ANNUAL REPORT FOR SMALL BUSINESS ISSUERS SUBJECT
TO THE 1934 ACT REPORTING REQUIREMENTS
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2001
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______.
Commission File No. 001-15407
STREAMEDIA COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-3622272
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
244 West 54th Street, 12th Floor New York, NY 10019 (Address of principal
executive offices)
(212) 445-1700
(Registrant's telephone number, including area code)
---------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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.
(X)Yes ( )No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date:
As of March 23, 2001, the Company had 7,221,691 shares of Common Stock issued
and outstanding.
INDEX TO FINANCIAL STATEMENTS
Part 1 - Financial Information
Page
Item 1 - Financial Statements
Balance Sheets as of June 30, 2001 (unaudited) and December 31, 2000 F-2
Statements of Operations for the six and three months ended June 30, 2001
and 2000, and Cumulative from January 13, 1998 (date of inception) through
June 30, 2001 (unaudited) F3-F4
Statement of Stockholders' Equity (Deficit) for the six months ended
June 30, 2001 (unaudited) F-5
Statements of Cash Flows for the six months ended June 30, 2001 and 2000,
and Cumulative from January 13, 1998 (date of inception)
through June 30, 2001 (unaudited) F-6
Notes to Financial Statements F-8 - F-15
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors of Streamedia Communications, Inc. (a
development stage company)
I have reviewed the accompanying balance sheet of Streamedia Communications, Inc
(a development stage company) as of June 30, 2001, and the related statements of
operations, stockholders equity and of cash flows for the six months ended June
30, 2000 and 2001. These financial statements are the responsibility of the
Company's management.
I have conducted my review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, I do not express such an opinion.
Based on my review, I am not aware of any material modifications that should be
made to the accompanying consolidated interim financial statements referred to
above for them to be in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that will
continue as a going concern. As more fully described in Note B, the Company has
incurred operating losses since the date of inception and requires additional
capital to continue operations. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans as to
these matters are described in Note B. The financial statements do not include
any adjustments to reflect the possible effects on the recoverability and
classification of assets or the amounts and classifications of liabilities that
may result from the possible inability of Streamedia Communications, Inc. (a
development stage company) to continue as a going concern.
S/Thomas Monahan CPA
-------------------------------------
Thomas Monahan Certified Public Accountant
Paterson, New Jersey
August 31, 2001
F-4
Streamedia Communications, Inc. ..........
(A Development Stage Company)
BALANCE SHEETS
Unaudited
June 30, December31,
ASSETS 2001 2000
----------- ----------
CURRENT ASSETS
Cash and cash equivalents ................................. $4,088 $104,142
Restricted cash ................................................. 0 88,891
Accounts receivable, net of allowance for doubtful accounts of
$0 and $114,000 at June 30, 2001 and December 31,
2000, respectively ..........................................30,000 57,179
Licenses, net of accumulated amortization of $451,940 and $376,000
at June 30, 2001 and December 31, 2000, respectively ............ 0 72,422
Prepaid expenses ........................................ 50,531 138,477
--------- --------
Total current assets ........................................ 84,619 461,111
PROPERTY AND EQUIPMENT, net ..................... 1,212,768 1,760,309
OTHER ASSETS ........................................... 5,333 0
--------- -------
TOTAL ASSETS ............................................$ 1,302,720 $2,221,420
---------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses ....................$1,018,313 $805,919
Current maturities of capital lease obligations ........... 31,449 59,320
Subordinated convertible promissory note ......................... 0 250,208
Accrued payroll ..............................................33,000 134,212
--------- --------
Total current liabilities .................................1,082,762 1,249,659
CAPITALIZED LEASE OBLIGATIONS, less current maturities 54,006 8,931
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value; authorized - 100,000 shares; 0 issued and
outstanding at March 31, 2001 and December 312000, respectively
Common stock, $.001 par value; authorized - 20,000,000 shares; issued and
outstanding - 6,505,044 and 5,880,044 shares at
March 31, 2001 and December 31, 2000, respectively ..........7,959 5,880
Additional paid-in capital .............................13,503,870 12,538,898
Deficit accumulated during development stage ..........(13,345,877) (11,581,948)
----------- ----------
Total stockholders' equity .................................165,952 962,830
------------ --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .............. $1,302,720 $2,221,420
=========== ==========
The accompanying notes are an integral part of these statements ...............
F-9
Streamedia Communications, Inc.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(unaudited)
(a) Cumulative
From January13
1998 (date of
Six Months ended June 30 inception) to
2001 2000 June 30, 2001
Revenue ........................... $164,977 $130,830 $872,332
------------ --------- -----------
Cost of goods sold
Direct cost ...........................65,990 52,332 348,933
---------- ------- -----------
Gross margin ......................... 98,987 78,498 523,399
---------- ------- -----------
Operating expenses
General and administrative .............955,033 1,595,227 5,434,137
Payroll and related expenses ...........399,429 1,861,114 5,540,052
Product development ..........................0 23,024 614,848
Depreciation and amortization ..........505,353 459,423 1,742,878
--------- ------------ -----------
Total operating expenses .............1,859,815 3,938,788 13,331,915
---------- ---------- -----------
Operating loss ......................(1,760,828) (3,860,290) (12,808,516)
----------- ----------- ------------
Other income (expense)
Interest expense ........................(3,335) (9,020) (671,149)
Interest income ........................ 235 116,137 133,788
--------- ---------- ----------
Total other income (expense) ............(3,100) 107,117 (537,361)
--------- --------- ----------
Net loss .............................$(1,763,928) $(3,753,173) $(13,345,877)
============ =========== =============
Basic and diluted loss per common share ....$(.29) $(.80) $(2.79)
====== ======= ========
Weighted average shares outstanding,
basic and diluted ............ 6,045,774 4,699,347 4,786,184
========== ========== ===========
The accompanying notes are an integral part of these statements.
Streamedia Communications, Inc.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(unaudited)
Three months ended June, 30
2001 2000
Revenue ........................................ $ 41,714 $ 123,486
----------- -----------
Cost of goods sold
Direct cost ..........................................16,685 49,394
----------- ----------
Gross margin .........................................25,029 74,092
----------- ----------
Operating expenses
General and administrative ............................459,500 926,006
Payroll and related expenses ................................0 1,093,651
Product development .........................................0 0
Depreciation and amortization ........................ 209,991 237,141
----------- ----------
Total operating expenses ...............................669,491 2,256,798
----------- ----------
Operating loss ........................................(644,462) (2,182,706)
----------- ----------
Other income (expense)
Interest expense ........................................(1,092) (2,444)
Interest income ......................................... 44,324
----------- ----------
Total other income (expense) ............................(1,092) 41,880
----------- ----------
Net loss ..............................................$(645,554) $(2,140,826)
=========== ==========
Basic and diluted loss per common share ...................$(.10) $(.45)
=========== ==========
Weighted average shares outstanding,
basic and diluted ........................ 6,505,044 4,730,044
=========== ==========
The accompanying notes are an integral part of these statements.
