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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1999 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, $0.001 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
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. [ ]
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, 2000, in the OTC:BB Market, was approximately $1,870,000. 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, 2000, the registrant had 3,200,683 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
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 6, 2000, is incorporated by reference into Part III of this Form
10-K to the extent stated herein.
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<PAGE>
TABLE OF CONTENTS
Page
----
PART I..................................................................... 2
ITEM 1. BUSINESS..................................................... 2
ITEM 2. PROPERTIES................................................... 5
ITEM 3. LEGAL PROCEEDINGS............................................ 5
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......... 5
PART II.................................................................... 6
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS.................................. 6
ITEM 6. SELECTED FINANCIAL DATA...................................... 7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................... 8
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................. 19
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.......................... 19
PART III................................................................... 20
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT........... 20
ITEM 11. EXECUTIVE COMPENSATION....................................... 21
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................... 21
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............... 21
PART IV.................................................................... 22
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K ................................................. 22
REPORT OF INDEPENDENT ACCOUNTANTS.......................................... 26
BALANCE SHEETS............................................................. 27
STATEMENTS OF OPERATIONS................................................... 28
STATEMENTS OF SHAREHOLDERS' EQUITY ........................................ 29
STATEMENTS OF CASH FLOWS................................................... 30
NOTES TO FINANCIAL STATEMENTS.............................................. 31
SIGNATURES................................................................. 40
INDEX TO EXHIBITS.......................................................... 41
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PART I
ITEM 1. BUSINESS
This section and other parts of this Annual Report on Form 10-K contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act, as
amended, that involve risks and uncertainties, including but not limited to
statements regarding our strategy, plans, objectives, expectations, intentions,
financial performance, and revenue sources. Our actual results may differ
significantly from those anticipated or implied in these forward-looking
statements as a result of the factors set forth below and in "Management's
Discussion and Analysis of Financial Conditions and Results of Operations" and
"Factors Affecting Operating Results and Market Price of Stock." Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof.
Introduction
HyperMedia Communications, Inc., (the "Company" or "HyperMedia") was
incorporated in California in August 1989, and today produces information and
business services for the global Internet Architect community. Our primary
product offering is newmedia.com, a vertical portal on the World Wide Web
targeted to Internet Architects, professionals who utilize business, design, and
technology skills to create Web sites and Internet-driven businesses. We also
produce the NewMedia INVISION Awards Festival, an annual competition and
conference that seeks to identify the most original and creative ideas within
the global Internet Architect community. The 1999 NewMedia INVISION Festival
received 1,200 entries from 17 countries and included a gallery of award-winning
entries, an evening International showcase of digital content produced on four
continents, and a two-day conference focusing on "The Future of Content on the
Net."
Prior to September 1999, our primary product was NewMedia magazine
("NewMedia"). NewMedia was the largest publication serving the corporate digital
content market with a controlled circulation of more than 215,000 digital
content professionals. "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. NewMedia's mission was to give its readers the tools to be successful
digital content professionals by identifying the newest products, technologies,
and strategies to keep their businesses competitive. Revenue from NewMedia was
derived primarily through the sale of advertisements in the magazine.
In September 1999, we announced that we had ceased publication of NewMedia
magazine in order to devote our resources to the development of newmedia.com and
other information and business services targeted to the global Internet
Architect community. This is a significant change in our business model and
therefore our historical trends may not be a good indicator of future
performance. Readers should carefully review all the information in this
document including the risk factors contained in the "Management's Discussion
and Analysis of Financial Conditions and Results of Operations" and "Factors
Affecting Operating Results and Market Price of Stock" sections of this report.
Business Strategy
Internet Architects
Our business strategy is to develop a series of Internet-based information
and business services targeting Internet Architects, a new breed of Internet
professionals involved in building the next generation of Internet-driven
businesses. These professionals work at interactive agencies such as USWEB/CKS,
Razorfish, and IXL and on corporate Internet development teams in the United
States and in countries around the globe. Internet Architects include business
strategy, business development, and sales and marketing professionals; creative
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professionals, designers, and producers; and technical professionals and Web
site developers. Internet Architects are at the forefront of a trend toward
combining business, design, and technology skills in the service of developing
successful Internet-based businesses.
We believe that by targeting the global Internet Architect community, we
will be positioned to take advantage of a rapidly growing market. According to a
recent estimate by Forrester Research, the number of specialists working within
interactive agencies is expected to grow tenfold from 1998 to 2002, and the
revenues of these firms are expected to increase from $4 billion to $15 billion
during that period. In a recent study entitled "Architects of the Internet
Economy," International Data Corporation (IDC) estimated that worldwide Internet
development spending would grow from $174 billion in 1999 to $518 billion in
2002. The report further suggests that $290 billion, or 56 percent, of the total
spending in 2002 will be devoted, not to technology infrastructure, but rather
to content creation, professional services, marketing and sales activities, and
education and training.
We believe that the high growth in Internet development spending will fuel
a corresponding demand for professionals with skills in Internet business,
design, and technology, and this in turn will create demand for new information
and business services targeting Internet Architects. Such services could include
online recruitment; professional development and training; product preview and
purchase; technical and creative service matchmaking; virtual team
collaboration; and professional services for small business. For example,
according to Forrester Research, spending on online recruitment, assessment, and
training is expected to grow from $602 million in 1999 to $7.1 billion in 2005.
Of the human resources professionals surveyed for this study, 40 percent stated
that they favor niche sites for recruitment purposes. Further, the number of
U.S. small businesses (firms with fewer than 100 employees) with a Web site or
home page is expected to grow at a 31percent compound annual growth rate between
1998 and 2003, according to a recent IDC report.
Finally, according to Jupiter Research, strong growth in Internet-based
advertising is expected to continue, rising from less than $2 billion in 1998 to
more than $7 billion in 2002.
Newmedia.com: A Vertical Portal for Internet Architects
In 1999, we developed newmedia.com, a vertical portal specifically
targeting the global Internet Architect community. A "vertical portal" is an
Internet Web site that features information and/or services for a specific,
well-defined class or community of consumers or professionals. The Web site
launched in January 2000.
Newmedia.com features daily news and information on best practices in
Internet business, design, and technology, designed to educate Internet
Architects and help them stay on the cutting edge. The site employs several new
technologies geared toward enhancing the user's experience and providing
customized marketing capabilities to our advertisers and business partners.
The Web site's architecture departs from traditional page-based navigation
models and presents content in moveable windows created with dynamic HTML
(DHTML). Users do not leave the site's home page to obtain information, but
instead view content within multiple windows on the home page itself. The site
makes use of rich media technology and is optimized for viewing over broadband
connections like T-1 and DSL. We believe that this architecture makes the site
particularly suitable for applications that depend on broadband information
delivery, such as professional development and training, product preview and
purchase, and virtual team collaboration.
Newmedia.com's advertising architecture also is a departure from the
traditional page-based advertising model. Because the site's home page does not
refresh, advertising and sponsorship messages are always visible on the home
page. This architecture permits us to sell advertising in time-based units or
"spots," similar to radio or television commercials, versus "views" commonly
sold on Web sites. Further, the site's architecture permits delivery of
advertising that employs rich media technology, including audio and animation.
Newmedia.com also includes customization technology designed to track users'
content viewing habits and to serve information and advertising messages
targeted to their preferences.
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We believe that this architecture will prove attractive to advertisers, due
to the potential to deliver visually compelling, targeted advertising messages
using the combination of technologies described above. We also believe that this
architecture can be extended to provide personalized information and business
services to the site's users.
Sales and Marketing
Revenues
We expect that our revenues will be derived primarily from the sale of
time-based advertising spots, site sponsorships, and newsletter advertisements.
In addition to these advertising revenue sources, we are evaluating and
developing affiliate business partnership relationships, in which we earn a
percentage of revenue derived from purchases made by newmedia.com's users on
affiliate partner sites. In January 2000, we announced our first affiliate
partnership with bsource.com, a business matchmaking service that helps small
and medium-sized businesses locate, evaluate, select, and manage outsourced
services, such as Web development, legal, accounting, human resources, and
public relations. We also intend to develop e-commerce capabilities that will
permit us to sell products and services directly on newmedia.com to the site's
users.
We also earn revenue from the NewMedia INVISION Festival, an annual
competition and conference that seeks to identify the most original and creative
ideas within the global Internet Architect community. Event revenue consists of
entry fees to the competition, sponsorship fees for the Festival, and conference
and event ticket sales. The 1999 NewMedia INVISION Festival received 1,200
entries from 17 countries, and included a gallery of award-winning entries, an
evening International showcase of digital content produced on four continents,
and a two-day conference entitled "The Future of Content on the Net." We intend
to explore and develop additional conferences and events targeted to the global
Internet Architect community.
Finally, we earn revenue through the rental of our postal mailing list of
former subscribers to NewMedia magazine and email list of registered users of
newmedia.com. We currently possess an email list of approximately 100,000
registered site users and former magazine subscribers. We intend to continue to
develop and build this list by offering incentives to our site users to become
registered on the site.
Because newmedia.com is in an early stage of development, there can be no
assurance that we will be successful in attracting sufficient users,
advertisers, or affiliate partners for the site, which are all necessary to
achieve our business strategy.
Marketing
We market our product offerings through a combination of methods: offline
advertising using magazines, billboards, direct mail, and other means; event
sponsorships; online advertising on newmedia.com and other Web sites; link
exchange programs with other Web sites; and email direct marketing using the
newmedia.com email list and other lists that we may obtain.
Competition
Newmedia.com's competition includes a variety of Web sites that target the
business, design, or technology of Internet development. These include business
portals such as The Standard (www.thestandard.com) and Red Herring
(www.redherrring.com); news sites such as Wired News (www.wirednews.com);
graphics professional sites such as CreativePro (www.creativepro.com); and
technology sites such as ZDNet (www.zdnet.com) and SlashDot (www.slashdot.org).
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We believe that newmedia.com's editorial content is presented and organized in a
fashion that is more specifically suitable to the Internet Architect community
than the content of these competing sites, due to the site's architecture and
its emphasis on the integration of business, design, and technology skills for
the development of successful Internet-based businesses. However, we do compete
with these sites and others for advertising revenues and user visits.
Employees
As of December 31, 1999, we employed approximately 29 people on a full-time
basis. We believe that our relations with our employees are good. None of our
employees are represented by a labor union or covered by a collective bargaining
agreement.
ITEM 2. PROPERTIES
Our executive office is located in approximately 7,526 square feet of space
at 901 Mariner's Island Boulevard, Suite 365, San Mateo, California 94404. We
leases the facility pursuant to a lease that was renewed in March 2000 and
expires in April 2003. Under the terms of the renewed lease, we started paying
monthly rent of approximately $25,300 in January 2000. We believe that the
present facilities are adequate for our present needs.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any material legal proceedings. From time to time we
are involved in legal proceeding in the normal course of business. However, the
impact on our financial position, statement of operations and cash flows is not
expected to be material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no submissions of matters or a vote of security holders during
the fourth quarter of the year ended December 31, 1999.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
Our Common Stock is traded on the OTC:BB Market under the symbol "NMNW."
