U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended: December 31, 1997
Commission File No. 0-23780
MEDIAX CORPORATION
(Exact Name of Small Business Issuer as Specified in its Charter)
Nevada
(State or Other Jurisdiction of Incorporation or Organization)
84-1107138
(I.R.S. Employer Identification Number)
8522 National Boulevard, Suite 110, Culver City, California 90232
(Address of Principal Executive Offices, Including Zip Code)
(310) 815-8002
Issuer's Telephone Number
Securities Registered Pursuant to Section 12(b) of the Act: None.
Securities Registered Pursuant to Section 12(g) of the Act:
SHARES OF COMMON STOCK, $.0001 PAR VALUE
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 []
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B
is not contained in this form, and no disclosure will be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
The Issuer's revenues for its most recent fiscal year were $228,511.
The aggregate market value of the Issuer's Common Stock, $.0001 Par Value, held
by non-affiliates of the Issuer, based on the closing sale price of the Common
Stock on February 26, 1998 as reported on the OTC Bulletin Board, was
approximately $6,600,000.
As of February 26, 1998 there were 16,080,447 shares of the Issuer's Common
Stock, $.0001 Par Value, outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
MediaX Corporation (the "Registrant" or the "Company") was incorporated
under the laws of the State of Colorado on August 15, 1986 under the name Fata
Morgana, Inc. On September 15, 1988, the Company changed its name to Edinburgh
Capital, Inc. On May 13, 1994, the Company merged into Edinburgh Capital, Inc.
(a Nevada corporation) in order to change its state of domicile to Nevada.
The Company was originally formed for the primary purpose of seeking
out acquisitions of properties, businesses, or merger candidates, without
limitation as to the nature of the business operations or geographic area of the
acquisition candidate. From inception through the date of completion of its
initial public offering of securities, the Company's activities were directed
toward the acquisition of operating capital.
The Company completed its initial public offering in October, 1989,
receiving net proceeds of approximately $245,000 from the sale of 30,000 Units
(each Unit consisting of 1,000 shares of the Company's no par value common
stock, and 100 common stock purchaser warrants exercisable at $.02) at $10 per
unit. The warrants expired in 1992.
During April 1994, the Company effected a 1 for 300 reverse stock split
and on February 23, 1996, the Company effected a 3.13 for 1 forward stock split.
All financial information and share data in the remainder of this Report gives
retroactive effect to these two stock splits.
On February 23, 1996, the name of the Company was changed to Zeitgeist
Werks, Inc. On February 24, 1996, the Company acquired all of the issued and
outstanding shares of Zeitgeist, Inc., a Nevada corporation, in exchange for
12,500,000 shares of its common stock.
On June 27, 1996, MediaX, a California corporation, was merged into
Zeitgeist, Inc., and the Company issued 2,037,500 shares of its common stock to
the former shareholders of MediaX. On August 16, 1996 the Company changed its
name to MediaX Corporation.
The Company is engaged in the business of developing and distributing
multimedia products. These products are developed for the personal computer
market and are primarily designed for informational and entertainment purposes.
MediaX maintains its offices in Culver City and Santa Cruz, California and has
approximately 22 employees.
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DESCRIPTION OF BUSINESS
As a result of the Company's acquisition of all of the issued and
outstanding shares of Zeitgeist, Inc. and MediaX, the Company now has new
management and a new business plan. The Company is engaged in the business of
developing, publishing and distributing interactive CD-ROM and Internet content
for the expanding multimedia market. Management believes that due to the varied
and extensive expertise of its President, Executive Vice President and outside
director in the areas of artist and record company management, film production,
software development and distribution and proprietary technology development,
the Company will bridge the entertainment and technology markets.
The Company will operate primarily in multimedia services and product
development. It is currently in the process of developing creative authoring
tools, has obtained rights to intellectual properties, producing, publishing and
distributing multimedia software and content. The Company intends to maintain
strict control of both quality and costs and to retain profit margins that are
traditionally dispersed across many small companies, by taking a comprehensive
approach to production and distribution of its products.
PRINCIPAL PRODUCTS AND SERVICES
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-ROM's. Three recently
released CD-ROM entertainment products are "On the Road with BB King,
"Queensryche's Promised Land" and "Peter Norton PC Guru" and they are being
distributed by MCA, EMI Records and MediaX, respectively. A product called "Surf
& Destroy" has been delivered to Grolier Interactive. At this point in time it
will not be released, since Grolier has closed down its game department.
MediaX was selected by Apple Computer to produce the Welcome Experience
for their limited edition Twentieth Anniversary Macintosh which was introduced
on March 19, 1997. MediaX 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 late 1998.
The Company has signed a contract with Peter Norton and Verbum for the
production and the exclusive distribution rights for a CD-ROM called "Peter
Norton PC Guru." The Company has commenced work on this product and it has been
released in December of 1997. Peter Norton PC Guru is a Windows 3.1 and Windows
95 CD-ROM developed specifically to help PC owners understand and use their
computer systems, to enhance both work and home life, and to get support when a
problem or question arises. It introduces 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 is 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 disc is comprehensive
and accurate, from top technical experts. The major sections of the disc cover
system software and hardware, peripheral devices, major application categories
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(such as "creativity" and "learning"), troubleshooting, 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 assures 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 down
load opportunities for free software on the Internet.
MediaX has recently signed a marketing co-op agreement with AT&T, one
of the industry's most influential company's to participate in the Norton
project and promotional activity for comprehensive co-marketing with its
WorldNet Internet Service.
The Company's Orwell-based "Big Brother" project is progressing on
schedule for a 2nd half 1998 introduction. Additional personnel for the game
design and engineering area have been hired to bring staffing up to the
necessary levels. Discussions for marketing cooperation are currently proceeding
with several domestic and international companies.
The Company is in the process of completing Media Manager and is
deciding if the product should enter the market by retail distribution or by
licensing/OEM. 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 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 multimedia production,
for example, can consist of 6,000 to 20,000 files composed 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 on a real-time basis. The objective of Media 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 runs on a Windows 95 or Windows NT platform and also
performs 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 files in and out. As an add-on, Media Manager provides a stand
alone Web server application, so clients can also run a simple Web server.
PATENTS, TRADEMARKS AND LICENSES
The Company presently owns no patents, trademarks or licenses. As a
developer, the Company intends to develop mainly its own proprietary titles,
which will result in the development of innovative technology solutions with
broad applications in other growing markets, especially in the on-line
environment. The Company will file the appropriate applications for patents,
trademarks or licenses as its products are developed.
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COMPETITION
The Company is a minor participant among companies which engage in
multimedia development. Many of these companies have significantly greater
capitalization and greater experience in this industry.
EMPLOYEES
The Company presently has 22 employees and subcontractors.
ITEM 2. DESCRIPTION OF PROPERTY
The Company maintains its corporate offices at 8522 National Boulevard,
Suite 110, Culver City, California 90232. The Company pays approximately $3,200
per month for rent pursuant to a lease which expires February 3, 1999. The
Company maintains its software development office at 303 Petrero St., #42-302,
Santa Cruz, California 95060. The Company pays approximately $3,146 per month
for rent for its Santa Cruz operations pursuant to a lease which expires in June
2000.
ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 1997.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) MARKET INFORMATION. The Company's Common Stock is traded on the
over-the-counter market. The following table sets forth the high and low bid
price for the Company's Common Stock for the periods indicated as reported by
the NASD's Electronic Bulletin Board. These prices are believed to be
inter-dealer quotations and do not include retail mark-ups, mark-downs, or other
fees or commissions, and may not necessarily represent actual transactions.
Quarter Ended High Bid Low Bid
March 31, 1997 $2.12 $1.43
June 30, 1997 $1.25 $ .94
September 30, 1997 $1.38 $1.00
December 31, 1997 $1.09 $ .84
(b) HOLDERS. As of March 15, 1998, the Company had approximately 48
shareholders of record. This does not include shareholders who hold stock in
their accounts at broker/dealers.
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(c) DIVIDENDS. The Company has never paid a cash dividend on its common
stock and does not expect to pay a cash dividend in the foreseeable future.
(d) RECENT SALES OF UNREGISTERED SECURITIES.
