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 Fiscal Quarter ended: March 31, 1999
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 []
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 April 30, 1999 as reported on the OTC Bulletin Board, was approximately
$17,905,000.
As of April 30, 1999 there were 5,407,375 shares of the Issuer's Common Stock,
$.0001 Par Value, outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
[MEDIAX\10Q:10Q0399.doc]-4
<PAGE>
MEDIAX CORPORATION
FORM 10-QSB
Page
PART I
Item 1. Financial Statements
Condensed Balance Sheet as of March 31, 1999 (unaudited) ........2
Condensed Statements of Operations for the Three Months Ended
March 31, 1999 and 1998 (unaudited) .............................3
Condensed Statements of Cash Flows for the Three Months Ended
March 31, 1999 and 1998 (unaudited) .............................4
Notes to Condensed Financial Statements .........................5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .......................................6
PART II
Item 1. Legal Proceedings ...............................................10
Item 2. Changes In Securities ...........................................10
Item 3. Defaults Upon Senior Securities .................................10
Item 4. Submission of Matters to a Vote of Security Holders .............10
Item 5. Other Information ...............................................10
Item 6. Exhibits And Reports On Form 8-K ................................10
Signatures ......................................................12
[MEDIAX\10Q:10Q0398.doc]-4
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
(A Development Stage Company)
Condensed Balance Sheet (Unaudited)
March 31,
ASSETS 1999
--------------------
<S> <C>
Current assets:
Cash and cash equivalents $ 10,279
Accounts receivable, net 81,959
Inventories 92,126
Prepaid advertising costs 1,100,000
Other prepaid expenses 11,098
--------------------
Total current assets 1,295,462
Property and equipment
Computers and office equipment 230,630
Software 162,272
Furniture and fixtures 19,859
--------------------
412,761
Less: accumulated depreciation (241,194)
171,565
Other assets
Note and interest receivable - officer 112,830
Deferred software development costs 105,238
Intangible assets 217,479
Organization costs, net 1,105
Deposits and other assets 10,564
---------------------
447,216
1,914,243
LIABILITIES AND STOCKHOLDERS= EQUITY (DEFICIT)
Current liabilities:
Convertible debentures payable 1,134,476
Accounts payable - trade 237,119
Accrued expenses 16,878
Loans payable 7,542
Subscriptions 322,250
---------------------
1,718,265
Commitments, contingency and subsequent events --
Stockholders' equity (deficit)
Preferred stock, $.0001 par value per shares; 1,000,000 shares
authorized and no shares issued --
Common stock, $.0001 par value per share; 7,500,000 shares
authorized; 4,275,375 shares issued and outstanding 427
Additional paid-in capital 5,672,001
Deficit accumulated during the development stage (5,476,450)
----------------------
195,978
$ 1,914,243
======================
</TABLE>
The accompanying notes are an integral part of this condensed financial
statement.
[MEDIAX\10Q:10Q0398.doc]-4
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
(A Development Stage Company)
Condensed Statements of Operations
(Unaudited)
For the Quarter Ended
March 31,
1999 1998
------------------------ -----------------------
<S> <C> <C>
Sales/Cost of sales
Sales $ 40,994 $ 266,122
Less Allowances for returns -- 71,514
----------------------- -----------------------
Net sales 40,994 194,608
Cost of sales 34,860 140,611
----------------------- -----------------------
Gross profit 6,134 53,997
Operating expenses
Amortization and depreciation 11,821 14,529
Professional, legal and accounting services 98,934 113,355
Publicity and promotion 28,655 237,501
Rent and utilities 28,299 30,255
Salaries 169,409 118,706
Selling, general and administrative 73,965 75,862
----------------------- -----------------------
411,083 590,208
OTHER INCOME (EXPENSES)
Interest income 1,060 2,579
Interest expense (31,299) (21,123)
Other (loss) income -- (2,093)
---------------------- ------------------------
(30,239) (20,637)
----------------------- ------------------------
Net loss $(435,188) $ (556,848)
======================= ========================
Basic and diluted weighted average number of
common shares 3,747,553 1,598,045
====================== ========================
Basic and diluted net loss per common share $ (.12) $ (.34)
======================= ========================
</TABLE>
The accompanying notes are an integral part of this
condensed financial statement.
