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: September 30, 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 October 29,1999 as reported on the OTC Bulletin Board, was
approximately $14,967,133.
As of October 31, 1999 there were 5,995,875 shares of the Issuer's Common Stock,
$.0001 Par Value, outstanding.
<PAGE>
MEDIAX CORPORATION
FORM 10-QSB
Page
PART I
Item 1. Financial Statements
Condensed Balance Sheet as of September 30, 1999
(unaudited) .................................................3
Condensed Statements of Operations for the Three and
Nine Months Ended September 30, 1999 and 1998 (unaudited) ...4
Condensed Statements of Cash Flows for the Nine Months Ended
September 30, 1999 and 1998 (unaudited)......................6
Notes to Condensed Financial Statements .....................8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ...................................10
PART II
Item 1. Legal Proceedings ...........................................14
Item 2. Changes In Securities........................................14
Item 3. Defaults Upon Senior Securities..............................14
Item 4. Submission of Matters to a Vote of Security Holders..........14
Item 5. Other Information............................................14
Item 6. Exhibits And Reports On Form 8-K.............................14
Signatures...................................................15
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
(A Development Stage Company)
Condensed Balance Sheet
(Unaudited)
September 30,
ASSETS 1999
-----------------
<S> <C>
Current assets
Cash and cash equivalents $ 1,611,276
Accounts receivable, net 8,684
Inventories 13,309
Prepaid advertising costs 1,100,000
Other prepaid expenses 43,965
Total current assets 2,777,234
Property and equipment
Computers and office equipment 254,523
Software 162,272
Furniture and fixtures 19,859
-----------------
436,654
Less: accumulated depreciation (264,267)
-----------------
172,387
-----------------
Other assets
Note and interest receivable - officer 114,830
Deferred software development costs 314,624
License agreement and trademark 102,287
Deposits and other assets 11,197
Deferred charges 200,778
-----------------
743,716
-----------------
$ 3,693,337
=================
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
Current liabilities
Convertible debentures payable $ 1,228,028
Notes payable, other 26,000
Subscriptions payable 458,993
Accounts payable - trade 95,809
Payroll accruals 15,526
-----------------
1,824,356
-----------------
Long term liabilities
Convertible debentures payable 2,211,151
Commitments, contingency and subsequent events --
Stockholders' equity (deficit)
Preferred stock, $.0001 par value per shares; 10,000,000 shares
authorized and no shares issued --
Common stock, $.0001 par value per share; 25,000,000 shares
authorized; 5,995,875 shares issued and outstanding 599
Additional paid-in capital 6,443,403
Deficit accumulated during the development stage (6,786,172)
------------------
(342,170)
------------------
$ 3,693,337
==================
</TABLE>
The accompanying notes are an integral part of this condensed statement.
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
(A Development Stage Company)
Condensed Statements of Operations
(Unaudited)
For the Three Months Ended
September 30,
-------------------------------------------
1999 1998
--------------------- --------------------
<S> <C> <C>
Sales/Cost of sales
Sales $ 4,835 $ 15,764
Allowances for returns (14,842) (39,038)
Cost of sales (4,575) (21,652)
--------------------- ---------------------
Gross profit (14,582) (44,926)
--------------------- ---------------------
Operating Expenses
Amortization and depreciation 11,727 29,771
Professional, legal and accounting services 80,420 33,230
Marketing and selling 41,709 80,711
Rent and utilities 35,838 38,912
Salaries 388,656 287,541
General and administrative 205,458 65,774
--------------------- --------------------
763,808 535,939
-------------------- --------------------
Other Income (Expenses)
Interest income 8,543 1,476
Interest expense (72,814) (38,355)
Other (loss) income -- --
-------------------- --------------------
(64,271) (36,879)
--------------------- ---------------------
Net loss $ (842,661) $ (617,744)
===================== =====================
Basic and diluted weighted average number of
common shares 5,507,883 1,855,679
Basic and diluted net loss per common share $ (.16) $ (.33)
==================== =====================
</TABLE>
The accompanying notes are an integral part of this condensed statement.