On March 25, 1997, the Company sold to an accredited investor
for $450,000, a convertible debenture which pays interest at 2% per annum over
the prime rate of the Bank of America, calculated monthly on the principal
portion of $350,000 from February 11, 1997 and on the principal portion of
$100,000 from March 25, 1997. The debenture is due on February 28, 1998, but the
principal sum and any accrued interest may be converted into shares of common
stock at any time before the due date at a price of $1.00 per share.
On April 20, 1997, the Company engaged a consultant to provide
financial public relations services for the Company for a term of twelve months.
As part of the compensation for such services, the Company issued to the
consultant 75,000 shares of the Company's common stock and 125,000 options, each
option to purchase one share of common stock at $1.25 per share, and an
additional 125,000 options, each option to purchase one share of common stock at
$2.50 per share. All such options vest in monthly increments of one-twelfth or
8.333% of the total share and options per month from April 10, 1997.
On July 21, 1997, the Company engaged a firm to act as sales
representative for the Company's software. As part of the consideration for such
services, the Company granted the principals of the firm options to purchase
250,000 shares of the Company's common stock at a price of $1 1/8 per share.
Options to purchase 25,000 shares vested on September 30, 1997. Additional
options vest upon the future shipment of units.
On August 1, 1997, the Company sold a convertible debenture to
an accredited investor for $320,000, which pays interest on the principal of
$320,000 at 2% per annum over the prime rate of the Bank of America, calculated
monthly from August 1, 1997. The debenture is due on July 31, 1998, but the
principal sum and any accrued interest may be converted into shares of common
stock at any time before the due date at a price of $0.70 per share.
On August 12, 1997, the Company engaged a firm to provide
investor relations/public relations services for the Company for a term of one
year. As part of the consideration for such services, the Company granted the
firm 45,000 options, each option to purchase one share of the Company's common
stock at a price of $1.38 per share. The options vest at a rate of 3,750 per
month, each month.
On August 22, 1997, the Company sold 200,000 shares of common
stock to an accredited investor for $148,000.
On August 29, 1997, the Company sold 50,000 shares of common
stock and 50,000 warrants (each warrant to purchase one share of common stock at
an exercise price of $1.30 per share, exercisable for five years from the date
of sale) to an accredited investor for $52,000.
On September 2, 1997, the Company sold 50,000 shares of common
stock and 50,000 warrants (each warrant to purchase one share of common stock at
an exercise price of $1.30 per share, exercisable for five years from the date
of sale) to an accredited investor for $52,000.
On September 7, 1997, the Company sold 100,000 shares of
common stock and 100,000 warrants (each warrant to purchase one share of common
stock at an exercise price of $1.30 per share, exercisable for five years from
the date of sale) to an accredited investor for $104,000.
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On September 9, 1997, the Company sold 100,000 shares of
common stock and 100,000 warrants (each warrant to purchase one share of common
stock at an exercise price of $1.30 per share, exercisable for five years from
the date of sale) to an accredited investor for $104,000.
On September 10, 1997, the Company sold 50,000 shares of
common stock and 50,000 warrants (each warrant to purchase one share of common
stock at an exercise price of $1.30 per share, exercisable for five years from
the date of sale) to an accredited investor for $52,000.
On September 25, 1997, the Company sold 192,308 shares of
common stock and 192,308 warrants (each warrant to purchase one share of common
stock at an exercise price of $1.50 per share, exercisable for five years from
the date of sale) to an accredited investor for $200,000.
On November 4, 1997, the Company issued 400,000 shares of
common stock to an unrelated third party in exchange for $600,000 of prepaid
advertising.
On February 13, 1998, the Company sold 200,000 shares of
common stock and 100,000 warrants (each warrant to purchase one share of common
stock at an exercise price of $1.50 per share, exercisable for five years from
the date of sale) to an accredited investor for $200,000.
On March 1, 1998, the Company replaced the two convertible
debentures with a new convertible debenture due September 1, 1998, for $850,000
which pays interest at the same rate as the replaced debenture. The principal
sum of the new debenture and any accrued interest may be converted into common
shares at any time prior to the due date at $.60 per share.
Exemption from registration under the Securities Act of 1933,
as amended (the "Act"), is claimed for the sale of all the securities set forth
above in reliance upon the exemption afforded by Section 4(2) of the Act.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following information should be read in conjunction with the
financial statements and the notes thereto. 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-KSB 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.
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GOING CONCERN
The Company has experienced recurring net losses and has limited liquid
resources. Management's intent is to increase the Company's sales and continue
searching for additional sources of capital. In the interim, the Company will
continue operating with minimal overhead and administrative functions will be
provided by key employees and consultants, some of whom are compensated
primarily in the form of the Company's common stock. The Company may need to
utilize its common stock to fund its operations through fiscal 1998.
Accordingly, the accompanying consolidated financial statements have been
presented under the assumption the Company will continue as a going concern.
RESULTS OF OPERATIONS
The financial results in the Statements of Operations for the year
ended December 31, 1997, reflect the complete year of MediaX operations. Since
MediaX is the only operating business, there are no meaningful comparisons which
can be made with the statements of operations for the year ended December 31,
1996, because the 1996 results reflect the operations for the Company's
subsidiary MediaX for the period from June 27, 1996 through December 31, 1996,
and the operations of the Company for the complete year.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had a working capital of $134,046, as
compared to negative working capital of $435,564 at December 31, 1996. The
improvement in working capital is attributable to the Company raising
approximately $1,000,000 in cash and $600,000 of prepaid advertising from the
issuance of common stock, offset by cash used for the payment of current
liabilities for on going operations during the year ended December 31, 1997.
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 current products 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 fiscal year ending
December 31, 1998. However, the Company may need to utilize its common stock to
fund its operations through fiscal 1998. 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. 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 consequences would be severe.
The generation 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 the date of this Report, the Company had no material commitments
for capital expenditures.
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The Company is planning to do additional private placements of it's
common stock to raise up to an additional $1 million to provide working capital
for the Company's planned business activities. The success, or lack thereof, of
this funding may have a material impact on the future of the Company. Similarly,
the lack of sufficient sales of the Company's products will have a material
impact on the future of the Company.
ITEM 7. FINANCIAL STATEMENTS
Please see pages F-1 through F-16.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The directors and executive officers of the Company, their ages,
positions held in the Company, and duration as such, are as follows:
NAME AGE POSITION HELD AND TENURE
Nancy Poertner 42 President, Secretary and Director
since February 23, 1996
Rainer Poertner 50 Director since February 23, 1996
Matthew MacLaurin 31 Director, Executive V.P. since June
27, 1996
BUSINESS EXPERIENCE
The following is a brief account of the education and business
experience during at least the past five years of the Company's directors,
executive officers, and key employees, indicating the principal occupation and
employment during that period, and the name and principal business of the
organization in which such occupation and employment were carried out.
NANCY POERTNER, PRESIDENT, SECRETARY AND DIRECTOR. Nancy Poertner has
been involved in the entertainment industry since 1979. From 1981 to December
1995, she was Vice President for a major artist management company based in Los
Angeles, where she was responsible for all aspects of artist management -
domestic and international touring, marketing, promotion and album recordings.
In addition, from 1991 to December 1995, she led the international department of
a major record label distributed through MCA, resulting in sales generating five
international gold records, five top fifteen singles and two number one
positions. Several of the entertainers she has worked with include Matthew
Broderick, Rod Stewart, Toni Braxton, Suzanne Hoffs (Bangles) and recording
artist Morrissey. As a result of her years in the business, Ms. Poertner has
extensive personal relationships throughout the domestic and international film
and recording industries. Ms. Poertner was educated overseas, graduated with a
Bachelor of Arts in Education and taught in Afghanistan and Turkey through the
Peace Corps.
