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 December 31, 1999
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 December 31, 1999: 15,924,492.
Transitional Small Business Disclosure Format
(Check one)
Yes No X
--- ---
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<TABLE>
<CAPTION>
MAX INTERNET COMMUNICATIONS, INC.
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
ASSETS 1999 1999
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 599,841 $ 8,136,585
Accounts receivable 669,395 169,217
Inventories 5,985,737 1,286,539
Prepaid expenses 323,085 44,475
------------ ------------
Total current assets 7,578,058 9,636,816
PROPERTY AND EQUIPMENT, AT COST
Machinery and equipment 371,104 87,830
Furnishings 176,327 67,634
------------ ------------
547,431 155,464
Less accumulated depreciation 56,469 27,969
------------ ------------
490,962 127,495
OTHER ASSETS 804,638 901,336
------------ ------------
$ 8,873,658 $ 10,665,647
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,732,620 $ 113,356
Accrued expenses 477,514 788,797
Deferred income 247,792 --
Notes payable to officers and directors 500,000 --
------------ ------------
Total current liabilities 2,957,926 902,153
LONG-TERM DEBT -- --
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Preferred stock, $100 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, 50,000,000 shares;
issued, 15,924,492 shares at December 31, 1999 and
15,772,823 shares at June 30, 1999 1,592 1,577
Additional paid-in capital 18,430,967 17,693,743
Accumulated deficit (20,304,327) (15,719,326)
------------ ------------
6,128,232 9,975,994
Less 200,000 shares of common stock in treasury - at cost (212,500) (212,500)
------------ ------------
5,915,732 9,763,494
------------ ------------
$ 8,873,658 $ 10,665,647
============ ============
</TABLE>
See notes to financial statements.
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<CAPTION>
MAX INTERNET COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 119,395 $ 60,127 $ 256,549 $ 248,559
Cost of sales 75,662 27,346 174,027 94,066
------------ ------------ ------------ ------------
Gross profit 43,733 32,781 82,522 154,493
Selling, general and administrative expenses 3,117,184 965,674 4,757,284 1,580,265
------------ ------------ ------------ ------------
Operating (loss) (3,073,451) (932,893) (4,674,762) (1,425,772)
Interest income 18,882 -- 95,314 --
Interest expense (5,530) (26,585) (5,553) (72,757)
------------ ------------ ------------ ------------
(Loss) from continuing operations (3,060,099) (959,478) (4,585,001) (1,498,529)
Loss from discontinued operations -- (621,786) -- (1,780,392)
Gain on disposal of discontinued operations -- -- -- 1,905,494
------------ ------------ ------------ ------------
Net (loss) $ (3,060,099) $ (1,581,264) $ (4,585,001) $ (1,373,427)
============ ============ ============ ============
Earnings (loss) per share - basic and diluted:
From continuing operations $(.19) $(.14) $(.29) $(.23)
===== ===== ===== =====
From discontinued operations $-- $(.09) $-- $ .02
===== ===== ===== =====
(Loss) per share $(.19) $(.23) $(.29) $(.21)
===== ===== ===== =====
Weighted average shares outstanding 15,841,569 6,802,000 15,824,903 6,498,231
============ ============ ============ ============
</TABLE>
See notes to financial statements.
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<CAPTION>
MAX INTERNET COMMUNICATIONS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
SIX MONTHS ENDED DECEMBER 31, 1999
Series A
Common stock Preferred stock Additional
-------------- ----------------- paid-in Accumulated Treasury
Shares Amount Shares Amount Capital Deficit Stock
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1999 15,772,823 $ 1,577 80,000 $ 8,000,000 $ 17,693,743 $(15,719,326) $ (212,500)
Sales of common stock 126,669 12 -- -- 506,664 -- --
Stock options issued -- -- -- -- 96,188 -- --
Shares issued in payment
of liabilities 25,000 3 -- -- 134,372 -- --
Net Loss -- -- -- -- -- (4,585,001) --
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balances at December 31,
1999 15,924,492 $ 1,592 80,000 $ 8,000,000 $ 18,430,967 $(20,304,327) $ (212,500)
============ ============ ============ ============ ============ ============ ============
</TABLE>
See notes to financial statements.
