<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 4, 2001
REGISTRATION NO. ________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
MEDIAX CORPORATION
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
Nevada 7374 84-1107138
(State or jurisdiction of (Primary Standard (I.R.S.
incorporation or Industrial Employer
organization) Classification Code Identification
Number) No.)
</TABLE>
3455 La Cienega Boulevard, Building C, Los Angeles, CA 90016 (310) 815-8002
(Address and telephone number of principal executive offices)
3455 La Cienega Boulevard, Building C, Los Angeles, CA 90016 (310) 815-8002
(Address of principal place of business or intended principal place of
business)
Nancy Poertner, 3455 La Cienega Boulevard, Building C, Los Angeles, CA 90016
Telephone (310) 815-8002, Facsimile (310) 815-8096 (Name, address and
telephone number of agent for service)
Copy to: Richard O. Weed, Weed & Co. L.P. 4695 MacArthur Court, Suite
1450 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. [ ] ______________________________
If this Form is a post-effective amendment filed pursuant to Rule 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. [ ] ____________________________
If this Form is a post-effective amendment filed pursuant to Rule 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 to Rule 434, check
the following box. [ ]
<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH MAXIMUM MAXIMUM AMOUNT OF
CLASS OF SECURITIES AMOUNT TO OFFERING AGGREGATE REGISTRATION
TO BE REGISTERED BE REGISTERED PRICE PER UNIT OFFERING PRICE FEE
-------------------------------- --------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
$.0001 par value common stock (1) 1,059,322 $ .21 (2) $222,458 $ 55.61
--------- -------- -------- --------
$.0001 par value common stock
underlying Warrants (3) 1,059,322 $ .472 $500,000 $ 125.00
--------- -------- -------- --------
Total 2,118,644 $722,458 $ 180.61
--------- -------- -------- --------
</TABLE>
----------
(1) 1,059,322 shares of common stock are issuable upon conversion of
1,059,322 shares of Series A Convertible Preferred Stock issued to CTI
II Limited pursuant to a Securities Purchase Agreement dated December 6,
2000. Subject to certain adjustments, the Series A may be converted any
time after December 6, 2000.
(2) 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 January 2,
2001.
(3) 1,059,322 shares of common stock are issuable upon the exercise of a
warrant issued to CTI II Limited under the Securities Purchase Agreement
dated December 6, 2000. The exercise price of these warrants is $.472.
These warrants may be exercised until the earlier of (i) December 6,
2005 or (ii) generally, 30 days immediately following the period of time
during which the bid price of MediaX's common stock for twenty (20)
consecutive days is above $5.00 per share.
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.
<PAGE> 3
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
1,059,322 Shares of Common Stock
1,059,322 Shares of Common Stock Underlying Warrants
MEDIAX CORPORATION
This prospectus relates to the public offering, which is not being underwritten,
of 1,059,322 shares of common stock, par value $.0001 per share of MediaX
Corporation, a Nevada corporation. 1,059,322 additional shares offered are
shares underlying warrants exercisable at $.472 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 CTI II Limited
upon the exercise for cash of the stock purchase warrants issued to CTI. CTI and
other stockholders who may offer and sell shares of our common stock under this
prospectus are "selling stockholders."
MediaX's common stock is traded on NASDAQ OTC:BB, the under symbol "MXMX." On
January 2, 2001, the last reported sale price for the common stock was $.21 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 5 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.
MediaX May Amend This Registration Statement. A Registration Statement Relating
To These Securities Has Been Filed With The Securities And Exchange Commission.
MediaX 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 Is Not Soliciting An Offer To Buy These
Securities In Any State Where An Offer Or Sale Is Not Permitted.
The date of this prospectus is January __, 2001.
<PAGE> 4
Table of Contents
Prospectus Summary ..........................................................3
Risk Factors.................................................................3
Available Information........................................................9
Use of Proceeds..............................................................9
Determination of Offering Price..............................................9
Dilution.....................................................................9
Selling Security Holders.....................................................9
Plan of Distribution........................................................11
Legal Proceedings...........................................................14
Directors, Executive Officers, Promoters and Control Persons................14
Security Ownership of Certain Beneficial Owners and Management..............15
Description of Securities...................................................17
Interest of Named Experts and Counsel.......................................18
Disclosure on Commission Position on Indemnification for
Securities Act Liabilities................................................18
Organization Within Last Five Years.........................................18
MediaX Corporation..........................................................19
Management's Discussion and Analysis or Plan of Operation...................22
Description of Property.....................................................26
Certain Relationships and Related Transactions..............................26
Market for Common Equity and Related Stockholder Matters....................26
Executive Compensation......................................................27
Financial Statements.......................................................F-1
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.....................................F-38
Until ____, 2001 (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.