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RAINER POERTNER, DIRECTOR. Mr. Poertner has served as a Director of the
Company since February 23, 1996. Rainer Poertner has a twelve-year track record
of bringing new and innovative computer hardware and software technology to the
international market place. He has served as President and a Director of
Syncronys Softcorp since May 8, 1995, and as Chief Executive Officer since July
1, 1995. He co-founded Seamless Software Corporation ("Seamless") and served as
Director and as President of Seamless from its inception in May 1993 until its
merger with Syncronys Softcorp on May 8, 1995. After having held several
positions in the European and U.S. entertainment industries, he founded Hybrid
Arts, Inc., in 1986 by arranging $3 million of venture financing for ADAP - the
first Direct-to-Disk Digital Recording System. After arranging Hybrid Art's sale
in 1991, Mr. Poertner became CEO of Hydra Systems, Inc., which developed and
marketed ANDOR - a fully functional Macintosh CPU on a PC peripheral card. Hydra
Systems subsequently sold the technology and the inherent rights to a company in
Seoul, South Korea in 1992. Mr. Poertner received degrees in economics from the
University of Frankfurt in 1975 and the Klinger Business School in 1973.
Rainer Poertner and Nancy Poertner are husband and wife.
MATTHEW MACLAURIN, EXECUTIVE VICE PRESIDENT. Matthew MacLaurin's
experience stretches back to the early days of PCS when, 16 years ago, he
developed games for the Commodore Pet 2001. Later, Matthew joined Sapiens
Software to create tools for artificial intelligence engineering on the IBM PC
XT platform. He was the key engineer for the development and implementation of
Common Lisp, a computer language for the 640K DOS platform. At Apple Computer he
secured funding for, designed and led the development of the patented GATE
system, a leading-edge artificial intelligence testing system. In Apples
Advanced Product Group, he led the development of a revolutionary pen-based
computer called Bauhaus, which incorporated handwriting recognition and an
advanced artificial intelligence memory system. In 1994, Matthew joined forces
with Gaben Chancellor to found the original MediaX.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
No persons who were either a Director, Officer or beneficial owner of
more than 10% of the Company's Common Stock, failed to file on a timely basis
reports required by Section 16(a) of the Exchange Act during the most recent
fiscal year.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information regarding the executive
compensation for the Company's President and Executive V.P. for the years ended
December 31, 1997, 1996 and 1995 from the Company and its subsidiaries. No other
executive officer received compensation in excess of $100,000 during these
periods.
Summary Compensation Table
- ------------------------------------------
Name and Principal Fiscal Salary Other Annual Options
Position Year ($) Compensation ($) Granted (#)
- --------------------- ------ ------- ---------------- -----------
Nancy Poertner 1997 158,458 6,720 N/A
President, Secretary, 1996 114,583 7,200 N/A
Director 1995 N/A N/A N/A
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Summary Compensation Table
- ------------------------------------------
Name and Principal Fiscal Salary Other Annual Options
Position Year ($) Compensation ($) Granted (#)
- ---------------------- ------ ------ ---------------- -----------
Matthew MacLaurin 1997 114,000 N/A N/A
Executive VP, Director 1996 23,665 N/A N/A
1995 N/A N/A N/A
EMPLOYMENT AGREEMENTS
On January 1, 1996, the Company entered into an employment agreement
with Nancy Poertner, the Company's President. The agreement expires December 31,
1999, but is automatically renewable for additional two year terms unless either
party elects to terminate the agreement. The agreement provides for a monthly
salary of $10,417 during the period from January 1, 1996 through September 30,
1996, and an annual base salary of $155,000 during the period from October 1,
1996, through September 30, 1997. The salary level increases by $30,000 for each
year thereafter. The agreement also provides that Nancy Poertner will be paid a
bonus within 30 days after the end of each quarter in amounts to be determined
by the Board of Directors. Nancy Poertner can terminate the agreement at any
time.
On June 26, 1996, the Company entered into an employment agreement with
Matthew MacLaurin, the Company's Executive Vice President. The agreement expires
June 30, 1997, but is automatically renewable for additional two year terms
unless either party elects to terminate the agreement. The agreement provides
for an annual base salary of $100,000 during the period from July 1, 1996
through June 30, 1997, and an annual base salary of $125,000 during the period
from July 1, 1997 through June 30, 1998. The salary level increases by $30,000
for each year thereafter. The agreement also provides that Matthew MacLaurin
will be paid a bonus within 30 days after the end of each quarter in amounts to
be determined by the Board of Directors. Matthew MacLaurin can terminate the
agreement at any time.
STOCK OPTION PLAN
During April 1996, the Board of Directors adopted a Stock Option Plan
(the "Plan"), and on July 3, 1996, the Corporation's shareholders approved the
Plan. The Plan authorizes the issuance of options to purchase up to 1,000,000
shares of the Company's Common Stock.
The Plan allows the Board to grant stock options from time to time to
employees, officers, directors and consultants of the Company. The Board has the
power to determine at the time that the option is granted whether the option
will be an Incentive Stock Option (an option which qualifies under Section 422
of the Internal Revenue Code of 1986) or an option which is not an Incentive
Stock Option. Vesting provisions are determined by the Board at the time options
are granted. The option price for any option will be no less than the fair
market value of the Common Stock on the date the option is granted.
Since all options granted under the Plan must have an exercise price no
less than the fair market value on the date of grant, the Company will not
record any expense upon the grant of options, regardless of whether or not they
are incentive stock options. Generally, there will be no federal income tax
consequences to the Company in connection with Incentive Stock Options granted
under the Plan. With regard to options that are not Incentive Stock Options, the
Company will ordinarily be entitled to deductions for income tax purposes of the
amount that option holders report as ordinary income upon the exercise of such
options, in the year such income is reported.
[MEDIAX\10-KSB:123197.KSB]-9
10
<PAGE>
Options to purchase a total 678,164 shares at an exercise price of
$2.25 per share were granted during April 1996. No options were granted to
officers or directors of the Company during fiscal 1997.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth, as of March 15, 1998, the stock
ownership of each person known by the Company to be the beneficial owner of five
percent or more of the Company's Common Stock, each Officer and Director
individually, and all Officers and Directors as a group. Each person has sole
voting and investment power over the shares except as noted.
Amount and Nature
Name and Address of Beneficial Interest Percent
of Officers and Directors of Common Stock of Class
- -------------------------------- ---------------------- ---------
Nancy Poertner 8,093,750 (1) 49%
8522 National Blvd., Suite 110
Culver City, CA 90232
Rainer Poertner 8,093,750 (1) 49%
3958 Ince Boulevard
Culver City, CA 90232
Assisi Limited Partnership 8,093,750 (1) 49%
10866 Wilshire Blvd., 15th Floor
Los Angeles, CA 90024
Mizzentop Holdings Ltd. 902,500 (2) 5.5%
4 George Street
Nassau, Bahamas
Matthew MacLaurin 956,250 5.8%
325A River Street
Santa Cruz, CA 95060
All Directors and Officers 9,050,000 (1) 54.8%
as a group (3 persons)
- ----------------------------------
(1) Assisi Limited Partnership is a Nevada Limited Partnership of which
Nancy Poertner is a General Partner and owns a 100% interest. Rainer
Poertner may be deemed to be a beneficial owner of the shares owned by
Assisi Limited Partnership by virtue of his spousal relationship to
Nancy Poertner. Mr. Poertner disclaims any beneficial interest in such
shares.
(2) Mizzentop Holdings Ltd. is a Bahamas corporation in which Mr. Kevin
O'Neill, a Canadian citizen, has an indirect beneficial interest.
Mizzentop Holdings Ltd. and Mr. O'Neill, however, disclaim ownership by
Mr. O'Neill of shares in the Company.
The Company knows of no arrangement or understanding, the operation of
which may at a subsequent date result in a change of control of the Company.
[MEDIAX\10-KSB:123197.KSB]-9
11
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ACQUISITION OF ZEITGEIST, INC.
On February 24, 1996, the Company acquired all of the outstanding stock
of Zeitgeist, Inc. ("Zeitgeist"). The Company issued a total of 12,500,000
shares (approximately 95%) of its common stock to the shareholders of Zeitgeist.
The stock issuances were made pursuant to an Agreement (the
"Agreement") among the Company, Zeitgeist and the Zeitgeist shareholders. The
terms of the Agreement were the result of negotiations between the managements
of the Company and Zeitgeist. However, Mark R. Moldenhauer, the Company's
President and a Director prior to the acquisition, held a 5.6% interest in
Zeitgeist and received 700,000 shares of common stock in the transaction.
Further, the Board of Directors did not obtain any independent "fairness"
opinion or other evaluation regarding the terms of the Agreement due to the cost
of obtaining such opinions or evaluations.
