<PAGE> 1
================================================================================
SECURITIES AND 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 THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000.
Or
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______, 19__.
Commission File Number: 333-38623
-----------------------
MAXXIS GROUP, INC.
(Exact name of registrant as specified in its charter)
GEORGIA 22-78241
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1901 MONTREAL ROAD, SUITE 108, TUCKER, GEORGIA 30084
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 696-6343
Indicate by a check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at December 26, 2000
Common Stock, no par value 1,624,516
================================================================================
<PAGE> 2
MAXXIS GROUP, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements............................................... 3
Condensed Consolidated Balance Sheets as of
September 30, 2000 and June 30, 2000 (Unaudited)................... 3
Condensed Consolidated Income Statements for the
Three Months ended September 30, 1999 and 2000 (Unaudited)......... 4
Condensed Consolidated Statements of Cash Flows for the
Three Months ended September 30, 1999 and 2000 (Unaudited)......... 5
Notes to Condensed Consolidated Financial
Statements (Unaudited)............................................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 8
Item 3. Quantitative and Qualitative Disclosure About
Market Risks....................................................... 13
PART II OTHER INFORMATION
Item 1. Legal Proceedings.................................................. 13
Item 4. Submission of Matters to a Vote of Security Holders................ 13
Item 6. Exhibits and Reports on Form 8-K................................... 14
SIGNATURES
</TABLE>
2
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MAXXIS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 JUNE 30, 2000
------------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash ........................................................................ $ 1,860,000 $ 4,867,000
Short-term investments ...................................................... -- --
Accounts receivable, net of allowance for doubtful
accounts of $1,042,000 and $931,000, respectively ......................... 1,096,000 1,081,000
Inventories, net ............................................................ 1,818,000 1,093,000
Prepaid expenses and other current assets ................................... 160,000 237,000
------------ ------------
Total current assets ...................................................... 4,934,000 7,278,000
Property and equipment, net .................................................... 4,824,000 5,000,000
Capitalized software development costs, net .................................... 407,000 358,000
Other assets ................................................................... 5,000 31,000
------------ ------------
Total assets .......................................................... $ 10,170,000 $ 12,667,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................ $ 431,000 $ 814,000
Commissions payable ......................................................... 72,000 160,000
Accrued compensation ........................................................ 41,000 756,000
Taxes payable ............................................................... 83,000 177,000
Current maturities of long-term capital lease obligations ................... 974,000 974,000
Accrued liabilities ......................................................... 33,000 1,013,000
Deferred revenue ............................................................ 504,000 678,000
------------ ------------
Total current liabilities ................................................. 2,138,000 4,572,000
Long-term liabilities:
Line of credit .............................................................. -- 65,000
Long-term lease obligations ................................................. 2,868,000 3,107,000
------------ ------------
Total long-term liabilities ............................................... 2,868,000 3,172,000
------------ ------------
Shareholders' deficit:
Preferred Stock, no par value; 10,000,000 shares authorized;
100,000 shares designated as Series A Convertible Preferred
Stock of which 295,450 and 36,359 shares are issued and
outstanding, respectively ................................................. 5,609,000 5,141,000
Common Stock, no par value; 20,000,000 shares authorized;
1,544,910 and 1,571,187 shares issued and outstanding, respectively ....... 455,000 455,000
Accumulated deficit ......................................................... (900,000) (673,000)
------------ ------------
Total shareholders' equity ................................................ 5,164,000 4,923,000
------------ ------------
Total liabilities and shareholders' equity ............................ $ 10,170,000 $ 12,667,000
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED STATEMENTS.
