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 ACTOF 1934
For the Fiscal Quarter ended: March 31, 2000
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 May 5, 2000 as reported on the OTC Bulletin Board, was approximately
$10,419,359.
As of May 5, 2000 there were 7,442,432 shares of the Issuer's Common Stock,
$.0001 Par Value, outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
MEDIAX CORPORATION
FORM 10-QSB
Page
PART I
Item 1. Financial Statements
Balance Sheet as of March 31, 2000 (unaudited) ..............3
Statements of Operations for the Three Ended
March 31, 2000 and 1999 (unaudited)..........................4
Statements of Cash Flows for the Three Months Ended
March 31, 2000 and 1999 (unaudited)..........................5
Notes to the Financial Statements (unaudited) ...............7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................9
PART II
Item 1. Legal Proceedings............................................13
Item 2. Changes In Securities........................................13
Item 3. Defaults Upon Senior Securities..............................13
Item 4. Submission of Matters to a Vote of Security Holders..........13
Item 5. Other Information............................................13
Item 6. Exhibits And Reports On Form 8-K.............................13
Signatures...................................................14
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
Balance Sheet
(Unaudited)
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 335,378
Accounts receivable, net of reserve of $8,500 1,657
Inventories 12,761
Prepaid advertising costs 708,125
Other prepaid expenses 42,210
-----------------
Total current assets 1,100,131
-----------------
Property and equipment, at cost:
Computer equipment 361,425
Office equipment 36,580
Leasehold improvements 7,630
-----------------
405,635
Less accumulated depreciation and amortization (289,554)
-----------------
Property and equipment, net 116,081
Deposits and other assets 35,136
-----------------
$ 1,251,348
-----------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 501,917
Accrued payroll and related costs 35,096
Accrued expenses 7,967
Deferred revenue 100,000
-----------------
Total current liabilities 644,980
Long-term liabilities:
Convertible notes payable 2,163,664
-----------------
Total liabilities 2,808,644
-----------------
Commitments and contingencies
Stockholders' deficit:
Preferred stock, $.0001 par value per share; 10,000,000 shares
authorized and no shares issued -
Common stock, $.0001 par value per share; 25,000,000 shares
authorized; 6,961,781 shares issued and outstanding 696
Additional paid-in capital 12,405,338
Subscription advances 320,793
Stockholder notes and accrued interest receivable (116,830)
Accumulated deficit (14,167,293)
-----------------
Total stockholders' deficit (1,557,296)
-----------------
$ 1,251,348
=================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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<TABLE>
<CAPTION>
MEDIAX CORPORATION
Statements of Operations
(Unaudited)
For the Three Months Ended
March 31,
---------------------------------------------
2000 1999
--------------------- ----------------------
<S> <C> <C>
Sales/Cost of sales
Sales $ 16,590 $ 42,003
Cost of sales (7,567) (5,975)
--------------------- ----------------------
Gross profit 9,023 36,028
--------------------- ----------------------
Operating Expenses
Operating and development 374,183 95,254
Sales and marketing 111,931 103,252
General and administrative 336,396 1,906,181
--------------------- ----------------------
822,510 2,104,687
--------------------- ----------------------
Other Income (Expenses)
Interest income 7,069 1,060
Interest expense (27,807) (403,174)
--------------------- ----------------------
(20,738) (402,114)
--------------------- ----------------------
Net loss $ (834,225) $ (2,470,773)
==================== ======================
Basic and diluted weighted average number of
common shares 6,739,200 3,747,553
===================== ======================
Basic and diluted net loss per common share $ (.12) $ (.66)
===================== ======================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
Statements of Cash Flows
(Unaudited)
For the Three Months Ended
March 31,
---------------------------------------------
2000 1999
------------------- ----------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (834,225) $ 2,470,773)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 11,067 11,821
Estimated value of shares issued
for services rendered - 1,555,400
Estimated value of options granted to employees 352 309
Estimated value of options granted
for consulting services 89,297 108,000
Estimated value of beneficial conversion and
induced conversion of debt - 371,876
Interest accrued on convertible debt 27,363 30,384
Interest accrued on stockholder notes receivable (1,000) (1,000)
Changes in operating assets and liabilities:
Accounts receivable 561 (5,151)