<PAGE> 5
PROSPECTUS SUMMARY
MEDIAX CORPORATION
MediaX Corporation, a Nevada corporation, 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 NSYNC.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 3455 La Cienega Boulevard, Building C, Los Angeles,
California 90016 and its telephone number is (310) 815-8002.
THE OFFERING
This prospectus covers 1,059,322 shares of common stock and 1,059,322 shares of
common stock underlying warrants to be sold by the selling stockholders
identified in this prospectus.
MediaX and CTI II Limited signed a Securities Purchase Agreement dated December
6, 2000, for the purchase of 1,059,322 shares of MediaX Preferred Stock Series
A, convertible in an equal amount of MediaX common stock. CTI paid $500,000 for
this stock or $.472 a share. In connection with the purchase agreement, MediaX
issued to CTI a warrant to purchase 1,059,322 shares of common stock at an
exercise price of $.472. Terms of these agreements require MediaX to file a
registration statement with the SEC covering these securities and to use its
best efforts to cause the registration statement to become effective within
sixty days from the execution of the agreement. If the registration statement
does not become effective within sixty days, MediaX may have to repurchase these
securities in accordance with the terms as set out in the agreement. The common
stock issuable to CTI upon conversion of the Series A Convertible Preferred
Stock and upon exercise of the warrant is included in this prospectus.
Additional material terms of the purchase agreement are described in detail
beginning on page 12 of this prospectus.
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.
MediaX Has A Limited Operating History, Has Experienced Losses, And Expects
Future Losses Which
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<PAGE> 6
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 Which May Negatively
Affect MediaX's Ability To Achieve And Sustain Profitability.
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;
Failure To Raise Additional Capital May Negatively Impact MediaX's Operations.
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 business 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 its
Securities Purchase Agreement with CTI, and the maximum stock purchase amount in
its agreements with other investors 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's Procurement Of Additional Financing, If Available, May Dilute The
Ownership Interests of Investors.
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<PAGE> 7
MediaX has traditionally raised additional funds through the issuance of equity,
equity-related or convertible debt securities. The issuance of additional common
stock dilutes existing stockholders. Further, in its transaction with CTI,
MediaX issued securities with rights, preferences or privileges senior to those
of the rights of its common stock and its stockholders may experience dilution.
Further procurement of additional financing through the issuance of equity,
equity-related or convertible debt securities or preferred stock may further
dilute existing stock. Further, the perceived risk of dilution may cause selling
shareholders, as well as other holders, to sell their shares, which would
contribute to downward movement in the price of your shares.
MediaX May Be Unable To Continue To Operate As A Going Concern.
Because MediaX has experienced recurring net losses and has limited liquid
resources, MediaX's auditors in their December 31, 1999 report of MediaX's
financial statements expressed doubt about MediaX's ability to continue as a
going concern. 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 2001. The financial
statements included 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
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
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<PAGE> 8
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, Matthew MacLaurin, Vice 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, advertising 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 and advertising 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 two leased facilities in Santa Cruz, CA.
MediaX's Online Commerce Business Is Subject To Security Risks; Failure To
Adequately Provide For These Risks May Negatively Affect MediaX's Operations.
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.
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<PAGE> 9
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.
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
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<PAGE> 10
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.
Since MediaX Relies Primarily On One Provider For Order Fulfillment Of Recorded
Music Titles And Other Related Products, The Loss Of This Provider 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.
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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, 3455 La Cienega Boulevard,
Building C, Los Angeles, CA 90016 (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 from CTI's sale of the shares,
obtained under the Securities 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 CTI 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.
