K2 Design Posts Loss, Loses Wavephore Account

K2 Design Inc. posted a loss of $231,000 from continuing operations for the third quarter ending Sept. 30, compared to a loss of about $397,000 for the same period a year earlier.

The company also said it expects a loss in the fourth quarter, after losing the WavePhore, Inc. account. K2 had been its agency of record.

Overall revenues (including discontinued operations) for the quarter were reported at $1.9 million, up from $1.64 million for the same period in 1997. Net revenues from continuing operations (i.e., gross revenues less pass- through expenses such as media placement costs) were approximately $892,000 in the 1998 quarter as compared to $1.39 million in the 1997 quarter, or a decrease of approximately 36 percent, the company said.

Management said the decline in net revenues are primarily the result of weak sales management during the first half of 1998, overall management realignment and other personnel related matters. Since the company’s sales cycle is typically several months, the weak sales management in the first half of 1998 is also expected to adversely impact the company’s net revenues in the fourth quarter of 1998.

K2 also said it was recently informed that WavePhore, which accounted for approximately 70 percent of third quarter gross revenue and approximately 25 percent of nine month gross revenue, will not be utilizing the company’s services beyond the fourth quarter.

It is also expected that fourth quarter revenue from WavePhore will be significantly reduced and management said it believes the company will incur a loss from continuing operations in the fourth quarter comparable to or greater than that in the third quarter.

For the nine months, K2 reported gross revenues of approximately $5.94 million as compared to approximately $4.38 million for the same period in 1997. During the 1998 period, the company reported a loss from continuing operations of approximately $206,000 as compared to approximately $951,000 for the 1997 period.

Total net income for the first nine months of 1998, including that from discontinued operations and the sale of certain business assets, was approximately $2.70 million compared to a loss of approximately $1.40 million in the 1997 period.

The company said it has begun to address the situation by expanding its senior management team with the recent hire of Lynn Fantom as president and chief executive officer, by changing the nature of its target customer and by allocating additional resources to its sales effort.

As of Sept. 30, 1998, the company maintained a cash position of approximately $2.9 million. In addition, the company holds 196,490 shares of 24/7 Media Inc. common stock, the value of which is approximately $3.7 million based upon its closing price on Nov. 16, 1998.

K2 specializes in online brand building strategies and media campaigns for both traditional and new media platforms.

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