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
(A Development Stage Company)
Condensed Statements of Operations
(Unaudited)
For the Nine Months Ended
September 30,
--------------------------------------------
1999 1998
--------------------- ---------------------
<S> <C> <C>
Sales/Cost of sales
Sales $ 58,962 $ 340,198
Allowances for returns (14,842) (155,320)
Cost of sales (15,566) (89,264)
--------------------- ---------------------
Gross profit 28,554 95,614
--------------------- ---------------------
Operating Expenses
Amortization and depreciation 34,980 88,936
Professional, legal and accounting services 245,828 176,277
Marketing and selling 109,442 989,227
Rent and utilities 94,667 95,148
Salaries 815,612 747,942
General and administrative 341,567 237,139
--------------------- --------------------
1,642,096 2,334,669
--------------------- --------------------
Other Income (Expenses)
Interest income 10,604 5,730
Interest expense (141,971) (85,565)
Other (loss) income -- (2,093)
-------------------- --------------------
(131,367) (81,928)
--------------------- ---------------------
Net loss $ (1,744,909) $ (2,320,983)
===================== =====================
Basic and diluted weighted average number of
common shares 5,073,183 1,731,450
===================== =====================
Basic and diluted net loss per common share $ (.35) $ (1.34)
===================== =====================
</TABLE>
The accompanying notes are an integral part of this condensed statement.
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
(A Development Stage Company)
Condensed Statements of Cash Flows (Unaudited)
For the Nine Months Ended
September 30,
---------------------------------------
1999 1998
----------------- -------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ (1,744,909) $ (2,320,983)
Adjustments to reconcile to net cash provided by operating activities:
Amortization and depreciation 34,980 88,936
Non cash interest expense 135,087 83,204
Changes in assets and liabilities
Decrease (increase) in accounts receivable 68,123 (226,797)
(Increase) decrease in prepaid expense (13,641) 505,716
Decrease (increase) in inventories 79,454 (14,373)
(Increase) in deposits and other assets -- (1,115)
(Increase) in note and interest receivable - officer (3,000) (3,000)
(Decrease) increase in accounts payable - trade (197,043) 200,100
(Decrease) in accounts payable - related parties -- (35,118)
Increase in accrued and other expenses -- 159,140
Increase in product refund reserve -- 77,184
Increase in payroll accruals 7,050 11,312
----------------- -------------------
Net cash used by operating activities (1,633,899) (1,475,794)
----------------- -------------------
Cash Flows from Investing Activities:
Purchase of fixed assets (31,158) (8,566)
Deferred software development costs (209,002) --
----------------- -------------------
Net cash used by investing activities (240,160) (8,566)
----------------- -------------------
Cash Flow from Financing Activities:
Principal payments on capital lease -- (4,073)
Stock subscriptions payable 138,993 --
Proceeds from issuance of common stock including warrant conversions and
exercise of stock options 1,319,324 625,000
Proceeds received from issuance of notes payable and convertible debentures 2,207,821 499,458
Financing costs (200,778) --
----------------- -------------------
Net cash provided by financing activities 3,465,360 1,120,385
------------------ -------------------
Increase (decrease) in cash and cash equivalents 1,591,301 (363,975)
Cash and cash equivalents, beginning of period 19,975 392,673
------------------ -------------------
Cash and cash equivalents, end of period $ 1,611,276 $ 28,698
================= ===================
</TABLE>
The accompanying notes are an integral part of this condensed statement.
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
(A Development Stage Company)
Condensed Statements of Cash Flows (Unaudited)
<S> <C> <C>
Supplemental Disclosures of Cash Flow information:
Cash paid for income taxes during the quarter $ 800 $ 1,600
Cash paid for interest expense 365 1,245
Stock issued in connection with advertising credits 1,000,000 --
Stock issued in connection with conversion of convertible debentures 350,000 --
</TABLE>
The accompanying notes are an integral part of this condensed statement.
<PAGE>
MEDIAX CORPORATION
(A Development Stage Company)
Notes to the Financial Statements
Note 1: BASIS OF PRESENTATION
The condensed financial statements of MediaX Corporation (the "Company")
for the three and nine months ended September 30, 1999 and 1998 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 audited
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 nine months ended September 30, 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 and nine
months ended September 30, 1999 and 1998, loss periods, as their inclusion would
be anti-dilutive.
Note 3: GOING CONCERN
The Company has incurred significant net losses since its inception. As of
September 30, 1999, the Company had an accumulated deficit of $6,786,172. As it
seeks to expand aggressively, the Company believes that its operating expenses
will continue at a high level as a result of the financial commitments related
to the development of marketing channels, future marketing agreements,
acquisition of entertainment content and improvements to its Internet sites and
other capital expenditures. In August 1999, the Company issued convertible
debentures with warrants for net proceeds of $2,004,000. Since the Company has
relatively low product gross margins, the ability of the Company to generate and
enhance profitability depends upon its ability to substantially increase its net
sales. To the extent that significantly higher net sales do not result from the
Company's marketing efforts, the Company will be materially adversely affected.