SELLING SECURITY HOLDERS
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CTI II Limited
CTI II Limited, a corporation organized and existing under the laws of Bermuda
("CTI"), is an affiliate of Creative Technology Ltd. (NMS "CREAF") the maker of
computer sound cards. CTI is located at 31 International Business Park, Creative
Resource, Singapore 609921. CTI's board of directors makes its investment
decisions. Other than its ability to convert Series A Preferred Stock into
common stock of MediaX on a one for one basis under the Securities Purchase
Agreement, CTI has no other commitments or arrangements to purchase or sell any
of MediaX's securities. There were no business relationships between CTI and
MediaX prior to the Securities Purchase Agreement and related documents. A
discussion of the material terms of the agreement with CTI is included below and
copies of the complete agreements are attached as exhibits to this registration
statement.
MediaX and CTI signed a Securities Purchase Agreement dated December 6, 2000,
for the purchase of 1,059,322 shares of Preferred Stock Series A of MediaX. CTI
paid $500,000 for the purchase of these shares or $.472 per share. In connection
with the purchase agreement, the parties entered a registration rights agreement
and MediaX issued a warrant to CTI. As set forth in this agreement and in the
Certificate of Designation of the Rights and Preferences of the Preferred Stock,
attached as Exhibit 3.1 to this registration statement, each share of the Series
A is convertible into shares of common stock of MediaX on a one for one basis,
subject to certain adjustments.
In connection with the purchase agreement, MediaX issued to CTI a warrant to
purchase 1,059,322 shares of common stock at an exercise price of $.472. These
warrants expire December 6, 2005 or 30 days immediately following the period of
time during which the bid price of MediaX's common stock is above $5.00 per
share.
Pursuant to the purchase agreement, MediaX entered into a registration rights
agreement with CTI, in which MediaX agreed to file a registration statement
covering 1,059,322 shares of common stock issuable upon conversion of the Series
A Preferred Stock and 1,059,322 shares of common stock issuable upon exercise of
the warrant. This agreement requires that MediaX use its best efforts to cause
the registration statement to become effective within sixty days from the
execution of the agreement. If the registration statement does not become
effective within this sixty days, MediaX may have to repurchase these securities
at a price per share equal to the higher of (i) the average closing price for
MediaX common stock as listed on the OTC Bulletin Board for ten consecutive
trading dates immediately preceding the expiration of the registration period or
(ii) the original purchase price of the stock. The 2,118,644 shares of common
stock are included in this prospectus.
The table below sets forth the information about the selling security holders,
including their name, address, any position, office, or other material
relationship which the selling security holder has had within the past three
years with MediaX or any of its predecessors or affiliates, the amount of
securities of the class owned before this offering, the amount to be offered,
the amount and percentage of the class of securities to be owned by such
security holder after the offering is complete.
10
<PAGE> 13
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
AMOUNT AND AMOUNT AND
NATURE OF PERCENTAGE TO BE
NAME AND ADDRESS OF BENEFICIAL PERCENT OWNED AFTER THE
TITLE OF CLASS BENEFICIAL OWNER OWNER OF CLASS OFFERING (3)
---------------------- ------------------- ------------ -------- ----------------
<S> <C> <C> <C> <C>
$.001 par value common CTI II Limited 1,059,322 12% 0
stock c/o Creative direct (1)
Technology Limited
31 International
Business Park
Creative Resource
Singapore 609921
$.001 par value common CTI II Limited 1,059,322 12% 0
stock underlying c/o Creative direct (2)
warrants Technology Limited
31 International
Business Park
Creative Resource
Singapore 609921
Total 2,118,644 24% 0
</TABLE>
(1) Upon conversion of the Series A Convertible Preferred Stock.
(2) Upon conversion of the warrants at $.472 per share.
(3) Assuming all shares covered by this prospectus are sold.
PLAN OF DISTRIBUTION
General
CTI is offering the common shares for its account, and not for MediaX's account.
MediaX will not receive any proceeds from the sale of common shares by CTI. CTI
may be offering for sale up to 2,118,644 common shares acquired by it pursuant
to the terms of the purchase agreement and the warrants MediaX issued to it in
connection with the transaction.
To permit CTI to resell the common shares issued to it under the purchase
agreement, MediaX agreed to register those shares and to maintain that
registration. To that end, MediaX agreed with CTI 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:
- none of the securities covered by the registration statement are
or may become issued or outstanding;
- all of the securities have been sold pursuant to such
registration statement;
- all securities have been transferred to persons who may trade
such securities without restriction
11
<PAGE> 14
under the Securities Act and the company has delivered a new certificate
or other evidence of ownership for such securities not bearing a
restrictive legend.
