1999, the Company intends to launch the NEWMEDIA Awesome Tools &
Technologies Showcase, a product exhibition based on its Awesome and Hyper
Awards programs.* Revenues will be derived from sponsorship fees paid by
exhibiting companies, and attendees will be drawn from NEWMEDIA's digital
content professional audience, as well as affiliated professional
organizations.*
Third, NEWMEDIA magazine publishes annually its NEWMEDIA 500 ranking of
the most influential companies in the field of digital media convergence. In
addition to an annual special issue of the magazine, the Company publishes a
four-color poster illustrating the concept of digital media convergence and the
relative ranking of the 500 most influential companies within that field. The
Company also publishes a Web site containing the rankings in a searchable
database format. In 1999, the Company is exploring the potential for launching a
leadership conference on the topic of digital media convergence, based on the
NEWMEDIA 500 concept.*
Fourth, the Company also produces the NEWMEDIA INVISION Awards
Festival, the largest juried digital media competition in the world. From 1994
through 1996, the NEWMEDIA Invision Awards have been presented at the computer
- ----------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "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.
7
<PAGE>
industry trade event Comdex/Spring. In 1997, the program was transformed into a
stand-alone three-day festival held in San Francisco. The Company expanded the
breadth of the festival to include a three day conference for digital media
professionals in 1998. Sponsors for the 1998 festival included IBM, Intel,
Silicon Graphics, Macromedia and others. The NEWMEDIA INVISION Awards Festival
could also be used as a model for future new HyperMedia events.*
Finally, in 1998, the Company launched the NEWMEDIA Business Solutions
Series, a series of custom-published supplements to NEWMEDIA magazine that
focuses on emerging technologies and trends in the field of digital content.
Custom-published supplements include paid, sponsored editorial content plus
advertising, and are written to the specifications of one or more sponsors. The
Company believes that custom publishing is a new critical element of its
integrated information services strategy, and will represent a new line of
business in 1999.*
ADVERTISING SALES
Revenue from NEWMEDIA is derived principally from advertisers. As part
of the increase in the quality of NewMedia's subscriber base and of the
increased paper and postage costs, the Company increased the price for a
one-time, full-page, four-color advertisement from $17,845 to $19,995 in 1997.
According to a recent analysis of NEWMEDIA subscriber demographic information
conducted by the Company, the average subscriber to NEWMEDIA during 1998 has
represented that they will be personally involved in the purchase of
approximately $1,000,000 worth of hardware, software and services during a
twelve-month period as compared to approximately $500,000 measured in a similar
study in 1996.*
The Company currently sells advertising in NEWMEDIA through a sales
force of four senior outside sales representatives, four inside sales
representatives, a sales assistant, and a publisher. The sales staff is
organized primarily on a geographical basis, although some key accounts are
handled by management. In addition, a team-selling approach has been adopted
pairing outside sales people with inside sales representatives for support and
telemarketing. Formatted fractional advertising space is sold through a
nationwide telemarketing effort. Sales presentations are made both to marketing
staffs within client organizations and to the advertising agency staffs that
advise these clients, develop their advertising programs and often decide which
publications to include in their advertising schedules. Direct sales are
supplemented by direct-mail marketing campaigns, trade show promotions, special
events and the publication of the Company's results of research regarding the
demographic profile and purchase intentions of NEWMEDIA'S subscribers.
Companies that regularly advertised in NEWMEDIA in 1998 include:
Adaptec, Adobe, Apple, Applied Theory, Asymetrix, Canon, Compaq, Data
Translation, Dell, Digital Stock, Elsa, Extensis, IBM, Intergraph, Iomega,
Kingston, LaCie, Live Picture, Macromedia, Mitsubishi, NetObjects, Play, Silicon
Graphics, and Sony.
PRODUCTION
NEWMEDIA is produced in-house on a desktop publishing system, which
creates page layouts of editorial material electronically. Desktop publishing
allows for high quality publishing at minimal cost. This editorial material is
then shipped on disks to outside service bureaus for production and assembly
with advertising material. The output from the service bureaus is then checked
for quality and accuracy by the Company's editorial and production department.
Once all corrections have been made, the output from the service bureaus is sent
- ----------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "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.
8
<PAGE>
to outside printers for printing, assembly and processing for distribution. The
printer labels and mails the magazine to NEWMEDIA'S subscriber list. The
subscriber list is provided by a specialized data processing house. A small
percentage of copies of the issue are forwarded to a newsstand distribution
center for direct sales at newsstands. The balance of the issues ordered, plus
any overruns, are shipped to the Company for use in-house.
COMPETITION
The computer-related periodical publishing field is highly competitive.
Many of the Company's competitors have substantially greater financial, sales
and marketing resources than the Company.
A number of periodical publications serve the professional market for
digital content creation. These publications include AV VIDEO/MULTIMEDIA
PRODUCER, COMPUTER GRAPHICS WORLD, DCC MAGAZINE, DV MAGAZINE, and 3D DESIGN. In
the consumer publishing, WIRED magazine addresses topics related to the digital
content market.
Computer-related periodicals that serve the office computing market
also report upon digital content creation topics and therefore compete with
NEWMEDIA. These publications include paid-circulation magazines such as PC
MAGAZINE, MACWORLD, PC WORLD and WINDOWS, and controlled-circulation magazines
such as INFOWORLD, PC WEEK, INTERACTIVE WEEK and INTERNET WORLD.
In an independent study conducted in 1998 by the market research firm
IntelliQuest, NEWMEDIA readers reported higher involvement in the purchase of
Internet products and services than the readers of INTERACTIVE WEEK, INFOWORLD,
PC WEEK, PC MAGAZINE, and WIRED.
The Company expects that its greatest long-term competition for
advertising market share will come from computer-related periodicals, as they
attempt to address the growing digital content creation market.* Moreover,
because digital content creation technology is comprised of such a broad array
of related technologies and because digital media has been found useful to
address a wide variety of organizational problems, the Company believes that
advertising clients will prefer to advertise in publications that have a broad
circulation base.* In order to compete effectively, the Company adopted a
strategy to position NEWMEDIA as the highest circulation periodical serving the
professional market for digital content creation.* Although the Company believes
that it would take significant resources and/or time for its competitors to
obtain a qualified subscriber base comparable to that of NEWMEDIA, there can be
no assurance that computer-related publications serving the office computing
market will not successfully compete for advertising revenues in the corporate
digital content creation market.*
NEW PRODUCT DEVELOPMENT
In September 1995, HyperMedia launched newmedia.com, NEWMEDIA
magazine's companion web site. Newmedia.com is an award-winning World Wide Web
site of news, information, and product buying services for the digital content
creation market. The Web site features i.Serv, an innovative electronic reader
service capability that uses the immediacy and interactivity of the Web to
respond to readers' product information requests in minutes instead of months.
The Company believes that the market for Internet services such as newmedia.com
and i.Serv, although still developing, will expand rapidly in the coming years.*
The Company expects to devote resources in 1999 to develop the potential of
- ----------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "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.
9
<PAGE>
newmedia.com and i.Serv as an advertising-supported electronic publishing medium
for the corporate digital content creation market.* If the expenses incurred to
develop newmedia.com and i.Serv as an advertising supported electronic
publishing medium do not result in corresponding sales for the Company, the
Company's business, operating results and financial condition will be adversely
affected.*
In addition to publishing NEWMEDIA and newmedia.com, HyperMedia is
exploring opportunities to expand its business by developing other information
services targeting the digital content professional market, including new
magazines and other print and electronic media, events, and other related
products.* The Company intends to continue to expand the breadth of the NEWMEDIA
INVISION Awards Festival and conference, and to develop and launch other events
during 1999.* There can be no assurance that such ancillary products or events
will be developed, or if developed, that they will be profitable.
The Company may also acquire complementary products or businesses as
opportunities arise, although there are no current agreements or negotiations to
do so.*
EMPLOYEES
As of December 31, 1998, the Company employed approximately 33 people
on a full-time basis. The Company believes that its relations with its employees
are good. None of the employees is represented by a labor union or covered by a
collective bargaining agreement.
ITEM 2. PROPERTIES
The Company's executive office is located in approximately 7,526 square
feet of space at 901 Mariner's Island Boulevard, Suite 365, San Mateo,
California 94404. The Company leases the facility pursuant to a lease that was
renewed May 1997 and expires in April 2000. Under the terms of the renewed
lease, the Company started paying monthly rent of approximately $23,300 in
January 1999.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
- ----------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "Factors Affecting Operating Results and Market Price of
Stock" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of factors that could affect future
performance.
10
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The Company's Common Stock is traded on the OTC:BB Market under the
symbol "HYPR." The Company's Common Stock was first listed for trading in March
1993. The high and low sales prices are as reported by the Nasdaq SmallCap
Market for 1997 and Bloomberg for 1998.
FISCAL QUARTER HIGH ($) LOW ($)
---------------------------------------- -------- -------
First quarter ended March 31, 1997 3 1/2 1 9/16
Second quarter ended June 30, 1997 3 1/2 1 7/8
Third quarter ended September 30, 1997 3 2
Fourth quarter ended December 31, 1997 3 9/64 1
First quarter ended March 31, 1998(1) 1 3/8 5/8
Second quarter ended June 30, 1998(1) 1 3/8
Third quarter ended September 30, 1998(1) 1 1/16 9/16
Fourth quarter ended December 31, 1998(1) 5/16 5/64
(1) In September 1998 the Company was delisted from the Nasdaq Small
Cap Market. The Company continued trading on the Pacific Exchange
until it was delisted in March 1999.
As of March 22, 1999, there were approximately 500 holders of the
Company's Common Stock.
The Company has never paid cash dividends on any shares of its capital
stock and the Company's Board of Directors intends to continue this policy for
the foreseeable future.* In addition, pursuant to the terms of the Company's
$1,000,000 line of credit, the Company may not declare or pay any dividends
without the bank's prior approval. The Company's ability to pay dividends on its
Common Stock will also be limited by the preferences of the Series E Preferred
Stock, Series F Preferred Stock, Series G Preferred Stock, Series H Preferred
Stock, Series I Preferred Stock and Series J Preferred Stock, and may be limited
by the terms of future Preferred Stock issuances or indebtedness. Earnings, if
any, will be used to finance the development and expansion of the Company's
business.* Future dividend policy will depend upon the Company's earnings,
capital requirements, financial condition and other factors considered relevant
by the Company's Board of Directors.
In June 1997, the Company raised $100,287 (before issuance costs)
through the sales of 50,344 shares of Series G Preferred stock. In September
1997, the Company raised $249,912 (before issuance costs) through the sales of
117,000 shares of Series H Preferred stock. In December 1997, the Company raised
$449,856 (before issuance costs) through the sales of 28,800 shares of Series I
Preferred stock. In February 1998 the Company raised $1,299,900 (before issuance
cost) through the sale of 105,000 shares of Series J Preferred stock. In March
1998 the Company raised $100,440 (before issuance cost) through the sale of
6,750 shares of Series J Preferred stock. In June 1998 the Company raised
$550,000 (before issuance cost) through the sale of 57,531 shares of Series J
Preferred stock. These securities were sold to its largest shareholder, MK
Global Ventures, in association with its MK GVD Fund.
- ----------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "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.
11
<PAGE>
Each of the foregoing issuances of securities were deemed to be exempt
from registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as transaction by an issuer not involving any public offering. In
addition, the recipient of securities in each such transaction represented its
intention to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof, and appropriate legends
were affixed to the share certificates issued in such transactions. The
recipient had adequate access, through its relationships with the Company, to
information about the Company.
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ............................. $ 5,629 $ 7,637 $ 8,618 $ 9,754 $ 9,284
---------- ---------- ---------- ---------- ----------
Expenses:
Editorial .......................... 951 1,151 1,228 1,309 1,386
Production ......................... 1,647 1,922 2,373 2,745 2,377
Circulation ........................ 1,844 2,088 2,072 2,275 2,414
Sales and marketing ................ 2,817 2,318 2,269 2,522 2,922
Product development ................ 45 40 29 36 103
General and administrative ......... 1,151 972 914 1,318 1,692
---------- ---------- ---------- ---------- ----------
Total expenses .................. 8,455 8,491 8,885 10,205 10,894
---------- ---------- ---------- ---------- ----------
Loss from operations ................. (2,826) (854) (267) (451) (1,610)
Interest and other expense, net ...... -- (32) (24) (11) (6)
---------- ---------- ---------- ---------- ----------
Net loss ............................. $ (2,826) $ (886) $ (291) $ (462) $ (1,616)
========== ========== ========== ========== ==========
Net loss per share, basic and
diluted(1) ........................ $ (0.88) $ (0.28) $ (0.10) $ (0.15) $ (0.54)
========== ========== ========== ========== ==========
Weighted average shares (1) .......... 3,200,137 3,185,043 3,019,004 3,011,433 3,010,730
DECEMBER 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital (deficit) ............ $ (243) $ 575 $ 442 $ 396 $ 750
Total assets ......................... 1,710 2,452 2,584 2,247 3,285
Shareholders' equity ................. 121 1,026 1,068 1,085 1,547
</TABLE>
(1) See Note 2 of Notes to Financial Statements for an explanation of the
method used to determine the number of shares used to compute per share
amounts.
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS SECTION AND OTHER PARTS OF THIS ANNUAL REPORT ON FORM 10-K
CONTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ACTUAL
RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE,
BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW AND IN "FACTORS AFFECTING
OPERATING RESULTS AND MARKET PRICE OF STOCK" AND "BUSINESS." 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 WITH
AN ASTERISK("*").
RESULTS OF OPERATIONS
The Company is engaged primarily in the development, production,
marketing and sales of integrated information services targeting the
professional digital content market. The Company's products include NEWMEDIA
magazine, the largest publication serving digital content professionals; the
NEWMEDIA INVISION Awards Festival, the largest juried digital media competition
in the world, and its associated Insight conference; newmedia.com, an
award-winning World Wide Web site of news, information, and product buying
services for the digital content market; and the NEWMEDIA Business Solutions
Series, a series of custom-published supplements to NEWMEDIA magazine that
focuses on emerging technologies and trends in the field of digital content.
The 1998 publishing plan focused NEWMEDIA on serving the professional
market for corporate digital content, including Internet products and services.
