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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
Commission File Number: 0-23780
MEDIAX CORPORATION
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(Exact name of small business issuer as specified in its charter)
Nevada 84-1107138
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(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
8522 National Boulevard, Suite 110, Culver City, California 90232
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(Address of principal executive offices including zip code)
(310) 815-8002
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(Issuer's telephone number)
Indicate by check mark whether the Issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes _X_ No___
As of May 12, 1997 there were 14,562,139 shares of the Issuer's Common Stock,
$.0001 par value per share, outstanding.
Transitional Small Business Disclosure Format (check one): Yes___ No _X_
TOTAL PAGES IN THIS REPORT: 13
NO EXHIBITS ARE FILED WITH THIS REPORT
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MEDIAX CORPORATION
FORM 10-QSB
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . 3
Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . 3
Statement of Operations
Three months ended March 31, 1996 and 1997. . . . . . . 5
Statement of Cash Flows
Three months ended March 31, 1996 and 1997. . . . . . . 6
Notes to Financial Statements. . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 8
PART II - OTHER INFORMATION AND SIGNATURES
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . 12
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . . 12
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8K. . . . . . . . . . . . . . . 12
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 13
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Part I- FINANCIAL INFORMATION
Item 1. Financial Statements
MEDIAX CORPORATION
(A Development Stage Company)
BALANCE SHEET (unaudited)
March 31, 1997
ASSETS
Current Assets:
Cash and cash equivalents $ 670,065
Accounts receivable-trade 132,511
Accounts receivable-other 19,387
Prepaid expenses 18,353
----------
840,316
----------
Property and Equipment:
Computer and office equipment 166,788
Software 61,344
Furniture and fixtures 5,693
----------
233,825
Less: accumulated depreciation (125,533)
----------
108,292
----------
Other Assets:
Note and interest receivable-officer 104,868
License agreement and deferred software costs 120,000
Organization costs, net 2,994
Other 927
----------
228,789
----------
$1,177,397
----------
(Continued)
The accompanying notes are an integral part of this statement.
3
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MEDIAX CORPORATION
(A Development Stage Company)
BALANCE SHEET (unaudited)
March 31, 1997
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable-trade $ 89,484
Accounts payable-related parties 39,248
Loans payable 318,525
Obligation under capital lease, current portion 8,601
Notes payable, to former MediaX
shareholders, current portion 48,750
Notes payable 454,964
----------
959,572
----------
Stockholders' Equity:
Common stock, $.0001 par value. Authorized
75,000,000 shares; issued and outstanding
14,164,139 shares 1,416
Additional paid-in capital 1,433,707
Deficit accumulated during the development
stage (1,217,298)
----------
217,825
----------
$1,177,397
----------
The accompanying notes are an integral part of this statement.
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MEDIAX CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended March 31, 1996 and 1997
1996 1997
---------- ----------
SALES/COST OF SALES
Sales $ 1,000 $ 155,080
Cost of sales -- 76,896
---------- ----------
Gross profit 1,000 78,184
---------- ----------
GENERAL AND ADMINISTRATIVE EXPENSES
Amortization - 3,303
Bank charges - 3,134
Depreciation 417 7,232
Dues and subscriptions - 1,308
Legal and accounting 4,778 29,355
Office expense 8,760 2,518
Other administrative 3,053 9,245
Postage and shipping - 2,607
Professional and outside services 20,416 159,741
Promotions - 14,838
Rent and utilities 500 12,676
Salaries - 78,600
Taxes-payroll - 6,743
Taxes and licenses - 1,714
Telephone - 7,087
Travel 3,690 139
---------- ----------
41,614 340,240
---------- ----------
OTHER INCOME(EXPENSES)
Interest income - 1,561
Interest expense - (18,257)
Gain on debt settlement - 10,307
---------- ----------
- (6,389)
---------- ----------
Net loss $ (40,614) $ (268,445)
---------- ----------
Net loss per common share $ - $ (.02)
---------- ----------
Weighted average number of common shares
used in computation of net loss per share 12,500,000 13,967,695
---------- ----------
The accompanying notes are an integral part of this statement.
