<PAGE> 1
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: September 30, 2000
Commission File No. 0-23780
MEDIAX CORPORATION
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(Exact Name of Small Business Issuer as Specified in its Charter)
Nevada
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(State or Other Jurisdiction of Incorporation or Organization)
84-1107138
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(I.R.S. Employer Identification Number)
3455 La Cienega Boulevard, Building C, Los Angeles, California 90016
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(Address of Principal Executive Offices, Including Zip Code)
(310) 815-8002
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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 November 14, 2000 as reported on the OTC Bulletin Board, was
approximately $4,001,575.
As of November 14, 2000 there were 7,826,943 shares of the Issuer's Common
Stock, $.0001 Par Value, outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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MEDIAX CORPORATION
FORM 10-QSB
Page
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PART I
Item 1. Financial Statements
Balance Sheets as of September 30, 2000 (unaudited)
and December 31, 1999 (audited)..................................... 1
Statements of Operations for the Three and Six Months Ended
September 30, 2000 and 1999 (unaudited)............................. 2
Statements of Cash Flows for the Six Months Ended
September 30, 2000 and 1999 (unaudited)............................. 4
Notes to the Financial Statements (unaudited)....................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................... 9
PART II
Item 1. Legal Proceedings................................................... 14
Item 2. Changes in Securities and Use of Proceeds........................... 14
Item 3. Defaults Upon Senior Securities..................................... 14
Item 4. Submission of Matters to a Vote of Securities Holders............... 14
Item 5. Other Information................................................... 14
Item 6. Exhibits and Reports on Form 8-K.................................... 14
Signatures.......................................................... 15
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MEDIAX CORPORATION
BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 (UNAUDITED) 1999 (AUDITED)
---------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,778 $ 760,307
Accounts receivable, net of reserve of $8,500 536,110 2,218
Inventories 12,308 12,855
Prepaid advertising costs 610,790 708,125
Other prepaid expenses 46,089 52,097
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Total current assets 1,217,075 1,535,602
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Property and equipment, at cost:
Computer equipment 455,425 334,640
Office equipment 56,243 36,580
Leasehold improvements 52,265 7,630
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Less accumulated depreciation and amortization 563,933 378,850
Property and equipment, net (321,179) (276,723)
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Deposits and other assets 242,754 102,127
36,392 35,372
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$ 1,496,221 $ 1,673,101
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 562,100 $ 400,556
Accrued payroll and related costs 60,217 28,048
Accrued expenses 27,733 19,916
Advances from officer 50,000 --
------------ ------------
Total current liabilities 700,050 448,520
Long-term liabilities:
Notes payable 2,124,309 2,238,877
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Total liabilities 2,824,359 2,687,397
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Commitments and contingencies
Stockholders' deficit:
Preferred stock, $.0001 par value per share;
10,000,000 authorized and no shares issued -- --
Common stock, $.0001 par value per share;
25,000,000 shares authorized; 7,826,943
and 6,667,800 shares issued and outstanding,
for 2000 and 1999, respectively 783 667
Additional paid-in capital 13,436,023 12,154,940
Subscription advances 320,793 278,993
Stockholder notes and accrued interest receivable (118,830) (115,830)
Accumulated deficit (14,966,907) (13,333,066)
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Total stockholders' deficit (1,328,138) (1,014,296)
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$ 1,496,221 $ 1,673,101
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
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MEDIAX CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Net Sales $ 256,609 $ (14,645)
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Cost and Operating Expenses
Operating and development 472,958 300,029
Sales and marketing 231,153 138,350
General and administrative 321,653 325,367
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1,025,764 763,746
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Operating loss (769,155) (778,391)
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Other Income (Expenses)
Interest income 2,386 8,543
Interest expense (57,015) (945,411)
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(54,629) (936,868)
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Net loss $ (823,784) $(1,715,259)
=========== ===========
Basic and diluted net loss per common share $ (0.11) $ (.30)
=========== ===========
Weighted average number of common shares
outstanding; Basic and diluted 7,591,930 5,673,123