Shares of common stock offered through this prospectus may be sold from time to
time by CTI 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 MediaX 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:
- 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;
- purchases by a broker or dealer for its account under this
prospectus; or
- 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,
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.
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 must reimburse CTI
$35,000 for their legal and administrative 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
12
<PAGE> 15
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.
Limited Grant Of Registration Rights
MediaX granted registration rights to CTI to enable it to sell the common stock
acquired under the securities purchase agreement. In connection with any such
registration, MediaX will have no obligation -
- to assist or cooperate with CTI in the offering or disposition
of such shares;
- to indemnify or hold harmless the holders of any such shares
(other than CTI) or any underwriter designated by such holders;
- to obtain a commitment from an underwriter relative to the sale
of any such shares; or
- to include such shares within any underwritten offering it does.
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 it is
required to do so under its registration rights agreement with CTI, one or more
post-effective amendments to the registration statement of 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
- the name of any broker-dealers;
- the number of common shares involved;
- the price at which the common shares are to be sold;
- the commissions paid or discounts or concessions allowed to
broker-dealers, where applicable;
- that broker-dealers did not conduct any investigation to verify
the information set out or incorporated by reference in this
prospectus, as supplemented; and
- any other facts material to the transaction.
13
<PAGE> 16
LEGAL PROCEEDINGS
Valley Media, Inc. 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 Valley. On
May 31, 2000, MediaX filed a Notice of Appeal with the California Court of
Appeal, First Appellate District. In August 2000, the parties entered into a
settlement agreement, the terms of which provide for full satisfaction of the
arbitration award in exchange for MediaX's abandonment of its appeal and payment
to Valley of the amount of $150,000 in installments until August 1, 2001. MediaX
made its first payment of $20,000 to Valley in August 2000.
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:
<TABLE>
<CAPTION>
NAME AGE POSITION HELD AND TENURE
------------------- --- ----------------------------------
<S> <C> <C>
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
</TABLE>
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 of the 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 served as President and a Director of Syncronys Softcorp
14
<PAGE> 17
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 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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December ____, 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>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNER OF CLASS
---------------- ------------------------- -------------------- --------
<S> <C> <C> <C>
$.0001 par value Nancy Poertner 1,359,375(1)(2) 15.64%
common stock 3455 La Cienega Boulevard,
Building C
Los Angeles, CA 90016
$.0001 par value Rainer Poertner 1,359,375(1)(2) 15.64%
common stock 3455 La Cienega Boulevard,
Building C
Los Angeles, CA 90016
</TABLE>
15
<PAGE> 18
<TABLE>
<S> <C> <C> <C>
$.0001 par value Assisi Limited Partnership 1,359,375 (1)(2) 15.64%
common stock 10866 Wilshire Blvd., 15th
Floor
Los Angeles, CA 90024
$.0001 par value Matthew MacLaurin 645,625 (3) 7.43%
common stock 3455 La Cienega Boulevard,
Building C
Los Angeles, CA 90016
$.0001 par value All directors and officers 2,005,000 (1)(2)(3) 23.06%
common stock
$.0001 par value Liviakis Financial 888,800 (4) 10.22%
common stock Communications, Inc.
495 Miller Ave., Third Floor
Mill Valley, CA 94941
$.0001 par value Apple Investors LLC 996,634 (5) 11.46%
common stock 1 World Trade Center,
Suite 4563
New York, N.Y. 10048
$.001 par value common AMRO International, 731,102 8.4%
stock S.A.
c/o UltraFinanz AG
Grossmuensterplatz 6
Zurich CH-8022
Switzerland
$.0001 par value common CTI II Limited 2,118,644 (6) 2 24.37%
stock c/o Creative Technology
Limited
31 International Business
Park
Creative Resource
Singapore 609921
</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 is 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. Includes 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. Includes options to purchase
common shares totaling 550,000 granted to Mr. MacLaurin with exercise
prices of $.98 and $1.12 exercisable immediately.