Prepaid Expense 9,887 19,227
Inventories 94 637
Accounts payable and accrued expenses 96,460 (57,968)
Deferred revenue 100,000 -
------------------- ----------------------
Net cash used in operating activities (498,144) (437,238)
------------------- ----------------------
Cash flows from investing activities:
Acquisition of intangible assets - (115,192)
Purchase of fixed assets (26,785) (7,266)
------------------- ----------------------
Net cash used in investing activities (26,785) (122,458)
------------------- ----------------------
Cash flows from financing activities:
Subscription advances 100,000 187,250
Net proceeds from sale of stock to investors - 201,500
Net proceeds from the exercise of options and
warrants - 161,250
------------------- ----------------------
Net cash (used) provided by financing activities 100,000 550,000
------------------- ----------------------
Change in cash and cash equivalents (424,929) (9,696)
Cash and cash equivalents, beginning of period 760,307 19,975
------------------- ----------------------
Cash and cash equivalents, end of period $ 335,378 $ 10,279
------------------- ----------------------
Supplemental disclosures of cash flow information: Cash paid during the
period for:
Interest $ 444 $ 915
=================== ======================
Income taxes $ - $ -
=================== ======================
Supplemental schedule of non-cash investing and financing activities:
Conversion of convertible debt to equity $ 102,575 $ 350,000
=================== ======================
</TABLE>
The accompanying notes are an integral part of these financial statements.
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MEDIAX CORPORATION
Notes to the Unaudited Financial Statements
Note 1: BASIS OF PRESENTATION
The financial statements of MediaX Corporation ("MediaX") for the three months
ended March 31, 2000 and 1999 are unaudited. Certain information and note
disclosures normally included in the financial statements prepared in accordance
with generally accepted accounting principles have been omitted. These financial
statements should be read in conjunction with the audited financial statements
and notes thereto included in MediaX's Form 10-KSB as of and for the year ended
December 31, 1999. In the opinion of management, the financial statements
contain all adjustments, consisting of normal recurring adjustments, necessary
to present fairly the financial position of MediaX for the periods presented.
The interim operating results may not be indicative of operating results for the
full year or for any other interim periods.
Note 2: THE COMPANY
MediaX began as a real-time 3D computer game and educational software developer.
Its business plan late in 1998 successfully integrated internally developed 3D
engineering and technology with the Internet. MediaX provides website design,
hosting, online marketing, and e-commerce for music artists and its own
entertainment site - amuZnet.com. Additionally, it continues to produce new
media content for the Internet to repurpose them for interactive satellite
broadcasting and other broadband channels. However, there can be no assurance
that it will achieve its objectives or successfully implement its interactive
satellite business plan.
Note 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DEVELOPMENT STAGE - Effective January 2000, as a result of several contracts
entered into by MediaX to provide web design, marketing and other Internet
services, management has determined that it is no longer in the development
stage. All references to cumulative statements of operations and statements of
cash flows have been eliminated in these accompanying financial statements.
GOING CONCERN - The accompanying financial statements have been prepared
assuming MediaX will continue as a going concern, which contemplates, among
other things, the realization of assets and satisfaction of liabilities in the
normal course of business. Losses from operations through March 31, 2000 and
lack of operating history, among other matters, raise substantial doubt about
its ability to continue as a going concern. In the absence of significant sales
and profits, it intends to fund operations through additional debt and equity
financing arrangements which management believes will be sufficient to fund its
capital expenditures, working capital requirements and other cash requirements
through December 31, 2000. On April 2000, MediaX entered into a private equity
line of credit agreement with an investor to purchase an aggregate $6,000,000 of
its common stock. Should MediaX fail to register this transaction, increase
sales or raise the additional funds, MediaX will have insufficient funds for its
intended operations and capital expenditures and will have a material adverse
effect on MediaX's operating results. MediaX's financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
RECLASSIFICATION - The financial statements for the prior periods have been
reclassified to conform to current period's presentation.