Streamedia Communications, Inc.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(unaudited)
Deficit
accumulated
Additional during
Preferred stock Common stock paid-in development
Shares Amount Shares Amount capital stage Total
----- ----- ----- ------- -------- ---------- -------
Balance at
Jan 1, 2001 -- -- $5,880,044 $5,880 $12,538,898 $(11,581,949) $962,829
=========
Issuance of
common stock
for services
(Jan. 9, 2001)-- -- 913,687 914 350,029 350,943
=======
Issuance of
common stock
pursuant to
the exerciseof
stock options
(Jan. 9, 2001)-- -- 625,000 625 249,375 250,000
=======
Issuance of
common stock
for business
Acquisition
(Jan. 9, 2001) -- -- 540,000 540 365,568 366,108
Net loss for
the period
(1,763,928) (1,763,928)
---------- ----------
Balance at
June 30, 2001 -- -- 7,958,731 $7,959 $13,503,870 $(13,345,876) $165,952
========= ====== =========== =========== ========
The accompanying notes are an integral part of this statement.
Streamedia Communications, Inc.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Unaudited
Cumulative
from January 13,
1998 (date of
Six months ended June 30, inception) to
2001 2000 June 30, 2001
---- ---- -------------
Cash flows from operating activities
Net loss .......... $(1,763,928) $(3,753,173) $(13,345,877)
Adjustments to reconcile net loss
to net cash used in
operating activities
Common stock issued for services 39,113 382,473
Stock option granted for services .. 873,547
Compensatory stock option expense .. 126,100 413,381
Amortization of debt discount .. 272,500
Amortization and write-off of
deferred financing costs .. 231,500
Depreciation and amortization ........ 505,353 459,423 1,742,878
Changes in operating assets
and liabilities
Prepaid expenses and
other current assets ....................204,017 (28,191) (467,746)
Other assets ............................(5,333) (25,850) 1,667
Accounts payable and accrued
expenses ...............................(125,840) (828,002) 755,349
Write-off property-equip.-theft loss ....493,561 493,561
-------- --------
Net cash used in operating activities ..(692,170) (4,010,580) (8,646,767)
--------- ---------- -----------
Cash flows from investing activities
Purchase of property and equipment .... (374,935) (1,269,161) (2,842,520)
----------- ----------- ------------
Net cash used in investing activities (374,935) (1,269,161) (2,842,520)
Issuance of common stock, net of
associated costs ..................... 299,200 970,963
net of associated Costs/Private
Placement, net of assoc. cost ......... 9,045,497
Proceeds from the exercise of stock
options ..................................350,943 75,000 758,743
Acquisition of eLeaders, Inc.
in exchange of stock .....................366,108 366,108
Proceeds of notes payable and common
stock warrants, net
of associated costs .................... 1,583,500
Repayments of notes payable ............ (1,815,000)
Deferred offering costs ................ 75,000
Conversion of loans into capital ....... 250,000 552,189
Principal payments on capital lease
obligations ........................... (11,128) (43,625)
-------- -------
Net cash provided by financing
activities ............. 967,051 363,072 11,493,375
----------- ----------- ------------
Net (decrease) increase in cash ....... (100,054) (4,916,669) 4,088
Cash and cash equivalents at
beginning of period ................. 104,142 6,693,061
------- --------- ---------
Cash and cash equivalents
at end of period .......................$ 4,088 $ 1,776,392 $ 4,088
=========== =========== ============
Supplemental Information:
Cash paid for interest ............... 3,335 9,020 671,149
Conversion of debt into common stock ....250,000 552,189
Common stock issued for acquisition .....366,108 366,108
The accompanying notes are an integral part of these statements
F-30
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 2001
(unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all necessary adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results of Streamedia Communications, Inc. (the "Company")
for the six months ended June 30, 2000 and 2001 are not necessarily indicative
of the results that may be expected for the fiscal year ending December 31,
2001.
The balance sheet as of June 30, 2001 and the related statements of operations
for the six-month periods ended June 30, 2001 and 2000, and cumulative from
January 13, 1998 (date of inception) to June 30, 2001, stockholders' equity for
the six-month period ended June 30, 2001 and cash flows for the six-month
periods ended June 30, 2001 and 2000, and cumulative from January 13, 1998 (date
of inception) to June 30, 2001, have been prepared by the Company without audit.
In the opinion of management, all adjustments (which include only normal,
recurring accrual adjustments) necessary to present fairly the financial
position as of June 30, 2001 and for all periods presented have been made.
Certain information and footnote disclosures, normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted. These financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Annual Report on Form 10-KSB for the year ended December
31, 2000. Results of operations for the period ended June 30, 2001 are not
necessarily indicative of the operating results expected for the full year.
NOTE B - NATURE OF OPERATIONS
Streamedia Communications, Inc. (the "Company") was incorporated in the State of
Delaware in 1998. The Company's two divisions are The Streamedia Networks and
Business Services. In December 1999, the Company completed its initial public
offering (the "Offering"). The net proceeds from the Offering were approximately
$8,447,000.
Streamedia Communications, Inc
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 2001
(unaudited)
NOTE B (continued)
The Company is in the development stage. The Company provides website owners and
content publishers with services and tools for streaming, or broadcasting, live
and on-demand video and audio content over the Internet. The Company also
operates a broadcast content website, Bijou Cafe.com.
The Streamedia Business Services division markets Internet and intranet
broadcasting services to a wide spectrum of enterprises, such as, but not
limited to, businesses, associations, electronic publishers and "off-line" media
generators, which are attempting to obtain an Internet broadcast presence.
The Company offers consulting services to businesses, corporations, and agencies
that wish to broadcast or otherwise transmit high-quality video and audio over
the Internet. It also offers broader digital solutions. Streamedia provides
end-to-end solutions, which integrate into the client's existing infrastructure.
Streamedia Digital Solutions is a suite of business solutions that utilize
digital technologies to improve communications between its clients and their
customers, employees and others.
The Company's operations are subject to certain risks and uncertainties,
including actual and potential competition by entities with greater financial
resources, experience and market presence, risks associated with the development
of the Internet market, risks associated with consolidation in the industry, the
need to manage growth and expansion, certain technology and regulatory risks and
dependence upon sole and limited suppliers.