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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MEDIAX CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Net Sales $ 1,053,125 $ 26,919
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Cost and Operating Expenses
Operating and development 1,216,786 859,193
Sales and marketing 505,608 378,878
General and administrative 870,361 2,462,008
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2,592,755 3,700,079
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Operating loss (1,539,630) (3,673,160)
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Other Income (Expenses)
Interest income 13,408 10,604
Interest expense (107,619) (1,386,445)
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(94,211) (1,375,841)
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Net loss $(1,633,841) $(5,049,001)
=========== ===========
Basic and diluted net loss per common share $ (0.23) $ (1.01)
=========== ===========
Weighted average number of common shares
outstanding; Basic and diluted 7,197,650 4,991,446
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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MEDIAX CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,633,841) $(5,049,001)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 44,853 34,980
Estimated value of shares issued
for services rendered 9,375 1,605,400
Estimated value of options granted to employees 1,062 618
Estimated value of options granted
for consulting services 131,254 453,600
Estimated value of beneficial conversion and
induced conversion of debt -- 1,066,462
Amortization of debt issuance costs -- 176,000
Interest accrued on convertible debt 106,740 137,099
Interest accrued on stockholder notes receivable (3,000) (3,000)
Changes in operating assets and liabilities:
Accounts receivable (533,892) 68,123
Prepaid expense 6,008 (13,641)
Inventories 547 79,454
Prepaid advertising costs 97,335 --
Deposits and other assets (1,417) --
Accounts payable and accrued expenses 201,530 (189,993)
----------- -----------
Net cash used in operating activities (1,573,446) (1,633,899)
----------- -----------
Cash flows from investing activities:
Advances from officer 50,000 --
Acquisition of intangible assets -- (209,002)
Purchase of fixed assets (185,083) (31,158)
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Net cash used in investing activities (135,083) (240,160)
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Cash flows from financing activities:
Subscription advances 100,000 138,993
Net proceeds from sale of stock to investors 460,000 441,500
Net proceeds from the exercise of options
and warrants -- 877,824
Net proceeds received from issuance of notes
payable 400,000 2,007,043
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Net cash provided by financing activities 960,000 3,465,360
----------- -----------
Change in cash and cash equivalents (748,529) 1,591,301
Cash and cash equivalents, beginning of period 760,307 19,975
----------- -----------
Cash and cash equivalents, end of period $ 11,778 $ 1,611,276
----------- -----------
</TABLE>
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<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 879 $ --
=========== ===========
Income taxes $ -- $ --
=========== ===========
Supplemental schedule of non-cash investing
and financing activities:
Conversion of convertible debt to equity $ 621,308 $ 350,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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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 and nine
months ended September 30, 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.
Late in 1998, its business plan successfully changed to integrate internally
developed 3D engineering and technology with web site design for the Internet.
MediaX provides website design, hosting, online marketing, platforms for third
party advertising and e-commerce for music artists and for its own entertainment
destination site - amuZnet.com. Additionally, it produces exclusive new media
content for the Internet, in audio and video form, which it is syndicating to
several large Tier-1 partners, such as ZapMedia and Yahoo!. Some of the material
is also produced with the view, to repurpose it for interactive satellite
broadcasting and other broadband channels. However, there can be no assurance
that it will meet its objectives or successfully implement its 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 September 30, 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 continued
significant sales and profits, MediaX 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. In 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 the
related shares with the SEC within the prescribed time frame, increase sales or
raise additional funds, MediaX will have insufficient funds for its intended
operations and capital expenditures which 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.
REVENUE RECOGNITION - All revenue generated from fixed-price contracts is
recognized on the percentage-of-completion method of accounting based on the
ratio of costs incurred to total estimated costs. All revenue generated from
time and material contracts is recognized as services are provided. Revenues
from maintenance agreements are recognized ratably over the terms of the
agreements. MediaX has recognized as the services were rendered $150,000 of
previously recorded deferred revenue in the current quarter.