The Company may need to utilize its common stock to fund its operations through
fiscal 1999. There can be no assurance that the Company will realize such
anticipated sales or secure additional alternative financing. Accordingly, the
accompanying consolidated financial statements have been presented under the
assumption the Company will continue as a going concern.
Note 4: OTHER TRANSACTIONS
During the third quarter of 1999, the Company issued 16,000 shares of
common stock for services rendered, issued 100,000 shares of common stock
pursuant to warrant conversions for proceeds of $21,000 and issued 833 shares of
common stock pursuant to the exercise of stock options for proceeds of $816.
On August 24, 1999, the Company completed an offering of $2.2 million of
5% convertible debentures due 2002 (the "Debentures"). The Debentures and
attached warrants are convertible into the Company's common stock at the
holders' option at a price subject to certain bases or the fair market value as
mutually determined by the Company and the registered holder. Interest is
accrued at 5% per annum on the unpaid balance. No payment of the principal of
the Debenture may be made prior to the maturity date by the Company without the
consent of the registered holder. At the Company's option, any interest payment
required to be paid on the Debenture may be made in the form of common stock,
with the number of shares of such common stock to be payable in lieu of such
interest payments to be mutually determined, as if such interest payment were a
portion of the principal amount of the Debenture to be converted into common
stock. Subject to certain conditions, the Debentures may be redeemed at the
option of the Company, at the redemption price set forth in agreement.
<PAGE>
Note 5: RECLASSIFICATION OF PRIOR YEAR AMOUNTS
To enhance comparability, the fiscal 1998 financial statements have been
reclassified, where appropriate, to conform with the financial statement
presentation used in the fiscal 1999 financial statements.
Note 6: DEFERRED CHARGES
Deferred charges relate to fees and charges resulting from the issuance of
Company debt. The net increase in deferred charges relates to the August 1999
issuance the Debentures, offset by amortization of charges into interest expense
over the life of the underlying debt.
<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 FORWARD-LOOKING
STATEMENTS MAY BE IDENTIFIED BY THE USE OF CERTAIN FORWARD-LOOKING TERMINOLOGY,
SUCH AS "MAY," "WILL," "EXPECT," "ANTICIPATE," "INTEND," "ESTIMATE," "BELIEVE"
OR COMPARABLE TERMINOLOGY THAT INVOLVES RISKS OR UNCERTAINTIES. ACTUAL FUTURE
RESULTS AND TRENDS MAY DIFFER MATERIALLY FROM HISTORICAL AND ANTICIPATED
RESULTS, WHICH MAY OCCUR AS A RESULT OF A VARIETY OF FACTORS. SUCH RISKS AND
UNCERTAINTIES INCLUDE, WITHOUT LIMITATION, THE COMPANY'S LIMITED OPERATING
HISTORY, THE UNPREDICTABILITY OF ITS FUTURE REVENUES, THE UNPREDICTABLE AND
EVOLVING NATURE OF ITS KEY MARKETS, THE INTENSELY COMPETITIVE ONLINE COMMERCE
AND ENTERTAINMENT ENVIRONMENTS, THE COMPANY'S DEPENDENCE ON ITS STRATEGIC
ALLIANCES, DEPENDENCE ON KEY PERSONNEL, DEPENDENCE ON THIRD PARTIES FOR INTERNET
OPERATIONS, DEPENDENCE ON CONTENT ACQUISITION, CREATION AND LICENSING, THE
MANAGEMENT OF GROWTH AND THE COMPANY'S NEED FOR ADDITIONAL CAPITAL EXCEPT AS
REQUIRED BY LAW, THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE ANY
FORWARD-LOOKING STATEMENT, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS
OR OTHERWISE. READERS SHOULD CAREFULLY REVIEW THE FACTORS SET FORTH IN OTHER
REPORTS OR DOCUMENTS THAT THE COMPANY FILES FROM TIME-TO-TIME WITH THE SEC AND
MATTERS GENERALLY AFFECTING ONLINE COMMERCE AND ONLINE SALE OF
ENTERTAINMENT-RELATED PRODUCTS, INCLUDING, BUT NOT LIMITED TO, MUSIC RETAILING.