Our Common Stock was first listed for trading in March 1993. The high and low
sales prices are as reported by Bloomberg for 1998 and 1999.
Fiscal Quarter High ($) Low ($)
-------------- -------- -------
First quarter ended March 31, 1998(1) 1.375 0.625
Second quarter ended June 30, 1998(1) 1.000 0.375
Third quarter ended September 30, 1998(1) 1.063 0.563
Fourth quarter ended December 31, 1998(1) 0.313 0.055
First quarter ended March 31, 1999(1) 0.312 0.125
Second quarter ended June 30, 1999 0.420 0.170
Third quarter ended September 30, 1999 0.700 0.070
Fourth quarter ended December 31, 1999 1.375 0.500
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(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.
We estimate that as of March 22, 2000, there were approximately 350 holders
of our Common Stock.
We have never paid cash dividends on any shares of our capital stock and
our Board of Directors intends to continue this policy for the foreseeable
future. Our ability to pay dividends on our Common Stock also will 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 our business. Future dividend policy
will depend upon our earnings, capital requirements, financial condition, and
other factors considered relevant by our Board of Directors.
In February 1998 we raised $1,299,900 (before issuance cost) through the
sale of 105,000 shares of Series J Preferred Stock. In March 1998 we raised
$100,440 (before issuance cost) through the sale of 6,750 shares of Series J
Preferred Stock. In June 1998 we raised $550,000 (before issuance cost) through
the sale of 57,531 shares of Series J Preferred Stock. These securities were
sold to our largest shareholder, MK Global Ventures, in association with its MK
GVD Fund.
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 a transaction by an issuer not involving any public offering.
In addition, the recipient of securities in each 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 us, to information
about us.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(In Thousands, Except Share And Per Share Data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues ........................... $ 3,659 $ 5,629 $ 7,637 $ 8,618 $ 9,754
---------- ---------- ---------- ---------- ----------
Expenses:
Editorial ......................... 1,137 951 1,151 1,228 1,309
Production ........................ 1,238 1,647 1,922 2,373 2,745
Circulation ....................... 1,384 1,844 2,088 2,072 2,275
Sales and marketing ............... 2,727 2,817 2,318 2,269 2,522
Product development ............... 256 45 40 29 36
General and administrative......... 1,146 1,151 972 914 1,318
---------- ---------- ---------- ---------- ----------
Total expenses .................. 7,888 8,455 8,491 8,885 10,205
---------- ---------- ---------- ---------- ----------
Loss from operations ............... (4,229) (2,826) (854) (267) (451)
Interest and other expense, net..... (230) -- (32) (24) (11)
---------- ---------- ---------- ---------- ----------
Net loss ........................... $ (4,459) $ (2,826) $ (886) $ (291) $ (462)
========== ========== ========== ========== ==========
Net loss per share, basic and
diluted (1) ....................... $ (1.39) $ (0.88) $ (0.28) $ (0.10) $ (0.15)
========== ========== ========== ========== ==========
Weighted average shares (1) ........ 3,200,137 3,200,137 3,185,043 3,019,004 3,011,433
At December 31,
----------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(In Thousands)
Balance Sheet Data:
Working capital (deficit) .......... $ (4,471) $ (243) $ 575 $ 442 $ 396
Total assets ....................... 750 1,710 2,452 2,584 2,247
Shareholders' equity (deficit)...... (8,262,000) (3,803,000) (977,000) (141,000) 85
</TABLE>
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(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.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This section and other parts of this Annual Report on Form 10-K contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act, as
amended, that involve risks and uncertainties, including but not limited to
statements regarding our strategy, plans, objectives, expectations, intentions,
financial performance, and revenue sources. Our actual results may differ
significantly from those anticipated or implied in these forward-looking
statements as a result of the factors set forth below and in "Factors Affecting
Operating Results and Market Price of Stock." Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date hereof.
Results of Operations
In September 1999, we announced that we had ceased publication of NewMedia
magazine in order to devote our resources to the development of newmedia.com, a
vertical portal targeting members of the global Internet Architect community,
professionals who utilize business, design, and technology skills to create Web
sites and Internet-driven businesses. This is a significant change in our
business model and therefore our historical trends may not be a good indicator
of future performance. Readers should carefully review all the information in
this document including the risk factors contained in the "Factors That May
Affect Operating Results And Market Price Of Our Stock" sections of this report.
Prior to September 1999 we were primarily engaged in the development,
production, marketing and sales of integrated information services targeting the
professional digital content market. Our main product was NewMedia magazine, the
largest publication serving the corporate digital content market with a
controlled circulation of more than 215,000 digital content professionals. Our
1999 publishing plan focused NewMedia on requiring the magazine's subscribers to
meet significantly more stringent qualification criteria that were started in
1996. In the second quarter of 1998, we returned NewMedia to a monthly
publishing frequency. This publishing schedule change 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.
We also produced the NewMedia INVISION Awards Festival, an annual
competition and conference that seeks to identify the most original and creative
ideas within the global Internet Architect community. The 1999 NewMedia INVISION
Festival received 1,200 entries from 17 countries and included a gallery of
award-winning entries, an evening International showcase of digital content
produced on four continents, and a two-day conference focusing on "The Future of
Content on the Net."
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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,
----------------------------------
1999 1998 1997
---- ---- ----
Revenues ................................ 100% 100% 100%
Expenses:
Editorial ............................ 31 17 15
Production ........................... 34 29 25
Circulation .......................... 38 33 27
Sales and marketing .................. 75 50 30
Product development .................. 7 1 1
General and administrative ........... 31 20 13
----- ---- ----
Total expenses ..................... 216 150 111
----- ---- ----
Loss from operations .................... (116) (50) (11)
Interest and other expense, net ......... (6) -- --
----- ---- ----
Net loss ................................ (122)% (50)% (11)%
===== ==== ====
Revenues
Total revenues were $3,659,000 in 1999 compared to $5,629,000 in 1998 and
$7,637,000 in 1997. The decrease in 1999 revenues of $1,970,000, or 35 percent,
over 1998 was primarily due to a decline in advertising revenues in NewMedia
magazine. We published our last issue of NewMedia in September 1999 and
recognized no revenue from magazine advertising for the fourth quarter of 1999.
This fact, plus the continuation of an industry-wide decline in print
advertising in technology publications, accounted for the decline in 1999
revenue over 1998. The decline in 1998 revenue of $2,008,000, or 26 percent,
over 1997 was due to the reduction in the publishing frequency of NewMedia
magazine from 16 issues per year to one per month, which occurred in the second
quarter of 1998, and an industry-wide decline in print advertising in technology
publications. We believe 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 and shifts in the Macintosh
hardware and software markets, as digital content creators made a transition
toward increased use of Windows-based workstations. Due to the shift in our
business strategy, we have shifted our selling focus from traditional print
advertisers to Internet-focused advertisers. Thus, there can be no assurances
that under our new business model, we will be able to generate revenues that
exceed or even equal historical levels.
Editorial Expenses
Editorial expenses, comprised principally of salaries and fees paid to the
writers for the Company's publications, were $1,137,000 in 1999 compared to
$951,000 in 1998 and $1,151,000 in 1997. The increase in 1999 expense of
$186,000, or 20 percent, more than 1998 is attributable to the costs of staffing
and consulting associated with the development of newmedia.com. The reduction in
editorial expenses for 1998 as compared to 1997 is primarily attributable to
cost control programs, some attrition, and a reduction in the number of magazine
issues per quarter (from four to three), which started in the second quarter of
1998. Due to our shift to a daily news and information service we believe that
editorial expenses will increase in the future.
Production Expenses
Production expenses, consisting primarily of the costs for design,
materials, and printing of NewMedia, were $1,238,000 in 1999 compared to
$1,647,000 in 1998 and $1,922,000 in 1997. The decline in 1999 expenses of
$409,000, or 25, percent less than 1998 is directly related to our decision to
cease publishing NewMedia magazine in September, which resulted in three fewer
magazine issues being produced. The decrease in production expenses in 1998, as
compared to 1997, is primarily attributable to the reduction of the number of
magazine issues per quarter (from four to three), which started in the second
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quarter of 1998. Due to our shift to an Internet-based business we believe that
production expenses will decrease in the future.
Circulation Expenses
Circulation expenses, consisting primarily of costs associated with
subscription fulfillment, mailing, and the costs to acquire and certify the
NewMedia magazine's subscriber list, were $1,384,000 in 1999 compared to
$1,844,000 in 1998 and $2,088,000 in 1997. The decline in 1999 expenses of
$460,000, or 25 percent, less than 1998 is directly related to our decision to
cease publishing NewMedia magazine in September, which resulted in three fewer
issues being produced The decrease in 1998 is primarily due to cost control
programs and the focus on more stringent readership qualifications.
As part of our publishing strategy in 1999, 1998, and 1997, the minimum
readership qualifications to receive the magazine were significantly more
stringent than in prior years. The external circulation development costs
incurred by us to acquire and certify our list of qualified subscribers for each
upcoming year were capitalized and then amortized over a 12-month period. As of
December 31, 1999, the unamortized portions of these expenditures were $0 and as
of December 31, 1998, the unamortized portions of these expenditures were
$371,000, which are included in prepaid expenses on the balance sheet. Due to
the fact that we have ceased publishing our magazine we do not anticipate
incurring circulation expenses in the future.
Sales and Marketing
Sales and marketing expenses were $2,727,000 in 1999 compared to $2,817,000
in 1998 and $2,318,000 in 1997. The decline of $90,000, or 3 percent, less than
1998 was primarily due to general cost reduction programs partially offset by
higher marketing costs related to the January launch of newmedia.com. The
increased expenditures in 1998 were primarily attributable to higher sales
expenditures, 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 the two-day Insight Conference program to the INVISION Awards
Festival, offset by lower marketing costs. Our shift to an Internet-based
information and business service business will require additional selling and
marketing expenses to attract both advertisers and users of our site.
Product Development
Product development costs were $256,000 in 1999 compared to $45,000 in 1998
and $40,000 in 1997. The increase of $211,000, or 469 percent, more than 1998,
is directly related to payments to external consultants for the development of
newmedia.com. We anticipate that that we will continue to incur developmental
costs in 2000 for the ongoing development and enhancement of newmedia.com.
General and Administrative
General and administrative expenses were $1,146,000 in 1999 compared to
$1,151,000 in 1998 and $972,000 in 1997. The $5,000 decrease in 1999 over 1998
was due to general cost control programs. The increased expenses in 1998, as
compared to 1997, primarily reflect increased consulting, recruitment, and bad
debt expenses.