The guaranteed average circulation base remained unchanged in 1998, 1997 and
1996 at 215,000. The publishing plan started in 1996 required the magazine's
subscribers to meet significantly more stringent qualification criteria was
continued. As a result of these criteria, the purchasing power of digital media
products and services of the average subscriber was approximately $1,000,000 at
the end of 1998 and 1997, which was more than a 100 percent increase from
approximately $500,000 at the end of 1996.
In the second quarter, NEWMEDIA returned to a monthly publishing
frequency. This publishing schedule was implemented in response to the expressed
preference of NEWMEDIA'S advertising clients for a standard monthly publishing
frequency as opposed to the previous 16 times per year schedule. The Company
intends to continue the guaranteed average circulation base of 215,000 in 1999.*
- ----------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "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.
14
<PAGE>
The following table sets forth for the periods indicated the percentage
of revenues represented by certain items reflected in the Company's statement of
operations.
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997 1996
---- ---- ----
Revenues ............................... 100% 100% 100%
Expenses:
Editorial ............................. 17 15 14
Production ............................ 29 25 28
Circulation ........................... 33 27 24
Sales and marketing ................... 50 30 26
Product development ................... 1 1 --
General and administrative ............ 20 13 11
---- ---- ----
Total expenses ...................... 150 111 103
---- ---- ----
Loss from operations ................... (50) (11) (3)
Interest and other expense, net ........ -- -- --
---- ---- ----
Net loss ............................... (50)% (11)% (3)%
==== ==== ====
REVENUES
Revenues, consisting primarily of advertising in NEWMEDIA magazine,
decreased to $5,629,000 in 1998 from $7,637,000 in 1997 and $8,618,000 in 1996,
as a result of decreases in advertising sales in NEWMEDIA. The Company believes
that the decrease in net advertising revenue is related to a number of market
factors, including the migration of digital content development from CD-ROM
based media to the Internet, shifts in the Macintosh hardware and software
market, as digital content creators make a transition toward increased use of
Windows based workstations and an industry wide decline in digital media
advertising. The reduction in the publishing frequency of NEWMEDIA magazine from
sixteen issues per year to one per month, which occurred in the second quarter
of 1998, also contributed to the decrease in revenues.
The Company also announced key personnel changes in 1998. In July 1998
the Company hired a new Publisher. The Company also hired additional advertising
personnel in the first and second quarters of 1998. Additionally, the Company
completed a realignment of its sales force. As part of these changes, the
company dedicated specific sales personnel to new revenue opportunities in
custom publishing, online advertising, and conferences and focused its remaining
sales personnel on strategic accounts and vertical technology selling.
EDITORIAL EXPENSES
Editorial expenses, comprised principally of salaries and fees paid to
the writers for the Company's publications, were $951,000 in 1998, compared to
$1,151,000 in 1997 and $1,228,000 in 1996. The reduction in editorial expenses
for 1998 over 1997 are primarily attributable to cost control programs, some
attrition and a reduction in the number of issues per quarter (from 4 to 3),
started in the second quarter of 1998. The decline in 1997 editorial expenses
over 1996 are primarily attributable to lower headcount, cost control programs
and the sale of the MACROMEDIA USER JOURNAL ("MUJ") in the third quarter of
1996, partially offset by the increased expenses associated with newmedia.com.
15
<PAGE>
PRODUCTION EXPENSES
Production expenses, consisting primarily of the costs for design,
materials and printing of NEWMEDIA, were $1,647,000 in 1998, compared to
$1,922,000 in 1997 and $2,373,000 in 1996. The decrease in production expenses
in 1998, as compared to 1997, are primarily attributable to the reduction of the
number of issues per quarter (from 4 to 3), started in the second quarter of
1998. The reduction in production expenses for 1997 over 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.
CIRCULATION EXPENSES
Circulation expenses, consisting primarily of costs associated with
subscription fulfillment, mailing and the costs to acquire and certify the
Company's subscriber list, were $1,844,000 in 1998, compared to $2,088,000 in
1997 and $2,072,000 in 1996. The decrease in 1998 is primarily due to cost
control programs and the focus on more stringent readership qualifications. As
part of the Company's publishing strategy in 1998 and 1997, the minimum
readership qualifications to receive the magazine were significantly more
stringent. As a result of these new criteria, the purchasing power of new media
products and services of the average subscriber increased to approximately
$1,000,000 at the end of 1998, and 1997 from approximately $500,000 at the end
of 1996. The Company intends to maintain the higher minimum readership
qualifications to receive the magazine that it implemented in 1996 during 1999.*
The Company capitalizes its circulation development expenditures which consist
of external costs incurred by the company to acquire and certify its list of
qualified subscribers for each upcoming year and amortizes them over a 12 month
period. As of December 31, 1998 and December 31, 1997, the unamortized portion
of these expenditures was $371,000 and $465,000, respectively, which is included
in prepaid expenses on the balance sheet.
SALES AND MARKETING
Sales and marketing expenses were $2,817,000 in 1998, compared to
$2,318,000 in 1997 and $2,269,000 in 1996 The increased expenditures in 1998
were primarily attributable to higher expenditures on sales, including
compensation expenses related to the hiring of a publisher in July 1998 and new
sales personnel in the first half of 1998 and the addition of a conference
program to the INVISION Awards Festival, offset by lower marketing costs. The
NEWMEDIA magazine sales force has almost doubled from the first half of 1997.
The 2-day Insight Conference was added to the INVISION Awards Festival that was
held November 11 to 13, 1998, at the Argent Hotel in San Francisco. Sponsors for
the events included IBM, Intel, Macromedia and Silicon Graphics.
PRODUCT DEVELOPMENT
Product development costs totaled $45,000 in 1998, as compared to
$40,000 in 1997 and $29,000 in 1996, and consist of costs incurred in the
development of new products, including the Internet World Wide Web site,
newmedia.com. The Company plans to continue its product development efforts
during 1999.
- ----------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "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.
16
<PAGE>
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $1,151,000 in 1998, as
compared to $972,000 in 1997 and $914,000 in 1996. The increased expenses in
1998, as compared to 1997, primarily reflect increased consulting, recruitment,
and bad debt expenses. The increase in 1997, as compared to 1996, is primarily
due to increased bad debt expense offset by lower consulting costs. General and
administrative costs are expected to grow slightly in 1999, with expected
increases in bad debt expenses that accompany anticipated revenue growth.*
INTEREST AND OTHER INCOME AND EXPENSES
Interest and other expenses were $0 in 1998, compared to ($32,000) in
1997 and ($24,000) in 1996. For 1998 the Company earned Interest Income of
$10,000 on the proceeds of its Series J Convertible Preferred Stock sale that
was offset by $10,000 of Interest Expense. Interest Expense is expected to
increase in 1999 as the Company uses short-term debt to finance its working
capital requirements.*
NET LOSS
The Company incurred net losses of $2,826,000, $886,000 and $291,000,
in 1998, 1997 and 1996, respectively. The decrease in NEWMEDIA advertising
revenue in 1998, partially offset by continued strong costs controls, was the
primary contributor to the increased loss, as compared to 1997. Higher sales,
marketing and general and administrative expenses were offset by lower editorial
and production expenses associated with the reduction of the number of issues
per quarter (from 4 to 3), started in the second quarter of 1998. Net expenses
were down slightly to $8,455,000 compared to $8,491,000 for 1997 and $8,885,000
for 1996.
INCOME TAXES
At December 31, 1998, the Company had net operating loss carry forwards
for federal income tax purposes of approximately $14,000,000, which may be
utilized to reduce future taxable income through 2003, subject to certain
limitations. Under the Tax Reform Act of 1986, the amounts of and the benefit
from net operating losses that can be carried forward may be impaired or limited
in certain circumstances. Events which may cause changes in the amount of net
operating losses that the Company may utilize in any one year include, but are
not limited to, a cumulative stock ownership change of more than 50% over a
three-year period. As a result of prior financings, which resulted in such an
ownership change in April 1990, approximately $500,000 of the Company's net
operating loss carryforwards are limited to usage of approximately $50,000 per
year. Further, the initial public offering in March 1993 triggered another
ownership change of greater than 50% and the potential benefits from utilization
of tax carryforwards generated from April 1990 through the date of the offering,
totaling approximately $5,600,000 will be limited. The approximate annual
limitation on the utilization of those carryforwards is $700,000 provided that
this amount is reduced to the extent that the net operating carryforwards
generated through April 1990 are utilized. The exact limitation may change.
Other conditions may also occur in the future which would cause the Company to
lose, or further limit the use by the Company of some or all of these net
operating loss carryforwards.
- ----------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "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.
17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company financed its operations and capital requirements through
the date of its initial public offering in March 1993, principally through
private sales of debt and equity securities and cash generated from operations.
Since inception through December 1998, the Company has raised approximately
$3,924,000 through the issuance of Preferred Stock, including $98,000 Series G
Preferred Stock (net of issuance costs) sold in June 1997, $246,000 Series H
Preferred Stock (net of issuance costs) sold in September 1997, and $450,000
Series I Preferred Stock (net of issuance costs) sold in December 1997,
$1,280,000 Series J Preferred Stock (net of issuance costs) sold in February
1998, $100,000 Series J Preferred Stock (net of issuance costs) sold in March
1998, and $541,000 Series J Preferred Stock (net of issuance costs) sold in June
1998, to its largest shareholder, MK Global Ventures in association with its MK
GVD Fund. In its initial public offering in March 1993 (including the subsequent
exercise in April 1993 of the underwriter's option to purchase an additional
210,000 shares of Common Stock), the Company received proceeds of approximately
$6,350,000, net of underwriting discounts, commissions and issuance costs.
Proceeds from the offering were used to repay bridge loans totaling $1,500,000,
plus interest and loans from a shareholder totaling approximately $562,000. The
remaining net proceeds from the Company's initial public offering were added to
working capital to be used for financing operations.
At December 31, 1998, the Company had approximately ($243,000) in net
working capital, and its principal source of liquidity consisted of
approximately $182,000 in cash and funds loaned to it by its major shareholder
MK Global Ventures, in association with its MK GVD Fund. These borrowings accrue
interest at a rate of 10% per annum and are secured by the assets of the
company. Principal and accrued interest is due and payable on demand, by the
lender, which demand may be made at any time, but in no event shall the
principle and interest be paid later than 180 days after the date of the
borrowing. At December 31, 1998, $400,000 was outstanding under these notes. The
Company also had $350,000 outstanding under a line of credit with the company's
bank. The revolving credit facility provides for borrowings up to 70 percent of
qualified accounts receivable not to exceed $1,000,000 and requires the Company
to maintain certain quarterly financial ratios and be subject to certain
covenants. At December 31, 1998, the Company was not in compliance with certain
financial covenants of its line of credit agreement and the entire balance is
payable on demand by the lender.
The Company signed an agreement in March 1999 with a new lender which
provides a new line of credit. The revolving credit facility, which has a one
year term, provides for borrowings of up to 80% of eligible receivables not to
exceed $600,000. The credit facility is secured by the Company's accounts
receivable.
Capital expenditures for 1998 were $129,000 compared to $56,000 for
1997. These expenditures primarily consist of desktop PC replacements and
software upgrades. The Company has not made or committed to make significant
capital expenditures in 1999 but may make such expenditures in the future.*
The Company expects that it will continue to require significant
amounts of cash to finance future operations.* During the years ended December
31, 1998, 1997 and 1996, the Company's net cash used in operating activities
totaled $2,629,000, $291,000 and $601,000, respectively. The Company is
currently seeking additional financing and believes that sufficient cash can be
obtained from its new line of credit, borrowings from its major shareholder and
operating activities such that the Company will meet its cash requirements for
at least
- ----------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "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.
18
<PAGE>
the next 12 months.* However, there can be no assurance that the Company's
anticipation of its cash requirements for the next 12 months will be correct and
that the Company will be able to raise the necessary funds on terms acceptable
to the Company. Thereafter, the Company anticipates that it may need 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 1999 if it can raise such capital on acceptable
terms.* The terms of the Series E Preferred Stock, Series F Preferred Stock,
Series G Preferred Stock, Series H Preferred Stock, Series I Preferred Stock,
Series J Preferred Stock and 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
any such debt or equity financing will be available on terms acceptable to the
Company, or at all.
- ----------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "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.
19
<PAGE>
FACTORS AFFECTING OPERATING RESULTS AND MARKET PRICE OF STOCK
THIS SECTION AND OTHER PARTS OF THIS ANNUAL REPORT ON FORM 10-K 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
"BUSINESS" AND "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 WITH AN ASTERISK ("*")
HISTORY OF LOSSES AND ACCUMULATED DEFICITS
The Company incurred total net losses of $14,230,000 from inception to
December 31, 1998, including net losses of $2,826,000 for the year ended
December 31, 1998. The Company expects to incur losses for at least the first
three quarters of 1999, as it continues to promote and expand its current
publications and develop and launch new products.* There can be no assurance
that during 1999 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, have a
productive advertising sales force that includes recently-hired sales people,
control its costs, and successfully implement its marketing and product strategy
in relation to the corporate digital content creation marketplace.* There can be
no assurance that the Company will be successful in any of these efforts.
1999 PUBLISHING STRATEGY; SALES AND MARKETING STRATEGY
The key elements of the Company's 1999 publishing strategy are to focus
on the professional market for digital content creation, to maintain the
stringent minimum qualification criteria that potential subscribers were
required to meet in order to qualify for a subscription, and to maintain the
guaranteed circulation base of 215,000 qualified NEWMEDIA readers.* In addition,
the Company is focusing on custom publishing activities, online advertising and
its event business to increased revenues.* Certain components of production,
marketing and editorial expenses associated with these strategies will
increase.* There can be no assurance that the Company's strategy will result in
increased revenues or in profitability.* 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 digital
content creation. To replace these consumer market advertisers and to grow
advertising revenues, the Company needs to sell advertisements oriented to the
professional market for digital content creation. 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.
ILLIQUIDITY OF TRADING MARKET; RISK OF PENNY STOCK STATUS
The Company's Common Stock trades on the OTC Bulletin Board. In
September 1998, the Company was delisted from trading on the Nasdaq SmallCap
Market, and in March 1999 the Company was delisted from trading on the Pacific
Exchange. Because the Company's Common Stock was delisted from the Pacific
Exchange, the Company has become subject to the Commission's "penny stock" rules
and therefore an investor will find it more difficult to dispose
- ----------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "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.