(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 plus 337,819 shares recently
issued in satisfaction of $413,760 owed to Apple for principal and
accrued interest on a Securities Purchase Agreement.
16
<PAGE> 19
(6) Represents the amount of common stock that CTI would beneficially own
upon conversion of all of the Series A Convertible Preferred Stock and
Warrants that CTI owns.
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
Common Stock
Pursuant to MediaX's Certificate of Incorporation, the Board of Directors has
the authority to issue up to 25,000,000 shares of common stock, $0.0001 par
value per share, of which 8,693,234 shares are issued and outstanding. Each
share of stock shall entitle the holder thereof to one vote. 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 MediaX
designates or has 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.
Preferred Stock
Pursuant to MediaX's Certificate of Incorporation, the Board of Directors has
the authority, without further action by the stockholders, to issue up to
10,000,000 shares of preferred stock, $0.0001 par value, in one or more series
and to fix the designations, powers, preferences, privileges and relative
participating, optional or special rights and the qualification, limitations or
restrictions of the shares of such preferred stock may be issued from time to
time in one or more series, including dividend rights, conversion rights, voting
rights, terms of redemption or liquidation preferences, any or all of which may
be greater than the rights of the common stock. The Board of Directors, without
shareholder approval, can issue preferred stock with voting, conversion or other
rights that could adversely affect the voting power and other rights of the
holders of common stock. 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. Preferred stock could
thus be issued very quickly with terms calculated to delay or prevent a change
in control of MediaX or make removal of management more difficult. Additionally,
the issuance of preferred stock may have the effect of decreasing the market
price for common stock, and may adversely affect the voting and other rights of
the holders of common stock.
On November 22, 2000, MediaX's Board of Directors designated 1,059,322 shares of
preferred stock as Series A Convertible Preferred Stock, of which 1,059,322
shares are currently issued and outstanding. The Series A is senior to the
common stock and all other shares of preferred stock that may be later
authorized. Holders of the Series A are entitled to receive, in preference to
any holders of preferred or common stock, out of assets legally available under
Nevada law, cumulative and accruing dividends at a rate of $0.0472 per share of
Series A paid annually in arrears. At the holder's election, dividends may be
paid in cash or accrue as an unpaid dividend. In addition, holders of the Series
A will also be able to
17
<PAGE> 20
receive common stock dividends and distribution with the holders of the common
stock on a converted basis.
Each share of the Series A is convertible at the option of the holder, at any
time after the issuance of the shares on a one for one basis, subject to certain
adjustments for certain corporate actions such as a stock dividend or stock
subdivision, a stock combination or consolidation or a merger or reorganization.
In the event of liquidation, dissolution or winding up of MediaX, the holders of
the Series A shall be entitled to receive, prior to the holders of common stock
or other series of preferred stock, $0.472 per share, plus all declared but
unpaid dividends. The Series A is entitled to vote, on a one share for one vote
basis, on any matter submitted to the common stock holders including the
election of the board of directors.
INTEREST OF NAMED EXPERTS AND COUNSEL
Corbin & Wertz, independent auditors, audited MediaX's financial statements
included in MediaX's Annual Report on Form 10-KSB for the year ended December
31, 1999, which are included in this prospectus. MediaX's financial statements
are included in reliance on Corbin & Wertz's report, due to their authority as
experts in accounting and auditing.
Davis & Co, CPA, independent auditors, audited MediaX's financial statements
included in MediaX's Annual Report on Form 10-KSB for the year ended December
31, 1998, which are also included in this prospectus. MediaX's financial
statements are included in reliance on Davis & Co, CPA's report, due to 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 of
1933 may be permitted to directors, officers and controlling persons of the
small business issuer pursuant to the foregoing provisions, or otherwise, the
small business issuer 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 for such liabilities, other than the payment by the
small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer 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 small business
issuer 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.
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.
18
<PAGE> 21
MediaX is indebted to Rainer Poertner, in his capacity as director of the
company, in the amount of $40,000 for consulting services in 1999. MediaX is
indebted to Rainer Poertner, an officer and director of the company, for an
advance of $50,000 for working capital for the company in October 2000.
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 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
successful 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.
MediaX could not have produced leading edge on-line campaigns, such as the full
screen, real-time streaming event in June 1999 for Paul McCartney, 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 and hosts most 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.
