UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
MEDIAX CORPORATION
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(Name of small business issuer in its charter)
Nevada 7374
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(State or jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
84-1107138
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(I.R.S. Employer Identification No.)
8522 National Boulevard, Suite 110, Culver City, CA 90232 (310) 815-8002
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(Address and telephone number of principal executive offices)
8522 National Boulevard, Suite 110, Culver City, CA 90232 (310) 815-8002
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(Address of principal place of business or intended principal place of business)
Nancy Poertner, 8522 National Boulevard, Suite 110, Culver City, CA 90232
Telephone (310) 815-8002, Facsimile (310) 815-8096
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(Name, address and telephone number of agent for service)
Copy to:
Richard O. Weed
Weed & Co. L.P.
4695 MacArthur Court, Suite 530
Newport Beach, CA 92660
Telephone (949) 475-9086
Facsimile (949) 475-9087
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
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If this Form is a post-effective amendment filed pursuant toRule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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If this Form is a post-effective amendment filed pursuant toRule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant toRule 434, check
the following box. [ ]
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<CAPTION>
CALCULATION OF REGISTRATION FEE
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Tile of each Dollar Proposed Proposed Amount of
class of securities amount to maximum offering maximum aggregate registration
to be registered be registered price per unit offering price fee
<S> <C> <C> <C> <C> <C>
$.0001 par value common stock $6,000,000 Mkt Price (1) $6,000,000 (4) $1,584.00
$.0001 par value common stock $500,000 Mkt Price (2) $500,000 (5) $132.00
$.0001 par value common stock underlying $191,400 $1.914 (3) $191,400
Warrants $53.21
Total $6,691,400 $1,769.21
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(1) The price per common share will vary based on the price of MediaX's common
stock during the put periods provided for in the Private Equity Line of Credit
Agreement with Villabeach Investments, Ltd. as described in this registration
statement. The purchase price will be equal to 86% of the single lowest trade
price on the trading day following five day put pricing periods as set out in
the agreement. The agreement allows for issuance and sale of common stock in
puts over a period of 36 months for amounts up to $6,000,000.
(2) The price per common share will vary based on the price of MediaX's common
stock during the period provided for in the Common Stock Purchase Agreement with
AMRO International, S.A. as described in this registration statement. The
purchase price will be equal to 86% of the single lowest trade price of common
stock on its principal market during a period of five trading days prior to the
agreement's closing date. The agreement allows for issuance and sale of up to
$500,000 of common stock.
(3) 100,000 shares of common stock are issuable upon the exercise of a warrant
issued to Villabeach International, Ltd. under the Private Equity Line of Credit
Agreement. The exercise price of these warrants is $1.914. These warrants may be
exercised until October 28, 2003. The proposed maximum offering price per share
has been estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of the Securities Act of 1933, based upon the average of
the high and low reported prices of the registrant's common stock on May __,
2000.
(4) This represents the maximum purchase price that Villabeach Investments Ltd.
is obliged to pay MediaX under the Private Equity Line of Credit Agreement. The
maximum net proceeds MediaX can receive is $6,000,000 less a 3% finder's fee
payable to Triton West Group and $1,000 in escrow fees and expenses per put.
(5) This represents the maximum purchase price that AMRO International, S.A. is
obliged to pay MediaX under the Common Stock Purchase Agreement. The maximum net
proceeds MediaX can receive is $500,000 less a 5% finder's fee payable to Triton
West Group and $5,000 in escrow fees and expenses.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
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The Registrant may amend this registration statement. A registration statement
relating to these securities has been filed with the Securities and Exchange
Commission. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and it is not soliciting an offer to
buy these securities in any state where the offer or sale is not permitted.
PROSPECTUS
Up to $6,500,000 in Shares of Common Stock
100,000 Shares of Common Stock Underlying Warrants
MEDIAX CORPORATION
This prospectus relates to the public offering, which is not being underwritten,
of up to $6,500,000 in shares of common stock, par value $.0001 per share of
MediaX Corporation, a Nevada corporation ("MediaX"). 100,000 additional shares
offered are shares underlying Warrants exercisable at $___ per share. The
Selling Stockholders may offer their shares of common stock through public or
private transactions, on or off the NASDAQ OTC:BB, at prevailing market prices,
or at privately negotiated prices. MediaX will not receive any of the proceeds
from the sale of the shares of common stock by the Selling Stockholders.
However, MediaX will receive the selling price of common stock sold to
Villabeach Investments Ltd. ("Villabeach") and AMRO International, Inc. ("AMRO")
under the common stock purchase agreements described in this prospectus or upon
the exercise for cash of the stock purchase warrants issued to Villabeach.
Villabeach and AMRO and other stockholders who may offer and sell shares of our
common stock under this prospectus are "Selling Stockholders." Villabeach may be
considered an "underwriter" within the meaning of the Securities Act of 1933 in
connection with its sales.
MediaX's common stock is traded on NASDAQ OTC:BB, the under symbol "MXMX." On
May 26, 2000 the last reported sale price for the common stock was $0.875 per
share. MediaX will pay the costs of registering the shares under this
prospectus, including legal fees.
You should carefully consider the risk factors beginning on page 6 of this
prospectus before purchasing any of the common stock offered by this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or determined if
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is May 30, 2000.
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No Persons Have Been Authorized to Give Any Information or to Make Any
Representations Other Than Those Contained or Incorporated by Reference in This
Prospectus And, If Given or Made, Such Information or Representation Must Not Be
Relied Upon as Having Been Authorized by MediaX. This Prospectus Does Not
Constitute an Offer to Sell or a Solicitation of an Offer to Buy Any Securities
Other Than Those to Which it Relates, or an Offer or Solicitation With Respect
to Those Securities to Which it Relates to Any Persons in Any Jurisdiction Where
Such Offer or Solicitation Would Be Unlawful. The Delivery of This Prospectus at
Any Time Does Not Imply That The Information Contained or Incorporated by
Reference Herein at Its Date Is Correct as of Any Time Subsequent to Its Date.
Table of Contents
Prospectus Summary.............................................................
Risk Factors...................................................................
Available Information..........................................................
Use of Proceeds................................................................
Determination of Offering Price................................................
Dilution.......................................................................
Selling Security Holders.......................................................
Plan of Distribution...........................................................
Legal Proceedings..............................................................
Directors, Executive Officers, Promoters and Control Persons...................
Security Ownership of Certain Beneficial Owners and Management.................
Description of Securities......................................................
Interest of Named Experts and Counsel..........................................
Disclosure on Commission Position on Indemnification for Securities Act
Liabilities............................................
Organization Within Last Five Years............................................
MediaX ........................................................................
Management's Discussion and Analysis or Plan of Operation......................
Description of Property........................................................
Certain Relationships and Related Transactions.................................
Market for Common Equity and Related Stockholder Matters.......................
Executive Compensation.........................................................
Financial Statements...........................................................
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.................................... ...............................
Until ____, 2000 (25 days after the commencement of this offering), all dealers
that effect transactions in these securities, whether or not participating in
this offering, may be required to deliver a prospectus. This is in addition to
the obligation of dealers to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
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PROSPECTUS SUMMARY
MediaX Corporation
MediaX Corporation, a Nevada corporation ("MediaX"), operates primarily in
e-commerce, multimedia services and product development. MediaX has obtained
rights to intellectual properties, and produces and publishes multimedia
software and content mainly for the Internet and for Satellite broadcasting
channels. As a principal part of its business, MediaX designs and hosts
high-value celebrity web sites such as rodstewartlive.com and divinemusik.com
and others. In February 1999, MediaX initiated amuZnet.com, an e-commerce site
offering more than 300,000 entertainment titles on CDS, DVDs and videos by major
record labels and studios and over 4,000 independent music labels for purchase
on-line. MediaX purposely directs the high-traffic generated by the celebrity
web sites through amuZnet.com with a simple link. This site is constantly
updated and developed into a "destination site" serving increasing revenue
streams through its e-commerce and third party advertising model.
In the future, MediaX plans to provide the same services on an interactive
satellite channel, which will be launched in late 2000. Contracts are signed
with EchoStar, one of the largest satellite providers, to implement this model
for interactive satellite distribution.
MediaX is located at 8522 National Boulevard, Suite 110, Culver City, California
90232 and its telephone number is (310) 815-8002.
The Offering
MediaX and Villabeach Investments Ltd. ("Villabeach") signed a Private Equity
Line of Credit Agreement ("Credit Agreement") dated April 26, 2000, for the
future issuance and purchase of MediaX common stock. The investor, Villabeach,
has committed up to $6 million to purchase MediaX common stock over a period of
36 months. Once every 15 trading days, MediaX may request, at its discretion, a
put of up to $500,000 of that money, subject to adjustments based on a formula
of the common stock price over a particular trading period and average trading
volume. At the closing date for a put request, the parties will calculate the
amount of money that Villabeach will provide to MediaX and the number of shares
that MediaX will issue to Villabeach in return for that money, based on the
formula in the Credit Agreement.
Villabeach will receive a fourteen percent (14%) discount to the market price
for a five day trading period as set out in the Credit Agreement and MediaX will
receive the entire purchase price less a 3.3% cash finder's fee to Triton West
Group and an escrow agent fee of $1,000 per put. Further, pursuant to the Credit
Agreement, MediaX issued to Villabeach warrants to purchase 100,000 shares of
common stock at an exercise price of $1.914. The common stock issuable upon
exercise of those warrants is included in the registration upon which this
registration statement is a part.
MediaX and AMRO International, S.A. ("AMRO") signed a Common Stock Purchase
Agreement ("Purchase Agreement") dated April 25, 2000, for the issuance and sale
of $500,000 of MediaX common stock. At the closing date, the parties will
calculate the amount of money that AMRO will provide to MediaX and the number of
shares that MediaX will issue to AMRO in return for that money. AMRO will
receive a fourteen percent (14%) discount to the market price for a five day
trading period as set out in the Purchase Agreement and MediaX will receive the
entire purchase price less a 5% cash finder's fee to Triton West Group and an
escrow agent fee of $5,000.
RISK FACTORS
Before purchasing the shares offered by this prospectus, you should carefully
consider the risks described below, in addition to the other information
presented in this prospectus or incorporated by reference into this prospectus.
If any of the following risks actually occur, they could adversely effect
MediaX's business, financial condition or results of operations. In such case,
the trading price of MediaX's common stock could decline and you may lose all or
part of your investment.
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MediaX Has A Limited Operating History, Has Experienced Losses, and Expects
Future Losses Which May Affect Future Profits.
MediaX was formed in 1996, and began selling software products in 1997 and music
related products through e-commerce in February 1999. Accordingly, MediaX has
only a limited operating history on which to base an evaluation of its business
and prospects. MediaX's prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in their early
stage of development, particularly companies in new and rapidly evolving markets
such as e-commerce. Such risks include, but are not limited to, possible
inability to respond promptly to changes in a rapidly evolving and unpredictable
business environment and the risk of inability to manage growth. To address
these risks, MediaX must, among other things, expand its customer base,
successfully implement its new business and marketing strategies, continue to
develop and upgrade its Web site and transaction-processing systems, provide
superior customer service, respond to competitive developments, and attract and
retain qualified personnel. If MediaX is not successful in addressing such
risks, it will be materially adversely affected.
Since Inception, MediaX Has Incurred Significant Losses, and for the Year Ended
December 31, 1999 Had Accumulated Losses of $13 Million.
For the year ended December 31, 1999, MediaX's net loss was $7,244,707. MediaX
intends to invest heavily in marketing and promotion, technology, and
development of its administrative organization. As a result, MediaX believes
that it may incur substantial operating losses for the foreseeable future, and
that the rate at which such losses may be incurred may increase significantly
from current levels. Because MediaX has few sales and small product gross
margins, achieving profitability given planned investment levels depends upon
MediaX's ability to generate and sustain substantially increased revenue levels.
There can be no assurance that MediaX will be able to generate sufficient
revenues to achieve or sustain profitability in the future.
MediaX May Require Additional Capital in The Future Which May Not Be Available.
At December 31, 1999, MediaX had a positive working capital of $1,087,082 as
compared to negative working capital of $1,773,728 at December 31, 1998.
MediaX's success and ongoing financial viability is contingent upon the success
of its new e-commerce model, and the generation of related cash flows. There is
no assurance that such contingencies will be met in the future to meet the
capital needs of MediaX. Should there be any significant delays in the release
of new products, or lack of acceptance in the marketplace for such products if
released, or if MediaX's working capital needs otherwise exceed its resources,
the adverse consequences would be severe. The generation of MediaX's current
growth and the expansion of the MediaX's current business involve significant
financial risk and require significant capital investment.
Further, MediaX anticipates that its available cash resources combined with the
maximum stock purchase amount in its agreements with Villabeach and AMRO will be
sufficient to meet its anticipated working capital and capital expenditure
requirements for the next twelve months. However, a decline in the trading
volume or price of its common stock may reduce the purchase price of MediaX
common stock, as set forth under the agreements, and therefore, money available
to MediaX.
MediaX May Be Unable To Continue To Operate As A Going Concern.
MediaX has experienced recurring net losses and has limited liquid resources.
Management's intent is to increase MediaX's sales and to continue searching for
additional sources of capital. In the interim, MediaX will continue operating
with minimal overhead and administrative functions will be provided by key
employees and consultants, some of whom are compensated primarily in the form of
MediaX's common stock. MediaX may need to utilize its common stock to fund some
of its operations through fiscal 2000. The financial statements incorporated by
reference herein have been presented under the assumption that MediaX will
continue as a going concern.
MediaX's Operations Are Dependent on Continued Growth of Online Commerce.
MediaX's long-term viability is substantially dependent upon the widespread
consumer acceptance and use of the Internet as a medium of commerce. Use of the
Internet as a means of effecting retail transactions and as an advertising media
is at an early stage of development, and demand and market acceptance for
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recently introduced services and products over the Internet is very uncertain.
MediaX cannot predict the extent to which consumers will be willing to shift
their purchasing habits from traditional retailers to online retailers. The
Internet may not become a viable commercial marketplace. In addition, the
Internet's viability as a commercial marketplace could be adversely affected by
delays in the development of services or due to increased government regulation.
Changes in or insufficient availability of telecommunications services to
support the Internet also could result in slower response times and could
adversely affect usage of the Internet generally and MediaX in particular.
Moreover, adverse publicity and consumer concern about the security of
transactions conducted on the Internet and the privacy of users may also inhibit
the growth of commerce on the Internet. If the use of the Internet does not
continue to grow or grows more slowly than expected, or if the infrastructure
for the Internet does not effectively support growth that may occur, MediaX
would be materially adversely affected.
The Multi-Media And Internet Markets Are Highly Competitive And MediaX May Not
Be Able To Compete Successfully Against Increased Competition in this Area.
MediaX is a minor participant among companies which engage in multimedia and
Internet content development. Many of these companies have significantly greater
capitalization and experience in this industry. The online commerce market is
new, rapidly evolving and intensely competitive, and MediaX expects that
competition will further intensify in the future. Barriers to entry are minimal,
and current and new competitors can launch new sites at a relatively low cost.
In addition, the broader retail music industry is intensely competitive. MediaX
currently competes with a variety of companies, including other established
online vendors and traditional retailers of entertainment, music and multimedia
products. Many of these traditional retailers also support dedicated Web sites
which compete directly with MediaX.
There can be no assurance that MediaX will be able to compete successfully
against current and future competitors. New technologies and the expansion of
existing technologies may increase the competitive pressures of MediaX.
MediaX Is Substantially Dependent On Key Personnel And May Not Be Able To Hire
And Retain Sufficient Technical And Support Personnel That It Requires To
Succeed.
MediaX's success is substantially dependent on the ability and experience of its
senior management and other key personnel, particularly Nancy Poertner,
President, and Rainer Poertner, Chairman of the Board. Moreover, to accommodate
its anticipated growth, MediaX may need to expand its employee base. Competition
for personnel, particularly persons having software development and other
technical expertise, is intense, and there can be no assurance that MediaX will
retain existing personnel or hire additional, qualified personnel. The inability
of MediaX to retain and attract the necessary personnel or the loss of services
of any of its key personnel could have a material adverse effect on MediaX.
MediaX Increasingly Relies on Strategic Alliances and Online and Traditional
Advertising to Attract Users to its Web Site, and Therefore, Maintain
Profitability.
MediaX has entered into strategic alliances with AOL, and Yahoo!, Microsoft and
RealNetworks. MediaX's ability to generate increased revenues largely will
depend on increased traffic and purchases through these alliances. There can be
no assurance that MediaX's strategic alliances will generate a substantial
number of new customers or net sales or that MediaX's infrastructure will be
sufficient to handle the increased traffic that may result therefrom. Moreover,
there can also be no assurance that MediaX will be able to successfully renew
advertising programs or maintain its strategic alliances beyond their initial
terms or that additional third-party alliances will be available to MediaX on
acceptable commercial terms or at all. MediaX expects to promote its brand name
through a campaign that includes online and radio advertising. The inability to
maintain and further develop its advertising campaign or strategic alliances
could have a material adverse effect on MediaX.
System Failures May Delay or Suspend MediaX's Operations.
