U.S. SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarter Ended: June 30, 2002
( ) TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 1-15863
MEDIUM4.COM, INC.
-----------------
(Exact name of Registrant as specified in its charter)
Delaware 13-4037641
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
1220 COLLINS AVENUE, MIAMI BEACH, FL 33139
------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(305) 538-0955
--------------
(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 filing
requirements for the past 90 days.
Yes_X_ No___
The number of shares of Common Stock, par value $ .01 per share, outstanding
as of June 30, 2002 is 29,672,556.
MEDIUM4.Com Inc.
CONTENTS
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Page
FINANCIAL STATEMENTS
Balance Sheets as of June 30, 2002 and December 31, 2001 ................F-2
Statements of Operations - For the Three Months Ended
June 30, 2002 and 2001, Six Months Ended June 30, 2002 and 2001,
Cumulative November 12, 1998 (inception) to June 30, 2002 ...............F-3
Statement of Stockholder's Deficiency - For the Six Months
Ended June 30, 2002 Cumulative November 12, 1998 (inception)
to June 30, 2002 ........................................................F-4
Statements of Cash Flows - Cumulative November 12, 1998
(inception) to June 30, 2002 ............................................F-5
Notes To Financial Statements ...............................................F-6
F-1
PART I - FINANCIAL INFORMATION
Item 1. Financial Information
MEDIUM4.COM, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEET
June 30, December 31,
2002 2001
------------ ------------
(unaudited) (audited)
ASSETS
CURRENT ASSETS:
Cash ...................................................... $ 6,008 $ 18,380
Other current assets ...................................... - 376
------------ ------------
Total Current Assets ...................................... 6,008 18,756
INVESTMENT IN AFFILIATE ................................... 100,000 100,000
LEASEHOLD IMPROVEMENTS AND EQUIPMENT, NET ................. 45,284 93,511
OTHER ASSETS .............................................. 27,569 27,569
------------ ------------
$ 178,861 $ 239,836
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable .......................................... $ 357,415 $ 343,960
Accrued expenses .......................................... 202,195 211,843
Loan payable - related party .............................. 510,732 243,479
Deferred Revenue .......................................... 280,000 305,000
------------ ------------
Total Current Liabilities ................................. 1,350,342 1,104,281
STOCKHOLDERS' DEFICIENCY
Preferred stock $.01 par value 5,000 shares authorized,
1,000 and -0- issued and outstanding ...................... 10 10
Common stock, $.01 par value; 30,000,000 shares authorized,
29,672,556 and 12,266,196 issued and outstanding,
respectively .............................................. 296,726 296,726
Paid in capital ........................................... 18,664,745 18,664,745
Deficit accumulated during development stage .............. (19,960,068) (19,530,138)
Unearned compensation expense ............................. (122,894) (245,788)
Treasury stock ............................................ (50,000) (50,000)
------------ ------------
Total Stockholder's deficiency ............................ (1,171,481) (864,446)
------------ ------------
$ 178,861 $ 239,836
============ ============
See notes to consolidated financial statements
F-2
MEDIUM4.COM, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
Cumulative
November 12,
1998
Three Months Ended June 30, Six Months Ended June 30, (inception)
-------------------------- -------------------------- to June 30,
2002 2001 2002 2001 2002
------------ ----------- ----------- ------------ -----------
(unaudited) (unaudited) (unaudited) (unaudited)
REVENUE ................................ $ 88,546 85,000 226,046 $ 280,031 1,371,003
COST OF SALES .......................... - - - 9,500 471,866
------------ ----------- ----------- ------------ -----------
GROSS PROFIT ........................... 88,546 85,000 226,046 270,531 899,137
EXPENSES:
Production ............................. 10,535 40,721 24,815 65,420 2,736,242
Selling, general and
administrative expense ................ 338,306 1,431,583 631,195 2,280,306 17,114,946
------------ ----------- ----------- ------------ -----------
Total expenses ......................... 348,841 1,472,304 656,010 2,345,726 19,851,188
------------ ----------- ----------- ------------ -----------
LOSS FROM OPERATIONS ................... (260,295) (1,387,304) (429,964) (2,075,195) (18,952,051)
OTHER INCOME (EXPENSE):
Interest income ........................ - - - 390 291,868