CONCENTRATION OF SALES RISK - Two customers accounted for 95% and 93% of net
sales for the three and nine month periods ended September 30, 2000,
respectively. Accounts receivable from these customers at September 30, 2000
comprised 96% of the total accounts receivable. The loss of either of these
customers would have a significant impact on operating results.
RECLASSIFICATION - The financial statements for the prior periods have been
reclassified to conform to current period's presentation.
6
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BASIC AND DILUTED LOSS PER SHARE - MediaX has presented basic and diluted loss
per share amounts for three and the nine months ended September 30, 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(in the periods with losses) 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
countries in which it holds assets and reports revenues and its major customers.
MediaX does not yet have any reportable segments for the nine months ended
September 30, 2000.
WEBSITE DEVELOPMENT COSTS - MediaX has adopted, the Emerging Issues Task Force
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 issue 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 were being expensed as incurred, are capitalized and
amortized. The adoption of EITF Issue No. 00-2 did not have a material effect on
our financial statements.
STOCK BASED COMPENSATION - MediaX has adopted, the FASB issued FASB
Interpretation No. 44 (FIN 44) Accounting for Certain Transactions involving
Stock Compensation, an interpretation of APB Opinion No. 25. FIN 44 clarifies
the application of Opinion 25 for (a) the definition of employee for purposes of
applying Opinion 25, (b) the criteria for determining whether a plan qualifies
as a noncompensatory plan, (c) the accounting consequence for various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. The adoption of FIN 44 did not have a material effect on the
financial statements.
NEW ACCOUNTING PRONOUNCEMENTS - In December 1999, the Securities and Exchange
Commission issued Staff Accounting Bulletin (SAB) 101, "Revenue Recognition,"
which outlines the basic criteria that must be met to recognize revenue and
provides guidance for presentation of revenue and for disclosure related to
revenue recognition policies in financial statements filed with the Securities
and Exchange Commission. The effective date of this pronouncement is the second
quarter of the fiscal year beginning after December 15, 1999. MediaX believes
that adopting SAB 101 will not have a material impact on its financial position
and results of operations.
The FASB issued Statement of Financial Accounting Standards No. 133 ("SFAS
133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities on the balance sheet at their fair value. This
statement is effective for financial statements for all fiscal quarters of all
fiscal years beginning after June 5, 2000 (as amended by SFAS 137). MediaX does
not expect the adoption of this standard to have a material impact on its
results of operations, financial position or cash flows as it currently does not
engage in a any derivative or hedging activities.
Note 4: Notes Payable
During the three and nine months ended September 30, 2000, an investor converted
$104,973 and $621,308 of principal and accrued interest into 185,759 and 599,559
common shares pursuant to a convertible notes payable dated August 24, 1999.
Additionally during the quarter, MediaX received proceeds of $400,000 from notes
payables from two unrelated investors the terms, of which are yet to be
determined.
Interest expense related to notes for the nine months ended September 30, 2000
and 1999 is $106,740 and $137,099, respectively.
7
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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. During the three and nine months ended September
30, 2000, $0 and $100,000 of additional advances were received and $0 and
$58,200 of the advances were utilized to exercise warrants to purchase 0 and
218,000 common shares respectively. As of September 30, 2000, subscription
advances were $320,793.
Note 6: COMMON STOCK ISSUANCES
On April 25, 2000, MediaX entered into a securities purchase agreement with an
investor, whereby it sold to the investor $500,000 less offering costs of
$30,000 of restricted common stock or 326,584 shares at $1.531 per share. MediaX
granted the investor registration rights with respect to the shares purchased
and has filed such registration statement on May 31, 2000. If any, additional
shares would be required based on MediaX's obligation right to reprice, as
defined, these shares would be covered under the registration agreement. As of
the date of this report, the registration statement has not been declared
effective by the SEC.