20
<PAGE>
of, or to obtain accurate quotations as to the price of, the Company's
securities. The "penny stock" rules under the Securities Exchange Act of 1934,
as amended, also impose additional sales practice and market making requirements
on broker-dealers who sell and/or make a market in such securities. For
transactions covered by the penny stock rules, a broker-dealer must make special
suitability determinations for purchasers and must have received the purchasers'
written consent to the transactions prior to sale. In addition, for any
transaction involving a penny stock, unless exempt, the rules require delivery
prior to any transaction in a penny stock of a disclosure schedule prepared by
the Commission relating to the penny stock market. Disclosure is also required
to be made about commissions payable to both the broker-dealer and the
registered representative and current quotations for the securities. Finally,
monthly statements are required to be sent disclosing recent price information
for the penny stock held in the account and information on the limited market in
penny stocks. Consequently, the Company's delisting from the Nasdaq SmallCap
Market and the Pacific Exchange and its becoming subject to the rules on penny
stocks has likely affected the ability or willingness of broker-dealers to sell
and/or make a market in the Company's securities and therefore has severely
adversely affect the market liquidity for the Company's securities.
RISKS ASSOCIATED WITH THE CONVERSION AND LIQUIDATION PREFERENCES OF THE
PREFERRED STOCK
PREFERRED STOCK CONVERSION, DIVIDEND AND LIQUIDATION FEATURES. The
Company's Articles of Incorporation currently authorize the Company to issue
10,064,516 shares of preferred stock, of which 8,512,191 shares of preferred
stock are currently issued and outstanding (the "Preferred Stock"). The
Preferred Stock, as of March 24, 1999, is convertible into 8,681,402 shares of
the Company's Common Stock. The liquidation, dividend and conversion features of
the currently outstanding Preferred Stock are as follows.
The Series E Preferred Stock has a liquidation preference per share
equal to $.124 per share and all accumulated and unpaid dividends. After
December 31, 1999, the shares of Series E Preferred Stock are convertible into
such number of shares of Common Stock as is determined by dividing $0.124 by the
Series E Conversion Price in effect at the time of the conversion. The Series E
Conversion Price is currently $0.478 and as a result of the issuance of the
Series J Preferred Stock would be convertible into 2,092,050 shares of Common
Stock, if it were currently convertible. Accordingly, each share of Series E
Preferred will be convertible into approximately 0.3 shares of Common Stock. The
Series E Preferred Stock also has price-based antidilution rights. Pursuant to
the price-based antidilution rights (and subject to certain exceptions), if the
Company issues shares at a price below the Series E Conversion Price, the Series
E Conversion Price is reduced to the price at which the Company issues the
shares.
The Series E Preferred also has cumulative dividend rights which accrue
at a rate of $.0074 per annum (an aggregate of approximately $60,000 per annum).
If the Company has accumulated unpaid dividends on the Series E Preferred at the
time the Series E Preferred converts to Common Stock the dividends convert to
Common Stock at the effective Series E Conversion Price. If the accumulated
dividends were to convert as of March 31, 1999, they would be convertible into
753,138 shares of Common Stock.
Each of the Series F Preferred Stock, Series G Preferred and Series H
Preferred Stock, were issued at prices discounted at 85% of the average closing
bid price of the Company's Common Stock as reported on the Nasdaq SmallCap
Market for the 10 trading days ending 5 business days before the closing of the
sale (the "Formula Price") of the Shares, and each such Series was initially
convertible into one share of Common Stock. The Series I Preferred Stock was
issued at a price discounted at 10 times the Formula Price and was initially
convertible into 10 shares of Common Stock. The Series J Preferred Stock was
issued at a price discounted at 20 times the Formula Price and each share of
Series J Preferred Stock is convertible into 20 shares of Common Stock.
21
<PAGE>
The Series F Preferred, Series G Preferred, Series H Preferred, Series
I Preferred and Series J Preferred Stock are entitled to dividends in the amount
of five percent (5%) of the Initial Sales Price of Series F Preferred, Series G
Preferred, Series H Preferred, Series I Preferred and Series J Preferred Stock
per fiscal year only if declared by the Board of Directors. The dividends are
not cumulative and no rights accrue to the holders of these series of preferred
stock in the event the Corporation does not declare or pay dividends. The
liquidation preference per share is equal to $3.039 per share for the Series F
Preferred, $0.478 per share for the Series G Preferred, $0.478 per share for the
Series H Preferred, $4.78 per share for the Series I Preferred and $9.56 per
share for the Series J Preferred Stock, plus all declared but unpaid dividends.
No dividends have been declared on the Preferred Stock. Shares of Series F
Preferred, Series G Preferred, Series H Preferred, Series I Preferred and Series
J Preferred Stock are convertible into a number of shares of Common Stock equal
to the initial sales price of each respective series of Preferred Stock divided
by the appropriate conversion price. The initial sales price was $3.039 for the
Series F Preferred, $1.992 for the Series G Preferred, $2.136 for the Series H
Preferred, $15.62 for the Series I Preferred and $12.38 for the Series J
Preferred. The conversion prices of each of the Series F Preferred, Series G
Preferred, Series H Preferred, Series I Preferred and Series J Preferred is
subject to adjustment in the event of subdivisions, splits, combinations,
consolidations or reclassification of Common Stock and similar events and, for
approximately one year after the final sale of each Series in the event the
Company issues shares of Common Stock at a price below the applicable conversion
price ("price-based antidilution"). The price-based antidilution feature has
expired for the Series F Preferred Stock, the Series G Preferred Stock, the
Series H Preferred Stock, and the Series I Preferred Stock and will expire on
June 30, 1999 for the Series J Preferred Stock.
The issuance of 57,531 shares of Series J Preferred at $9.56 per share
in June 1998 was equivalent to an issuance at $0.478 per share of Common Stock
and caused the conversion prices of each of the Series E Preferred, Series G
Preferred, Series H Preferred, Series I Preferred and Series J Preferred to be
adjusted to $0.478 per share. Accordingly, each share of Series F Preferred is
convertible into 1 share of Common Stock, each share of Series G Preferred is
convertible info 4.2 shares of Common Stock, each share of Series H Preferred is
convertible into 4.5 shares of Common Stock, each share of Series I Preferred is
convertible into 32.7 shares of Common Stock and each share of Series J
Preferred is convertible into 24.1 shares of Common Stock. All shares of Series
F Preferred, Series G Preferred, Series H Preferred, Series I Preferred and
Series J Preferred Stock then outstanding shall automatically convert into
shares of Common Stock upon the election of at least 67% of the authorized,
issued and outstanding shares of each respective Series of Preferred Stock to
convert shares of Series F Preferred, Series G Preferred, Series H Preferred,
Series I Preferred and Series J Preferred Stock into Common Stock.
The Company also has 1,552,325 shares of additional authorized
preferred stock that could be issued in the future with terms that are more
favorable to the holder than those that have been previously issued. The
Articles of Incorporation provide that the Board of Directors is authorized to
fix the number of shares of any series of Preferred Stock and to determine or
alter the rights, preferences, privileges, and restrictions granted to or
imposed upon any wholly unissued series of Preferred Stock and, within the
limits and restrictions stated in any resolution or resolutions of the Board of
Directors originally fixing the number of shares constituting any series of
Preferred Stock, to decrease (but not below the number of shares of any such
series then outstanding) the number of shares of any such series subsequent to
the issue of shares of that series. Additionally, the Board of Directors may
authorize the issuance of additional series of Preferred Stock. The Board of
Directors may therefore issue additional Preferred Stock with voting,
liquidation and conversion rights that could adversely affect the voting power
and liquidation rights of the holders of Common Stock. When and if such
preferred stock is issued or converted there will be considerable dilution to
the then existing Common stockholders. In the event the Company issues preferred
stock with a purchase price of less than $0.478 per share the Series E
conversion price will be further adjusted so that more shares of Common Stock
will be issued upon conversion of the Series E Preferred Stock. This will cause
additional dilution to the voting power and liquidation rights of the holders of
Common Stock.
22
<PAGE>
CONTROL BY PRINCIPAL STOCKHOLDERS
The Company's principal stockholders, MK Global Ventures II and its
affiliate MK GVD Fund (together, the "MK Entities"), together beneficially own
over 83% of the outstanding Common Stock (assuming conversion of all outstanding
Preferred Stock in Common Stock). In addition, the MK Entities have two
representatives on the four-person Board of Directors of the Company.
Accordingly, the MK Entities will be able to determine the composition of the
Company's Board of Directors, will retain voting power to approve all matters
requiring stockholder approval and will continue to have significant influence
over the affairs of the Company. This concentration of ownership could have the
effect of delaying or preventing a change in control of the Company.
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 digital content creation and Internet 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.
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 retain sales personnel in key markets and
to increase the productivity of existing sales personnel.* In July 1998, the
Company hired a new Publisher. The Company also hired additional advertising
personnel in the first and second quarters of 1998. Additionally, the Company
completed a realignment of its sales force. As part of these changes, the
company dedicated specific sales personnel to new revenue opportunities in
custom publishing, online advertising, and conferences and focused it remaining
sale personnel on strategic accounts and vertical technology selling. 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.
- ----------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "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.
23
<PAGE>
UNCERTAINTY OF GROWTH OF THE PROFESSIONAL MARKET FOR DIGITAL CONTENT
CREATION
NEWMEDIA is targeted toward professional users of digital content
creation 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 digital content creation market
experiences a significant downturn, the Company would expect a similar downturn
in its business. The professional market for digital content creation 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 digital content creation 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 digital content creation market
does develop as anticipated, there can be no assurance that the demand for
NEWMEDIA will also increase.*
YEAR 2000 COMPLIANCE
Many computer systems and software and electronic products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. In addition, certain systems and products do not correctly
process "leap year" dates. As a result, in the next 12 months, computer systems
and software ("IT System") and other property and equipment not directly
associated with information systems ("Non-IT Systems"), such as elevators,
phones, other office equipment used by many companies, including the company's
customers and potential customers of the Company, may need to be upgraded,
repaired or replaced to comply with such "Year 2000" and "leap year"
requirements.
Although the company has determined that most of its principle IT
Systems are Year 2000 compliant, certain of such internal systems have not been
evaluated by the Company. The Company has not yet made an assessment of the
status of its Non-IT Systems.
The Company presently estimates that the total cost of addressing their
year 2000 and leap year issues will be immaterial.* These estimates were derived
utilizing numerous assumptions, including the assumption that they have already
identified their most significant Year 2000 and leap year issues and that the
plans of its third-party suppliers will be fulfilled in a timely manner without
cost to the Company. However, these assumptions may not be accurate, and actual
results could differ materially from those anticipated.
The Company believes that the purchasing patterns of companies that
subscribe to NEWMEDIA as well as the Company's advertising clients may be
affected by Year 2000 issues, as companies expend significant resources to
correct or patch their current software systems for Year 2000 compliance. These
expenditures may result in reduced funds available to purchase advertising in
publications like NEWMEDIA, which could result in a material adverse effect on
the Company's business, operating results and financial condition.
The Company has not determined the state of compliance of certain
third-party suppliers of services such as phone companies, long distance
carriers, financial institutions and electric companies, the failure of any one
of which could severely disrupt the Company's ability to carry on its business
as well as disrupt the business of the Company's customers. The Company could be
affected through disruptions in the operation of the enterprises with which the
Company interacts or from general widespread problems or an economic crisis
resulting from noncompliant Year 2000 systems. Despite the Company's efforts to
- ----------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the future results will meet the Company's
current expectations. Investors are strongly encouraged to review the sections
entitled "Business", "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.
24
<PAGE>
address the Year 2000 effect on its internal systems and business operations,
such effect could result in a material disruption of its business or have a
material adverse effect on the Company or the Company's business, financial
condition, or results of operations. The Company has not developed a contingency
plan to respond to any of the foregoing consequences of internal and external
failures to be Year 2000 and leap year compliant.
DEPENDENCE ON KEY PERSONNEL 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, John Topping, and Kenneth Klein, the Chief Executive Officer, President,
and Chief Financial Officer, respectively, of the Company. The Company's success
also depends on the performance of key sales personnel. The loss of certain 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.
QUANTITIVE AND QUALITATIVE DISCLOSUE ABOUT MARKET RISK
The Company's market risk disclosures pursuant to item 7A are not
material and are therefore not required.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a) for an index to the financial statements and
supplementary financial information attached hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
25
<PAGE>
PART III
Certain information required by Part III is omitted from this Form 10-K
in that the Company will file a definitive proxy statement within 120 days after
the end of its fiscal year pursuant to Regulation 14A of the Securities Exchange
Act of 1934 (the "Proxy Statement") for its Annual Meeting of Shareholders to be
held June 7, 1999.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as follows:
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
Richard Landry 42 Chairman of the Board of Directors,
Chief Executive Officer and Director
John Topping 31 President and Publisher
Kenneth Klein 48 Vice President, Finance and Administration,
Chief Financial Officer and Secretary
John Griffin (1)(2) 50 Director
Michael Kaufman (2) 57 Director
Greg Lahann(1) 40 Director
- ----------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
All directors hold office until the next annual meeting of shareholders
of the Company or until their successors have been elected. There is no family
relationship between any director or executive officer of the Company.
RICHARD LANDRY joined the Company in January 1992 as its President and
Publisher; he also became a director of the Company at that time. In July 1992,
Mr. Landry became Chief Executive Officer of the Company. In February 1997, Mr.
Landry also became Chairman of the Board of Directors. From 1988 to 1991, Mr.
Landry was Editor-in-Chief and Associate Publisher of PC WORLD, a publication of
PCW Communications, Inc. From 1986 to 1988, Mr. Landry was Managing Editor and
Editor of PC WORLD.
JOHN TOPPING joined the Company in July 1998, as its President and
Publisher. From 1997 to 1998, Mr. Topping was Publisher of Networking Magazine.
From 1995 to 1996, Mr. Topping was Director of Sales for the Miller Freeman's
Network Group. From 1991 to 1994, Mr. Topping was a Senior Sales Manager and
Training Director for the Miller Freeman's Network Group.
KENNETH KLEIN joined the Company in January 1999 as its Vice President,
Finance and Administration, and Chief Financial Officer. In March 1999, Mr.
Klein also became Secretary. From 1988 to 1997, Mr. Klein was employed by
Worldwide Relocation Management, Inc., a relocation service firm were he held
the positions of Vice President of Finance and Chief Financial Officer, Director
of Finance, and Controller.