Write down of fixed assets ............. - - - - (584,922)
Write down of capitalized
development costs ..................... - - - - (534,498)
Write down of investments .............. - - - - (59,000)
Loss on marketable securities .......... - - - - (125,445)
Other income ........................... - 5,664 33 6,164 17,978
------------ ----------- ----------- ------------ -----------
Total other income (expense) ........... - 5,664 33 6,554 (994,019)
------------ ----------- ----------- ------------ -----------
LOSS BEFORE TAXES ...................... (260,295) (1,381,640) (429,931) (2,068,641) (19,946,070)
INCOME TAX EXPENSE ..................... - - - - 14,000
------------ ----------- ----------- ------------ -----------
NET LOSS ............................... $ (260,295) (1,381,640) (429,931) $ (2,068,641) (19,960,070)
============ =========== =========== ============ ===========
Other comprehensive income, net of tax:
Foreign currency translation adjustments - - - - (17,052)
Comprehensive Income ................... $ (260,295) (1,381,640) (429,931) $ (2,068,641) (19,977,122)
============ =========== =========== ============ ===========
Weighted average shares of common stock
outstanding ............................ 29,672,556 14,195,625 29,672,556 14,195,625
Net loss per share ..................... $ (0.01) (0.10) (0.01) $ (0.15)
============ =========== ============ ===========
See notes to consolidated financial statements
F-3
MEDIUM4.COM, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED STATEMENT OF STOCKHOLDER'S DEFICIENCY
Preferred Stock Common Stock Additional
-------------------------- -------------------------- Paid in Accumulated
Shares Amount Shares Amount Capital Deficit
------------ ------------ ------------ ------------ ------------ ------------
Balance as of November 12, 1998
(inception) .................. - $ - 8,300,000 83,000 $ - $ -
------------ ------------ ------------ ------------ ------------ ------------
Balance as of December 31, 1998 . - - 8,300,000 83,000 - -
Receipt of stock subscription ... - - - - - -
Sale of common stock - initial
public offering .............. - - 1,678,433 16,784 8,766,768 -
Sale of common stock -
private placement ............ - - 200,000 2,000 598,000 -
Stock options issued for services - - - - 2,424,246 -
Accumulated other comprehensive
income ....................... - - - - - -
Unearned Compensation
expense ...................... - - - - - -
Net loss ........................ - - - (3,760,176)
------------ ------------ ------------ ------------ ------------ ------------
Balance as of December 31, 1999 . - - 10,178,433 101,784 $ 11,789,014 $ (3,760,176)
Proceed from sale of common
stock, net of expenses ....... - - 1,727,763 17,278 1,363,104 -
Stock issued for services ....... - - 360,000 3,600 356,400 -
Stock options issued for services - - - - 1,489,625 -
Accumulated other comprehensive
income ....................... - - - - - -
Unearned Compensation
expense ...................... - - - - - -
Net loss ........................ - - - (9,531,071)
------------ ------------ ------------ ------------ ------------ ------------
Balance as of December 31, 2000 . - - 12,266,196 122,662 $ 14,998,143 $(13,291,247)
Proceeds from sale of preferred . 1,000 10 - - 995,990 -
stock
Proceed from sale of common ..... - - 2,821,360 28,214 446,562 -
stock
Stock issued for services ....... - - 14,585,000 145,850 2,224,050 -
Treasury Stock .................. - - - - - -
Unearned Compensation
expense ...................... - - - - - -
Net loss ........................ - - - - - (6,238,892)
------------ ------------ ------------ ------------ ------------ ------------
Balance as of December 31, 2001 . 1,000 10 29,672,556 296,726 $ 18,664,745 $(19,530,139)
Unearned Compensation ........... - - - - - -
expense
Net loss ........................ - - - - - (429,931)
------------ ------------ ------------ ------------ ------------ ------------
Balance as of June 30, 2002 ..... 1,000 10 29,672,556 296,726 $ 18,664,745 $(19,960,070)
============ ============ ============ ============ ============ ============
See notes to consolidated financial statements
F-4-A
MEDIUM4.COM, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED STATEMENT OF STOCKHOLDER'S DEFICIENCY
Accumulated
Other Unearned Total
Subscription Comprehensive Treasury Compensation Stockholders
Receivable Income Stock Expense Equity
---------- ---------- ---------- ---------- ----------
Balance as of November 12, 1998
(inception) .................. (83,000) - - - -
---------- ---------- ---------- ---------- ----------
Balance as of December 31, 1998 . (83,000) - - - -
Receipt of stock subscription ... 83,000 - - - 83,000
Sale of common stock - initial
public offering .............. - - - - 8,783,552