The 12,500,000 shares issued to acquire Zeitgeist were issued to the
following shareholders of Zeitgeist in the amounts set forth:
NAME NUMBER OF SHARES
-------------------------- ----------------
Assisi Limited Partnership 9,475,000
Cabana Holdings Ltd. 1,162,500
Mizzentop Holdings Ltd. 1,162,500
Mark R. Moldenhauer 700,000
Total 12,500,000
ACQUISITION OF MEDIAX
On June 27, 1996, the Company completed a transaction in which MediaX,
a California corporation, was merged with and into the Company's wholly-owned
subsidiary, Zeitgeist. The Company issued a total of 2,037,500 shares of its
Common Stock to the shareholders of MediaX at the Closing, and Assisi Limited
Partnership surrendered for cancellation 2,037,500 of its shares of common
stock.
The stock issuances were made pursuant to an Agreement and Plan of
Reorganization ("Agreement") among the Company, Zeitgeist, MediaX and MediaX's
shareholders. The terms of the Agreement were the result of negotiations between
the managements of the Company and MediaX. However, the Board of Directors did
not obtain any independent "fairness" opinion or other evaluation regarding the
terms of the Agreement, due to the cost of obtaining such opinions or
evaluations.
The 2,037,500 shares issued to acquire MediaX were issued to the
following shareholders of MediaX in the amounts set forth:
NAME NUMBER OF SHARES
----------------- ----------------
Matthew MacLaurin 956,250
Gaben Chancellor 956,250
David Traub 125,000
Total 2,037,500
[MEDIAX\10-KSB:123197.KSB]-9
12
<PAGE>
TRANSACTIONS INVOLVING THE COMPANY
On December 6, 1995, Zeitgeist, Inc. loaned Nancy Poertner, the
Company's President, $50,000 pursuant to an unsecured note bearing interest at
4% and with a due date of January 1, 2000. On February 25, 1996, an additional
$50,000 was loaned to Ms. Poertner on the same terms.
On February 20, 1997, the Company entered into a Disengagement
Agreement with Gaben Chancellor ("Chancellor"), a Vice President of the Company,
pursuant to which Chancellor agreed to resign as an officer of the Company and
to transfer 656,250 of his shares of the Company's common stock to Assisi
Limited Partnership. In addition, Chancellor agreed to enter into a Consulting
Agreement with the Company to act as project manager for the "Apple Project" and
to receive a monthly consulting fee of $6,000 until the completion of the
project. (The project was completed during March 1997.) The Company also agreed
to pay Chancellor a one-time cash compensation of $32,500 for his past
contributions to the Company.
On January 2, 1998, the Company engaged a firm to act as sales
representative in Canada for the Company's software. As part of the
consideration for such services, the Company granted the principal of the firm
options to purchase 25,000 shares of the Company's common stock at a exercise
price of $.87 per share. On March 31, 1998, 5,000 shares of the option are
immediately exercisable, with the remaining shares of the option vesting each
three months after at the rate of 2,500 shares per three months.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) 3. EXHIBITS.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION LOCATION
- ----------- --------------------------------------------- ----------------------------------------
<S> <C> <C>
3.1 Certificate of Incorporation Incorporated by reference to Exhibit 3.1
to the Company's Registration
Statement on Form S-18 (No.
33-28258)
3.1(a) Articles of Amendment to the Articles of Incorporated by reference to Exhibit
Incorporation dated February 23, 1996, for 3.1(a) to the Company's Form 10-KSB
the name change to Zeitgeist Werks, Inc. for the year ended December 31, 1995
3.1(b) Articles of Amendment to the Articles of Incorporated by reference to Exhibit
Incorporation dated August 15, 1996, for the 3.1(b) to the Company's Form 10-KSB
name change to MediaX Corporation for the year ended December 31, 1996
3.2 Bylaws Incorporated by reference to Exhibit 3.2
to the Company's Registration
Statement of Form S-18 (No. 33-28258)
10.1 Disengagement Agreement dated February Incorporated by reference to Exhibit
20, 1997, with Gaben Chancellor 10.1 to the Company's Form 10-KSB
for the year ended December 31, 1996
</TABLE>
[MEDIAX\10-KSB:123197.KSB]-9
13
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION LOCATION
- ----------- --------------------------------------------- -----------------------------------------
<S> <C> <C>
10.2 Employment Agreement dated January 1, Incorporated by reference to Exhibit
1996 with Nancy Poertner 10.2 to the
Company's Form 10-KSB for the
year ended December 31, 1996.
10.3 Employment Agreement dated June 26, 1996 Incorporated by reference to Exhibit
with Matthew MacLaurin 10.3 to the Company's Form 10-KSB
for the year ended December 31, 1996.
27 Financial Data Schedule Filed herewith electronically
</TABLE>
(b) REPORTS ON FORM 8-K. No Reports on Form 8-K were filed during the
fourth quarter of the Company's fiscal year ended December 31, 1997.
[MEDIAX\10-KSB:123197.KSB]-9
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 27, 1998 MEDIAX CORPORATION
By: /s/ Nancy Poertner
----------------------------------
Nancy Poertner, President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following person on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- ---------------------- -------------------- ----------------
/s/ Nancy Poertner President, Secretary March 27, 1998
- ---------------------- and Director
/s/ Rainer Poertner Director March 27, 1998
- ----------------------
Rainer Poertner
/s/ Matthew MacLaurin Executive V.P. and March 27, 1998
- ----------------------
Matthew MacLaurin Director
[MEDIAX\10-KSB:123197.KSB]-9
15
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
MediaX Corporation
(A Development Stage Company)
We have audited the accompanying balance sheet of MediaX Corporation at December
31, 1997 and the related statements of changes in stockholders' equity,
operations and cash flows for each of the two years ended December 31, 1996 and
1997 and for the period from inception (March 30, 1995) to December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MediaX Corporation at December
31, 1997 and the results of its operations and its cash flows for each of the
two years ended December 31, 1996 and 1997 for the period from inception (March
30, 1995) to December 31, 1997 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2, the Company
has minimal capital resources presently available to meet obligations which
normally can be expected to be incurred by similar companies, and has an
accumulated deficit of ($2,279,196) at December 31, 1997. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Davis & Co., CPAs, P.C.
---------------------------------------
Davis & Co., CPAs, P.C.
Certified Public Accountants
Englewood, Colorado
March 6, 1998
[MEDIAX\10-KSB:123197.FS]-4
F- 1
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
(A Development Stage Company)
Balance Sheet As Of December 31, 1997
<S> <C>
ASSETS
Current assets
Cash and cash equivalents $ 392,673
Accounts receivable 10,343
Inventories 51,817
Prepaid advertising costs 600,000
Other prepaid expenses 37,389
-----------------
$ 1,092,222
Property and equipment
Computers and office equipment $ 211,218
Software 143,740
Furniture and fixtures 18,424
-----------------
Less: accumulated depreciation 373,382
(172,553)
$ 200,829
Other assets
Note and interest receivable - officer $ 107,830
Deferred software development costs 300,000
License agreement and trademark 21,153
Organization costs, net 2,285
Deposits and other assets 9,339
-----------------
440,607
$ 1,733,658
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities
Convertible debentures payable $ 822,712
Notes payable, other 15,968
Notes payable to former MediaX shareholders 10,663
Accounts payable - trade 78,708
Accounts payable - related parties 24,455
Obligation under capital lease 5,670
-----------------
$ 958,176
Commitments, contingency and subsequent events (Notes 5, 6, and 9)
Stockholders' equity (deficit)
Preferred stock, $.0001 par value per share;
10,000,000 shares authorized and no shares
issued $ --
Common stock, $.0001 par value per share;
75,000,000 shares authorized; 15,880,447
shares issued and outstanding 1,588
Additional paid-in capital 3,053,090
Deficit accumulated during the development stage (2,279,196)
-----------------
775,482
$ 1,733,658
</TABLE>
The accompanying notes are an integral part of this statement.