3
<PAGE> 4
MAXXIS GROUP, INC. AND SUBSIDIAIRIES
CONSOLIDATED INCOME STATEMENTS
THREE MONTHS ENDED
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
------------------ ------------------
<S> <C> <C>
Revenues:
Telecommunication services ............................ $ 3,034,000 $ 1,057,000
Nutritional products .................................. 423,000 1,259,000
Marketing services .................................... 863,000 1,022,000
------------ ------------
Total revenues ................................... 4,320,000 3,338,000
------------ ------------
Cost of services:
Telecommunication services ............................ 1,470,000 1,032,000
Nutritional services .................................. 167,000 362,000
Marketing services .................................... 253,000 137,000
------------ ------------
Total cost of services ........................... 1,890,000 1,531,000
------------ ------------
Gross Margin ..................................... 2,430,000 1,807,000
------------ ------------
Operating expenses:
Selling and marketing ................................. 1,768,000 881,000
General and administrative ............................ 1,354,000 1,132,000
------------ ------------
Total operating expenses .............................. 3,122,000 2,013,000
------------ ------------
Operating Income .................................. (692,000) (206,000)
Interest Income (Expense), net ........................ (188,000) (46,000)
------------ ------------
LOSS BEFORE INCOME TAXES .............................. (880,000) (252,000)
PROVISION FOR INCOME TAXES ............................ -- --
------------ ------------
NET LOSS .............................................. (880,000) (252,000)
============ ============
NET LOSS PER SHARE .................................... $ (0.54) $ (0.16)
============ ============
BASIC AND DILUTED WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING ............................... 1,617,637 1,546,919
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED STATEMENTS.
4
<PAGE> 5
MAXXIS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------------------
1999 2000
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ...................................................... $ (880,000) $ (252,000)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization ........................................ 348,000 176,000
Changes in assets and liabilities:
Communications receivable .......................................... 193,000
Accounts receivable ................................................ (571,000) (15,000)
Inventories ........................................................ 27,000 (725,000)
Prepaid expenses ................................................... 78,000 66,000
Other assets ....................................................... (120,000) 37,000
Accounts payable ................................................... 648,000 (383,000)
Commissions payable ................................................ 43,000 (88,000)
Taxes payable ...................................................... 180,000 (94,000)
Accrued compensation and accrued liabilities ....................... 135,000 (1,695,000)
Deferred revenue ................................................... 59,000 (174,000)
------------ ------------
Total adjustments ................................................ 1,020,000 (2,895,000)
------------ ------------
Net cash provided (used) in operating activities ............ 140,000 (3,147,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................................... (52,000) --
Software development costs ............................................. (90,000) (49,000)
------------ ------------
Net cash used in investing activities ....................... (142,000) (49,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from subscriptions for preferred stock ........................ 1,425,000 --
Proceeds from subscriptions for common stock ........................... -- 493,000
Proceeds from (payments on) line of credit ............................. (1,390,000) (65,000)
Payments on capital lease obligations .................................. (52,000) (239,000)
------------ ------------
Net cash used in financing activities ....................... (17,000) 189,000
------------ ------------
NET INCREASE (DECREASE) IN CASH EQUIVALENTS ............................... (19,000) (3,007,000)
CASH AND CASH EQUIVALENTS, beginning of the period ........................ 20,000 4,867,000
------------ ------------
CASH AND CASH EQUIVALENTS, end of the period .............................. $ 1,000 1,860,000
------------ ------------
SUPPLEMENTAL CASH FLOW DISCLOSURES OF
NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations incurred ..................................... $ 5,759,000 $ 3,842,000
------------ ------------
Treasury stock received ................................................ $ 120,000 --
Conversion of amounts owed under line of credit ........................ $ 1,425,000 --
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED STATEMENTS.
5
<PAGE> 6
MAXXIS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND PRESENTATION
We were incorporated on January 24, 1997 and are headquartered in
Tucker, Georgia. Our principal business operations are carried out
through our wholly owned subsidiaries, Maxxis 2000, Inc. and Maxxis
Communications, Inc., each of which began operations in March 1997, and
Maxxis Nutritionals, Inc., which began operations in November 1997. We
were founded for the purpose of providing long-distance services,
private label nutritional products, and other services and consumable
products through a multilevel marketing system of independent
associates, or "IAs". Our IAs market communications and Internet
services and nutritional and health enhancement products.
