SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark one)
_X_ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended September 30, 2000
or
___ Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from _____ to _____.
Commission File Number 1-11624
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HyperMedia Communications, Inc.
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(Exact name of registrant as specified in its charter)
California 94-3104247
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
901 Mariner's Island Blvd., Suite 365,
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San Mateo, California 94404
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(Address of principal executive offices) (Zip Code)
(650) 573-5170
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes_X_ No__
As of October 15, 2000, 3,200,975 shares of the Registrant's common stock were
issued and outstanding.
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TABLE OF CONTENTS
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Page
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PART I FINANCIAL INFORMATION.......................................................................... 2
ITEM 1. Financial Statements
Condensed Balance Sheets as of September 30, 2000 and
December 31, 1999..................................................................... 2
Condensed Statements of Operations for the Three and Nine Months Ended September 30,
2000 and September 30, 1999........................................................... 3
Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2000 and
September 30, 1999.................................................................... 4
Notes to Condensed Financial Statements............................................... 5
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk............................. 20
PART II OTHER INFORMATION.............................................................................. 21
ITEM 1. Legal Proceedings..................................................................... 21
ITEM 2. Changes in Securities and Use of Proceeds............................................. 21
ITEM 3 Defaults Upon Senior Securities....................................................... 21
ITEM 4. Submission of Matters to a Vote of Security Holders................................... 21
ITEM 5. Other Information..................................................................... 21
ITEM 6. Exhibits and Reports on Form 8-K...................................................... 21
SIGNATURES....................................................................................................... 22
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
HYPERMEDIA COMMUNICATIONS, INC.
BALANCE SHEETS
<CAPTION>
September 30, December 31,
2000 1999
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(UNAUDITED)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 467,000 $ 336,000
Accounts receivable, net of allowance for
doubtful accounts of $61,000 and $56,000 171,000 177,000
Prepaid expenses and other assets 319,000 104,000
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Total current assets 957,000 617,000
Property and equipment, net 149,000 133,000
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Total Assets $ 1,106,000 $ 750,000
============ ============
Liabilities, convertible Preferred Stock and Shareholders' Equity (Deficit)
Current liabilities:
Note payable - related party $ 7,914,000 $ 4,127,000
Accounts payable 182,000 326,000
Accrued liabilities 887,000 621,000
Deferred revenue 200,000 14,000
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Total current liabilities 9,183,000 5,088,000
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Convertible Preferred Stock, $.001 par value; 20,064,516
shares authorized;$4,000,000 aggregate liquidation amount;
8,512,191 shares issued and outstanding 3,924,000 3,924,000
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Shareholders' equity (deficit):
Common Stock, $.001 par value; 50,000,000 shares
authorized; 3,200,975 and 3,200,137 shares issued and
outstanding 10,427,000 10,427,000
Accumulated deficit (22,428,000) (18,689,000)
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Total shareholders' equity (deficit) (12,001,000) (8,262,000)
------------ ------------
Total Liabilities, Convertible Preferred Stock and Shareholders' Equity
(Deficit) $ 1,106,000 $ 750,000
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<FN>
See the accompanying notes to these condensed financial statements.
</FN>
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HYPERMEDIA COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three months ended September 30, Nine months ended September 30,
-------------------------------- --------------------------------
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Revenues
Advertising revenues $ 7,000 $ 708,000 $ 195,000 $ 2,550,000
Other revenues 142,000 95,000 664,000 371,000
----------- ----------- ----------- -----------
Total revenues 149,000 803,000 859,000 2,921,000
Cost of advertising revenue 441,000 1,213,000 1,344,000 3,383,000
----------- ----------- ----------- -----------
Gross profit (292,000) (410,000) (485,000) (462,000)
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Expenses:
Sales and marketing 372,000 429,000 1,606,000 1,494,000
Product development -- 150,000 95,000 150,000
General and administrative 411,000 291,000 1,077,000 867,000
----------- ----------- ----------- -----------
Total expenses 783,000 870,000 2,778,000 2,511,000
----------- ----------- ----------- -----------
Loss from operations (1,075,000) (1,280,000) (3,263,000) (2,973,000)
Interest and other expense, net 198,000 65,000 476,000 139,000
----------- ----------- ----------- -----------
Net loss $(1,273,000) $(1,345,000) $(3,739,000) $(3,112,000)
=========== =========== =========== ===========
Net loss per share, basic and
diluted $ (0.40) $ (0.42) $ (1.17) $ (0.97)
=========== =========== =========== ===========
Weighted average shares 3,200,975 3,200,137 3,200,773 3,200,137
=========== =========== =========== ===========
<FN>
See the accompanying notes to these condensed financial statements.