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<TABLE>
<CAPTION>
MAX INTERNET COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six months ended
December 31,
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net earnings (loss) $(4,585,001) $(1,373,427)
Gain from discontinued operations -- (125,102)
Adjustments to reconcile net earnings (loss) to net cash
used in operating activities:
Depreciation and amortization 171,127 373,795
Stock options issued for services 96,188 --
Change in operating assets and liabilities:
Prepaid expenses (281,735) (405,145)
Receivables (500,178) (100,699)
Inventories (4,699,198) (106,286)
Other assets (42,804) 69,824
Accounts payable and accrued expenses 1,690,148 44,384
----------- -----------
Net cash used in continuing operations (8,151,453) (1,622,656)
Net cash used by discontinued operations -- (656,885)
----------- -----------
Net cash used in operating activities (8,151,453) (2,279,541)
Cash flows from investing activities
Purchase of property and equipment (391,967) (57,522)
Cash flows from financing activities
Sales of common stock 506,676 555,000
Borrowings on notes payable to stockholders 500,000 --
----------- -----------
Net cash provided by financing activities 1,006,676 555,000
----------- -----------
Net decrease in cash (7,536,744) (1,782,063)
Cash and cash equivalents at beginning of period 8,136,585 1,774,091
----------- -----------
Cash and cash equivalents at end of period $ 599,841 $ (7,972)
=========== ===========
Noncash financing activities:
Issuance of common stock or options in payment of liabilities $ 230,563 $ 56,250
=========== ===========
Conversion of convertible debentures $ -- $ 400,000
=========== ===========
Conversion of Series B preferred stock $ -- $ 145,000
=========== ===========
</TABLE>
See notes to financial statements
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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 examined 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 six-month and three-month
periods ended December 31, 1999 are not necessarily indicative of the
results that may be expected for the year ending June 30, 2000. For further
information, refer to the consolidated financial statements and notes
thereto for the fiscal year ended June 30, 1999 included in the Company's
Form 10-KSB, as filed with the Securities and Exchange Commission on
September 28, 1999.
These financial statements include the accounts of MAX Internet
Communications, Inc., (MAX) and its wholly-owned subsidiaries, MAXpc
Technologies, Inc. (MAXpc), 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
MAX assembles, through contractors, and markets a PC Internet Media
Processor Card, the MAX i.c. Live 3600, and an information appliance, the
MAX i.c. Live Video Communication Station. The core technology of both
products, the MAX i.c. Live Internet Media Processor, delivers the power to
conduct true-motion, synchronized video and audio communications and
high-quality video and audio streaming and browsing over a broadband
Internet connection. The MAX i.c. Live Internet Media Processor also
integrates full DVD and Dolby AC-3 surround sound for a complete video
communication and entertainment solution.
The MAX i.c. Live card enhances the performance of personal computers,
either as an add-in at time of manufacture or installed into existing units.
The card, with its own inbuilt processor, has the ability to perform
multi-media software functions simultaneously if need be, without detracting
from the central processor of the computer. Additional software can be added
to the card as developed.
The company continues to look for additional software applications which may
be integrated into the card, and it is believed some of these will give rise
to the availability of patent protection. The company will continue limited
research and development in this regard.
NOTE C - ACQUISITION AND DISPOSITION OF BUSINESSES
Effective October 1, 1997, the company formed Home Business Group Inc. (HBG)
to acquire certain assets and assume the liabilities of a company engaged in
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MAX INTERNET COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
the business of home-based business seminars for no consideration. A major
stockholder and officer of the acquired business is a stockholder and
officer of the company. The acquisition was accounted for as a purchase.
On September 30, 1998, the company sold the stock of HBG to HBG's management
in exchange for the redemption of 200,000 shares of the company's common
stock previously owned by such management.
Effective January 15, 1999, the company closed AmeraPress, as it had been
unable to generate sufficient business activity to justify its ongoing
overhead following the sale of HBG described above. The company sold
AmeraPress in June 1999.
Effective February 19, 1999, the company closed Systems, as it had been
unable to generate sufficient business activity to justify its ongoing
overhead following the sale of HBG and the closure of AmeraPress described
above. The company sold Systems in June 1999.
