<PAGE> 1
FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended September 30, 1996 Commission File Number 0-21147
CD-MAX, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 87-0378128
(State of incorporation) (I.R.S. Employer Identification Number)
11480 Sunset Hills Road, Suite 110, Reston, VA 20190-5208
(Address of principal executive offices and zip code)
(703) 471-5755
(Issuer's telephone Number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the preceding 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
----- -----
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Common Stock, $.01 par value 4,718,270 shares
(Class) (Outstanding at November 11, 1996)
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TABLE OF CONTENTS
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Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Operations for the three months ended
September 30, 1995 and 1996 and for the period from
from July 1, 1993 (inception) to September 30, 1996............. 2
Balance Sheets at June 30, 1996 and September 30, 1996................... 3
Statements of Cash Flows for the three months ended
September 30, 1995 and 1996 and for the period from
from July 1, 1993 (inception) to September 30, 1996............. 4
Notes to Financial Statements............................................ 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................... 6
Signatures...................................................... 8
</TABLE>
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CD-MAX, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JULY 1, 1993
THREE MONTHS ENDED (INCEPTION) TO
SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1996
----------- ----------- -------------
<S> <C> <C> <C>
Revenues $ 5,000 $ 12,504 $ 28,398
Costs and expenses:
Selling 53,235 93,962 535,459
General and administrative 174,364 269,042 2,395,339
Research and development 98,398 226,134 1,265,513
Depreciation and amortization 1,517 5,275 88,676
----------- ----------- -------------
Total costs and expenses 327,514 594,413 4,284,987
----------- ----------- -------------
Other income (expense):
Interest income 6,669 25,808 43,903
Interest expense - (29,959) (101,117)
----------- ----------- -------------
Net loss $ (315,845) $ (586,060) $(4,313,803)
=========== =========== ============
Net loss per share $ (0.18) $ (0.18)
=========== ===========
Weighted average number of common shares outstanding 1,783,368 3,307,785
=========== ===========
</TABLE>
See accompanying notes.
2
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CD-MAX, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1996 1996
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<S> <C> <C>
ASSETS
Current assets:
Cash $ 296,012 $ 5,226,136
Accounts receivable 5,994 3,498
Short-term investments 20,000 20,000
Prepaid expenses 25,263 -
------------ --------------
Total current assets 347,269 5,249,634
Computer equipment 67,518 69,970
Less accumulated depreciation (13,446) (18,721)
------------ --------------
54,072 51,249
Deposits 11,829 11,829
Debt issuance costs, net 69,954 -
------------ --------------
Total assets $ 483,124 $ 5,312,712
============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 48,861 $ 61,154
Accrued expenses 341,220 162,496
Unearned royalties 17,180 17,180
Notes payable 875,000 -
Notes payable to related parties 171,666 -
Current portion of capital lease obligations 23,622 15,591
------------ --------------
Total current liabilities 1,477,549 256,421
Capital lease obligations, net of current portion 20,972 12,161
Stockholders' equity (deficit):
Preferred stock, $1.00 par value; 1,000,000 shares authorized; no shares
issued and outstanding - -
Common stock, $.01 par value; 10,000,000 shares authorized; 2,047,300
and 4,718,270 shares issued and outstanding at June 30, 1996 and
September 30, 1996, respectively 20,473 47,183
Capital in excess of par value 2,691,873 9,310,750
Deficit accumulated during the development stage (3,727,743) (4,313,803)
------------ --------------
Total stockholders' equity (deficit) (1,015,397) 5,044,130
------------ --------------
Total liabilities and stockholders' equity (deficit) $ 483,124 $ 5,312,712
============ ==============
</TABLE>
See accompanying notes.