[MEDIAX\10-KSB:123197.FS]-4
F- 2
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
(A Development Stage Company)
Statement of Changes in Stockholders' Equity
For the Period From Inception (March 30, 1995)
to December 31, 1997
COMMON STOCK
-------------------------------------
SHARES ADDITIONAL
(As Restated) AMOUNT PAID-IN CAPITAL
- --------------------------------------- ---------------- ------------------- --------------------------
<S> <C> <C> <C>
Shares issued in March 1995
for cash of $.000008 per share
to an officer and director 12,500,000 $ 1,250 $ (1,150)
Net loss for the period from
inception (March 30, 1995) to
December 31, 1995
Balance at December 31, 1995 12,500,000 1,250 (1,150)
Adjustment for shares of
Zeitgeist Werks, Inc.
outstanding immediately prior
to reorganization on February
23, 1996, valued at net
monetary asset amount 658,039 66 249,757
Exchange of 154,000 shares
during March 1996 for notes
and interest payable of
$308,000 154,000 15 307,985
Issuance of 125,000 shares to
consultant on April 20, 1996
in exchange for services 125,000 13 124,987
Cancellation of 2,037,500 shares
by majority shareholder on
June 27, 1996 (2,037,500) (204)
Issuance of 2,037,500 shares on
June 27, 1996 in exchange for
all of the stock of MediaX 2,037,500 204
Sale of 25,100 shares to
unrelated parties during June
and July 1996 at $2 per share 25,100 2 52,198
Sale of 350,000 shares to
unrelated parties during Nov. 350,000 35 349,965
and Dec. 1996 at $1 per share
Net (loss) for year ended Dec. 31,
1996
Balance at December 31, 1996 13,812,139 $ l,381 $ 1,083,742
</TABLE>
(Continued
The accompanying notes are an integral part of this statement.
[MEDIAX\10-KSB:123197.FS]-4
F- 3
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
(A Development Stage Company)
Statement of Changes in Stockholders' Equity
For the Period From Inception (March 30, 1995)
to December 31, 1997
(Page 2)
COMMON STOCK
-------------------------------------
SHARES ADDITIONAL
(As Restated) AMOUNT PAID-IN CAPITAL
--------------- ------------------- -------------------------
<S> <C> <C> <C>
Sale of 350,000 shares to various
unrelated parties during
January and February 1997 at
$1 per share 350,000 $ 35 $ 349,965
Sale of 100,000 shares and
warrants to unrelated party
during May 1997 at $.70 per
unit 100,000 10 69,990
Sale of 542,308 shares to various
unrelated parties during
August and September 1997 at
$1.04 per share 542,308 54 563,946
Sale of 200,000 shares to
unrelated party during August
1997 at $.74 per share 200,000 20 147,980
Conversion of note and interest
payable to Westridge Capital
(unrelated party) into 400,000
shares of common stock at
$.794 per share in August
1997 400,000 40 317,507
Issuance of 400,000 shares at
$1.50 per share to unrelated
party in exchange for prepaid
advertising during November
of 1997 400,000 40 599,960
Commissions paid to unrelated
party for private placement
sales of stock -- -- (80,000)
Issuance of 76,000 shares at par
value to unrelated parties
pursuant to other agreements
during 1997 76,000 8 --
Net (loss) for year ended
December 31, 1997 -- -- --
------------------ ------------------- -------------------------
Balance at December 31, 1997 15,880,447 $ 1,588 $ 3,053,090
=================== ==================== =========================
</TABLE>
(Continued)
The accompanying notes are an integral part of this statement.
[MEDIAX\10-KSB:123197.FS]-4
F- 4
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
(A Development Stage Company)
Statement of Changes in Stockholders' Equity
For the Period From Inception (March 30, 1995)
to December 31, 1997
(Page 3)
DEFICIT
ACCUMULATED TOTAL
DURING THE STOCKHOLDERS'
DEVELOPMENT EQUITY
STAGE (DEFICIT)
----------------------- ---------------------------
<S> <C> <C>
Shares issued in March 1995
for cash of $.000008 per share
to an officer and director $ $ 100
Net loss for the period from
inception (March 30, 1995) to
December 31, 1995 (37,238) (37,238)
------------------------ ---------------------------
Balance at December 31, 1995 (37,238) (37,138)
Adjustment for shares of Zeitgeist
Werks, Inc. outstanding
immediately prior to
reorganization on February 23,
1996, valued at net monetary
asset amount (268,064) (18,241)
Exchange of 154,000 shares
during March 1996 for notes and
interest payable of $308,000 -- 308,000
Issuance of 125,000 shares to
consultant on April 20, 1995 in
exchange for services -- 125,000
Cancellation of 2,037,500 shares
by majority shareholder on June
27, 1996 -- (204)
Issuance of 2,037,500 shares on
June 27, 1996 in exchange for all
of the stock of MediaX -- 204
Sale of 25,100 shares to unrelated
parties during June and July 1996
at $2 per share -- 52,200
Sale of 350,000 shares to unrelated
parties during Nov. and Dec.
1996 at $1 per share -- 350,000
Net (loss) for year ended Dec. 31,
1996 (643,554) (643,554)
------------------------ ---------------------------
Balance at December 31, 1996 $ (948,855) $ 136,268
</TABLE>
(Continued)
The accompanying notes are an integral part of this statement.
[MEDIAX\10-KSB:123197.FS]-4
F- 5
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
(A Development Stage Company)
Statement of Changes in Stockholders' Equity
For the Period From Inception (March 30, 1995)
to December 31, 1997
(Page 4)
DEFICIT
ACCUMULATED TOTAL
DURING THE STOCKHOLDERS'
DEVELOPMENT EQUITY
STAGE (DEFICIT)
------------------------ ----------------------------
<S> <C> <C>
Sale of 350,000 shares to various
unrelated parties during January
and February 1997 at $1 per share -- $ 350,000
Sale of 100,000 shares and warrants
to unrelated party during May
1997 at $.70 per unit -- 70,000
Sale of 542,308 shares to various
unrelated parties during August
and September 1997 at $1.04 per
share -- 564,000
Sale of 200,000 shares to unrelated
party during August 1997 at $.74
per share -- 148,000
Conversion of note and interest
payable to Westridge Capital
(unrelated party) into 400,000
shares of common stock at $.794
per share in August 1997 -- 317,547
Issuance of 400,000 shares at $1.50
per share to unrelated party in
exchange for prepaid advertising
during November of 1997 -- 600,000
Commissions paid to unrelated party
for private placement sales of
stock -- (80,000)
Issuance of 76,000 shares at par
value to unrelated parties
pursuant to other agreements
during 1997 -- 8
Net (loss) for year ended December
31, 1997 (1,330,341) (1,330,341)
------------------------ ----------------------------
Balance at December 31, 1997 $ (2,279,196) $ 775,482
======================== ============================
</TABLE>
The accompanying notes are an integral part of this statement.
[MEDIAX\10-KSB:123197.FS]-4
F- 6
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
(A Development Stage Company)
Statements of Operations
FOR THE PERIOD
FROM
INCEPTION
FOR THE YEAR ENDED (March 30, 1995)
DECEMBER 31, TO DECEMBER 31,
1997 1996 1997
------------------------ ---------------------- ---------------------------
<S> <C> <C> <C>
SALES/COST OF SALES
Sales $ 228,511 $ 392,125 $ 620,636
Cost of sales 268,258 142,644 410,902
----------------------- --------------------- ---------------------------
Gross profit (loss) (39,747) 249,481 209,734
GENERAL AND ADMINISTRATIVE
EXPENSES
Amortization 944 35,939 36,883
Depreciation 57,589 28,929 86,518
Employee benefits 11,709 9,034 20,743
Insurance 32,689 23,043 55,732
Legal and accounting 81,762 46,196 129,528
Other administrative 56,654 25,644 83,152
Postage and delivery 11,930 7,096 19,026
Professional and outside services 399,475 259,793 680,268
Publicity and promotion 40,074 27,119 67,193
Rent and utilities 69,731 21,524 90,985
Salaries 377,901 345,737 723,638
Supplies 38,617 13,894 57,820
Taxes - payroll 25,266 16,317 41,583
Taxes and licenses 8,272 9,046 17,318
Telephone 18,212 11,687 29,899
Travel 29,460 11,836 46,881
----------------------- --------------------- ----------------------------
1,260,285 892,384 2,187,437
OTHER INCOME (EXPENSES)
Interest income 17,182 5,403 22,585
Interest expense (63,398) (7,198) (73,516)
Gain on sale of asset -- 1,000 1,000
Other income 15,907 594 16,501
----------------------- --------------------- ---------------------------
(30,309) (201) (33,430)
----------------------- --------------------- ---------------------------
Net (loss) $(1,330,341) $ (643,554) $ (2,011,133)
======================== ===================== ===========================
Weighted average number of common
shares 14,618,160 13,285,972 13,521,025
======================= ===================== ===========================
Net (loss) per common share (primary) $ (.09) $ (.05) $ (.15)
======================= ===================== ===========================
Net (loss) per common share (fully
diluted) $ (.08) $ (.04) $ (.14)
======================= ===================== ===========================
</TABLE>
The accompanying notes are an integral part of this statement.