OVERVIEW
Originally founded as a multi-media production studio in 1995, MediaX
Inc. was acquired and brought public in 1996 by ZeitGeist Werks, Inc. and
subsequently renamed MediaX Corporation. MediaX began as a real-time 3D computer
game development company, developing high marquee-value intellectual properties,
such as the exclusive license for George Orwell's "1984" for distribution
through both conventional and Internet distribution channels, as well as
licensing it to large publishers.
Although the Company's strategic focus is on Internet-based commerce,
it is currently in the process of negotiating licensing this property to a large
publisher. At the conclusion of such an agreement the company expects to receive
an advance and continuing royalty payments into the future. The Company believes
that since any major Internet presence today requires a skilled engineering team
and advanced technology, and the experience gathered and proprietary technology
developed during the company's real-time 3D period, will prove to become a
competitive advantage. Leading edge campaigns, such as the full screen real-time
streaming campaign in June 1999 for Paul McCartney, could not have been produced
without this skill set.
Since July 1998 MediaX owns, operates and integrates a network of
several distinct types of entertainment based Internet web sites positioned to
generate revenue through the sale of artist specific merchandises, entertainment
related products, club subscriptions, endorsement opportunities for corporate
sponsors and third party advertising and a variety of products provided by
affiliates. In February 1999, the Company launched amuZnet.com, an e-commerce
site offering more than 265,000 entertainment titles on CDs, DVDs, videos and
most recently, movies for sale. The Company houses its marketing campaigns
through amuZnet.com. Most recent campaigns were with Rod Stewart, Divine and
<PAGE>
Paul McCartney. Negotiations have been concluded with Faith Hill and others are
currently underway which strengthen the Company's entertainment content.
MediaX's team of engineers and graphic artists develops, designs and maintains
all sites and their content in this network in house and hosts all services on
the MediaX server system, including the real time streaming of video and audio.
MediaX is in the process of aggressively expanding this network and
establishing amuZnet.com as one of the major entertainment destination (portal)
sites on the Internet. All MediaX sites in this unique network of celebrity web
sites serve as traffic generating satellite sites for amuZnet.com. Also amuZnet
intends to cross-link it as an Internet portal with the satellite sites to a
broad global audience the Company believes this will generate revenues in both
areas.
All content currently being produced or re-purposed for interactive
satellite broadcasting can also easily be transferred to other broadband systems
such as cable TV companies or ADSL subscriber systems without significant
technological effort. This puts the Company in the position to have several
outlets for the digital interactive content it produces. The Company hopes to
tap into the rapidly emerging efforts of cable and telecom companies with its
existing technology and content. However, there can be no assurance that the
Company will achieve its objectives or successfully implement its interactive
satellite business plan.
GOING CONCERN
The Company has incurred significant net losses since its inception. As of
September 30, 1999, the Company had an accumulated deficit of $6,786,172. As it
seeks to expand aggressively, the Company believes that its operating expenses
will continue at a high level as a result of the financial commitments related
to the development of marketing channels, future marketing agreements,
acquisition of entertainment content and improvements to its internet sites and
other capital expenditures. In August 1999, the Company issued the convertible
debentures with warrants for net proceeds of $2,004,000. Since the Company has
relatively low product gross margins, the ability of the Company to generate and
enhance profitability depends upon its ability to substantially increase its net
sales. To the extent that significantly higher net sales do not result from the
Company's marketing efforts, the Company will be materially adversely affected.
The Company may need to utilize its common stock to fund its operations through
fiscal 1999. As such, there can be no assurance that the Company will realize
such anticipated sales or secure additional alternative financing. Accordingly,
the accompanying consolidated financial statements have been presented under the
assumption the Company will continue as a going concern.
RESULTS OF OPERATIONS
In view of the rapidly evolving nature of our business and our limited
operating history, we believe that period-to-period comparisons of our revenues
and operating results, including operating expenses as a percentage of total net
revenues, are not necessarily meaningful and should not be relied upon as
indications of future performance and therefore, comparative discussions have
not been included. Although we have experienced sequential quarterly growth in
revenues, we do not believe that our historical growth rates are necessarily
sustainable or indicative of future growth.