We have a limited operating history, and our operations are subject to
the risks inherent in the establishment of any new business. Since we
only recently made the transition to an operating company, our ability
to manage our growth and expansion will require us to implement and
continually expand our operational and financial systems, recruit
additional IAs, and train and manage both current and new IAs. Growth
may place a significant strain on our operational resources and
systems, and failure to effectively manage any such growth might have a
material adverse effect on our business, financial condition, and
results of operations.
2. UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of our management, the unaudited financial statements
contain all the normal and recurring adjustments necessary to present
fairly our financial position as of September 30, 2000 and the results
of our operations and our cash flows for the three-month periods ended
September 30, 2000 and 1999 in conformity with generally accepted
accounting principles. The results of operations are not necessarily
indicative of the results to be expected for the full fiscal year.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
2000 2000
------------- ----------
<S> <C> <C>
Prepaid phone cards................ $ 96,000 $ 133,000
Sales aids......................... 619,000 310,000
Nutritional products............... 1,103,000 650,000
---------- ----------
$1,818,000 $1,093,000
========== ==========
</TABLE>
4. CAPITAL LEASE OBLIGATIONS
On September 29, 1998, we entered into certain leases for telephone
switching equipment, which are classified as capital lease obligations.
These leases expire within five years and have purchase options at the
end of the original lease term. Assets under capital leases are
included in property and equipment in the September 30, 2000
consolidated balance sheet at a gross book value of approximately
$5,759,000.
6
<PAGE> 7
5. SEGMENT REPORTING
We are a multi-level network marketing company that currently sells
communications and nutrition products through our network of IAs.
The Communications segment of our business provides and distributes
1-Plus long distance services, prepaid phone cards, internet service
and provides the hosting of web pages for Maxxis 2000 distributors. Our
Nutrition division distributes private label nutritional and health
enhancement products to our IAs. Our Marketing Services segment
provides sales aids, product fulfillment, and promotional materials and
provides other support services such as conducting our annual marketing
summit meeting and other training meetings.
The Corporate Group segment of our business provides our
administrative, financial and legal support services.
Segment information for the three month periods ended September 30,
1999 and 2000 are as follows:
<TABLE>
<CAPTION>
COMMUNICATIONS NUTRITIONAL MARKETING CORPORATE
SERVICES PRODUCTS SERVICES GROUP TOTAL
-------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
September 30, 1999
Net revenues ................... $ 3,034,000 $ 423,000 $ 863,000 $ $ 4,320,000
Operating income (loss) ....... (840,000) (22,000) 501,000 (331,000) (692,000)
September 30, 2000
Net revenues ................... $ 1,057,000 $ 1,259,000 $ 1,022,000 $ -- $ 3,338,000
Operating income (loss) ....... (506,000) 849,000 (235,000) (314,000) (206,000)
</TABLE>
6. SHAREHOLDERS' DEFICIT
On September 30, 1999 we converted the outstanding Line of Credit
balance of $1.4 million into 259,091 shares of Series A Convertible
Preferred Stock. The Line of Credit is with the Maxxis Millionaire
Society, whose partners are certain members of senior management and
significant shareholders of the common stock. Under the Line of Credit,
Maxxis may borrow up to $2 million at 10% annual interest. Advances and
interest are not payable until November 22, 2000. Also on September 30,
1999, we agreed to accept the return of common stock issued to a former
executive in exchange for the forgiveness of a shareholder note
receivable for $120,000, which was guaranteed by the executive.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We market communications and Internet services and nutritional and
health enhancement products in the United States through our multi-level network
marketing system of "independent associates," or "IAs." We operate through our
subsidiaries: Maxxis 2000; Maxxis Communications; and Maxxis Nutritionals.