Sale of common stock -
private placement ............ - - - - 600,000
Stock options issued for services - - - - 2,424,246
Accumulated other comprehensive
income ....................... - (17,052) - - (17,052)
Unearned Compensation
expense ...................... - - - (2,121,215) (2,121,215)
Net loss ........................ - - - - (3,760,176)
---------- ---------- ---------- ---------- ----------
Balance as of December 31, 1999 . - (17,052) - (2,121,215) 5,992,355
Proceed from sale of common
stock, net of expenses ....... - - - - 1,380,382
Stock issued for services ....... - - - - 360,000
Stock options issued for services - - - - 1,489,625
Accumulated other comprehensive
income ....................... - 17,052 - - 17,052
Unearned Compensation
expense ...................... - - - 720,547 720,547
Net loss ........................ - - - - (9,531,071)
---------- ---------- ---------- ---------- ----------
Balance as of December 31, 2000 . - - - (1,400,668) 428,890
Proceeds from sale of preferred . - - - - 996,000
stock
Proceed from sale of common ..... - - - - 474,776
stock
Stock issued for services ....... - - - 2,369,900
Treasury Stock .................. - - (50,000) - (50,000)
Unearned Compensation
expense ...................... - - - - -
Net loss ........................ - - - 1,154,880 (5,084,012)
---------- ---------- ---------- ---------- ----------
Balance as of December 31, 2001 . - - (50,000) (245,788) (864,446)
Unearned Compensation ........... - - - 122,894 122,894
expense
Net loss ........................ - - - - (429,931)
---------- ---------- ---------- ---------- ----------
Balance as of June 30, 2002 ..... - - (50,000) (122,894) (1,171,483)
========== ========== ========== ========== ==========
See notes to consolidated financial statements
F-4-B
MEDIUM4.COM, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED STATEMENT OF CASH FLOWS
Cumulative
November 12,
1998
Six Months Ended June 30, (inception)
----------------------- to June 30,
2002 2001 2002
--------- ----------- ------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................ $(429,931) $(2,068,641) $(19,960,069)
Adjustments to reconcile net loss to net cash used in
operating activites:
Depreciation ........................................ 46,892 213,572 812,459
Amortization ........................................ 1,336 236,462 675,936
Impairment of fixed assets .......................... - - 250,000
Write down of fixed assets .......................... - - 334,922
Write down of sofware development costs ............. - - 534,498
Unearned compensation expense ....................... 122,894 728,956 1,998,321
Common stock and options issued for services ........ - - 4,522,556
Other current assets ................................ 376 10,324 -
Accounts payable .................................... 13,455 (104,480) 357,415
Accrued expenses .................................... (9,648) - 202,195
Due to related parties .............................. - - (6,670)
Deferred revenue .................................... (25,000) (136,000) 280,000
--------- ----------- ------------
NET CASH USED IN OPERATIONS ......................... (279,625) (1,119,807) (9,998,437)
--------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in affiliate ............................. - - (100,000)
Purchases of capital expenditures ................... - - (2,653,098)
Other assets ........................................ - (940) (20,899)
--------- ----------- ------------
NET CASH PROVIDED BY (USED) IN INVESTING ACTIVITIES . - (940) (2,773,996)
--------- ----------- ------------
CASH PROVIDED BY FINANCING ACTIVITIES:
Loan payable - related party ........................ 267,253 306,343 510,732
Sale of common stock ................................ - 818,500 11,238,710
Sale of preferred stock ............................. - - 996,000
Purchase of treasury stock .......................... - - (50,000)
Change in subscription receivable ................... - - 83,000
--------- ----------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ........... 267,253 1,124,843 12,778,441
--------- ----------- ------------
NET INCREASE (DECREASE) IN CASH ..................... (12,372) 4,096 6,008
CASH, beginning of the period ....................... 18,380 50,462 -
--------- ----------- ------------
CASH, end of the period ............................. $ 6,008 $ 54,558 6,008
========= =========== ============
Supplemental disclosures of cash flow information:
Interest paid ....................................... $ - $ - -
Taxes paid .......................................... - - -
Non cash financing activities:
Common stock and options issued for services ........ $ - $ 1,489,625
See notes to consolidated financial statements
F-5
Medium 4. Com Inc.