26
<PAGE>
JOHN GRIFFIN became a director of the Company in April 1994. Since
September 1990, he has been the President of the Magazine Division of Rodale
Press, Inc., Emmaus, Pennsylvania, a publisher of consumer magazines in the
areas of health, fitness, gardening and crafts, including PREVENTION, RUNNER'S
WORLD and AMERICAN WOODWORKER. Mr. Griffin has also been a director of Rodale
Press since October 1990. From January 1988 until April 1990, Mr. Griffin was
Chairman of the Board of Directors, President and Publisher of PC WORLD.
MICHAEL KAUFMAN became a director of the Company in July 1991. Since
October 1987, he has been the President of MK Global Ventures, Palo Alto,
California, a venture capital firm specializing in early-stage and start-up
financing of high technology companies. From August 1981 until October 1987, Mr.
Kaufman was a general partner of Oak Investment Partners, a venture capital
firm. Prior to August 1981, Mr. Kaufman was President and Chief Operating
Officer of Centronics Data Corporation, a manufacturer of computer peripherals.
Mr. Kaufman serves on the board of directors of Davox Corp., a
telecommunications company, Asante Technologies, Inc., a networking products
company, DISC, an optical storage systems company, and Syntellect, an
interactive company.
GREG LAHANN became a director of the Company in August 1990. From
October 1987 through December 1993, he was the Chief Financial Officer of MK
Global Ventures, and since January 1990, he has been a director of MK Global
Ventures. From 1981 to 1987, Mr. Lahann was employed by Price Waterhouse LLP, in
various positions, the last of which was as manager in the Audit Department. Mr.
Lahann is a Certified Public Accountant.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to
the Proxy Statement under the heading "Executive Compensation and Other
Matters."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to
the Proxy Statement under the heading "Record Date and Principal Share
Ownership."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to
the Proxy Statement under the heading "Executive Compensation and Other
Matters."
27
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The following financial statements of HyperMedia Communications,
Inc. are filed as part of this report on Form 10-K:
Page Number
-----------
Report of Independent Accountants ...................... 32
Balance Sheet--December 31, 1998 and 1997 .............. 33
Statement of Operations--Years ended
December 31, 1998, 1997 and 1996 ....................... 34
Statement of Shareholders' Equity
Years ended December 31, 1998, 1997 and 1996 ........... 35
Statement of Cash Flows--Years ended
December 31, 1998, 1997 and 1996 ....................... 36
Notes to Financial Statements .......................... 37
2. FINANCIAL STATEMENT SCHEDULES
Schedule II Valuation and Qualifying Accounts .......... 45
28
<PAGE>
3. EXHIBITS
Exhibit
Number Description
------ -----------
3.1a(6) Amended and Restated Articles of Incorporation filed as of
June 2 1998
3.1b(6) Certificate of Correction of Amended and Restated Articles
of Incorporation filed as of July 2,1998
3.1c(4) Certificate of Determination of Preferences of Series F
Preferred Stock of the Registrant.
3.1d(5) Certificate of Determination of Preferences of Series H
Preferred Stock of the Registrant.
3.1e(5) Certificate of Determination of Preferences of Series I
Preferred Stock of the Registrant.
3.1f(5) Certificate of Determination of Preferences of Series J
Preferred Stock of the Registrant.
3.2(1) Bylaws of the Registrant.
4.1(1) Specimen Common Stock Certificate.
4.2(1) Common Stock Warrant, dated December 18, 1989, issued by
the Registrant to MK Global Ventures.
4.5(1) Common Stock Warrant, dated March 16, 1993, issued by the
Registrant to David Bunnell.
4.6(1) Common Stock Warrant, dated March 16, 1993, issued by the
Registrant to Dr. Eugene Duh.
4.7(1) Form of Subscription Agreement entered into in connection
with the Bridge Financing.
4.8(1) Form of Common Stock Warrant issued to investors pursuant
to the Bridge Financing.
4.9(2) Representative's Warrant, dated March 9, 1993, issued by
the Registrant to Barington Capital Group, L.P.
4.10(1) Modification Agreement, dated October 30, 1990, between
the Registrant, MK Global Ventures, MK Global Ventures II
and Edward Alpern, as amended by First Amendment to
Modification Agreement and Written Consent, dated
September 15, 1992, Second Amendment to Modification
Agreement, dated October 15, 1992 and Third Amendment to
Modification Agreement and Written Consent, dated December
1, 1992.
29
<PAGE>
4.11(1) Co-Sale Agreement, dated April 18, 1990, between the
Company, MK Global Ventures, MK Global Ventures II,
Davison Associates, Edward Alpern, Louis Casabianca and
Harry Miller.
4.12(3) 1991 Stock Plan and forms of agreements thereunder, as
amended.
4.13(3) 1993 Director Option Plan and form of agreement
thereunder, as amended.
4.14(4) Common Stock Warrant, dated February 9, 1994 and as
amended March 19, 1997, issued by the Registrant to
Imperial Bank.
4.15(3) Common Stock Warrant, dated September 14, 1994, issued by
the Registrant to MK Global Ventures II.
4.16(4) Series F Preferred Stock Purchase Agreement, dated March
12, 1996, between the Registrant and MK GVD Fund.
4.17(4) Common Stock Warrant, dated November 26, 1996, issued by
the Registrant to MK GVD Fund.
4.18(5) Series G Preferred Stock Purchase Agreement, dated July 3,
1996, between the Registrant and MK GVD Fund.
4.19(5) Series H Preferred Stock Purchase Agreement, dated
September 8, 1997, between the Registrant and MK GVD Fund.
4.20(5) Series I Preferred Stock Purchase Agreement, dated
December 23, 1997, between the Registrant and MK GVD Fund.
4.21(5) Series J Preferred Stock Purchase Agreement, dated
February 19, 1998, between the Registrant and MK GVD Fund.
10.1(1) Form of Indemnification Agreement for directors and
officers.
10.2(1) $5,000.07 Subordinated Promissory Note, dated April 18,
1990, issued by the Registrant to Edward Alpern.
10.3(1) $5,000.07 Subordinated Promissory Note, dated October 22,
1991, issued by the Registrant to Amerinda Alpern.
10.4(1) Lease Agreement, dated February 21, 1991, between the
Registrant and Spieker Partners.
10.5(2) Amendment #1 to Lease Agreement, dated June 11, 1993,
between the Registrant and Spieker - Singleton #68
Limited.
30
<PAGE>
10.6(2) Consulting Agreement with Barington Capital Group, L.P.
10.7(1) Shareholder's Voting Agreement.
10.8(5) Security and Loan Agreement, dated March 19, 1998, between
the Registrant and Imperial Bank.
10.9 $100,000 Subordinated Promissory Note, dated November
25,1998 issued by the Registrant to MK GVD Fund.
10.10 $150,000 Subordinated Promissory Note, dated December 15,
1998, issued by the Registrant to MK GVD Fund.
10.11 $150,000 Subordinated Promissory Note, dated December 29,
1998, issued by the Registrant to MK GVD Fund.
10.12 Security and Loan Agreement, dated March 16, 1999, between
the Registrant and Business Finance.
11.1 Computation of net loss per share.
23.1 Consent of Independent Accountants.
24.1 Power of Attorney (see page 46).
27.1 Financial Data Schedule
- ----------
(1) Incorporated by reference to the exhibit filed with the Registrant's
Registration Statement on Form S-1, as amended (No. 33-60548), declared
effective on March 9, 1993.
(2) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-K filed March 25, 1994.
(3) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-K filed March 29, 1995.
(4) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-K filed March 28, 1997.
(5) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-K filed March 27, 1998.
(6) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q filed August 14, 1998
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1998.
(c) EXHIBITS -- See Item 14(a)3 above.
(d) FINANCIAL STATEMENT SCHEDULES -- See Item 14(a)2 above.
31
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
HyperMedia Communications, Inc.
In our opinion, the accompanying balance sheet and the related
statements of operations, shareholders' equity and cash flows present fairly, in
all material respects, the financial position of HyperMedia Communications, Inc.
(the "Company") at December 31, 1998 and 1997, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred recurring losses from operations
and has an accumulated deficit that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
PricewaterhouseCoopers LLP
San Jose, California
February 2, 1999, except for
Note 11 which is as of March 16, 1999
32
<PAGE>
Hypermedia Communications, Inc.
Balance Sheet
DECEMBER 31,
----------------------------
1998 1997
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 182,000 $ 269,000
Accounts receivable, net of allowance for
doubtful accounts of $75,000 and $110,000 642,000 1,165,000
Prepaid expenses and other current assets 522,000 567,000
------------ ------------
Total current assets 1,346,000 2,001,000
Property and equipment, net 364,000 451,000
------------ ------------
$ 1,710,000 $ 2,452,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable - related party $ 400,000 $ --
Note payable - line of credit 350,000 --
Accounts payable 564,000 956,000
Accrued liabilities 257,000 439,000
Deferred revenue 18,000 31,000
------------ ------------
Total current liabilities 1,589,000 1,426,000
------------ ------------
Commitments (Note 10)
Shareholders' Equity:
Convertible Preferred Stock, $.001 par value; 10,064,516 shares authorized;
$4,000,000 and $2,050,000 aggregate liquidation amount;
8,512,191 and 8,342,910 shares outstanding 3,924,000 2,003,000
Common Stock, $0.001 par value; 50,000,000
shares authorized; 3,200,137 shares outstanding 10,427,000 10,427,000
Accumulated deficit (14,230,000) (11,404,000)
------------ ------------
Total shareholders' equity 121,000 1,026,000
------------ ------------
$ 1,710,000 $ 2,452,000
============ ============
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
Hypermedia Communications, Inc.
Statement of Operations
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ---------- ----------
Revenues $ 5,629,000 $7,637,000 $8,618,000
----------- ---------- ----------
Expenses:
Editorial 951,000 1,151,000 1,228,000
Production 1,647,000 1,922,000 2,373,000
Circulation 1,844,000 2,088,000 2,072,000
Sales and marketing 2,817,000 2,318,000 2,269,000
Product development 45,000 40,000 29,000
General and administrative 1,151,000 972,000 914,000
----------- ---------- ----------
Total expenses 8,455,000 8,491,000 8,885,000
----------- ---------- ----------
Loss from operations (2,826,000) (854,000) (267,000)
Interest and other expense, net -- (32,000) (24,000)
----------- ---------- ----------
Net loss $(2,826,000) $ (886,000) $ (291,000)
=========== ========== ==========
Net loss per share, basic and diluted $ (0.88) $ (0.28) $ (0.10)
=========== ========== ==========
Weighted average shares 3,200,137 3,185,043 3,019,004
=========== ========== ==========
The accompanying notes are an integral part of these financial statements.
34
<PAGE>
Hypermedia Communications, Inc.
Statement of Shareholders' Equity
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
----------------- -------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 8,064,516 $1,000,000 3,011,433 $10,375,000
Repayment of shareholder note receivable -- -- -- --
Issuance of Common Stock for cash -- -- 7,571 2,000
Issuance of Series F Convertible Preferred
Stock for cash, net of issuance costs 82,250 209,000 -- --
Net loss -- -- -- --
--------- ---------- --------- -----------
Balance at December 31, 1996 8,146,766 1,209,000 3,019,004 10,377,000
Issuance of Common Stock for cash -- -- 181,133 50,000
Issuance of Series G Convertible Preferred
Stock for cash, net of issuance costs 50,344 98,000 -- --
Issuance of Series H Convertible Preferred
Stock for cash, net of issuance costs 117,000 246,000 -- --
Issuance of Series I Convertible Preferred
Stock for cash, net of issuance costs 28,800 450,000 -- --
Net loss -- -- -- --
--------- ---------- --------- -----------
Balance at December 31, 1997 8,342,910 2,003,000 3,200,137 10,427,000
Issuance of Series J Convertible Preferred
Stock for cash, net of issuance costs 169,281 1,921,000 -- --
Net loss -- -- -- --
--------- ---------- --------- -----------
Balance at December 31, 1998 8,512,191 $3,924,000 3,200,137 $10,427,000
========= ========== ========= ===========
TOTAL
SHAREHOLDER ACCUMULATED SHAREHOLDERS'
NOTE RECEIVABLE DEFICIT EQUITY
--------------- ------- ------
Balance at December 31, 1995 $(63,000) $(10,227,000) $ 1,085,000
Repayment of shareholder note receivable 63,000 -- 63,000
Issuance of Common Stock for cash -- -- 2,000
Issuance of Series F Convertible Preferred
Stock for cash, net of issuance costs -- -- 209,000
Net loss -- (291,000) (291,000)
-------- ------------ -----------
Balance at December 31, 1996 -- (10,518,000) 1,068,000
Issuance of Common Stock for cash -- -- 50,000
Issuance of Series G Convertible Preferred
Stock for cash, net of issuance costs -- -- 98,000
Issuance of Series H Convertible Preferred
Stock for cash, net of issuance costs -- -- 246,000
Issuance of Series I Convertible Preferred
Stock for cash, net of issuance costs -- -- 450,000
Net loss -- (886,000) (886,000)
-------- ------------ -----------
Balance at December 31, 1997 -- (11,404,000) 1,026,000
Issuance of Series J Convertible Preferred
Stock for cash, net of issuance costs -- -- 1,921,000
Net loss -- (2,826,000) (2,826,000)
-------- ------------ -----------
Balance at December 31, 1998 $ -- $(14,230,000) $ 121,000
======== ============ ===========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
35
<PAGE>
Hypermedia Communications, Inc.
Statement of Cash Flow
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows used in operating activities:
Net loss $(2,826,000) $(886,000) $(291,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 216,000 227,000 240,000
Provision for doubtful accounts 168,000 57,000 (90,000)
Change in assets and liabilities:
Accounts receivable 355,000 72,000 (280,000)
Prepaid expenses and other current assets 45,000 (6,000) (199,000)
Accounts payable (392,000) 134,000 131,000
Accrued liabilities (182,000) 113,000 42,000
Deferred revenue (13,000) (2,000) (154,000)
----------- --------- ---------
Net cash used in operating activities (2,629,000) (291,000) (601,000)
----------- --------- ---------
Net cash used in investing activities to
purchase property and equipment (129,000) (56,000) (176,000)
----------- --------- ---------
Cash flows from financing activities:
Proceeds from notes payable -- related party 400,000 -- --
Proceeds from line of credit 350,000 -- 335,000
Repayment of line of credit -- (335,000) --
Proceeds from issuance of Common Stock -- 50,000 2,000
Repayment of shareholder note receivable -- -- 63,000
Proceeds from issuance of Preferred Stock, net 1,921,000 794,000 209,000
----------- --------- ---------
Net cash provided by financing activities 2,671,000 509,000 609,000
----------- --------- ---------
Net increase (decrease) in cash (87,000) 162,000 (168,000)
Cash and cash equivalents at beginning of year 269,000 107,000 275,000
----------- --------- ---------
Cash and cash equivalents at end of year $ 182,000 $ 269,000 $ 107,000
=========== ========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 12,000 $ 28,000 $ 23,000
=========== ========= =========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
36
<PAGE>
Hypermedia Communications, Inc.