On April 28, 2000, MediaX issued 5,000 restricted common shares for finders fees
and paid $10,000 offering costs in relation to a private equity line agreement
(See Note 8).
On May 30, 2000, MediaX issued 10,000 restricted common shares to an outside
consultant for services valued at $9,375 (based on the market value of the stock
on the date of issuance).
Note 7: 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 current
quarter, MediaX entered into various agreements with third parties to design,
and host websites. Pursuant to the agreements, MediaX is to receive a percentage
of all revenues generated on and in connection with the sites. In connection
with the agreements, MediaX granted 250,000 options to the third parties,
exercisable at exercise prices ranging from $.72 to $.82 per share, vesting
quarterly over one to two years and expiring through September 01, 2002. The
options were valued at $67,000 using the Black-Scholes model pursuant to FAS
123. MediaX will recognize the expense as the options vest. During the three
months ended September 30, 2000, the Company recognized $14,563 as operating and
development expense.
During the current quarter, MediaX entered into an agreement with a vendor. In
connection with this agreement, MediaX granted 120,000 options to the vendor
that vest immediately at an exercise price of $2.50 per share, exercisable
through December 2003. The options were valued at $4,800 using the Black-Scholes
model pursuant to FAS 123. MediaX recognized the entire expense during the
current quarter as consulting expense.
MediaX granted options to an employee to purchase 20,000 common stock at an
exercise price of $.97 (estimated to be the fair market value). The options vest
over a three-year period and are exercisable through December 2008.
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. 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 nine months ended
September 30, 2000.
Total estimated value of options granted to employees and for consulting
services totaled $31,014 and $132,316 during the three and nine months ended
September 30,2000, respectively.
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Note 8: CONTRACTS
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 up to
$6,000,000 (aggregate purchase price) of restricted common stock in quantities
at Mediax's discretion at that time. The purchase price shall be set at 14% off
the market price on the day a put notice is made. MediaX granted the investor
registration rights with respect to the shares underlying the agreement
(2,500,000 shares) and to have such registration declared effective on or before
September 30, 2000 which had been extended indefinitely. 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. MediaX paid $10,000 offering costs for legal and administrative expenses
and issued 5,000 restricted common shares for finders fees related to the
agreement. As of September 30, 2000, MediaX has not utilized this opportunity
and no shares have been issued.
Note 9: RELATED PARTY TRANSACTIONS
Stockholder notes and accrued interest 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. As of
September 30, 2000 and December 31, 1999, stockholder notes and accrued interest
receivable was $118,830 and $115,830, respectively. Total interest expense
recognized for the three and nine month period ended September 30, 2000 was
$1,000 and $9,000. As the notes are due from the President and stockholder,
MediaX has presented the receivables as an increase of stockholders' deficit at
September 30, 2000.
Advances from officer in the amount of $50,000 represent money received from Mr.
Rainer Poertner, MediaX's Chairman. Mr. Rainer Poertner and Ms. Nancy Poertner,
are husband and wife.
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.
9
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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 was
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 on-line
marketing and the syndication of its content. MediaX believes that since any
sucessful Entertainment Internet presence today requires longstanding
relationships in the entertainment industry, on-line marketing experience,a
skilled and experienced engineering & graphic artist team and advanced
technology, that MediaX's experience in the entertainment industry it's on-line
marketing esperience in combination with it'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, or the
production of the leading edge NSYNC web site could not have been produced
without this skill set.Subsequently MediaX has entered into several contracts
that require and recognize this marketing, 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, third party advertising 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, NSYNC, individual members of NSYNC and as a supplier of
content and chat partner with Yahoo!, Zap Media and others, 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 and/or Navisite server system, including the real time
streaming of video and audio.