</FN>
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HYPERMEDIA COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Nine months ended September 30,
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2000 1999
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<S> <C> <C>
Cash flow from operating activities:
Net loss $(3,739,000) $(3,112,000)
Adjustments to reconcile net loss to net
Cash used in operating activities:
Depreciation and amortization 101,000 253,000
Allowance for doubtful accounts 5,000 41,000
Change in assets and liabilities:
Accounts receivable 1,000 (10,000)
Prepaid expenses and other assets (215,000) 129,000
Accounts payable (144,000) (95,000)
Accrued liabilities 266,000 327,000
Deferred revenue 186,000 354,000
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Net cash used in operating activities (3,539,000) (2,113,000)
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Net cash used in investing activities for:
Purchase of fixed assets (117,000) (17,000)
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Cash flows from financing activities:
Proceeds from notes payable - related party 3,787,000 2,236,000
Proceeds from notes payable - line of credit -- 182,000
Repayment of line of credit -- (350,000)
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Net cash provided by financing activities 3,787,000 2,068,000
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Net increase (decrease) in cash 131,000 (62,000)
Cash at beginning of period 336,000 182,000
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Cash at end of period $ 467,000 $ 120,000
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Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 13,000 $ 33,000
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<FN>
See the accompanying notes to these condensed financial statements.
</FN>
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HYPERMEDIA COMMUNICATIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 - GENERAL
The financial statements of HyperMedia Communications, Inc. (the
"Company") as of September 30, 2000 and for the three and nine months ended
September 30, 2000 and 1999, are unaudited, and in the opinion of management,
include all adjustments (consisting of only normal recurring items) necessary
for the fair presentation of the financial position and results of operations
for the interim periods. These financial statements should be read in
conjunction with the Financial Statements for the year ended December 31, 1999
and the notes thereto included in the Company's annual report on Form 10-K. The
results of operations for the three and nine months ended September 30, 2000,
are not necessarily indicative of the results expected for the entire year.
The preparation of these financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
On October 17, 2000, the Company announced that due to its inability to secure
necessary financing, it suspended operations, laid off most of its staff, and
began an orderly wind-down of the Company, which it hopes to complete as soon as
possible. Management is exploring options to sell the Company or its assets.
There can be no assurances that the Company will be successful in accomplishing
any such sale or that the proceeds will exceed the Company's liabilities. If the
Company cannot generate sufficient proceeds from the sale of the Company or its
assets to pay off its existing liabilities, it will be unable to make any
distributions to preferred and common shareholders. At the present time, the
Company does not anticipate being able to pay off its liabilities in full, which
makes any distribution to either preferred or common shareholders unlikely. This
is a significant change in the Company's business model. Readers should
carefully review all the information in this document including the risk factors
contained in the "Factors Affecting Operating Results and Market Price of Stock"
section of this report.
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
provided daily news and information services to the Internet architect
community. The Company also continued to produce the NewMedia INVISION Awards
Festival, a juried digital media competition and conference that sought to
identify the most original and creative ideas within the global Internet
architect community.
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In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including derivative instruments
in other contracts (collectively referred to as derivatives), and for hedging
activities. In June 1999, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 137, "Accounting for Derivatives
Instruments and Hedging Activities-Deferral of Effective Date of FASB Statement
No. 133." SFAS No. 133, as amended by SFAS No. 137, is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000, with earlier
application encouraged. The Company does not currently, nor does it intend in
the future, to use derivative instruments. The Company is evaluating the impact
that the adoption of SFAS No. 133 will have on its financial position or results
of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial Statements."
SAB 101 provides guidance on the recognition, presentation, and disclosure of
revenue in financial statements filed with the SEC and is effective in the
fourth quarter of 2000. The Company does not anticipate that the adoption of SAB
101 will have a material effect.