Notes to Financial Statements
NOTE 1 - THE COMPANY AND ITS BUSINESS:
HyperMedia Communications, Inc. (the "Company"), incorporated in
California in August 1989, publishes periodicals, including NewMedia
("NewMedia"), a magazine serving the corporate digital content creation market
and the Internet and newmedia.com, a World Wide Web site containing news,
information, products and services for the digital content creation market. The
Company also produces the NewMedia INVISION Awards Festival, a juried digital
media competition seeking out the highest achievements in digital content
creation. Substantially, all of the Company's revenue to date has resulted from
the sale of advertising in NewMedia.
At December 31, 1998, the Company had an accumulated deficit of
$14,230,000 and continues to be dependent upon external sources of capital to
support its operations. Management is presently involved in efforts to raise
additional external financing. In the event management is unsuccessful in its
efforts to raise additional funds, there is substantial doubt about the
Company's ability to continue as a going concern.
The financial statements have been presented on a going concern basis
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded assets
or the amount and classification of liabilities or any adjustments that might be
necessary should the Company be unable to continue as a going concern.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES
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.
REVENUE RECOGNITION AND DEFERRED REVENUE
Deferred revenue represents cash received in advance for subscriptions
and advertising. Deferred revenue is recognized as revenue upon the release of
the related magazine.
CASH AND CASH EQUIVALENTS
All highly liquid investments purchased with an original maturity of
three months or less are considered to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets which
range from two to seven years.
PROMOTIONAL EXPENSES
External costs to acquire and certify the Company's subscriber list are
capitalized as an identifiable intangible asset in accordance with APB No. 17,
"Intangible Assets." Such capitalized costs are amortized using the
straight-line method over the estimated period of benefit of one year.
37
<PAGE>
Hypermedia Communications, Inc.
Notes to Financial Statements
INCOME TAXES
Income taxes are accounted for using an asset and liability approach
which requires the recognition of taxes payable or refundable for the current
year and deferred tax liabilities and assets for the future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. The measurement of current and deferred tax liabilities and assets are
based on provisions of the enacted tax law; the effects of future changes in tax
laws or rates are not anticipated. The measurement of deferred tax assets is
reduced, if necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized.
BASIC AND DILUTED NET LOSS PER SHARE
Basic earnings per share is computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common and potential common shares
outstanding during the period. Potential common equivalent shares consist of the
incremental common shares issuable upon conversion of the convertible preferred
stock (using the if-converted method) and shares issuable upon the exercise of
stock option and warrants (using the treasury stock method). Potential common
equivalent shares are excluded from the computation if their effect is
antidilutive. At December 31, 1998, 8,512,191 potential common shares are
excluded from the determination of diluted net loss per share as the effect of
such shares on a weighted average basis is antidilutive.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of accounts receivable. The
Company performs ongoing credit evaluations of its customers' financial
condition and maintains an allowance for uncollectible accounts receivable based
upon expected collectibility of accounts receivable. During the years ended
December 31, 1998, 1997, and 1996, the Company wrote-off approximately $203,000,
$162,000 and $72,000, respectively, of accounts receivable balances. The
Company's magazine, "New Media," is only distributed in the United States. At
December 31, 1998 and 1997, no individual customers accounted for 10% or more of
accounts receivable.
STOCK BASED COMPENSATION
The Company applies Accounting Principles Board Opinion 25 "Accounting
for Stock Issued to Employees" ("APB 25") and related interpretations in
accounting for its stock-based compensation plans, as permitted by the Financial
Accounting Standards Board's No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation." SFAS 123 defines a "fair value" based method of accounting for an
employee stock option or similar equity instrument and encourages, but does not
require, entities to adopt that method of accounting for their employee stock
compensation plans. The pro forma disclosures of the difference between
compensation cost included in net loss and the related cost measured by the fair
value method are presented in Note 8.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. To date, the Company has not had any
transactions that are required to be reported in comprehensive income other than
its net loss.
38
<PAGE>
Hypermedia Communications, Inc.
Notes to Financial Statements
SEGMENT INFORMATION
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." This
statement establishes standards for the way companies report information about
operating segments in annual financial statements. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. In accordance with the provisions of SFAS No. 131, the Company has
determined that it does not have separately reportable operating segments.
NOTE 3 - INTANGIBLE ASSETS:
Intangible assets consist of external costs incurred by the Company to
acquire and certify its list of qualified subscribers for each upcoming year. At
December 31, 1998 and 1997, $371,000 and $465,000 of such costs are included in
prepaid expenses and other assets. Related amortization for the years ended
December 31, 1998, 1997 and 1996, totaled $591,000, $614,000 and $409,000,
respectively.
NOTE 4 - PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
DECEMBER 31,
-----------------------
1998 1997
----------- ----------
Equipment $ 1,270,000 $1,148,000
Furniture and fixtures 277,000 270,000
----------- ----------
1,547,000 1,418,000
Less: accumulated depreciation and amortization (1,183,000) (967,000)
----------- ----------
$ 364,000 $ 451,000
=========== ==========
NOTE 5 - NOTES PAYABLE:
RELATED PARTY
During November and December 1998, the Company borrowed an aggregate of
$400,000 from the Company's principle stockholder. Borrowings accrue interest at
a rate of 10% per annum and are secured by the assets of the Company. Principal
and accrued interest is due and payable on demand by the lender, which demand
may be made at any time, but in no event shall the principal and accrued
interest be paid later than 180 days after the date of the borrowing. At
December 31, 1998, $400,000 was outstanding under these notes.
LINE OF CREDIT
In March 1998, the Company renewed its credit agreement with a commercial
bank. The agreement provides for borrowings of up to 70% of eligible accounts
receivable not to exceed $1,000,000. The revolving credit facility is secured by
the assets of the Company and requires the Company to maintain certain quarterly
financial ratios and be subject to certain covenants and other usual and
customary provisions. The Company's unused borrowing capacity could be
restricted by financial operating covenants. Borrowings accrue interest at the
39
<PAGE>
Hypermedia Communications, Inc.
Notes to Financial Statements
lender's reference rate of prime plus 2.0%, which at December 31, 1998 was
9.75%. The credit facility expires in March 1999. At December 31, 1998, $350,000
was outstanding under this agreement. At December 31, 1998, the Company was not
in compliance with certain financial covenants. The entire outstanding balance
is payable on demand by the lender.
NOTE 6 - CONVERTIBLE PREFERRED STOCK:
Convertible Preferred Stock at December 31, 1998, consists of the
following:
PROCEEDS
AGGREGATE NET OF
SHARES SHARES LIQUIDATION ISSUANCE
SERIES AUTHORIZED OUTSTANDING AMOUNT COSTS
---------- ----------- ----------- ----------
Series E 8,064,516 8,064,516 $1,000,000 $1,000,000
Series F 175,000 82,250 250,000 209,000
Series G 175,000 50,344 100,000 98,000
Series H 400,000 117,000 250,000 246,000
Series I 200,000 28,800 450,000 450,000
Series J 250,000 169,281 1,950,000 1,921,000
Undesignated 800,000 -- -- --
---------- --------- ---------- ----------
10,064,516 8,512,191 $4,000,000 $3,924,000
========== ========= ========== ==========
The shares of Convertible Preferred Stock have various rights and
preferences as follows:
VOTING
Each share of Series E, F, G, H, I and J Convertible Preferred Stock is
entitled to the same number of votes as the number of shares of Common Stock
into which the Convertible Preferred Stock is convertible.
DIVIDENDS
Holders of Series E, F, G, H, I and J Convertible Preferred Stock are
entitled to receive dividends at the rate of $0.01, $0.15, $0.10, $0.11, $0.08
and $0.06, respectively, per annum for each outstanding share then held by
shareholders, payable in preference and priority to any payment of any dividend
on Common Stock, when and if such dividends are declared by the Board of
Directors. The Company shall make no distribution to holders of Common Stock
until Convertible Preferred Stock dividends have been paid. Dividends are not
cumulative and no dividend rights accrue.
LIQUIDATION
In the event of any liquidation or winding up of the Company, the holders
of Series E, F, G, H, I and J Convertible Preferred Stock shall be entitled to
receive, prior and in preference to any distribution to holders of Common Stock,
the amounts summarized in the table above, plus an amount equal to all declared
but unpaid dividends on such shares. After paying the amounts due the holders of
shares of Convertible Preferred Stock, the remaining assets available for
distribution shall be distributed ratably to the holders of Common Stock and
holders of Convertible Preferred Stock as if fully converted to Common Stock. If
assets are insufficient to permit payment in full to the holders of Convertible
Preferred Stock, then distribution would be made to the Series J shareholders
then to all other Convertible Preferred Stock holders on a pro-rata basis.
40
<PAGE>
Hypermedia Communications, Inc.
Notes to Financial Statements
CONVERSION
Each share of Convertible Preferred Stock shall be convertible into
Common Stock at the option of the holder. The number of shares of fully paid and
nonassessable Common Stock into which each share of Convertible Preferred Stock
may be converted shall be determined at the initial purchase price of $0.124 for
Series E, $3.04 for Series F, $1.99 for Series G, and $2.14 for Series H. Each
share of Series I converts to 10 shares of Common Stock with an initial
conversion price of $15.62 per share. Each share of Series J converts to 20
shares of Common Stock with an initial conversion price of $11.52 per share. The
conversion price is subject to certain adjustments, as defined, which
essentially provide dilution protection for the holders of Convertible Preferred
Stock.
NOTE 7 - WARRANTS:
The following warrants were outstanding at December 31, 1998:
In September 1994, the Company issued a warrant to purchase 15,985 shares
of Common Stock at $6.75 per share. The warrants were issued as consideration to
the sole shareholder of the Company's outstanding shares of Series E Convertible
Preferred Stock for the waiving redemption rights of such shares. The warrant
expires in September 1999, and had a nominal fair value on the date of grant.
In March 1997, the Company amended a prior warrant agreement to entitle
the holder to purchase 6,897 shares of Common Stock at $2.69 per share. The
amendment was made in connection with the renewal of the Company's credit
facility. The warrant expires in February 1999, and had a nominal fair value on
the date the warrant agreement was amended.
In June 1997, the Company issued a warrant to purchase 1,724 shares of
Common Stock at $2.25 per share in conjunction with the Series G Convertible
Preferred Stock financing. The warrant expires in June 2002, and had a nominal
value on the date of grant.
NOTE 8 - STOCK COMPENSATION PLANS:
STOCK OPTION PLAN
In December 1991, the Company adopted the 1991 Stock Option Plan (the
"Option Plan"). The Option Plan, which expires in 2001, provides for incentive
as well as nonstatutory stock options and stock purchase rights. The Board of
Directors may terminate the Option Plan at any time at its discretion. The
number of shares of Common Stock reserved for issuance under this plan, as
amended, totals 1,400,000 shares.
Options and stock purchase rights under the Option Plan are granted at
market value and are subject to certain conditions more fully described in the
Option Plan. Generally, these conditions require that the exercise price of
options granted may not be below 85% to 110% of the fair value of the stock at
the date of the grant, depending upon the type of the award and the number of
shares of Common Stock held by the employee or consultant at the date of the
award. Options and stock purchase rights to be issued under the Option Plan will
expire over varying terms from five to ten years.
Options generally vest over a 48-month period. Options are adjusted pro
rata for any changes in the capitalization of the Company, such as stock splits
and stock dividends. In addition, the outstanding options issued under the
Option Plan will terminate within a period set by the Board of Directors after
termination of employment.
41
<PAGE>
Hypermedia Communications, Inc.
Notes to Financial Statements
In February 1998, the Company canceled options to purchase 309,856 shares
of Common Stock with exercise prices ranging from $2.13 to $7.75, previously
granted to employees, and reissued all such options at an exercise price of
$1.13 per share, the fair market value of the Company's Common Stock on that
date.
In April 1994, the Company adopted the 1993 Director Stock Option Plan.
The option plan provides for the automatic, nondiscretionary grant of
nonstatutory stock options to the Company's nonemployee directors. The terms of
the plan are substantially similar to those for nonstatutory options granted
under the Company's employee stock option plan. The automatic grant applies to
each nonemployee director upon the initial appointment to the board, and
annually upon re-election of each nonemployee director by the shareholders.
Initial grants were for 25,000 shares and annual grants shall be for 5,000
shares. The shares will vest over four years. The number of shares of Common
Stock reserved for issuance under this plan, as amended, totaled 150,000 shares.
At December 31, 1998, 175,000 shares were issued, of which 6,250 were
exercisable.
For the purposes of complying with the disclosure provisions of SFAS 123,
the fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1998, 1997 and 1996, respectively: dividend yield
of 0.0%, expected volatility of 70.0% and expected lives of five years for all
years and risk free rates of 4.8%, 6.4% and 6.4%.
Activity under both the 1991 Stock Option Plan and the 1993 Director
Stock Option Plan is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ ------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 637,544 $3.35 554,544 $3.83 442,565 $4.43
Granted 869,356 1.05 198,500 2.77 165,000 2.60
Exercised -- -- -- -- (7,571) 0.28
Canceled (603,856) 3.01 (115,500) 4.64 (45,450) 5.74
-------- -------- -------
Outstanding at end of year 903,044 1.38 637,544 3.35 554,544 3.83
======== ======== =======
Options exercisable at year end 187,937 328,828 306,911
======== ======== =======
Weighted-average fair value of
options granted during the year $0.66 $1.75 $1.66
===== ===== =====
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1998:
WEIGHTED- WEIGHTED- WEIGHTED-
NUMBER AVERAGE AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 12/31/98 CONTRACTUAL LIFE PRICE AT 12/31/98 PRICE
- --------------- ----------- ---------------- ----- ----------- -----
$0.19-0.28 76,089 8.8 years $0.26 64,089 $0.28
$0.88-1.13 650,856 9.3 $1.07 500 $1.13
$2.13-3.00 164,099 7.4 $2.67 111,348 $2.60
$7.25-8.50 12,000 4.7 $7.77 12,000 $7.77
------- -------
903,044 187,937
======= =======
42
<PAGE>
Hypermedia Communications, Inc.