BASIC AND DILUTED LOSS PER SHARE - MediaX has presented basic and diluted loss
per share amounts for the three months ended March 31, 2000 and 1999 pursuant to
Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings per
Share". Basic and diluted loss per share was computed based on the weighted
average number of shares outstanding for the period. Basic and diluted loss per
share are the same as the effect of common stock equivalents (such as stock
options, warrants, etc) on loss per share are antidilutive and thus not included
in the diluted per share calculation.
SEGMENT INFORMATION - MediaX has adopted Statement of Financial Accounting
Standards No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and
Related Information." SFAS 131 changes the way public companies report
information about segments of their business in their annual financial
statements and requires them to report selected segment information in their
quarterly reports issued to stockholders. It also requires entity-wide
disclosures about the products and services an entity provides, the material
contracts in which it holds assets and reports revenues and its major customers.
MediaX does not yet have any reportable segments at the end of three months
ended March 31, 2000.
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NEW ACCOUNTING PRONOUNCEMENTS - In March 2000, the Emerging Issues Task Force
reached a consensus on Issue No. 00-2, "Accounting for Web Site Development
Costs" to be applicable to all web site development costs incurred for the
quarter beginning after June 30, 2000. The consensus states that for specific
web site development costs, the accounting for such costs should be accounted
for under AICPA Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." Accordingly,
certain web site development costs which are presently being expensed as
incurred, will be capitalized and amortized. The adoption of EITF Issue No. 00-2
is not expected to have a material effect on our financial statements.
Note 4: Convertible Notes Payable
The following transactions pertain to a convertible notes payable dated August
24, 1999. In March 2000, the investor converted $102,575 of principal and
accrued interest into common stock at $1.35 per share or 75,981 shares. For the
three months ended March 31, 2000, MediaX incurred interest expense related to
the notes in the amount of $27,363. Subsequently, in April 2000, the investor
converted $206,520 of principal and accrued interest into 149,067 common shares
at $1.39 per share.
Note 5: SUBSCRIPTION ADVANCES
Subscription advances represents monies received in advance from certain
investors for the future exercise of warrants or purchase of stock. The total
number of warrants to be exercised or the total number of shares to be purchased
has not yet been determined. In March 2000, $58,200 of the previously received
advances were utilized to exercise warrants to purchase 218,000 common shares.
At March 31, 2000, the total outstanding balance on subscription advances was
$320,793.
Note 6: Options and Warrants
From time to time, MediaX issues stock options and/or warrants pursuant to
various consulting and outside service provider agreements. During the quarter
ended March 31, 2000, MediaX granted options to purchase a total of 53,000
restricted common shares at exercise prices of $1.68 and $1.40 per share. The
options vest immediately and are exercisable through March 31, 2002. Total
consulting expense of $89,297 was recognized during the quarter pursuant to SFAS
123. Additionally, MediaX granted options to an employee to purchase 50,000
common stock at an exercise price of $2.81 (estimated to be the fair market
value). The options vest over a three-year period and are exercisable through
December 2008. A total of $ 125 of compensation expense will be recorded over
the vesting period, of which none was recognized for the three months ended
March 31, 2000.
Note 7: CONTRACTS
MediaX entered into agreements with a major record company and a technology
company, in which MediaX will design the entities websites and/or provide
marketing and Internet services. Additionally, On March 9, 2000, MediaX entered
into an agreement with Zeeks, Inc., in which MediaX will design the official
NSYNC.com website and provide marketing and Internet services. The agreement is
effective for one year and shall be renewable for additional year if not
cancelled by either party, as defined.