MediaX's business is dependent on the efficient and uninterrupted operation of
its computer and communications hardware systems. MediaX's systems and
operations are vulnerable to damage or interruption from fire, flood, power
loss, telecommunications failure, break-ins, earthquake and similar events. Any
system interruptions, including any interruptions in MediaX's Internet
connections or internal systems problems, that result in the unavailability of
MediaX's Web site or reduced transaction processing performance would reduce the
attractiveness of MediaX's product offerings and could, therefore, materially
adversely affect MediaX. Substantially all of MediaX's computer and
communications hardware is located at a single leased facility in Santa Cruz,
CA.
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MediaX's Online Commerce Business Is Subject to Security Risks.
A significant barrier to online commerce is concern regarding the security of
transmission of confidential information. MediaX relies on outside third parties
to facilitate the secure transmission of confidential information, such as
customer credit card numbers. Nevertheless, MediaX's infrastructure is
potentially vulnerable to physical or electronic computer break-ins, viruses and
similar disruptive problems. A party who is able to circumvent MediaX's security
measures could misappropriate proprietary information or cause interruptions in
MediaX's operations. To the extent that activities of MediaX or third-party
contractors involve the storage and transmission of proprietary information,
such as credit card numbers, such security breaches could expose MediaX to a
risk of loss or litigation and possible liability. Therefore, MediaX may be
required to expend significant capital and other resources to protect against
such security breaches or to alleviate problems caused by such breaches. There
can be no assurance that MediaX's security measures will prevent security
breaches or that failure to prevent such security breaches will not have a
material adverse effect on MediaX.
MediaX's Common Stock Price Is Highly Volatile And May Adversely Affect The
Market Price Of Such Stock.
The market price of the common stock has been, and is likely to remain, highly
volatile as is frequently the case with unseasoned public companies and Internet
companies in particular. Quarterly operating losses of MediaX, deviations in
losses of operations from estimates of securities analysts, changes in general
conditions in the economy, in Internet commerce and in the music retailing
industry, or other developments affecting MediaX or its competitors could cause
the market price of the common stock to fluctuate substantially. The equity
markets have, on occasion, experienced significant price and volume fluctuations
that have affected the market prices for many companies' securities and that
have often been unrelated to the operating performance of these companies. Any
such fluctuations that occur following completion of this offering may adversely
affect the market price of the common stock.
MediaX Is Subject To Government Regulation and Legal Uncertainties Which May
Adversely Affect Its Operations.
MediaX is subject, both directly and indirectly, to various laws and regulations
relating to its business, although there are few laws or regulations directly
applicable to access to the Internet. However, due to the increasing popularity
and use of the Internet, it is possible that a number of laws and regulations
may be adopted with respect to the Internet. Such laws and regulations may cover
issues such as user privacy, pricing, content, copyrights, distribution and
characteristics and quality of products and services. Furthermore, the growth
and development of the market for online commerce may prompt calls for more
stringent consumer protection laws that may impose additional burdens on those
companies conducting business online. The enactment of any additional laws or
regulations may impede the growth of the Internet which could, in turn, decrease
the demand for MediaX's products and services and increase MediaX's cost of
doing business, or otherwise have an adverse effect on MediaX.
The applicability to the Internet of existing laws in various jurisdictions is
uncertain and could expose MediaX to substantial liability. The laws of certain
foreign countries provide the owner of copyrighted products with the exclusive
right to expose, through sound and video samples, copyrighted items for sale to
the public and the right to distribute such products. Any new legislation or
regulation, or the application of existing laws and regulations to the Internet
could have a material adverse effect on MediaX.
MediaX believes that its use of third party material on its Web sites is
permitted under current provisions of copyright law. However, legal rights to
certain aspects of Internet content and commerce are not clearly settled and
MediaX's ability to rely upon one or more exemptions or defenses under copyright
law is uncertain. There can be no assurance that MediaX will be able to continue
to provide rights to such information. The failure to be able to offer such
information could have a material adverse effect on MediaX.
In addition, several telecommunications carriers are seeking to have
telecommunications over the Internet regulated by the Federal Communications
Commission (the "FCC") in the same manner as other telecommunications services.
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For example, America's Carriers Telecommunications Association has filed a
petition with the FCC for this purpose. In addition, because the growing
popularity and use of the Internet has burdened the existing telecommunications
infrastructure and many areas with high Internet use have begun to experience
interruptions in phone service, local telephone carriers, such as Pacific Bell,
have petitioned the FCC to regulate Internet service providers and online
service providers in a manner similar to long distance telephone carriers and to
impose access fees on such providers. If either of these petitions are granted,
or the relief sought therein is otherwise granted, the costs of communicating on
the Internet could increase substantially, potentially slowing the growth in use
of the Internet. Any such new legislation or regulation or application or
interpretation of existing laws could have a material adverse effect on MediaX's
business, results of operations and financial condition.
Further, in April 2000, the Children's Online Privacy Protection Act of 1998, 16
CFR Part 312 ("COPPA"), became effective. COPPA, which applies to commercial web
sites and online services directed to or that knowingly collect information from
children under 13, imposes liability for web sites who do not follow substantial
safeguards and formalities in the collection of information. Although MediaX
believes that COPPA does not directly apply to it and that the cost of
compliance is minimal, any changes in the existing regulation or in MediaX's
websites could result in substantial compliance costs and/or liability for
MediaX.
MediaX May Face Possible Liability For Publishing Or Distributing Content Over
The Internet.
Due to the fact that MediaX may be considered a publisher or distributor of both
its own and third party content, there is a potential that claims will be made
against MediaX for defamation, negligence, copyright or trademark infringement,
invasion of privacy and publicity, unfair competition or other theories based on
the nature and content of such material. Such claims have been brought, and
sometimes successfully pressed, against online services in the past. For
example, claims could be made against MediaX if material deemed inappropriate
for viewing by young children could be accessed through MediaX Web sites.
Although MediaX carries general liability insurance, MediaX's insurance may not
cover potential claims of this type or may not be adequate to cover all costs
incurred in defense of potential claims or to indemnify MediaX for all liability
that may be imposed. Any cost or imposition of liability that is not covered by
insurance or is in excess of insurance coverage could have a material adverse
effect on MediaX.
MediaX Relies Primarily On One Provider For Order Fulfillment Of Recorded Music
Titles And Other Related Products, Loss Of Which May Adversely Affect
Operations.
MediaX has no fulfillment operation or facility of its own and, accordingly, is
dependent upon maintaining its existing relationship or establishing a new
fulfillment relationship with one of the few other fulfillment operations. There
can be no assurance that MediaX will maintain its current relationship with its
primary fulfillment vendor beyond the term of its existing agreement which
expires on December 18, 2001 or that it will be able to find an alternative,
comparable vendor capable of providing fulfillment services on terms
satisfactory to MediaX should its relationship with its current fulfillment
vendor terminate. An unanticipated termination of MediaX's relationship with its
current fulfillment vendor could materially adversely affect MediaX's results of
operations.
Mediax's Common Stock Is Traded On A Limited Public Market, Which May Impact
Stockholders' Ability To Liquidate Their Investments.
MediaX's common stock is traded on the Nasdaq OTC Bulletin Board which tends to
be comprised of small businesses of regional interest with limited trading
activity. Although MediaX intends to submit an application to list the common
stock on Nasdaq's National Market System or Small Cap System as soon as it meets
the listing qualifications, there can be no assurance that MediaX's securities
will qualify for listing on Nasdaq's National Market System or Small Cap System
or on any other exchange.
There May Be Dilutive Effects Of The Equity Line Of Credit Agreement With
Villabeach.
The sale of stock pursuant to the equity line of credit agreement with
Villabeach may have a dilutive impact on our stockholders. As a result, our net
income per share could be materially decreased, or net loss per share materially
increased, in future periods and the market price of our common stock could be
materially and adversely affected. The shares of common stock to be issued under
the equity line of credit agreement, will be issued at a discount to the
then-prevailing market price of the common stock. These discounted sales could
have an immediate adverse effect on the market price of the common stock.
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MediaX Has Never Declared Or Paid Any Dividends On The Common Stock And Does Not
Anticipate Paying Any Cash Dividends On The Common Stock In The Foreseeable
Future.
AVAILABLE INFORMATION
MediaX files annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any document MediaX files with the Commission at the Commission's Public
Reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the Commission at 1-800-SEC-0330 for further information on the public reference
room. MediaX's Commission filings are also available to the public at the
Commission's web site at http://www.sec.gov.
You may also request a copy of these filings, at no cost, by writing or
telephoning as follows:
MediaX Corporation
Attention: Investor Relations
8522 National Boulevard, Suite #110
Culver City, CA 90232
(310) 815-8002
This prospectus is part of a registration statement on Form SB-2 MediaX filed
with the SEC under the Securities Act. You should rely only on the information
or representations provided in this prospectus. MediaX has not authorized anyone
to provide you with different information other than the information contained
in this prospectus. MediaX is not making an offer of these securities in any
state where the offer is not permitted. You should not assume that the
information in this prospectus is accurate as of any date other than the date on
the front of the document.
FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, the matters discussed in
this prospectus are forward-looking statements that are subject to certain risks
and uncertainties that could cause actual results to differ materially from
those set forth in such forward looking statements. Such risks and uncertainties
include, without limitation, MediaX's dependence on the timely development,
introduction and customer acceptance of products, the impact of competition and
downward pricing pressures, the ability of MediaX to generate revenues and raise
any needed capital, the effect of changing economic conditions, and risks in
technology development.
USE OF PROCEEDS
MediaX will not receive any of the proceeds for the sale of the shares by
Villabeach that were obtained under the Private Equity Line of Credit Agreement.
MediaX will not receive any of the proceeds for the sale of the shares by AMRO
under the Common Stock Purchase Agreement. However, MediaX will receive the sale
price of common stock sold under such agreements described in this prospectus
and upon the exercise of the warrants held by Villabeach if it pays the exercise
price in cash. MediaX expects to use the proceeds of any such sales for general
working capital purposes.
DETERMINATION OF OFFERING PRICE
Not applicable.
DILUTION
Not applicable.
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SELLING SECURITY HOLDERS
Villabeach Investments Ltd.
Villabeach Investments Ltd. ("Villabeach") is engaged in the business of
investing in publicly traded investment securities for its own account.
Villabeach is located at Aeulestrasse 74, FL-9490 Vaduz, Liechtenstein.
Investment decisions for Villabeach are made by its board of directors. Other
than the warrants MediaX issued to Villabeach in connection with the closing of
the Private Equity Line of Credit Agreement, Villabeach does not currently own
any securities of MediaX. Other than its obligation to purchase common stock of
MediaX under the Private Equity Line of Credit Agreement, it has no other
commitments or arrangements to purchase or sell any of MediaX's securities.
There are no business relationships between Villabeach and MediaX other than the
Equity Line of Credit Agreement.
AMRO International, S.A.
AMRO International, S.A. ("AMRO") is engaged in the business of investing in
publicly traded investment securities for its own account. AMRO is located at
AMRO International, S.A., c/o Ultrafinanz AG, Grossmuensterplatz AG, Zurich
CH-8022 Switzerland. Investment decisions for AMRO are made by its board of
directors. Other than in connection with this agreement, AMRO owns 326,584
shares of common stock of MediaX. AMRO has no other commitments or arrangements
to purchase or sell any of MediaX's securities. There are no business
relationships between AMRO and MediaX other than the Common Stock Purchase
Agreement.
PLAN OF DISTRIBUTION
General
Villabeach is offering the common shares for its account as statutory
underwriter, and not for our account. MediaX will not receive any proceeds from
the sale of common shares by Villabeach. Villabeach may be offering for sale up
to $6,000,000 common shares acquired by it pursuant to the terms of the Private
Equity Line of Credit Agreement and the warrants MediaX issued to it in
connection with the transaction. Villabeach has agreed to be named as a
statutory underwriter within the meaning of the Securities Act of 1933 in
connection with such sales of common shares and will be acting as an underwriter
in its resales of the common shares under this prospectus. Villabeach has, prior
to any sales, agreed not to effect any offers or sales of the common shares in
any manner other than as specified in the prospectus and not to purchase or
induce others to purchase common shares in violation of any applicable state and
federal securities laws, rules and regulations and the rules and regulations of
the principal trading market of MediaX.
To permit Villabeach to resell the common shares issued to it under the stock
purchase agreement, MediaX agreed to register those shares and to maintain that
registration. To that end, MediaX agreed with Villabeach that MediaX will
prepare and file such amendments and supplements to the registration statement
and the prospectus as may be necessary in accordance with the Securities Act and
the rules and regulations promulgated thereunder, in order to keep it effective
until the earliest of any of the following dates:
o the date after which all of the common shares held by Villabeach or its
transferees that are covered by the registration statement of which this
prospectus is a part have been sold under the provisions of Rule 144
under the Securities Act of 1933;
o the date after which all of the common shares held by Villabeach or its
transferees that are covered by the registration statement have been
transferred to persons who may trade such shares without restriction
under the Securities Act of 1933 and MediaX has delivered new
certificates or other evidences of ownership of such common shares
without any restrictive legend;
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o the date after which all of the common shares held by Villabeach or its
transferees that are covered by the registration statement have been sold
by Villabeach or its transferees pursuant to such registration statement;
o the date after which all of the common shares held by Villabeach or its
transferees that are covered by the registration statement may be sold,
in the opinion of our counsel, under Rule 144 under the Securities Act of
1933 irrespective of any applicable volume limitation;
o the date after which all of the common shares held by Villabeach or its
transferees that are covered by the registration statement may be sold,
in the opinion of our counsel, without any time, volume or manner
limitations under Rule 144(k) or similar provision then in effect under
the Securities Act of 1933; or
o the date after which none of the common shares held by Villabeach that
are covered by the registration statement are or may become issued and
outstanding.
Shares of common stock offered through this prospectus may be sold from time to
time by Villabeach, AMRO or by pledgees, donees, transferees or other successors
in interest. Such sales may be made on the over-the-counter market or otherwise
at prices and at terms then prevailing or at prices related to the then current
market price, or in negotiated private transactions, or in a combination of
these methods. The selling stockholders will act independently of us in making
decisions with respect to the form, timing, manner and size of each sale. MediaX
is not aware of any existing arrangement between any selling stockholder, any
other stockholder, broker, dealer, underwriter or agent relating to the sale or
distribution of shares of common stock which may be sold by selling stockholders
through this prospectus.
The common shares may be sold in one or more of the following manners:
o a block trade in which the broker or dealer so engaged will attempt to
sell the shares as agent, but may position and resell a portion of the
block as principal to facilitate the transaction;
o purchases by a broker or dealer for its account under this prospectus;
or
o ordinary brokerage transactions and transactions in which the broker
solicits purchases.
In effecting sales, brokers or dealers engaged by the selling stockholders may
arrange for other brokers or dealers to participate. Except as disclosed in a
supplement to this prospectus, no broker-dealer will be paid more than a
customary brokerage commission in connection with any sale of the common shares
by the selling stockholders. Brokers or dealers may receive commissions,
discounts or other concessions from the selling stockholders in amounts to be
negotiated immediately prior to the sale. The compensation to a particular
broker-dealer may be in excess of customary commissions. Profits on any resale
of the common shares as a principal by such broker-dealers and any commissions
received by such broker-dealers may be deemed to be underwriting discounts and
commissions under the Securities Act of 1933. Any broker-dealer participating in
such transactions as agent may receive commissions from the selling stockholders
(and, if they act as agent for the purchaser of such common shares, from such
purchaser).
Broker-dealers may agree with the selling stockholders to sell a specified
number of common shares at a stipulated price per share, and, to the extent such
a broker dealer is unable to do so acting as agent for the selling stockholders,
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to purchase as principal any unsold common shares at price required to fulfill
the broker-dealer commitment to the selling stockholders. Broker-dealers who
acquire common shares as principal may thereafter resell such common shares from
time to time in transactions (which may involve crosses and block transactions
and which may involve sales to and through other broker-dealers, including
transactions of the nature described above) in the over-the-counter market, in
negotiated transactions or otherwise at market prices prevailing at the time of
sale or at negotiated prices, and in connection with such resales may pay to or
receive from the purchasers of such common shares commissions computed as
described above. Such brokers or dealers and any other participating brokers or
dealers may be deemed to be underwriters in connection with such sales.
In addition, any common shares covered by this prospectus which qualify for sale
pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this
prospectus. MediaX will not receive any of the proceeds from the sale of these
common shares, although MediaX has paid the expenses of preparing this
prospectus and the related registration statement of which it is a part, and has
reimbursed Villabeach $10,000 and AMRO $5,000 for their legal, administrative
and escrow costs.
Selling stockholders are subject to the applicable provisions of the Exchange
Act, including without limitation, Rule 10b-5 thereunder. Under applicable rules
and regulations under the Exchange Act, any person engaged in a distribution of
the common shares may not simultaneously engage in market making activities with
respect to such securities for a period beginning when such person becomes a
distribution participant and ending upon such person's completion of
participation in a distribution, including stabilization activities in the
common shares to effect covering transactions, to impose penalty bids or to
effect passive market making bids. In addition, in connection with the
transactions in the common shares, selling stockholders and MediaX will be
subject to applicable provisions of the Exchange Act and the rules and
regulations under that Act, including, without limitation, the rules set forth
above. These restrictions may affect the marketability of the common shares.
The selling stockholders will pay all commissions and certain other expenses
associated with the sale of the common shares.