[MEDIAX\10Q:10Q0398.doc]-4
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
(A Development Stage Company)
Condensed Statements of Cash Flows (Unaudited)
For the Quarter Ended
March 31,
----------------------------------------
1999 1998
-------------------- --------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $ (435,188) $ (556,848)
Adjustments to reconcile to net cash provided by operating
activities:
Amortization and depreciation 11,821 14,529
Changes in assets and liabilities
(Increase) in accounts receivable (5,151) (260,637)
Decrease in prepaid expense 19,227 --
Decrease (increase) in inventories 637 (13,316)
(Increase) decrease in other assets (1,000) 23,892
Decrease (increase) in accounts payable - trade (55,733) 45,915
Increase in accrued and other expenses 8,402 150,753
Increase in product reserve -- 64,906
------------------- --------------------
Net cash (used) by operating activities (456,985) (530,806)
-------------------- --------------------
Cash Flows from Investing Activities:
Acquisition of intangible assets (115,192) --
Purchase of fixed assets (7,266) (4,172)
-------------------- --------------------
Net cash (used) by investing activities (122,458) (4,172)
-------------------- --------------------
Cash Flow from Financing Activities:
Principal payments on capital lease -- (1,086)
Net proceeds from sale of stock to private investors 897,750 200,000
Payments on notes payable (319,616) (6,225)
Proceeds received from issuance of notes payable and
convertible debentures (10,637)
Proceeds received from subscriptions payable 2,250 --
-------------------- --------------------
Net cash provided by financing activities 569,747 192,689
-------------------- --------------------
Increase (decrease) in cash and cash equivalents (9,696) (342,289)
Cash and cash equivalents, beginning of period 19,975 392,673
-------------------- --------------------
Cash and cash equivalents, end of period $ 10,279 $ 50,384
==================== ==================
</TABLE>
Supplemental Disclosures of Cash Flow information:
No cash was paid during the quarter for income taxes or interest
The accompanying notes are an integral part of this
condensed financial statement.
[MEDIAX\10Q:10Q0398.doc]-4
<PAGE>
MEDIAX CORPORATION
Notes to Financial Statements
March 31, 1999
Note 1: BASIS OF PRESENTATION
The condensed financial statements of MediaX Corporation (the "Company") for the
three months ended March 31, 1998 and 1999 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, 1998. The results of operations for the three
months ended March 31, 1999 are not necessarily indicative of the results for
the entire year ending December 31, 1999.
Note 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, 1999 and 1998, loss periods, as their inclusion would be
anti-dilutive.
Note 3: 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 1999.
Accordingly, the accompanying condensed financial statements have been presented
under the assumption the Company will continue as a going concern.
Note 4: OTHER TRANSACTIONS
In February of 1999, a financial and a legal compliance specialist were each
given 10,000 shares of stock in exchange for services rendered and two
investment advisors were given 190,000 shares for services rendered.
On March 1, 1999 the investor holding the convertible subordinated debenture,
herein, elected to convert $350,000 of note principal into 200,000 shares of the
Company's common stock and the debenture holder exercised an option to purchase
20,000 shares at $1.00 each.
During March 1999, the Company entered into an agreement with a media service
provider to acquire 1 million dollars of advertising credit in exchange for
200,000 restricted shares of the Company's common stock. As of the date of this
Report, the Company has not utilized any of the media credits.
During the first quarter of 1999, the Company sold 210,000 shares to accredited
unrelated investors for proceeds of $221,500 and issued 1,055,000 shares of
stock pursuant to warrant conversions for proceeds of $306,250.
Note 5: SUBSEQUENT EVENTS
On April 20, 1999, the Company entered into a letter of intent with an unrelated
investment bank whereby the investment banker will be the exclusive agent for
the private placement of up to $5,000,000 of restricted securities of the
Company.
[MEDIAX\10Q:10Q0398.doc]-4
<PAGE>
ITEM 2. 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-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.
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 1999.
Accordingly, the accompanying consolidated financial statements have been
presented under the assumption the Company will continue as a going concern.
NEW BUSINESS PLAN
The Company designs and hosts high-value celebrity web sites such as
rodstewartlive.com and divinemusik.com and others. The web site entertainment
content includes live-chats, on-line shopping for artist specific merchandise
and the production of Internet events such as live concerts that are globally
broadcast on the Internet. The Company has established affiliate relationships
with companies like Broadcast.com, AOL, Yahoo! and others for this purpose. In
February 1999, the Company initiated amuZnet.com, an e-commerce site offering
more than 260,000 entertainment titles on CDS, DVDs and Videos by major record
labels and studios and over 4,000 independent music labels for purchase on-line.