The accompanying financial statements have been prepared on the basis that the
Company will continue as a going concern, which assumes the realization of
assets and settlement of liabilities in the normal course of business. Since
inception, the Company has devoted substantially all of its efforts to
developing its business. The Company has therefore incurred substantial losses
and negative cash flows from operating activities as reflected in these
financial statements. Accordingly, the Company has relied primarily upon
obtaining equity capital and debt financing to support its operations. The
Company does not expect revenue to exceed costs and expenses in 2001 and,
accordingly, will continue to incur losses and negative cash flows from
operating activities. To address financing needs, the Company is pursuing
various financing and other alternatives including a Plan and Agreement of
Merger with HOA Networks Corp. and HOA Acquisition Corp. described in Note C.
These circumstances raise substantial doubt about the Company's ability to
continue as a going concern. The accompanying financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Streamedia Communications, Inc
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 2001
(unaudited)
NOTE C - ACQUISITIONS
In January 2001, the Company completed the acquisition of eLeaders, Inc.
("eLeaders") through a stock-for-stock, tax-free reorganization. Under the terms
of the acquisition, the Company exchanged 520,000 shares of the Company's
unregistered common stock for all of eLeaders' common stock. eLeaders provided a
warranty that liabilities to be assumed would not exceed $81,000. eLeaders,
which was incorporated in 1998, designs business-to-business solutions to
improve supply lines and internal communications, and aggregates customers by
affinity interests or geographic location to amplify marketing results.
In April 2001, the Company signed a Plan and Agreement of Merger ("Merger
Agreement") with HOA Networks Corp. ("HOAN") and HOA Acquisition Corp. ("HAC").
Pursuant to the terms of the Merger Agreement, HOAN will merge with HAC, with
HOAN being the surviving company and all of the capital stock of HOAN will be
canceled in exchange for stock of the Company. HOAN will be the surviving
corporation in such merger and the business of the surviving company will be
conducted under the name of Streamedia Communications, Inc. Upon the effective
date of the merger, each outstanding share of stock beneficially owned by all
shareholders excluding principals of HOAN will be converted into the common
stock of the Company on a 4-for-1 share basis. Each outstanding share of common
stock beneficially owned by principals will be converted wherein 100% of HOAN
shares will be exchanged for 80% shares of the Company. It is anticipated that
the effective date of the merger will be on or about August 2001.
NOTE D - LOSS PER SHARE
Basic and diluted net loss per share is computed by dividing net loss by the
weighted-average number of common shares outstanding during each period. The
incremental shares from assumed exercises of stock options and warrants are not
included in the calculation of diluted loss per share since their effect would
be antidilutive. As of June 30, 2001 and December 31, 2000, the calculation of
diluted net loss per share excludes an aggregate 2,559,021 shares of common
stock issuable upon exercise of warrants and stock options.
Streamedia Communications, Inc
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 2001
(unaudited)
NOTE E - DEBT
Subordinated Convertible Promissory Note
On December 28, 2000, the Company issued a Subordinated Convertible Promissory
Note (the "Note") for an aggregate principal amount of $250,000 bearing interest
at 10% per annum. The outstanding principal plus accrued interest was due and
payable forty-five days from the date of the Note (the "Original Maturity
Date"), which was subject to extension. The note may be extended ninety
additional days by either party upon written notice no less than five days prior
to the Original Maturity Date.
On the Original Maturity Date, or any time thereafter if the Note had been
extended, the lender could convert the unpaid principal plus accrued and unpaid
interest into the number of whole shares of unregistered, unrestricted common
stock of the Company equal to the Voluntary Conversion Amount divided by $0.40
(the "Conversion Price").
Upon maturity of the Note, either the Original Maturity Date or as extended, the
unpaid principal plus accrued interest (the "Mandatory Conversion Amount") shall
automatically convert into the number of shares of conversion stock equal to the
Mandatory Conversion Amount divided by the Conversion Price ($0.40). The Note
converted into 625,000 shares of common stock on February 12, 2001, which shares
were issued on March 21, 2001.
The party that arranged for this financing received a fee of $25,000, which was
charged to operations during the year ended December 31, 2000.
Notes Payable
On March 2, 2001 and February 21, 2001, the Company issued promissory notes
aggregating approximately $50,000 and $97,879, respectively, bearing interest at
the rate of 10% per annum from the date of the promissory note or before the
sooner of (i) ninety days after the date of the promissory note or (ii)
forty-five days after written demand is made by the holder of the note. These
promissory notes are collateralized by 913,600 shares of the Company's
unregistered, restricted common stock.
Streamedia Communications, Inc
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 2001
(unaudited)
NOTE F - STOCKHOLDERS' EQUITY
On January 9, 2001, certain officers of the Company agreed to provide the
proceeds from permissible sales of their Company common stock to the Company as
bridge financing. As consideration, the Company issued one share of
unregistered, restricted common stock for each share of stock sold by these
officers. In addition, the Company issued 450,000 warrants to these officers
which have an exercise price equal to the last sale price for the Company's
common stock on January 9, 2001. Both the restricted stock and warrant shares to
be issued upon exercise of the warrants have piggyback registration rights in
accordance with the Company's customary registration rights agreement. Total
proceeds to the Company in connection with this transaction were approximately
$400,000.
On May 14, 2001 the Company signed a letter of intent with River Logic, Inc. of
Massachusetts. The intent is to form a joint company to market their unique
educational system. River Logic is owned in part by Ebsco, a multi billion
dollar leading educational company and Intel. Their system is a building block
for schools and home schooling educational content and retrieval.
On June 5, 2001 an agreement was signed with Applied Digital Technologies. The
agreement calls for an influx of funding to Streamedia, through Applied Digital
Technology. The agreement states that Applied Digital will receive fifty
thousand dollars and Streamedia will receive two hundred fifty thousand dollars
from the investor Kenneth R. McGurn. This agreement also gives Streamedia the
marketing rights of a new technology concerned with live insertion advertising
on the internet.
On June 19, 2001 discussions began with a UK public company, ABM, Ltd. The
proposed venture would enable Streamedia to control the large catalog of ABM
entertainment product in the USA while allowing ABM to represent the Streamedia
entertainment product in Europe. This will also allow Streamedia to utilize the
label names of ABM; namely Pickwick, Hallmark and Boadwalk.
Streamedia Communications, Inc
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (continued)
June 30, 2001
(unaudited)
NOTE G - INCOME TAXES
The Company provides for the tax effects of transactions reported in the
financial statements. The provision if any, consists of taxes currently due plus
deferred taxes related primarily to differences between the basis of assets and
liabilities for financial and income tax reporting. The deferred tax assets and
liabilities, if any, represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. As of December 31, 2000, the Company had
no material current tax liability, deferred tax assets, or liabilities to impact
on the Company's financial position because the deferred tax asset related to
the Company's net operating loss carry forward and was fully offset by a
valuation allowance.