The price at which MediaX will issue the common shares to Villabeach under the
Private Equity Line of Credit Agreement will be 86% of the single lowest daily
price traded on the OTC Electronic Bulletin Board, for each day in the pricing
period with respect to each put.
Limited Grant of Registration Rights
MediaX granted registration rights to Villabeach and AMRO to enable them to sell
the common stock they purchase under the Equity Line of Credit Agreement and
Common Stock Purchase Agreement, respectively. In connection with any such
registration, MediaX will have no obligation -
o to assist or cooperate with Villabeach or AMRO in the offering or
disposition of such shares;
o to indemnify or hold harmless the holders of any such shares (other than
Villabeach or AMRO) or any underwriter designated by such holders;
o to obtain a commitment from an underwriter relative to the sale of any
such shares; or
o to include such shares within any underwritten offering we do.
MediaX will assume no obligation or responsibility whatsoever to determine a
method of disposition for such shares or to otherwise include such shares within
the confines of any registered offering other than the registration statement of
which this prospectus is a part.
MediaX will use its best efforts to file, during any period during which we are
required to do so under our registration rights agreement with Villabeach and
AMRO, one or more post-effective amendments to the registration statement of
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which this prospectus is a part to describe any material information with
respect to the plan of distribution not previously disclosed in this prospectus
or any material change to such information in this prospectus. This obligation
may include, to the extent required under the Securities Act of 1933, that a
supplemental prospectus be filed, disclosing
o the name of any broker-dealers;
o the number of common shares involved;
o the price at which the common shares are to be sold;
o the commissions paid or discounts or concessions allowed to
broker-dealers, where applicable;
o that broker-dealers did not conduct any investigation to verify the
information set out or incorporated by reference in this prospectus, as
supplemented; and
o any other facts material to the transaction.
The registration rights agreements with Villabeach and AMRO permits MediaX to
restrict the resale of the shares they have purchased from us under their
respective agreements for a period of time sufficient to permit us to amend or
supplement this prospectus to include material information. If MediaX restricts
Villabeach or AMRO for more than 30 consecutive days and our stock price
declines during the restriction period, we are required to pay the parties cash
to compensate for its inability to sell shares during the restriction period.
The amount MediaX would be required to pay would be the difference between our
stock price on the first day of the restriction period and the last day of the
restriction period, for each share held by Villabeach or AMRO during the
restriction period that has been purchased under the agreements.
LEGAL PROCEEDINGS
Valley Media, Inc. ("Valley") commenced an arbitration proceeding against 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, MediaX was ordered to pay
an arbitration award of $170,000 plus costs of approximately $13,000 to an order
fulfillment company. MediaX is in the process of challenging the arbitrator's
authority and the arbitration provisions in the written agreement. MediaX
intends to vigorously appeal any adverse ruling.
There are no other legal proceedings in which MediaX is involved.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The directors and executive officers of MediaX, their ages, positions held in
MediaX, and duration as such, are as follows:
NAME AGE POSITION HELD AND TENURE
Nancy Poertner 44 President, Secretary and
Director since February 23, 1996
Rainer Poertner 52 Director since February 23, 1996
Matthew MacLaurin 33 Director, Executive V.P.
since June 27, 1996
Jacqueline Cabellon 38 Controller since November 16, 1998
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BUSINESS EXPERIENCE
The following is a brief account of the education and business experience during
at least the past five years of MediaX's directors, executive officers, and key
employees, indicating the principal occupation and employment during that
period, and the name and principal business of the organization in which such
occupation and employment were carried out.
NANCY POERTNER, PRESIDENT, SECRETARY AND DIRECTOR. Ms. Poertner has been
involved in the entertainment industry since 1979. From 1981 to December 1995,
she was Vice President for a major artist management company based in Los
Angeles, where she was responsible for all aspects of artist management domestic
and international touring, marketing, promotion and album recordings. In
addition, from 1991 to December 1995, she led the international department of a
major record label distributed through MCA, resulting in sales generating five
international gold records, five top fifteen singles and two number one
positions. Several of the entertainers she has worked with include Matthew
Broderick, Rod Stewart, Toni Braxton, Suzanne Hoffs (Bangles) and recording
artist Morrissey. As a result of her years in the business, Ms. Poertner has
extensive personal relationships throughout the domestic and international film
and recording industries. Ms. Poertner was educated overseas, graduated with a
Bachelor of Arts in Education and taught in Afghanistan and Turkey through the
Peace Corps.
RAINER POERTNER, DIRECTOR. Mr. Poertner has served as a Director of MediaX since
February 23, 1996. Mr. Poertner has a twelve-year track record of bringing new
and innovative computer hardware and software technology to the international
market place. He has served as President and a Director of Syncronys Softcorp
since May 8, 1995, and as Chief Executive Officer since July 1, 1995. He left
the company to fully concentrate on MediaX in July 1998. He co-founded Seamless
Software Corporation ("Seamless") and served as Director and as President of
Seamless from its inception in May 1993 until its merger with Syncronys Softcorp
on May 8, 1995. After having held several positions in the European and U.S.
entertainment industries, he founded Hybrid Arts, Inc., in 1986 by arranging $3
million of venture financing for ADAP - the first Direct-to-Disk Digital
Recording System. After arranging Hybrid Art's sale in 1991, Mr. Poertner became
a consultant for Hydra Systems, Inc., which developed and marketed ANDOR - a
fully functional Macintosh CPU on a PC peripheral card. Hydra Systems
subsequently sold the technology and the inherent rights to a company in Seoul,
South Korea in 1992. Mr. Poertner received degrees in economics from the
University of Frankfurt in 1975 and the Klinger Business School in 1973.
Rainer Poertner and Nancy Poertner are husband and wife.
MATTHEW MACLAURIN, EXECUTIVE VICE PRESIDENT. Mr. MacLaurin's experience
stretches back to the early days of personal computers when, 17 years ago, he
developed games for the Commodore Pet 2001. Later, Mr. MacLaurin joined Sapiens
Software to create tools for artificial intelligence engineering on the IBM PC
XT platform. He was the key engineer for the development and implementation of
Common Lisp, a computer language for the 640K DOS platform. At Apple Computer he
secured funding for, designed and led the development of the patented GATE
system, a leading-edge artificial intelligence testing system. In Apples
Advanced Product Group, he led the development of a revolutionary pen-based
computer called Bauhaus, which incorporated handwriting recognition and an
advanced artificial intelligence memory system. In 1994, Mr. MacLaurin joined
forces with Gaben Chancellor to found the original MediaX, Inc.
JACQUELINE CABELLON, CPA. Ms. Cabellon has been controller of MediaX since
November 16, 1998. Prior to that, Ms. Cabellon practiced as a certified public
accountant assisting companies with consulting and accounting projects since
January, 1993. Prior to that time, she was an accountant with local accounting
firms since December, 1986.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
No persons who were either a Director, Officer or beneficial owner of more than
10% of MediaX's common stock, failed to file on a timely basis reports required
by Section 16(a) of the Exchange Act during the most recent fiscal year.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 2000 the stock ownership of each
person known by MediaX to be the beneficial owner of five percent or more of
MediaX's common stock, each Officer and Director individually, and all Officers
and Directors as a group. Each person has sole voting and investment power over
the shares except as noted.
<TABLE>
<CAPTION>
Title Of Class Name and Address of Beneficial Owner Amount and Nature of Percent of
Beneficial Owner Class
------------------------ -------------------------------------- ---------------------------- -------------
<S> <C> <C> <C>
$.0001 par value Nancy Poertner 1,359,375 (1)(2) 14.41%
common stock 8522 National City Blvd.
Suite 110
Culver City, CA 90232
$.0001 par value Rainer Poertner 1,359,375 (1)(2) 14.41%
common stock 8522 National City Blvd.
Suite 110
Culver City, CA 90232
$.0001 par value Assisi Limited Partnership 1,359,375 (1)(2) 14.41%
common stock 10866 Wilshire Blvd., 15th Floor
Los Angeles, CA 90024
$.0001 par value Matthew MacLaurin 645,625 (3) 6.84%
common stock 8522 National City Blvd.
Suite 110
Culver City, CA 90232
$.0001 par value All directors and officers 2,005,000 (1)(2)(3) 21.25%
common stock
$.0001 par value Liviakis Financial 888,800 (4) 9.42%
common stock Communications, Inc.
495 Miller Ave., Third Floor
Mill Valley, CA 94941
$.0001 par value Apple Investors LLC 658,815 (5) 7.00%
common stock 1 World Trade Center, Suite 4563
New York, N.Y. 10048
</TABLE>
(1) Assisi Limited Partnership is a Nevada Limited Partnership of which Nancy
Poertner is a General Partner and owns a 100% interest. Amount of common shares
owned 809,375. Rainer Poertner may be deemed to be beneficial owner of the
shares owned by Assisi Limited Partnership by virtue of his spousal relationship
to Nancy Poertner. Mr. Poertner disclaims any beneficial interest in such
shares.
(2) Amount beneficially owned by Mr. Poertner as reported and filed on Form 4s
dated May 21, 1999 and February 2000. Options to purchase common shares totaling
550,000 granted to Mr. Rainer Poertner with exercise prices of $.98 and $1.12
exercisable immediately.
(3) Amount beneficially owned by Mr. MacLaurin as reported and filed on Form 4s
dated July 27, 1999 and February 2000. Options to purchase common shares
totaling 550,000 granted to Mr. MacLaurin with exercise prices of $.98 and $1.12
exercisable immediately.
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(4) Amount beneficially owned by Liviakis Financial Communications, Inc. as
reported and filed on Form Schedule 13G dated December 31, 1999.
(5) Amount beneficially owned by Apple Investors LLC as reported and filed on
Form Schedule 13G dated August 24, 1999.
MediaX knows of no arrangement or understanding, the operation of which may at a
subsequent date result in a change of control of MediaX.
DESCRIPTION OF SECURITIES
The authorized capital stock of MediaX consists of 25,000,000 shares of common
stock, $0.0001 par value per share, of which at May 29, 2000 7,559,926 shares
are issued and outstanding and 10,000,000 shares of preferred stock of which
none are issued and outstanding. Each share of stock shall entitle the holder
thereof to one vote. Dividends in cash, property or shares shall be paid upon
the preferred stock for any year on a cumulative or noncumulative basis as
determined by the resolution of the board of directors. Dividends in cash,
property or shares may be paid upon the common stock, as and when declared by
the board of directors, except that no common stock dividend shall be paid for
any year unless the holders of the preferred stock, if any, shall receive the
maximum allowable preferred dividend for such year.
Holders of common stock are not entitled to preemptive rights and the common
stock is not subject to redemption. The rights of holders of common stock are
subject to the rights of the holders of any preferred stock that we designate or
have designated. The rights of preferred stockholders may adversely affect the
rights of the common stockholders.
In the event of a liquidation of MediaX, after paying or adequately providing
for all of its obligations, the remainder of the assets of MediaX shall be
distributed, either in cash or in kind, first pro rata to the holders of the
preferred stock , and then the remainder pro rata to the holders of common
stock.
INTEREST OF NAMED EXPERTS AND COUNSEL
Corbin & Wertz, independent auditors, have audited MediaX's financial statements
included in MediaX's Annual Report on Form 10-KSB for the year ended December
31, 1999, which is incorporated by reference in this prospectus and elsewhere in
the registration statement. MediaX's financial statements are incorporated by
reference in reliance on Corbin & Wertz's report, given on their authority as
experts in accounting and auditing.
Davis & Co, CPA, independent auditors, have audited MediaX's financial
statements included in MediaX's Annual Report on Form 10-KSB for the year ended
December 31, 1998, which is incorporated by reference in this prospectus and
elsewhere in the registration statement. MediaX's financial statements are
incorporated by reference in reliance on Davis & Co, CPA's report, given on
their authority as experts in accounting and auditing.
Richard O. Weed has expressed an opinion concerning the validity of the
securities being registered. Mr. Weed owns 31,000 shares of MediaX's common
stock.
DISCLOSURE ON COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
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ORGANIZATION WITHIN LAST FIVE YEARS
RELATED TRANSACTIONS
On December 6, 1995, Zeitgeist, Inc. loaned Nancy Poertner, MediaX's President,
$50,000, pursuant to an unsecured note bearing interest at 4% and with a due
date of January 1, 2000. On February 25, 1996, an additional $50,000 was loaned
to Ms. Poertner on the same terms. As of the date of this report, a new due date
has yet to be determined. The total amount owed to MediaX under these notes is
$115,830 at December 31, 1999.
MEDIAX CORPORATION
DESCRIPTION OF BUSINESS
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 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.
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Historical Products and Services
MediaX has developed, produced and marketed software products for the
information, entertainment and development tool sector of the software industry
in the form of software distributed on floppy disks and CD-ROM's. Three released
CD-ROM products are "On the Road with BB King, "Queensryche's Promised Land" and
"Peter Norton - PC Guru" distributed by MCA, EMI Records and MediaX,
respectively.
MediaX was selected by Apple Computer to produce the Welcome Experience for
their limited edition Twentieth Anniversary Macintosh, which was introduced on
March 19, 1997. The multimedia presentation featured leading-edge animation,
digital video, interactive 3D graphics, original soundtrack and theater quality
audio, which highlighted the Macintosh's extreme multimedia capabilities.
In December 1997, MediaX released and distributed "Peter Norton - PC Guru."
During the fourth quarter of 1998, it was determined that this product would not
gain significant additional sales beyond 1998, therefore, MediaX has ceased
distribution of the product.
Historical Information
MediaX Corporation ("MediaX") was incorporated under the laws of the State of
Colorado on August 15, 1986 under the name Fata Morgana, Inc. On September 15,
1988, Fata Morgana, Inc. changed its name to Edinburgh Capital, Inc. On May 13,
1994, the corporation merged into Edinburgh Capital, Inc. (a Nevada corporation)
in order to change its state of domicile to Nevada.
MediaX was originally formed for the primary purpose of seeking out acquisitions
of properties, businesses, or merger candidates, without limitation as to the
nature of the business operations or geographic area of the acquisition
candidate. From inception through the date of completion of its initial public
offering of securities, MediaX's activities were directed toward the acquisition
of operating capital.
MediaX, at that time Edinburgh Capital, Inc., completed its initial public
offering in October, 1989, receiving net proceeds of approximately $245,000 from
the sale of 30,000 Units (each Unit consisting of 1,000 shares of the
corporation's no par value common stock, and 100 common stock purchaser warrants
exercisable at $.02) at $10 per unit. The warrants expired in 1992.
During April 1994, Edinburgh Capital, Inc. effected a 1 for 300 reverse stock
split and on February 23, 1996, MediaX effected a 3.13 for 1 forward stock
split.
On February 23, 1996, the name of Edinburgh Capital, Inc. was changed to
Zeitgeist Werks, Inc. On February 24, 1996, Zeitgeist Werks, Inc. acquired all
of the issued and outstanding shares of Zeitgeist, Inc., a Nevada corporation,
in exchange for 1,250,000 shares of its common stock.
On June 27, 1996, MediaX, a California corporation, was merged into Zeitgeist,
Inc., and Zeitgeist, Inc. issued 203,750 shares of its common stock to the
former shareholders of MediaX. On August 16, 1996, Zeitgeist, Inc. changed its
name to MediaX Corporation.
During November 1998, MediaX effected a 1 for 10 reverse stock split. All
financial information and share data in the remainder of this prospectus give
retroactive effect to the reverse stock split (including the two aforementioned
stock splits).
EMPLOYEES
As of May 29, 2000, MediaX had 29 employees and subcontractors.
19
<PAGE>
PATENTS, TRADEMARKS AND LICENSES
As a site developer, MediaX also develops its own proprietary sites, which
sometimes results in the development of innovative technology solutions with
broad applications in other growing markets, especially in the on-line
environment. MediaX owns several Internet domain names. MediaX either has filed
or is in the process of filing the appropriate applications for patents,
trademarks or licenses for its products. Based on the experience of its
engineering and graphic artist team and the successful launch and hosting of
several prominent web sites, MediaX is well positioned to gain revenues from
site development and Internet marketing services to larger corporations against
payment of a development fee and participation in e-commerce and advertising
revenues with these partners. MediaX has entered into such relationships.
COMPETITION
MediaX is a minor participant among companies that engage in multimedia and
Internet content development. Many of these companies have significantly greater
capitalization and experience in this industry. Additionally, online commerce is
rapidly evolving and highly competitive and MediaX expects competition to
further intensify. Barriers to entry are minimal, and a competitor can launch a
simple site at a relatively low cost. In addition, the general retail music
industry is also intensely competitive. MediaX currently competes with a variety
of companies, including online vendors of consumer products including CDs, DVDs,
music videos and other related products and traditional retailers of music
products, including specialty music retailers, many of which also have dedicated
web sites that compete directly with MediaX.
MediaX is aware that several of its competitors have aggressive pricing or
inventory availability policies and devote substantially more resources to site
and systems development than MediaX. Increased competition may result in reduced
operating margins.
There can be no assurance that MediaX will be able to compete successfully
against current and future competitors.
FUNDING
MediaX has also taken the following actions to provide future funding for
operations:
On August 24, 1999, MediaX entered into a Securities Purchase Agreement with
Apple Investors, LLC. In exchange for $2,200,000, MediaX issued a 5% Convertible
Debenture in the principal amount of $2,200,000 and a Warrant to purchase
220,000 shares of MediaX's common stock at $3.40 per share. The proceeds will be
used by MediaX for working capital. The offer and sale of the securities was
exempt from registration under Section 4(2) of the Securities Act of 1933, as
amended.