The Company purposely directs the high-traffic generated by the celebrity web
sites through amuZnet.com with a simple link. This site is constantly updated
and developed into a "destination site" serving increasing revenue streams
through its e-commerce model.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1999 Compared to Three Months Ended March
31, 1998
The Company's net sales for the three months ended March 31, 1999 was
$40,994 as compared to $194,608 for the same quarter last year, resulting in a
decrease of $153,614 or 79%. The change is primarily attributable to a change in
sales mix and the early stages of the Company's Internet business.
[MEDIAX\10Q:10Q0398.doc]-4
<PAGE>
The Company's cost of sales for the three months ended March 31, 1999
was $34,860 as compared to $140,611 for the same quarter last year, resulting in
an decrease of $105,751 or 75%. The decrease in cost of sales is again,
primarily attributable to a change in sales mix and the early stages of the
Company's Internet business.
The Company's total amortization and depreciation for the three months
ended March 31, 1999 was $11,821as compared to $14,529 for the comparable period
last year. The decrease is attributable to having more fully depreciated assets
during the current quarter over the same quarter last year.
The Company's professional, legal and accounting services were $98,934 for
the three months ended March 31, 1999, as compared to $113,355 for the same
quarter last year. The change is primarily attributable to fewer services
provided by consultants under professional advisory and management agreements
over the same period last year.
The Company's publicity and promotion expenses for the three months ended
March 31, 1999 were $28,655 as compared to $237,501 for the same quarter last
year. The change is directly related to the utilization of prepaid advertising
during the three months ended March 31, 1998. There was no such advertising
during the current three months ended March 31, 1999.
The Company's rent and utilities for the three months ended March 31, 1999
was $28,299 as compared to $30,255 for the same quarter last year. The small
change is a result of the newly renewed leases of the Company's premises offset
by a small decrease in utilities during the current quarter over the same
quarter last year.
The Company's salaries for the three months ended March 31, 1999
increased to $169,409 from $118,706 from the same quarter last year. The
increase is attributable to increases in insurance premiums, additional
employees and salary increases which includes provisional increases in the
Company's agreements with its executive officers. However, the Company or the
officers have not elected to exercise their right to the salary increase for the
final year term.
The Company's selling, general and administrative expenses for the
three months ended March 31, 1999 decreased to $73,965 from $75,862 from the
same quarter last year. There was no significant change in the Company's overall
operations.
The Company's net loss for the three months ended March 31, 1998 was
$435,188 as compared to $556,848 for the same quarter last year. The improvement
of $121,660 is primarily attributable to a decrease in publicity and promotion
expenses, a decrease in professional, legal and accounting services and a
partially offsetting increase in salaries.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company had negative working capital of $422,803
as compared to $1,773,728 at December 31, 1998. The decrease in negative working
capital is attributable to the Company acquiring prepaid advertising credits in
the amount of $1 million, partially offset by payments of current liabilities
for on-going operations during the quarter ended March 31, 1999.
The Company's success and ongoing financial viability is contingent
upon the success of its new e-commerce model, interactive satellite
distribution, the licensing of "Big Brother" and the generation of related cash
flows.
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 (discussed below). 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.
[MEDIAX\10Q:10Q0398.doc]-4
<PAGE>
The Company hopes to raise up to an additional $5 million through private
placements of it's common stock to provide working capital for the Company's
planned business activities. On April 20, 1999, the Company entered into a
letter of intent with an unrelated investment banker whereby the investment
banker will be the exclusive agent for the private placement of up to $5,000,000
of restricted securities of the Company. The success, or lack thereof, of this
additional 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.
As of the date of this Report, the Company had no material commitments for
capital expenditures.
CASH FLOWS
Cash used by operating activities was $456,985 for the three months ended
March 31, 1999 as compared to $530,806 for the comparable period last year. The
change is primarily attributable to the decrease in operating net loss and
decrease in payables over the same period last year.
Cash used in investing activities was $122,458 for the three months ended
March 31, 1999 as compared to $4,172 for the comparable period last year. The
change is primarily attributable to acquiring intangible assets during the
current quarter ended March 31, 1999. There was no such acquisition during the
same period last year.