Maxxis 2000 is a network marketing company that currently markets
1-Plus long distance service, travel cards, prepaid phone cards, 800 service and
international telecommunications services, Internet access and Web-page
development and hosting services, and nutritional and health enhancement
products. We believe that a multi-level network marketing system allows us to
obtain customers for our products in a cost effective manner and enhances
customer retention because of the relationships between our IAs and their
customers. The telecommunications customer base developed by our IAs provides a
potential customer base for our nutritional and health enhancement products,
Internet-related services and for future products.
We have built a customer base without committing capital or management
resources to construct our own communications network and transmission
facilities. In February 1997, Maxxis Communications contracted with Colorado
River Communications, Corp. ("CRC") to obtain switching and network services and
to allow CRC's communications services to be sold by our IAs. Maxxis
Communications obtains telecommunications services and purchases time for its
prepaid 1 hour, 30 minute and 10 minute phone cards from CRC. In September 1998,
we entered into a long-term lease commitment for the exclusive use of
telecommunications switching equipment (the "Maxxis Switch") along with certain
ancillary computer hardware and software required to operate the Maxxis Switch.
In January 1999, we notified CRC of our intent to terminate our 1-Plus agreement
and begin a process of migrating our customers to the Maxxis communications
network. At that time, we entered into an agreement with MCI WorldCom to provide
us with the necessary private lines, circuits and other network services to be
able to originate and terminate telephone calls through the Maxxis Switch. In
March 1999, we entered an agreement with IXC Communications Services, Inc. to
provide switched services for carrying the portion of the Maxxis traffic that
does not go through the Maxxis Switch. A provision of our contract with IXC
requires a minimum monthly commitment expiring in September 2000. We have
obtained tariffs and the required regulatory approvals necessary to offer
interstate and intrastate long distance service throughout the United States.
During the period of April through July 1999, we migrated our long distance
customers from CRC's network to the Maxxis Network.
In November 1997, we began marketing several private label dietary
supplements to our customers and IAs. Recently, we began marketing additional
nutritional and health enhancement products that are manufactured by various
suppliers. In September 1998, we began providing Internet access and Web-page
development and hosting services. Internet access is provided by Maxxis
Communications through its agreement with InteReach Internet Services, LLC, and
Web-page development and hosting services are provided by Maxxis Communications.
We conduct marketing activities exclusively through our network of IAs.
We believe that IAs are generally attracted to our multi-level network marketing
system because of the potential for supplemental income and because our IAs are
not required to purchase any inventory, have no monthly sales quotas or account
collection issues, have minimal required paperwork and have a flexible work
schedule. We encourage IAs to market services and products to persons with whom
the IAs have an ongoing relationship, such as family members, friends, business
associates and neighbors. We also sponsor meetings which current IAs are
encouraged to bring in others for an introduction to our marketing system. Our
multi-level network marketing system and our reliance upon IAs are intended to
reduce marketing costs, customer acquisition costs and customer attrition. We
believe that our multi-level network marketing system will continue to build a
base of potential customers for additional services and products.
8
<PAGE> 9
We derive revenues from communications services, nutritional products
and marketing services. Communications services revenues are comprised of: sales
of prepaid phone cards to our IAs; commissions, fees and revenues generated from
our long distance customers; and subscription fees from our Internet
subscribers. Because of the administrative procedures that must be complied with
in order to establish 1-Plus customers and to collect the usage and access fees
from the local exchange carriers, there is generally a delay of up to three to
four months from the time a prospective customer indicates a desire to become a
1-Plus customer and the time that we begin to receive commissions from such
customer's usage. In the future, we believe that revenues generated on the sales
of 1-Plus long distance services will constitute a decreasing percentage of our
total revenues.
Nutritional products revenues include sales of private-label
nutritional products, health enhancement products, a weight management program
and a skin care system. Marketing services revenues include application fees
from IAs and purchases of sales aids by IAs, including distributor kits which
consist of forms, promotional brochures, audio and video tapes, marketing
materials and presentation materials. Marketing services revenues also include
training fees paid by senior associates and "managing directors" or "MDs." To
become an independent associate, individuals (other than individuals in North
Dakota) must complete an application and purchase a distributor kit. Independent
associates also pay an annual non-refundable fee, which we amortize into
revenues over the renewal period, in order to maintain their status as an
independent associate. MDs must attend continuing education training schools
each year which also are subject to a fee. The training fees are recognized at
the time the training is received. We do not receive any fees from independent
associates for the training provided by MDs or national training directors.