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 will sell and service
the MAX i.c. Live card in their respective regions, as well as other
products the company may develop.
NOTE D - RESTATEMENT
The Company previously reported sales for the six and three months ended
December 31, 1999 in the amount of $10,770,240 and $8,133,086, respectively.
The majority of these reported sales were from the Brazilian subsidiary to
purported customers in South America, and were recorded in reliance upon
documentation that was later found to be falsified. South American sales in
both the first and second quarters are being reversed following this
discovery.
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MAX INTERNET COMMUNICATIONS, INC.
ITEM 2. Management's discussion and analysis.
Results of Operations
Six and three months ended December 31, 1999 compared to six and three months
ended December 31, 1998
Net Sales
Net sales from continuing operations were $256,549 for the six months ended
December 31, 1999, an increase of $7,990 over the $248,559 for the six months
ended December 31, 1998. Net sales were $119,395 for the three months ended
December 31, 1999, an increase of $59,268 over the $60,127 for the three months
ended December 31, 1998. Recognition of sales to certain distributors has been
deferred until such time as the product moves through the distribution channels
to the distributors' customers.
Sales activity was still in the early stages at December 31, 1999. The company
has discontinued the businesses that were the primary operations in the prior
year and restructured its business plan to direct all resources to its MAX i.c.
Live product. The marketing of the MAX i.c. Live product was in its early stages
during the six months ended December 31, 1999. As of December 31, 1999 the
marketing plan and materials are complete, and the first print ads appeared in
November 1999. Contract negotiations for sales of the MAX i.c. Live product are
ongoing, and are expected to generate increasing net sales and net earnings in
future quarters.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 201% to $4,757,284 for
the six months ended December 31, 1999 from $1,580,265 for the six months ended
December 31, 1998; and increased 223% to $3,117,184 for the three months ended
December 31, 1999 from $965,674 for the three months ended December 31, 1998.
This increase is due to significant increases in advertising, marketing and
selling expenses related to the MAX i.c. Live product, as well as the overhead
structure which has been put into place in order to generate and service
expected future increases in net sales.
Interest Income and Expense
The interest income of $95,314 and $18,882, respectively, for the six and three
months ended December 31, 1999 was earned on the available cash balances the
Company has invested in money market funds. There was little interest expense
during these periods. Interest expense for the six and three months ended
December 31, 1998 of $72,757 and $26,585, respectively, was incurred primarily
on convertible debentures. This debt has been fully converted to common stock as
of November 1998, and no further interest is payable.
Discontinued Operations
On September 30, 1998, the company sold the stock of a wholly owned subsidiary,
HBG, to HBG's management in exchange for the redemption of 200,000 shares of the
Company's common stock previously owned by such management.
Effective January 15, 1999, the company closed AmeraPress, as it had been unable
to generate sufficient business activity to justify its ongoing overhead
following the sale of HBG described above. AmeraPress was sold on June 30, 1999.
-7-
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MAX INTERNET COMMUNICATIONS, INC.
Management's discussion and analysis - continued
Effective February 19, 1999, the company closed Systems, as it had been unable
to generate sufficient business activity to justify its ongoing overhead
following the sale of HBG and the closure of AmeraPress described above. Systems
was sold on June 30, 1999.
The financial statements for the six months ended December 31, 1998 reflect the
results of operations of Systems, AmeraPress and HBG as discontinued operations.
Restatement
The Company previously reported sales for the six and three months ended
December 31, 1999 in the amount of $10,770,240 and $8,133,086, respectively. The
majority of these reported sales were from the Brazilian subsidiary to purported
customers in South America, and were recorded in reliance upon documentation
that was later found to be falsified. South American sales in both the first and
second quarters are being reversed following this discovery.
Management of the Brazilian unit has been dismissed and the company is reviewing
available legal action.
Effective December 31, 1999 MAX sold the stock of Brasil to Brasil's management.