Interest and Other Income and Expenses
Interest and other expenses were ($230,000) in 1999 compared to $0 in 1998
and ($32,000) in 1997. The $230,000 increase in 1999 over 1998 is directly
related to the increase in our use of short-term debt to fund our working
capital requirements. During 1998 we earned interest income of $10,000 on the
proceeds of our Series J Convertible Preferred Stock sale, which was offset by
$10,000 of interest expense.
Net Loss
We incurred a net loss of $4,459,000 in 1999 compared to $2,826,000 in 1998
and $886,000 in 1997. The $1,633,000, or 58 percent, increase in our net loss is
primarily due to the short-fall in NewMedia magazine advertising revenue and
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increased spending on our new Web site in 1999. This decrease was partially
offset by lower magazine related expenses resulting from our decision to cease
publishing NewMedia magazine in September, which resulted in three fewer issues
being produced. The decrease in NewMedia magazine revenue in 1998, partially
offset by continued strong costs controls, was the primary contributor to the
increased loss in 1998, as compared to 1997. We anticipate that we will continue
to incur losses for the foreseeable future as we continue to develop and refine
our new business strategy.
Income Taxes
At December 31, 1999, we had net operating loss carryforwards for federal
income tax purposes of approximately $18,600,000, which may be utilized to
reduce future taxable income through 2004, 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 we 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 our 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 us to lose, or further limit the use by us of some or all of
these net operating loss carryforwards.
Liquidity and Capital Resources
We have financed our operations and capital requirements through the date
of our initial public offering in March 1993 principally through private sales
of debt and equity securities and cash generated from operations. Since
inception through December 1999, we have 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, $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 our largest shareholder, MK
Global Ventures in association with its MK GVD Fund
At December 31, 1999, we had approximately ($4,471,000) in net working
capital, and our principal source of liquidity consisted of approximately
$336,000 in cash and funds loaned to us by our 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, 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. On December 31, 1999, $1,192,000
in principal and accrued interest that had become due during the quarter was
rolled over into a new 180-day note. At December 31, 1999, $4,127,000 was
outstanding under these notes.
We signed an agreement in March 1999 with a new lender, which provides a
new line of credit. The revolving credit facility, which had a one-year term,
provides for borrowings of up to 80% of eligible receivables not to exceed
$600,000. Due to the our decision to cease publication of NewMedia magazine,
which was the source of the eligible receivables for the credit facility, the
remaining balance outstanding under the credit facility was paid in full in
October and the credit facility was subsequently terminated.
Capital expenditures for 1999 were $95,000 compared to $129,000 in 1998.
These expenditures primarily consisted of Personal Computer replacements,
software upgrades, and hardware and software for our new Web site. We anticipate
that these expenditures will continue for the foreseeable future.
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We expect that we will continue to require significant amounts of cash to
finance future operations. During the years ended December 31, 1999, 1998, and
1997, our net cash used in operating activities totaled $3,128,000, $2,629,000,
and $291,000, respectively. We are currently seeking additional financing and
believe that sufficient cash can be obtained from borrowings from our major
shareholder and operating activities such that we will meet our cash
requirements for at least the next 12 months. However, there can be no assurance
that our anticipation of our cash requirements for the next 12 months will be
correct and that we will be able to raise the necessary funds on terms
acceptable to us. Thereafter, we anticipate that we may need to raise additional
working capital, primarily through sales of debt or equity securities. In
addition, we may seek to raise additional working capital prior to the end of
2000 if we 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. We have 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 us, or at all.
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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 within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act, as
amended, that involve risks and uncertainties, including but not limited to
statements regarding our strategy, plans, objectives, expectations, intentions,
financial performance, and revenue sources. Our actual results may differ
significantly from those anticipated or implied in these forward-looking
statements as a result of the factors set forth below and in "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof.
We have a history of losses and accumulated deficits and we expect to incur
losses in the foreseeable future.
We have incurred total net losses of $18,689,000 from inception to December
31, 1999. We expect to incur losses for the foreseeable future as we transform
our business model from a traditional print publisher to a producer of
information and business services for the Internet Architect professional
community. There can be no assurance that our new business strategy and our
redesigned Web site will enable us to increase our revenues or become
profitable. Our potential future growth depends on many factors, including the
acceptance of the redesigned newmedia.com by the Internet Architect community,
our ability to attract an increasing number of users to newmedia.com, our
ability to attract sufficient advertising customers to newmedia.com, our ability
to hire and retain a productive advertising sales force, our ability to hire and
retain a creative editorial staff, our ability to manage the technical issues
related to a major Web site, and our ability to successfully implement our
marketing and product strategies. There can be no assurance that we will be
successful in any of these efforts.
We have recently shifted our business strategy to focus on an Internet-based
information service and we do not know if we will be successful.
The key element of our business strategy is to transform ourselves from a
traditional print publisher to an enhanced Internet-based information and
business service designed to meet the growing needs of the Internet Architect
business professionals. To accomplish this objective we must continually develop
new and interesting content and deliver it in such a way that the Internet
Architect community will find newmedia.com both a rewarding and satisfying
experience. This will require additional investments in editorial staff, content
creation, and technology expenses. To the extent that our site's content is not
perceived as being interesting and compelling or our site experiences technical
difficulties, our ability to attract Internet Architects professionals and sell
advertising specifically targeted toward them will be negatively impacted. Due
to this shift in business strategy, investors should consider the risks,
expenses, and difficulties that are encountered by Internet-based businesses in
new and rapidly evolving markets.
Our limited history makes evaluating our business difficult.
Because we converted our business from a traditional print publisher to a
Internet-based information and business service model with the launch of
newmedia.com in January 2000, we have limited operating history that can be used
to evaluate our business. You must consider the risk, expenses and difficulties
frequently encountered by early-stage companies in new and rapidly evolving
markets, including news and information service companies on the Internet.
Our quarterly results may fluctuate resulting in volatility in our stock.
Our quarterly results may fluctuate significantly due to a number of
factors, many of which are outside of our control. These factors include: our
ability to attract and retain advertisers; the timing and uncertainty of our
advertising sales; seasonal declines in advertising sales, which are generally
lower in the first and third calendar quarters of each year; system downtime
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resulting from technical difficulties, and the amount and timing of expenditures
related to the expansion of our business operations and infrastructure.
Because of these factors, we believe that quarter-to-quarter comparisons
may not be a good indication of future performance. If our future quarterly
performance falls below investor and market analyst expectations, the price of
our common stock may decline.
If we do not increase our user base and the length of time users spend on our
site, our ability to attract advertisers and sponsors will be impaired.
Our business is dependent on increasing the number of users of our site and
increasing the amount of time that they spend on our site. If we are unable to
increase our user base and the length of time that users spend when they come to
our site we may be unable to attract and sign advertising and sponsorship
agreements, which could have a material adverse effect on our business.
If we are unable to build and develop our brand our ability to execute our
business strategy will be impaired.
Building and increasing awareness of the newmedia.com brand is a key
element of our strategy to attract users and advertisers to our site. As we grow
we could face increased competition from existing and new Internet sites. Brand
awareness will become an increasingly important means of differentiating
ourselves in the minds of our users and advertiser. If we are unable to continue
to increase our brand awareness our business could suffer.
If the acceptance of the Internet as a distribution channel does not continue to
grow it could have a material adverse effect on our business.
Our business is highly dependant on the growth and continued development of
the Internet as a means of distributing news, information, services and
personalized advertising to our targeted users base. Our business could be
adversely impacted if the acceptance of the Internet as a distribution channel
does not continue to grow, or grows more slowly. Factors that may inhibit the
growth of the Internet include: inadequate network structure; security concerns;
privacy concerns; inconsistent quality of service; and unavailability of
cost-effective, high-speed access to the Internet.
We do not know if our Web site will attract users, which could have a material
adverse effect on our business.
We are redesigning our Web site to provide the Internet Architect community
with a rich and rewarding daily experience. If the look and feel functionality
of our redesigned Web site is not attractive to the Internet Architect community
or if our content is not perceived as being interesting, and compelling we may
be unable to attract sufficient users necessary to generate the level of
revenues required to achieve profitability.
If our site experiences system problems resulting in down time, we may lose
users and advertisers, which could have a material adverse effect on our
business.
Providing timely, new information and other business services to our users
in an efficient manner is an important aspect of building our user base.
Similarly, the tracking, measurement and reporting of advertisements served on
our site to our advertisers is an important part of building and maintaining
strong advertising relationships.
Our site is an integrated system based on purchased hardware, proprietary
and third-party software and various third-party service providers, such as Web
hosting and ad-serving companies. If any of the hardware, software, or service
providers fails to perform, the resulting system downtime could result in
dissatisfaction on the part of our users or advertisers, which could have a
material adverse affect on our operating results.
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If we do not retain our sales personnel or attract new sales personnel, our
ability to execute our business strategy will be impaired.
Our ability to achieve future profitability depends upon our success in
hiring and retaining sales personnel in key markets and to successfully transfer
the productivity of our existing sales personnel from the traditional print
marketplace to Internet based sales. In October of 1999, we hired a new Sales
Director. We may hire additional personnel in coming months. However, new sales
personnel typically take from six to nine months to become fully productive and
our operating results during this time may be adversely affected by the hiring
of such personnel. In addition, there can be no assurance that our new sales
personnel will generate sufficient advertising revenue for us to become
profitable. Furthermore, any turnover in our personnel could have a material
adverse effect on our operating results.
Our time-based advertising model is new and unproven, if advertisers do not
accept this model, or if our users do not respond to the time-based ads being
served, our ability to generate advertising revenues will be impaired.
Our time-based advertising model is a new and unproven approach to
advertising on the Internet. Traditional advertising is based on the concept of
placing ad spots on individual content pages. As viewers move through a site the
ads change at the same time the pages change.
Because our site displays content in movable windows created with dynamic
HTML, our home page does not change as viewers read additional content. This
allows us to maintain fixed ad spots that can be sold on the basis of time
similar to radio and television and sponsorship spots that can be permanently
displayed.
If advertisers do not perceive an advantage to time-based advertising on
the Internet or if our users do not respond to our time-based ads with either
the same or greater click-through rates generated by traditional page-view
advertising our ability to generate advertising revenues will be impaired, which
could have a material adverse effect on our business.
If users of our site elect not to register, our ability to execute our business
strategy will be impaired.
Our business strategy is dependant on attracting and increasing our
registered user base. When users visit our site they have the opportunity to
register for our site by providing us their names, email addresses, and a
primary area of interest. By registering we are able to, through our site's
customization technology, track users' content viewing habits and serve content
and advertisements targeted to their individual preferences. This information,
we believe, also allows us to attract more advertisers at potentially premium
rates due to the targeted nature of how the ads are served. If users elect not
to register due to privacy or other concerns, our ability to execute our
business strategy will be impaired.