Cost of services consists of communications services cost, nutritional
products cost and marketing services cost. Communications services cost consists
primarily of the cost of purchasing activated prepaid phone cards, the Maxxis
Switch and network services. Nutritional products cost consists of the cost of
purchasing private label nutritional products. Marketing services cost includes
the costs of purchasing IA distributor kits, sales aids and promotional
materials and training costs. Operating expenses consist of selling and
marketing expenses and general and administrative expenses. Selling and
marketing expenses include commissions paid to IAs based on: (i) usage of long
distance services by customers; (ii) sales of products to new IAs sponsored into
Maxxis; and (iii) sales of additional products and services to customers.
General and administrative expenses include costs for IA support services,
information systems services and administrative personnel to support our
operations and growth.
We have a limited operating history, and our operations are subject to
the risks inherent in the establishment of any new business. We expect that we
will incur substantial initial expenses, and there can be no assurance that we
will achieve profitability. If we grow rapidly, we will be required to
continually expand and modify our operational and financial systems, add
additional IAs and new customers, and train and manage both current and new
employees and IAs. Such rapid growth would place a significant strain on our
operational resources and systems, and the failure to effectively manage any
such growth could have a material adverse effect on our business, financial
condition and results of operations.
9
<PAGE> 10
RESULTS OF OPERATIONS
The following table sets forth the percentage of total net revenues
attributable to each category for the periods shown.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------
1999 2000
---- ----
<S> <C> <C>
Net revenues:
Communications services ............................ 70% 32%
Nutritional products ............................... 10 38
Marketing services ................................. 20 30
---- ----
Total net revenues ............................... 100% 100%
==== ====
Cost of services:
Communications services ............................ 34% 31%
Nutritional products ............................... 4 11
Marketing services ................................. 6 4
---- ----
Total cost of services ........................... 44 46
Operating expenses:
Selling and marketing .............................. 41 26
General and administrative ......................... 31 34
---- ----
Total operating expenses ......................... 72% 60%
==== ====
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1999
Revenues. Total net revenues are derived from sales of communications
services, nutritional products and marketing services net of any returns of
prepaid phone cards, distributor kits or other products. Total net revenues
declined $982,000, or 16%, to $3.3 million for the three months ended September
30, 2000 from $4.3 million for the same period in 1999. The decline in total net
revenues was primarily due to a reduction in the number of IAs enrolled in the
Maxxis marketing network for the three months ended September 30, 2000 as
compared to the three months ended September 30, 1999.
Communications services revenues declined $2.0 million, or 65%, to $1.0
million for the three months ended September 30, 2000 from $3.0 million for the
same period in 1999. This decrease was primarily due to fewer prepaid phone card
sales.
Nutritional products revenues were $1.3 million for the three months
ended September 30, 2000 as compared to $423,000 for the three months ended
September 30, 1999. This 198% increase was largely due to an increased number of
repeat users of our nutrition products.
Marketing services revenues increased $159,000, or 18%, to $1.0 million
for the three months ended September 30, 2000 from $863,000 million for the same
period in 1999.
Cost of Services. Cost of services includes communications services
cost, nutritional products cost and marketing services cost. Total cost of
services for the three months ended September 30, 2000 was $1.5 million, or 46%
of total net revenues, as compared to $1.9 million, or 44% of total net
revenues, for the same period in 1999. The higher cost of services as a
percentage of net revenues is primarily the result of establishing Maxxis
Communications as a facilities based carrier of long distance telephone services
including the costs of operating the Maxxis Switch.