Note 8: RELATED PARTY TRANSACTIONS
Stockholder notes receivable represents monies loaned to Ms. Nancy Poertner,
MediaX's President and stockholder. The notes, which are due on demand, are
uncollateralized and bear interest at 4% per annum. At March 31, 2000, the total
outstanding balance was $116,830, including accrued interest of $16,830, of
which $1,000 was recorded in the quarter. As the notes are due from the
President and stockholder, MediaX has presented the receivables as a reduction
of stockholders' deficit at March 31, 2000.
On January 2000, Mr. Rainer Poertner, Chairman of the Board of Directors,
accepted a full-time management position with MediaX.
Mr. Rainer Poertner and Ms. Nancy Poertner are husband and wife.
7
<PAGE>
Note 9: SUBSEQUENT EVENT
MediaX has entered into various marketing agreements which contain provisions
which may require commissions to be made by MediaX. To date, no payments have
been made. Such payments are charged to expense as incurred.
Common Stock Purchase Agreement - On April 25, 2000, MediaX entered into a
securities purchase agreement with an investor, whereby it sold to the investor
$500,000 of restricted common stock (as defined in Rule 144 promulgated under
the Securities Act of 1933) or 326,584 shares at $1.531 per share. MediaX
granted the investor registration rights with respect to the shares purchased
and if any, additional shares it is required to reprice, as defined and to have
such registration statement declared effective on or before July 24, 2000.
MediaX received $470,000 net of offering costs paid to legal and escrow services
and finders fees of $30,000.
PRIVATE EQUITY LINE OF CREDIT AGREEMENT - On April 28, 2000, MediaX entered into
a private equity line of credit agreement with an investor, whereby MediaX from
time to time at its discretion, will issue and sell to the investor and investor
shall purchase, up to $6,000,000 (aggregate purchase price) of restricted common
stock. (as defined in Rule 144 promulgated under the Securities Act of 1933).
The purchase price shall be set at 14% off the market price on the day a pu t
notice is made. MediaX granted the investor registration rights with respect to
the shares under the agreement (at least 2,500,000 shares) and to have such
registration declared effective on or before September 30, 2000. In addition,
MediaX entered into a stock purchase warrant agreement to purchase 100,000
shares of its common stock at 125% of market price on the closing date, expiring
October, 2003. If the registration statement is not declared effective by
September 30, 2000, all agreements shall terminate. MediaX paid $10,000 offering
costs for legal and administrative expenses and issued 5,000 restricted common
shares at $8,125 (based on the market value on the date of issuance) for finders
fees.
8
<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, MEDIAX'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, MEDIAX'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 MEDIAX'S NEED FOR ADDITIONAL CAPITAL EXCEPT AS REQUIRED
BY LAW. MEDIAX 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
MEDIAX 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.
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OVERVIEW
Originally founded as a multi-media production studio in 1995, MediaX Inc.
was acquired by ZeitGeist Werks, Inc and went public in 1996 and subsequently
renamed MediaX Corporation ("MediaX"). 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.
After the acquisition MediaX's business development strategy began to
focus on the production of new media content for Internet and Broadband
channels; website design and hosting and Internet-based commerce and on-line
marketing. MediaX believes that since any sucessful Internet presence today
requires a skilled and experienced engineering & graphic artist team and
advanced technology, that MediaX's real-time 3D engineering team and the
technology developed by that team, will prove to become a competitive advantage.
Leading edge on-line campaigns, such as the full screen real-time
streaming graphically intense event in June 1999 for Paul McCartney, could not
have been produced without this skill set.Subsequently MediaX has entered into
several contracts that require and recognize this development and technology
skill set. With the varied expertise of MediaX's Chairman, President and
Executive Vice President in the areas of artist and record company management,
film production, software development &distribution and proprietary technology
development, MediaX expects to bridge an existing gap in the entertainment and
technology markets and become a successful player in the Internet content
production, marketing and e-commerce market.