On April 25, 2000, MediaX entered into a Common Stock Purchase Agreement with
AMRO International, S.A. This Agreement allows the issuance and sale of up to
$500,000 of MediaX common stock to AMRO at a discount to the market price. The
proceeds will be used by MediaX for working capital.
On April 26, 2000, MediaX entered into an equity line of credit agreement with
Villabeach Investments Ltd. to provide private equity financing through the next
36 months. As soon as practicable after the effectiveness of the registration
statement, we plan to exercise a put for the maximum initial amount permitted
under the equity line. MediaX expects to effect subsequent puts of the
applicable maximum amount available under the equity line every 15 trading days
thereunder until the termination date of the equity line. The proceeds will be
used by MediaX for working capital.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following information should be read in conjunction with the audited
financial statements of MediaX as of March 31, 2000 and for the years ended
December 31, 1999 and 1998 and for the period from March 30, 1995 (date of
inception) through December 31, 1999 together with 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.
20
<PAGE>
FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, the matters discussed in
this Form SB-2 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.
OVERVIEW
MediaX designs and hosts entertainment web sites such as rodstewartlive.com,
NSYNC.com, Divinelive.com, EYCLive.com, Officeradio.com, Jbirdrecords.com,
BSBFunclub.com, videodrone.com and others. MediaX provides artists with a
platform to develop their presence on the Internet. Each site provides content
and products to fans including artist news, concert information, music and video
programming, ticket giveaways,fan club activities, live chats, and live concerts
that are globally broadcast on the Internet. MediaX has established strategic
relationships with companies like Broadcast.com, AOL, Microsoft, RealNetworks,
Yahoo! and others for this purpose.
In February 1999, MediaX launched amuZnet.com - an entertainment destination and
e-commerce site offering more than 300,000 entertainment titles on CDs, DVDs and
videos by major record labels and studios and over 4,000 independent music
labels for purchase on-line. AmuZnet.com offers music news and information,
digital downloads, custom compilations of CDs, movies for sale. MediaX also
sells advertising space and sponsorships to companies interested in promoting
their own goods and services within each entertainment web sites and amuZnet.com
customer base and visitors.
GOING CONCERN
MediaX has incurred significant net losses since its inception. At December 31,
1999, MediaX had a deficit accumulated during the development stage of
$13,333,066. MediaX is no longer considered a development stage company. As
MediaX seeks to expand aggressively, it believes that its operating expenses
will continue at a certain level as a result of the financial commitments
related to the development of new web sites, 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 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. As such,
there can be no assurance that MediaX will realize such anticipated sales or
secure additional alternative financing. Because of the above factors, the
accompanying consolidated financial statements contain an auditor's report that
is modified as to an uncertainty regarding MediaX's ability to continue as a
going concern.
RESULTS OF OPERATIONS
In view of the rapidly evolving nature of MediaX's business and its limited
operating history, period-to-period comparisons of its 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 MediaX has experienced sequential quarterly growth in
revenues, it does not believe that its historical growth rates are necessarily
sustainable or indicative of future growth.
21
<PAGE>
Year ended December 31, 1999 Compared to the Year Ended December 31, 1998 (as
restated)
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.
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.
Included in cost of sales is payroll and related expenses for website
development of $296,417 and $68,108 for the years ended 1999 and 1998,
respectively. Additionally, included in the prior year cost of sales is cost of
merchandise of its discontinued CD-rom products of $65,696.
Operating expenses consist primarily of payroll and related expenses for website
development, marketing; Internet content acquisition and operations of
underlying technology infrastructure; and general and administrative payroll and
other corporate expenses.
Total other income (expense) consists of interest income cash equivalents and
notes receivable, and interest expense including non-cash charge interest
expense associated with convertible debts and short-term borrowings.
Net Loss. MediaX's net loss was $7,244,707 for the year ended December 31, 1999,
compared to $3,352,541 for the comparable period last year.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
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 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 $95,255 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.
22
<PAGE>
General and administrative expense consists pf 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.
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 December 31, 1999, MediaX had positive working capital of $1,087,082, as
compared to negative working capital of $1,773,728 at December 31, 1998. The
increase in working capital is attributed to the conversion of debentures and
exercise of options and warrants , an increase to prepaid advertising and net
proceeds received from convertible debt issued in August 1999 and sales of stock
to investors throughout the year partially offset by payments of general
operating expenses.
Net cash used in operating activities of $2,457,961 for the year ended December
31, 1999 was primarily attributed to a net loss of $7,244,707, offset by
$349,804 non-cash charge for depreciation and amortization, bad debt and
development costs written off; a $4,060,217 non-cash charge for stock-based
compensation for consulting services and common stock issued to employees and
non-employees, beneficial conversion of debentures and amortization of debt
issuance costs; and $150,953 for accrued interest on convertible debt and change
in other operating assets and liabilities of $225,772. Net cash used in
operating activities of $1,811,470 for the year ended December 31, 1998 was
primarily attributable to a net loss of $3,352,541, of which $358,003 for
depreciation and amortization and development costs written off; $590,475 was a
non-cash charge for stock-based compensation for consulting services and common
stock issued to employees and non-employees and change in other operating assets
and liabilities of $592,593.
Net cash used in investing activities was $60,023 for the year ended December
31, 1999, consisted of purchases of fixed assets. Net cash used in investing
activities was $218,486 for the year ended December 31, 1998 consisted of
acquisition of license agreement and trademark, deferred software development
costs and purchases of fixed assets.
Net cash provided by financing activities was $3,258,316 for the year ended
December 31, 1999, and consisted primarily of net proceeds from sale of stock to
investors, subscription advances, exercise of options and warrants and issuance
of convertible debentures. Net cash provided by financing was $1,657,258 for the
year ended December 31, 1998, and consisted primarily of net proceeds from sale
of stock to investors, subscription advances, exercise of options and warrants
and issuance of convertible debentures partially offset by payments made on
capital lease and retirement of notes payable.
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 $486,195 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, beneficial conversion of debentures; and
$27,363 for accrued interest on convertible debt and change in other operating
assets and liabilities $209,051. Net cash used in operating activities of
$426,601 for the three months ended March 31, 1999 was primarily attributable to
a net loss $2,470,773, of which $11,821was 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; $30,384 for accrued interest on
convertible debt and change in other operating assets and liabilities of
$33,618.
23
<PAGE>
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 $88,051 for the three months ended
March 31, 2000, and consisted primarily of proceeds from subscription advances
and offset by payments on notes payable. Net cash provided by financing was
$539,363 for the three months ended March 31, 1999, and consisted primarily of
net proceeds from sale of stock to investors, subscription advances, exercise of
options and warrants and offset by payments made on notes payable.
MediaX's success and ongoing financial viability is contingent upon the success
and expansion of its network of sites, the increasing number of visitors to this
network, the revenues generated through its design services, e-commerce model,
advertising and sponsorships, the alliance with Echostar interactive satellite
distribution and the generation of related cash flows.
MediaX evaluates its liquidity and capital needs on a continuous basis and based
on MediaX's requirements and capital market conditions may, from time to time,
raise working capital through additional debt or equity financing. There is no
assurance that such financing will be available in the future to meet additional
capital needs of MediaX, or as to the terms or conditions of any such financing
that is available. Should there be any significant delays in the release of new
products, or lack of acceptance in the marketplace for such products if
released, or MediaX's working capital needs otherwise exceed its resources, the
adverse consequences would be severe. The generation of MediaX's current growth
and the expansion of MediaX's current business involve significant financial
risk and require significant capital investment.
Because MediaX has incurred cumulative losses from inception through December
31, 1999 of $13,333,066 and lack of profitable operational history in internet
services, MediaX's auditors, in their report on the financial statements of
MediaX as of December 31, 1999, expressed doubt about MediaX's ability to
continue as a going concern, which contemplates, among other things, the
realization of assets and satisfaction of liabilities in the normal course of
business. MediaX intends to obtain additional debt and equity financing
including the $6,000,000 Private Equity Line of Credit discussed in this
prospectus for marketing, development and the funding of operations as well as
the generating of income from product sales and services. Management believes
these funding sources will be sufficient to fund its capital expenditures,
working capital requirements and other cash requirements through December 31,
2000. There is no assurance MediaX will be able to obtain sufficient additional
funds when needed, or that, such funds, if available, will be obtainable on
terms satisfactory to MediaX.
DESCRIPTION OF PROPERTY
MediaX maintains its corporate office at 8522 National Boulevard, Suite 110,
Culver City, California 90232 on a month to month basis and pays approximately
$3,200 per month for rent. MediaX entered into an agreement to lease new
corporate offices in Culver City, California through December 2004. The
agreement provides for monthly lease payments of $9,250 increasing yearly to
$10,411 in the last year. MediaX maintains its software development office at
303 Potrero Street, #42-302, Santa Cruz, California 95060. MediaX pays
approximately $3,146 per month for rent pursuant to a lease, which expires in
June 2000.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Organization Within Last Five Years.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) MARKET INFORMATION. MediaX's common stock is traded on the over-the-counter
market. The following table sets forth the high and low bid price for MediaX's
common stock for the periods indicated as reported by the OTC's Electronic
Bulletin Board. These prices are believed to be inter-dealer quotations and do
not include retail mark-ups, mark-downs, or other fees or commissions, and may
not necessarily represent actual transactions.
24
<PAGE>
Quarter Ended High Bid Low Bid
------------------ -------- -----------
March 31, 2000 $3.00 $1.06
March 31, 1999 $4.62 $2.06
June 30, 1999 $6.91 $3.56
September 30, 1999 $5.25 $1.75
December 31, 1999 $3.03 $1.31
March 31, 1998 $13.31 $3.80
June 30, 1998 $5.00 $1.30
September 30, 1998 $3.50 $1.50
December 31, 1998 $3.00 $ .60
(b) HOLDERS. As of March 31, 2000, MediaX had approximately 1500 shareholders of
record, which includes shareholders who hold stock in their accounts at
broker/dealers.
(c) DIVIDENDS. MediaX has never paid a cash dividend on its common stock and
does not expect to pay a cash dividend in the foreseeable future.
EXECUTIVE COMPENSATION
The following table sets forth information regarding the executive compensation
for MediaX's President and Executive V.P. for the years ended December 31, 1999,
1998 and 1997 from MediaX and its subsidiaries. No other executive officer
received compensation in excess of $100,000 during these periods. Directors
serve without compensation.
<TABLE>
<CAPTION>
Summary Compensation Table
Name and Principal Position Fiscal Salary Other Annual Options
Year ($) Compensation Granted
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nancy Poertner 1999 185,000 10,157 (1) 0
President, 1998 185,000 3,500 N/A
Secretary, Director 1997 158,458 6,720 N/A
Matthew MacLaurin 1999 143,333 51,370 (2) 500,000
Executive VP, Director 1998 125,000 N/A 50,000
1997 114,000 N/A N/A
Rainer Poertner 1999 N/A 120,000 (3) 500,000
Chairman of 1998 N/A 50,000 50,000
the Board of Directors 1997 N/A N/A N/A
</TABLE>
(1) Represents automobile allowance and a 1999 bonus of $1,657.
(2) Represents a 1999 bonus of $1,370 and a signing bonus of $50,000.
(3) Represents consulting payments made under a consulting agreement. Effective
January, 2000, the Chairman accepted a management position with MediaX.
25
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to grants of options
("Options") to purchase common stock under the Stock Option Plan to the Named
Executive Officers during the fiscal year ended December 31, 1999.
<TABLE>
<CAPTION>
Number % of Total Potential Exercisable
Securities Options Value at Assumed
Underlying Granted to Exercise Annual Rate of Stock
Options Employees Price Expiration Appreciation for
Name Granted (#) in Fiscal Year ($/sh) (1) Date Option Term (2)
---------- ------------ -------------- ---------- ---------- 5% 10%
----------------------
<S> <C> <C> <C> <C> <C> <C>
Matthew 500,000 46.01 1.12 12/31/08 588,000 616,000
MacLaurin
Rainer Poertner 500,000 46.01 1.12 12/31/08 588,000 616,000
</TABLE>
(1) The exercise price was market value of the common stock on the date of
grant.
(2) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on option exercises are dependent upon other factors, including
the future performance of the common stock and overall stock market conditions.
OPTION EXERCISES AND FISCAL YEAR END VALUE
The following table sets forth with respect to the Named Executive Officers
information with respect to options exercised, unexercised options and year-end
option values with respect to options to purchase shares of common stock.
<TABLE>
<CAPTION>
Aggregated Option Exercises During Fiscal 1999 and Fiscal Year-End Option Values
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Number of
Unexercised Value of Unexercised
Securities In-The-Money
Underlying Options/SARs At
Options/SARs at 12/31/99 ($)
Shares Acquired on 12/31/99 (#) Exercisable/
Exercise Value Realized Exercisable/ Unexercisable (1)
Name (#) ($) Unexercisable (e)
(a) (b) (c) (d)
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Matthew MacLaurin 16,666/533,334 9,707/240,000
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Rainer Poertner 16,666/533,334 9,707/240,000
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
</TABLE>
(1) Represents the difference between the last reported sale price of the common
stock on December 31, 1999 and the exercise price of the option multiplied by
the applicable number of shares.
EMPLOYMENT AGREEMENTS
MediaX entered into an employment agreement with its President. The agreement
which expires in December 2001, provides for an annual base salary of $185,000
and increases to $215,000. The aggregate minimum annual commitment for future
payments at December 31, 1999 was approximately $400,000. Amounts paid pursuant
to this agreement totaled $185,000 for the years ended December 31, 1999 and
1998, respectively.
MediaX entered into an employment agreement with its executive vice president.
The agreement, which expires in June 2001, provides for an annual base salary of
$185,000 and increases to $215,000. The aggregate minimum annual commitment for
future payments at December 31, 1999 was approximately $307,500. Amounts paid
pursuant to this agreement totaled $143,000 and $125,000 for the years ended
December 31, 1999 and 1998, respectively.
26
Both of these agreements also provide for a bonus at the end of each fiscal
quarter as determined by MediaX's Board of Directors. No bonuses have been
declared or paid since inception. Both the President and Executive
Vice-President may voluntarily terminate their employment at any time.
Consulting Fees to Officer/Director
Beginning August 1, 1998, MediaX's chairman provides services to MediaX pursuant
to a month to month consulting agreement requiring $10,000 for each month
worked. During 1999 and 1998, MediaX expensed $120,000 and $50,000,
respectively, related to this agreement. As of December 31, 1999, $40,000 is
accrued and included in accounts payable. In January 2000, the Chairman, Rainer
Poertner accepted a full-time management position with MediaX.
STOCK OPTION PLAN
During April 1996, the Board of Directors adopted a Stock Option Plan (the
"Plan"), and on July 3, 1996, MediaX's shareholders approved the Plan. The Plan
authorized the issuance of options to purchase up to 100,000 shares of MediaX's
common stock. During December 1998, MediaX amended the Plan to increase the
available amount of shares to purchase under the plan to 500,000 shares of
MediaX's common stock. All options granted must have an exercise price no less
than the stock's fair market value on the date of grant.
The Plan allows the Board to grant stock options from time to time to employees,
officers, directors and consultants of MediaX. The Board has the power to
determine at the time that the option is granted whether the option will be an
Incentive Stock Option (an option which qualifies under Section 422 of the
Internal Revenue Code of 1986) or an option which is not an Incentive Stock
Option. Vesting provisions are determined by the Board at the time options are
granted. The option price for any option will be no less than the fair market
value of the common stock on the date the option is granted.
Since all options granted under the Plan must have an exercise price no less
than the fair market value on the date of grant, MediaX will not record any
expense upon the grant of options, regardless of whether or not they are
incentive stock options. Generally, there will be no federal income tax
consequences to MediaX in connection with Incentive Stock Options granted under
the Plan. With regard to options that are not Incentive Stock Options, MediaX
will ordinarily be entitled to deductions for income tax purposes of the amount
that option holders report as ordinary income upon the exercise of such options,
in the year such income is reported.
Options granted under the Plan to employees, officers and directors was 193,000
shares at an exercise price of $0.98 for 1998 and 93,000 shares at an exercise
price of $1.68 for 1999.
27
<PAGE>
FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Reports ...........................................F-29-30
Balance Sheet as of December 31, 1999......................................F-31
Statements of Operations for the years ended December 31, 1999
and 1998 and for the period from March 30, 1995 (date of inception)
through December 31, 1999.............................................F-32
Statements of Stockholders' Equity (Deficit) for the years ended
December 31, 1999 and 1998 and for the period from March 30, 1995
(date of inception) through December 31, 1999 ........................F-33
Statements of Cash Flows for the years ended December 31, 1999 and
1998 and for the period from March 30, 1995 (date of inception)
through December 31, 1999 ............................................F-39
Notes to the Annual Financial Statements ..................................F-41
Balance Sheet as of March 31, 2000.........................................F-56
Statements of Operations for the quarters ended March 31, 2000 and 1999....F-57
Statements of Stockholders' Equity (Deficit) for the quarters ended
March 31, 2000 and 1999 ..............................................F-
Statements of Cash Flows for the quarters ended March 31, 2000 and 1999....F-58
Notes to the Quarterly Financial Statements ...............................F-59
28
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
MediaX Corporation
We have audited the accompanying balance sheet of MediaX Corporation (a
development stage company) (the "Company") as of December 31, 1999, and the
related statements of operations, stockholders' equity (deficit) and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1999, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the accompanying financial
statements, the Company is a development stage company which has experienced
significant losses since inception with no significant revenues. These factors
and other factors discussed in Note 1 to the financial statements raise
substantial doubt about the ability of the Company to continue as a going
concern. Management's plans in regard to these matters are described in Note 1.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
CORBIN & WERTZ
Irvine, California
March 17, 2000
29
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
MediaX Corporation
We have audited the accompanying statements of operations, stockholders' equity
(deficit) and cash flows of MediaX Corporation (a development stage company)
(the "Company") for the year ended December 31, 1998 and the period from March
30, 1995 (date of inception) to December 31, 1998 (as restated - see Note 1).