Advertising revenues from newmedia.com are recognized over the period
delivered, provided that no significant obligations remain at the end of the
period and the collection of the resulting receivable is probable.
Other revenues, comprised primarily of postal and email list rentals,
are recognized upon use by the customer, provided that no significant
obligations remain and the collection of the resulting receivable is probable.
Certain 1999 balances have been reclassified for comparative purposes.
NOTE 2 - BASIC AND DILUTED NET LOSS PER SHARE
Basic and diluted net loss per share is based upon the weighted average
number of outstanding shares of Common Stock. Common Stock equivalent shares
from Convertible Preferred Stock (using the if-converted method) and stock
options and warrants (using the treasury stock method) have been excluded from
the computation for the three and nine month periods ended September 30, 2000
and 1999, as their effect is anti-dilutive.
6
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This section and other parts of this Annual Report on Form 10-Q 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." You are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date hereof.
General
HyperMedia Communications, Inc., (the "Company" or "HyperMedia") was
incorporated in California in August 1989, and produced information and business
services for the global Internet Architect community. Internet Architects are
professionals who utilize business, design, and technology skills to create Web
sites and Internet-driven businesses. Our primary product offering was
newmedia.com, a vertical portal on the World Wide Web targeted to Internet
Architects. We also produced the NewMedia INVISION Awards Festival, an annual
competition and conference that sought to identify the most original and
creative ideas within the global Internet Architect community.
On October 17, 2000 we announced that due to our inability to secure
necessary financing, we suspended operations, laid off most of our staff and
began an orderly wind-down of the Company, which we hope to complete as soon as
possible. We are exploring options to sell the Company or its assets. There can
be no assurances that we will be successful in accomplishing any such sale or
that the proceeds will exceed our liabilities. If we cannot generate sufficient
proceeds from the sale of the Company or its assets to pay off our existing
liabilities, we will be unable to make any distributions to preferred and common
shareholders. At the present time, we do not anticipate being able to pay off
our liabilities in full, which makes any distribution to either preferred or
common shareholders unlikely. This is a significant change in our business
model. Readers should carefully review all the information in this document
including the risk factors contained in the "Factors Affecting Operating Results
and Market Price of Stock" section of this report.
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.
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Our business strategy was 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 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.
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 featured 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 was geared toward
enhancing the user's experience and providing customized marketing capabilities
to our advertisers and business partners.
Our advertising revenues were derived primarily from the sale of
advertising spots, site sponsorships, and newsletter advertisements.
We also earned revenue from the NewMedia INVISION Festival, an annual
competition and conference that sought to identify the most original and
creative ideas within the global Internet Architect community. Event revenue
consisted of entry fees to the competition, sponsorship fees for the Festival,
and conference and event ticket sales.
Finally, we earned 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
71,000 registered site users and former magazine subscribers.
Results of Operations
Revenues
Revenues for the three and nine months ended September 30, 2000,
primarily consisted of advertising on newmedia.com and postal and email list
rentals. Revenues for the three and nine months ended September 30, 1999,
primarily consisted of advertising in NewMedia magazine and postal list rentals.
Total revenues were $149,000 for the three months ended September 30, 2000,
compared to $803,000 for the three months ended September 30, 1999. For the nine
months ended September 30, 2000, total revenues were $859,000 compared to
$2,921,000 for the nine months ended September 30, 1999.
8
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Advertising revenues were $7,000 for the three months ended September
30, 2000, compared to $708,000, for the three months ended September 30, 1999.
For the nine months ended September 30, 2000, advertising revenues were $195,000
compared to $2,550,000 for the nine months ended September 30, 1999. The decline
in advertising for the three and nine months ended September 30, 2000 from the
same period last year is primarily due to our shift in business strategy from a
print publisher to an Internet-based vertical portal providing daily news,
information, and business services to the global Internet Architect community
through our new Web site newmedia.com, which was launched in late January 2000.