At December 31, 2000, the Company has net operating loss carry forwards for
income tax purposes of $11,581,948. These carry forward losses are available to
offset future taxable income, if any, and expire in the year 2010. The Company's
utilization of this carry forward against future taxable income may become
subject to an annual limitation due to a cumulative change in ownership of the
Company of more than 50 percent.
The components of the net deferred tax asset as of December 31, 2000 are as
follows: Deferred tax asset: Net operating loss carry forward $11,581,948
Valuation allowance ($11,581,948) Net deferred tax asset $-0-
The Company recognized no income tax benefit for the loss generated for the
period from inception, January 13, 1998, to December 31, 2000. SFAS No. 109
requires that a valuation allowance be provided if it is more likely than not
that some portion or all of a deferred tax asset will not be realized. The
Company's ability to realize benefit of its deferred tax asset will depend on
the generation of future taxable income. Because the Company has yet to
recognize significant revenue from the sale of its products, the Company
believes that a full valuation allowance should be provided.
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 2001
(unaudited)
NOTE H - COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company is subject to various claims and proceedings that occur in the
ordinary course of business. Based on information currently available, the
Company believes that none of these current claims or proceedings, either
individually or in the aggregate, will have a material effect on the business.
On March 20, 2001, the Company received notice from the Nasdaq Listings
Qualifications Panel that its common stock would no longer be listed on the
Nasdaq SmallCap Market effective with the close of business on March 28, 2001.
The panel's action was based on the Company's inability to maintain a minimum
bid price of $1.00 over the previous thirty consecutive trading days and also
due in part for late filing of 10Q's.
On October 20, 2000, the Company entered into an agreement with its new
President and Interim Chief Executive Officer. This agreement terminates on
December 31, 2001. The agreement provides, among other things, that the
President will be compensated $40,000 for the period October 20, 2000 through
December 31, 2000 and $169,000 for the period January 1, 2001 through December
31,2001.
The agreement also provided for the issuance of 200,000 employee stock options
that were immediately exercisable at an exercise price of $0.50. On January 9,
2001, the Company's Board of Directors granted this individual an additional
100,000 employee stock options with an exercise price equal to the closing
market price on the date of the grant and with 25,000 of such options becoming
vested at the close of each quarter during the year ending December 31, 2001. In
addition, on April 16, 2001, the Company's Board of Directors granted this
individual an additional 1,000,000 employee stock options with an exercise price
equal to the closing market price on the date of grant. The vesting provisions
in connection with these options have not, as yet, been determined by the Board
of Directors.
On April 4, 2001, the Company accepted the resignation of one of its officers
who also served as the Chairman of the Company's Board of Directors and entered
into a Severance and Mutual Release Agreement. This agreement provides, among
other things, that this former officer's consulting firm will be retained as a
consultant to the Company for a period of six months following the date of the
officer's termination at a monthly compensation rate of $12,000.
Streamedia Communications, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 2001
(unaudited)
NOTE H (continued)
During the second quarter of 2001, there have been several theft problems at the
New York office. After conducting a thorough observation of assets, it was
determined equipment and software in the cost basis of $610,101 was missing and
the police were informed on July 27, 2001. The net write-off in the second
quarter amounted to $493,561.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 2001.
The following discussion relates to the results of our operations to date, and
our financial condition:
This prospectus contains forward looking statements relating to our Company's
future economic performance, plans and objectives of management for future
operations, projections of revenue mix and other financial items that are based
on the beliefs of, as well as assumptions made by and information currently
known to, our management. The words "expects, intends, believes, anticipates,
may, could, should" and similar expressions and variations thereof are intended
to identify forward-looking statements. The cautionary statements set forth in
this section are intended to emphasize that actual results may differ materially
from those contained in any forward looking statement.
NATURE OF OPERATIONS
We are in the development stage. We have two primary lines of business:
Internet Services, and media distribution. The latter is executed via
BijouCafe.com, the equivalent of a movie theater accessible via the World Wide
Web, but which also acts as a distributor of films offline, such as to theaters,
and to video retailers.
BijouCafe
BijouCafe.com is a digital entertainment destination site, among the web's first
and most acclaimed venues for independent and classic films. Bijou Cafe is
produced as an online version of an art-house cinema.
BijouCafe is a developing site for up-coming directors, producers, actors and
small independent films via internet video streaming. The target audience is the
general public who are interested in merging talents in the film industry.
Revenue is based on subscription dues, at this time the Company does not have
any income.
Business Services
Streamedia Business Services division was aided by the business combination with
eLeaders, Inc., an acquisition made during the quarter. This division markets
Internet and intranet broadcasting services to a wide spectrum of enterprises,
such as, but not limited to, businesses, associations, electronic publishers and
"off-line" media generators, who are attempting to obtain an Internet broadcast
presence. We offer Information Technology (IT) consulting services to
businesses, corporations, and agencies that wish to broadcast or otherwise
transmit high-quality video and audio over the Internet. Streamedia provides
complete IT solutions, which integrate with the client's existing
infrastructure. Streamedia Digital Solutions are a suite of business solutions
that utilize digital technologies to improve communications between its clients
and their customers, employees, and others. The business Services units also
market web design services, web site hosting, email services, e-commerce
solutions, dialup and broadband connectivity to the general public as well as to
other businesses.
Our operations are subject to certain risks and uncertainties, including actual
and potential competition by entities with greater financial resources,
experience and market presence, risks associated with the development of the
Internet markets, risks associated with consolidation in the industry, the need
to manage growth and expansions, certain technology and regulatory risks and
dependence upon sole and limited suppliers.
The accompanying financial statements have been prepared on the basis that we
will continue as a going concern, which assumes the realization of assets and
settlement of liabilities in the normal course of business. Since its inception,
we have been engaged in organizational and pre-operating activities. Further, we
have generated nominal revenues and incurred significant losses.
Continuation of our existence is dependent upon its ability to obtain additional
capital, secure and execute strategic alliances to develop and sustain
profitable operations. The uncertainty related to these conditions raises
substantial doubt about our ability to continue as a going concern. The
accompanying financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
BUSINESS COMBINATIONS
Acquisition of eLeaders, Inc.
In January, Streamedia acquired eLeaders, Inc. (WWW.ELEADERS.COM), headquartered
in Mineola, NY. Eleaders, provides hosting, Internet access (DSL services), and
web site design as part of the core consulting services and solutions clients'
online business. eLeaders, Inc. was founded in 1998. eLeaders designs
business-to-business solutions to improve supply lines and internal
communications, and aggregates customers by affinity interests or geographic
location to amplify marketing results. Its high-speed connectivity services and
web design capabilities provide an important addition to Streamedia's product
and service offerings.