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of the Company's operations and cash flows
for the year ended December 31, 1998 and for the period from March 30, 1995
(date of inception) to December 31, 1998 (as restated - see Note 1), in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the accompanying financial
statements, the Company is a development stage company which has experienced
significant losses since inception with no significant revenues. These factors
and other factors discussed in Note 1 to the financial statements raise
substantial doubt about the ability of the Company to continue as a going
concern. Management's plans in regard to these matters are described in Note 1.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
DAVIS & CO., CPAs, P.C.
Englewood, Colorado
March 26, 1999
30
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
(A Development Stage Company)
BALANCE SHEET
December 31, 1999
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 760,307
Accounts receivable, net of reserve of $8,500 2,218
Inventories 12,855
Prepaid advertising costs 708,125
Other prepaid expenses 52,097
----------------
Total current assets 1,535,602
Property and equipment, at cost:
Computer equipment 334,640
Office equipment 36,580
Leasehold improvements 7,630
----------------
378,850
Less accumulated depreciation and amortization (276,723)
Property and equipment, net 102,127
Deposits and other assets 35,372
$ 1,673,101
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 400,556
Accrued payroll and related costs 28,048
Accrued expenses 19,916
----------------
Total current liabilities 448,520
Long-term liabilities:
Convertible notes payable 2,238,877
Total liabilities 2,687,397
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; 6,667,800 shares issued and outstanding 667
Additional paid-in capital 12,154,940
Subscription advances 278,993
Stockholder notes and accrued interest receivable (115,830)
Deficit accumulated during the development stage (13,333,066)
----------------
Total stockholders' deficit (1,014,296)
$ 1,673,101
</TABLE>
See independent auditors' report and accompanying notes to financial statements
F-31
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
For The Years Ended December 31, 1999 and 1998 and
For The Period From March 30, 1995 (Date of Inception)
Through December 31, 1999
March 30, 1995
(Date of Inception)
Year Ended Year Ended Through
December 31, 1999 December 31, December 31, 1999
1998
------------------ ------------------ ---------------------
(As Restated -
See Note 1)
<S> <C> <C> <C>
Sales $ 55,918 $ 162,021 $ 838,575
Cost of sales 316,497 135,988 863,387
-------------- -------------- --------------
Gross profit (loss) (260,579) 26,033 (24,812)
Operating expenses 5,016,299 3,244,333 10,446,469
-------------- -------------- --------------
Loss from operations (5,276,878) (3,218,300) (10,471,281)
-------------- -------------- --------------
Other income (expense):
Interest income 24,712 6,926 54,224
Interest expense (1,991,741) (138,274) (2,203,531)
Loss on sale of asset - (2,093) (1,093)
Other income - - 16,501
-------------- -------------- --------------
Total other income (expense) (1,967,029) (133,441) (2,133,899)
-------------- -------------- --------------
Loss before provision for income taxes (7,243,907) (3,351,741) (12,605,180)
Provision for taxes 800 800 3,200
-------------- -------------- --------------
Net loss $ (7,244,707) $ (3,352,541) $ (12,608,380)
============== ============== ==============
Basic and diluted loss per common share $ (1.37) $ (1.79)
============== ==============
Basic and diluted weighted average common
shares outstanding 5,280,837 1,873,517
============== ==============
</TABLE>
See independent auditors' report and accompanying notes to financial statements
F-32
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For The Years Ended December 31, 1999 and 1998 and
For The Period From March 30, 1995 (Date of Inception)
Through December 31, 1999
Stockholder
Notes
Common Stock Additional and Accrued
------------------------------- Paid-in Subscription Interest
Shares Amount Capital Advances Receivable
------------- ------------- -------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Shares issued in March 1995 for cash of
$.00008 per share to an officer and director 1,250,000 $ 125 $ (25) $ - $ -
Loan to stockholder in December 1995 - - - - (50,000)
Net loss for the period from March 30, 1995
(date of inception) to December 31, 1995 - - - - -
------------- ------------- -------------- --------------- ------------
Balance at December 31, 1995 1,250,000 125 (25) - (50,000)
Adjustment for shares of ZeitGeist Werks, Inc.
outstanding immediately prior to re-
organization on February 23, 1996, valued at
net monetary asset amount 65,804 7 249,816 - -
Loan to stockholder in February 1996 - - - - (50,000)
Exchange of 15,400 shares in March 1996 for
notes and interest payable at $20 per share 15,400 2 307,998 - -
Issuance of 12,500 shares to consultant in
April 1996 in exchange for services at $10
per share 12,500 1 124,999 - -
Cancellation of 203,750 shares by majority
stockholder in June 1996 (203,750) (20) (184) - -
Issuance of 203,750 shares in June 1996 in
exchange for all of the stock of MediaX, Inc. 203,750 20 184 - -
------------- ------------- -------------- --------------- ------------
</TABLE>
Continued
F-33
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For The Years Ended December 31, 1999 and 1998 and
For The Period From March 30, 1995 (Date of Inception)
Through December 31, 1999
Deficit
Accumulated Total
During The Stockholders'
Development Equity
Stage (Deficit)
----------------- -----------------
<S> <C> <C>
Shares issued in March 1995 for cash of
$.00008 per share to an officer and director $ - $ 100
Loan to stockholder in December 1995 - (50,000)
Net loss for the period from March 30, 1995
(date of inception) to December 31, 1995 (37,238) (37,238)
----------------- -----------------
Balance at December 31, 1995 (37,238) (87,138)
Adjustment for shares of ZeitGeist Werks, Inc.
outstanding immediately prior to re-
organization on February 23, 1996, valued at
net monetary asset amount (268,064) (18,241)
Loan to stockholder in February 1996 - (50,000)
Exchange of 15,400 shares in March 1996 for
notes and interest payable at $20 per share - 308,000
Issuance of 12,500 shares to consultant in
April 1996 in exchange for services at $10
per share - 125,000
Cancellation of 203,750 shares by majority
stockholder in June 1996 - (204)
Issuance of 203,750 shares in June 1996 in
exchange for all of the stock of MediaX, Inc. - 204
----------------- -----------------
</TABLE>
Continued
F-33(a)
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For The Years Ended December 31, 1999 and 1998 and
For The Period From March 30, 1995 (Date of Inception)
Through December 31, 1999
Stockholder
Notes
Common Stock Additional and Accrued
------------------------------- Paid-in Subscription Interest
Shares Amount Capital Advances Receivable
------------- ------------- -------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Sale of 2,510 shares in June and July 1996 at
$20.80 per share 2,510 - 52,200 - -
Sale of 35,000 shares in November and
December 1996 at $10.00 per share 35,000 3 349,997 - -
Accrued interest on stockholder notes
receivable - - - - (3,830)
Net loss - - - - -
------------- ------------- -------------- --------------- --------------
Balance at December 31, 1996 1,381,214 138 1,084,985 - (103,830)
Sale of 35,000 shares in January and February
1997 at $10.00 per share (net of issuance costs
of $80,000) 35,000 4 269,996 - -
------------- ------------- -------------- --------------- --------------
Sale of 10,000 shares and warrants in May
1997 at $7.00 per unit 10,000 1 69,999 - -
Sale of 54,231 shares and warrants in August
and September 1997 at $10.40 per share 54,231 5 563,995 - -
Sale of 20,000 shares in August 1997 at $7.40
per share 20,000 2 147,998 - -
Exchange of 40,000 shares in August 1997 for
note and interest payable at $7.94 per share 40,000 4 317,543 - -
</TABLE>
Continued
F-34
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For The Years Ended December 31, 1999 and 1998 and
For The Period From March 30, 1995 (Date of Inception)
Through December 31, 1999
Deficit
Accumulated Total
During The Stockholders'
Development Equity
Stage (Deficit)
----------------- -----------------
<S> <C> <C>
Sale of 2,510 shares in June and July 1996 at
$20.80 per share - 52,200
Sale of 35,000 shares in November and
December 1996 at $10.00 per share - 350,000
Accrued interest on stockholder notes
receivable - (3,830)
Net loss (643,553) (643,553)
----------------- -----------------
Balance at December 31, 1996 (948,855) 32,438
Sale of 35,000 shares in January and February
1997 at $10.00 per share (net of issuance costs
of $80,000) - 270,000
----------------- -----------------
Sale of 10,000 shares and warrants in May
1997 at $7.00 per unit - 70,000
Sale of 54,231 shares and warrants in August
and September 1997 at $10.40 per share - 564,000
Sale of 20,000 shares in August 1997 at $7.40
per share - 148,000
Exchange of 40,000 shares in August 1997 for
note and interest payable at $7.94 per share - 317,547
</TABLE>
Continued
F-34(a)
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For The Years Ended December 31, 1999 and 1998 and
For The Period From March 30, 1995 (Date of Inception)
Through December 31, 1999
Stockholder
Notes
Common Stock Additional and Accrued
------------------------------- Paid-in Subscription Interest
Shares Amount Capital Advances Receivable
------------- ------------- -------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Issuance of 40,000 shares in exchange for
prepaid advertising in November 1997 at
$15.00 per share 40,000 4 599,996 - -
Issuance of 7,600 shares at par value pursuant
to other agreements in 1997 for services
performed 7,600 1 7 - -
Accrued interest on stockholder notes
receivable - - - - (4,000)
Net loss - - - - -
------------- ------------- -------------- --------------- ------------
Balance at December 31, 1997 1,588,045 159 3,054,519 - (107,830)
Sale of 104,000 shares in February and May
1998 at $1.92 per share 104,000 10 199,990 - -
Sale of 301,313 shares from April through
October 1998 at $1.39 per share 301,313 30 419,970 - -
Fractional share adjustment for 10 for 1
reverse stock split on November 17, 1998 17 - - - -
Estimated fair market value of warrants issued
in connection with the sale of stock (as restated
- see Note 1) - - 456,622 - -
</TABLE>
Continued
F-35
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For The Years Ended December 31, 1999 and 1998 and
For The Period From March 30, 1995 (Date of Inception)
Through December 31, 1999
Deficit
Accumulated Total
During The Stockholders'
Development Equity
Stage (Deficit)
----------------- -----------------
<S> <C> <C>
Issuance of 40,000 shares in exchange for
prepaid advertising in November 1997 at
$15.00 per share - 600,000
Issuance of 7,600 shares at par value pursuant
to other agreements in 1997 for services
performed - 8
Accrued interest on stockholder notes
receivable - (4,000)
Net loss (1,330,341) (1,330,341)
----------------- -----------------
Balance at December 31, 1997 (2,279,196) 667,652
Sale of 104,000 shares in February and May
1998 at $1.92 per share - 200,000
Sale of 301,313 shares from April through
October 1998 at $1.39 per share - 420,000
Fractional share adjustment for 10 for 1
reverse stock split on November 17, 1998 - -
Estimated fair market value of warrants issued
in connection with the sale of stock (as restated
- see Note 1) (456,622) -
</TABLE>
Continued
F-35(a)
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For The Years Ended December 31, 1999 and 1998 and
For The Period From March 30, 1995 (Date of Inception)
Through December 31, 1999
Stockholder
Notes
Common Stock Additional and Accrued
------------------------------- Paid-in Subscription Interest
Shares Amount Capital Advances Receivable
------------- ------------- -------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Warrants exercised in December 1998 at $0.10
per share 200,000 20 19,980 - -
------------- ------------- -------------- --------------- ------------
Sale of 167,000 shares in December 1998 at
$0.48 per share 167,000 17 79,983 - -
Estimated fair market value of stock issued in
December 1998 for services rendered at $1.00
per share (as restated - see Note 1) 90,000 9 89,991 - -
------------- ------------- -------------- --------------- ------------
Estimated fair market value of restricted stock
issued in December 1998 for services rendered
at $0.96 per share (as restated - see Note 1) 100,000 10 95,615 - -
Estimated fair market value of options and
warrants granted from February through
December 1998 to consultants for services
rendered (as restated - see Note 1) - - 404,850 - -
Accrued interest on stockholder notes
receivable - - - - (4,000)
Subscription advances in December 1998 - - - 320,000 -
Net loss (as restated - see Note 1) - - - - -
------------- ------------- -------------- --------------- ------------
Balance at December 31, 1998 (as restated -
see Note 1) 2,550,375 255 4,821,520 320,000 (111,830)
Vested portion of intrinsic value of options
granted in 1998 to employees - - 1,237 - -
</TABLE>
Continued
F-36
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For The Years Ended December 31, 1999 and 1998 and
For The Period From March 30, 1995 (Date of Inception)
Through December 31, 1999
Deficit
Accumulated Total
During The Stockholders'
Development Equity
Stage (Deficit)
----------------- -----------------
<S> <C> <C>
Warrants exercised in December 1998 at $0.10
per share - 20,000
Sale of 167,000 shares in December 1998 at
$0.48 per share - 80,000
Estimated fair market value of stock issued in
December 1998 for services rendered at $1.00
per share (as restated - see Note 1) - 90,000
Estimated fair market value of restricted stock
issued in December 1998 for services rendered
at $0.96 per share (as restated - see Note 1) - 95,625
Estimated fair market value of options and
warrants granted from February through
December 1998 to consultants for services
rendered (as restated - see Note 1) - 404,850
Accrued interest on stockholder notes
receivable - (4,000)
Subscription advances in December 1998 - 320,000
Net loss (as restated - see Note 1) (3,352,541) (3,352,541)
----------------- -----------------
Balance at December 31, 1998 (as restated -
see Note 1) (6,088,359) (1,058,414)
Vested portion of intrinsic value of options
granted in 1998 to employees - 1,237
</TABLE>
Continued
F-36(a)
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For The Years Ended December 31, 1999 and 1998 and
For The Period From March 30, 1995 (Date of Inception)
Through December 31, 1999
Stockholder
Notes
Common Stock Additional and Accrued
------------------------------- Paid-in Subscription Interest
Shares Amount Capital Advances Receivable
------------- ------------- -------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Issuance of shares in January, February and
June 1999 for services rendered at $3.56 per
share average 30,000 3 106,872 - -
Warrants exercised in January through July
1999 at $0.30 per share 1,638,667 164 496,843 (220,000) -
Sale of 340,000 restricted shares in January,
March and April 1999 for cash at $1.24 per
share (including 16,000 shares issued for
finders fees) 356,000 36 421,464 - -
Exchange of 921,925 shares in February and
December 1999 for convertible debt and
interest at $1.70 per share 921,925 92 1,566,075 - -
Sale of 20,000 shares in February 1999 at
$1.00 per share 20,000 2 19,998 - -
Issuance of restricted shares in March, August
and September 1999 for services rendered at
$2.04 per share average 830,000 83 1,689,724 - -
Subscription advances in March and April
1999 - - - 178,993 -
Issuance of restricted stock in March 1999 for
prepaid advertising at $1.97 per share 200,000 20 393,105 - -
Estimated fair market value of options granted
in March 1999 for prepaid advertising - - 215,000 - -
</TABLE>
Continued
F-37
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For The Years Ended December 31, 1999 and 1998 and
For The Period From March 30, 1995 (Date of Inception)
Through December 31, 1999
Deficit
Accumulated Total
During The Stockholders'
Development Equity
Stage (Deficit)
----------------- -----------------
<S> <C> <C>
Issuance of shares in January, February and
June 1999 for services rendered at $3.56 per
share average - 106,875
Warrants exercised in January through July
1999 at $0.30 per share - 277,007
Sale of 340,000 restricted shares in January,
March and April 1999 for cash at $1.24 per
share (including 16,000 shares issued for
finders fees) - 421,500
Exchange of 921,925 shares in February and
December 1999 for convertible debt and
interest at $1.70 per share - 1,566,167
Sale of 20,000 shares in February 1999 at
$1.00 per share - 20,000
Issuance of restricted shares in March, August
and September 1999 for services rendered at
$2.04 per share average - 1,689,807
Subscription advances in March and April
1999 - 178,993
Issuance of restricted stock in March 1999 for
prepaid advertising at $1.97 per share - 393,125
Estimated fair market value of options granted
in March 1999 for prepaid advertising - 215,000
</TABLE>
Continued
F-37(a)
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For The Years Ended December 31, 1999 and 1998 and
For The Period From March 30, 1995 (Date of Inception)
Through December 31, 1999
Stockholder
Notes
Common Stock Additional and Accrued
------------------------------- Paid-in Subscription Interest
Shares Amount Capital Advances Receivable
------------- ------------- -------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Options exercised in April, June and August at
$2.79 per share 120,833 12 336,804 - -
Estimated fair market value of options granted
in May and June 1999 to consultants for
services rendered - - 453,600 - -
Estimated fair market value of warrants issued
in August 1999 in connection with convertible
debt - - 345,400 - -
Value of beneficial and induced conversion in
connection with convertible debt - - 1,287,298 - -
Accrued interest on stockholder notes
receivable - - - - (4,000)
Net loss - - - - -
------------- ------------- -------------- --------------- ------------
Balance at December 31, 1999 6,667,800 $ 667 $ 12,154,940 $ 278,993 $ (115,830)
============= ============= ============== =============== ============
</TABLE>
Continued
F-38
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For The Years Ended December 31, 1999 and 1998 and
For The Period From March 30, 1995 (Date of Inception)
Through December 31, 1999
Deficit
Accumulated Total
During The Stockholders'
Development Equity
Stage (Deficit)
----------------- -----------------
<S> <C> <C>
Options exercised in April, June and August at
$2.79 per share - 336,816
Estimated fair market value of options granted
in May and June 1999 to consultants for
services rendered - 453,600
Estimated fair market value of warrants issued
in August 1999 in connection with convertible
debt - 345,400
Value of beneficial and induced conversion in
connection with convertible debt - 1,287,298
Accrued interest on stockholder notes
receivable - (4,000)
Net loss (7,244,707) (7,244,707)
----------------- -----------------
Balance at December 31, 1999 $ (13,333,066) $ (1,014,296)
================= =================
</TABLE>
See independent auditors' report and accompanying notes to financial statements
F-38(a)
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 1999 and 1998 and
For The Period From March 30, 1995 (Date of Inception)
Through December 31, 1999
Year Ended Year Ended Inception)
December 31, 1999 December 31, Through
1998 December 31, 1999
------------------- ---------------- ------------------
(As Restated -
See Note 1)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (7,244,707) $ (3,352,541) $ (12,608,380)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 47,112 103,003 273,516
Allowance for doubtful accounts 8,500 - 8,500
Software development costs written off 294,192 255,000 341,667
Estimated value of shares issued for
consulting services 1,796,682 185,625 2,707,315
Estimated value of options and warrants
granted for consulting services 800,237 404,850 859,687
Estimated value of beneficial and induced
conversion of debt 1,287,298 - 1,632,698
Amortization of debt issuance costs 176,000 - 176,000
Interest accrued on convertible debt prior to
conversion 150,953 - 150,953
Interest accrued on stockholder notes
receivable (4,000) (4,000) (15,830)
Changes in operating assets and liabilities:
Accounts receivable 66,090 (66,465) (10,718)
Prepaid expense (21,772) 7,064 (52,097)
Inventories 79,908 (40,946) (12,855)
Prepaid advertising costs - 500,000 (100,000)
Deposits and other assets (23,467) (1,225) 173,494
Accounts payable and accrued expenses 129,013 222,620 430,341
Accounts payable - related parties - (24,455) -
--------------- --------------- ---------------
Net cash used in operating activities (2,457,961) (1,811,470) (6,045,709)
--------------- --------------- ---------------
Cash flows from investing activities:
Acquisition of license agreement and trademark - (81,135) (102,287)
Deferred software development costs - (105,238) (405,238)
Purchase of fixed assets (60,023) (32,113) (299,287)
Loans to stockholder - - (100,000)
Proceeds from sale of fixed assets - - 2,822
--------------- --------------- ---------------
Net cash used in investing activities (60,023) (218,486) (903,990)
--------------- --------------- ---------------
</TABLE>
Continued
F-39
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS - CONTINUED
For The Years Ended December 31, 1999 and 1998 and
For The Period From March 30, 1995 (Date of Inception)
Through December 31, 1999
March 30, 1995
(Date of
Year Ended Year Ended Inception)
December 31, 1999 December 31, Through
1998 December 31, 1999
------------------- ---------------- ------------------
(As Restated -
See Note 1)
<S> <C> <C> <C>
Cash flows from financing activities:
Principal payments on capital lease - (5,146) (27,567)
Subscription advances 178,993 320,000 498,993
Net proceeds from sale of stock to investors 441,500 700,000 2,616,952
Net proceeds from the exercise of options
and warrants 613,823 20,000 633,823
Retirement of notes payable - (32,276) (155,269)
Proceeds received from issuance of notes
payable and convertible debentures (net of
debt issuance costs of $176,000 in 1999) 2,024,000 654,680 4,143,074
--------------- --------------- ---------------
Net cash provided by financing activities 3,258,316 1,657,258 7,710,006
--------------- --------------- ---------------
Change in cash and cash equivalents 740,332 (372,698) 760,307
Cash and cash equivalents, beginning of period 19,975 392,673 -
--------------- --------------- ---------------
Cash and cash equivalents, end of period $ 760,307 $ 19,975 $ 760,307
=============== =============== ===============
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest $ - $ 150,151 $ 223,667
=============== =============== ===============
Income taxes $ 800 $ 800 $ 3,200
=============== =============== ===============
</TABLE>
Supplemental schedule of non-cash investing and financing activities: See
accompanying notes to the financial statements for additional information
relating to non-cash investing and financing activities during fiscal 1999
and 1998.