We do not know if we will be able to attract sufficient advertisers, which could
have an adverse effect on our business.
Revenues for newmedia.com will, for the near future, consist primarily of
time-based ad spots, sponsorship, and newsletter advertising. The Internet-based
advertising industry is highly competitive and is continuing to evolve. Many of
our competitors have substantially greater financial, sales, and marketing
resources than we do. If we are unable to demonstrate strong acceptance of our
Web site by the Internet Architect community, we may be unable to attract
sufficient advertisers, and our revenues and operating results will be
negatively impacted. Also, there can be no assurance that we will not experience
increased competition from new or existing Web sites, which would have a
material adverse impact on the our ability to increase our advertising revenues.
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If we fail to establish and maintain affiliate business partnerships, our user
base and revenue opportunities could decrease, which could have a material
adverse effect on our business.
We are dependant on building affiliate business partnerships that will
provide meaningful and useful services and tools to our users and
revenue-sharing opportunities for us. There is intense competition for
partnerships on the Internet. If we unable to develop new partnerships and
maintain existing relationships, our ability to maintain and grow our user base
and generate affiliated revenue transactions would be impaired, which could have
a material adverse effect on our business.
Our conferences and events business may not be profitable, which could have a
material adverse effect on our business.
The conferences and events business is a highly competitive business with
intense competition for event locations, event sponsorships, and participants.
Furthermore, the event business requires advance commitments for a number of
items including venues, speakers, equipment, and advertising promotions. If we
are unable to generate sponsorship fees or event ticket sales that exceed the
costs associated with producing the event, our operating results could be
adversely affected.
If we do not retain creative editorial staff or attract new staff and outside
contributors, our ability to execute our business strategy will be impaired.
An element of our business strategy is to provide the Internet Architect
community with a daily news and information service. To accomplish this, we need
to hire and retain a highly creative and motivated editorial staff and outside
contributors to continually develop original, interesting, and compelling
content. If we are unable to retain or replace a significant number of our
editorial staff or outside contributors that leave our company, our operating
results could be negatively affected.
We depend on key personnel, and our inability to retain or attract key personnel
could impair our business strategy.
Our success depends to a large extent upon the efforts and abilities of key
managerial employees, including, without limitation, the Chief Executive
Officer, President, and Chief Financial Officer of the Company. Our success also
depends on the performance of key sales and other management personnel. The loss
of certain of these key managers could have a material adverse effect on us. We
have not entered into employment agreements with our executive officers and
carry no key man insurance on their lives. Our success also will depend upon our
ability to continue to attract and retain qualified employees. Competition for
such employees is intense, and there can be no assurance that we will be
successful in attracting or retaining such personnel.
We may be unable to manage our growth or implement our marketing and product
strategies, and, if we cannot do so, it could have a material adverse effect on
our business.
Our transition into an Internet-based information and business service
targeting the Internet Architect community has positioned us in a market that is
growing rapidly and experiencing significant growth in number of users and
bandwidth. As we adapt to this changing environment we will need to manage
growth in a number of areas. On a technical level, we will have to continually
enhance and expand our Internet infrastructure and maintain a reliable network.
From a management perspective, we will have to implement and improve our
managerial controls and procedures and operating and financial systems.
Additionally, as our business expands, we will have to hire, train, and manage a
growing workforce. Also, growth and the competitive marketplace will require us
to develop and implement new marketing and product strategies. There can be no
assurance that we have allowed for the costs and risks associated with a rapidly
growing and evolving market or that we will be able to effectively manage the
challenges we will face. If we are unable to effectively manage our growth, our
business and operating results could be negatively impacted.
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Changes in government regulations could increase our cost of doing business,
which could have a material adverse effect on our business.
Currently, there are few laws and regulations that regulate communication,
content, and commerce on the Internet. New laws and regulations currently are
being considered at the federal, state, and local levels. This laws dealing with
issues of user privacy, online content, taxation, and the quality of products
and services sold over the Internet could materially increase our operating
costs. Additionally, the application of existing law in the areas of copyrights,
trademarks, intellectual property ownership, libel, obscenity, and personal
privacy issues could significantly increase our costs of doing business and
adversely affect our operations.
Our securities may be difficult to trade, and we are subject to "penny stock"
rules.
Our Common Stock trades on the OTC Bulletin Board. In September 1998, we
were delisted from trading on the Nasdaq SmallCap Market, and in March 1999 we
were delisted from trading on the Pacific Exchange. Because our Common Stock was
delisted from the Pacific Exchange, we have become subject to "penny stock"
rules and therefore an investor will find it more difficult to dispose of, or to
obtain accurate quotations as to the price of our 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 also is required
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, our delisting from the Nasdaq
SmallCap Market and the Pacific Exchange and our 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 our securities and therefore has severely
adversely affect the market liquidity for our securities.
We have outstanding preferred stock, which dilutes the voting power and
liquidation rights of our common shareholders, and we may issue additional
preferred stock, which could cause further dilution.
Our Articles of Incorporation currently authorize us to issue 10,064,516
shares of preferred stock, of which 8,512,191 shares of preferred stock
currently are issued and outstanding (the "Preferred Stock"). The Preferred
Stock and accumulated dividends, as of December 31, 1999, are convertible into
8,775,543 shares of our 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 $0.124 per share and all accumulated and unpaid dividends. After December 31,
1999, the shares of Series E Preferred Stock are convertible into shares of
Common Stock as is determined by dividing $0.124 by the Series E Conversion
price. The Series E Conversion Price currently is $0.478 as a result of the
issuance of the Series J Preferred Stock. Accordingly, each share of Series E
Preferred Stock is convertible into approximately 0.3 shares of Common Stock for
a total of 2,092,050 shares of Common Stock for all Series E shares. 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 a cumulative dividend right, which accrues
at a rate of $0.0074 per share (an aggregate of approximately $60,000 per
annum). If there are accumulated unpaid dividends on the Series E Preferred at
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the time the Series E Preferred converts to Common Stock, then the dividends
convert to Common Stock at the effective Series E Conversion Price. At December
31, 1999, the accumulated unpaid dividends, if converted, would be convertible
into 847,280 shares of Common Stock.
Each of the Series F Preferred, Series G Preferred, and Series H Preferred
stocks, were issued at prices discounted at 85% of the average closing bid price
of our Common Stock as reported on the Nasdaq SmallCap Market for the 10 trading
days ending five business days before the closing of the sale (the "Formula
Price") of the Shares, and each such Series initially was convertible into one
share of Common Stock. The Series I Preferred Stock was issued at a price 10
times the Formula Price and initially was convertible into 10 shares of Common
Stock. The Series J Preferred Stock was issued at a price 20 times the Formula
Price and each share of Series J Preferred Stock initially was convertible into
20 shares of Common Stock.
The Series F Preferred, Series G Preferred, Series H Preferred, Series I
Preferred, and Series J Preferred stocks are entitled to dividends in the amount
of five percent of the Initial Sales Price of their respective series 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 that we do not declare or pay dividends. The liquidation
preference per share is equal to $3.039 per share for the Series F Preferred,
$1.992 per share for the Series G Preferred, $2.136 per share for the Series H
Preferred, $15.62 per share for the Series I Preferred, and $12.531 per share
for the Series J Preferred stocks, 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 $12.531 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 reclassifications of Common Stock and similar
events and, for approximately one year after the final sale of each Series in
the event that 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, the Series I Preferred Stock, and
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 for a total of 82,250 shares of Common
Stock for all Series F shares, each share of Series G Preferred is convertible
into approximately 4.2 shares of Common Stock for a total of 209,805 shares of
Common Stock for all Series G shares, each share of Series H Preferred is
convertible into approximately 4.5 shares of Common Stock for a total of 522,828
shares of Common Stock for all Series H shares, each share of Series I Preferred
is convertible into approximately 32.7 shares of Common Stock for a total of
941,121 shares of Common Stock for all Series I shares and each share of Series
J Preferred is convertible into 24.1 shares of Common Stock for a total of
4,080,209 shares of Common Stock for all Series J shares. 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.
We also have 1,552,325 shares of additional authorized Preferred Stock
that could be 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
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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. These shares could be issued with terms that are more favorable
to the holder than those that have previously been issued so long as the current
holders of Preferred Stock Series E through Series J each voting as a separate
class consent to such issuance. The Board of Directors therefore may 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 dilution to the then existing Common stockholders. In the event we issue
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.
Two of our shareholders own more than 83% of the company.
Our principal shareholders, MK Global Ventures II and their affiliate MK
GVD Fund (together, the "MK Entities"), together beneficially own over 83
percent of the outstanding Common Stock (assuming conversion of all outstanding
Preferred Stock in Common Stock). In addition, the MK Entities have two
representatives on our four-person Board of Directors. Accordingly, the MK
Entities will be able to determine the composition of our Board of Directors,
will retain voting power to approve all matters requiring shareholder approval,
and will continue to have significant influence over our affairs. This
concentration of ownership could have the effect of delaying or preventing a
change in control of the Company.
Quantitative and qualitative disclosure about market risk
Our cash equivalents are subject to interest rate risk and will fall in
value in the event the market rate increases. However, we believe that the
market risk arising from our cash equivalents is not material. Our transactions
are generally conducted and our accounts are denominated in United States
dollars. Thus we are not exposed to significant foreign currency risk.
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.
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PART III
Certain information required by Part III is omitted from this Form 10-K in
that we will include that information in a definitive proxy statement that we
will file within 120 days after the end of our fiscal year pursuant to
Regulation 14A of the Securities Exchange Act of 1934 (the "Proxy Statement")
for our Annual Meeting of Shareholders to be held June 6, 2000.
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 43 Chairman of the Board of Directors,
Chief Executive Officer and Director
John Topping 32 President and Publisher
Kenneth Klein 49 Vice President, Finance and Administration,
Chief Financial Officer and Secretary
Dirk Spiers (2) 42 Director
Michael Kaufman (1) 58 Director
Greg Lahann(1)(2) 41 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. Officers
hold office until their successors are duly elected.
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, where he held
the positions of Vice President of Finance and Chief Financial Officer, Director
of Finance, and Controller.
Dirk Spiers became a director of the Company in February 2000. In January
2000 Mr. Spiers founded Agency3, a London based hi-tech advertising agency,
where he serves as Managing Director. Since 1999 Mr. Spiers has been a founding
partner and general manager of Conferenza, an online membership service and
Web-based information resource for the digital media community. From September
1996 till December 1997 Mr. Spiers was vice president, product development at
Compressent Inc. In 1987 Mr. Spiers founded and was President until 1996, of SMI
Group, an international strategic marketing organization that services
information technology companies throughout the UK, Europe, and the United
States.
20
<PAGE>
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 startup
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 as a
Certified Public Accountant in various positions, the last of which was as
manager in the Audit Department.
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."