The merger was a stock-for-stock exchange. As such, both companies intend the
transaction be accounted for as a tax-free organization and pooling of
interests. Streamedia acquired all of eLeaders' assets, including its web
hosting and streaming contracts and equipment, DSL contracts and equipment, and
its Internet and information technology consulting business. As consideration,
Streamedia gave eLeaders 520,000 shares of Streamedia common stock in exchange
for all issued and outstanding stock of eLeaders subject to adjustments. This
agreement was the product of an arms' length negotiation with Mr. Richard
Mittasch, the sole stockholder of eLeaders. There was no material relationship
between Streamedia and either eLeaders or Mr. Mittasch prior to the acquisition.
Letter of Intent with River Logic, Inc.
On May 14, 2001, we signed a Letter of Intent with River Logic, Inc. of
Massachusetts. The intent is to form a joint company to market their unique
educational system. River Logic is owned in part by Ebsco, a multi billion
dollar leading educational company and Intel. Their system is a building block
for schools and home schooling educational content and retrieval.
Agreement with Applied Digital Technologies
On June 5, 2001, an Agreement was signed with Applied Digital Technologies. The
Agreement calls for an influx of funding to Streamedia, through Applied Digital
Technology. The Agreement states that Applied Digital will receive Fifty
Thousand ($50,000) Dollars and Streamedia will receive Two Hundred Fifty
Thousand($250,000) Dollars from a private investor. This Agreement also gives us
the marketing rights of a new technology concerned with live insertion
advertising on the internet.
Merger with HOA Networks Corp.
On April 11, 2001, we signed a Plan and Agreement of Merger ("Merger Agreement")
with HOA Networks and HOA Acquisition Corp. ("HAC"). The contemplated merger is
between HOA Networks, HOA Acquisition Corp. ("HAC"), and our Company. Pursuant
to the terms of the Merger Agreement, HOAN will merge with HAC with HOAN being
the surviving company and all of the capital stock of HOAN will be canceled in
exchange for stock of the Company. HOAN will be the surviving corporation in
such merger and the business of the surviving company will be conducted under
the name of Streamedia Communications, Inc. Upon the effective date of the
merger, each outstanding share of stock beneficially owned by all shareholders
excluding principals of HOAN will be converted into the common stock of the
Company on a 9 for 1 share basis. Each outstanding share of common stock
beneficially owned by principals will be converted as follows: 100% of HOAN
shares will be exchanged for 90% shares of our Company. It is anticipated that
the effective date of the merger will be on or about May 21, 2001. As of June
30, 2001, the merger had not been completed.
Streamedia Communications, Inc. held its Board of Director meeting on Thursday
June 14, 2001. At the meeting, Mr. Henry Siegel resigned as Interim President,
his resignation was accepted by the Board of Directors. Mr. John Velasco-Mills
was elected president of Streamedia Communications, Inc. and assumed all duties
in his capacity as President of Streamedia Communications, Inc. Mr. James Rupp
also tendered his resignation as consultant. The Board of Directors at the
meeting on Thursday June 14, 2001 also accepted Mr. Rupp's resignation. On June
15, 2001, the Shareholder Meeting of Streamedia Communications, Inc., was held
at the New York offices. The proposals stated in the proxy were as follows:
#1.Approval for share consolidation #2.Approval to amend the Articles of
Incorporation to increase the authorized shares from Twenty Million, One Hundred
Thousand (20,100,000) to Fifty Million (50,000,000) #3 Approval to merge with
HOA Networks Corp.
The Shareholders voted, approved and adopted all three items.
HOA Networks Corp (HOAN) is multi-faceted communications and entertainment
Company. HOAN has several subsidiaries. Its primary division, AMC Global. HOA
Networks was formed in 1986, and is comprised of a group of wholly owned
private companies that benefit from various revenue sources and, working
together, has become a "one-stop" entertainment, data and communications
solution for most end users, from small to large businesses and individuals.
HOAN consists of six main subsidiaries:
AMC GLOBAL COMMUNICATIONS, INC., (AMC) is an independent telephone company with
headquarters in Atlanta, Georgia, U.S.A., founded in July of 1986. AMC, which
sells and services a wide variety of telecommunications equipment.
WORLD SKYLINE, INC. is a Northern Virginia (Washington D.C. Metro Area) based
Internet Technology Company founded in 1996, with additional offices in
Atlanta, Georgia. World Skyline was founded to offer Internet Solutions and
information technology needs for both Business and Residential markets. The
company is a full service, one-stop, Internet Service Provider that can
fulfill all of its clients Information Technology (IT.) needs. World Skyline
offers a vast array of products ranging from Dial-Up access to Digital
Subscriber Lines, E-Commerce and Web Hosting solutions and Streaming Media
services. World Skyline's one-stop approach means support for a wide variety
of products and services.
HOA MUSIC, INC., based in New York and Montreal, Canada, owns, produces and
represents content, from movies to new live concerts and owns music publishing
and master rights. From the purchase of older catalogs of movies and
television shows, record catalogs and publishing, to the regular recording and
filming of new shows; HOA Music is building a audio visual catalog, forming a
base asset of content for all areas of distribution including Internet, TV,
radio, broadcast and retail. HOA Music is also representing catalogs on a
worldwide basis and from the world market, to further offer buyers and
consumers a large range of product.
NAMASTE TELEVISION, based in London, England, provides Asian entertainment and
information through its worldwide cable and satellite broadcast license to UK
households. The company is now in the process of opening another channel
devoted to music programming. Namaste will be streamed worldwide through World
Skyline.
Securing financing to begin the operating phase
We completed our Initial Public Offering on December 27, 1999. Prior to this
date we completed only limited build-out and development of our technological
infrastructure and recruited only a select few technical and managerial
employees. Subsequent to the completion of the offering we began an extensive
effort to develop an infrastructure for video and audio streaming and to
recruit and hire technical personnel to design, implement, and maintain these
systems. The initial phase of this build-out was substantially completed in
the second quarter of 2000.
Building of streaming infrastructure
The streaming infrastructure consists of various local and wide area networks
capable of streaming and storing large amounts of audio and video files. We
have implemented networked environments for development, staging, and actual
broadcast to the public over the Internet. The system combines sophisticated
network architecture to develop and deliver our content as well as a system to
store files to be streamed.
Developing and refining our business model
We devoted time to refining our business model prior to commencing actual
operations. Our business model has been built around multiple lines of product
and services with multiple revenue sources. We originally contemplated four
business lines, which have since been consolidated into two main revenue
divisions built around the types of clients that each division services. The
first division, the Streamedia Networks division, consists of the Bijou Cafe
and targets the Internet user; the second, our Business Services division, is
aimed at corporate clients.
Planning and developing our Business Services
Our business services are designed to provide technology and consulting
expertise and services to traditional media companies, traditional businesses
with media assets, and online businesses and web sites. Our Streamedia Digital
Solutions includes encoding services, digital security, video indexing,
broadcasting production, web design and back-end technical services. In
developing our business services area, we have acquired and installed hardware
and software that allows us to perform these services for other companies.