MediaX designs, owns, hosts and maintains an integrated network of
distinct types of entertainment based web sites. This network of sites positions
MediaX to generate revenue through web site design services, the sale of artist
specific merchandises, entertainment related products, club subscriptions,
endorsements by corporate sponsors, third party advertising and a variety of
products provided by affiliates. In February 1999, MediaX launched amuZnet.com,
an entertainment destination and e-commerce site now offering more than 300,000
entertainment titles on CDs, DVDs, videos and movies for sale. MediaX places its
own and/or third party marketing campaigns on amuZnet.com to generate
re-occurring traffic to the site.
With increasing numbers of visitors from MediaX's most recent site
launches and on-line campaigns with Rod Stewart, Divine, Paul McCartney, Faith
Hill, AJ MacLean and NSYNC, MediaX believes that amuZnet.com is on the path to
become a substantial entertainment destination site. MediaX's team of engineers
and graphic artists develops, designs and maintains all MediaX designed/owned
sites in this network in house and hosts all services on the MediaX server
system, including the real time streaming of video and audio.
MediaX continues to produce new content for the Internet and based on its
technological structure is in a position to re-purpose all Internet content it
has produced for interactive satellite broadcasting and other broadband systems
such as cable TV or ADSL subscriber systems, without applying significant
technological effort. This affords MediaX several outlets for the same digital
interactive content it produces.
MediaX has signed contracts with EchoStar (Dish Network) for the launch of
an Interactive Satellite Entertainment Channel and hopes to further tap into the
rapidly emerging efforts of cable and telecom companies with its existing
technology and content. However, there can be no assurance that MediaX will
achieve its objectives or successfully implement its interactive satellite
business plan.
GOING CONCERN
MediaX has incurred significant net losses since its inception. As of
March 31, 2000, MediaX has accumulated losses of $14,167,293. As it seeks to
expand aggressively, MediaX believes that its operating expenses will continue
at a certain level as a result of the financial commitments related to the
development of new websites, marketing channels, advertising, future marketing
agreements and campaigns, acquisition of entertainment content and improvements
to its existing Internet sites and other capital expenditures. The ability of
MediaX to generate and enhance profitability depends upon its ability to
substantially increase its net sales. To the extent that significantly higher
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<PAGE>
net sales do not result from MediaX's selling and marketing efforts, MediaX will
be materially adversely affected. MediaX may need to utilize its common stock to
fund its operations through fiscal 2000. On April 2000, MediaX entered into a
private equity line of credit agreement with an investor to purchase an
aggregate $6,000,000 of its common stock. Should MediaX fail to register this
transaction, increase sales or raise the additional funds, MediaX will have
insufficient funds for its intended operations and capital expenditures and will
have a material adverse effect on MediaX's operating results. Accordingly, the
accompanying financial statements have been presented under the assumption
MediaX will continue as a going concern.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31,
1999
Sales are composed of website design fees, membership dues, advertising,
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, MediaX occasionally offers
free shipping and/or increases the discounts it offers to its customers which
partially offset the positive effect of website design fees, membership dues,
advertising and sponsorship revenue, which has a higher margin than product
sales. Sales for the three months ended March 31, 2000 was $16,590 compared to
$42,003 for the same quarter last year, a decrease of 60%. The change is
attributable to continued growth of MediaX's customer base; repeat purchases
from existing customers of its network of websites partially offset by web
design fees recognized last quarter and membership dues which fluctuates
depending on touring schedules of major artists.
Cost of sales consists primarily of cost of merchandise sold to customers,
including product fulfillment and outbound shipping and handling charges. MediaX
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.
