<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[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
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________
TO _________
Commission file number 0-24273
MAX INTERNET COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
NEVADA 75-2715335
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8115 Preston Road, Eighth Floor - East
Dallas, Texas 75225
(Address of principal executive offices)
(214) 691-0055
(Registrant's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
Number of shares outstanding of the Registrant's common stock (par value $.0001
per share) as of September 30, 2000: 18,126,321.
Transitional Small Business Disclosure Format
(Check one)
Yes [ ] No [X]
<PAGE> 2
MAX INTERNET COMMUNICATIONS, INC.
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
ASSETS 2000 2000
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 812,999 $ 2,116,032
Accounts receivable 37,589 48,820
Receivable from officer 250,000 --
Inventories 6,402,794 6,481,555
Prepaid expenses 527,250 725,154
------------ ------------
TOTAL CURRENT ASSETS 8,030,632 9,371,561
PROPERTY AND EQUIPMENT, AT COST
Machinery and equipment 433,670 489,808
Furnishings 104,257 76,631
------------ ------------
537,927 566,439
Less accumulated depreciation 169,636 135,960
------------ ------------
368,291 430,479
OTHER ASSETS 1,253,446 1,319,922
------------ ------------
$ 9,652,369 $ 11,121,962
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,917,027 $ 3,506,544
Accrued expenses 689,320 558,232
Advance from director -- 150,000
------------ ------------
TOTAL CURRENT LIABILITIES 3,606,347 4,214,776
REDEEMABLE PREFERRED STOCK, net of discount 3,257,324 2,437,096
STOCKHOLDERS' EQUITY
Preferred stock, $.0001 par value; Series A, authorized, 100,000
shares; issued and outstanding, 80,000 shares 8,000,000 8,000,000
Preferred stock, $.0001 par value; Series B convertible, authorized,
350,000 shares; none issued and outstanding -- --
Common stock, $.0001 par value; authorized, 25,000,000 shares;
issued, 18,326,321 shares at September 30, 2000 and
17,734,242 shares at June 30, 2000 1,833 1,773
Additional paid-in capital 32,393,039 30,912,603
Receivable from stock sales (264,781) --
Accumulated other comprehensive income (loss) (10,460) 30,607
Accumulated deficit (37,118,433) (34,262,393)
------------ ------------
3,001,198 4,682,590
Less 200,000 shares of common stock in treasury - at cost (212,500) (212,500)
------------ ------------
2,788,698 4,470,090
------------ ------------
$ 9,652,369 $ 11,121,962
============ ============
</TABLE>
See notes to financial statements.
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<PAGE> 3
MAX INTERNET COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30, September 30,
2000 1999
------------ ------------
<S> <C> <C>
Net sales $ 72,645 $ 137,154
Cost of sales 70,210 98,365
------------ ------------
Gross profit 2,435 38,789
Selling, general and administrative expenses 2,651,597 1,640,100
------------ ------------
Operating loss (2,649,162) (1,601,311)
Interest income 27,197 76,432
Interest expense -- (23)
------------ ------------
Net loss $ (2,621,965) $ (1,524,902)
============ ============
Loss per share - basic and diluted $ (.15) $ (.10)
============ ============
Weighted average shares outstanding 17,886,642 15,807,944
============ ============
</TABLE>
See notes to financial statements
-2-
<PAGE> 4
MAX INTERNET COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
September 30,
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net loss $(2,621,965) $(1,524,902)
Adjustments to reconcile net loss to net cash
used by operating activities
Depreciation and amortization 187,673 86,008
Stock or options issued for services 243,750 73,688
Change in operating assets and liabilities
Prepaid expenses 155,653 (193,998)
Accounts receivable 11,231 (40,733)
Inventories 78,761 (2,247,461)
Other assets (45,270) (21,149)
Accounts payable and accrued expenses (411,378) (186,191)
----------- -----------
Net cash used by operating activities (2,401,545) (4,054,738)
Cash flows from investing activities
(Purchase) sales of property and equipment 28,512 (82,307)
Cash flows from financing activities
Loan to officer (250,000) --
Repayment of advance from director (150,000) --
Sales of preferred stock 1,420,000 --
Sales of common stock 50,000 128,152
----------- -----------
Net cash provided by financing activities 1,070,000 128,152
Net decrease in cash (1,303,033) (4,008,893)
Cash and cash equivalents at beginning of period 2,116,032 8,136,585
----------- -----------
Cash and cash equivalents at end of period $ 812,999 $ 4,127,692
=========== ===========
Noncash financing activities:
Issuance of common stock in payment of liabilities $ 88,118 $ 134,375
=========== ===========
Conversion of Series C Preferred Stock $ 364,000 $ --
=========== ===========
Issuance of common stock for dividends $ 5,894 $ --
=========== ===========
Issuance of common stock for services $ 243,750 $ --
=========== ===========
</TABLE>
See note to financial statements
-3-
<PAGE> 5
MAX INTERNET COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS.