During the quarter ended June 30, 2000, we launched the Streamedia Digital
Solutions, and began producing revenues. The Quarter ending September 30, 2000
was the first full quarter of operations. The Streamedia Digital Solutions
provides consulting and design services relating to the construction of
websites or Internet applications on the World Wide Web.
RESULTS OF OPERATIONS
REVENUES.
Revenues increased by $34,147 or 26% to $164,977 for the six months ended June
30, 2001, as compared to $130,830 for the comparable period of 2000. Revenues
for the six-month periods ended June 30, 2001, were primarily generated from our
performance of Internet professional services, launched in May 2000.
OPERATING EXPENSES.
Total operating expenses decreased by $2,078,973 or 52% to $1,859,815 for the
six months ended June 30, 2001, as compared to $3,938,788 for the comparable
period of 2000. The decreases in operating expenses for the three and six month
periods ended June 30, 2001, were due to salaries, consultant fees and other
general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
The company's cash position decreased $100,054 from a balance of $104,142 at
December 31, 2000 to $4,088 at June 30, 2001. Working capital at December 31,
2000 and June 30, 2001 was negative at $788,5480 and $998,143 respectively. The
company continued to be funded in part through the net proceeds of the exercise
of options aggregating $350,943. The Company expended cash for operations of
$692,170 and purchased property and equipment aggregating $374,935 for the six
months ended June 30, 2001.
We incurred net losses every quarter since our inception. For the six months
ended June 30, 2001, we incurred a net loss of $1,763,928, a decrease of 53% as
compared to a net loss of $3,753,173 for the six months ended June 30, 2000. We
have financed our operations primarily through sales of equity securities and
the private placement of debt instruments. On September 6, 2000, Streamedia
Communications, Inc. sold 940,000 Shares of Common Stock with net aggregate
proceeds to us of $931,520 pursuant to a private placement under Regulation D,
Rule 506 of the Securities Act of 1933, as amended.
From January 13, 1998 (the date of our inception) to September 30, 2000, we have
raised a total of approximately $14 million from the sale of common stock and
the placement of debt (before underwriting discounts and offering costs). We
completed our initial public offering on December 27, 1999, and repaid
$1,878,125 in debt and interest. On September 30, 2000, our principal source of
liquidity is $910,101 of cash and cash equivalents.
During this fiscal year, we intend to focus our efforts on the expansion of our
professional services since we believe that it represents our best short-term
path to profitability. Bijou Cafe or the Content portion of the business will be
built out more gradually, as our resources will be expended on the areas
representing the potential for greatest return.
To accomplish these objectives, we may need to:
o Make substantial investments in capital equipment, such as web servers,
storage devices, and other specialized computer and communications equipment,
and
o Hire or otherwise contract with highly specialized personnel to develop,
configure, administer, and operate Web sites, broadcast equipment and
infrastructure for our company and our corporate clients.
We plan to acquire additional content that will be broadcast on the Bijou Cafe.
Current industry conditions render it difficult to secure "exclusive" rights to
numerous classes of content suitable for broadcasting over the Internet. To the
extent to which we cannot capture exclusive broadcast rights, we will be in
competition with other web sites attempting to attract audiences by offering
some of the same programming.
We anticipate that any rise in our industry stature, such as by selling business
to business services, and supplying third party sites with programming, will
assist us to further market business to business professional services, and
thereby proportionately increase our revenue. We expect expenditures to rise in
proportion to each phase of our build out. While we anticipate increased
revenues concurrent with the build out, delays in product development or the
institution of marketing programs could result in the risk of prolonged absence
of revenues, profits, or working capital.
Nevertheless, we believe that to accomplish our business objectives we will have
to continue to expand our operations. However, our limited operating history
makes predictions of our future results of operations difficult to access. To
date, although we are beginning to generate revenues, we may never achieve
profitable operations. Our history of net losses raises doubt about our ability
to continue operations.
We will need to obtain sufficient additional financing or other working capital
to fund our operations. If we do not obtain additional financing or working
capital, our cash and cash equivalents will not be sufficient to meet our
working capital and capital expenditure requirements going forward. We will need
to sell additional equity or debt securities to continue as a going concern.
FACTORS THAT MAY AFFECT OUR BUSINESS, FUTURE OPERATING RESULTS AND FINANCIAL
CONDITION
You should carefully consider the risks described below together with all of the
other information included in this quarterly report on Form 10-Q. The risks and
uncertainties described below are not the only ones facing our company. If any
of the following risks actually occurs, our business, financial condition or
operating results could be harmed. In such case, the trading price of our common
stock could decline, and you could lose all or part of your investment.
WE HAVE A LIMITED OPERATING HISTORY, WHICH MAKES IT DIFFICULT TO EVALUATE OUR
BUSINESS
We were incorporated in 1998 and have a limited operating history. We have
limited financial results on which you can assess our future success. Our
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered by growing companies in new and rapidly evolving markets,
such as streaming media software, media delivery systems and electronic
commerce. To address the risks and uncertainties faced by our business, we must:
Establish and maintain broad market acceptance of our products and services and
convert that acceptance into direct and indirect sources of revenues; Maintain
and enhance our brand name; Continue to timely and successfully develop new
products, product features and services and increase the functionality and
features of existing products; Develop and maintain strategic relationships to
enhance the distribution, features and utility of our products and services.
Our business strategy may be unsuccessful and we may be unable to address the
risks we face in a cost-effective manner, if at all. If we are unable to
successfully address these risks our business will be harmed.
WE HAVE A HISTORY OF LOSSES
We have incurred significant losses since our inception. We devote significant
resources to developing, enhancing, selling and marketing our products and
services. As a result, we will need to generate significant revenues to be
profitable in the future.
OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY, WHICH WOULD LIKELY
CAUSE OUR STOCK PRICE TO FLUCTUATE
As a result of our limited operating history and the rapidly changing and
uncertain nature of the markets in which we compete, our quarterly and annual
revenues and operating results are likely to fluctuate from period-to-period,
and period-to-period comparisons are not likely to be meaningful. These
fluctuations are caused by a number of factors, many of which are beyond our
control. Our future operating results could fall below the expectations of
public market analysts or investors, which would likely significantly reduce the
market price of our common stock. Fluctuations in our operating results will
likely increase the volatility of our stock price. Our research and development
and sales and marketing efforts, and other business expenditures generally, are
partially based on predictions regarding certain developments for media delivery
and digital media distribution. To the extent that these predictions prove
inaccurate, our revenues may not be sufficient to offset these expenditures, and
our operating results may be harmed. In recent periods, many Internet-related
companies have experienced financial difficulties, in part as a result of their
inability to access capital from financial markets. This has directly or
indirectly impacted our current and prospective customers. The result is that
some of these companies have ceased operations, some are continuing to
experience financial difficulty, and sales cycles for some of our customers and
potential customers have taken longer to close than in the past. In the event
that a substantial number of our current or potential customers experience
financial difficulties in the future, our ability to increase or maintain sales
to such customers will be adversely affected and our ability to generate
revenues from these companies will also be adversely impacted.