Notes to Financial Statements
Had compensation cost for the Company's option plans been determined
based on the fair value at the grant dates, as prescribed in SFAS 123, the
Company's net loss would have been as follows:
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- ---------
Net loss:
As reported $(2,826,000) $ (886,000) $(291,000)
Pro forma $(2,899,000) $(1,040,000) $(368,000)
Net loss per share, basic and diluted:
As reported $ (0.88) $ (0.28) $ (0.10)
Pro forma $ (0.91) $ (0.33) $ (0.12)
Because additional option grants are expected to be made each year, the
above pro forma disclosures are not representative of pro forma effects of
reported net income for future years.
1996 EMPLOYEE STOCK PURCHASE PLAN
During 1996, the Company adopted an Employee Stock Purchase Plan (the
"Purchase Plan"). The Purchase Plan allows eligible employees to contribute up
to 15% of their base compensation to purchase Common Stock of the Company at 85%
of fair market value and are subject to approval by the Board of Directors. The
maximum number of shares of the Company's Common Stock which shall be made
available for sale under the Purchase Plan shall be 150,000 shares, subject to
changes in the Company's capitalization. As of December 31, 1998, no shares were
issued under the Purchase Plan.
NOTE 9 - INCOME TAXES:
No provision for federal and state income taxes has been recorded as the
Company incurred net operating losses through December 31, 1998. At December 31,
1998, the Company had net operating loss carryforwards of approximately
$14,000,000 for federal and state income tax purposes, respectively, which may
be utilized to reduce future taxable income in various amounts through 2013,
subject to certain limitations. Under the Tax Reform Act of 1986, the amounts of
and the benefit from net operating losses that can be carried forward may be
impaired or limited in certain circumstances. Events which may cause changes in
the amount of net operating losses that the Company may utilize in any one year
include, but are not limited to, a cumulative stock ownership change of more
than 50% over a three-year period. As a result of prior financings which
resulted in such an ownership change in April 1990, approximately $500,000 of
the Company's net operating loss carryforwards are limited to usage of
approximately $50,000 per year.
Further, the initial public offering in March 1993 triggered another
ownership change of greater than 50% and the potential benefits from utilization
of tax carryforwards generated from April 1990 through the date of the offering,
totaling approximately $5,600,000 will be limited. The approximate annual
limitation on the utilization of those carryforwards is $700,000 provided that
this amount is reduced to the extent that the net operating carryforwards
generated through April 1990 are utilized.
43
<PAGE>
Hypermedia Communications, Inc.
Notes to Financial Statements
Deferred tax assets (liabilities) are composed of the following:
DECEMBER 31,
----------------------------
1998 1997
----------- -----------
Net operating loss carryforwards $ 5,400,000 $ 4,300,000
Allowance for doubtful accounts 40,000 40,000
Other 50,000 60,000
----------- -----------
Gross deferred tax assets 5,490,000 4,400,000
Gross deferred tax liabilities (150,000) (200,000)
Deferred tax asset valuation allowance (5,340,000) (4,200,000)
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
The deferred tax asset valuation allowance is required because of the
uncertainty regarding the realization of the deferred tax assets.
NOTE 10 - COMMITMENTS:
The Company leases office space under a noncancelable operating lease
which expires in April 2000. Future minimum lease payments under noncancelable
operating leases are as follows:
YEAR ENDED
DECEMBER 31,
1999 $301,456
2000 107,804
2001 11,472
2002 11,472
2003 8,604
Thereafter --
--------
$440,808
========
Total rental expense under operating leases was $313,000, $254,000 and
$174,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
NOTE 11 - SUBSEQUENT EVENTS:
In March 1999, the Company entered a revolving credit facility agreement
with a financial institution that provides for borrowings of up to 80% of
eligible accounts receivable, not to exceed $600,000. This revolving credit
facility is secured by the Company's accounts receivable.
44
<PAGE>
HYPERMEDIA COMMUNICATIONS, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
Balance at Balance at
December 31, December 31,
Description 1997 Additions Deductions 1998
- ------------------------------------------------------------------------------
Allowance for doubtful
accounts receivable $ 110,000 $ 168,000 $(203,000) $ 75,000
Deferred tax asset
valuation allowance $4,200,000 $1,140,000 $ -- $5,340,000
45
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
HYPERMEDIA COMMUNICATIONS, INC.
Dated: March 29, 1999 By: /s/ Kenneth Klein
--------------------------------------------
Kenneth Klein, Vice President of Finance
and Administration,
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Richard Landry and Kenneth Klein, or
either of them, his attorneys-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendments to this Annual Report on
Form 10-K, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated. <TABLE> <CAPTION>
Signature Title Date
------------------------- --------------------------------------------- --------------
<S> <C> <C>
/s/ Richard Landry Chairman of the Board of Directors, President, March 29, 1999
- --------------------------- Chief Executive Officer, Publisher and
Richard Landry Director (Principal Executive Officer)
/s/ Kenneth Klein Vice President of Finance and Administration March 29, 1999
- --------------------------- and Chief Financial Officer (Principal
Kenneth Klein Financial and Accounting Officer)
/s/ John Griffin Director March 29, 1999
- ---------------------------
John Griffin
/s/ Michael Kaufman Director March 29, 1999
- ---------------------------
Michael Kaufman
/s/ Greg Lahann Director March 29, 1999
- ---------------------------
Greg Lahann
</TABLE>
46
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
3.1a(6) Amended and Restated Articles of Incorporation filed as of June
2,1998.
3.1b(6) Certification of Correction of Amended and Restated Articles of
Incorporation filed as of July 2, 1998
3.1c(4) Certificate of Determination of Preferences of Series of F Preferred
Stock of the Registrant.
3.1d(5) Certificate of Determination of Preferences of Series of H Preferred
Stock of the Registrant.
3.1e(5) Certificate of Determination of Preferences of Series of I Preferred
Stock of the Registrant.
3.1f(5) Certificate of Determination of Preferences of Series of J Preferred
Stock of the Registrant.
3.2(1) Bylaws of the Registrant.
4.1(1) Specimen Common Stock Certificate.
4.2(1) Common Stock Warrant, dated December 18, 1989, issued by the
Registrant to MK Global Ventures.
4.5(1) Common Stock Warrant, dated March 16, 1993, issued by the Registrant
to David Bunnell.
4.6(1) Common Stock Warrant, dated March 16, 1993, issued by the Registrant
to Dr. Eugene Duh.
4.7(1) Form of Subscription Agreement entered into in connection with the
Bridge Financing.
4.8(1) Form of Common Stock Warrant issued to investors pursuant to the
Bridge Financing.
4.9(2) Representative's Warrant, dated March 9, 1993, issued by the
Registrant to Barington Capital Group, L.P.
4.10(1) Modification Agreement, dated October 30, 1990, between the
Registrant, MK Global Ventures, MK Global Ventures II and Edward
Alpern, as amended by First Amendment to Modification Agreement and
Written Consent, dated September 15, 1992, Second Amendment to
Modification Agreement, dated October 15, 1992 and Third Amendment to
Modification Agreement and Written Consent, dated December 1, 1992.
4.11(1) Co-Sale Agreement, dated April 18, 1990, between the Registrant, MK
Global Ventures, MK Global Ventures II, Davison Associates, Edward
Alpern, Louis Casabianca and Harry Miller.
4.12(3) 1991 Stock Plan and forms of agreements thereunder, as amended.
4.13(3) 1993 Director Option Plan and form of agreement thereunder, as
amended.
4.14(4) Common Stock Warrant, dated February 9, 1994 and as amended March 19,
1997, issued by the Registrant to Imperial Bank.
4.15(3) Common Stock Warrant, dated September 14, 1994, issued by the Company
to MK Global Ventures II.
4.16(4) Series F Preferred Stock Purchase Agreement, dated March 12, 1996,
between the Registrant and MK GVD Fund.
4.17(4) Common Stock Warrant, dated November 26, 1996 issued by the
Reigistrant to MK GVD Fund.
4.18(5) Series G Preferred Stock Purchase Agreement, dated July 3, 1996,
between the Registrant and MK GVD Fund.
4.19(5) Series H Preferred Stock Purchase Agreement, dated September 18, 1997,
between the Registrant and MK GVD Fund.
47
<PAGE>
4.20(5) Series I Preferred Stock Purchase Agreement, dated December 23, 1997,
between the Registrant and MK GVD Fund.
4.21(5) Series J Preferred Stock Purchase Agreement, dated February 19, 1998,
between the Registrant and MK GVD Fund.
10.1(1) Form of Indemnification Agreement for directors and officers.
10.2(1) $5,000.07 Subordinated Promissory Note, dated April 18, 1990, issued
by the Registrant to Edward Alpern.
10.3(1) $5,000.07 Subordinated Promissory Note, dated October 22, 1991, issued
by the Registrant to Amerinda Alpern.
10.4(1) Lease Agreement, dated February 21, 1991, between the Registrant and
Spieker Partners.
10.5(2) Amendment #1 to Lease Agreement, dated June 11, 1993, between the
Registrant and Spieker - Singleton #68 Limited.
10.6(2) Consulting Agreement with Barington Capital Group, L.P.
10.7(1) Shareholder's Voting Agreement.
10.8(5) Security and Loan Agreement, dated March 19, 1998, between the
Registrant and Imperial Bank.
10.9 $100,000 Subordinated Promissory Note, dated November 25,1998 issued
by the Registrant to MK GVD Fund.
10.10 $150,000 Subordinated Promissory Note, dated December 15, 1998 issued
by the Registrant to MK GVD Fund.
10.11 $150,000 Subordinated Promissory Note, dated December 29, 1998 issued
by the Registrant to MK GVD Fund
10.12 Security and Loan Agreement, dated March 16, 1999, between the
Registrant and Business Finance.
11.1 Computation of net loss per share.
23.1 Consent of Independent Accountants
24.1 Power of Attorney (see page 46).
27.1 Financial Data Schedule
- ----------
(1) Incorporated by reference to the exhibit filed with the Registrant's
Registration Statement on Form S-1, as amended (No. 33-60548), declared
effective on March 9, 1993.
(2) Incorporated by reference to the exhibits filed with the Registrant's
Annual Report on Form 10-K filed March 25, 1994.
(3) Incorporated by reference to the exhibits filed with the Registrant's
Annual Report on Form 10-K filed March 29, 1995.
(4) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-K filed March 28, 1997.
(5) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-K filed March 27, 1998
(6) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q filed August 14, 1998
48
San Mateo, CA
November 25, 1998
$100,000
SECURED PROMISSORY NOTE
For value received, the undersigned, Hypermedia Communications, Inc., a
California corporation ("Borrower") promises to pay MK GVD Fund ("Lender") the
principal sum of one hundred thousand dollars ($100,000), with interest from the
date hereof at a rate of ten percent (10%) per annum, which amount shall be
secured by all of the assets of Borrower. Said principal shall be due and
payable on demand by Lender, which demand may be made at any time, but in no
event shall the principal be paid later than one hundred eighty (180) days after
the date of this Note. This Note may be prepaid at any time without penalty.
In the event of liquidation, merger, sale, or winding up of the company, Lender
shall be entitled to receive, prior and in preference to any other holders of
debt or equity securities, (except as provided in item 1. below), the principal
value of this Note plus accrued interest.
The following is a statement of the rights of the Borrower of this Note and the
conditions to which this Note is subject, to which the Borrower and Lender, by
the acceptance of this Note agree:
1. Subordination - Creditor subordinates to Imperial Bank ("Bank") any
security interest or lien that Creditor may have in any property of Borrower.
All Subordinated Debt is subordinated in right of payment to all obligations of
Borrower to Bank now existing or hereafter arising.
2. Security Interest - Borrower hereby grants to Lender a security
interest in all assets of Borrower to secure repayment of the indebtedness
represented by this Note. Borrower hereby represents and agrees that it will
take all actions contemplated above including the execution of a UCC1 financing
statement, which for the purposes of such execution, Borrower hereby appoints
Lender as its attorney-in-fact to execute such UCC1 financing statement.
3. Attorneys' Fees - If any action or proceeding shall be commenced to
enforce this Note or any right arising in connection with this Note, the
prevailing party in such action or proceeding shall be entitled to recover from
the other party the reasonable attorneys' fees, costs, and expenses incurred by
such prevailing party in connection with such action or proceeding or
negotiation to avoid such action or proceeding. In the event that any provision
of this Note should be deemed unlawful or unenforceable, such provision shall be
struck and the remainder hereof shall be enforced to the fullest extent of the
law.
4. Governing Law - This Note is issued in and shall be interpreted
under the laws of the State of California.
Issued this twenty-fifth day of November, 1998.
Hypermedia Communications, Inc.
By: __________________
Title: ________________
San Mateo, CA
December 15, 1998
$150,000
SECURED PROMISSORY NOTE
For value received, the undersigned, Hypermedia Communications, Inc., a
California corporation ("Borrower") promises to pay MK GVD Fund ("Lender") the
principal sum of one hundred and fifty thousand dollars ($150,000), with
interest from the date hereof at a rate of ten percent (10%) per annum, which
amount shall be secured by all of the assets of Borrower. Said principal shall
be due and payable on demand by Lender, which demand may be made at any time,
but in no event shall the principal be paid later than one hundred eighty (180)
days after the date of this Note. This Note may be prepaid at any time without
penalty.
In the event of liquidation, merger, sale, or winding up of the company, Lender
shall be entitled to receive, prior and in preference to any other holders of
debt or equity securities, (except as provided in item 1. below), the principal
value of this Note plus accrued interest.
The following is a statement of the rights of the Borrower of this Note and the
conditions to which this Note is subject, to which the Borrower and Lender, by
the acceptance of this Note agree:
1. Subordination - Creditor subordinates to Imperial Bank ("Bank") any
security interest or lien that Creditor may have in any property of Borrower.
All Subordinated Debt is subordinated in right of payment to all obligations of
Borrower to Bank now existing or hereafter arising.
2. Security Interest - Borrower hereby grants to Lender a security
interest in all assets of Borrower to secure repayment of the indebtedness
represented by this Note. Borrower hereby represents and agrees that it will
take all actions contemplated above including the execution of a UCC1 financing
statement, which for the purposes of such execution, Borrower hereby appoints
Lender as its attorney-in-fact to execute such UCC1 financing statement.