Other revenues, which primarily consist of postal and email list
rentals were $142,000 for the three months ended September 30, 2000 compared to
$95,000 for the three months ended September 30, 1999. This increase was
primarily due to higher list rentals. For the nine months ended September 30,
2000 other revenues were $664,000 compared to $371,000 for the nine months ended
September 30, 1999. This increase was primarily due to higher list rentals and
the one-time sale of a portion of the NewMedia magazine subscriber list.
Cost of Advertising Revenues
Cost of advertising revenues for the three and nine months ended
September 30, 2000, consists of the expenses associated with the production and
operation of newmedia.com. These costs primarily consist of editorial costs
associated with the production of content for newmedia.com, Internet connection
charges and equipment depreciation. Cost of advertising revenues for the three
and nine months ended September 30, 1999, consists of the expenses associated
with the production of NewMedia magazine. These costs primarily consist of
editorial and design costs associated with the production of content for
NewMedia magazine, and production and circulation charges for producing and
distributing the magazine.
Cost of advertising revenues were $441,000 for the three months ended
September 30, 2000, compared to $1,213,000 for the three months ended September
30, 1999. For the nine months ended September 30, 2000, cost of advertising
revenues were $1,344,000 compared to $3,383,000 for the nine months ended
September 30, 1999. The decline in cost of advertising revenues for the three
and nine months ended September 30, 2000, from the same period last year was
directly related to our decision to cease publishing Newmedia magazine in
September 1999.
Sales and Marketing
Sales and marketing expenses were $372,000 for the three months ended
September 30, 2000 compared to $429,000 for the three months ended September 30,
1999. For the nine months ended September 30, 2000, sales and marketing expenses
were $1,606,000 compared to $1,494,000 for the nine months ended September 30,
1999. The decline in sales and marketing expenses for the three months ended
September 30, 2000, over the same period last year is primarily due to lower
sales compensation and commission expense. The increase in sales and marketing
expenses for the nine months
9
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ended September 30, 2000, over the same period last year is primarily due to
increased advertising and promotional activities associated with the launch of
newmedia.com.
Product Development
Product development expenses were $0 for the three months ended
September 30, 2000 compared to $150,0000 for the three months ended September
30, 1999. For the nine months ended September 30, 2000, product development
expenses were $95,000 compared to $150,000 for the nine months ended September
30, 1999. The decrease in product development expenses for the three and nine
months ended September 30, 2000, over the same period last year is due to a
reduction in development expenses for newmedia.com.
General and Administrative
General and administrative expenses for the three months ended
September 30, 2000, were $411,000 compared to $291,000 for the three months
ended September 30, 1999.For the nine months ended September 30, 2000, general
and administrative expenses were $1,077,000,000 compared to $867,000 for the
nine months ended September 30, 1999. The increase in general and administrative
expenses for the three and nine months ended September 30, 2000, over the same
period last year was primarily due to an increase in professional fees and
recruitment expenses related to the staffing of newmedia.com.
Interest and Other Expense, Net
Interest and other expense, net were $198,000 for the three months
ended September 30, 2000, compared to $65,000 for the three months ended
September 30, 1999. For the nine months ended September 30, 2000, interest and
other expense, net were $476,000 compared to $139,000 for the nine months ended
September 30, 1999. The increase in expenses for the three and nine months ended
September 30, 2000, over the same period last year was primarily due to
increased interest expense associated with our increased borrowing in 2000.
Net Loss
We reported a net loss of $1,273,000 for the three months ended
September 30, 2000, compared to a net loss of $1,345,000 for the three months
ended September 30, 1999. For the nine months ended September 30, 2000, our net
loss was $3,739,000 compared to $3,112,000 for the nine months ended September
30, 1999. The decrease in the net loss for the three months ended September 30,
2000 over the same period last year was primarily due to a reduction in the
gross profit loss, lower sales and product development costs partially offset by
higher general and administrative costs and interest expense. The increase in
the net loss for the nine months ended September 30, 2000 over the same period
last year was primarily due to increased marketing and general and
administrative costs and higher interest expense.
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Liquidity and Capital Resources
At September 30, 2000, we had a working capital deficit of
approximately ($8,226,000) and our principal source of liquidity consisted of
approximately $467,000 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 collateralized 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. During the quarter
ended September 30, 2000, $2,898,000 in notes that had become due were extended
for an additional 180 days. At September 30, 2000, $7,914,000 was outstanding
under these notes.