See independent auditors' report and accompanying notes to financial statements
F-40
<PAGE>
MEDIAX CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
For The Years Ended December 31, 1999 and 1998
For The Period From March 30, 1995 (Date of Inception)
Through December 31, 1999
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Originally founded as a multi-media production studio in 1995, MediaX Inc. was
acquired and became public in 1996 as ZeitGeist Werks, Inc. and subsequently
renamed MediaX Corporation ("MediaX" or the "Company"). MediaX began as a
real-time 3D computer game development company for distribution through both
conventional and Internet distribution channels, as well as licensing through
large publishers. After the acquisition, the Company's strategic focus is
centered on the following: new media content, web site development for Internet
and broadband channels, Internet-based commerce and on-line marketing.
MediaX designs, owns, operates, hosts and integrates a network of several
distinct types of entertainment- based Internet web sites. The company is
positioned to generate revenue through web site design services, the sale of
artist specific merchandise, entertainment-related products, club subscriptions,
endorsement opportunities for corporate sponsors, third party advertising and a
variety of products provided by affiliates. In February 1999, the Company
launched amuZnet.com, an entertainment destination and e-commerce site offering
entertainment titles on CDs, DVDs, videos and movies for sale. The Company
operates its own and/or third party marketing campaigns on amuZnet.com.
All content that is currently produced for the Internet will be re-purposed for
interactive satellite broadcasting and can also easily be transferred to other
broadband systems such as cable TV 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 has
signed contracts with EchoStar (Dish Network) for the launch of an Interactive
Satellite Channel and hopes to further tap into the rapidly emerging efforts of
cable and telecom companies with its existing technology and content expected to
be launched in late 2000. However, there can be no assurance that the Company
will achieve its objectives or successfully implement its interactive satellite
business plan.
Development Stage Company
The Company has been in the development stage since its formation due to the
change in the Company's business plan in late 1998 with no significant revenues
being generated from these proposed new activities. During the development
stage, the Company is primarily engaged in raising capital, obtaining financing,
advertising and promoting the Company and administrative functions along with
developing a unique network of celebrity web sites, central e-commerce sites,
unique entertainment and an on-line shopping experience.
F-41
<PAGE>
MEDIAX CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended December 31, 1999 and 1998 and
For The Period From March 30, 1995 (Date of Inception)
Through December 31, 1999
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, continued
Restatement of 1998 Financial Statements
Based on updated information on certain transactions, the Company has restated
its 1998 audited financial statements as follows:
The estimated fair market value of 190,000 shares of restricted stock
committed to be issued in December 1998 for services rendered (see Note
4) were not recorded as the stock had not yet been issued. Based on
updated information, the estimated fair market value of the stock has
been recorded at $185,625. The estimated value of options and warrants
to purchase 191,000 shares of common stock issued to consultants (see
Notes 5 and 6) for services rendered were incorrectly recorded at $0.
Based on updated information, the estimated fair value of the options
and warrants was $415,190, of which $404,850 was recorded in 1998. In
addition, the estimated value of the detachable warrants issued to
purchase 3,676,667 shares of common stock in connection with sale of
stock (see Note 4) were incorrectly recorded at $0. Based on updated
information, the estimated fair value of the detachable warrants
(recorded as stock dividends) has been recorded at $456,622. As a
result of these restatements, the Company's loss for fiscal 1998 was
restated to $3,352,541 from the previously recorded $2,762,066 and the
loss per share was restated to $(1.79) from the previously recorded
$(1.49).
Risk and Uncertainties
The Company is a development stage company subject to the substantial business
risks and uncertainties of such an entity, including potential risk of business
failure.
The accompanying financial statements have been prepared assuming the Company
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. The Company's losses from operations through December 31, 1999 and
lack of operating history, among other matters, raise substantial doubt about
its ability to continue as a going concern. The Company hopes to obtain revenues
from product sales and the development of celebrity web sites. In the absence of
significant sales and profits, the Company 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. There is no assurance the
Company will be able to obtain sufficient additional funds when needed, or that
such funds, if available, will be obtainable on terms satisfactory to the
Company.
These circumstances raise substantial doubt about the Company's ability to
continue as a going concern. The accompanying financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
F-42
<PAGE>
MEDIAX CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended December 31, 1999 and 1998 and
For The Period From March 30, 1995 (Date of Inception)
Through December 31, 1999
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, continued
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Year 2000
The Year 2000 issues relates to limitations in computer systems and applications
that may prevent proper recognition of the Year 2000. The potential effect of
the Year 2000 issue on the Company and its business partners will not be fully
determinable until the Year 2000 and thereafter. If the Year 2000 modifications
are not properly completed either by the Company or entities with which the
Company conducts business, the Company's revenues and financial condition could
be adversely impacted.
Cash and Cash Equivalents
For purposes of the statement of cash flows, cash and cash equivalents consist
of demand deposits in banks with an initial maturity of 90 days or less. Cash
equivalents are carried at cost which approximates market.
Inventories
Inventories at December 31, 1999 consist primarily of artist specific
merchandise sold over the Internet. Inventories are recorded at the lower of
cost or market using the first-in, first-out method.
Property and Equipment
Property and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives of the related assets,
ranging from three to seven years. Depreciation expense for the years ended
December 31, 1999 and 1998 was $47,112 and $57,059, respectively. Maintenance
and repairs are charged to expense as incurred. Significant renewals and
betterments are capitalized. At the time of retirement or other disposition of
property and equipment, the cost and accumulated depreciation are removed from
the accounts and any resulting gain or loss is reflected in operations.
F-43
<PAGE>
MEDIAX CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended December 31, 1999 and 1998 and
For The Period From March 30, 1995 (Date of Inception)
Through December 31, 1999
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, continued
Deferred Software Development Costs
Certain development costs of CD-rom masters were capitalized in accordance with
SFAS No. 86 ("SFAS 86"), "Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed" and are reported at the lower of unamortized
cost or net realizable value. Amortization will be taken commencing with the
sales activity of the related product using the straight-line method and asset
lives approximating the retail sales life of the final product, generally three
to five years. During 1999 and 1998, due to the change in the Company's business
plan, the Company wrote-off previously capitalized and in process software
development costs of $294,192 and $255,000, respectively, which are recorded in
the accompanying statements of operations.
Impairment of Long-Lived Assets
Management of the Company assesses the impairment of long-lived assets by
comparing the future undiscounted net cash flows (without interest charges) from
the use and ultimate disposition of such assets with their carrying amounts. The
amount of impairment, if any, is measured based on fair value and is charged to
operations in the period in which such impairment is determined by management.
There was no impairment of long-lived assets identified for the year ended
December 31, 1999.
Income Taxes
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." Under SFAS 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. A valuation allowance is
provided for significant deferred tax assets when it is more likely than not
that such assets will not be recovered.
Stock Based Compensation
The Financial Accounting Standards Board (the "FASB") issued Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," which defines a fair value based method of accounting for
stock-based compensation. However, SFAS 123 allows an entity to continue to
measure compensation cost related to stock and stock options issued to employees
using the intrinsic method of accounting prescribed by Accounting Principles
Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees."
Entities electing to remain with the accounting method of APB 25 must make pro
forma disclosures of net income (loss), as if the fair value method of
accounting defined in SFAS 123 had been applied. The Company has elected to
account for its stock-based compensation to employees under APB 25.
F-44
<PAGE>
MEDIAX CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended December 31, 1999 and 1998 and
For The Period From March 30, 1995 (Date of Inception)
Through December 31, 1999
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, continued
Revenue Recognition
Sales of goods and services and the related cost of sales are recognized when
orders are received and goods are shipped or services are delivered. Revenues
from internet advertising and web development are recorded when earned.
Advertising
Advertising costs are expensed as incurred. Prepaid advertising costs represents
the estimated market value of stock issued (see Note 4) and options granted (see
Note 5) to a third party for advertising to be received in future periods.
Basic and Diluted Loss Per Share
The Company has adopted Statement of Financial Accounting Standards No. 128
"Earnings Per Share" ("SFAS 128"). SFAS 128 changes the methodology of
calculating earnings per share and renamed the two calculations, basic earnings
per share (formerly primary) and diluted earnings per share (formerly fully
diluted). The calculations differ by eliminating any common stock equivalents
(such as stock options, warrants, etc.) from basic earnings per share and
changes certain calculations when computing diluted earnings per share. The
adoption of SFAS 128 has not materially impacted the Company's financial
position or results of operations.
Basic and diluted loss per share were 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 stock options and warrants on loss per share are
antidilutive and thus not included in the diluted loss per share calculation.
Comprehensive Income
The Company has adopted Statement of Financial Accounting Standards No. 130
("SFAS 130"), "Reporting Comprehensive Income." SFAS 130 establishes standards
for reporting and display of comprehensive income and its components in a full
set of general-purpose financial statements. SFAS 130 had no effect on the
Company's financial statements as it had no comprehensive income components.
Segment Information
The Company 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. As the Company is currently in the
development stage, the Company does not yet have any reportable segments.
F-45
<PAGE>
MEDIAX CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended December 31, 1999 and 1998 and
For The Period From March 30, 1995 (Date of Inception)
Through December 31, 1999
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, continued
Fair Value of Financial Instruments
Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 107 ("SFAS 107"), "Disclosures About Fair Value of
Financial Instruments." SFAS 107 requires disclosure of fair value information
about financial instruments when it is practicable to estimate that value. The
carrying amount of the Company's cash, receivables, trade payables, accrued
expenses and convertible notes payable approximates their estimated fair values
due to the short-term maturities of those financial instruments or because
interest rates approximate market rates.
Recent Accounting Pronouncements
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, as amended by SFAS 137, is effective for financial statements for all
fiscal quarters of all fiscal years beginning after June 15, 2000. The Company
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 any derivative or hedging activities.
Reverse Stock Split
Effective November 18, 1998, the Company's Board of Directors approved a reverse
stock split of ten-to-one. All references throughout these financial statements
to number of shares, per share amounts, stock option data and market prices of
the Company's common stock have been restated to reflect the reverse stock
split.
Reclassifications
Certain reclassifications have been made to the December 31, 1998 financial
statements in order to conform to classification used in the current year.
NOTE 2 - CONVERTIBLE SUBORDINATED DEBENTURES AND NOTES PAYABLE
Included in convertible subordinated debentures payable at December 31, 1998 was
$1,454,092 of various notes payable. The notes, bearing interest at the prime
rate (prime rate at December 31, 1998 was 8.25%) plus 2% to 4%, were due on
various dates through September 1999. In 1999, the Company offered the note
holders an inducement to convert the notes with a current balance of $1,566,192
(including accrued interest in 1999 of $112,100) into common stock at $1.69 per
share (estimated fair market value on the date of conversion was approximately
$2.71 per share) or 921,925 shares. As a result of this induced conversion, the
Company recorded additional interest expense of $938,112 during the year ended
December 31, 1999.
F-46
<PAGE>
MEDIAX CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended December 31, 1999 and 1998 and
For The Period From March 30, 1995 (Date of Inception)
Through December 31, 1999
NOTE 2 - CONVERTIBLE SUBORDINATED DEBENTURES AND NOTES PAYABLE,
continued
In 1999, the Company entered into a securities purchase agreement with an
investor, whereby the Company sold to the investor a $2,200,000 principal amount
convertible note for $2,024,000 (net of debt issuance costs of $176,000, which
were amortized to interest expense due to the immediate convertibility of this
note). The note bears interest at 5% and is due on August 24, 2002. The holder
of the note has the option to require interest payments in cash or stock. As of
December 31, 1999, the Company has incurred interest expense related to the note
in the amount of $38,877. The note is convertible at beneficial rates which vary
based on recent stock prices and date of conversion, as defined. Due to the note
being immediately convertible at the option of the noteholder, the Company has
recorded a beneficial conversion of $349,186 that is included in interest
expense at December 31, 1999. In addition, the Company gave the investor a
warrant to purchase 220,000 shares of its common stock at $3.40 per share
expiring in August 23, 2004 which was valued at $345,400 (based on Black-Scholes
computation under SFAS 123 - see Note 6) and recorded as interest expense.
NOTE 3 - 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 1999, $220,000 of the previously received
advances were utilized to exercise certain warrants (see Note 4) and the Company
received $178,993 of new advances. At December 31, 1999, the total outstanding
balance on subscription advances was $278,993.