Cash provided by financing activities was $569,747 for the three months
ended March 31, 1999 as compared to $192,689 for the comparable period last
year. The change is primarily attributable to having larger private placements
during the quarter ended March 31, 1999 over the same period last year.
YEAR 2000
The Year 2000 issue could result in system failures or
miscalculations causing disruptions of operations, including, among others, a
temporary inability to process transactions, send invoices or engage in similar
normal business activities which may materially adversely affect the Company. To
date, the Company has experienced very few problems related to Year 2000
problems and the Company does not believe that it has material exposure to the
Year 2000 issue with respect to the Company's information systems as these
systems correctly defined the Year 2000.
The Company is currently conducting an analysis to determine the extent to
which the systems of third parties raise Year 2000 issues may affect the
Company. However, we cannot assure that the providers the Company uses to fill
orders for direct-to-consumer products, will, in fact be year 2000 compliant on
a timely basis. Generally, the Company is unable to predict the extent to which
the Year 2000 issue will effect it's suppliers, or the extent to which the
Company would be vulnerable to it's suppliers' failure to remediate any Year
2000 issues on a timely basis. The failure of a major supplier subject to the
Year 2000 issue to convert its systems on a timely basis or a conversion that is
incompatible with the Company's systems could have a material adverse effect on
the Company, which is not currently quantifiable. In addition, most of the
purchases from the Company's on-line web site are made with credit cards, and
the Company's operations may be materially adversely affected to the extent the
Company's customers are unable to use their credit cards due to Year 2000 issues
that are not rectified by credit card providers.
[MEDIAX\10Q:10Q0398.doc]-4
<PAGE>
PART II
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
In February of 1999, a financial and a legal compliance specialist were each
given 10,000 shares of stock in exchange for services rendered and two
investment advisors were given 190,000 shares for services rendered.
On March 1, 1999 the investor holding the convertible subordinated debenture,
herein, elected to convert $350,000 of note principal into 200,000 shares of the
Company's common stock and the debenture holder exercised an option to purchase
20,000 shares at $1.00 each.
During March 1999, the Company entered into an agreement with a media service
provider to acquire 1 million dollars of advertising credit in exchange for
200,000 restricted shares of the Company's common stock. As of the date of this
Report, the Company has not utilized any of the media credits.
During the first quarter of 1999, the Company sold 210,000 shares to accredited
unrelated investors for proceeds of $221,500 and issued 1,055,000 shares of
stock pursuant to warrant conversions for proceeds of $306,250.
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 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
ITEM 5. OTHER TRANSACTIONS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 3. EXHIBITS.
NUMBER DESCRIPTION LOCATION
------ ----------------------- --------------
27 Financial Data Schedule Filed herewith
electronically
(b) REPORTS ON FORM 8-K. No Reports on Form 8-K were filed during the
fourth quarter of the Company's fiscal quarter ended March 31, 1999.
[MEDIAX\10Q:10Q0398.doc]-4
<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: May 13, 1999 MEDIAX CORPORATION
By: /s/ Nancy Poertner, President
----------------------------------
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 May 13, 1999
- ------------------------
Nancy Poertner
/s/ Rainer Poertner Director May 13, 1999
- ------------------------
Rainer Poertner
/s/ Matthew MacLaurin Executive V.P. and May 13, 1999
- ------------------------ Director
Matthew MacLaurin
/s/ Jacqueline Cabellon Controller May 13, 1999
- ------------------------ {Principal Accounting
Jacqueline Cabellon Officer)
[MEDIAX\10Q:10Q0398.doc]-4
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 50,384
<SECURITIES> 0
<RECEIVABLES> 81,959
<ALLOWANCES> 0
<INVENTORY> 92,126
<CURRENT-ASSETS> 1,295,462
<PP&E> 412,761
<DEPRECIATION> (241,194)
<TOTAL-ASSETS> 1,914,243
<CURRENT-LIABILITIES> 1,718,265
<BONDS> 0
0
0
<COMMON> 427
<OTHER-SE> 195,551
<TOTAL-LIABILITY-AND-EQUITY> 1,914,243
<SALES> 40,994
<TOTAL-REVENUES> 40,994
<CGS> 34,860
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 411,083
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (31,299)
<INCOME-PRETAX> (435,188)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (435,188)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
