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 March 31, 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 March 31, 2000: 17,678,242.
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
March 31, June 30,
ASSETS 2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 487,212 $ 8,136,585
Accounts receivable 629,254 169,217
Inventories 11,528,794 1,286,539
Prepaid expenses 628,642 44,475
------------ ------------
Total current assets 13,273,902 9,636,816
PROPERTY AND EQUIPMENT, AT COST
Machinery and equipment 476,289 87,830
Furnishings 176,327 67,634
------------ ------------
652,616 155,464
Less accumulated depreciation 74,052 27,969
------------ ------------
578,564 127,495
OTHER ASSETS 1,285,631 901,336
------------ ------------
$ 15,138,097 $ 10,665,647
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,853,900 $ 113,356
Accrued expenses 169,821 788,797
Deferred income 204,786 --
------------ ------------
Total current liabilities 3,228,507 902,153
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, 17,678,242 shares at March 31, 2000 and
15,772,823 shares at June 30, 1999 1,768 1,577
Additional paid-in capital 27,257,774 17,693,743
Accumulated deficit (23,137,452) (15,719,326)
------------ ------------
12,122,090 9,975,994
Less 200,000 shares of common stock in treasury - at cost (212,500) (212,500)
------------ ------------
11,909,590 9,763,494
------------ ------------
$ 15,138,097 $ 10,665,647
============ ============
</TABLE>
See notes to financial statements.
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<TABLE>
<CAPTION>
MAX INTERNET COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 140,853 $ (114,036) $ 397,402 $ 134,523
Cost of sales 57,465 (41,221) 231,492 52,845
------------ ------------ ------------ ------------
Gross profit 83,388 (72,815) 165,910 81,678
Selling, general and administrative expenses 2,925,638 1,035,144 7,682,922 2,615,480
------------ ------------ ------------ ------------
Operating (loss) (2,842,250) (1,107,959) (7,517,012) (2,533,802)
Interest income 13,383 -- 108,697 --
Interest expense (4,258) (592) (9,811) (73,350)
------------ ------------ ------------ ------------
(Loss) from continuing operations (2,833,125) (1,108,551) (7,418,126) (2,607,152)
Loss from discontinued operations -- (558,383) -- (2,338,703)
Gain on disposal of discontinued operations -- -- -- 1,905,494
------------ ------------ ------------ ------------
Net (loss) $ (2,833,125) $ (1,666,934) $ (7,418,126) $ (3,040,361)
============ ============ ============ ============
(Loss) per share - basic and diluted:
From continuing operations $(.17) $(.14) $(.46) $(.38)
===== ===== ===== =====
From discontinued operations $-- $(.07) $-- $(.06)
===== ===== ===== =====
(Loss) per share $(.17) $(.21) $(.46) $(.44)
===== ===== ===== =====
Weighted average shares outstanding 17,104,061 7,758,247 16,248,188 6,912,105
============ ============ ============ ============
</TABLE>
See notes to financial statements.
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<TABLE>
<CAPTION>
MAX INTERNET COMMUNICATIONS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
NINE MONTHS ENDED MARCH 31, 2000
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 1,870,419 187 -- -- 9,289,097 -- --
Stock options issued -- -- -- -- 99,938 -- --
Shares issued in payment
of liabilities 35,000 4 -- -- 174,996 -- --
Net loss -- -- -- -- -- (7,418,126) --
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balances at March 31, 2000 17,678,242 $ 1,768 80,000 $ 8,000,000 $ 27,257,774 $(23,137,452) $ (212,500)
============ ============ ============ ============ ============ ============ ============
</TABLE>
See notes to financial statements.
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<TABLE>
<CAPTION>
MAX INTERNET COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine months ended
March 31,
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net (loss) $ (7,418,126) $ (3,040,361)
Gain from discontinued operations -- 433,209
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 266,525 486,907
Stock options issued for services 99,938 --
Change in operating assets and liabilities:
Prepaid expenses (587,262) (11,001)
Receivables (460,037) (61,585)
Inventories (10,242,255) (163,420)
Other assets (601,612) (266,000)
Accounts payable and accrued expenses 2,501,354 130,858
------------ ------------
Net cash used in continuing operations (16,441,475) (2,491,393)
Net cash used by discontinued operations -- (666,080)
------------ ------------
Net cash used in operating activities (16,441,475) (3,157,473)
Cash flows from investing activities
Purchase of property and equipment (497,152) (57,930)
Cash flows from financing activities
Sales of common stock 9,289,284 12,801,700
Redemption of preferred stock -- (3,792,000)
Dividends paid -- (41,954)
Decrease in receivables from affiliates -- 32,805
Borrowings on notes payable to stockholders -- 210,579
------------ ------------
Net cash provided by financing activities 9,289,284 9,211,130
------------ ------------
Net increase (decrease) in cash (7,649,343) 5,995,727
Cash and cash equivalents at beginning of period 8,136,585 1,774,091
------------ ------------
Cash and cash equivalents at end of period $ 487,212 $ 7,769,818
============ ============
Noncash financing activities:
Issuance of common stock or options in payment of liabilities $ 274,934 $ 56,250
============ ============
Conversion of convertible debentures $ -- $ 400,000
============ ============
Conversion of Series B preferred stock $ -- $ 340,000
============ ============
</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 nine-month and three-month
periods ended March 31, 2000 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.