Upon learning of the misrepresentations of the Brazilian director, MAX rescinded
the sale of Brasil and again owns 100% of the stock of this subsidiary. MAX has
hired a new managing director in Brasil, and is currently in negotiations with
various parties to complete the sale and delivery of the MAX i.c. Live cards
that are in our warehouses in Brazil. However, there is no assurance that these
sales will be consummated. Brasil is included as a wholly-owned subsidiary in
these financial statements for the entire period.
Liquidity and Capital Resources
Cash and cash equivalents decreased $7,536,744 in the six months ended December
31, 1999. Net cash used in operating activities for the period was $8,151,453.
This cash used in operating activities primarily consisted of increases in
receivables of $500,178, inventories of $4,699,198 and prepaid expenses of
$281,735; offset by an increase in accounts payable and accrued expenses of
$1,690,148. The company continues to increase inventories in part because of the
need to purchase certain components well in advance of the scheduled production
date, due to competition for these parts. Cash used in investing activities
consisted of approximately $392,000 in purchases of property and equipment.
Financing activities generated approximately $1,007,000, consisting of $507,000
of sales of common stock and $500,000 of borrowings from two officer /
directors.
Working capital at December 31, 1999 decreased by 47%, to $4,620,132 from
$8,734,663 at June 30, 1999. This was caused primarily by the losses of the
company during that period. Due to the need to purchase inventories in advance,
the selling of product on terms to customers, and the lack of significant sales
to date, the company anticipates it will need additional working capital
resources. To this end, in February 2000 the company finalized a private equity
investment that has provided net proceeds to the company of approximately
$6,500,000 in cash. In addition, the investor has an option to acquire 400,000
additional shares for $4,000,000 in cash. There is no assurance that its working
capital, combined with the private equity investment, will be sufficient to fund
inventory and receivable increases and meet ongoing overhead expenses, plus
pursue an aggressive advertising and marketing campaign for the MAXpc product.
Therefore, the company may need to raise additional funds through equity or debt
offerings in the future.
-8-
<PAGE>
MAX INTERNET COMMUNICATIONS, INC.
Management's discussion and analysis - continued
Year 2000
The company began an internal assessment of its Year 2000 preparedness in the
early months of 1998, through a review of all equipment and software. Any issues
found were addressed through software and hardware updates provided to our
company by the software and/or hardware vendors. These updates were provided at
minimal cost.
The company also contacted its major component suppliers and its contract
manufacturers. None indicated that it anticipated any material internal risks.
At this date, the company has not experienced problems related to Year 2000
compliance, and is not aware of any remaining problems related to Year 2000
issues. However, the company will continue to monitor the status of suppliers
and manufacturers.
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.
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<PAGE>
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. As yet, this case has not yet reached the
discovery stage. Management believes that the ultimate resolution of this
case will not have a material effect on financial position, results of
operations or cash flows.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
None
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: May 15, 2000
/s/ Donald G. McLellan
--------------------------------------------
Donald G. McLellan, President
/s/ Leslie D. Crone
--------------------------------------------
Leslie D. Crone, Chief Financial Officer
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
</LEGEND>
<CIK> 0001061554
<NAME> MAX INTERNET COMMUNICATIONS, INC.
<MULTIPLIER> 1
<CURRENCY> US DOLLARD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> OCT-1-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 599,841
<SECURITIES> 0
<RECEIVABLES> 669,395
<ALLOWANCES> 50,000
<INVENTORY> 5,985,737
<CURRENT-ASSETS> 7,578,058
<PP&E> 547,431
<DEPRECIATION> 56,469
<TOTAL-ASSETS> 8,873,658
<CURRENT-LIABILITIES> 2,957,926
<BONDS> 0
0
8,000,000
<COMMON> 1,592
<OTHER-SE> (2,085,860)
<TOTAL-LIABILITY-AND-EQUITY> 8,873,658
<SALES> 119,395
<TOTAL-REVENUES> 119,395
<CGS> 75,662
<TOTAL-COSTS> 75,662
<OTHER-EXPENSES> 3,117,184
<LOSS-PROVISION> 40,000
<INTEREST-EXPENSE> 5,530
<INCOME-PRETAX> (3,060,099)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,060,099)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,060,099)
<EPS-BASIC> (.19)
<EPS-DILUTED> (.19)
</TABLE>