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MEDIAX CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS (unaudited)
Three Months Ended March 31, 1996 and 1997
1996 1997
---------- ----------
Cash Flows from Operating Activities:
Net Income (loss) $ (40,614) $ (268,445)
Adjustments to reconcile net cash (used) pro-
vided by operating activities:
Amortization - 3,303
Depreciation - 7,232
Changes in assets and liabilities:
Accounts receivable-trade - (32,520)
Prepaid expenses - (2,768)
Other assets (50,660) -
Note and interest receivable-officer - (1,038)
Accounts payable-trade 2,611 (945)
Interest payable - 4,964
---------- ----------
Net cash used in operating activities (88,663) (290,217)
---------- ----------
Cash Flows from Investing Activities:
Reduction in goodwill - 227,157
Purchase of fixed assets (7,089) (8,923)
Disposition of fixed assets - 12,536
---------- ----------
(7,089) 230,770
---------- ----------
Cash Flows from Financing Activities:
Principal payments on capital lease - (5,047)
Principal payments on notes payable - (56,065)
Reduction in notes payable - (250,000)
Proceeds from sale of stock to private investors - 366,293
Proceeds received from issuance of notes payable - 450,000
---------- ----------
Net cash provided by financing activities - 505,181
---------- ----------
Net (decrease) increase in cash and cash equivalents (95,752) 445,734
Cash and cash equivalents at beginning of period 231,254 224,331
---------- ----------
Cash and cash equivalents at end of period $ 135,502 $ 670,065
---------- ----------
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION:
No cash was paid during the period for income taxes or interest.
The accompanying notes are an integral part of this statement.
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MEDIAX CORPORATION
(A Development Stage Company)
Notes to Financial Statements (unaudited)
March 31, 1996 and 1997
(1) BASIS OF PRESENTATION
The condensed financial statements of MediaX Corporation (the "Company") for
the three months ended March 31, 1996 and 1997 are unaudited and reflect all
adjustments, consisting of normal recurring adjustments as well as additional
adjustments, which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented. These
condensed financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-KSB for its fiscal year ended December 31, 1996. The results of
operations for the three months ended March 31, 1997 are not necessarily
indicative of the results for the entire year ending December 31, 1997.
(2) NET EARNINGS (LOSS) PER SHARE
Net earnings per share is based on the weighted average number of common and
common equivalent shares outstanding during each period. Common stock
equivalents have been excluded from the computation for the three months ended
March 31, 1996 and 1997, loss periods, as their inclusion would be
anti-dilutive.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following information should be read in conjunction with the
financial statements and the notes thereto, as well as the section entitled
"Management's Discussion and Analysis or Plan of Operations" from the
Company's Annual Report on 10-KSB for its year ended December 31, 1996. The
analysis set forth below is provided pursuant to applicable Securities and
Exchange Commission regulations and is not intended to serve as a basis for
projections of future events.
FORWARD-LOOKING STATEMENTS
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS
DISCUSSED IN THIS FORM 10-QSB ARE FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT
TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE SET FORTH IN SUCH FORWARD-LOOKING STATEMENTS. SUCH
RISKS AND UNCERTAINTIES INCLUDE, WITHOUT LIMITATION, THE COMPANY'S DEPENDENCE
ON THE TIMELY DEVELOPMENT, INTRODUCTION AND CUSTOMER ACCEPTANCE OF PRODUCTS,
THE IMPACT OF COMPETITION AND DOWNWARD PRICING PRESSURES, THE ABILITY OF THE
COMPANY TO REDUCE ITS OPERATING EXPENSES AND RAISE ANY NEEDED CAPITAL, THE
EFFECT OF CHANGING ECONOMIC CONDITIONS AND RISKS IN TECHNOLOGY DEVELOPMENT.
OTHER FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
SET FORTH IN SUCH FORWARD-LOOKING STATEMENTS INCLUDE THE RISKS AND
UNCERTAINTIES DETAILED IN THE COMPANY'S MOST RECENT FORM 10-KSB AND ITS OTHER
FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION FROM TIME TO TIME.
OVERVIEW
The technology market is currently expanding at an unprecedented rate.
Shipments of multimedia-equipped personal computers now exceed one million per
month and cumulative shipments to date exceed 80 million. This constantly
increasing hardware base has spurred demand for interactive multimedia
content. CD-ROM titles are sold through all mass-merchandising retail
channels and revenue from CD-ROM publishing is projected to surpass $4 billion
in 1997. Penetration of multimedia CD-ROMs in U.S. households reportedly now
surpasses 33%. Internet subscribers are expected to grow from 10 million to
over 100 million by 1999. Revenue from Internet content publishing alone is
forecasted to reach $15 billion in the next five years.