21
<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....................... 26
Balance Sheets--December 31, 1999, and 1998............. 27
Statements of Operations--Years ended
December 31, 1999, 1998, and 1997....................... 28
Statements of Shareholders' Equity
Years ended December 31, 1999, 1998, and 1997........... 29
Statements of Cash Flows--Years ended
December 31, 1999, 1998, and 1997....................... 30
Notes to Financial Statements........................... 31
2. Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts........... 39
22
<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(3) Certificate of Determination of Preferences of Series F
Preferred Stock of the Registrant.
3.1d(4) Certificate of Determination of Preferences of Series H
Preferred Stock of the Registrant.
3.1e(4) Certificate of Determination of Preferences of Series I
Preferred Stock of the Registrant.
3.1f(4) 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(3) Common Stock Warrant, dated February 9, 1994, and as
amended March 19, 1998, issued by the Registrant to
Imperial Bank.
4.3(3) Series F Preferred Stock Purchase Agreement, dated March
12, 1996, between the Registrant and MK GVD Fund.
4.4(3) Common Stock Warrant, dated November 26, 1996, issued by
the Registrant to MK GVD Fund.
4.5(4) Series G Preferred Stock Purchase Agreement, dated July
3, 1996, between the Registrant and MK GVD Fund.
4.6(4) Series H Preferred Stock Purchase Agreement, dated
September 8, 1997, between the Registrant and MK GVD
Fund.
4.7(4) Series I Preferred Stock Purchase Agreement, dated
December 23, 1997, between the Registrant and MK GVD
Fund.
4.8(4) Series J Preferred Stock Purchase Agreement, dated
February 19, 1998, between the Registrant and MK GVD
Fund.
4.9 Common Stock Warrant, dated August 11, 1999 issued by
the Registrant to Kaufman Bros., L.P.
10.1(1) Form of Indemnification Agreement for directors and
officers.
10.2(2) 1991 Stock Plan and forms of agreement thereunder, as
amended.
23
<PAGE>
10.3(2) 1993 Director Option Plan and form of agreement
thereunder, as amended.
10.4(1) Lease Agreement, dated February 21, 1991, between the
Registrant and Spieker Partners.
10.5 Amendment #3 to Lease Agreement, dated February 21,
2000, between the Registrant and Spieker Properties,
L.P.
10.6(1) Shareholder Voting Agreement.
10.7(6) $175,000 Subordinated Promissory Note, dated July 14,
1999, issued by the Registrant to MK GVD Fund.
10.8(6) $147,000 Subordinated Promissory Note, dated July 28,
1999, issued by the Registrant to MK GVD Fund.
10.9(6) $200,000 Subordinated Promissory Note, dated August 11,
1999, issued by the Registrant to MK GVD Fund.
10.10(6) $50,000 Subordinated Promissory Note, dated August
27,1999, issued by the Registrant to MK GVD Fund.
10.11(6) $200,000 Subordinated Promissory Note, dated September
14, 1999, issued by the Registrant to MK GVD Fund.
10.12(6) $100,000 Subordinated Promissory Note, dated September
28, 1999, issued by the Registrant to MK GVD Fund.
10.13(6) $638,137 Subordinated Promissory Note, dated September
30, 1999, issued by the Registrant to MK GVD Fund.
10.14 $325,000 Subordinated Promissory Note, dated October 13,
1999, issued by the Registrant to MK GVD Fund.
10.15 $100,000 Subordinated Promissory Note, dated November
8,1999, issued by the Registrant to MK GVD Fund.
10.16 $200,000 Subordinated Promissory Note, dated November
12,1999, issued by the Registrant to MK GVD Fund.
10.17 $125,000 Subordinated Promissory Note, dated November
29,1999, issued by the Registrant to MK GVD Fund.
10.18 $300,000 Subordinated Promissory Note, dated December
13, 1999, issued by the Registrant to MK GVD Fund.
10.19 $375,000 Subordinated Promissory Note, dated December
23,1999, issued by the Registrant to MK GVD Fund.
24
<PAGE>
10.20 $1,191,689 Subordinated Promissory Note, dated December
31, 1999, issued by the Registrant to MK GVD Fund.
11.1 Computation of net loss per share.
23.1 Consent of Independent Accountants.
24.1 Power of Attorney (see page 40).
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 29, 1995.
(3) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-K filed March 28, 1997.
(4) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-K filed March 27, 1998.
(5) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q filed August 14, 1998.
(6) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q filed November 15, 1999.
(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.
25
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
HyperMedia Communications, Inc.
In our opinion, the financial statements listed in the index appearing under
Item 14(a)(1) on page 22 present fairly, in all material respects, the financial
position of HyperMedia Communications, Inc. (the "Company") at December 31, 1999
and 1998, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. In addition, in our opinion,
the financial statement schedules listed in the index appearing under Item
14(a)(2) on page 22 present fairly, in all material respects, the information
set forth therein when read in conjunction with the related financial
statements. These financial statements and financial statement schedules are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, 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 a net capital deficiency 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 4, 2000
26
<PAGE>
Hypermedia Communications, Inc.
Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 336,000 $ 182,000
Accounts receivable, net of allowance for doubtful
accounts of $56,000 and $75,000, respectively 177,000 642,000
Prepaid expenses and other current assets 104,000 522,000
------------ ------------
Total current assets 617,000 1,346,000
Property and equipment, net 133,000 364,000
------------ ------------
Total assets $ 750,000 $ 1,710,000
============ ============
Liabilities, Convertible Preferred Stock
and Shareholders' Equity (Deficit)
Current liabilities:
Notes payable - related party $ 4,127,000 $ 400,000
Note payable - line of credit -- 350,000
Accounts payable 326,000 564,000
Accrued expenses 621,000 257,000
Deferred revenue 14,000 18,000
------------ ------------
Total current liabilities 5,088,000 1,589,000
------------ ------------
Commitments (Note 10)
Convertible Preferred Stock, $0.001 par value;
10,064,516 shares authorized;
$4,000,000 aggregate liquidation amount;
8,512,191 shares outstanding 3,924,000 3,924,000
------------ ------------
Shareholders' equity (deficit):
Common Stock, $0.001 par value;
50,000,000 shares authorized;
3,200,137 shares outstanding 10,427,000 10,427,000
Accumulated deficit (18,689,000) (14,230,000)
------------ ------------
Total shareholders' equity (deficit) (8,262,000) (3,803,000)
------------ ------------
Total liabilities and shareholders' equity (deficit) $ 750,000 $ 1,710,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
Hypermedia Communications, Inc.
Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $ 3,659,000 $ 5,629,000 $ 7,637,000
----------- ----------- -----------
Costs and expenses:
Editorial 1,137,000 951,000 1,151,000
Production 1,238,000 1,647,000 1,922,000
Circulation 1,384,000 1,844,000 2,088,000
Sales and marketing 2,727,000 2,817,000 2,318,000
Product development 256,000 45,000 40,000
General and administrative 1,146,000 1,151,000 972,000
----------- ----------- -----------
Total costs and expenses 7,888,000 8,455,000 8,491,000
----------- ----------- -----------
Loss from operations (4,229,000) (2,826,000) (854,000)
Interest and other expense, net (230,000) -- (32,000)
----------- ----------- -----------
Net loss $(4,459,000) $(2,826,000) $ (886,000)
=========== =========== ===========
Net loss per share, basic and diluted $ (1.39) $ (0.88) $ (0.28)
=========== =========== ===========
Weighted average shares 3,200,137 3,200,137 3,185,043
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
Hypermedia Communications, Inc.
Statements of Shareholders' Equity (Deficit)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total
Common Stock Accumulated Shareholders'
Shares Amount Deficit Equity (Deficit)
------ ------ ------- ----------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 3,019,004 $10,377,000 $(10,518,000) $ (141,000)
Issuance of Common Stock for cash 181,133 50,000 -- 50,000
Net loss -- -- (886,000) (886,000)
--------- ----------- ------------ -----------
Balance at December 31, 1997 3,200,137 10,427,000 (11,404,000) (977,000)
Net loss -- -- (2,826,000) (2,826,000)
--------- ----------- ------------ -----------
Balance at December 31, 1998 3,200,137 10,427,000 (14,230,000) (3,803,000)
Net loss -- -- (4,459,000) (4,459,000)
--------- ----------- ------------ -----------
Balance at December 31, 1999 3,200,137 $10,427,000 $(18,689,000) $(8,262,000)
========= =========== ============ ===========
<FN>
The Accompanying Notes Are An Integral Part of These Financial Statements.
</FN>
</TABLE>
29
<PAGE>
Hypermedia Communications, Inc.
Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------
1999 1998 1997
----------- ----------- ---------
<S> <C> <C> <C>
Cash flows used in operating activities:
Net loss $(4,459,000) $(2,826,000) $(886,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 326,000 216,000 227,000
Provision for doubtful accounts 57,000 168,000 57,000
Change in assets and liabilities:
Accounts receivable 408,000 355,000 72,000
Prepaid expenses and other current assets 418,000 45,000 (6,000)
Accounts payable (238,000) (392,000) 134,000
Accrued expenses 364,000 (182,000) 113,000
Deferred revenue (4,000) (13,000) (2,000)
----------- ----------- ---------
Net cash used in operating activities (3,128,000) (2,629,000) (291,000)
----------- ----------- ---------
Cash flows used in investing activities:
Property and equipment - acquisitions (95,000) (129,000) (56,000)
----------- ----------- ---------
Net cash used in investing activities (95,000) (129,000) (56,000)
----------- ----------- ---------
Cash flows provided by financing activities:
Proceeds from notes payable - related party 3,727,000 400,000 --
Proceeds from line of credit -- 350,000 --
Repayment of line of credit (350,000) -- (335,000)
Proceeds from issuance of Common Stock -- -- 50,000
Proceeds from issuance of Convertible Preferred
Stock, net -- 1,921,000 794,000
----------- ----------- ---------
Net cash provided by financing activities 3,377,000 2,671,000 509,000
----------- ----------- ---------
Net increase (decrease) in cash 154,000 (87,000) 162,000
Cash and cash equivalents at beginning of year 182,000 269,000 107,000
----------- ----------- ---------
Cash and cash equivalents at end of year $ 336,000 $ 182,000 $ 269,000
=========== =========== =========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 170,000 $ 12,000 $ 28,000
=========== =========== =========
<FN>
The Accompanying Notes Are An Integral Part of These Financial Statements.
</FN>
</TABLE>
30
<PAGE>
Hypermedia Communications, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. The Company and Its Business
HyperMedia Communications, Inc. (the "Company") was incorporated in California
during August 1989. During September 1999, the Company announced a change in
operations from a traditional print publication to an enhanced, internet-based
information service. The Company published its final issue of NewMedia magazine
and began devoting its resources to the development of its website,
newmedia.com, which provides daily news and information services to the Internet
architect community. The Company will continue to produce the NewMedia INVISION
Awards Festival, a juried digital media competition and conference that seeks to
identify the most original and creative ideas within the global Internet
architect community.