3. Attorneys' Fees - If any action or proceeding shall be commenced to
enforce this Note or any right arising in connection with this Note, the
prevailing party in such action or proceeding shall be entitled to recover from
the other party the reasonable attorneys' fees, costs, and expenses incurred by
such prevailing party in connection with such action or proceeding or
negotiation to avoid such action or proceeding. In the event that any provision
of this Note should be deemed unlawful or unenforceable, such provision shall be
struck and the remainder hereof shall be enforced to the fullest extent of the
law.
4. Governing Law - This Note is issued in and shall be interpreted
under the laws of the State of California.
Issued this 15 day of December, 1998.
Hypermedia Communications, Inc.
By: __________________
Title: ________________
San Mateo, CA
December 29, 1998
$150,000
SECURED PROMISSORY NOTE
For value received, the undersigned, Hypermedia Communications, Inc., a
California corporation ("Borrower") promises to pay MK GVD Fund ("Lender") the
principal sum of one hundred and fifty thousand dollars ($150,000), with
interest from the date hereof at a rate of ten percent (10%) per annum, which
amount shall be secured by all of the assets of Borrower. Said principal shall
be due and payable on demand by Lender, which demand may be made at any time,
but in no event shall the principal be paid later than one hundred eighty (180)
days after the date of this Note. This Note may be prepaid at any time without
penalty.
In the event of liquidation, merger, sale, or winding up of the company, Lender
shall be entitled to receive, prior and in preference to any other holders of
debt or equity securities, (except as provided in item 1. below), the principal
value of this Note plus accrued interest.
The following is a statement of the rights of the Borrower of this Note and the
conditions to which this Note is subject, to which the Borrower and Lender, by
the acceptance of this Note agree:
1. Subordination - Creditor subordinates to Imperial Bank ("Bank") any
security interest or lien that Creditor may have in any property of Borrower.
All Subordinated Debt is subordinated in right of payment to all obligations of
Borrower to Bank now existing or hereafter arising.
2. Security Interest - Borrower hereby grants to Lender a security
interest in all assets of Borrower to secure repayment of the indebtedness
represented by this Note. Borrower hereby represents and agrees that it will
take all actions contemplated above including the execution of a UCC1 financing
statement, which for the purposes of such execution, Borrower hereby appoints
Lender as its attorney-in-fact to execute such UCC1 financing statement.
3. Attorneys' Fees - If any action or proceeding shall be commenced to
enforce this Note or any right arising in connection with this Note, the
prevailing party in such action or proceeding shall be entitled to recover from
the other party the reasonable attorneys' fees, costs, and expenses incurred by
such prevailing party in connection with such action or proceeding or
negotiation to avoid such action or proceeding. In the event that any provision
of this Note should be deemed unlawful or unenforceable, such provision shall be
struck and the remainder hereof shall be enforced to the fullest extent of the
law.
4. Governing Law - This Note is issued in and shall be interpreted
under the laws of the State of California.
Issued this 29 day of December, 1998.
Hypermedia Communications, Inc.
By: __________________
Title: ________________
SECURITY AGREEMENT
(under the Uniform Commercial Code of California)
March 16, 1999
Business Factors, Inc. dba BFI Business Finance
1655 The Alameda
San Jose, CA 95126
To: BFI Business Finance:
This will confirm our understanding and agreement regarding the loan we
have requested you to make to us on the terms and conditions of this agreement.
1. You shall from time to time in your sole discretion advance to us,
the undersigned Borrower, up to eighty percent (80%) of the net face amount of
our prime accounts, as defined below in Paragraph 6, and such other sums as you
may determine, but in no event shall our aggregate indebtedness to you at any
one time exceed without your prior written approval the sum of Six Hundred
Thousand and No/100 Dollars ($600,000.00). In the event that the balance owing
under this Security Agreement exceeds the sum set forth in this Paragraph 1, or
in the event that said balance exceeds the percentage set forth above of the
value of prime accounts, as determined by you, the undersigned understands and
agrees that you shall make no further advances to the undersigned unless and
until the undersigned pays you the amount of such excess (the "Overadvance"),
and the undersigned hereby promises to pay such excess to you upon your demand.
2. Each advance and our total indebtedness to you shall be paid by us
as follows: (a) the delivery to you of all collections received by us on
accounts receivable assigned to you; (b) the delivery to you from time to time
on demand of a sum equal to the net face amount of all accounts assigned to you
and which remain uncollected more than sixty (60) days from the date of each
invoice or which are more than thirty (30) days past due. In addition, our
entire unpaid indebtedness, whenever and however created, shall become
immediately due and payable on the occurrence of an event of default as defined
in Paragraph 18 or in the case of termination, as set forth in Paragraph 20,
whether by notice, lapse of time or otherwise, whichever occurs first.
3. Advances by you to us shall bear interest, on the outstanding
average daily balance, at the rate of four percentage (4%) points per annum over
and above the so-called "base rate" of Comerica Bank-California which is in
effect from time to time, provided that the minimum amount of interest payable
by us shall not be less than Sixty Six Thousand Two Hundred and No/100 Dollars
($66,200.00) per annum. In the event that the base rate is changed, the
adjustment in the interest rate charged by you shall be made on the day such
change occurs. The base rate is a rate used by Comerica Bank-California as one
of its index rates and serves as a basis upon which effective rates of interest
are calculated for loans making reference thereto and may not be the lowest of
Comerica Bank-California's index rates. Interest shall be computed on the basis
of a 360-day year for the actual number of days elapsed. Interest shall be due
and payable to you monthly on the first day of each month, and if not so paid,
shall bear interest at the rate hereinabove specified. At your option, accrued
interest may be charged to our account as an advance. Notwithstanding anything
to the contrary contained in this agreement, no payment made by check shall be
deemed made to you until three (3) business days after receipt by you thereof to
allow for, and subject to, clearance of such checks. Each accounting rendered by
you to us shall be deemed correct and binding unless we notify you in writing to
the contrary within thirty (30) days after the date of each accounting rendered
by you.
4. At the time of execution hereof, we agree to pay you a loan
initiation fee of Five Thousand and No/100 Dollars ($5,000.00) of the sum
referred to in paragraph 1 hereof as the maximum aggregate indebtedness. In
addition, while any indebtedness remains outstanding to you pursuant to this
Agreement, on or before the first day of each month we agree to pay you an
administrative fee (the "Administrative Fee") equal to .4% per month of the
outstanding average daily balance during the month. For purposes of computing
the outstanding average daily balance outstanding during the month and the
Administrative Fee payable on account thereof, no payment made by
1
<PAGE>
check shall be deemed made to you until three (3) business days after receipt of
such checks to allow for, and subject to, clearance of such checks.
5. All of your advances and charges hereunder, together with all of our
other obligations and indebtedness to you, however and whenever created, shall
be secured by (a) a continuing security interest in all of our present and
hereafter acquired inventory, including, but not by way of limitation, raw
materials, work in process and finished goods of all nature and description; (b)
all present and hereafter acquired plant, office and/or other equipment,
including, but not limited to machinery and all attachments and appurtenances
hereto, tools, dies, molds, jigs, bores, patterns, appliances, fixtures,
furniture and furnishings; (c) assignment and pledge (hereafter sometimes called
"assignment" or "assigned") of all our accounts (as defined by Section 9106 of
the California Commercial Code) now existing or hereafter arising during the
term hereof; (d) all present and hereafter acquired contracts, contract rights,
purchase orders, chattel paper, negotiable documents, insurance policies and
proceeds; (e) all cash, cash in banks, savings institutes, certificates of
deposit, etc., now owned or hereafter acquired, and proceeds thereof; (f) all
present and hereafter acquired general intangibles, including, but not by way of
limitation to the name and goodwill of debtor, trademarks, tradenames,
copyrights, processes, patents, patent rights, patent applications, licenses,
inventions, royalties and/or commissions; (g) such other security as shown by
separate written instruments which we now or hereafter give you, and (h) any and
all other property of ours coming into your possession or under your control;
all of which security interests, assignments and pledges we hereby grant to you
in accordance with and subject to Division 9 of the California Commercial Code.
Each new advance (and all prior advances, indebtedness or liabilities) shall be
covered by all security agreements which we have then given or caused to be
given to you.
6. As used in this agreement, unless otherwise indicated by the
context, the term "prime accounts" means accounts (as defined above in Paragraph
5) which: (a) are acceptable to you; (b) have been validly assigned to you; (c)
as of the date of determining whether an account is "prime," is not more than
sixty (60) days past due; and (d) strictly comply with all our warranties and
representations to you; the term "inventory" means all goods as defined by
Section 9109(4) of the California Commercial Code and now owned or hereafter
acquired by us (or as described in any financing statement which you have been
authorized to file) and/or now or hereafter located on our premises at 901
Mariner's Island Blvd., Ste. 365, San Mateo, California, 94404, or wherever
located; and the term "value" means the lower of cost or fair market value.
7. So long as we are indebted to you, we warrant, represent and agree
that: (a) all collateral security given or caused to be given by us to you is
and will be a first security interest on the property described in each such
security agreement (except insofar as we have notified you to the contrary in
writing); (b) the property covered by all security agreements given or caused to
be given by us to you is solely owned by us or the party described in such
security agreement; (c) the property covered by all security given or caused to
be given by us to you (except for sales of inventory in the ordinary course of
business) is free and clear of all liens, encumbrances, security interest and
adverse claims other than created by such security agreements; (d) the property
covered by all security agreements given or caused to be given by us to you is
kept in good condition and repair, is not subject to waste, will not (except for
sales of inventory in the ordinary course of business) be sold, transferred or
assigned or removed from the premises described in such security agreements
without first obtaining your prior written consent; (e) all accounts when
assigned to you will be prime accounts and will have been created by absolute
sales of our merchandise or services, will be genuine, bona fide and
collectible, and we will have and convey good, unencumbered and absolute title
to you free of all third party claims; (f) accounts assigned to you will not be
subject to any dispute, right of offset, counterclaim, or right of cancellation
or return; (g) at the time of assignment of accounts to you, all property giving
rise to such accounts will have been delivered (from our premises in the United
States) to, and unconditionally accepted by, each account debtor; (h) prior to
the assignment and pledge of an account to you, we will have performed all
things required of us by the terms of all agreements or purchase orders giving
rise to such accounts; (i) at the time of assignment to you, all accounts will
be due and unconditionally payable on terms of thirty (30) days or less, or on
such other terms (as are acceptable to you) which are expressly set forth on the
face of all invoices, copies of which shall be delivered to you, and no account
will then be past due; (j) all facts, figures, representations given, or caused
to be given by us to you in connection with the value of the property given to
you as security or regarding each advance or account or pertaining to anything
done under this agreement shall be true and correct; (k) our books and records
fully and accurately reflect all of our assets and
2
<PAGE>
liabilities (absolute and contingent), are kept in the ordinary course of
business in accordance with generally accepted accounting principles
consistently applied and all information contained therein is true and correct;
(l) the fair market value of the property covered by all security agreements
given by us to you, is and shall at all times be, not less than the price which
we paid therefor (less normal depreciation caused by ordinary wear and tear) and
as represented to you; (m) we will not borrow any money except under this
agreement without first notifying you; (n) we will not sell or assign any of our
accounts or pledge, encumber, hypothecate, first mortgage or otherwise create or
give any security interest on any of our property without notifying you; (o) all
taxes of any governmental or taxing authority due or payable by, or imposed or
assessed against us, have been paid and shall be paid in full before
delinquency; (p) there are no actions or proceedings pending by or against us
before any court or administrative agency, and there are no pending, threatened,
or known to be imminent litigations, governmental investigations, or claims,
complaints, or prosecutions involving us except as heretofore disclosed in
writing to you; (q) we have the legal power and authority to enter into this
agreement and to perform and discharge our obligations hereunder; (r) if we are
a corporation, we will do all things necessary to preserve our good standing as
a corporation under the laws of the State of California and the state of our
incorporation; and (s) every payment falling due on accounts assigned to you
will be duly paid and received by you on or before the earlier of ninety (90)
days from the date of each invoice or sixty (60) days from the due date of each
invoice.
8. We agree to execute upon demand by you any and all Financing
Statements, Continuation Statements or other statements intended to perfect your
security interest hereunder, in whatsoever form you may require, as provided for
and defined in Division 9 of the California Commercial Code, but you shall be
entitled and are hereby authorized to execute the same on our behalf, and you
are hereby appointed our attorney-in-fact for such purpose.
9. Each warranty, representation and agreement contained in this
agreement shall be automatically deemed repeated with each advance and shall be
conclusively presumed to have been relied on by you regardless of any
investigation made, or information possessed by you. The warranties,
representations and agreements set forth herein shall be cumulative and in
addition to any and all other warranties, representations and agreements
contained in any other document or instrument which we shall give, or cause to
be given, to you, either now or hereafter.
10. Notwithstanding termination of this agreement, all assignments,
pledges, liens and/or other security interest now or hereafter granted to you
shall continue in full force until all of our indebtedness and liabilities to
you have been paid.
11. We shall promptly pay any and all expenses of storing, warehousing,
insuring, handling and shipping of our property and any and all excise,
property, sales and other taxes, security interest, encumbrances and liens,
levied or imposed by any governmental or taxing authority on us or on any of our
property or any property caused to be given to you as security. If we fail to
promptly pay when due, whether to you or any other person, monies which we are
required to pay under any portion of this agreement, you may, but need not, pay
the same and charge our account therefor and we shall promptly reimburse you
therefor. Any and all sums shall become additional indebtedness owing to you and
shall bear interest at the rate provided in Paragraph 3 hereof and shall be
covered by all security now or hereafter given by us or which we cause to be
given to you. You need not inquire as to, or contest the validity of, any such
expense, tax, security interest, encumbrance or lien, and the receipt of the
usual official for the payment thereof shall be conclusive evidence that the
same was validly due and owing.
12. All documents to be delivered by us shall contain such terms and be
in such form as you may require. Each assignment, pledge or other security
agreement shall include and cover all of our right, title and interest in
property described therein and all of our books, records and files relating
thereto. All ledger sheets, files, records and documents, files and records
relating to accounts, inventory, or other collateral assigned to you shall,
unless delivered to or removed by you, be kept on our premises in trust for, and
without cost to you. You may at any time remove from our premises all documents,
files and records relating to your security.