MediaX (the "Company") will operate primarily in multimedia services
and product development. It is currently in the process of developing
creative authoring, has obtained and will continue to obtain rights to
intellectual properties, technical production, publication and distribution.
The Company intends to maintain strict control on both quality and costs and
to retain profit margins that are traditionally dispersed across many small
companies, by taking a comprehensive approach to the multimedia industry.
BACKGROUND
Although the Company has been in existence since 1986, its current
operations have been in place only since its merger with MediaX in June 1996.
Accordingly, the Company is still in many respects subject to many of the
risks and uncertainties inherent to a new enterprise.
The Company develops, produces and markets software products for the
information/entertainment and development tool sector of the software industry
in the form of software distributed on floppy disks and CD-ROMs. Two recently
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released CD-ROM entertainment products are "On the Road with BB King" and
"Queensryche's Promised Land" which are being distributed by MCA and EMI
records, respectively. The gold master of a product called "Surf & Destroy"
has been delivered to Grolier Interactive. However, at this point in time it
is questionable that it will be released, since Grolier is in the process of
closing down or significantly reducing its game department.
The Company was selected by Apple Computer to produce the Welcome
Experience for their limited edition Twentieth Anniversary MacIntosh which was
introduced on March 19, 1997. The Company developed the production to
capitalize on the Twentieth Anniversary MacIntosh's extreme multimedia
capabilities. The multimedia presentation features leading-edge animation,
digital video, interactive 3D graphics, original soundtrack and theater
quality audio.
During December 1996, the Company signed an Electronic Rights License
Agreement with Newspeak Media, Inc., which grants the Company the production
and exclusive publishing rights for George Orwell's novel "1984" dubbed "Big
Brother" in consideration for an agreed upon royalty. Production has
commenced and the product is expected to be released into the market in late
1997 or early 1998.
The Company has signed a contract with Peter Norton and Verbum for the
exclusive distribution rights for a series of five CD-ROM's. The first CD-ROM
will be called "Peter Norton's PC Guru". The Company has commenced work on
the first product of the series and it is expected to be released in late
1997. Peter Norton's PC Guru is a Windows 3.1 and Windows 95 CD-ROM developed
specifically to help PC users understand and use their computer systems to
enhance both work and home life and to get support when a problem or question
arises. It will introduce the user to key hardware internals and available
software solutions for common personal and professional applications through
illustrated, animated tutorials, and hands-on experience with demonstration
versions of popular software products included on the disc. Software update,
support and other current information will be provided to owners of the CD via
"hot-links" to active third party Internet Web sites and a specific companion
PC Guru website. The information provided on the disk will be comprehensive
and accurate, from top technical experts. The major sections of the disk
cover system software and hardware, peripheral devices, major application
categories (such as "creativity" and "learning"), trouble-shooting, hands-on
demonstration software applications and usable utilities and system
customizing elements such as background graphics and start-up sounds. The
additional ability to connect directly from the CD-ROM to major Internet sites
will assure that the user, even long after the purchase of the CD-ROM, will
always have the opportunity to bring his knowledge up-to-date and in addition,
take advantage of many existing download opportunities for free software on
the Internet.
The Company is in the early development stage for Media Manager.
Multimedia, Internet and traditional text processing and desktop or printing
productions (accessing data on existing networks or archives, such as legal or
medical documents) almost always involve many individuals or groups of people
with various talents and specialties. Often times these groups work together
on one project, either within the same location or in separate locations,
connected through LAN's or wide area networks. A single multi media
production for example can consist of 6,000 to 20,000 files consisting of
graphic bitmap images, sound files and animation. Keeping track of those
files or more importantly, managing modifications to various files and keeping
track of which individual or group is actually working on a file or a set of
files at any given time can be a never-ending and cost intensive task for
production companies, law firms or any large corporation. An absolute
critical task is indexing, sharing, retrieving and maintaining such files and
their multiple versions. The objective of Media
9
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Manager is to manage this process by cataloging all work, automatically
keeping historical information and maintaining strict version control.