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
----------------------------------------- ------------------------------------
1999 1998 Change 1999 1998 Change
----------- ----------- ------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 4,835 $ 15,764 69% $58,962 $ 340,198 83%
Cost of sales 4,575 21,652 79% 15,566 89,264 83%
Amortization and depreciation 11,727 29,771 61% 34,980 88,936 61%
Professional, legal and accounting 80,420 33,230 142% 245,828 176,277 39%
Marketing and selling 41,709 80,711 48% 109,442 989,227 89%
Rent and utilities 35,838 38,912 8% 94,667 95,148 1%
Salaries 388,656 287,541 35% 815,612 747,942 9%
General and administrative 205,458 65,774 212% 341,567 237,139 44%
Net other expenses 64,271 36,879 75% 131,367 81,928 61%
</TABLE>
<PAGE>
Sales are composed of membership dues, sponsorships, sale of artist
specific merchandises, pre-recorded music and other entertainment-related
products, net of returns and include outbound shipping and handling charges. To
further promote the websites, the Company will offer free shipping and/or
increase the discounts it offers to its customers which partially offset the
positive effect of membership dues and sponsorship revenue, which has a higher
margin than product sales. Allowances for returns during the quarter is
attributed to the discontinued CD-rom product sold in 1998.
Cost of sales consists primarily of cost of merchandise sold to customers,
including product fulfillment and outbound shipping and handling charges. The
Company over time intends to expand its operations by promoting new or
complementary products or sales formats and by expanding the breadth and depth
of its product or service offerings and may otherwise alter its pricing
structure and policies.
Amortization and depreciation consist of provision for depreciation of
fixed assets and intangible assets, calculated using the straight-line method
based upon estimated useful lives ranging from 3 to 7 years. Expenditures for
maintenance, repairs and other renewals of items are charged to expense.
Professional, legal and accounting consist of professional services
provided by consultants including e-commerce content creation and acquisitions
and payments to the Company's chairman pursuant to a month to month consulting
agreement. The Company believes that continued investment in the development of
its web stores and infrastructure will increase significantly in absolute
dollars.
Marketing and selling expenses consist primarily of expenses related to
marketing agreements, database license fees, advertising, public relations and
promotion and credit card processing fees. Payroll and related expenses for
personnel engaged in marketing and selling is classified under salaries. The
Company expects the dollar amount of sales and marketing expense to continue to
increase in future periods to commensurate with its expansion plans.
Rent and utilities consist primarily of office and studio leases, rental
of equipment, telephone and utilities. The Company expects office and studio
leases, telecommunication operations, systems and telecommunications
infrastructure to increase to commensurate with its expansion plans.
Salaries consist of personnel engaged in corporate administration,
marketing, selling, web designers and engineers. The Company believes its future
success will also depend in large part upon its ability to attract and retain
highly skilled personnel. Competition is intense and there can be no assurance
that the Company will be successful in attracting and retaining such personnel.
The company expects salaries to continue to increase to commensurate with its
expansion plans.
General and administrative expenses consist of insurance, travel, Internet
operations, investor relations and other general corporate expenses, including
the bad debt expense of $40,360 and loss due to the write down of inventory for
the discontinued product of $62,733 for the three months ended September 30,
1999. The Company expects general and administrative expenses to increase as the
Company expands and incurs additional costs related to the growth of its
business.
Net other expenses consist of interest income and expense and other
expense. Interest income on cash and cash equivalents increased due to higher
balances resulting from the Company's financing activities, principally the
August 1999 issuance of the Debentures in the amount of $2.2 million. Interest
expense consists primarily of interest on the Debentures, other loans and the
amortization of deferred charges.
The Company's net loss for the three months ended September 30, 1999
was $842,661 as compared to $617,744 during the same period last year. The
Company's net loss for the nine months ended September 30, 1999 was $1,744,909
compared to $2,320,983 for the comparable period last year.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company had positive working capital of
$952,878, as compared to negative working capital of $1,773,728 at December 31,
<PAGE>
1998. The net change in working capital is attributable to the Company utilizing
its working capital for the payment of current liabilities, marketing and
promotion arrangements for ongoing operations during the nine months ended
September 30, 1999. Although the Company has no material commitments for capital
expenditures, it anticipates a substantial increase in its capital expenditures
consistent with anticipated growth in operations, infrastructure and personnel,
which will also require it to commit to lease obligations.
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, 1999. However, any projection of future cash
needs and cash flows is subject to substantial uncertainty. If current cash in
addition to cash generated from operations is insufficient to satisfy the
Company's liquidity requirements, the Company may seek to sell additional equity
or debt securities or obtain a line of credit. In August 1999, the Company
issued 5% convertible debentures and warrants for net proceeds of $2 million. In
September 1999, the Company signed an agency agreement with an unrelated
investment bank for the private placement of up to $15 million of the Company's
common shares. The success, or lack thereof, of this additional funding and
sales from operations may have a material impact on the future of the Company.