WE MAY BE UNABLE TO SUCCESSFULLY COMPETE IN PARTS OF OUR BUSINESS Media Hosting.
Our media hosting service competes with a variety of companies that provide
streaming media hosting and broadcast services. These companies include Yahoo!
Broadcast Services (formerly Broadcast.com), Akamai and other emerging broadcast
networks. Some of these competitors offer other services that we do not offer.
We may not establish or sustain our competitive position in this market segment.
OUR INDUSTRY IS EXPERIENCING CONSOLIDATION THAT MAY INTENSIFY COMPETITION The
Internet and media distribution industries have recently experienced substantial
consolidation and a proliferation of strategic transactions. We expect this
consolidation and strategic partnering to continue. Acquisitions or strategic
relationships could harm us in a number of ways. For example: Competitors could
acquire or enter into relationships with companies with which we have strategic
relationships and discontinue our relationship, resulting in the loss of
distribution opportunities for our products and services or the loss of certain
enhancements or value-added features to our products and services;
Suppliers of important or emerging technologies could be acquired by a
competitor or other companies, which could prevent us from being able to utilize
such technologies in our offerings, and disadvantage our offerings relative to
those of competitors;
A competitor could be acquired by a party with significant resources and
experience that could increase the ability of the competitor to compete with our
products and services; and Other companies with related interests could combine
to form new, formidable competition, which could preclude us from obtaining
access to certain markets or content, or which could dramatically change the
market for our products and services.
WE DEPEND ON KEY PERSONNEL WHO MAY NOT CONTINUE TO WORK FOR US
Our success substantially depends on the continued employment of our executive
officers and key employees. The loss of the services of any of our other
executive officers or key employees could harm our business. If any of these
individuals were to leave us, we could face substantial difficulty in hiring
qualified successors and could experience a loss in productivity while any such
successor obtains the necessary training and experience. None of our executive
officers has a contract that guarantees employment. We do not maintain "key
person" life insurance policies. If we do not succeed in retaining and
motivating existing personnel, our business could be harmed.
OUR FAILURE TO ATTRACT, TRAIN OR RETAIN HIGHLY QUALIFIED PERSONNEL COULD HARM
OUR BUSINESS
Our success also depends on our ability to attract, train and retain qualified
personnel in all areas, especially those with management and product development
skills. In particular, we must hire additional experienced management personnel
to help us continue to grow and manage our business, and skilled software
engineers. At times, we have experienced difficulties in hiring personnel with
the proper training or experience, particularly in technical areas. If we do not
succeed in attracting new personnel or retaining and motivating our current
personnel, our business could be harmed. In making employment decisions,
particularly in the Internet and high-technology industries, job candidates and
even our current personnel often consider the value of stock options they may
receive in connection with their employment. As a result of recent volatility in
our stock price, we may be disadvantaged in competing with companies that have
not experienced similar volatility or that have not yet sold their stock
publicly.
POTENTIAL ACQUISITIONS INVOLVE RISKS WE MAY NOT ADEQUATELY ADDRESS As part of
our business strategy, we have acquired technologies and businesses in the past,
and intend to continue to do so in the future. The failure to adequately address
the financial, legal and operational risks raised by acquisitions of technology
and businesses could harm our business. Acquisition or business combination
transactions are accompanied by a number of significant risks. Financial risks
related to acquisitions may harm our financial position, reported operating
results or stock price, and include: Potentially dilutive issuances of equity
securities; Use of cash resources; The incurrence of additional debt and
contingent liabilities; Large write-offs and difficulties in assessment of the
relative percentages of in-process research and development expense that can be
immediately written off as compared to the amount which must be amortized over
the appropriate life of the asset; and Amortization expenses related to goodwill
and other intangible assets.
Acquisitions also involve operational risks that could harm our existing
operations or prevent realization of anticipated benefits from an acquisition.
These operational risks include: Difficulties in assimilating the operations,
products, technology, information systems and personnel of the acquired company;
Diversion of management's attention from other business concerns and the
potential disruption of our ongoing business; The difficulty of incorporating
acquired technology or content and rights into our products and services and
unanticipated expenses related to such integrations; Impairment of relationships
with our employees, affiliates, advertisers and content providers; The
assumption of known and unknown liabilities of the acquired company; Entrance
into markets in which we have no direct prior experience; and Loss of key
employees of the acquired company.
THE GROWTH OF OUR BUSINESS DEPENDS ON THE INCREASED USE OF THE INTERNET FOR
COMMUNICATIONS, ELECTRONIC COMMERCE AND ADVERTISING
The growth of our business depends on the continued growth of the Internet as a
medium for communications, electronic commerce and advertising. Our business
will be harmed if Internet usage does not continue to grow, particularly as a
source of media information and entertainment and as a vehicle for commerce in
goods and services. Our success also depends on the efforts of third parties to
develop the infrastructure and complementary products and services necessary to
maintain and expand the Internet as a viable commercial medium. We believe that
other Internet-related issues, such as security, privacy, reliability, cost,
speed, ease of use and access, quality of service and necessary increases in
bandwidth availability, remain largely unresolved and may affect the amount and
type of business that is conducted over the Internet, and impact our ability to
sell our products and services and ultimately impact our business results. If
Internet usage grows, the Internet infrastructure may not be able to support the
demands placed on it by such growth, specifically the demands of delivering
high-quality media content. As a result, its performance and reliability may
decline
OUR DIRECTORS AND EXECUTIVE OFFICERS BENEFICIALLY OWN A LARGE PERCENTAGE OF OUR
STOCK; THEIR INTERESTS COULD CONFLICT WITH YOURS; SIGNIFICANT SALES OF STOCK
HELD BY THEM COULD HAVE A NEGATIVE EFFECT ON OUR STOCK PRICE; SHAREHOLDERS MAYBE
UNABLE TO EXERCISE CONTROL
Our executive officers, directors and affiliated persons will have significant
influence to:
Elect or defeat the election of our directors; Amend or prevent amendment of our
articles of incorporation or bylaws; Effect or prevent a merger, sale of assets
or other corporate transaction; and Control the outcome of any other matter
submitted to the shareholders for vote.
Management's stock ownership may discourage a potential acquirer from making a
tender offer or otherwise attempting to obtain control of Streamedia, which in
turn could reduce our stock price or prevent our shareholders from realizing a
premium over our stock price.