[MEDIAX\10-KSB:123197.FS]-4
F- 7
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
(A Development Stage Company)
Statements of Cash Flows
FOR THE PERIOD
FROM
INCEPTION
FOR THE YEAR ENDED (March 30, 1995)
DECEMBER 31, TO DECEMBER 31,
1997 1996 1997
------------------- ------------------ ---------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $ (1,330,341) $ (643,554) $ (2,011,133)
Adjustments to reconcile to net cash
provided by operating activities
Stock issued for services 8 125,000 125,008
Amortization 944 35,939 36,883
Depreciation 57,589 28,929 86,518
Changes in assets and liabilities
Decrease (increase) in accounts
receivable 89,992 (100,335) (10,343)
Decrease (increase) in accounts
receivable - officer 19,043 (19,043) --
(Increase) in prepaid expense (21,804) (15,585) (37,389)
(Increase) in inventories (51,817) -- (51,817)
(Increase) in deposits and other assets (8,412) (582) (9,338)
(Increase) in note and interest
receivable - officer (4,000) (53,830) (107,830)
Increase (decrease) in accounts
payable - trade (11,721) 86,664 78,708
Increase (decrease) in accounts
payable - related parties (14,793) 28,658 24,455
(Decrease) increase in interest payable -- (2,920) --
------------------ ----------------- ---------------------------
Net cash (used) by operating activities (1,275,312) (530,659) (1,876,277)
Cash Flows from Investing Activities
Deferred software development costs (200,000) (100,000) (300,000)
Purchase of fixed assets (135,944) (71,208) (207,152)
Proceeds from sale of fixed assets 1,222 1,600 2,822
------------------ ----------------- ---------------------------
Net cash (used) by investing activities (334,722) (169,608) (504,330)
Cash Flow from Financing Activities
Principal payments on capital lease (7,978) (14,443) (22,421)
Net proceeds from sale of stock to private
investors 1,052,000 402,200 1,454,300
Retirement of notes payable (117,843) (5,150) (122,993)
Proceeds received from issuance of notes
payable and convertible debentures 852,197 312,197 1,464,394
------------------ ----------------- ---------------------------
Net cash provided by financing activities 1,778,376 694,804 2,773,280
------------------ ----------------- ---------------------------
</TABLE>
(Continued)
The accompanying notes are an integral part of this statement.
[MEDIAX\10-KSB:123197.FS]-4
F- 8
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
(A Development Stage Company)
Statements of Cash Flows
(Page 2)
FOR THE PERIOD
FROM
INCEPTION
FOR THE YEAR ENDED (March 30, 1995)
DECEMBER 31, TO DECEMBER 31,
1997 1996 1997
------------------- ------------------ ---------------------------
<S> <C> <C> <C>
Increase (decrease) in cash and cash equivalents $ 168,342 $ (5,463) $ 392,673
Cash and cash equivalents, beginning of period 224,331 229,794 --
------------------ ------------------ ---------------------------
Cash and cash equivalents, end of period $ 392,673 $ 224,331 $ 392,673
================== ================= ===========================
Supplemental Disclosures of Cash Flow Information Cash paid during year for:
Interest expense $ 55,851 $ 10,188 $ 66,039
================== ================= ============================
Cash received during the year for:
Interest income $ 13,182 $ 1,573 $ 14,755
=================== ================= ===========================
Cash paid during the year for:
Income taxes $ 800 $ 800 $ 1,600
=================== ================== ===========================
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
On June 27, 1996, the Company acquired all of the issued and outstanding
shares of MediaX (a California S- corporation) in exchange for a $350,000 note
payable to the former MediaX shareholders and 2,037,500 shares of the Company's
common stock. The non-cash portion of this acquisition included $152,517 of net
property and equipment, primarily specialized computers and software used in
developing, publishing and distributing interactive CD-Rom and Internet content
for the multi-media market. In addition, the Company received $24,479 of other
non-cash assets, $10,188 of cash and assumed $89,561 of the liabilities of
MediaX that existed at June 27, 1996.
In August of 1997, the Company's note and accrued interest payable in
the amount of $317,547 to Westridge Capital was converted into 400,000 shares of
common stock with a basis of $.794 per share. In November of 1997 the Company
exchanged 400,000 shares of common stock for $600,000 of prepaid advertising.
The accompanying notes are an integral part of this statement.
[MEDIAX\10-KSB:123197.FS]-4
F- 9
<PAGE>
MEDIAX CORPORATION
(A Development Stage Company)
Notes to Financial Statements
December 31, 1997
Note 1: SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies are as follows:
a. ORGANIZATION AND MERGER
MediaX Corporation ("the Company") (formerly Zeitgeist Werks, Inc. and
Edinburgh Capital, Inc.) was incorporated as Fata Morgana, Inc. under the laws
of the State of Colorado on August 15, 1986. On September 15, 1988, the Company
amended its Articles of Incorporation to change its name to Edinburgh Capital,
Inc. The Company was in the development stage as more fully defined in Statement
No. 7 of the Financial Accounting Standards Board. Planned principal operations
of the Company had not yet commenced, and activities to February 22, 1996 had
been limited to its formation, obtaining initial capitalization, the completion
of a public offering of its common stock, and limited investments and loans.
Prior to 1988, the activity of the Company was limited to its formation
and the issuance of 208,667 shares of its common stock. Such shares were paid
for in September 1988. The Company intended to seek, investigate and, if such
investigation warranted, acquire an interest in business opportunities presented
to it by persons who or firms which desired to employ the Company's funds in
their business or seek the perceived advantages of a publicly held corporation.
On February 23, 1996, the Company merged with Zeitgeist, Inc. which was
also in the development stage and whose principal operations had not yet
commenced. Zeitgeist's activities up to this time were limited to its formation,
obtaining initial capitalization, and limited investments and loans.
The acquisition was accomplished through an exchange of 12,500,000
newly-issued shares of the Company's common stock in exchange for all of the
outstanding common stock of Zeitgeist, Inc. Upon completing this transaction,
the stockholders of Zeitgeist, Inc. controlled approximately 95% of the
outstanding common shares of the combined company.
Because the Zeitgeist shareholders obtained a majority of the voting
rights in the Company as a result of this transaction, for financial reporting
purposes, the merger was accounted for as a recapitalization of Zeitgeist and an
acquisition by Zeitgeist, Inc. of the Company. Accordingly, the accompanying
financial statements reflect transactions from March 30, 1995, the inception
date of Zeitgeist, Inc. Zeitgeist Inc., as the acquiror, continued its business
operations under the Company's name which was changed to Zeitgeist Werks, Inc.
effective February 23, 1996. The Company's name was later changed to MediaX
Corporation effective with the acquisition of MediaX on June 27, 1996 (see Note
6b., herein).
MediaX Corporation is still considered to be in the development stage
because although its principal business activities have commenced, it had not
yet generated significant revenues from these activities.
b. BASIS OF PRESENTATION
The accompanying financial statements include the activities of
Zeitgeist, Inc. from its inception (March 30, 1995) to December 31, 1995 and for
the year ended December 31, 1996; and the activities of the Company from
February 23, 1996, the effective date of the Zeitgeist, Inc. merger to December
31, 1997. The activities of MediaX have been included from the effective date of
the MediaX acquisition (which was accounted for using the purchase method of
accounting), June 27, 1996, through December 31, 1997.
c. CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, cash and cash equivalents
consist of demand deposits in banks. Cash equivalents are carried at cost which
approximates market.