On October 17, 2000 we announced that due to our inability to secure
necessary financing, we suspended operations, laid off most of our staff and
began an orderly wind-down of the Company, which we hope to complete as soon as
possible. We are exploring options to sell the Company or its assets. There can
be no assurances that we will be successful in accomplishing any such sale or
that the proceeds will exceed our liabilities. If we cannot generate sufficient
proceeds from the sale of the Company or its assets to pay off our existing
liabilities, we will be unable to make any distributions to preferred and common
shareholders. At the present time, we do not anticipate being able to pay off
our liabilities in full, which makes any distribution to either preferred or
common shareholders unlikely. This is a significant change in our business
model. Readers should carefully review all the information in this document
including the risk factors contained in the "Factors Affecting Operating Results
and Market Price of Stock" section of this report.
Capital expenditures for the nine months ended September 30, 2000, were
$117,000 compared to $17,000 for the nine months ended September 30, 1999. These
expenditures primarily consist of desktop personal computer replacements and
software upgrades.
Net cash used in operating activities were $3,539,000 for the nine
months ended September 30, 2000, and $2,113,000 for the nine months ended
September 30, 1999.
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 our ability to sell the Company.
Factors Affecting Operating Results And Market Price Of Stock
This section and other parts of this Annual Report on Form 10-Q 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". You
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof.
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Among the factors that could cause actual results to differ materially
are those listed below and those listed in the Company's SEC reports, including
but not limited to the Annual Report on Form 10-K for the year ended December
31, 1999
We are shutting our operations and looking for a buyer of our assets.
Regardless of our success in these efforts the following risk factors will be
rendered moot as those factors cease to apply with the shut down of our
operations.
Our attempt to sell the Company or its assets may not generate the proceeds
necessary to payoff all of our liabilities.
If we cannot generate sufficient proceeds from the sales of the Company
or its assets to payoff our existing liabilities, we will be unable to make any
distributions to preferred and common shareholders. At the present time, we do
not anticipate being able to pay off our liabilities in full, which makes any
distribution to either preferred or common shareholders unlikely.
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 $22,428,000 from inception to
September 30, 2000. 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.
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Our limited history makes evaluating our business difficult.
Because we converted our business from a traditional print publisher to
an 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
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
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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.
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.
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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.
Due to our site's design our banner spot does not change as viewers
read additional content and move through our site. This allows us to maintain a
fixed ad spot that can be sold on the basis of time similar to radio and
television.
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, track users' content
viewing habits and serve 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.
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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.
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. These
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
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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 adversely
affected 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
20,064,516 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 September 30, 2000, are
convertible into 8,864,617 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 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 September
30, 2000, the accumulated unpaid dividends, if converted, would be convertible
into 936,354 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
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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.
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We also have 11,552,325 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
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 into 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.
Item 3. 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.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
We are not a party to any material legal proceedings.
Item 2. Changes in Securities and Use of Proceeds.
Not applicable
Item 3. Default upon Senior Securities.
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 Articles of Incorporation of the Registrant, as amended and
filed September 2000.
4.1 $175,000 Subordinated Promissory Note, dated July
14, 2000, issued by the Registrant to MK GVD Fund.
4.2 $175,000 Subordinated Promissory Note, dated July 31, 2000,
issued by the Registrant to MK GVD Fund.
4.3 $350,000 Subordinated Promissory Note, dated August 2, 2000,
issued by the Registrant to MK GVD Fund.
4.4 $350,000 Subordinated Promissory Note, dated September 14,
2000, issued by the Registrant to MK GVD Fund.
27.1 Financial Data Schedule.
(b) A Form 8-K was filed October 18, 2000 which reported under Item 5 our
plans to suspend operations, cancelled the NewMedia INVISION 2000 Festival, laid
off most of our staff and begun an orderly wind-down of operation, due to our
inability to secure necessary financing to continue operations.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 13, 2000 HyperMedia Communications, Inc.
By: \s\ Kenneth Klein
-----------------
Kenneth Klein, Vice President of Finance
and Administration, Chief Financial Officer
and Secretary
(Principal Financial and Accounting Officer)
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