19
<PAGE> 22
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.
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 ceased
distribution of the product.
Historical Information
MediaX Corporation 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, 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, at that time Edinburgh Capital, Inc.,
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
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<PAGE> 23
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 December 31, 2000, MediaX had 29 employees and subcontractors.
Patents, Trademarks And Licenses
As a site developer, MediaX 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. As such, 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. MediaX used these
proceeds 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.
MediaX used these proceeds for working capital. The SEC declared a registration
statement on the shares under this agreement effective on November 15, 2000.
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<PAGE> 24
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. The SEC declared a registration statement on the shares under this
agreement effective on November 15, 2000. MediaX may be obligated to pay certain
liquidated damages in connection with the delay in the effective date of the
registration statement. As soon as practicable, MediaX plans 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. MediaX will use these proceeds for working capital.
On December 6, 2000, MediaX entered into a securities purchase agreement with
CTI II Limited. In exchange for $500,000, MediaX issued to CTI 1,059, 322 shares
of Series A Convertible Preferred Stock convertible into shares of MediaX common
stock on a one for one basis and a warrant to purchase 1,059,322 shares of
common stock at $.472 per share. MediaX will use these proceeds 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 September 30, 2000 and for the years ended
December 31, 1999 and 1998 and for the period from March 30, 1995, MediaX's date
of inception, through December 31, 1999 together with the notes thereto. The
analysis set forth below is provided pursuant to applicable SEC regulations and
is not intended to serve as a basis for projections of future events.
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
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<PAGE> 25
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.
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.
Nine Months Ended September 30, 2000 Compared To The Nine Months Ended September
30, 1999
Sales for the nine months ended September 30, 2000 was $1,053,125 compared to
$26,919 for the same period last year, an increase of 3812.19%. The change is
attributable to increased website design and executed third party marketing
campaigns and continued growth of MediaX's e-commerce site - amuZnet.com's
customer base; repeat purchases from existing customers of its network of
websites partially offset by decrease in membership dues which fluctuates
depending on touring schedules of major artists.
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<PAGE> 26
Cost and Operating Expenses are composed of operating and development expense,
sales and marketing; and general and administrative expense. Operating and
development expense was $1,216,786 for the nine months ended September 30, 2000
compared to $859,193 for the corresponding period in 1999. The increase is
attributable to payroll and associated costs related to website designs and
enhancing the features and functionality of MediaX's network of websites;
increased investment in Internet content, network and telecommunications
infrastructure and; amortization and recognition of a non-cash charge of
$126,454 for options granted partially offset by a 1999 one-time non-cash charge
of $345,600 for options granted to consultants for content acquisitions.
Sales and marketing expense was $505,608 for the nine months ended September 30,
2000, compared to $378,878 for the same period in 1999. The increase is
attributable to the recognition of prepaid advertising; slight increase in
payroll and related costs; and offset by decrease in public relations and
promotion strategies.
General and administrative expense was $870,361 for the nine months ended
September 30, 2000, compared to $2,462,008 for the nine months ended September
30, 1999. The decrease is attributable to a net 1999 non-cash charge of
$1,714,018 for shares and options issued for services rendered partially offset
by an increase to payroll and related expenses, and other general and corporate
expenses incurred in the current year.
Total other expense was $94,211 for the three months ended September 30, 2000,
compared to $1,375,841 for the corresponding period in 1999. The decrease is
attributable to beneficial and induced conversion of debt and debt issuance
costs recognized in 1999 offset by an increase in interest income earned from
cash equivalents in the current quarter.
Net Loss. As a result of the these factors, MediaX's net loss was $1,633,841 for
the nine months ended September 30, 2000 compared to $5,049,001 for the nine
months ended September 30, 1999.
Liquidity And Capital Resources
At 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
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<PAGE> 27
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 September 30, 2000, MediaX had positive working capital of $517,025, as
compared to a positive working capital of $1,087,082 at December 31, 1999. The
decrease in working capital is attributed to purchases of fixed assets and
payments of operating expenses during the nine months ended September 30, 2000.