[MEDIAX\10-KSB:123197.FS]-4
F- 10
<PAGE>
MEDIAX CORPORATION
(A Development Stage Company)
Notes to Financial Statements
December 31, 1997
d. INVENTORIES
Inventory at December 31, 1997 consists of certain packaging materials
and the two compact discs that will comprise the Company's first production lot
of "Peter Norton, PC Guru" scheduled for shipment to distributors in early 1998.
Inventory is recorded at the lower of cost or market using the first-in
first-out method.
e. PROPERTY AND EQUIPMENT
Expenditures for property and equipment are capitalized at cost.
Expenditures for maintenance, repairs and other renewals of items are charged to
expense. The provision for depreciation is calculated using the straight-line
method based upon estimated useful lives as follows:
Computer equipment - 5 years
Software - 3 years
Furniture and fixtures - 7 years
f. DEFERRED SOFTWARE DEVELOPMENT COSTS
Certain development costs for CD-rom masters are capitalized in
accordance with SFAS No. 86 "Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed" and are reported at the lower of unamortized
cost or net realizable value. Amortization will be taken commencing with the
sales activity of the related product using the straight-line method and asset
lives approximating the retail sales life of the final product, generally three
to five years.
g. NET INCOME (LOSS) PER COMMON SHARE
The net income (loss) per common share is computed by dividing the net
loss for the period by the weighted average number of shares outstanding.
h. ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
i. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of cash and cash equivalents, accounts receivable,
short-term debt and accounts payable approximate cost because of the immediate
or short-term maturity of these financial instruments. The fair value of the
Company's long-term note and interest receivable from officers does not
significantly differ from cost at December 31, 1997.
j. INCOME TAXES
Under SFAS 109, "Accounting for Income Taxes", deferred tax assets and
liabilities are generally determined based on the difference between the
financial statements and the tax bases of assets and liabilities using enacted
tax rates in effect for the years in which the differences are expected to
reverse. Recognition of a deferred tax asset is allowed if future realization is
more-likely-than-not. The Company has provided a full valuation allowance for
its deferred tax asset (relative to net operating loss carryforwards) because
its realization is not considered more-likely than-not.
[MEDIAX\10-KSB:123197.FS]-4
F- 11
<PAGE>
MEDIAX CORPORATION
(A Development Stage Company)
Notes to Financial Statements
December 31, 1997
As of December 31, 1997, the Company has a net operating loss
carryforward of approximately $1,807,000 available for income tax purposes. This
carry-forward expires in 2012.
The Company's prior net operating losses totaling $268,000 expire in
years 2003 to 2010. Usage of the earlier net operating losses is limited based
on IRS Code Sec. 382. This code section limits the use of pre-change losses
whenever a stock ownership change of more than 50% occurs within the "testing
period", which is generally a three-year period.
Note 2: GOING CONCERN
The Company has minimal capital resources presently available to meet
obligations which normally can be expected to be incurred by similar companies,
and to carry out its planned operations and has an accumulated deficit of
($2,279,196) at December 31, 1997. These factors raise substantial doubt about
the Company's ability to continue as a going concern.
Management believes that its cash flow requirements in the next year can
be met from its anticipated cash flows from initial sales of "Peter Norton, PC
Guru" and that the Company can also obtain additional equity or debt financing.
There is no assurance that the Company will be able to obtain such financing.
The financial statements, herein, do not include any adjustments that might
result from the outcome of this uncertainty.
Note 3: NOTE RECEIVABLE - OFFICER
On December 6, 1995, $50,000 was loaned to the Company's President. The
uncollateralized note bears interest at 4% per annum and is due in full, along
with interest, on January 1, 2000. Pursuant to the terms of the note, an
additional $50,000 was loaned on February 25, 1996 under the same terms. Accrued
interest at December 31, 1997 was $7,830.
Note 4: CONVERTIBLE SUBORDINATED DEBENTURES AND NOTES PAYABLE
a. An uncollateralized note payable to an unrelated party for $297,000
dated November 15, 1995 had interest at the bank's prime rate and was due the
earlier of November 15, 1997 or when the Company raised $500,000 or more in a
private placement of its common stock. See Note 6c., herein, regarding the
conversion of this note and accrued interest of $20,547 into 400,000 shares of
the Company's common stock on May 9, 1997.
b. Also included in notes payable - other is a $15,968 short-term
uncollateralized loan from a vendor with interest at 9% per annum.
c. The Company also owes $10,663 to a former shareholder of MediaX (see
Note 6b., herein). This payable is uncollateralized, non-interest bearing and
due on demand.
d. On March 29, 1997, the Company sold to an accredited unrelated
investor for $450,000 a convertible debenture which pays interest at 2% per
annum over the prime rate of the Bank of America, calculated monthly on the
principal portion of $350,000 from February 11, 1997 and on the principal
portion of $100,000 from March 25, 1997. The debenture is due on February 28,
1998, but the principal sum and any accrued interest may be converted into
shares of common stock at any time before the due date at a price of $1.00 per
share. Accrued interest at December 31, 1997 was $39,480.
On August 1, 1997, the Company sold a convertible debenture to the same
investor for $320,000, which pays interest on the principal of $320,000 at 2%
per annum over the prime rate of the Bank of America, calculated monthly from
August 1, 1997. The debenture is due on July 31, 1998, but the principal sum and
any accrued interest may be converted into shares of common stock at any time
before the due date at a price of $0.70 per share. Accrued interest at December
31, 1997 was $13,232.
[MEDIAX\10-KSB:123197.FS]-4
F- 12
<PAGE>
MEDIAX CORPORATION
(A Development Stage Company)
Notes to Financial Statements
December 31, 1997
On March 1, 1998, the Company replaced both debentures with a new
convertible debenture for $850,000 which pays interest at the same rate as the
replaced debentures and is due on September 1, 1998. The principal sum of the
new debenture and any accrued interest may be converted into common shares at
any time prior to the due date at $.60 per share
Note 5: COMMITMENTS AND CONTINGENCIES
a. LEASE COMMITMENTS
The Company leases certain computer equipment under a capital lease
agreement. Required minimum lease payments under this agreement over the next
two years as of December 31, 1997 is as follows:
YEAR AMOUNT
- ---------------------------------------------------- -----------------
1998 $ 5,484
1999 1,096
-----------------
Total minimum lease payments 6,580
Less estimated amount representing interest (910)
-----------------
Obligations under capital lease at December 31, 1997 $ 5,670
=================
The Company leases space for its research and production studio in Santa
Cruz, California from an unrelated party under an operating lease agreement
which expires June 30, 2000. The minimum lease payments required to the end of
the lease are as follows:
YEAR AMOUNT
- ---------------------- -----------------
1998 $ 37,752
1999 37,752
2000 18,876
-----------------
$ 94,380
=================
Rental expense for 1997 and 1996 for the Company's Santa Cruz studio and
corporate offices in Culver City, California were $57,410 and $17,396,
respectively.
b. SALES TAX CONTINGENCY
The Company does not pay or charge sales taxes to its customers. The
state of California has indicated that it believes state sales taxes are
applicable to the Company's sales. The Company's position is that it does not
believe sales taxes are applicable to the Company's sales and therefore it has
not collected any sales taxes from its customers. The ultimate outcome of this
matter cannot be predicted. No amounts have been accrued in the financial
statements, herein, for any sales taxes which might ultimately be determined to
be owed. If sales taxes were to be owed on all of the Company's California sales
to date, approximately $134,000 of such sales taxes would be due, plus any
applicable interest and penalties.
[MEDIAX\10-KSB:123197.FS]-4
F- 13
<PAGE>
MEDIAX CORPORATION
(A Development Stage Company)
Notes to Financial Statements
December 31, 1997
c. CREDIT RISK - UNINSURED DEMAND DEPOSITS
The Company's demand deposits at a local bank at December 31, 1997 were
$409,231, which exceeds the maximum FDIC insured balance limit of $100,000 by
$309,231.
d. OTHER COMMITMENTS
During the normal course of its business, the Company has entered
into a software licensing agreement which requires an additional payment of
$30,000 upon satisfactory completion of the contract by the vendor. The Company
has also entered into three professional services contracts requiring future
payments. The first is with a public relations firm and requires payments of
$3,000 per month to August 12, 1998. The second is with a manufacturers sales
representative and requires $3,000 monthly retainers (to be offset with
commissions earned) through July 31, 1999. The third is with a marketing
consultant and requires $7,000 monthly payments through March 31, 1998.