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-QSB. These financial statements have not been audited by independent
certified public accountants, but in the opinion of management, all
adjustments (consisting of normal recurring accruals and adjustments)
necessary for a fair presentation of consolidated results of
operations, financial position and cash flows at the dates and for the
periods indicated, have been included.
These financial statements do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. Operating results for the three months
ended September 30, 2000 are not necessarily indicative of the results
that may be expected for the year ending June 30, 2001. For further
information, refer to the consolidated financial statements and notes
thereto for the fiscal year ended June 30, 2000 included in the
company's Form 10-KSB, as filed with the Securities and Exchange
Commission on September 28, 2000.
These financial statements include the accounts of MAX Internet
Communications, Inc., (MAX) and its wholly-owned subsidiaries, MAX
Internet Communications do Brasil LTDA (Brasil), and MAX Internet
Communications Deutschland GmbH (GmbH), collectively, "the Company."
MAX changed its name in November, 1999 from Voxcom Holdings, Inc.
(Holdings).
MAX Internet Communications Deutschland GmbH was incorporated in
Frankfurt, Germany on August 4, 1999, and MAX Internet Communications
do Brasil LTDA was formed in Rio de Janeiro, Brazil on September 14,
1999. Both of these companies sell and service the MAX i.c. Live card
in their respective regions, as well as other products the company may
develop.
The financial statements include the operations of Brasil and GmbH from
the dates of formation.
NOTE B - BUSINESS
The company currently offers three basic products incorporating our
proprietary i.c.Live technology, each intended for a specific target
market segment.
The MAX3600R is targeted for personal computer and information
appliance manufacturers, integrators and value added resellers (VAR).
The MAX3600R is a PCI plug-in card that is compatible with a
Pentium-class (166mhz or faster) host system running a Windows(R)
operating system. The MAX3600R card provides the following features:
SVGA Graphics Controller; MPEG-1&2 Decoder with full DVD support;
MPEG-1 encoder; Full Motion Video Capture; H.261/263 video codec and
H.711/723 audio codec; AC97 audio Codec (8 simultaneous play and record
channels), hardware wavetable, digital (AC3) audio; MIDI and telephony
codec (full-duplex Speakerphone with Voice Mail, Caller ID and
Distinctive Ring).
The MAX3600R is in production and available for sale.
The MAX i.c.Live VIDEO COMMUNICATION STATION (VCS) is targeted to
resellers, VARs and large end users, and serves as a reference design
for original equipment manufacturer (OEM) relationships. The VCS is an
easy-to-use Internet communications appliance, about the size of a DVD
player. The MAX i.c.Live VCS(TM) allows users to videoconference, send
and receive video e-mail, broadcast live Internet video, surf
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<PAGE> 6
MAX INTERNET COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS.
Internet video and web-sites, and even view DVD movies. It's on-screen
menu and remote control make it easy to use. It's ability to display
output to a television, video projector, or computer monitor makes it
perfect for home or office use.
The VCS is in production and available for sale.
The MAX I.C.LIVE CHIPKIT is targeted to major OEMs. The ChipKit is a
minimal set of proprietary components necessary to build an i.c.Live
technology based product. It consists of an i.c.Live Internet Media
Processor, proprietary support chips, and one software set license.
These are available only to customers who license an i.c.Live product
reference design and commit to a minimum purchase quantity.
The company continues to look for additional software applications
which may be integrated into the card, and believes some of these will
give rise to the availability of patent protection. The company will
continue research and development in this regard.
NOTE C - FORMATION OF BUSINESSES
During the quarter ended September 30, 1999, MAX formed two new
subsidiaries, both of which are 100% owned. MAX Internet Communications
Deutschland GmbH was incorporated in Frankfurt, Germany on August 4,
1999, and MAX Internet Communications do Brasil Ltda was formed in Rio
de Janeiro, Brazil on September 14, 1999. Both of these companies sell
and service the MAX i.c.Live card in their respective regions, as well
as other products the company may develop.