3
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CD-MAX, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JULY 1, 1993
THREE MONTHS ENDED (INCEPTION) TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1996
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<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(315,845) $ (586,060) $(4,313,803)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,517 5,275 88,676
Issuance of compensatory stock options - - 242,452
Interest expense associated with warrants issued in
connection with the Bridge Loan Agreement - 4,167 25,000
Interest expense associated with warrants issued in
connection with the Private Placement - 16,667 41,667
Changes in operating assets
and liabilities:
Accounts receivable - 2,496 (3,498)
Prepaid expenses - 25,263 -
Deposits - - (11,829)
Debt issuance costs - 69,954 (69,955)
Accounts payable (41,541) 12,293 61,154
Accrued expenses (351) (178,724) 164,579
Unearned royalties - - 17,180
------------- ------------- --------------
Net cash used in operating activities (356,220) 628,669 3,758,377
INVESTING ACTIVITIES
Purchase of equipment - (2,452) (3,537)
Purchase of short-term investments - - (20,000)
------------- ------------- --------------
Net cash used in investing activities - (2,452) (23,537)
FINANCING ACTIVITIES
Net proceeds from notes payable - - 1,655,500
Net proceeds from issuance of warrants - - 104,455
Principal payments on notes payable - (875,000) (975,000)
Principal payments on notes payable to related parties - (171,666) (171,666)
Principal payments on capital lease obligations (1,799) (16,842) (38,681)
Net cash proceeds from issuance
of common stock 525,000 6,624,753 8,433,442
------------- ------------- --------------
Net cash provided by financing activities 523,201 5,561,245 9,008,050
------------- ------------- --------------
Net increase (decrease) in cash 166,981 4,930,124 5,226,136
Cash at beginning of period 301,856 296,012 -
------------- ------------- --------------
Cash at end of period $ 468,837 $5,226,136 $ 5,226,136
============= ============= ==============
</TABLE>
See accompanying notes.
4
<PAGE> 6
CD-MAX, INC.
(A Development Stage Company)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, we do not include all of the information and footnotes
required by generally accepted accounting principles (consisting of normal
recurring accruals) considered necessary for a fair presentation. Operating
results for the three month period ended September 30, 1996 are not necessarily
indicative of the results that may be expected for the year ended June 30,
1997. For further information, refer to the financial statements and footnotes
thereto included in the Company's registration statement Form SB-2 on file with
the Securities and Exchange Commission for the year ended June 30, 1996.
2. SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments purchased
with a maturity of less than three months to be cash equivalents. The
Company's short-term investments consist of certificates of deposit, banker's
acceptances and repurchase agreements of major banks and institutions,
obligations of the Treasury and U.S. Government agencies, and commercial paper,
having maturities of less than three months, or money market mutual funds
invested in the foregoing described investments. These securities are recorded
at cost, which approximates fair value.
PRODUCT DEVELOPMENT COSTS
Through September 30, 1996, the Company expensed its product
development costs as research and development costs. It will continue to
expense such costs until such time as the realizability of the Company's
software is established.
3. STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK
In August 1996, the Company sold in a public offering 1,322,500 Units,
each Unit consisting of two shares of Common Stock and one Redeemable Warrant,
which generated gross proceeds of approximately $8.1 million to the Company.
5
<PAGE> 7
CD-MAX, INC.
(A Development Stage Company)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
This Report contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties and represent
management's judgement as of the date of this Form 10-QSB. The Company's
actual results could differ significantly from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed under the caption "Risk Factors" in the
Company's Prospectus, dated August 16, 1996, issued in conjunction with the
Company's registration statement on Form SB-2, on file with the Securities and
Exchange Commission. The Company disclaims any intent or obligation to update
these forward-looking statements.
OVERVIEW
The Company is a development stage company engaged in the development
and marketing of the CD-MAX technology to publishers of digitally stored
information. The Company commenced operations in July 1993. Prior thereto,
the principals of the Company were involved in the development of the CD-MAX
technology, development of the business plan and arranging for the initial
capitalization of the Company.
From July 1, 1993 (inception) through September 30, 1996, the Company
recognized revenues from operations of $28,398 and had an accumulated deficit
of $4,313,803. The Company has continued to operate at a loss since inception
and expects to incur significant additional operating losses until the Company
generates significant revenues from operations which are sufficient to cover
its monthly operating expenses.
The Company's strategy is to achieve market acceptance of the CD-MAX
System with publishers of professional, general corporate, library and
educational materials who use CD-ROMs and the Internet as the method of
information distribution. The Company has entered into agreements with six
information publishers pursuant to which it will receive product development,
transaction and licensing fees (which represent a percentage of the revenue
billed by the Company on behalf of the publisher), provided that the publishers
are successful in marketing their information. The first commercial test of
the CD-MAX System began in August 1995, and to date, a total of $28,398 in
revenues have been generated from all uses of the system.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1995
REVENUES
For the three months ended September 30, 1996, the Company recognized
revenues of $12,504 as license fee income pursuant to its agreements with
publishers. For the three months ended September 30, 1995, the Company
recognized revenues of $5,000 from license fees pursuant to its agreements with
publishers. These revenues consisted primarily of software development and
licensing fees.