At December 31, 1999, the Company had an accumulated deficit of $18,689,000 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.
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.
Cash and cash equivalents
All highly liquid investments purchased with an original maturity of three
months or less are considered to be cash equivalents.
Fair value of financial instruments
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and borrowings are carried at cost, which
approximate fair value because of the short-term nature of such instruments.
Concentration of credit risk
The Company's financial instruments include cash and cash equivalents as well as
accounts receivable that potentially subject the Company to credit risk. The
Company maintains its cash balances in a high quality financial institution,
which exceeded federally insured limits at December 31, 1999. However, the
Company believes such credit risk is minimal. To mitigate credit risk for
accounts receivable, the Company performs ongoing credit evaluations of its
customers' financial condition and maintains an allowance for uncollectible
accounts receivable based on expected collectibility. During the years ended
December 31, 1999, 1998 and 1997, the Company wrote-off approximately $76,000,
$203,000 and $127,000, respectively, of accounts receivable balances. No
individual customers accounted for 10% or more of accounts receivable.
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
31
<PAGE>
Hypermedia Communications, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
straight-line method over the estimated period of benefit of one year. No
capitalized amounts were outstanding at December 31, 1999. Refer to Note 3.
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. In January 1999, the Company adopted Statement of
Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 requires software development
costs associated with internal use software to be charged to operation until
certain capitalization criteria are met. For the year ended December 31, 1999,
no software development costs were capitalized.
Impairment of long-lived assets
The Company evaluates the recoverability of long-lived assets in accordance with
Statement of Financial Accounting Standards No. 121 ("SFAS No. 121"),
"Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be
disposed of." SFAS No. 121 requires recognition of impairment of long-lived
assets if the net book value of such assets exceeds the estimated future
undiscounted cash flows attributable to such assets.
Revenue recognition
From inception through the last issue of NewMedia magazine in September 1999,
the Company primarily generated revenue from advertisements in the Company's
magazine with supplemental revenue from the INVISION Awards Festival and list
rentals. Revenue was recognized upon publication of each magazine to the extent
that no material remaining obligations existed and amounts were considered
probable of collection. Subsequent to September 1999 and through December 31,
1999 the Company primarily generated revenue from the INVISION Awards Festival
and list rentals only.
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, 1999 Common Shares equivalents total 10,024,348,
comprised of 1,215,544 options, 33,261 warrants and 8,775,543 shares of
preferred stock after applying conversion ratios. Refer to Note 6.
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.
32
<PAGE>
Hypermedia Communications, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Comprehensive income
Effective January 1, 1999, 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.
Segment information
In June 1998, 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 conducts business in one reportable operating segment.
Reclassification
Certain 1998 balances have been reclassified for comparative purposes.
3. Prepaid expenses and other current assets
Prepaid expenses and other current assets consist of the following:
December 31,
1999 1998
-------- --------
Prepaid circulation costs $ -- $371,000
Prepaid services 19,000 87,000
Prepaid rent and deposits 52,000 26,000
Other 33,000 38,000
-------- --------
$104,000 $522,000
======== ========
In connection with the Company's September 1999 announcement of its change in
operations, the Company wrote-off certain prepaid expenses, including external
costs to acquire and certify its list of qualified subscribers to the previously
issued NewMedia magazine. At December 31, 1999 and 1998, such capitalized costs
were $0 and $371,000, respectively. Related amortization expenses were $408,000,
$590,000, and $620,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
4. Property and Equipment, Net
Property and equipment, net consists of the following:
December 31,
1999 1998
----------- -----------
Equipment $ 351,000 $ 1,270,000
Furniture and fixtures 141,000 277,000
---------- -----------
492,000 1,547,000
Less: accumulated depreciation and amortization (359,000) (1,183,000)
---------- -----------
$ 133,000 $ 364,000
========== ===========
During the year ended December 31, 1999, the Company disposed of
fully-depreciated property and equipment with a gross book value of $1,138,894.
In addition, the Company recorded a charge totaling $174,411 in connection with
33
<PAGE>
Hypermedia Communications, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
the impairment of certain property and equipment assets during the year ended
December 31, 1999.
5. Notes Payable
Related party transactions
At December 31, 1999 and 1998, borrowings from its principal shareholder totaled
$4,127,000 and $400,000, respectively. Borrowings accrue interest at 10% per
annum and are collateralized by the Company's assets. Principal and accrued
interest is due and payable on demand by the lender. Demand may be made at any
time, and principal and accrued interest shall not be paid later than 180 days
after the date of borrowing.
6. Convertible Preferred Stock
The Company's principal shareholders, MK Global Ventures II and MK GVD Fund,
beneficially own 83% of the outstanding Common Stock assuming conversion of all
outstanding Convertible Preferred Stock into Common Stock. Convertible Preferred
Stock at December 31, 1999, consists of the following:
Proceeds
Aggregate Net of
Year Shares Shares Liquidation Issuance
Series Issued Authorized Outstanding Amount Costs
- ------ ------ ---------- ----------- ------ -----
Series E 1993 8,064,516 8,064,516 $1,000,000 $1,000,000
Series F 1996 82,250 82,250 250,000 209,000
Series G 1997 50,344 50,344 100,000 98,000
Series H 1997 117,000 117,000 250,000 246,000
Series I 1997 28,800 28,800 450,000 450,000
Series J 1998 250,000 169,281 1,950,000 1,921,000
Undesignated 1,471,606 -- -- --
---------- ---------- ---------- ----------
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
34
<PAGE>
Hypermedia Communications, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
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 E shareholders
then to all other Convertible Preferred Stock holders on a pro-rata basis.
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 sale 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 sale price of
$15.62 per share. Each share of Series J converts to 20 shares of Common Stock
with an average sale price of $11.52 per share. The actual conversion price is
subject to certain adjustments, as defined, which essentially provide dilution
protection for the holders of Convertible Preferred Stock. At December 31, 1999
the 8,512,191 shares of Preferred Stock would be convertible into 8,775,543
shares of Common Stock.
7. Warrants
The following warrants were outstanding at December 31, 1999:
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.
In March 1998, 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 expiration date of the warrant was extended to February 2001 and
was repriced at $1.14 per share. The warrant had a nominal value on the
amendment date.
In August 1999, the Company contracted with an agent to serve as a strategic
advisor. A fully exercisable warrant was granted for the purchase of 25,000
shares of Common Stock at an exercise price of $0.50. The warrant expires in
August 2002, and had a nominal value on the date of grant.
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.
35
<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 250,000 shares. At December
31, 1999, 110,000 shares were issued, of which 25,000 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 1999, 1998 and 1997, respectively: dividend yield
of 0.0%, expected volatility of 70.0%, expected lives of five years for all
years and risk free rates of 6.4%, 4.8% and 6.4%.
Activity under both the 1991 Stock Option Plan and the 1993 Director Stock
Option Plan is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- ------------------- -------------------
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 903,044 $ 1.38 637,544 $ 3.35 554,544 $ 3.83
Granted 528,500 0.44 869,356 1.05 198,500 2.77
Exercised -- -- -- -- -- --
Canceled (216,000) 1.19 (603,856) 3.01 (115,500) 4.64
---------- --------- ---------
Outstanding at end of year 1,215,544 1.01 903,044 1.38 637,544 3.35
========== ========= =========
Options exercisable at year end 397,946 187,937 328,828
========== ========= =========
Weighted-average fair value of
options granted during the year $ 0.19 $ 0.66 $ 1.75
====== ====== ======
</TABLE>
36
<PAGE>
Hypermedia Communications, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------- ---------------------------
Number Weighted- Weighted- Number Weighted-
Range of Outstanding at Average Average Exercisable at Average
Exercise December 31, Remaining Exercise December 31, Exercise
Prices 1999 Contractual Life Price 1999 Price
- ------ ---- ---------------- ----- ---- -----
<S> <C> <C> <C> <C> <C>
$0.19-$0.30 189,089 6.83 years $ 0.28 64,589 $ 0.28
$0.375-$0.75 362,500 9.74 $ 0.47 - $ --
$0.88-$1.13 524,856 7.72 $ 1.08 207,800 $ 1.09
$2.38-$2.87 127,099 4.32 $ 2.64 113,557 $ 2.62
$7.25-$8.50 12,000 3.57 $ 7.77 12,000 $ 7.77
--------- -------
1,215,544 397,946
========= =======
</TABLE>
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:
Years Ended December 31,
------------------------------------------
1999 1998 1997
---- ---- ----
Net loss:
As reported $(4,459,000) $(2,826,000) $ (886,000)
Pro forma $(4,611,000) $(2,899,000) $(1,040,000)
Net loss per share,
basic and diluted:
As reported $ (1.39) $ (0.88) $ (0.28)
Pro forma $ (1.44) $ (0.91) $ (0.33)
Because additional 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.
1997 Employee Stock Purchase Plan
During 1997, 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, 1999, no shares were issued under
the Purchase Plan.
9. Income Taxes
No provision for federal and state income taxes has been recorded as the Company
incurred net operating losses through December 31, 1999. At December 31, 1999,
the Company had net operating loss carryforwards of approximately $18,600,000
and $4,600,000 for federal and state income tax purposes, respectively. The
federal and state net operating loss carryforwards begin to expire in various
amounts beginning in 2004 and 2000, respectively, 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
37
<PAGE>
Hypermedia Communications, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
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.
Deferred tax assets (liabilities) are composed of the following:
December 31,
1999 1998
----------- -----------
Net operating loss carryforwards $ 6,800,000 $ 5,400,000
Allowance for doubtful accounts 23,000 40,000
Other 76,000 50,000
----------- -----------
Gross deferred tax assets 6,899,000 5,490,000
Gross deferred tax liabilities -- (150,000)
Deferred tax asset valuation allowance (6,899,000) (5,340,000)
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
The deferred tax asset valuation allowance is required because of the
uncertainty regarding the realization of the deferred tax assets.
10. Commitments
Future minimum lease payments under noncancelable operating leases are as
follows:
Years Ended December 31,
2000 $ 406,281
2001 445,201
2002 443,748
2003 151,296
Thereafter --
----------
$1,446,526
==========
Total rental expense under operating leases was $318,000, $313,000 and $254,000
for the years ended December 31, 1999, 1998 and 1997, respectively.