Cost of sales was $7,567 for the three months ended March 31, 2000, compared to
$5,975 for the corresponding period in 1999. MediaX's gross profit margin
decreased to 54.4% for the three months ended March 31, 2000, compared to 85.8%
for the corresponding period in 1999. The decrease in gross margin was primarily
attributable to the decrease in web design fees, membership dues, advertising
and sponsorship revenues , which has a higher margin than product sales.
Operating and development expense consists primarily of payroll and
related expenses for website design and management; network system and
telecommunications infrastructure; Internet content creation and acquisitions;
and royalties and database license fees. Operating and development expense was
$374,183 for the three months ended March 31, 2000 compared to $95,254 for the
corresponding period in 1999. The increase is attributable to payroll and
associated costs related to enhancing the features and functionality of MediaX's
network of websites; increased investment in Internet content, network and
telecommunications infrastructure and non-cash charge of $89,297 for options
granted to consulting agreements for content acquisitions.
Sales and marketing expense consists primarily of payments related to
marketing agreements, advertising and promotion, as well as payroll and related
expenses for personnel engaged in marketing and selling and credit card fees.
Sales and marketing expense was $111,931 for the three months ended March 31,
2000, compared to $103,252 for the same quarter last year. The increase is
attributable to slight increase in payroll and associated costs; implementation
of marketing and promotion strategies to increase its customer base, brand
awareness and increased credit card processing fees related to product sales.
General and administrative expense consists of payroll and related
expenses for personnel, professional fees, insurance and other general and
corporate expenses. General and administrative expense was $336,396 for the
three months ended March 31, 2000, compared to $1,906,181 for the three months
ended March 31, 1999. The decrease is attributable to non-cash charge of
$1,663,709 for shares and options issued for investor relations, legal and
outside services in 1999 partially offset by an increase to legal and accounting
services incurred in the current quarter.
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Total other income (expense) consists of interest income on cash
equivalents and notes receivable, and interest expense associated with
convertible debts and short-term borrowings. Total other expense was $20,738 for
the three months ended March 31, 2000, compared to $402,114 for the
corresponding period in 1999. The decrease is attributable to non-cash interest
expense of $371,876 related to an inducement to convert debt to equity partially
offset by interest income earned from cash equivalents.
Net Loss. MediaX's net loss was $834,225 for the three months ended March
31, 2000 compared to $2,470,773 for the three months ended March 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, MediaX had positive working capital of $455,151, as
compared to a positive working capital of $1,087,082 at December 31, 1999. The
decrease in working capital is attributed to purchases of fixed assets and
payments of operating expenses during the quarter ended March 31, 2000.
Net cash used in operating activities of $498,144 for the three months
ended March 31, 2000 was primarily attributed to a net loss of $834,225, offset
by $13,067 non-cash charge for depreciation and amortization; a $89,649 non-cash
charge for stock-based compensation for consulting services and common stock
issued to employees and non-employees, and $26,363 for accrued interest on
convertible debt and on stockholder notes receivable; and change in other
operating assets and liabilities of $207,002. Net cash used in operating
activities of $437,238 for the three months ended March 31, 1999 was primarily
attributable to a net loss $2,470,773, of which $11,821 was for depreciation and
amortization; $1,663,709 was a non-cash charge for stock-based compensation for
consulting services and common stock issued to employees and non-employees;
$371,876 beneficial conversion of debentures; $29,384 for accrued interest on
convertible debt and on stockholder notes receivable; and change in other
operating assets and liabilities of $43,255.
Net cash used in investing activities was $26,785 for the three months
ended March 31, 2000, consisted of purchases of fixed assets. Net cash used in
investing activities was $122,458 for the three months ended March 31, 1999
consisted of acquisition of license agreement and trademark, deferred software
development costs and purchases of fixed assets.
Net cash provided by financing activities was $100,000 for the three months
ended March 31, 2000, and consisted primarily of proceeds from subscription
advances. Net cash provided by financing activities was $550,000 for the three
months ended March 31, 1999, and consisted primarily of net proceeds from sale
of stock to investors, subscription advances and exercise of options and
warrants.