Media Manager should administrate this task in a very transparent and
visual manner, reproducing thumbnails of graphic images, sound files and text
and spreadsheets files among others. File access will be achieved by simply
double clicking those images. Media Manager should store digital data of any
kind in a proprietary storage system, manage and version control it and create
a flexible, transparent and visual archiving/administration system which can
be dynamically used by different individuals or project groups over a LAN
network or over the Internet.
Media Manager will run on a Windows 95 or Windows NT platform and will
also perform the function of HTML server. Users who are on various other
machines and/or different operating platforms (i.e. MacIntosh's or SGI's)
should be able to browse any media regardless of operating system or computing
platform, as well as check in and out files. As an add-on, Media Manager
should provide a stand alone Web server application, so clients can also run a
simple Web server.
RESULTS OF OPERATIONS
Prior to the merger with MediaX in June 1996, the Company's business
activities were very limited. Therefore, there are no meaningful comparisons
which can be made between the results for the three months ended March 31,
1996 and 1997 because there were no business activities during the three
months ended 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased $445,734 from December 31, 1996 to
March 31, 1997. Over the same period, the Company's working capital
increased to a deficit of $119,256 from a deficit of $435,564 at December 31,
1996 due primarily to cash received in stock and debt issuances. During
February 1997, the Company issued 350,000 shares to unrelated private
investors at $1.00 each for a total of $350,000. In addition, two loans were
consummated totaling $450,000 from Cabana Holdings Ltd., a beneficial
shareholder. The uncollateralized loans dated February 11 ($350,000), and
March 25 ($100,000), bear interest at prime plus 2% and are due February 28,
1998. Additionally, the noteholder has the option to convert all or part of
the principal sum and any accrued interest into shares at a conversion price
of $1.00 per share.
The Company's success and ongoing financial viability is contingent upon
its selling of its products and the related generation of cash flows. The
Company is currently generating relatively little revenue and related cash
flows and anticipates this trend will continue until such time, if any, new
products are released and accepted in the marketplace. Management believes
that its existing cash and working capital balances will be sufficient to meet
its working capital needs for the balance of the year ending December 31,
1997. If the Company decides to commence with additional productions, it may
be necessary to raise additional financing. The Company evaluates its
liquidity and capital needs on a continuous basis and based on the Company's
requirements and capital market conditions may, from time to time, raise
working capital through additional debt or equity financing. There is no
assurance that such financing will be available in the future to meet
additional capital needs of the Company, or as to the terms or conditions of
any such financing that is available.
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Should there be any significant delays in the release of new products, or
lack of acceptance in the marketplace for such products if released, or the
Company's working capital needs otherwise exceed its resources, the adverse
onsequences would be severe. Both the management of the Company's current
growth and the expansion of the Company's current business involve significant
financial risk and require significant capital investment. As of March 31,
1997 the Company had no material commitments for capital expenditures.
PRODUCT DEVELOPMENT
At present the Company has no product for sale in the retail channel.
The Company is planning to release its first two products, "Peter Norton - PC
Guru" and "MediaManager" into the market during the last quarter of 1997 and
its third product "Big Brother" in the first or second quarter of 1998.
There can be no assurance that new products will be released by the
Company or if released, that such release will be on a timely basis; or that
any products will achieve any significant degree of market acceptance or that
such acceptance, if attained, will be sustained for any significant period; or
that such products will be profitable or that profitability, if any, will be
sustained. As well, the Company's success will depend in part on its ability
to respond promptly to market feedback and provide adequate technical support
and service to customers and there can be no assurance that the Company will
be successful in so responding. Failure to complete on a timely basis, or lack
of demand for new products upon completion and distribution, would have a
material adverse effect upon the Company and such adverse effect would be
severe.
The Company believes continued investment in research and development to
develop state-of-the-art technology for incorporation into its products is
required if it is to remain competitive in the marketplace. The Company
depends on the successful development of new products, including new titles
and the adaptation of existing titles to new platforms and technologies, to
expand its product offerings and to augment revenues from products that have
declined in revenue prospects. The Company also depends on upgrades of
existing products to lengthen the life cycle of such products. Finally, the
Company must continually anticipate and adapt its products to emerging
personal computer platforms and environments. If the Company's products
become outdated and lose market share, or if new products or product upgrades
are not introduced when planned or do not achieve the revenues anticipated by
the Company, the Company's operating results could be materially adversely
affected.