NOTE D - GOING CONCERN MATTERS
The accompanying financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of
America for interim financial information, which contemplate
continuation of the company as a going concern. However, the company
has sustained significant operating losses and negative cash flows from
operations. Achievement of operating income or positive cash flow from
operations is uncertain. Based on the current level of operating
expenses, and compared to the company's cash balances, it is uncertain
whether the company will be able to continue in business after the
current quarter.
Additionally, the company has been notified that NASDAQ has delisted
its common stock. Although the company is appealing the decision,
delisting of the company's common stock could result in the Series C
preferred stock and an adjustable stock warrant becoming due and
payable pursuant to redemption rights and put rights. If these rights
were exercised by the holders, the company would be required to pay to
the holders amounts significantly in excess of our current cash
resources.
Recoverability of a major portion of the recorded asset amounts shown
in the balance sheet is dependent upon continued operations. The
company's continued existence is dependent upon the successful
acceptance and sale of its products, including establishing license and
development agreements, or obtaining additional funds through public or
private equity financings, neither of which is assured. These matters
raise substantial doubt about the company's ability to continue as a
going concern.
The financial statements do not include any adjustments that might
result from the unfavorable outcome of this uncertainty.
-5-
<PAGE> 7
MAX INTERNET COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS.
NOTE E - RECEIVABLE FROM OFFICER
In September 2000, the company loaned $250,000 to an officer. The note
bears interest at 7% per annum, is due upon demand and is secured by
387,000 shares of common stock and 16,000 shares of Series A preferred
stock.
NOTE F - STOCK OPTIONS
An officer of the corporation executed a written document related to
the issuance of options to purchase common stock, at a price equivalent
to the average closing sales price of the stock over the 10 trading
days prior to July 20, 2000, to a nonemployee as consideration for
purported services in obtaining a commitment for the purchase of
$2,000,000 of the company's common stock by a customer pursuant to a
development and sales agreement.
NOTE G - COMPREHENSIVE INCOME
<TABLE>
<S> <C>
Net loss for the quarter ended September 30, 2000 $(2,621,965)
Other comprehensive loss, foreign currency
translation adjustment (41,067)
-----------
Total $(2,663,032)
===========
</TABLE>
-6-
<PAGE> 8
MAX INTERNET COMMUNICATIONS, INC.
ITEM 2. Management's discussion and analysis.
RESULTS OF OPERATIONS
Three months ended September 30, 2000 compared to three months ended September
30, 1999.
Net Sales
Net sales from continuing operations were $72,645 for the three months ended
September 30, 2000, and consisted of sales of cards and VCS units. This was a
decrease of $64,509 from the $137,154 in net sales for the three months ended
September 30, 1999, which consisted solely of cards.
During the quarter ended September 30, 1999 our marketing focus was on selling
through distributors to value added resellers and original equipment
manufacturers. It became apparent that the market for our products was not yet
established enough to sell in this way, as the MAX i.c. Live 3600 and our
information appliance, the MAX i.c. Live Video Communication Station (VCS) are
both revolutionary new products. In addition, they require broadband internet
access to achieve the highest quality video, which often means a third party
broadband provider must be brought into the sale negotiations in order to be
successful. Due to the lack of sales, the company has changed its sales and
marketing focus, now marketing directly to internet appliance manufacturers,
telephone companies, broadband providers, original equipment manufacturers and
significant end users, and away from third party distributors.
We continue to be optimistic regarding the prospects of future sales. To date we
have negotiated a development and sales contract with a customer under which
they will provide development funds through the purchase of our common stock. At
the end of the development period, they have irrevocably committed to purchase
100,000 units of the developed product during the first 12 months, and have
agreed to purchase additional 400,000 units in order to maintain exclusivity in
a defined territory. We are in negotiations with this customer for a new, more
expansive contract.
Other sales negotiations are in process, and we are optimistic that some of
these will come to fruition and generate net sales in the future.