Although MediaX have no material commitments for capital expenditures, it
anticipates a substantial increase in capital expenditures and lease commitments
in connection with anticipated growth in operations and infrastructure.
Furthermore, MediaX will need to spend significant amounts for sales and
marketing, advertising and promoting its brands, content development and
technology and infrastructure development and personnel. On April 2000, MediaX
entered into a private equity line of credit agreement with an investor to
purchase an aggregate $6,000,000 of its common stock. Should MediaX fail to
register this transaction, increase sales or raise the additional funds, MediaX
will have insufficient funds for its intended operations and capital
expenditures and will have a material adverse effect on MediaX's operating
results.
INFLATION
MediaX believes that inflation has not had a material effect on its
results of operations.
12
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
Valley Media, Inc. ("Valley") commenced an arbitration proceeding against MediaX
Corporation ("MediaX") for breach of contract in relation to an order
fulfillment contract and related license agreement. MediaX participated in the
arbitration while reserving the right to challenge the scope of the arbitrator's
authority and the arbitration provision in the written agreement. On March 6,
2000, the arbitrator found in favor of Valley and awarded $170,000 in damages,
plus the cost of the arbitration. MediaX has recorded approximately $183,000 in
the 1999 balance sheet and statement of operations. On May 5, 2000, MediaX
presented its opposition to Valley Media, Inc.'s petition to confirm the
arbitration award. MediaX's opposition challenges the scope of the arbitrator's
authority and the arbitration provision in the written agreement. The presiding
judge took the matter under advisement, but has not yet rendered a decision.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In March 2000, an investor converted $102,575 of principal and accrued
interest into common stock at $1.35 per share or 75,981 shares, pursuant to a 5%
convertible note entered into in 1999. Exemption from registration under the
Securities Act of 1933, as amended ("Act'), is claimed for the sale of all the
securities set forth above in reliance upon the exemption offered by Section
4(2) of the Act.
In March 2000, MediaX issued 218,000 shares of common stock in connection
with the exercise of stock warrants for $58,200. Exemption from registration
under the Securities Act of 1933, as amended ("Act'), is claimed for the sale of
all the securities set forth above in reliance upon the exemption offered 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
No matters were submitted to the security holders for a vote during the
period covered by this report.
ITEM 5. OTHER TRANSACTIONS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
27 Financial Data Schedule.
(b) REPORTS ON FORM 8-K.
None
13
<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 15, 2000 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 May 15, 2000
- ------------------------ and Director
Nancy Poertner
/s/ Rainer Poertner Chairman and Director May 15, 2000
- ------------------------
Rainer Poertner
/s/ Matthew MacLaurin Executive V.P. and May 15, 2000
- ------------------------ Director
Matthew MacLaurin
/s/ Jacqueline Cabellon Controller May 15, 2000
- ------------------------ (Principal Accounting Officer)
Jacqueline Cabellon
14
<PAGE>
EXHIBIT INDEX
27 Financial Data Schedule.
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 335,378
<SECURITIES> 0
<RECEIVABLES> 1,657
<ALLOWANCES> 0
<INVENTORY> 12,761
<CURRENT-ASSETS> 1,100,131
<PP&E> 405,635
<DEPRECIATION> 289,554
<TOTAL-ASSETS> 1,251,348
<CURRENT-LIABILITIES> 644,980
<BONDS> 0
0
0
<COMMON> 696
<OTHER-SE> (1,557,296)
<TOTAL-LIABILITY-AND-EQUITY> 1,251,348
<SALES> 16,590
<TOTAL-REVENUES> 16,590
<CGS> 7,567
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 822,510
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,807
<INCOME-PRETAX> (834,225)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (834,225)
<EPS-BASIC> (.12)
<EPS-DILUTED> (.12)
</TABLE>