Exclusive of licensing agreements and acquisitions, the length of time
required to develop the Company's products and product upgrades typically
ranges from nine to 24 months, as is common in the multimedia industry.
Theoretically, the Company could experience delays in the planned release of
new products or product upgrades from one to 15 months as a result of
completing development, product testing and quality assurance. There can be
no assurance that such delays from the planned product release dates will not
occur in the future. Additionally, there can be no assurance that the Company
will be able to release new products on schedule or that such new products, if
released, will achieve market acceptance. If a product's release is delayed,
it may lose market position and the Company's expected return on its
investment in the product could be materially delayed or diminished.
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Part II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no pending legal proceedings, and the Company is not aware of
any threatened legal proceedings to which it is a party.
ITEM 2. CHANGES IN SECURITIES.
During February 1997, the Company sold 350,000 shares of its common
stock to three accredited investors at a price of $1.00 per share. The
Company relied on the exemption provided by Section 4(2) of the Securities Act
of 1933, as amended, and Rule 506 under Regulation D. The Company filed a
Form D with the Securities and Exchange Commission to report the sales.
During the first quarter March 31, 1997, under the Company's 1996 Stock
Option Plan (the "Plan") the Company granted incentive stock options to
purchase an aggregate number of 65,000 shares of Common Stock to a consultant
of the Company. All options granted under the Plan during the quarter have
been granted at exercise prices equal to the fair market value at the date of
grant with vesting provisions at varying intervals through December 1997.
ITEM 5. OTHER INFORMATION.
TRANSACTIONS INVOLVING THE COMPANY
On February 20, 1997, the Company entered into a settlement agreement
with one of the three former shareholders of MediaX, the company the Company
merged with in June 1996, and an officer of the Company and a noteholder
("Noteholder 1"). Pursuant to the terms of this agreement, Noteholder 1
agreed to (1) resign as an officer of the Company, (2) transfer 656,250
shares of his common stock to Assisi Limited Partnership, a beneficial
shareholder who initially issued the stock in the merger and (3) settle his
$166,250 note from the Company in exchange for $32,500 cash plus computer
equipment with a net book value of $12,536 (at December 31, 1996). In
addition, Noteholder 1 agreed to enter into a Consulting Agreement with the
Company to act as project manager for the "Apple Project" for a monthly
consulting fee of $6,000 until the completion of the project. The project was
completed during March 1997 and the consulting agreement concluded
at the same time.
On February 20, 1997, the Company also reached an agreement with another
of the three former shareholders of MediaX, an officer of the Company and a
noteholder ("Noteholder 2"). Noteholder 2 agreed to settle the $166,250 note
from the Company in exchange for $50,000 cash, of which $25,000 was paid prior
to March 31, 1997.
SALE OF SECURITIES UNDER REGULATION S
On May 9, 1997 the Company issued 400,000 shares of its common stock to
Westridge Capital Limited, a Bermuda corporation, upon conversion of a
$300,000 convertible debenture plus accrued interest of approximately $14,000
(approximately $0.785 per share). The shares were issued pursuant to the
exemption provided by Regulation S.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits: None filed with this report.
(b) Reports filed on Form 8-K: None filed by the Company during the
quarter for which this report is filed.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Issuer has
duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MEDIAX CORPORATION
(Registrant)
Date: May 15, 1997 By: ___________________________________________
Nancy Poertner, President
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of operations found on
pages 3, 4 and 5 of the Company's Form 10-QSB for the year to date, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 670,065
<SECURITIES> 0
<RECEIVABLES> 151,898
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 840,316
<PP&E> 233,825
<DEPRECIATION> (125,533)
<TOTAL-ASSETS> 1,177,397
<CURRENT-LIABILITIES> 959,572
<BONDS> 0
<COMMON> 1,416
0
0
<OTHER-SE> 216,409
<TOTAL-LIABILITY-AND-EQUITY> 1,177,397
<SALES> 155,080
<TOTAL-REVENUES> 155,080
<CGS> 76,896
<TOTAL-COSTS> 76,896
<OTHER-EXPENSES> 340,240
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,561
<INCOME-PRETAX> (268,445)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (268,445)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> 0
</TABLE>