NOTE 4 - STOCKHOLDERS' EQUITY
Preferred Stock
The Company's Articles of Incorporation authorize up to 10,000,000 shares of
$.0001 par value preferred stock. Shares of preferred stock may be issued in one
or more classes or series at such time the Board of Directors may determine. All
shares of any one series shall be equal in rank and identical in all respects.
As of December 31, 1999, the Board of Directors has designated 6,000,000 as
Series A 10% convertible preferred stock ("Preferred A"). Each Preferred A share
has a liquidation preference of $1 per share plus accrued dividends and is
convertible at 3.5 shares of Preferred A into one common share. As of December
31, 1999, no preferred shares have been issued.
F-47
<PAGE>
MEDIAX CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended December 31, 1999 and 1998 and
For The Period From March 30, 1995 (Date of Inception)
Through December 31, 1999
NOTE 4 - STOCKHOLDERS' EQUITY, continued
Common Stock
During April to December 1998, the Company sold 468,313 shares to an accredited
investor for proceeds of $500,000. In addition, the Company granted to this
investor warrants to purchase up to 3,676,667 shares of common stock at varying
prices with a fair market value of $456,622 (based on Black-Scholes computation
under SFAS 123) and recorded as a common stock dividend. The warrants expire on
various dates through September 7, 2001 and the number of shares and price per
share will not be adjusted for any future stock splits or reverse stock splits.
In addition, the investor is limited to only exercise 200,000 warrants in any
sixty-day period. 200,000 of these warrants were exercised during December of
1998 for proceeds of $20,000. During 1999, 1,608,667 of these warrants were
exercised for proceeds of $422,007, of which $220,000 was received in prior year
and recorded as subscription advances (see Note 3).
Another accredited unrelated investor purchased 104,000 shares during February
1998 for proceeds of $200,000.
During December 1998, the Company issued 190,000 shares of common stock valued
at $185,625 (based on the market value on the date of grant) to consultants for
services rendered.
During January 1999, the Company issued 30,000 shares of common stock in
connection with the exercise of stock warrants for $75,000, in addition to the
warrants exercised above.
During January through September 1999, the Company issued 30,000 shares of
common stock valued at $106,875 (based on the market values on the dates of
grant) and 830,000 shares of restricted common stock valued at $1,689,807 (based
on the market values on the dates of grant) to consultants for services
rendered.
During January through April 1999, the Company issued 20,000 shares of common
stock and 340,000 shares (plus 16,000 shares issued for finders fees) of
restricted stock for $20,000 and $421,500, respectively.
During March 1999, the Company issued 200,000 shares of restricted common stock
valued at $393,125 (based on the market value on the date of grant) and options
to purchase 100,000 shares of common stock with an estimated value of $215,000
(using the Black-Scholes option pricing model pursuant to SFAS 123) to a third
party for prepaid advertising time (see Note 1).
During April through August 1999, the Company issued 120,833 shares of common
stock in connection with the exercise of stock options for $336,816.
F-48
<PAGE>
MEDIAX CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended December 31, 1999 and 1998 and
For The Period From March 30, 1995 (Date of Inception)
Through December 31, 1999
NOTE 5 - STOCK OPTIONS
In December 1998, the Company amended the incentive stock option plan adopted in
1996. The plan authorizes the issuance of options to purchase up to 500,000
shares of the Company's common stock. All options must have an exercise price of
no less than the stock's fair market value on the date of grant. The option plan
expires on December 10, 2008.
During fiscal 1998, pursuant to various employment agreements, the Company
issued options to purchase 185,500 shares of the Company's common stock at an
exercise price of $0.98. The options vest on various dates through December 2001
and are exercisable through December 10, 2008. A total of $3,711 of compensation
expense will be recorded over the vesting period, of which $1,237 and $0 was
recognized during 1999 and 1998, respectively.
From time to time, the Company issues stock options pursuant to various
agreements and other compensatory arrangements.
During fiscal 1998, pursuant to various consulting and outside service provider
agreements, the Company issued to consultants options to purchase 131,000 shares
of the Company's common stock at exercise prices ranging from $0.98 to $7.50 per
share. The options vest on various dates through December 2001 and are
exercisable through December 2008. Total consulting expense of $134,090 (using
the Black-Scholes option pricing model pursuant to SFAS 123 - see below) will be
recorded over the vesting period, of which none and $123,750 was recognized at
December 31, 1999 and 1998, respectively.
During fiscal 1999, the Company entered into various employment agreements
wherein the Company has agreed to supplement compensation to certain employees
in the form of stock options. Pursuant to the agreements, the Company issued
options to purchase 1,086,700 shares of common stock at exercise prices ranging
from $1.12 per share to $1.95 per share and vesting over a period ranging from
one to three years from the date of grant. A total of approximately $537 of
compensation expense will be recorded over the vesting period, of which none was
recognized during fiscal 1999.
During fiscal 1999, pursuant to various consulting and outside service provider
agreements, the Company issued to consultants options to purchase 294,400 shares
of the Company's common stock at exercise prices ranging from $1.40 to $6.50 per
share. The options vest on various dates through December 2002 and are
exercisable through December 2009. Total consulting expense of $501,000 will be
recorded over the vesting period of which $453,600 was recognized at December
31, 1999. Included in these options was 100,000 options that were issued for
prepaid advertising costs. The estimated value of these options was $215,000
(using the Black-Scholes option pricing model pursuant to SFAS 123 - see below),
which the Company has recorded as prepaid advertising on the balance sheet at
December 31, 1999.
F-49
<PAGE>
MEDIAX CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended December 31, 1999 and 1998 and
For The Period From March 30, 1995 (Date of Inception)
Through December 31, 1999
NOTE 5 - STOCK OPTIONS, continued
Following is a status of the stock options outstanding at December 31, 1999 and
1998 and the changes during the years then ended:
<TABLE>
<CAPTION>
1999 1998
------------------------------------- -----------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
---------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 331,635 $ 2.15 15,135 $ 14.68
Granted 1,381,100 1.75 316,500 1.55
Exercised (120,833) (2.79) - -
Expired/Forfeited (33,667) 0.98 - -
------------- ------------ ------------ -------------
Outstanding, end of year 1,558,235 $ 1.77 331,635 $ 2.15
============= ============ ============ =============
Exercisable, end of year 259,129 $ 2.80 132,923 $ 3.54
============= ============ ============ =============
Weighted average fair value of
options granted $ 1.42 $ 0.97
============ =============
</TABLE>
1,378,100 of the options outstanding at December 31, 1999 have exercise prices
between $0.98 and $1.95, with a weighted average exercise price of $1.15 and a
weighted average remaining contractual life of 8.4 years. 178,994 of these
options are exerciseable at December 31, 1999. The remaining 180,135 options
have exercise prices between $2.50 and $22.50, with a weighted average exercise
price of $6.50 and a weighted average remaining contractual life of 2.6 years.
80,135 of these options are exercisable at December 31, 1999.
The fair value of each option granted during 1999 and 1998 to consultants and
outside service providers is estimated using the Black-Scholes option-pricing
model on the date of grant using the following assumptions: (i) no dividend
yield, (ii) average volatility of 240 percent and 205 percent, respectively,
(iii) weighted-average risk-fee interest rate of approximately 6.15 percent and
5.2 percent, respectively, and (iv) expected life of 2.75 years and 2.5 years,
respectively.
Had compensation cost for the Company's 1999 and 1998 options granted to
employees been determined consistent with SFAS 123, the Company's net loss and
net loss per share for the year ended December 31, 1999 and 1998 would
approximate the pro forma amounts below:
<TABLE>
<CAPTION>
1999 1998
------------------------------------- -----------------------------------
As Reported Pro Forma As Reported Pro Forma
---------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net loss $ (7,244,707) $ (7,302,920) $ (3,352,541) $ (3,352,541)
Basic and diluted loss per share $ (1.37) $ (1.38) $ (1.79) $ (1.79)
</TABLE>
<PAGE>
MEDIAX CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended December 31, 1999 and 1998 and
For The Period From March 30, 1995 (Date of Inception)
Through December 31, 1999
NOTE 6 - STOCK WARRANTS
From time to time, the Company issues warrants pursuant to various consulting
agreements.
During fiscal 1998, pursuant to contract agreements with outside consultants,
the Company issued warrants to purchase 60,000 shares of the Company's common
stock at exercise prices ranging from $2.50 to $15.00. The warrants vested on
the date of grant and are exercisable through September 2001. Total expense of
$281,100 representing the fair value of these warrants was recognized during
fiscal 1998.
In connection with the sale of its common stock, the Company issued warrants to
purchase 3,676,667 shares of the Company's common stock at exercise prices
ranging from $0.10 to $0.40 (see Note 4). The warrants vest on the date of grant
and are exercisable through September 2001. Total dividends of $456,622
representing the fair market value of these warrants was recognized as of
December 31, 1998.
During fiscal 1999, the Company issued additional warrants to purchase 220,000
shares of the Company's common stock at an exercise price of $3.40 per share in
connection with the issuance of convertible debt (see Note 2). The warrants vest
on the date of grant and are exercisable through August 2004. Total additional
interest expense of $345,400 representing the fair value of these warrants was
recognized during fiscal 1999.
The following represents a summary of the warrants outstanding for the years
ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------------------------------- -----------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Warrants Price Warrants Price
---------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 3,600,898 $ 0.57 66,841 $ 14.09
Granted 220,000 3.40 3,736,667 0.33
Exercised (1,638,667) 0.30 (200,000) 0.10
Expired/Forfeited - - (2,610) 30.00
------------- -------------- ------------ --------------
Outstanding, end of year 2,182,231 $ 1.06 3,600,898 $ 0.57
============= ============== ============ ==============
Exercisable, end of year 2,182,231 $ 1.06 3,600,898 $ 0.57
============= ============== ============ ==============
Weighted average fair value of
warrants granted $ 1.57 $ 0.20
============== ==============
</TABLE>
1,868,000 of the warrants outstanding at December 31, 1999 have exercise prices
between $0.10 and $0.27, with a weighted average exercise price of $0.14 and a
weighted average remaining contractual life of 1.6 years. All of these warrants
are exercisable at December 31, 1999. The remaining 314,231 warrants have
exercise prices between $3.40 and $15.00, with a weighted average remaining
contractual life of 4.8 years. All of these warrants are exercisable at December
31, 1999.
<PAGE>
MEDIAX CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended December 31, 1999 and 1998 and
For The Period From March 30, 1995 (Date of Inception)
Through December 31, 1999
NOTE 6 - STOCK WARRANTS, continued
The fair value of each warrant granted during 1999 and 1998 is estimated using
the Black-Scholes option-pricing model on the date of grant using the following
assumptions: (i) no dividend yield, (ii) average volatility of 174 percent and
200 percent, respectively, (iii) weighted-average risk-free interest rate of
approximately 5.95 percent and 4.66 percent, respectively, and (iv) expected
life of 1.5 years.
NOTE 7 - RELATED PARTY TRANSACTIONS
Stockholder Notes and Accrued Interest Receivable
Stockholder notes receivable represents monies loaned to the Company's President
and stockholder. The notes, which are due on demand, are uncollateralized and
bear interest at 4% per annum. At December 31, 1999, the total outstanding
balance was $115,830, including accrued interest of $15,830, of which $4,000 was
recorded in 1999 and 1998, respectively. As the notes are due from the President
and stockholder, the Company has presented the receivables as a reduction of
stockholders' deficit at December 31, 1999.
Commitment - Employment Agreements
The Company entered into an employment agreement with its President. The
agreement which expires in December 2001, provides for an annual base salary of
$185,000 and increases to $215,000. The aggregate minimum annual commitment for
future payments at December 31, 1999 was approximately $400,000. Amounts paid
pursuant to this agreement totaled $185,000 for the years ended December 31,
1999 and 1998, respectively.
The Company entered into an employment agreement with its executive vice
president. The agreement, which expires in June 2001, provides for an annual
base salary of $185,000 and increases to $215,000. The aggregate minimum annual
commitment for future payments at December 31, 1999 was approximately $307,500.
Amounts paid pursuant to this agreement totaled $143,000 and $125,000 for the
years ended December 31, 1999 and 1998, respectively.
Both of these agreements also provide for a bonus at the end of each fiscal
quarter as determined by the Company's Board of Directors. No bonuses have been
declared or paid since inception. Both the President and Executive
Vice-President may voluntarily terminate their employment at any time.
Consulting Fees to Officer/Director
Beginning August 1, 1998, the Company's chairman provides services to the
Company pursuant to a month to month consulting agreement requiring $10,000 for
each month worked. During 1999 and 1998, the Company expensed $120,000 and
$50,000, respectively, related to this agreement. As of December 31, 1999,
$40,000 is accrued and included in accounts payable. In January 2000, the
Chairman accepted a full-time management position with the Company.
F-52
<PAGE>
MEDIAX CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended December 31, 1999 and 1998 and
For The Period From March 30, 1995 (Date of Inception)
Through December 31, 1999
NOTE 8 - INCOME TAXES
The tax effects of temporary differences that give rise to deferred taxes as of
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax asset:
Net operating loss carryforward $ 4,185,000
Expense recognized for granting options and warrants 343,000
----------------
Total gross deferred tax asset 4,528,000
Less valuation allowance (4,528,000)
$ -
================
</TABLE>
The valuation allowance increased by approximately $2,941,800 during the year
ended December 31, 1999. No current provision for income taxes for the periods
ended December 31, 1999 and 1998 is required, except for minimum state taxes,
since the Company incurred taxable losses during such years.
The provision for income taxes for fiscal 1999 and 1998 was $800 and differs
from the amount computed by applying the U.S. federal income tax rate of 34% to
loss before income taxes as a result of the following as of December 31:
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
------------------- -----------------
Computed tax benefit at federal statutory rate $ (2,463,000) $ (1,140,000)
State income tax benefit, net of federal effect (478,000) (221,000)
Increase in valuation allowance 2,941,800 1,361,800
--------------- ----------------
$ 800 $ 800
=============== ================
</TABLE>
As of December 31, 1999, the Company had net operating loss carryforwards of
approximately $10,760,000 and $5,960,000 for federal and state income tax
reporting purposes, which begin expiring in 2011 and 2001, respectively.
In the event the Company were to experience a greater than 50% change in
ownership as defined in Section 382 of the Internal Revenue Code, the
utilization of the Company's net operating loss carryforwards could be severely
restricted.
F-53
<PAGE>
MEDIAX CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended December 31, 1999 and 1998 and
For The Period From March 30, 1995 (Date of Inception)
Through December 31, 1999
NOTE 9 - EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share calculations:
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
------------------- -----------------
Numerator for basic and diluted earnings per share:
Net loss available to common stockholders $ (7,244,707) $ (3,352,541)
=============== ================
Denominator for basic and diluted earnings per share:
Weighted average shares 5,280,837 1,873,517
=============== ================
Basic and diluted loss available to common
stockholders per common share $ (1.37) $ (1.79)
=============== ===============
</TABLE>
NOTE 10 - 401(k) RETIREMENT PLAN
On January 1, 1998, the Company adopted a Section 401(k) tax sheltered annuity
program in which each full time employee with at least three months of service
may contribute up to 15% of his/her gross salary (up to a maximum of $9,500
adjusted annually for inflation) annually on a tax-deferred basis. The Company
is not required to make any employer contributions to the plan.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases its corporate offices on a month-to-month basis for
approximately $3,200 per month. Subsequent to December 31, 1999, the Company
entered into an agreement to lease new corporate offices through December 2004.
The agreement provides for monthly lease payments of $9,250.
The Company leases space for its research and production studio from an
unrelated party under an operating lease agreement that expires June 30, 2000.
Future minimum annual commitments under lease agreements are as follows:
<TABLE>
<CAPTION>
Years Ending
December 31
---------------------------
<S> <C> <C>
2000 $ 130,000
2001 114,000
2002 118,000
2003 121,000
2004 125,000
----------------
$ 608,000
</TABLE>
F-54
<PAGE>
MEDIAX CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended December 31, 1999 and 1998 and
For The Period From March 30, 1995 (Date of Inception)
Through December 31, 1999
NOTE 11 - COMMITMENTS AND CONTINGENCIES, continued
Rent expense under operating leases was $78,088 and $70,869 for the years ended
December 31, 1999 and 1998, respectively.
Direct Fulfillment Service
In December 1998, the Company entered into a consumer direct fulfillment service
agreement with a third party. The agreement, which expires in December 2001,
provides for a minimum monthly commitment fee of $2,000, increasing to $4,000 in
August 1999, or 1.5% of sales. The aggregate minimum commitment for future
payments at December 31, 1999 was approximately $96,000. Amounts paid pursuant
to this agreement totaled $24,000 for the year ended December 31, 1999.
NOTE 12 - SUBSEQUENT EVENTS
In January 2000, the Company granted options to purchase 50,000 shares of the
Company's common stock at an exercise price of $1.68 (estimated by the Company
to be the fair market value) to consultants. The options vest immediately and
are exercisable through December 2001. Total consulting expense to be recognized
using the Black-Scholes option pricing model pursuant to SFAS 123 is
approximately $80,000.
In February 2000, the Company granted options to employees to purchase 50,000 of
the Company's common stock at an exercise price of $2.81 (estimated by the
Company to be the fair market value). The options vest over a three-year period
and are exercisable through December 2008.