The sale of additional equity or convertible debt securities could result in
additional dilution to the Company's stockholders. In addition, the Company
will, from time to time, consider the acquisition of or investment in products,
services and technologies, the repurchase and retirement of debt, which might
impact the Company's liquidity requirements or cause the Company to issue
additional equity or debt securities. As such, there can be no assurance that
financing will be available in amounts or on terms acceptable to the Company, if
at all.
CASH FLOWS
Cash used by operating activities was $1,633,899 for the nine months ended
September 30, 1999 as compared to $1,475,794 for the comparable period last
year. The change is primarily attributable to the change in Company's business
strategies and decrease in payables over the same period last year.
Cash used in investing activities was $240,160 for the nine months ended
September 30, 1999 as compared to $8,566 for the comparable period last year.
The change is primarily attributable to the increase in deferred software
development costs for "Big Brother" and purchases of fixed assets.
Cash provided by financing activities was $3,465,360 for the nine months
ended September 30, 1999 as compared to $1,120,385 for the comparable period
last year. The change is primarily attributable to proceeds from issuance of
common stock, stock subscriptions and convertible debentures offset by financing
costs.
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.
<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
During the third quarter of 1999, the Company issued 16,000 shares of
common stock for services rendered, issued 100,000 shares of common stock
pursuant to warrant conversions for proceeds of $21,000 and issued 833 shares of
common stock pursuant to the exercise of stock options for proceeds of $816.
On August 24, 1999, the Company completed an offering of $2.2 million of
5% convertible debentures due 2002 (the "Debentures"). The debentures and
attached warrants are convertible into the Company's common stock at the
holders' option at a price subject to certain bases or the fair market value as
mutually determined by the Company and the registered holder. Interest is
accrued at 5% per annum on the unpaid balance. No payment of the principal of
the debenture may be made prior to the maturity date by the Company without the
consent of the registered holder. At the Company's option, any interest payment
required to be paid on this debenture may be made in the form of common stock,
with the number of shares of such common stock to be payable in lieu of such
interest payments to be mutually determined, as if such interest payment were a
portion of the principal amount of the debenture to be converted into common
stock. Subject to certain conditions, the debentures may be redeemed at the
option of the Company, at the redemption price set forth in agreement.
Exemption from registration under the Securities Act of 1933, as amended
(the "Act"), is claimed for the sale of certain of 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
The Company notified its shareholders of record (August 9, 1999) that
stockholders holding a majority of the voting power of the Company take the
following action by written consent in lieu of an annual meeting , effective
September 10, 1999:
1. The election of Nancy Poertner, Rainer Poertner and Matthew MacLaurin
as directors to serve until the 2000 annual meeting of shareholders
2. The approval of an increase in the number of authorized $.0001 par
value common shares to 25,000,000 from the current 7,500,000
3. The approval and ratification of the 1998 Amendment to the Company's
1996 Stock Option Plan that increased the number of shares of common stock
available to the Plan to 500,000 shares of $.0001 par value common stock
4. The ratification of the appointment of Davis & Co., CPAs, PC as
independent auditors for the Company for the year ending December 31, 1999.
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
Company's fiscal quarter ended September 30, 1998.
<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: November 12, 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.
SignatureTitleDate
/s/ Nancy Poertner President, Secretary November 12,1999
Nancy Poertner and Director
/s/ Rainer Poertner Chairman and Director November 12,1999
Rainer Poertner
/s/ Matthew MacLaurin Executive V.P. and November 12,1999
Matthew MacLaurin Director
/s/ Jacqueline Cabellon Controller November 12,1999
Jacqueline Cabellon (Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,611,276
<SECURITIES> 0
<RECEIVABLES> 8,684
<ALLOWANCES> 0
<INVENTORY> 13,309
<CURRENT-ASSETS> 2,777,234
<PP&E> 436,654
<DEPRECIATION> (264,267)
<TOTAL-ASSETS> 3,693,337
<CURRENT-LIABILITIES> 1,824,356
<BONDS> 0
0
0
<COMMON> 599
<OTHER-SE> (342,170)
<TOTAL-LIABILITY-AND-EQUITY> 3,693,337
<SALES> 4,835
<TOTAL-REVENUES> (10,007)
<CGS> 4,575
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 763,808
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (72,814)
<INCOME-PRETAX> (842,661)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (842,661)
<EPS-BASIC> (.16)
<EPS-DILUTED> (.16)
</TABLE>