38
<PAGE>
HYPERMEDIA COMMUNICATIONS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Balance at Balance at
Beginning of Ending of
Description Year Additions Deductions Year
- ----------- ---- --------- ---------- ----
Allowance for doubtful
accounts receivable
Year ended December 31, 1999 $ 75,000 $ 57,000 $ (76,000) $ 56,000
Year ended December 31, 1998 $110,000 $168,000 $(203,000) $ 75,000
Year ended December 31, 1997 $180,000 $ 57,000 $(127,000) $110,000
39
<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, 2000 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, March 27, 2000
- -------------------- Chief Executive Officer, and
Richard Landry Director (Principal Executive Officer)
\s\ Kenneth Klein Vice President of Finance and Administration and March 27, 2000
- -------------------- Chief Financial Officer (Principal Financial and
Kenneth Klein Accounting Officer)
\s\ Dirk Spiers Director March 27, 2000
- --------------------
Dirk Spiers
\s\ Michael Kaufman Director March 27, 2000
- --------------------
Michael Kaufman
\s\ Greg Lahann Director March 27, 2000
- --------------------
Greg Lahann
</TABLE>
40
<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) Certificate of Correction of Amended and Restated Articles of
Incorporation filed as of July 2, 1998.
3.1c(3) Certificate of Determination of Preferences of Series F Preferred
Stock of the Registrant.
3.1d(4) Certificate of Determination of Preferences of Series H Preferred
Stock of the Registrant.
3.1e(4) Certificate of Determination of Preferences of Series I Preferred
Stock of the Registrant.
3.1f(4) 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(3) Common Stock Warrant, dated February 9, 1994 and as amended March
19, 1998, issued by the Registrant to Imperial Bank.
4.3(3) Series F Preferred Stock Purchase Agreement, dated March 12, 1996,
between the Registrant and MK GVD Fund.
4.4(3) Common Stock Warrant, dated November 26, 1996, issued by the
Registrant to MK GVD Fund.
4.5(4) Series G Preferred Stock Purchase Agreement, dated July 3, 1996,
between the Registrant and MK GVD Fund.
4.6(4) Series H Preferred Stock Purchase Agreement, dated September 8,
1997, between the Registrant and MK GVD Fund.
4.7(4) Series I Preferred Stock Purchase Agreement, dated December 23,
1997, between the Registrant and MK GVD Fund.
4.8(4) Series J Preferred Stock Purchase Agreement, dated February 19,
1998, between the Registrant and MK GVD Fund.
4.9 Common Stock Warrant, dated August 11, 1999, issued by the
Registrant to Kaufman Bros., L.P.
10.1(1) Form of Indemnification Agreement for directors and officers.
41
<PAGE>
10.2(2) 1991 Stock Plan and forms of agreement thereunder, as amended.
10.3(2) 1993 Director Option Plan and form of agreement thereunder, as
amended.
10.4(1) Lease Agreement, dated February 21, 1991, between the Registrant
and Spieker Partners.
10.5 Amendment #3 to Lease Agreement, dated February 21, 2000, between
the Registrant and Spieker Properties, L.P.
10.6(1) Shareholder Voting Agreement.
10.7(6) $175,000 Subordinated Promissory Note, dated July 14, 1999, issued
by the Registrant to MK GVD Fund.
10.8(6) $147,000 Subordinated Promissory Note, dated July 28, 1999, issued
by the Registrant to MK GVD Fund.
10.9(6) $200,000 Subordinated Promissory Note, dated August 11, 1999,
issued by the Registrant to MK GVD Fund.
10.10(6) $50,000 Subordinated Promissory Note, dated August 27,1999, issued
by the Registrant to MK GVD Fund.
10.11(6) $200,000 Subordinated Promissory Note, dated September 14, 1999,
issued by the Registrant to MK GVD Fund.
10.12(6) $100,000 Subordinated Promissory Note, dated September 28, 1999,
issued by the Registrant to MK GVD Fund.
10.13(6) $638,137 Subordinated Promissory Note, dated September 30, 1999,
issued by the Registrant to MK GVD Fund.
10.14 $325,000 Subordinated Promissory Note, dated October 13, 1999,
issued by the Registrant to MK GVD Fund.
10.15 $100,000 Subordinated Promissory Note, dated November 8,1999,
issued by the Registrant to MK GVD Fund.
10.16 $200,000 Subordinated Promissory Note, dated November 12,1999,
issued by the Registrant to MK GVD Fund.
10.17 $125,000 Subordinated Promissory Note, dated November 29,1999,
issued by the Registrant to MK GVD Fund.
10.18 $300,000 Subordinated Promissory Note, dated December 13, 1999,
issued by the Registrant to MK GVD Fund.
10.19 $375,000 Subordinated Promissory Note, dated December 23,1999,
issued by the Registrant to MK GVD Fund.
42
<PAGE>
10.20 $1,191,689 Subordinated Promissory Note, dated December 31, 1999,
issued by the Registrant to MK GVD Fund.
11.1 Computation of net loss per share.
23.1 Consent of Independent Accountants.
24.1 Power of Attorney (see page 40).
27.1 Financial Data Schedule
43
THIS WARRANT AND THE SECURITIES PURCHASABLE UPON ITS EXERCISE HAVE BEEN AND WILL
BE, AS THE CASE MAY BE, ISSUED WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE
DISPOSED OF, UNLESS SO REGISTERED OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE ACT IS AVAILABLE FOR SUCH SALE, TRANSFER, OR DISPOSITION.
WARRANT TO PURCHASE
COMMON STOCK OF
HYPERMEDIA COMMUNICATIONS, INC.
WARRANT NO. 3
FOR VALUE RECEIVED, subject to the terms and conditions herein set
forth, Kaufman Bros., L.P. ("Holder") is entitled to purchase from HyperMedia
Communications, Inc., a California corporation (the "Company"), at any time
prior to the Expiration Date (as defined below), at a price per share as set
forth in Section 1 hereof (the "Warrant Price"), the number of fully paid and
non-assessable shares of Common Stock of the Company as set forth in Section 2
hereof (the "Common Stock Shares" or "Shares").
1. Warrant Price. The Warrant Price for each share of Common Stock
purchasable hereunder shall be $0.50 "Warrant Price"), subject to adjustment as
described in Section 10 herein.
2. Number of Shares. The number of Common Stock Shares issuable upon
exercise of this Warrant shall be 25,000 shares subject to adjustment as
described in Section 10 herein.
3. Expiration of Warrant. Subject to earlier termination in accordance with
Section 8 below, this Warrant shall expire and shall no longer be exercisable
after August 11, 2002 (the "Expiration Date").
4. No Fractional Shares. This Warrant may not be exercised as to fractional
shares of Common Stock of the Company.
5. No Shareholder Rights. This Warrant shall not entitle the Holder to any
of the rights of a shareholder of the Company.
6. Reservation of Shares. The Company covenants that during the period this
Warrant is exercisable it will reserve from its authorized and unissued shares
of Common Stock a sufficient number of shares to provide for the issuance of the
number of shares of Common Stock upon the exercise of this Warrant. The Company
agrees that its issuance of this Warrant shall constitute full authority to its
officers to instruct the Company's transfer agent to issue the necessary
certificates for shares of Common upon the exercise of this Warrant.
7. Exercise of Warrant.
(a) This Warrant may be exercised by the Holder, in whole or in part,
by the surrender of this Warrant at the principal office of the Company,
together with the Subscription Form attached hereto duly completed and executed,
accompanied by payment in full of the aggregate Warrant Price for the shares of
Common Stock being purchased upon such exercise.
<PAGE>
Payment of the Warrant Price may be made by the surrender or delivery of shares
of Common Stock (or securities equivalents) of the Company and/or the surrender
of purchase rights under this Warrant, in lieu of cash, as payment for all or
part of the purchase price for the shares of Common Stock being purchased upon
such exercise. Any shares of Common Stock or purchase rights under the Warrant
so surrendered or delivered as payment may include Shares acquired (including
Shares acquired for Common Stock) on the same (or any prior) date of exercise of
this Warrant. Each share of Common Stock that is surrendered or delivered shall
be payment of that portion of the purchase price for Shares equal to the fair
market value of a share of Common Stock on the applicable date of exercise, as
determined in good faith by the Board of Directors of the Company. Each right to
purchase a Share that is surrendered shall be payment of that portion of the
purchase price for a Share equal to the difference between (i) the fair market
value of a share of Common Stock on the applicable exercise date, and if same
shall not be readily available then such fair market value shall be as
determined in good faith by the Board of Directors of the Company and (ii) the
exercise price for the Share under the purchase right surrendered. The Warrant
shall be deemed to have been exercised immediately prior to the close of
business on the date of its surrender for exercise as provided above, and the
Holder shall be treated for all purposes as the holder of record of such shares
as of the close of business on such date. As promptly as practicable on or after
such date, the Company shall instruct its transfer agent to issue and deliver to
the Holder a certificate or certificates for the number of full Shares of Common
Stock issuable upon such exercise. Notwithstanding the foregoing or any other
provision of this Warrant, this Warrant shall not be exercised for less than
1,000 Shares at any time unless at such time less than 1,000 such Shares are
subject to such exercise.
(b) Issuance of certificates for the Shares upon the exercise of this
Warrant shall be made without charge to the registered holder hereof for any
issue or transfer tax or other incidental expense with respect to the issuance
of such certificates, all of which taxes and expenses shall be paid by the
Company, and such certificates shall be issued in the name of the registered
holder of this Warrant or in such name or names as may be directed by the
registered holder of this Warrant; provided, however, that in the event
certificates for the Shares are to be issued in a name other than the name of
the registered holder of this Warrant, this Warrant, when surrendered for
exercise, shall be accompanied by the Assignment Form attached hereto duly
executed by the Holder hereof, and provided further, that any such transfer
shall comply with Section 9 hereof.
8. Automatic Termination. In the event of (i) the closing of the Company's
registration statement on a Form S-1 (or any other form equivalent thereto)
pursuant to which Common Stock is sold to the public by the Company in a public
offering registered under the Securities Act of 1933, as amended; or (ii) the
proposed sale of all or substantially all the capital stock, or substantially
all the assets, of the Company in a merger, business combination, or other form
of business transaction with or into a third party in which the Company's
shareholders do not own at least a majority of the outstanding voting securities
of the surviving corporation or business entity after such transaction (based
solely on such Company shareholders' holdings of the Company prior to the
transaction), then the Company shall give the Holder of this Warrant at least
fifteen (15) days written notice of the proposed effective date and terms of
such offering, transaction or agreements, and if the Warrant has not been
exercised at least before the effective date of such offering, transaction or
agreements, then this Warrant and the rights hereunder shall be automatically
terminated.
-2-
<PAGE>
9. Transfer or Assignment of Warrant.
(a) This Warrant, and any rights hereunder, may not be assigned or
transferred, except as provided herein and in accordance with and subject to the
provisions of (i) applicable state securities laws, and (ii) the Act and the
rules and regulations promulgated thereunder (such Act and such rules and
regulations being hereinafter collectively referred to as the "Act"). Any
purported transfer or assignment made other than in accordance with this Section
9 shall be null and void and of no force and effect.