Notes to Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
1. Basis of Presentation:
The accompanying unaudited financial statements of Medium4.com, Inc. (the
"Company") have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
prepare them for inclusion as part of the Form 10-Q. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The financial
statements for the periods ended June 30, 2002 and 2001 are unaudited and
include all adjustments necessary to a fair statement of the results of
operations for the periods then ended. All such adjustments are of a normal
recurring nature. The results of the Company's operations for any interim period
are not necessarily indicative of the results of the Company's operations for a
full fiscal year. For further information, refer to the financial statements and
footnotes thereto included in the Company's annual report (Form 10-K) filed with
the Securities and Exchange Commission for the year ended December 31, 2001.
2. Going Concern
These financial statements have been prepared assuming the Company will continue
as going concern. The Company has suffered recurring losses amounting to $19.9
million.
3. Equity Transactions/Advances
In May 2002, the Company entered into a "Mezzanine Financing Loan Agreement"
with a related party, pursuant to which the related party, in his sole
discretion, loaned funds to the Company for working capital purposes and
advanced funds to professionals and consultants rendering services to the
Company. Funds loaned and advanced pursuant to the Mezzanine Financing Loan
Agreement and a related promissory note bear interest at 10% per annum, and the
aggregate principal amount of all such funds and advances, together with accrued
interest thereon, is due and payable with five days after written demand of the
related party. Such funds are also required to be prepaid, without written
demand, from the proceeds of any and all issuances of the securities of the
Company and any and all future debt financings of the Company.
The principal amount of funds loaned and advanced by the related party are
convertible into shares of the Common Stock of the Company at a conversion price
of $.10 per share. As of August 14, 2002, none of the principal amount of funds
loaned and advanced by the related party pursuant to the Mezzanine Financing
Loan Agreement had been converted into shares of the Company's Common Stock.
As of June 30, 2002, the related party had advanced $267,255 to the Company
pursuant to the Mezzanine Financing Loan Agreement.
4. Revenues
Revenues relates to the recognition of deferred revenues on a license fee which
the Company has no further obligations to render services or support the
licensing arrangement. During the second quarter ended June 30, 2002, the
Company received $200,000 from its affiliate for fees. Such monies have been
deferred until the complete documents are finalized to support the fees earned.
F-6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
In view of the evolving nature of our business and our limited operating
history, we believe a description of our revenues and operating results is not
necessarily meaningful and should not be relied upon as indications of future
performance. Our current business plan assumes that we will not derive any
significant revenues from advertising or other activities during 2002, or even
later. Our business plan further assumes that, subject to cash flow
availability, we will continue to invest in and disburse substantial funds to
continue current operations at their current minimal level and to develop our
single network of special interest, continuously streaming broadband
entertainment channels, for which purpose we will require additional capital
investments.
Remaining a going concern will require additional financing until such time
as sufficient cash flows are generated from operations. Anticipated
interest-bearing loans from an affiliated person, together with our limited
current cash resources and operating revenues, are expected to be able to
support our operations through the end of the third quarter of the year 2002.
We will need to obtain substantial additional financing in order to continue
and expand our operations and to sustain our cash flow needs. We do not know if
additional financing, in excess of what is currently anticipated, will be
available to us on commercially reasonable terms, or at all. Moreover, if we
raise additional capital through borrowing or other debt financing, we would
incur substantial interest expense. Sales of additional equity securities will
dilute on a pro rata basis the percentage ownership of all holders of common
stock. If we do raise more equity capital in the future, it is likely that it
will result in substantial dilution to our present stockholders. Any inability
to obtain additional financing will materially adversely affect us, including
possibly requiring us to significantly curtail or cease business operations.
Results of Operations
Six months ended June 30, 2002 vs. six months ended June 30, 2001
We sustained a net loss of $260,295 for the six-month fiscal period ended
June 30, 2002 on revenues of approximately $88,546, compared to a net loss of
$1,381,640 for the six-month fiscal period ended June 30, 2001 on revenues of
approximately $85,000. Revenues for the current period relate to the recognition
of deferred revenues on a license fee which the Company has no further
obligations to render services or support the licensing arrangement. During the
second quarter ended June 30, 2002, the Company received $200,000 from its
affiliate for fees. Such monies have been deferred until the complete documents
are finalized to support the fees earned.