Effective March 31, 2000 MAXpc was merged into MAX.
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.
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MAX INTERNET COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
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
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.
Effective December 31, 1999 MAX sold the stock of Brasil to Brasil's
management. Shortly after the sale, the company discovered its management in
Brazil misled the company regarding its sales transactions in South America.
As a result, management of the Brazilian unit has been dismissed, and the
sale of Brasil has been rescinded. MAX again owns 100% of the stock of this
subsidiary, and Brasil has been included in these financial statements for
the entire period.
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<PAGE>
MAX INTERNET COMMUNICATIONS, INC.
ITEM 2. Management's discussion and analysis.
Results of Operations
Nine and three months ended March 31, 2000 compared to nine and three months
ended March 31, 1999.
Net Sales
Net sales from continuing operations were $397,402 for the nine months ended
March 31, 2000, an increase of $262,879 over the $134,523 for the nine months
ended March 31, 1999. Net sales were $140,853 for the three months ended March
31, 2000. The net sales returns for the three months ended March 31, 1999 of
($114,036) arose from one significant return in the quarter, offset by other
sales. Recognition of sales to certain distributors has been deferred until such
time as the product moves through the distribution channels to the distributors'
customers.
The company continues to position the MAX i.c. Live product with value-added
resellers, original equipment manufacturers, channel distributors and end users.
In addition, the company continues to gain positive exposure to its products
through an evaluation program, trade shows, industry magazines and the like. To
date, enthusiasm for the company's products and technology has been high, but
significant sales have not yet been consummated. Contract negotiations for sales
of the MAX i.c. Live products 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 194% to $7,682,922 for
the nine months ended March 31, 2000 from $2,615,480 for the nine months ended
March 31, 1999; and increased 183% to $2,925,638 for the three months ended
March 31, 2000 from $1,035,144 for the three months ended March 31, 1999. These
increases are due to significant increases in advertising, marketing and selling
expenses related to the MAX i.c. Live product, as well as costs of operating
Brasil and GmbH and 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 $108,697 and $13,383, respectively, for the nine and
three months ended March 31, 2000 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 nine and three months ended March
31, 1999 of $73,350 and $592, 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.
Income Taxes
No income taxes have been accrued due to operating losses of the company.
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.
Liquidity and Capital Resources
Cash and cash equivalents decreased $7,649,343 in the nine months ended March
31, 2000. Net cash used in operating activities for the period was $16,441,475.
This cash used in operating activities primarily consisted of increases in
receivables of $460,037, inventories of $10,242,255, prepaid expenses of
$587,262 and other assets of $601,612; offset by an increase in accounts payable
and accrued expenses of $2,501,354. 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. In
addition, the company purchases a portion of its inventory based on a production
schedule in order to maintain its production capacity with the manufacturer. The
company has also purchased inventory in response to expected sales in South
America which have not been consummated. Cash used in investing activities
consisted of approximately $497,000 in purchases of property and equipment.
Financing activities generated approximately $9,289,000, consisting of sales of
common stock.
Working capital at March 31, 2000 increased by 15%, to $10,045,395 from
$8,734,663 at June 30, 1999. This was due primarily to the cash received from
the sales of common stock, offset by the losses of the company during that
period.
Due to net operating losses, 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 needs additional financing in the immediate future. Management
is currently in negotiations with various parties to secure additional equity or
debt financing. There is no assurance the company will be successful in these
efforts.
Year 2000
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.
-8-
<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. This case is 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K was filed on February 24, 2000 concerning the
sale of MAX Internet Communications do Brasil Ltda.
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
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
</LEGEND>
<CIK> 0001061554
<NAME> MAX INTERNET COMMUNICATIONS, INC.
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 487,212
<SECURITIES> 0
<RECEIVABLES> 684,254
<ALLOWANCES> 55,000
<INVENTORY> 11,528,794
<CURRENT-ASSETS> 13,273,902
<PP&E> 652,616
<DEPRECIATION> 74,052
<TOTAL-ASSETS> 15,138,097
<CURRENT-LIABILITIES> 3,228,507
<BONDS> 0
0
8,000,000
<COMMON> 1,768
<OTHER-SE> 3,907,822
<TOTAL-LIABILITY-AND-EQUITY> 15,138,097
<SALES> 140,853
<TOTAL-REVENUES> 140,853
<CGS> 57,465
<TOTAL-COSTS> 57,465
<OTHER-EXPENSES> 2,925,638
<LOSS-PROVISION> 48,594
<INTEREST-EXPENSE> 4,258
<INCOME-PRETAX> (2,833,125)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,833,125)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,833,125)
<EPS-BASIC> (.17)
<EPS-DILUTED> (.17)
</TABLE>