Net cash used in operating activities of $1,573,446 for the nine months ended
September 30, 2000 was primarily attributed to a net loss of $1,633,841, offset
by $44,853 non-cash charge for depreciation and amortization; a $141,691
non-cash charge for stock-based compensation for consulting services and common
stock issued to employees and non-employees; $103,740 for accrued interest on
convertible debt and on stockholder notes receivable; and change in operating
assets and liabilities of $229,889. Net cash used in operating activities of
$1,633,899 for the nine months ended September 30, 1999 was primarily
attributable to a net loss $5,049,001, offset by $34,980 non-cash charge for
depreciation and amortization; a $2,059,618 non-cash charge for stock-based
compensation for consulting services and common stock issued to employees and
non-employees; $1,066,462 for beneficial conversion and induced conversion of
debt; amortization of debt issuance costs of $176,000 and $134,099 for accrued
interest on convertible debt and on stockholder notes receivable ;and change in
other operating assets and liabilities of $56,057.
Net cash used in investing activities was $135,083 for the nine months ended
September 30, 2000 and consisted of advances from officer and purchases of fixed
assets. Net cash used in investing activities was $240,160 for the nine months
ended September 30, 1999 and consisted of acquisitions of intangible assets and
purchases of fixed assets.
Net cash provided by financing activities was $960,000 for the nine months ended
September 30, 2000, and consisted of proceeds from subscription advances, sale
of stock to investors and issuance of convertible notes payable. Net cash
provided by financing activities was $3,465,360 for the nine months ended
September 30, 1999, and consisted primarily of net proceeds from sale of stock
to investors, subscription advances, exercise of options and warrants and
issuance of convertible notes payable.
Although MediaX has no material commitments for capital expenditures, it
anticipates a substantial increase in capital expenditures and lease commitments
in connection with anticipated growth in operations and infrastructure.
Furthermore, MediaX will need to spend significant amounts for sales and
marketing, advertising and promoting its brands, content development and
technology and infrastructure development and personnel. On April 2000, MediaX
entered into a private equity line of credit agreement with an investor to
purchase an aggregate $6,000,000 of its common stock. Although this transaction
was registered with the SEC on November 15, 2000, these funds are not yet
available to MediaX and MediaX may be responsible for liquidated damages for
failure to register this transaction within the time frame mandated by the
agreement. Should MediaX fail to increase sales or raise the additional funds,
MediaX will have insufficient funds for its intended operations and capital
expenditures which will have a material adverse effect on MediaX's operating
results.
MediaX evaluates its liquidity and capital needs on a continuous basis and based
on MediaX's
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<PAGE> 28
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 lacks 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
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 3455 La Cienega Boulevard, Building C,
Los Angeles, CA 90016 on a lease 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 expired in June 2000. MediaX intends
to renew this lease for another 12 months.
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 under the symbol "MXMX." 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.
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<TABLE>
<CAPTION>
QUARTER ENDED HIGH BID LOW BID
------------------ -------- --------
<S> <C> <C>
September 30, 2000 $ 1.25 $ .47
June 30, 2000 $ 3.00 $ 1.00
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
</TABLE>
(b) Holders. As of December 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 $100,000 during these periods. Directors
serve without compensation.
Summary Compensation Table
<TABLE>
<CAPTION>
FISCAL SALARY OTHER ANNUAL OPTIONS
NAME AND PRINCIPAL POSITION YEAR ($) 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 $50,000.
(3) Represents consulting payments made under a consulting agreement. Effective
January, 2000, the Chairman accepted a management position with MediaX.
Option Grants In Last Fiscal Year
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<PAGE> 30
The following table sets forth information with respect to grants of options to
purchase common stock under the Stock Option Plan to the named executive
officers during the fiscal year ended December 31, 1999.
<TABLE>
<CAPTION>
POTENTIAL EXERCISABLE
NUMBER % OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATE OF STOCK
UNDERLYING GRANTED TO EXERCISE APPRECIATION FOR
OPTIONS EMPLOYEES PRICE EXPIRATION OPTION TERM (2)
NAME GRANTED (#) IN FISCAL YEAR ($/SH)(1) DATE 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.
Aggregated Option Exercises During Fiscal 1999 and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
NUMBER OF
UNEXERCISED VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES ACQUIRED 12/31/99 (#) 12/31/99 ($)
ON EXERCISE VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE (1)
(a) (b) (c) (d) (e)
--------------- --------------- -------------- --------------- -----------------
<S> <C> <C> <C> <C>
Matthew 16,666/533,334 9,707/240,000
MacLaurin
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, Nancy Poertner.