F-7
Our production costs for the development of our original content for the
six-month period ended June 30, 2002, were approximately $23,915, basically
unchanged from the six-month period ended June 30, 2001. Production costs for
the current period include the cost of (i) data communications, (ii) software
license fees; (iii) content license fees, where necessary in order to acquire
additional content; and (iv) the expense of hiring and compensating employees
and independent contractors who handle production and delivery of our content.
Our selling, general and administrative expenses were approximately $631,195
for the six-month period ended June 30, 2002, compared to $2,280,306 for the
six-month period ended June 30, 2001. For the current period, the expenses
consisted primarily of employee and independent contractor expense, rent,
overhead, equipment and depreciation, professional and consulting fees, sales
and marketing costs, and other general and administrative costs such Internet
domain and Web service costs. The difference in the current period compared to
the prior period is primarily due to the reduction of staff and the scaling-back
of operations effectuated in second half of 2001.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through sales of
our equity securities in our initial public offering, from several private
placements and by means of non-interest bearing loans and capital contributions
from an affiliated person. Net proceeds from these sales have totaled
approximately $12.2 million, with $8.8 million raised in the initial public
offering and the balance raised in the private placements.
For the six months year ended June 30, 2002, we used approximately $279,625
in connection with our operating activities. Such amount was primarily
attributable to net losses, offset in part by unearned compensation expenses,
depreciation and amortization, and increases in accounts payable.
At June 30, 2002, we had $6,008 in cash. We will require additional
investment from the sale of our securities and/or anticipated non-interest
bearing loans and/or additional capital contributions from an affiliated person
to be able to continue our operations, even on their current limited basis. We
do not know if additional investment or financing, in excess of what is
currently anticipated, will be available to us or, if it is available, whether
it will be available on commercially reasonable terms. Any inability to obtain
additional financing will materially adversely affect us, including possibly
requiring us to cease business operations.
F-8
PART ii--OTHER INFORMATION
Item 1. Legal Proceedings
On July 10, 2002, the Company and certain related parties entered into
a Settlement Agreement with Cavendish Asset Management, LTD, a British
Virgin Islands corporation (`Cavendish"), pursuant to which the action
brought by Cavendish against the Company and the related parties in the
courts of the State of New York were terminated with no payment or
compensation of any kind to the plaintiff. Cavendish brought the action
in September, 2000, alleging breach of contract and fraud by a party it
alleged was controlled by the Company in connection with the sale of a
certain political and travel publication. All parties to the litigation
exchanged mutual releases.
Also in July 2002, the Company settled an arbitration claim brought by
an affiliate of Cavendish, Windfire International Corporation, Ltd.,
which is also a British Virgin Islands Corporation. The claim also was
settled on the basis of mutual releases and no compensation.
Item 2. Changes in Securities and Use of Proceeds.
(c) In May 2002, the Company entered into a "Mezzanine Financing Loan
Agreement" with a related party, pursuant to which the related
party, in his sole discretion, loaned funds to the Company for
working capital purposes and advanced funds to professionals and
consultants rendering services to the Company. Funds loaned and
advanced pursuant to the Mezzanine Financing Loan Agreement and a
related promissory note bear interest at 10% per annum, and the
aggregate principal amount of all such funds and advances, together
with accrued interest thereon, is due and payable with five days
after written demand of the related party. Such funds are also
required to be prepaid, without written demand, from the proceeds
of any and all issuances of the securities of the Company and any
and all future debt financings of the Company.
The principal amount of funds loaned and advanced by the related
party are convertible into shares of the Common Stock of the
Company at a conversion price of $.10 per share, which corresponds
to the average trading price of the Common Stock as of the date of
the Mezzanine Financing Agreement. As of August 14, 2002, none of
the principal amount of funds loaned and advanced by the related
party pursuant to the Mezzanine Financing Loan Agreement had been
converted into shares of the Company's Common Stock.
As of June 30, 2002, the related party had advanced $267,255 to the
Company pursuant to the Mezzanine Financing Loan Agreement.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
99.1 Certification of Chief Executive Officer and
Principal Financial Officer
(b) Reports on Form 8-K:
None.
F-9
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.
Dated: August 14, 2002 Medium4.com, Inc.
(Registrant)
By: /s/ JONATHAN BRAUN
----------------------------
Jonathan Braun, Chairman and
Principal Executive,
Financial and Accounting Officer