Communications services cost was $1.0 million, or 31% of total net
revenues, for the three months ended September 30, 2000, as compared to $1.5
million, or 34% of total net revenues, for the same period in 1999. This
10
<PAGE> 11
decrease as a percentage of total net revenues was due mainly to fewer phone
customers that resulted in lower network costs. Nutritional products cost was
$362,000, or 11% of total net revenues, for the three months ended September 30,
2000, as compared to $167,000, or 4% of total net revenues, for the three months
ended September 30, 1999. Marketing services cost was $137,000, or 4% of total
net revenues, for the three months ended September 30, 2000 as compared to
$253,000, or 6% of total net revenues, for the same period in 1999.
Gross Margin. Gross margin declined to $1.8 million for the three
months ended September 30, 2000 from $2.4 million for the same period in 1999.
As a percentage of total net revenues, gross margin decreased to 54% from 56%
over those respective periods.
Operating Expenses. For the three months ended September 30, 2000,
selling and marketing expenses were $881,000, or 26% of total net revenues, as
compared with $1.8 million, or 41% of total net revenues, for the same period in
1999. General and administrative expenses were $1.1 million, or 34% of total net
revenues, for the three months ended September 30, 2000, as compared to $1.4
million, or 31% of total net revenues, for the same period in 1999.
Income Taxes. No provision for income taxes was required in the 2000
period.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended September 30, 2000, cash used by
operating activities was $3.1 million as compared to $140,000 provided by
operating activities for the same period in 1999. Operating activities for the
three months ended September 30, 2000 included $252,000 of net loss and $2.9
million of changes in assets and liabilities consisting primarily of a $1.7
million decrease in accounts payable and accrued liabilities and a $725,000
increase in inventories.
Cash used in investing activities was $49,000 for the three months
ended September 30, 2000, as compared to $142,000 for the same period in 1999.
Investing activities for the three months ended September 30, 1999 consisted
primarily of purchases of computer software and hardware.
Cash provided from financing activities was $189,000 for the three
months ended September 30, 2000, as compared to $17,000 used in the same period
in 1999.
As of September 30, 2000, we had cash of $1.9 million and a working
capital surplus of $2.8 million as compared to cash of $4.9 million and a
working capital surplus of $2.7 million as of June 30, 2000.
On September 29, 1998, we entered into a long-term lease commitment for
the exclusive use of the Maxxis Switch, along with certain ancillary computer
hardware and software required to operate the Maxxis Network. In connection with
the lease of the Maxxis Switch, Maxxis made an initial payment of $501,000.
Monthly payments of $118,000 began in January 1999 and will continue for a
period of five years.
We anticipate that cash generated from operations, together with
proceeds from our ongoing equity offering, will be sufficient to meet our
capital requirements for the next 12 months. However, if we do not receive
sufficient funds from our operations and equity offering to fund our operations,
we may need to raise additional capital. In addition, any increases in our
growth rate, shortfalls in anticipated revenues, increases in expenses or
significant acquisitions could have a material adverse effect on our liquidity
and capital resources and could require us to raise additional capital. We may
also need to raise additional funds in order to take advantage of unanticipated
opportunities, such as acquisitions of complementary businesses or the
development of new products, or otherwise respond to unanticipated competitive
pressures. Sources of additional capital may include venture capital financing,
cash flow from operations, lines of credit and private equity and debt
financings. Our cash and financing needs for fiscal 2000 and beyond will be
dependent on our level of IA and customer growth and the related capital
expenditures, advertising costs and working capital needs necessary to support
such growth. We believe that major capital expenditures may be necessary over
the next few years to develop
11
<PAGE> 12
additional product lines to sell through our IAs and to develop and/or acquire
information, accounting and/or inventory control systems to monitor and analyze
our growing multi level network marketing system. We have not identified
financing sources to fund such cash needs in fiscal 2000 and beyond. There can
be no assurance that we will be able to raise any such capital on terms