Cost of Sales
Cost of sales were $70,210 for the three months ended September 30, 2000, as
compared to $98,365 for the three months ended September 30, 1999. Cost of sales
consists primarily of the cost of the MAX i.c. Live cards, cameras and VCS
units, plus the cost of royalties relating to third party software included in
our products, media, manuals and shipping. Cost of sales as a percentage of
sales increased to 97% for the three months ended September 30, 2000 from 72%
for the three months ended September 30, 1999. This was primarily due to
discounted pricing given to customers during the three months ended September
30, 2000 in an effort to increase sales. Market competition has also caused the
company to somewhat modify its pricing structure.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 62% to $2,651,597 for the
three months ended September 30, 2000 from $1,640,100 for the three months ended
September 30, 1999. This increase is primarily a result of increased spending on
research and development, which amounted to approximately $228,000 in the three
months ended September 30, 2000 as compared to approximately $13,000 incurred in
the three months ended September 30, 1999; stock issued to a director for
consulting services in the amount of
-7-
<PAGE> 9
MAX INTERNET COMMUNICATIONS, INC.
$243,750; increased depreciation and amortization expenses; and the overhead
expenses of maintaining subsidiary offices in Germany and Brazil for the full
quarter during the three months ended September 30, 2000. These offices were
only opened for a portion of the quarter in the three months ended September 30,
1999.
Interest Income
The interest income of $27,197 and $76,432 for the three months ended September
30, 2000 and 1999, respectively, was earned on the available cash balances we
have invested in money market funds.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, we owned approximately $12,000,000 of inventory, at
laid-in cost, consisting primarily of finished goods. This amount of inventory
is a significant proportion of our working capital resources, especially when
viewed in relation to the level of sales which have been realized to date. These
inventories were previously written down to reflect quantities on hand in excess
of anticipated current demand, and are valued at $6,402,794 at September 30,
2000. We believe that sales will be consummated with one or more customers for
cards at sales prices which will be in excess of cost. However, there can be no
assurance that this will be the case.
Cash and cash equivalents decreased $1,303,033 in the three months ended
September 30, 2000. Net cash used in operating activities for the period was
$2,401,545. This cash used in operating activities was primarily for payment of
ongoing operating expenses.
Cash provided by investing activities consisted of $28,512 in sales of property
and equipment.
Financing activities provided $1,070,000. Sales of preferred and common stock
provided $1,470,000, while a loan to an officer used $250,000 and repayment of
an advance to a director used $150,000.
Working capital at September 30, 2000 decreased by 14% to $4,424,285 from
$5,156,785 at June 30, 2000. This was due primarily to the net losses of the
company during that period, offset by the financing activities described above.
Due to net operating losses, the lack of significant sales to date and the
current level of operating expenses as compared to the company's cash balances,
it is uncertain whether the company will be able to continue in business after
the current quarter.
The delisting of our common stock could result in the Series C preferred stock
and an adjustable stock warrant becoming due and payable pursuant to redemption
rights and put rights. If the rights were exercised by the holders, we would be
required to pay to the holders amounts significantly in excess of our current
cash resources.
FORWARD LOOKING STATEMENTS
This document includes statements which may constitute "forward-looking"
statements, usually containing the words "believe", "estimate", "project",
"expect" or similar expressions. These statements are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements inherently involve risks and uncertainties that could
cause actual results to differ materially from the forward-looking statements.
Factors that would cause or contribute to such differences include, but are not
limited to, continued acceptance of the Company's products in the marketplace,
competitive factors, changes in regulatory environments, and other risks
detailed in the Company's periodic report filings with the Securities and
Exchange Commission. By making these forward-looking statements, the Company
undertakes no obligation to update these statements for revisions or changes
after the date of this filing.
-8-
<PAGE> 10
MAX INTERNET COMMUNICATIONS, INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The company has filed a lawsuit alleging breach of contract against Heartland
Payment Systems, LLC (Heartland), a credit card processing company which has
performed this function for the company. Heartland then filed suit against the
company alleging breach of contract, and asking for an unspecified amount. This
case is now in the early stages of discovery. Management believes that the
ultimate resolution of this case will not have a material effect on financial
position, results of operations or cash flows.
On various dates between August 1, 2000 and September 14, 2000, the Company, and
certain of its officers and directors, were named as defendants in the following
lawsuits which were filed in the U. S. District Court for the Northern District
of Texas, Dallas Division: Douglas Haack, et al. v. Max Internet Communications,
Inc., Lawrence R. Biggs, Jr., Donald G. McLellan and Leslie D. Crone; CA#
3-00CV-1662; Leonard J. Bartello, et al. v. Max Internet Communications, Inc.,
Harold L. Clark, Lawrence R. Biggs, Jr. and Leslie D. Crone; CA# 3-00CV-1719-L;
Gunter Huls, et al. v. Max Internet Communications, Inc., Lawrence R. Biggs,
Jr., Donald G. McLellan and Leslie D. Crone; CA# 3-00CV-1724-R; Congregation
Mitzva Meals, Inc., et al. v. Max Internet Communications, Inc., Lawrence R.