MediaX continues to produce new and exclusive content for the Internet
and based on the technological structure of this product 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 additional technological effort. This
affords MediaX several outlets for the same digital interactive content it
produces in addition to the sundication of its content through large Internet
portals.
MediaX has signed contracts with EchoStar (Dish Network) for the launch
of an Interactive Satellite Entertainment Channel and Zap Media for the
contribution of its content through Zap's broadband services through set top
boxes 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 broadband business plan.
GOING CONCERN
MediaX has incurred significant net losses since its inception. As of
September 30, 2000, MediaX has accumulated losses of $15,013,514. As it seeks to
expand aggressively, MediaX believes that its operating expenses may continue at
a certain level as a result of the financial commitments related to the
development of new websites, marketing channels, deployment of advertising
campaigns, 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 net sales do not result from MediaX's
selling and marketing efforts, MediaX will be materially adversely affected.
Under this scenario, MediaX may need to utilize additional common stock to fund
its operations through the remainder of fiscal 2000. On April 2000,
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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 the related shares with the SEC within the prescribed time frame,
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 SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1999
Net sales are composed of website design fees, marketing campaigns,
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 and marketing campaigns, membership dues,
advertising and sponsorship revenue, which has a higher margin than product
sales. Sales for the three months ended September 30, 2000 was $256,609 compared
to $(14,645) for the same quarter last year. The change is attributable to
increased website design and marketing campaigns and continued growth of
MediaX's e-commerce site - amuZnet.com's customer base; repeat purchases from
existing customers of its network of websites partially offset by decrease in
membership dues which fluctuates depending on touring schedules of major
artists.
Cost and Operating Expenses are composed of operating and development
expense, sales and marketing; and general and administrative expense. 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; royalties; database
license fees and cost of merchandise sold to customers, including product
fulfillment and outbound shipping and handling charges. Operating and
development expense was $472,958 for the three months ended September 30, 2000
compared to $300,029 for the corresponding period in 1999, an increase of
57.63%. The increase is attributable to estimated value of options granted in
2000 and 1999; increases attributable to payroll and associated costs related to
website designs and enhancing the features and functionality of MediaX's network
of websites; increased investment in Internet content, network and
telecommunications infrastructure.
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 $231,153 for the three months ended September
30, 2000, compared to $138,350 for the same quarter last year, an increase of
67.07%. The increase is attributable to the recognition of prepaid advertising;
slight increase in payroll and related costs; and offset by decrease in public
relations and promotion strategies.
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 $321,653 for the
three months ended September 30, 2000, compared to $325,367 for the three months
ended September 30, 1999. The decrease is attributable to non-cash bad debt
charge, loss due to write down of inventories in 1999 partially offset by an
increase to payroll and related expenses, and other general and corporate
expenses incurred in the current quarter.
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 $54,629 for
the three months ended September 30, 2000, compared to $936,868 for the
corresponding period in 1999, a decrease of 94.1%. The decrease is attributable
to beneficial and induced conversion of debt and debt issuance costs recognized
in 1999 offset by a decrease in interest income earned from cash equivalents in
the current quarter.
Net Loss. As a result of the above factors, MediaX's net loss was
$823,784 for the three months ended September 30, 2000 compared to a net loss of
$1,715,259 for the three months ended September 30, 1999.
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NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
Sales for the nine months ended September 30, 2000 was $1,053,125
compared to $26,919 for the same period last year, an increase of 3812.19%. The
change is attributable to increased website design and executed third party
marketing campaigns and continued growth of MediaX's e-commerce site -
amuZnet.com's customer base; repeat purchases from existing customers of its
network of websites partially offset by decrease in membership dues which
fluctuates depending on touring schedules of major artists.
Cost and Operating Expenses are composed of operating and development
expense, sales and marketing; and general and administrative expense. Operating
and development expense was $1,216,786 for the nine months ended September 30,
2000 compared to $859,193 for the corresponding period in 1999. The increase is
attributable to payroll and associated costs related to website designs and
enhancing the features and functionality of MediaX's network of websites;
increased investment in Internet content, network and telecommunications
infrastructure and; amortization and recognition of a non-cash charge of
$126,454 for options granted partially offset by a 1999 one-time non-cash charge
of $345,600 for options granted to consultants for content acquisitions.