Note 6: COMMON STOCK AND STOCK OPTIONS
a. REORGANIZATION
On February 24, 1996, the Company acquired all of the issued and
outstanding shares of Zeitgeist, Inc. (a Nevada corporation) in exchange for
12,500,000 shares of its common stock. The effect of this reorganization has
been retroactively restated to the March 30, 1995 inception date of Zeitgeist,
Inc.
b. ACQUISITION OF MEDIAX BY ZEITGEIST, INC.
On June 27, 1996, the Company issued 2,037,500 shares of its common
stock for all of the issued and outstanding shares of MediaX, a California
S-corporation engaged in the business of developing, publishing and distributing
interactive CD-rom and Internet content for the fast growing multimedia market.
Pursuant to the merger agreement, the Company's largest shareholder Assisi
Limited Partnership ("Assisi") (owned 100% by the Company's President)
surrendered for cancellation 2,037,500 shares of common stock. In addition, the
Company agreed to pay $350,000 to the three shareholders of MediaX. As of
December 31, 1996, this amount had not been paid and was listed as a "Note
Payable to Former MediaX Shareholders" in the balance sheet. During 1997, the
balance of the note was reduced to $10,663 by a combination of $77,837 in cash
payments, the exchange of equipment worth $12,536, the netting of $21,805 due
from the former shareholders of MediaX, Inc., and write-offs of previous
goodwill relative to the 1996 acquisition totaling $227,159.
c. CONVERSION OF NOTE PAYABLE
On March 21, 1996, the Company converted $300,000 of notes payable
and $8,000 of accrued interest due to an unrelated party into 154,000 shares of
common stock at $2 per share. On May 9, 1997 the Company converted $297,000 of
notes payable and $20,547 of accrued interest due to another unrelated party
into 400,000 shares of common stock at $.794 per share (see Note 4a.).
d. PRIVATE SALES
During June and July 1996, 25,100 shares were sold to unrelated
private investors for cash proceeds of $52,200. During November and December of
1996, 350,000 shares were sold to unrelated private investors for cash proceeds
of $350,000. During 1997 additional shares were sold to unrelated private
investors as follows:
[MEDIAX\10-KSB:123197.FS]-4
F- 14
<PAGE>
MEDIAX CORPORATION
(A Development Stage Company)
Notes to Financial Statements
December 31, 1997
<TABLE>
<CAPTION>
PRICE PER
TIME PERIOD SHARES NUMBER SHARE PROCEEDS
- ------------------- --------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
January/February 350,000 $ 1.00 $ 350,000 $ 350,000
May 100,000 .70 70,000
August/September 542,308 1.04 564,000
August 200,000 .74 148,000
------------ -----------
$1,192,308 $1,132,000
Less : Commissions (80,000)
-----------
Net Proceeds $1,052,000
===========
</TABLE>
e. STOCK ISSUED FOR CONSULTING AND PROFESSIONAL SERVICES
On April 20, 1996, the Company issued 125,000 shares of
common stock to an unrelated third party
consultant in exchange for services rendered. At the same time the consultant
was granted options to purchase up to 250,000 shares of the Company's common
stock at $2.00 per share. These options expire on April 20, 1999.
On July 21, 1997, the Company engaged a firm to act as
sales representative for the Company's software.
As part of the consideration for such services, the Company granted the
principals of the firm options to purchase 250,000 shares of the Company's
common stock at a price of $1 1/8 per share. Options to purchase 25,000 shares
vested on September 30, 1997. Additional options vest upon the future shipment
of units.
On August 12, 1997, the Company engaged a firm to provide
investor relations/public relations services for the Company for a term of one
year. As part of the consideration for such services, the Company granted the
firm 45,000 options, each option to purchase one share of the Company's common
stock at a price of $1.38 per share. The options vest at a rate of 3,750 per
month, each month.
On November 4, 1997, the Company issued 400,000 shares of
common stock to an unrelated third party
in exchange for $600,000 of prepaid advertising costs.
f. STOCK OPTIONS
26,100 of the shares of common stock sold to qualified
private investors during 1996 each included an option to purchase a share of
common stock at an exercise price of $3.00 expiring June 18, 1998.
The 100,000 shares of common stock sold to an accredited
investor in May of 1997 each included an
option to purchase a share of common stock at an exercise price of $1.20 per
share until June 12, 2000.
350,000 of the shares of common stock sold during August
and September 1997 for $1.04 each included a warrant to purchase one share of
common stock at an exercise price of $1.30 per share, exercisable for five years
from the date of sale.
[MEDIAX\10-KSB:123197.FS]-4
F- 15
<PAGE>
MEDIAX CORPORATION
(A Development Stage Company)
Notes to Financial Statements
December 31, 1997
g. STOCK OPTION PLAN
In April 1996 the Company adopted a stock option plan which
authorized the issuance of options to purchase up to 1,000,000 shares of the
Company's common stock. All options granted must have an exercise price no less
than the stock's fair market value on the date of grant. On April 18, 1996, the
Company issued options under this stock option plan to non-officer employees and
consultants for the purchase of up to 678,164 shares of the Company's common
stock at a price of $2.25 per share. The options expire on April 18, 2001.
Note 7: RELATED PARTY TRANSACTIONS
a. LOANS TO OFFICER
See Note 3, herein, regarding loans made to the Company's
President.
b. COMMITMENT - EMPLOYMENT AGREEMENTS
Effective January 1, 1996, the Company entered into a
four-year employment agreement with its President. The Company is obligated to
pay annual base salary as follows:
$185,000 January 1, 1998 to October 31, 1998
$215,000 November 1, 1998 to October 31, 1999
Unless terminated by either party upon 60 days written
notice, this agreement will automatically renew for additional two-year terms
after the initial four-year term expires.
Effective June 26, 1996, the Company entered into a
three-year employment agreement with its Executive Vice-President by which the
Company is obligated to pay base salaries of $125,000 and $155,000 for each of
two years ended June 30, 1998 and 1999, respectively.
Both of these agreements also provide for a bonus at the end
of each fiscal quarter as determined by the Company's Board of Directors. Both
the President and Executive Vice-President may voluntarily terminate their
employment at any time.
c. REVENUE FROM RELATED ENTITY
1997 revenue includes $75,000 received for services
provided to an entity which has a common director with the Company.
Note 8: MAJOR CUSTOMERS
During the year ended December 31, 1997, the Company's
revenues were generated from three major customers located throughout the United
States, which has been the trend from inception. This trend is expected to
change during 1998 as the Company begins to sell "Peter Norton, PC Guru" and
other products to various distributors throughout the United States and Europe.
[MEDIAX\10-KSB:123197.FS]-4
F- 16
<PAGE>
Note 9: SUBSEQUENT EVENTS
On February 13, 1998, the Company sold 200,000 shares of common
stock to an accredited unrelated investor for $200,000.
On March 1, 1998, the Company replaced the two convertible
debentures described in Note 4d. with a new convertible debenture for $850,000
which pays interest at the same rate as the replaced debentures and is due on
September 1, 1998. The principal sum of the new debenture and any accrued
interest may be converted into common shares at any time prior to the due date
at $.60 per share.
<PAGE>
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
This schedule contains summary financial information extracted from the balance
sheets and statement of operations found on pages F-2 and F-5 of the Company's
Form 10-KSB for the fiscal year ended December 31, 1997, and is qualified in its
entirety by reference to such financial statements.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 392,673
<SECURITIES> 0
<RECEIVABLES> 10,343
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,092,222
<PP&E> 373,382
<DEPRECIATION> 172,553
<TOTAL-ASSETS> 1,733,658
<CURRENT-LIABILITIES> 958,176
<BONDS> 0
0
0
<COMMON> 1,588
<OTHER-SE> 773,894
<TOTAL-LIABILITY-AND-EQUITY> 1,733,658
<SALES> 228,511
<TOTAL-REVENUES> 228,511
<CGS> 268,258
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,260,285
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (63,398)
<INCOME-PRETAX> (1,330,341)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,330,341)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.08)
</TABLE>