acceptable to us or at all.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This report contains statements which constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). These statements appear in a number of places in this Report
and include all statements which are not historical facts and which relate to
the intent, belief or the current expectations of Maxxis, its directors or its
officers with respect to, among other things: (i) Maxxis' financing plans,
including our ability to obtain financing in the future; (ii) trends affecting
our financial condition or results of operations, including those related to
Year 2000 issues; (iii) our growth and operating strategy; (iv) our anticipated
capital needs and anticipated capital expenditures; and (v) projected outcomes
and effects on us of potential litigation and investigations concerning us. When
used in this Report, the words "expects," "intends," "believes," "anticipates,"
"estimates," "may," "could," "should," "would," "will," "plans" and similar
expressions and variations thereof are intended to identify forward-looking
statements. Investors are cautioned that any such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties, and
that actual results may differ materially from those projected in
forward-looking statements as a result of: (i) factors affecting the
availability, terms and cost of capital; risks associated with meeting lease
obligations and obtaining necessary regulatory approvals in connection with the
Maxxis Switch; competitive factors and pricing pressures; general economic
conditions; the failure of the market demand for our products and services to be
commensurate with management's expectations or past experience; the impact of
present or future laws and regulations on the our business; changes in operating
expenses or the failure of operating expenses to be consistent with management's
expectations; and the difficulty of accurately predicting the outcome and effect
of certain matters, such as matters involving potential litigation and
investigations; (ii) various factors discussed herein; and (iii) those factors
discussed in detail in our filings with the Securities and Exchange Commission
(the "Commission"), including the "Risk Factors" section of the Post-Effective
Amendment No. 1 to our Registration Statement on Form S-1 (Registration number
(333-38623), as declared effective by the Commission on January 5, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
Not applicable.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not a party to, nor is any of its property subject to, any
material legal proceedings. We may be subject from time to time to legal
proceedings that arise out of our business operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Our 2000 Annual Meeting of shareholders was held on November 13, 2000
to: (i) elect three directors to serve on our Board of Directors, each for a
three-year term; and (ii) ratify the appointment of Arthur Andersen LLP as our
independent public accountants for the fiscal year ending June 30, 2000.
12
<PAGE> 13
Election of Directors. The shareholders were asked to re-elect Terry
Harris to our Board of Directors, each for a three-year term. A total of
1,050,660 (or 68% of the eligible votes) shares were cast for the election of
Mr. Harris, 0 votes were cast against and there were 50 abstentions.
Consequently, Mr. Harris was re-elected to the Board. In addition to the
foregoing, the following persons continue to serve as directors: Thomas O.
Cordy; Alvin Curry, Jr.; Larry W. Gates, II; Robert J. Glover; and Ivey J.
Stokes.
Accountants. The shareholders were asked to ratify the appointment by
the Board of Directors of the firm of Arthur Andersen LLP as our independent
public accountants for the fiscal year ending June 30, 2001. A total of 68%, or
1,050,660 votes were cast for the ratification of Arthur Andersen LLP.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<S> <C>
3.1 Amended and Restated Articles of Incorporation of Maxxis, as
amended to date.*
3.2 Amended and Restated Bylaws of Maxxis., as amended to date.*
4.1 See Exhibits 3.1 and 3.2 for provisions of the Amended and
Restated Articles of Incorporation and Amended and Restated Bylaws
defining the rights of holders of our Common Stock.*
27 Financial Data Schedule (for SEC use only).
</TABLE>
--------------
* Incorporated by reference to the exhibits to our Registration Statement
on Form S-1 (No. 333-38623) as declared effective by the Securities and
Exchange Commission on January 5, 1999.
(B) REPORTS ON FORM 8-K.
None.
13
<PAGE> 14
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.
MAXXIS GROUP, INC.
December 29, 2000 /s/ Ivey J. Stokes
------------------------------------------------
Ivey J. Stokes
Chairman, President and Chief Executive Officer
(Principal executive officer)
December 29, 2000 /s/ DeChane Cameron
------------------------------------------------
DeChane Cameron
Chief Financial Officer
(Principal financial and accounting officer)
14