In February 2000, noteholders of convertible debentures exercised their option
to convert $102,575 (including accrued interest of $2,575) of debt into 75,981
shares of the Company's common stock.
In March 2000, the Company was ordered to pay an arbitration award of $170,000
plus costs of approximately $13,000 to an order fulfillment company. The award
was a result of a breach of contract pursuant to a 1999 licensing agreement
between the Company and the order fulfillment company; therefore the Company has
recorded the related liability of approximately $183,000 at December 31, 1999 in
the related balance sheet and statement of operations. The Company is in the
process of challenging the arbitrator's authority and the arbitration provisions
in the written agreement.
In March 2000, the Company issued 218,000 shares of the Company's common stock
in connection with the exercise of warrants for $58,200, which was included in
subscription advances as of December 31, 1999.
55
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
Balance Sheet Quarter Ended March 31, 2000
(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.
56
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
Statements of Operations Quarter Ended March 31, 2000
(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.
57
<PAGE>
<TABLE>
<CAPTION>
MEDIAX CORPORATION
Statements of Cash Flows Quarter Ended March 31, 2000
(Unaudited)
For the Three Months Ended
March 31,
---------------------------------------
2000 1999
---------------- ----------------
<S> <C> <C> <C> <C> <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 13,067 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 108,409 (47,331)
Deferred revenue 100,000 -
---------------- ----------------
Net cash used in operating activities (486,195) (426,601)
---------------- ----------------
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: 100,000 187,250
Subscription advances - 201,500
Net proceeds from sale of stock to investors - 161,250
Net proceeds from the exercise of options and warrants (11,949) (10,637)
---------------- ----------------
Payments on notes payable
Net cash (used) provided by financing activities 88,051 539,363
---------------- ----------------
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.
58
<PAGE>
MEDIAX CORPORATION
Notes to the Unaudited Financial Statements for the Quarter Ended March 31, 2000
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.
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
59
<PAGE>
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.
60
<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.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On January 11, 2000, MediaX filed on Form 8-K, reporting a change of MediaX's
accountants. Davis & CO., CPA's P.C was previously the principal accountants for
MediaX. On January 4, 2000, Davis & CO., CPA's P.C was disengaged by MediaX as
principal accountants and Corbin & Wertz was engaged as principal accountants to
audit the accounts of MediaX for the year ending December 31, 1999. The decision
to change accountants was approved by MediaX's Board of Directors.
During the fiscal years ended December 31, 1998 and 1997 and through the date of
this report, there were no disagreements with Davis & CO., CPA's P.C on any
matter of accounting principles or practices, financial statement disclosure or
audit scope or procedure which disagreement, if not resolved to the satisfaction
of Davis & CO., CPA's P.C , would have caused them to make reference to the
matter of such disagreement in connection with the Form 8-K, dated January 11,
2000. The accountant's report for the fiscal years ended December 31, 1998 and
1997 was modified as to uncertainty that MediaX will continue as a going
concern. MediaX has suffered recurring losses from operations, and has net
working capital and stockholders' equity deficiencies. These matters raise
substantial doubt about MediaX's ability to continue as a going concern.
MediaX had requested that Davis & CO., CPA's P.C furnish it with a letter
addressed to the Securities and Exchange Commission stating whether it agrees
with the above statements. A copy of that letter is filed as Exhibit 1 to the
Form 8-K, dated January 11, 2000, incorporated herein by reference.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The only statute, charter provision, bylaw, contract, or other arrangement under
which any controlling person, director or officer of registrant is insured or
indemnified in any manner against any liability which they may incur in their
capacity as such is Sections 78.7502 and 78.751, the text of which is set forth
below.
61
<PAGE>
Section 78.7502. Discretionary and mandatory indemnification of officers,
directors, employees and agents: General provisions
1. A corporation may indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, except an
action by or in the right of the corporation, by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with the action, suit or proceeding if he acted in good faith and in a manner
which he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and that, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
2. A corporation may indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of the corporation to procure a judgment in its favor by reason of
the fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses, including amounts paid in
settlement and attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit if he acted in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of the corporation. Indemnification may not be made for
any claim, issue or matter as to which such a person has been adjudged by a
court of competent jurisdiction, after exhaustion of all appeals therefrom, to
be liable to the corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which the action or
suit was brought or other court of competent jurisdiction determines upon
application that in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper.
3. To the extent that a director, officer, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subsections 1 and 2, or in defense of any claim, issue
or matter therein, the corporation shall indemnify him against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
with the defense.
Section 78.751. Authorization required for discretionary indemnification;
advancement of expenses; limitation on indemnification and advancement of
expenses
1. Any discretionary indemnification under NRS 78.7502, unless ordered by a
court or advanced pursuant to subsection 2, may be made by the corporation only
as authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances. The
determination must be made:
(a) By the stockholders;
(b) By the board of directors by majority vote of a quorum consisting
of directors who were not parties to the action, suit or proceeding;
(c) If a majority vote of a quorum consisting of directors who were not
parties to the action, suit or proceeding so orders, by independent legal
counsel in a written opinion; or
(d) If a quorum consisting of directors who were not parties to the
action, suit or proceeding cannot be obtained, by independent legal counsel in a
written opinion.
62
<PAGE>
2. The articles of incorporation, the bylaws or an agreement made by
the corporation may provide that the expenses of officers and directors incurred
in defending a civil or criminal action, suit or proceeding must be paid by the
corporation as they are incurred and in advance of the final disposition of the
action, suit or proceeding, upon receipt of an undertaking by or on behalf of
the director or officer to repay the amount if it is ultimately determined by a
court of competent jurisdiction that he is not entitled to be indemnified by the
corporation. The provisions of this subsection do not affect any rights to
advancement of expenses to which corporate personnel other than directors or
officers may be entitled under any contract or otherwise by law.
3. The indemnification and advancement of expenses authorized in or
ordered by a court pursuant to this section:
(a) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under the articles of
incorporation or any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, for either an action in his official capacity or an
action in another capacity while holding his office, except that
indemnification, unless ordered by a court pursuant to NRS 78.7502 or for the
advancement of expenses made pursuant to subsection 2, may not be made to or on
behalf of any director or officer if a final adjudication establishes that his
acts or omissions involved intentional misconduct, fraud or a knowing violation
of the law and was material to the cause of action.
(b) Continues for a person who has ceased to be a director, officer,
employee or agent and inures to the benefit of the heirs, executors and
administrators of such a person.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following sets forth the expenses in connection with the issuance and
distribution of the securities being registered, other than underwriting
discounts and commissions. MediaX shall bear all such expenses. All amounts set
forth below are estimates, other than the SEC registration fee.
SEC Registration Fee $ 1,769.21
Accounting Fees and Expenses $ 5,000.00
Miscellaneous, including legal fees $ 20,000.00
--------------
TOTAL $ 26,769.21
-------------
RECENT SALES OF UNREGISTERED SECURITIES
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.
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Year ended December 31, 1999
Stock sales
During January 1999, MediaX issued 30,000 shares of common stock in connection
with the exercise of stock warrants for $75,000. 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 afforded by
Section 4(2) of the Act.
During January through September 1999, MediaX issued 30,000 shares of common
stock valued at $106,875 (based on the market value on the date of grant) and
830,000 shares of restricted common stock valued at $1,689,807 (based on the
market value on the date of grant) to consultants for services rendered.
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 afforded by Section 4(2) of the Act.
During January through April 1999, MediaX issued 20,000 shares of common stock
and 340,000 shares of restricted stock for $20,000 and $421,500, respectively
(plus 16,000 shares issued for finders fees). 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 afforded by
Section 4(2) of the Act.
During March 1999, MediaX issued 200,000 shares of restricted common stock
valued at $393,125 (based on the market value on the date of grant to a third
party for prepaid advertising time.) 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 afforded by Section
4(2) of the Act.
Convertible Securities
Included in convertible subordinated debentures payable at December 31, 1998 was
$1,454,092 of various notes payable. The notes, bearing interest at the prime
rate (prime rate at December 31, 1999 was 8.25%) plus 2% to 4%, were due on
various dates through September 1999. In 1999, MediaX offered the note holders
an inducement to convert the notes with a current balance of $1,566,192
(including accrued interest in 1999 of $112,100) into common stock at $1.69 per
share (estimated fair market value on the date of conversion was approximately
$2.71 per share) or 921,925 shares. 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 afforded by Section
4(2) of the Act.
In 1999, MediaX entered into a securities purchase agreement with an investor,
whereby MediaX sold to the investor a $2,200,000 principal amount convertible
note for $2,024,000 (net of finders fee of $176,000). The note bears interest at
5% and is due on August 24, 2002. The holder of the note has the option to
require interest payments in cash or stock. The note is convertible at
beneficial rates which vary based on recent stock prices and date of conversion,
as defined. In addition, MediaX gave the investor a warrant to purchase 220,000
shares of its common stock at $3.40 per share expiring in August 23, 2004.
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 afforded by Section 4(2) of the Act.
Year Ended December 31, 1998
Stock sales
During April to December 1998, MediaX sold 468,313 shares to an accredited
unrelated investor for proceeds of $500,000. In addition, the investor exercised
200,000 warrants during December of 1998, resulting in the issuance of 200,000
shares for proceeds of $20,000. 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 afforded by Section 4(2) of the
Act.
Another accredited unrelated investor purchased 104,000 shares during February
1998 for proceeds of $200,000. 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 afforded by Section 4(2) of the
Act.
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<PAGE>
During December 1998, MediaX issued 190,000 shares of common stock valued at
$185,625 (based on the market value on the date of grant) to consultants for
services rendered. 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 afforded by Section 4(2) of the Act.
Convertible Securities
On March 1, 1998, MediaX replaced certain outstanding debentures with a new
convertible debenture for $850,000 which pays interest at the same rate as the
replaced debentures and is due on September 1, 1999. The principal sum of the
new debenture and any accrued interest may be converted into common shares at
any time prior to the due date at $1.75 per share. Accrued interest at December
31, 1998 was $73,754. On March 1, 1999 the investor converted $350,000 of
principal into 200,000 shares of common stock. 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 afforded by
Section 4(2) of the Act.
Year Ended December 31, 1997
Stock sales
On April 20, 1997, MediaX engaged a consultant to provide financial public
relations services for MediaX for a term of twelve months. As part of the
compensation for such services, MediaX issued to the consultant 7500 shares of
MediaX's common stock. 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 afforded by Section 4(2) of the Act.
On August 22, 1997, MediaX sold 20,000 shares of common stock to an accredited
investor for $148,000. 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 afforded by Section 4(2) of the Act.
On August 29, 1997, MediaX sold 5,000 shares of common stock to an accredited
investor for $52,000. 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 afforded by Section 4(2) of the Act.
On September 2, 1997, MediaX sold 5,000 shares of common stock to an accredited
investor for $52,000. 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 afforded by Section 4(2) of the Act.
On September 7, 1997, MediaX sold 10,000 shares of common stock to an accredited
investor for $104,000. 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 afforded by Section 4(2) of the Act.
On September 9, 1997, MediaX sold 10,000 shares of common stock to an accredited
investor for $104,000. 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 afforded by Section 4(2) of the Act.
On September 10, 1997, MediaX sold 5,000 shares of common stock to an accredited
investor for $52,000. 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 afforded by Section 4(2) of the Act.
On September 25, 1997, MediaX sold 19,231 shares of common stock to an
accredited investor for $200,000. 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 afforded by Section
4(2) of the Act.
On November 4, 1997, MediaX issued 40,000 shares of common stock to an unrelated
third party in exchange for $600,000 of prepaid advertising. 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 afforded by Section 4(2) of the Act.
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Convertible Securities
On March 25, 1997, MediaX sold to an accredited investor for $450,000, a
convertible debenture which pays interest at 2% per annum over the prime rate of
the Bank of America, calculated monthly on the principal portion of $350,000
from February 11, 1997 and on the principal portion of $100,000 from March 25,
1997. The debenture is due on February 28, 1998, but the principal sum and any
accrued interest may be converted into shares of common stock at any time before
the due date at a price of $1.00 per share. 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 afforded by
Section 4(2) of the Act.
On August 1, 1997, MediaX sold a convertible debenture to an accredited investor
for $320,000, which pays interest on the principal of $320,000 at 2% per annum
over the prime rate of the Bank of America, calculated monthly from August 1,
1997. The debenture is due on July 31, 1998, but the principal sum and any
accrued interest may be converted into shares of common stock at any time before
the due date at a price of $7.00 per share. 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 afforded by
Section 4(2) of the Act.
<TABLE>
<CAPTION>
EXHIBITS
No. Description
<S> <C> <C>
3.1 Certificate of Incorporation Incorporated by reference to Exhibit 3.1 to
MediaX's Registration Statement on Form S-18
(No. 33-28258)
3.1(a) Articles of Amendment to the Articles of Incorporated by reference to Exhibit 3.1(a) to MediaX's
Incorporation dated February 23, 1996, for the name Registration Statement on Form 10-KSB for the year ended
change to Zeitgeist Werks, Inc. December 31, 1995
3.1(b) Articles of Amendment to the Articles of Incorporated by reference to Exhibit 3.1(b) to MediaX's
Incorporation dated August 15, 1996, for the name Registration Statement on Form 10-KSB for the year ended
change to MediaX Corporation December 31, 1996
3.1(c) Certificate of Amendment Reverse Split Incorporated by reference to Exhibit 3.1(c) to
MediaX's Schedule 14C
3.1(d) Certificate of Amendment to Articles of Incorporation Incorporated by reference to Exhibit 3.1(d) to
of MediaX MediaX's Registration Statement on Form S-3
3.2 Bylaws Incorporated by reference to Exhibit 3.2 to
MediaX's Registration Statement on Form S-18
(No. 33-28258)
5.1 Opinion re legality of Richard O. Weed To be filed electronically with amendment
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.23 Private Equity Line of Credit Agreement Between Incorporated by reference to Exhibit 10.23 to
MediaXCorp. and Villabeach Investments Ltd. MediaX's Form 8-K filed May 15, 2000
10.24 Escrow Agreement Between MediaX Corp. and Villabeach Incorporated by reference to Exhibit 10.24 to
Investments Ltd. MediaX's Form 8-K filed May 15, 2000
10.25 Registration Rights Agreement Between MediaX Corp. and Incorporated by reference to Exhibit 10.25 to
Villabeach Investments Ltd. MediaX's Form 8-K filed May 15, 2000
10.26 Stock Purchase Warrant Incorporated by reference to Exhibit 10.26 to
MediaX's Form 8-K filed May 15, 2000
10.27 Form of Opinion of MediaX Corp.'s Independent Counsel Incorporated by reference to Exhibit 10.27 to
MediaX's Form 8-K filed May 15, 2000
Common Stock Purchase Agreement Between MediaX Corp.
10.28 and AMRO International, S.A. Incorporated by reference to Exhibit 10.28 to
MediaX's Form 8-K filed May 15, 2000
Escrow Agreement Between MediaX Corp. and AMRO
10.29 International, S.A. Incorporated by reference to Exhibit 10.29 to
MediaX's Form 8-K filed May 15, 2000
Registration Rights Agreement Between MediaX Corp. and
10.30 AMRO International S.A. Incorporated by reference to Exhibit 10.30 to
MediaX's Form 8-K filed May 15, 2000
Form of Opinion of MediaX Corp.'s Independent Counsel
10.31 Incorporated by reference to Exhibit 10.31 to
MediaX's Form 8-K filed May 15, 2000
16.1 Letter on Change in Certifying Accountant Incorporated by reference to Exhibit 16.1 to
MediaX's Form 8-K filed January 11, 2000
23.1 Consent of Richard O. Weed To be filed electronically with amendment
23.2 Consent of Corbin & Wertz To be filed electronically with amendment
23.3 Consent of Davis & Co., CPA's P.C. To be filed electronically with amendment
</TABLE>
UNDERTAKINGS
1. The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) include any prospectus required by section 10(a)(3) of the Securities
Act;
(ii) reflect in the Prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement; and
(iii) include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement provided,
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<PAGE>
however, that paragraphs (1)(i) and (1)(ii) do not apply if the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by MediaX pursuant to Section 13 or Section
5(d) of the Exchange Act that are incorporated by reference in the registration
statement.
(b) That, for the purpose of determining liability under the Securities
Act, each post-effective amendment shall be deemed to be a new registration
statement of the securities offered, and the offering of the securities at that
time shall be deemed to be the initial bona fide offering thereof.
(c) To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the termination of the offering.
2. The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Exchange Act that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements of filing on Form SB-2 and has duly caused this registrations
statement to be signed on its behalf by the undersigned, thereon duly authorized
in the City of Culver City, California on May 30, 2000.
MediaX CORPORATION
a Nevada corporation
By: /s/ Nancy Poertner
----------------------------------
Nancy Poertner,
Director and President
Pursuant to the requirement of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities
indicated on May 30, 2000.
Signature Title Date
/s/ Nancy Poertner
------------------------ President, Secretary, and
Nancy Poertner Director May 30, 2000
/s/ Rainer Poertner
------------------------
Rainer Poertner Director May 30, 2000
/s/ Matthew MacLaurin
------------------------
Matthew MacLaurin Executive V.P. and Director May 30, 2000
/s/ Jackie Cabellon
------------------------ Controller (Principal Accounting
Jackie Cabellon Officer) May 30, 2000
68