13. Prior to your first verification of inventory or audit of our
accounts, you may, in your sole discretion, determine or redetermine the value
of our inventory or accounts by applying to our assigned value thereof such
percentage as you deem appropriate, based upon your initial sample of other
basis. You may likewise
3
<PAGE>
determine or redetermine the value thereof between your inventory verifications
and audits, based upon your last preceding verification, audit, sampling, review
or other basis.
14. We shall have the revocable privilege to collect at our expense the
payments due on accounts assigned to you, upon the express condition, however,
that all such collections shall (a) be received by us in trust for you; (b) not
be mingled with our own funds; and (c) be delivered to you in kind within
twenty-four (24) hours after our receipt of the same. Our collection privilege
as described above is subject to revocation by you at any time and shall be
automatically revoked upon the happening of an event of default as defined
below. Unless the instruments so received by you are dishonored, or unless you
shall in your discretion have remitted the amount thereof to us, you shall
credit the amount thereof against our indebtedness to you as set forth in
Paragraph 3. You are hereby irrevocably our attorney-in-fact with authority and
power to endorse our name on any checks, notes, acceptances, money orders,
drafts or other forms of payment or security that may come into your possession;
to sign our name on any invoice or bill of lading related to any accounts, on
drafts against account debtors, on schedules and assignments of accounts, on
verification of accounts and notices to account debtors; to establish a lock box
arrangement and/or to notify the post office authorities to change the address
for delivery of our mail, to receive and open all mail addressed to us, and to
retain all mail relating to your security and forward all other mail to us; to
send, whether in writing or by telephone, requests for verification of accounts;
and to do all things necessary to carry out this agreement.
15. If any property referred to or covered by any account assigned to
you shall remain in, or revert to, our possession, we will forthwith set it
apart, mark and designate it as your property and promptly notify you. We will
prepare and deliver to you balance sheets, profit and loss statements, schedules
of accounts, agings (listing the names and addresses of, and amounts owing by
date, by account debtors), and such other reports, analysis and operating data
as you may from time to time reasonably request orally or in writing, all in
form acceptable to you. You or your agents or employees shall have the right,
during our usual business hours, or during the usual hours of any third person
having control thereof, to have access to, examine, inspect and/or audit any or
all of our books and records, including, but not limited to minute books,
ledgers, records indicating, summarizing or evidencing our assets (including
accounts, inventory and equipment) and liabilities, and all information relating
thereto, records indicating, summarizing or evidencing our business operations
or financial condition, and all computer programs, disc or tape files,
printouts, runs and other computer prepared information and the equipment
containing such information, and permit you or your employees or agents to copy
and make extracts therefrom.
16. We shall accept no returns and shall grant no allowances or credits
to account debtors without notifying you at the time credit is issued. We shall
maintain insurance at our expense on property given to you as security with such
carriers, covering such risks and containing such amount of coverage and other
terms (including an endorsement providing for non-cancellation except upon
thirty (30) days written notice to you and a loss payable endorsement in your
favor) as you may from time to time specify in writing. We shall promptly
deliver to you copies of all policies, endorsements, evidence of premium
payment, claims and reports to insurance carriers.
17. We promise and agree to pay all costs and expenses and all
attorneys' fees incurred by you in connection with this agreement and the
transactions contemplated hereby (including without limitation the prosecution
of motions or actions seeking relief from any stay or restraint under the
Bankruptcy Code from pursuing any remedy hereunder), whether or not suit between
us is brought. You may bring all proceedings for collection in your name or in
our name and may exercise our right of stoppage in transit, replevin and
reclamation.
18. Without limiting any other portion of this agreement, all our
indebtedness and obligation to you shall automatically accelerate and become
immediately due and payable, and the revocable collection privilege referred to
in Paragraph 14 shall be automatically revoked, upon termination (by lapse of
time or otherwise) of this agreement or upon the happening of any one of the
following events of default:
(a) Our failure to make any payment to you when due, or any
default under, or breach or violation of, any warranty, representation,
obligation, agreement, condition or undertaking contained herein or in any other
written document which we now or hereafter execute and deliver, or which we now
or hereafter cause to be executed and delivered to you; (b) Any change in our
business, (including, without limitation, the ownership
4
<PAGE>
thereof) or financial condition or that of any guarantor of any of our
obligations or indebtedness hereunder or any decline in the value of any
property given to you as security, which causes you to deem yourself insecure;
(c) The withdrawal or cancellation of any guarantor of any of our obligations or
indebtedness hereunder, or the termination of any subordination agreement
whereby any indebtedness is subordinated to our obligations to you; (d) The
ceasing to do business as a going concern, or the assignment of any property for
the benefit of creditors or the commission of any act of bankruptcy or
insolvency, by or on the part of us or any guarantor of any of our obligations
or indebtedness hereunder; (e) The filing by or against us or any guarantor of
any of our obligations or indebtedness hereunder of any petition or application
in bankruptcy, reorganization, arrangement, trusteeship or receivership, whether
under the United States Bankruptcy Code or otherwise, or the appointment of a
trustee or receiver over all or any part of the property or business of us or
any guarantor of any of our obligations or indebtedness hereunder, or the
levying of an attachment or garnishment on any of our property which is not
released within ten (10) days; (f) Any of the property covered by any of the
security agreements given or caused to be given by us to you is lost, secreted,
misused or destroyed; or (g) Any delinquency on our part in paying any tax when
it comes due.
19. We waive presentment, demand, protest and notice of dishonor as to
any instrument. We consent to any extensions, modifications, allowances,
compromises or releases of security which you may grant, none of which shall
release us or any guarantors from, or affect, any of our or their obligations to
you.
20. This agreement shall be effective as of the date first set forth
above and shall remain in full force and effect for a period of twelve (12)
month(s) (the "Basic Term"). Notwithstanding the preceding sentence, this
agreement shall be renewed automatically for successive periods (each, a
"Renewal Term") equal to the term of the Basic Term unless this agreement is
terminated by either party giving written notice (a "Termination Notice") to the
other party specifying such termination. Termination Notices shall be given by
mailing a registered or certified letter specifying such termination not less
than thirty (30) days prior to the effective date of such termination, addressed
to the other party at the address set forth herein, and the termination shall be
effective as of the date fixed in such notice. Notwithstanding the foregoing,
should we be in default of one or more provisions of this agreement, you may
terminate this agreement at any time without notice. After termination and when
you have received all sums due to you, you shall reassign to us all collateral
held by you, and shall execute a cancellation of, and/or reconveyance under, all
security agreements given by us to you, upon the execution and delivery of
mutual general releases.
21. We will reimburse you for all out-of-pocket expenses incurred by
you, including, without limitation, the cost of title searches, title reports,
recording fees, filing fees, publication fees, attorneys' fees and all other
expenses similar to the foregoing. If during the term hereof, we fail to make
any such payment required by us, you may, but need not, pay the same and charge
our account therefor.
22. In case of any breach or default by us, or the occurrence of any of
the events of default described in Paragraph 18, or if we fail or neglect to
promptly pay any and all of our indebtedness or other liabilities, when due, all
of our indebtedness and liabilities, hereunder or otherwise, shall, without
notice or demand, become immediately due and payable at your option. Thereafter,
all amounts outstanding shall bear interest at the rate of three percent (3 %)
of the outstanding balance per month. Upon the occurrence of any such event you
may immediately, or at any time or times thereafter, without any demand or
notice to us or any guarantor of any of our obligations or liabilities hereunder
and without advertisement or notice, all of which are expressly waived, commence
an action for the recovery of any and all of such indebtedness and obligations,
commence proceedings to sell, lease or otherwise dispose of any and all
collateral covered by this agreement and by all security agreements given or
caused to be given by us to you or, without legal proceedings, enter such places
as any of such collateral may be found and take possession of such collateral
and sell the same. Such collateral may be sold where it is located at the time
of the breach or default, or elsewhere, at public or private sale, for cash,
upon credit or otherwise at your sole option and discretion. We hereby further
waive all notices of seizure and sale, and all requirements that such property
be physically present at the place of sale. Any person, including you, may
purchase at any such sale, free from any right of redemption which is expressly
waived, and if you are the purchaser, may turn all or part of any of our
indebtedness to you in toward payment of the purchase price. The proceeds of any
such sale or other disposition shall be applied, first to all expenses of
setting all liens and claims against, and all costs, charges and
5
<PAGE>
expenses incurred in taking, removing, holding, repairing and selling such
collateral, including without limitation, all attorneys' fees and costs incurred
by you, and, second, to the payment of all our indebtedness or liabilities to
you, whether due, or to become due, and whether arising under this agreement or
otherwise. The surplus, if any, shall be delivered to us. We shall pay any
deficiency forthwith.
23. All notices or demands hereunder shall be in writing and sent by
certified, first class mail. They shall be deemed received when deposited in a
United States Post Office Mail Box, postage paid, properly addressed to you or
us at the addresses set forth herein or to such other address as you or we may
from time to time specify in writing.
24. So long as you comply with your obligations, if any, under Section
9207 of the Uniform Commercial Code, you shall not be liable or responsible for
the safekeeping of any collateral, any loss or damage to the collateral
occurring or arising in any manner or fashion from any cause, any diminution in
the value of the collateral, or any act or default of any carrier, warehouseman,
bailee, forwarding agency, or other person whomsoever. We agree you shall not be
liable or responsible for any failure to make Advances if in your discretion you
believe we are not entitled to receive such Advances, any accounting or
administrative errors made by you so long as such errors are not in bad faith,
or any other failure by you unless the same arises from your active negligence
or willful misconduct. We agree to give you prompt written notice of any default
or alleged default by you, and you shall be allowed such time as reasonably is
required to cure any such default. We agree to defend, indemnify and hold
harmless you and your officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by this Agreement; and
(b) all losses in any way suffered, incurred, or paid by you as a result of or
in any way arising out of, following, or consequential to the transactions
between you and us under this Agreement (including without limitation,
reasonable attorneys' fees and expenses), except for losses caused by your
active negligence or willful misconduct.
25. If we, the undersigned, are two or more in number, then (a)
regardless of the form of your check or other papers, your loan hereunder
(consisting of each and every advance) shall be deemed to be made to each and
all of us and we shall be jointly and severally obligated to repay the same; (b)
each of us jointly and severally makes, and is liable for, each and every
warranty, representation, obligation, covenant and undertaking under this
agreement; and (c) when permitted by the context, the words "we", "our" or "us"
or other similar words referring to the undersigned borrower shall include and
mean all, or any one or more of us.
26. Your rights and remedies under this agreement and all security
agreements shall be cumulative and you shall have all other rights and remedies
not inconsistent therewith as provided by law; no exercise by you of one right
or remedy shall be deemed an election and no waiver by you of any default in our
part shall be deemed a continuing waiver. No delay by you shall constitute a
waiver or election. This agreement shall be binding when signed by you where
indicated below and shall bind and inure to the benefit of your and our
respective successors and assigns. However, we may not assign this agreement or
any rights hereunder without your prior written consent. No such consent by you
shall release us or any guarantor of any obligation or indebtedness hereunder.
Paragraphs and paragraph numbers have been set forth herein for convenience
only; unless the contrary is compelled by the context, everything contained in
each paragraph applies equally to all paragraphs herein. Neither this agreement
nor any uncertainty, or ambiguity herein shall be construed or resolved against
you or us whether under any rule of construction or otherwise; on the contrary,
this agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words so used as to fairly
accomplish the purposes and intentions of all parties hereto. When permitted by
the context, the singular includes the plural and vice versa.
27. Each and every provision of this agreement shall be severable from
every other provision for the purposes of determining legal enforceability of
any such provision or provisions.
28 . Any lawsuit or other proceeding arising or connected with this
Agreement or the security interests created hereunder shall, to the extent
permitted by law, be brought and tried solely in the Superior
6
<PAGE>
Court of Santa Clara County, California. WE HEREBY WAIVE ANY RIGHT TO A JURY
TRIAL IN ANY ACTION HEREUNDER OR ARISING OUT OF OUR TRANSACTIONS WITH YOU.
If the foregoing correctly states the agreement and understanding
between us, please sign the enclosed copy of this agreement where indicated
below and return it to us.
Very truly yours,
HyperMedia Communications, Inc.
__________________________________________
By: Richard Landry
Its: Chief Executive Officer
ACCEPTED AND AGREED TO:
San Jose, California
Business Factors, Inc. dba
BFI Business Finance
_____________________________________
By: David Drogos
Its: Vice President
7
EXHIBIT 11.1
<TABLE>
HYPERMEDIA COMMUNICATIONS, INC.
COMPUTATION OF NET LOSS PER SHARE, BASIC AND DILUTED
<CAPTION>
Year Ended December 31,
-------------------------------------------
1998 1997 1996
----------- ------------- -----------
<S> <C> <C> <C>
Net loss .............................. $(2,826,000) $ (886,000) $ (291,000)
=========== ============= ===========
Weighted average shares outstanding:
Common Stock ................ 3,200,137 3,185,043 3,019,004
Preferred Stock ............. -- -- --
Common stock equivalents from
options and warrants ... -- -- --
----------- ------------- -----------
Weighted average shares ............... 3,200,137 3,185,043 3,019,004
=========== ============= ===========
Net loss per share, basic and diluted . $ (0.88) $ (0.28) $ (0.10)
=========== ============= ===========
</TABLE>
EXHIBIT 23.1
HYPERMEDIA COMMUNICATIONS, INC.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-67172) of HyperMedia Communications, Inc. of our
report dated February 2, 1999, except for Note 11 which is as of March 16, 1999,
appearing on page 32 of this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Jose, California
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 182
<SECURITIES> 0
<RECEIVABLES> 717
<ALLOWANCES> 75
<INVENTORY> 0
<CURRENT-ASSETS> 1,346
<PP&E> 1,547
<DEPRECIATION> 1,183
<TOTAL-ASSETS> 1,710
<CURRENT-LIABILITIES> 1,589
<BONDS> 0
0
3,942
<COMMON> 10,427
<OTHER-SE> (14,230)
<TOTAL-LIABILITY-AND-EQUITY> 1,710
<SALES> 5,629
<TOTAL-REVENUES> 5,629
<CGS> 0
<TOTAL-COSTS> 8,455
<OTHER-EXPENSES> (10)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> (2,826)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,826)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,826)
<EPS-PRIMARY> (0.88)
<EPS-DILUTED> (0.88)
</TABLE>