Sales and marketing expense was $505,608 for the nine months ended
September 30, 2000, compared to $378,878 for the same period in 1999. The
increase is attributable to the recognition of prepaid advertising; slight
increase in payroll and related costs; and offset by decrease in public
relations and promotion strategies.
General and administrative expense was $870,361 for the nine months
ended September 30, 2000, compared to $2,462,008 for the nine months ended
September 30, 1999. The decrease is attributable to a net 1999 non-cash charge
of $1,714,018 for shares and options issued for services rendered partially
offset by an increase to payroll and related expenses, and other general and
corporate expenses incurred in the current year.
Total other expense was $94,211 for the three months ended September 30,
2000, compared to $1,375,841 for the corresponding period in 1999. The decrease
is attributable to beneficial and induced conversion of debt and debt issuance
costs recognized in 1999 offset by an increase in interest income earned from
cash equivalents in the current quarter.
Net Loss. As a result of the these factors, MediaX's net loss was
$1,633,841 for the nine months ended September 30, 2000 compared to $5,049,001
for the nine months ended September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, MediaX had positive working capital of $517,025,
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 nine months ended September 30, 2000.
Net cash used in operating activities of $1,573,446 for the nine months
ended September 30, 2000 was primarily attributed to a net loss of $1,633,841,
offset by $44,853 non-cash charge for depreciation and amortization; a $141,691
non-cash charge for stock-based compensation for consulting services and common
stock issued to employees and non-employees; $103,740 for accrued interest on
convertible debt and on stockholder notes receivable; and change in operating
assets and liabilities of $229,889. Net cash used in operating activities of
$1,633,899 for the nine months ended September 30, 1999 was primarily
attributable to a net loss $5,049,001, offset by $34,980 non-cash charge for
depreciation and amortization; a $2,059,618 non-cash charge for stock-based
compensation for consulting services and common stock issued to employees and
non-employees; $1,066,462 for beneficial conversion and induced conversion of
debt; amortization of debt issuance costs of $176,000 and $134,099 for accrued
interest on convertible debt and on stockholder notes receivable; and change in
other operating assets and liabilities of $56,057.
Net cash used in investing activities was $135,083 for the nine months
ended September 30, 2000 and consisted of advances from officer and purchases of
fixed assets. Net cash used in investing activities was $240,160 for the nine
months ended September 30, 1999 and consisted of acquisitions of intangible
assets and purchases of fixed assets.
Net cash provided by financing activities was $960,000 for the nine
months ended September 30, 2000, and consisted of proceeds from subscription
advances, sale of stock to investors and issuance of convertible notes payable.
Net cash provided by financing activities was $3,465,360 for the nine months
ended September 30, 1999, and consisted primarily of net proceeds from sale of
stock to investors, subscription advances, exercise of options and warrants and
issuance of convertible notes payable.
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Although MediaX has 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.
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PART II
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the three months ended September 30, 2000, an investor converted
$104,973 of principal and accrued interest into 185,759 common 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.
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 INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
27 -- Financial Data Schedule.
(b) REPORTS ON FORM 8-K.
None
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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 20, 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.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Nancy Poertner President, Secretary November 20, 2000
------------------------------ and Director
Nancy Poertner
/s/ Rainer Poertner Chairman and Director November 20, 2000
------------------------------
Rainer Poertner
/s/ Matthew MacLaurin Executive V.P. and November 20, 2000
------------------------------ Director
Matthew MacLaurin
/s/ Jacqueline Cabellon,CPA Controller November 20, 2000
------------------------------ (Principal Accounting
Jacqueline Cabellon Officer)
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
27 Financial Data Schedule