OUR STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE VOLATILE The trading price of
our common stock has been and is likely to continue to be highly volatile. Our
stock price could be subject to wide fluctuations in response to factors such
as:
Actual or anticipated variations in quarterly operating results;
Announcements of technological innovations, new products or services by our
competitors; or us Changes in financial estimates or recommendations by
securities analysts; The addition or loss of strategic relationships or
relationships with our key customers; Conditions or trends in the Internet,
streaming media, media delivery and online commerce markets; Changes in the
market valuations of other Internet, online service or software companies;
Announcements by us or our competitors of significant acquisitions, strategic
partnerships, joint ventures or capital commitments; Legal, regulatory or
political developments; Additions or departures of key personnel; Sales of our
common stock; and
You should note that an investment in our common stock involves certain risks
and uncertainties that could affect our future business success or financial
results. Our actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors, including those
set forth in "Factors That May Affect Our Business, Future Operating Results and
Financial Condition" and elsewhere in this Quarterly Report on Form 10-Q.
We believe that it is important to communicate our expectations to our
investors. However, there may be events in the future that we are not able to
predict accurately or over which we have no control. Before you invest in our
common stock, you should be aware that the occurrence of the events described in
the "Factors That May Affect Our Business, Future Operating Results and
Financial Condition" and elsewhere in this Quarterly Report on Form 10-Q could
materially and adversely affect our business, financial condition and operating
results. We undertake no obligation to publicly update any forward-looking
statements for any reason, even if new information becomes available or other
events occur in the future.
OTHER INFORMATION
LEGAL PROCEEDINGS
From time to time, we have been threatened with or named as a defendant in
lawsuits. From time to time we receive communications from third parties
asserting breach of agreements and other claims. Our Company currently has been
named in two such events that are required to be disclosed under the securities
laws. There can be no assurance that litigation will not be commenced regarding
these or other matters. The two legal events are as follows:
Dynax Solutions, Inc., has filed suit against our Company, alleging that we
breached a service contract and owe Dynax approximately $56,000. We have filed
an answer; generally denying the allegations made by Dynax, and has filed a
counterclaim, alleging damages against Dynax in excess of $150,000. Our Company
believes that the suit, as alleged in the complaint that Dynax filed, is without
merit and our Company intends to defend the action vigorously.
Vignette Corporation ("Vignette") has filed suit against our Company, alleging
that we entered into an agreement for Vignette to provide certain products and
services to the Company. Vignette alleges that we refused to pay approximately
$114,000 that Vignette claims is owed to it. Our Company, without admitting any
liability regarding the claim by Vignette, currently is attempting to settle the
matter.
On March 20, 2001, we received notice from the NASDAQ Listings Qualifications
Panel that its common stock would no longer be listed on the NASDAQ SmallCap
Market effective with the close of business on March 28, 2001. The panel's
action was based on our inability to maintain a minimum bid price of $1.00 over
the previous 30 consecutive trading days.
On May 4, 2001, we announced that we had been notified that, besides its bid
price deficiency, we currently do not currently comply with the net tangible
assets/market capitalization/income requirement as set forth in NASDAQ
Marketplace Rule 4310(c)(2)(B). We had a hearing before the NASDAQ listing and
qualification staff on May 10, 2001. Our Company was not delisted at that
hearing. The Listing Qualification Panel will continue to review our listing
qualifications. On June 8, 2001, we were delisted from The NASDAQ Stock Market,
due in part to late filings of the 10Q's.
Mark F. Backhaus, On behalf of himself and all others similarly situated, has
filed against our Company and prior directors, James Rupp, Gayle Essary,
Nicholas Malino, Walter C. Hollenberg, Henry Siegel, Robert Wussler, David
Simonetti, et al. in the United States District Court, Southern District of New
York, and additional defendants alleging various violations under securities
laws while the initial public offering was filed December 22, 1999. The Company
is defending this complaint.
The Company has not received service of this complaint to date, but has been
advised by counsel that the Plaintiff may have served the Secretary of State and
prior attorneys.
We are not involved in any other legal matters that our Company believes would,
if adversely determined, have a material adverse effect upon its business or
results of operations. There can be no assurance whether these matters will be
determined in a manner that is favorable to our Company or, if adversely
determined, whether such determination would have a material adverse effect upon
our business, financial condition or results of operations.
CHANGES IN SECURITIES AND USE OF PROCEEDS RECENT SALES OF UNREGISTERED
SECURITIES
NOTES PAYABLE
On March 2, 2001 and February 21, 2001, we issued promissory notes aggregating
approximately $50,000 and $97,879, respectively, bearing interest at the rate of
10% per annum from the date of the promissory note or before the sooner of (i)
ninety days after the date of the promissory note or (ii) forty-five days after
written demand is made by the holder of the note. These promissory notes are
collateralized by 913,600 shares of our Company's unregistered, restricted
common stock. The proceeds were used for working capital purposes.
OTHER INFORMATION
EXHIBITS AND REPORTS ON FORM 8-K
On January 9, 2001, we filed an 8-K reflecting that we acquired eLeaders, Inc.
(www.eleaders.com) ("eLeaders"), of Minneola, NY. eLeaders provides hosting,
Internet access (DSL services), and web site design services.
The filing also noted that Streamedia signed a letter of intent to merge eSynch
Corp. ("eSynch"). eSynch offers media infrastructure delivery tools and services
for the streaming video marketplace. According to terms of the letter of intent,
eSynch would have become a wholly owned subsidiary of Streamedia. The intent to
this transaction was subsequently mutually rescinded.
A Form 8-K filed on March 14, 2001 noted that, based on the analysis of the
available financial information concerning eLeaders, Inc. (eLeaders), the Board
of Directors determined that the acquisition of eLeaders does not constitute an
acquisition of a significant amount of assets. Upon further review of the
acquisition, we did not at that time decide whether to treat the transaction as
a pooling or a purchase.
On March 9, 2001, Streamedia Communications, Inc., held a special meeting of the
board of directors. At that meeting, by a majority vote, the board agreed to
remove Gayle Essary from his position as a director and Vice President of
Streamedia Communications, Inc.
PROXY FILINGS
We filed preliminary proxy materials with the Commission on March 23, 2001,
giving notice regarding a special meeting to solicit approval for a reverse
split of our common stock. We filed a revision of the preliminary proxy
materials on May 3, 2001. We amended the proxy statement to add two additional
proposals. The first new proposal seeks shareholder approval to increase the
number of authorized shares of our Company to 50 million shares. The second new
proposal seeks shareholder approval to approve and adopt the agreement to merge
with and into HOA Networks, Inc.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by undersigned, thereunto duly
authorized.
Streamedia Communications, Inc.
Date: October 22, 2001 By: /s/ John Velasco-Mills
John Velasco-Mills, President