(b) This Warrant, and any rights hereunder, may be transferred or
assigned only with the prior written consent of the Company, which shall be
granted only upon receipt by the Company of an opinion of counsel satisfactory
to the Company that (i) the transferee is a person to whom this Warrant may be
legally transferred without registration under the Act, and (ii) such transfer
will not violate any applicable law or governmental rule or regulation,
including, without limitation, any applicable federal or state securities law.
Prior to the transfer or assignment, the assignor or transferor shall reimburse
the Company for its reasonable expenses, including transfer taxes and attorneys'
fees, incurred in connection with the transfer or assignment.
(c) Any assignment permitted hereunder shall be made by surrender of
this Warrant to the Company at its principal office with the Assignment Form
annexed hereto duly executed and funds sufficient to pay any transfer tax. In
such event, the Company shall, without charge, execute and deliver a new Warrant
in the name of the assignee named in such instrument of assignment and this
Warrant shall be promptly canceled.
(d) The foregoing restrictions against transfer and assignment shall
not apply in the case of: (i) transfer pursuant to a merger or consolidation of
the Company; (ii) transfer pursuant to a public offering registered under the
Securities Act of 1933, as amended; (iii) transfer by the Holder directly or
indirectly to, or for the benefit of, his spouse, children, or other blood
relatives with consanguinity in and to the second degree or to any trust
instrument where the Holder is a trustee or beneficiary; (iv) transfer by the
Holder to his heirs, executors, personal representatives or other assigns as a
result of his death or incapacity (or, in the case of a Holder which is an
entity, its dissolution or other termination); or (v) transfer by the Holder to
any unrelated natural person or persons which transfer is a gift or bequest or
without consideration; provided, however, that no such transfer described in
this clause (v) shall be for greater than fifteen percent (15%) of all
securities of the Company owned by the transferring Holder as of the date
hereof. Any transfer referred to in clause (iii), (iv) or (v) shall be
conditioned on the transferee (and the transferee's spouse, if applicable)
becoming a party to this Warrant prior to becoming the record owner of the
transferred Warrant.
10. Adjustments to Shares.
(a) If the Company at any time shall, by split, reverse split,
combination, reclassification, exchange or subdivision of securities or
otherwise change any of the securities as to which purchase rights under this
Warrant exist into the same or a different number of securities of any other
class or classes, this Warrant shall thereafter represent the right to acquire
such number and kind of securities as would have been issuable as the result of
such change with
-3-
<PAGE>
respect to the securities which were subject to the purchase rights under this
Warrant immediately prior to such combination, reclassification, exchange,
subdivision or other change.
(b) Upon any of the events set forth in clause (a) above, the Warrant
Price shall be proportionately decreased in the case of a subdivision, or
proportionately increased in the case of a combination, as the case may be.
11. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will
make and deliver a new warrant identical in tenor and date in lieu of this
Warrant.
12. General. This Warrant shall be governed by and interpreted in
accordance with the laws of the State of California. The headings in this
Warrant are for purposes of convenience and reference only and shall not be
deemed to constitute a part hereof. Neither this Warrant nor any term hereof may
be changed, waived, discharged or terminated orally but rather only by an
instrument in writing signed by the Company and the Holder. All notices and
other communications from the Company to the Holder shall be by prepaid courier
or mailed first-class registered or certified mail, postage pre-paid, to the
last address furnished to the Company in writing by the Holder.
13. Amendment and Waiver. Any provisions of this Warrant (including,
without limitation, termination of exercisability) may be amended or waived, and
any and all such amendments or waivers shall be binding upon the Holder, only if
approved in writing by the Company and the Holder.
Issued this ___ day of ____________, _______.
HyperMedia Communications, Inc.
By: ________________________________
Name:
Title:
-4-
<PAGE>
SUBSCRIPTION FORM
The undersigned registered owner of the Warrant which accompanies this
Subscription Form hereby irrevocably exercises such Warrant for, and purchases,
_______ shares of HyperMedia Communications, Inc. ("Company") Common Stock,
purchasable upon the exercise of such Warrant, and herewith makes payment
therefor, all at the price and on the terms and conditions specified in such
Warrant. The undersigned elects to make such payment in the following manner
(check one): (a) ______ cash; or (b) ______ shares of the Company's Common Stock
and/or surrender of purchase rights under such Warrant.
Dated: __________________
_______________________________
(Signature of Registered Owner)
_______________________________
(Name)
_______________________________
(Street Address)
_______________________________
(City, State, Zip Code)
-5-
<PAGE>
FORM OF ASSIGNMENT
(To be signed only upon assignment of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto:
----------------------------------
----------------------------------
----------------------------------
(Name and address of assignee must be printed or typewritten)
___________ shares of HyperMedia Communications, Inc. Common Stock purchasable
under the within Warrant, hereby irrevocably constituting and appointing
______________________ Attorney to transfer said Warrant on the books of the
Company, with full power of substitution in the premises.
Dated: _________________
By: _________________________________
(Signature of Registered Owner)
-6-
LEASE AMENDMENT #3
Lease Amendment #3 (this "Lease Amendment #3") to that certain Lease dated
February 21, 1991, and as amended by Lease Amendment #1 dated June 11, 1993, and
Lease Amendment #2 dated February 13, 1997 between Spieker Properties, L.P., a
California limited partnership, as Landlord, and Hypermedia Communications,
Inc., a California corporation, as Tenant (the "Lease"), for Premises located on
the 2nd and 3rd floors, consisting of approximately 7,526 rentable square feet
(the "Premises") located at 901 Mariner's Island Boulevard, Suites 285 and 365,
San Mateo, California.
Landlord and Tenant hereby agree that the term of the Lease is hereby renewed
and extended for an additional term of thirty-six (36) months to commence on the
May 1, 2000, and to end on April 30, 2003, on condition that Landlord and Tenant
comply with all the provisions of the covenants and agreements contained in the
Lease except:
1) Rental: Base Rent for the premises shall be:
5/01/00 - 4/30/01: $33,641.00 per month plus operating expenses per
Paragraph 29 of the Lease. Operating expenses
through December 31, 2000 are estimated to be
$5,870.00 per month. Direct operating expenses
are estimated a year in advance and collected on
a monthly basis. Any adjustments necessary (up or
down) will be made at the end of the operating
year.
5/01/01 - 4/30/02: $34,620.00 per month plus operating expenses per
Paragraph 29 of the Lease.
5/01/02 - 4/30/03: $35,673.00 per month plus operating expenses per
Paragraph 29 of the Lease.
2) Tenant Improvements: Tenant accepts the premises in "as is" condition.
3) Security Deposit: The Security Deposit under the Lease shall be
increased by $13,100.00 for a total Security
Deposit of $35,673.00, payable upon execution of
this Lease Amendment #3.
IN WITNESS WHEREOF, the parties hereto have executed this Lease Amendment #3 as
of this ________ day of March, 2000.
LANDLORD: TENANT:
Spieker Properties, L.P., Hypermedia Communications, Inc.,
a California limited partnership a California corporation
By: Spieker Properties, Inc.,
a Maryland corporation
its General Partner
By: ____________________________ By: ____________________________
Nancy B. Gille Ken Klein
Its: Vice President Its: Chief Financial Officer,
Vice President of Finance &
Administration
San Mateo, CA
October 13, 1999
$325,000
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 three hundred twenty-five thousand dollars ($325,000), 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 Business Finance ("BF") 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 BF 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 13 day of October, 1999.
Hypermedia Communications, Inc.
By: ___________________________
Title: ________________________
San Mateo, CA
November 8, 1999
$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 Business Finance ("BF") 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 BF 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 8 day of November, 1999.
Hypermedia Communications, Inc.
By: __________________
Title: ________________
San Mateo, CA
November 12, 1999
$200,000
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 two hundred thousand dollars ($200,000), 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 Business Finance ("BF") 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 BF 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 12 day of November, 1999.
Hypermedia Communications, Inc.
By: __________________
Title: ________________
San Mateo, CA
November 29, 1999
$125,000
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 twenty five thousand dollars ($125,000), 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. 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.
2. 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.
3. Governing Law - This Note is issued in and shall be interpreted
under the laws of the State of California.
Issued this 29 day of November, 1999.
Hypermedia Communications, Inc.
By: __________________
Title: ________________
San Mateo, CA
December 13, 1999
$300,000
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 three hundred thousand dollars ($300,000), 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. 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.
2. 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.
3. Governing Law - This Note is issued in and shall be interpreted
under the laws of the State of California.
Issued this 13 day of December, 1999.
Hypermedia Communications, Inc.
By: __________________
Title: ________________
San Mateo, CA
December 23, 1999
$375,000
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 three hundred seventy five thousand dollars ($375,000), 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. 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.
2. 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.
3. Governing Law - This Note is issued in and shall be interpreted
under the laws of the State of California.
Issued this 23 day of December, 1999.
Hypermedia Communications, Inc.
By: __________________
Title: ________________
San Mateo, CA
December 31, 1999
$1,191,688.58
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 million one hundred ninety one thousand six hundred eight
eight dollars and 58 cents ($1,1911688.58), 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. 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.
2. 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.
3. Governing Law - This Note is issued in and shall be interpreted
under the laws of the State of California.
Issued this 31 day of December, 1999.
Hypermedia Communications, Inc.
By: __________________
Title: ________________
EXHIBIT 11.1
HYPERMEDIA COMMUNICATIONS, INC.
COMPUTATION OF NET LOSS PER SHARE, BASIC AND DILUTED
Year Ended December 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
Net loss $(4,459,000) $(2,826,000) $ (886,000)
=========== =========== ===========
Weighted average shares outstanding:
Common Stock 3,200,137 3,200,137 3,185,043
Preferred Stock -- -- --
Common stock equivalents from
options and warrants -- -- --
----------- ----------- -----------
Weighted average shares 3,200,137 3,200,137 3,185,043
=========== =========== ===========
Net loss per share, basic and diluted $ (1.39) $ (0.88) $ (0.28)
=========== =========== ===========
EXHIBIT 23.1
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 4, 2000, relating to the financial statements of
Hypermedia Communications, Inc., for the year ended December 31, 1999 which
appear in this form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Jose, California
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 336
<SECURITIES> 0
<RECEIVABLES> 233
<ALLOWANCES> 56
<INVENTORY> 0
<CURRENT-ASSETS> 617
<PP&E> 492
<DEPRECIATION> 359
<TOTAL-ASSETS> 750
<CURRENT-LIABILITIES> 5088
<BONDS> 0
0
3924
<COMMON> 10427
<OTHER-SE> (18689)
<TOTAL-LIABILITY-AND-EQUITY> 750
<SALES> 3659
<TOTAL-REVENUES> 3659
<CGS> 0
<TOTAL-COSTS> 7888
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 57
<INTEREST-EXPENSE> 230
<INCOME-PRETAX> (4459)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4459)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4459)
<EPS-BASIC> (1.39)
<EPS-DILUTED> (1.39)
</TABLE>