OPERATING EXPENSES
The Company's operating expenses were $594,413 for the three months
ended September 30, 1996, compared to $327,514 for the three months ended
September 30, 1995. This increase of $266,899 or 81% was attributable
primarily to the following factors:
Sales and Marketing. Selling expenses were $93,962 for the three
months ended September 30, 1996, compared to $53,235 for the three months ended
September 30, 1995. This increase of $40,727 or 77% was attributable primarily
to increased expenses for an additional marketing professional and other
expenses associated with the design and production of new marketing literature.
6
<PAGE> 8
CD-MAX, INC.
(A Development Stage Company)
General and Administrative. General and administrative expenses were
$269,042 for the three months ended September 30, 1996, compared to $174,364
for the three months ended September 30, 1995. This increase of $94,678 or 54%
was primarily due to a $29,960 increase in administrative salaries (annual
salary increase for key employees, additional staff and temporary services),
and a $69,954 increase due to debt issuance amortization expense associated
with a private placement financing.
Research and Development. Research and development expenses were
$226,134 for the three months ended September 30, 1996, compared to $98,398 for
the three months ended September 30, 1995. This increase of $127,736 or 130%
was primarily attributed to the increase of eight additional personnel in
software development and operations. This increase in staff also resulted in a
proportionate increase of equipment and related expenses.
Due to the above, the Company had a net loss of $586,060 for the three
months ended September 30, 1996, compared to a net loss of $315,845 for the
three months ended September 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced net losses from operations since its
inception and at September 30, 1996 had an accumulated deficit of $4,313,803.
Other than routine trade payables, the Company's primary liabilities are
accrued expenses of $162,496, which as of September 30, 1996, represents back
salary due to management of $118,632, fringe benefit accruals of $41,240, and
other accruals of $2,624, and the current portion of capital lease obligations
of $15,591.
The Company has financed its operations primarily through funds
obtained from the sale of Common Stock. On August 16, 1996 the Company
completed a Public Offering of 1,322,500 Units, each unit consisting of two
shares of Common Stock and one Redeemable Warrant. The gross proceeds to the
Company were approximately $8.1 million; as of September 30, 1996,
approximately $2.5 million of the total offering proceeds were used to pay off
private placement notes payable, related party notes payable, and related
offering expenses. The proceeds from this offering will be used to support
continuing operations and research and development. As of September 30, 1996
$4,321,642 of the offering proceeds has been invested in money market mutual
funds, and an additional $800,000 has been used to purchase short term
certificates of deposit. The Company expects the proceeds from the offering to
be sufficient to fund its operations for at least twelve months.
The Company has no material commitments other than its facility,
equipment leases, and employment agreements with four of its senior executives
which call for annual salaries of approximately $64,000 to $89,500 per year per
individual.
CERTAIN BUSINESS RISKS
There can be no assurance that the Company's services will be accepted
by the marketplace in a successful and timely manner; that the Company will
achieve positive cashflow to fund its operations prior to exhausting its
capital resources; or that the Company will be able to raise additional
capital, should it be required.
A description of these and other risks relating to the Company's
business is set forth under the caption "Risk Factors" in the Company's
Prospectus, dated August 16, 1996, issued in conjunction with the Company's
registration statement on Form SB-2, on file with the Securities and Exchange
Commission.
7
<PAGE> 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.
CD-MAX, Inc.
-------------------------------------
(Registrant)
Date: November 14, 1996 /s/ ROBERT A. WIEDEMER
-------------------------------------
Robert A. Wiedemer
President, Chief Executive Officer,
and Chairman of the Board
(Principal Executive Officer)
Date: November 14, 1996 /s/ PHILIP J. GROSS
-------------------------------------
Philip J. Gross,
Secretary Treasurer, Vice President-
Chief Financial Officer, and Director
(Principal Accounting Officer)
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q-SB
FILED WITH THE SECURITIES & EXCHANGE COMMISSION.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996<F1>
<CASH> 5,226,136
<SECURITIES> 20,000
<RECEIVABLES> 3,498
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,249,634
<PP&E> 69,970
<DEPRECIATION> 18,721
<TOTAL-ASSETS> 5,312,712
<CURRENT-LIABILITIES> 256,421
<BONDS> 0
0
0
<COMMON> 47,183
<OTHER-SE> 4,996,947
<TOTAL-LIABILITY-AND-EQUITY> 5,312,712
<SALES> 12,504
<TOTAL-REVENUES> 12,504
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,959
<INCOME-PRETAX> (586,060)
<INCOME-TAX> 0
<INCOME-CONTINUING> (586,060)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (586,060)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> 0
<FN>
<F1>QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
</FN>
</TABLE>