Biggs, Jr., Donald G. McLellan and Leslie D. Crone; CA# 3-00CV-1741-L; Jay
Patel, et al. v. Max Internet Communications, Inc., Lawrence R. Biggs, Jr.,
Donald G. McLellan and Leslie D. Crone; CA# 3-00CV1747-H; Carolyn Dennis, et al.
v. Max Internet Communications, Inc., Harold L. Clark; Lawrence R. Biggs, Jr.
and Leslie D. Crone; CA# 3-00CV1785-H; Robert Van Dyke, et al. v. Max Internet
Communications, Inc., Harold L. Clark; Lawrence R. Biggs, Jr. and Leslie D.
Crone; CA# 3-00CV1814-M; Glen Strathearn, et al. v. Max Internet Communications,
Inc., Harold L. Clark; Lawrence R. Biggs, Jr. and Leslie D. Crone; CA#
3-00CV1853-R; and Marian Dunn, et al. V. Max Internet Communications, Inc.,
Harold L. Clark; Lawrence R. Biggs, Jr. and Leslie D. Crone; CA# 3-00CV2016-D.
In these purported class action lawsuits, plaintiffs allege that they and other
similarly situated investors purchased common stock of the Company at
artificially inflated prices due to false and misleading disclosures by the
Company concerning its sales revenue for the quarterly financial reporting
periods ending September 30, 1999 and December 31, 1999. Plaintiffs allege that
the Company's false and misleading disclosures violated Sections 10(b) of 20(a)
of the Securities Exchange Act of 1934.
The plaintiffs seek to represent persons or entities who purchased the Company's
common stock between November 15, 1999 and May 12, 2000. On the latter date, the
Company announced that it was restating earnings for the two prior quarters due
principally to the booking of sales in reliance upon documentation that was
later found to be falsified. Plaintiffs seek an unspecified amount of damages,
together with prejudgment interest, attorneys fees and other costs of suit.
These lawsuits were consolidated by court order on October 25, 2000. Upon
selection of lead plaintiffs and appointment of counsel to represent the
purported class, a consolidated amended complaint will be filed. The Company
intends to vigorously defend itself against these allegations.
On September 29, 2000, MAX Internet and various officers and directors were
named as defendants in a derivative lawsuit filed in the Northern District of
Texas. The suit seeks monetary damages, injunctive relief and attorneys' fees
based on alleged breaches of fiduciary duty stemming from allegations similar to
those contained in the above mentioned consolidated lawsuits. The Company
intends to vigorously defend itself against these allegations.
-9-
<PAGE> 11
MAX INTERNET COMMUNICATIONS, INC.
We have issued purchase orders to certain vendors that have not been completed
to date. These vendors have requested the company pay for costs they have
incurred based on the terms of the purchase orders we issued. Litigation has
been filed or threatened against us in these collection efforts. One vendor has
filed suit to collect, but the case has not yet reached the discovery stage. The
company plans to defend itself against this allegation. We are also negotiating
with the other vendors in an attempt to reach a suitable settlement. There is no
assurance we will be successful in these efforts.
We have granted one of these vendors a security interest in substantially all of
our card and camera inventory in the United States, which has a carrying value
of approximately $2,000,000.
We are engaged from time to time in other legal proceedings, none of which was
material to our operations on the date hereof.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The company is in default on its Series C preferred stock due to the decision of
the Nasdaq to delist the company's common stock. See Footnote D.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
A report was filed on November 20, 2000 concerning changes
which have taken place in the company's management and Board
of Directors, as well as the decision by the Nasdaq to delist
the company's common stock from the Nasdaq Small Cap Market.
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.
MAX Internet Communications, Inc.
(Registrant)
Date: November 20, 2000
/s/ Robert F. Kuhnemund
-------------------------------------
Robert F. Kuhnemund, CEO and Chairman
/s/ Leslie D. Crone
----------------------------------------
Leslie D. Crone, Chief Financial Officer
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<PAGE> 12
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