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,
Matthew MacLaurin. The agreement, which expires in June 2001, provides for an
annual base salary of $185,000 and increases
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<PAGE> 31
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 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, Rainer Poertner, 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, 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. The Board of Directors determines vesting provisions 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.
MediaX granted under the Plan 193,000 options to employees, officers and
directors at an exercise price of $0.98 for 1998 and 93,000 shares at an
exercise price of $1.68 for 1999. Pursuant to this Plan, MediaX has 178,848
shares of common stock available for future issuance, at the discretion of the
Board of Directors to officer, directors, employees and consultants.
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<PAGE> 32
FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Reports ............................................... F-2 - F-3
Balance Sheet as of December 31, 1999 ....................................... F-4
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-5
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-6 - F-17
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-18 - F-19
Notes to the Annual Financial Statements .................................... F-20 - F-30
Balance Sheet as of September 30, 2000 ...................................... F-31
Statements of Operations for the nine months ended September 30,
2000 and 1999 ............................................................... F-32
Statements of Cash Flows for the nine months ended September 30,
2000 and 1999 ............................................................... F-33 - F-34
Notes to the Quarterly Financial Statements ................................. F-35 - F-38
</TABLE>
F-1
<PAGE> 33
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.
F-2
<PAGE> 34
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.
F-3
<PAGE> 35
MEDIAX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
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-4
<PAGE> 36
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
<TABLE>
<CAPTION>
MARCH 30, 1995
(DATE OF INCEPTION)
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999
------------ ------------ --------------------
(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-5
<PAGE> 37
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
<TABLE>
<CAPTION>
STOCKHOLDER
NOTES
ADDITIONAL AND ACCRUED
COMMON STOCK 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>
F-6
<PAGE> 38
<TABLE>
<CAPTION>
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>
F-7
<PAGE> 39
<TABLE>
<CAPTION>
STOCKHOLDER
NOTES
ADDITIONAL AND ACCRUED
COMMON STOCK PAID-IN SUBSCRIPTION INTEREST
SHARES AMOUNT CAPITAL RECEIVABLE 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>
F-8
<PAGE> 40
<TABLE>
<CAPTION>
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>
F-9
<PAGE> 41
<TABLE>
<CAPTION>
STOCKHOLDER
NOTES
ADDITIONAL AND ACCRUED
COMMON STOCK 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>
F-10
<PAGE> 42
<TABLE>
<CAPTION>
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>
F-11
<PAGE> 43
<TABLE>
<CAPTION>
STOCKHOLDER
NOTES
ADDITIONAL AND ACCRUED
COMMON STOCK 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>
F-12
<PAGE> 44
<TABLE>
<CAPTION>
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>
F-13
<PAGE> 45
<TABLE>
<CAPTION>
STOCKHOLDER
NOTES
ADDITIONAL AND ACCRUED
COMMON STOCK 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>
F-14
<PAGE> 46
<TABLE>
<CAPTION>
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>
F-15
<PAGE> 47
<TABLE>
<CAPTION>
STOCKHOLDER
NOTES
ADDITIONAL AND ACCRUED
COMMON STOCK 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>
F-16
<PAGE> 48
<TABLE>
<CAPTION>
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-17
<PAGE> 49
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
<TABLE>
<CAPTION>
MARCH 30, 1995
(DATE OF
INCEPTION)
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 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)
------------ ------------ ------------
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
============ ============ ============
</TABLE>
F-18
<PAGE> 50
<TABLE>
<S> <C> <C> <C>
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-19
<PAGE> 51
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.
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
F-20
<PAGE> 52
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.
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
F-21
<PAGE> 53
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.
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.
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
F-22
<PAGE> 54
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.
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
F-23
<PAGE> 55
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.
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.
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).
F-24
<PAGE> 56
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.
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
F-25
<PAGE> 57
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.
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>
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
F-26
<PAGE> 58
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.
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.
F-27
<PAGE> 59
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.
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>
<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>
1999 1998
----------- -----------
<S> <C> <C>
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.
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>
1999 1998
----------- -----------
<S> <C> <C>
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
F-28
<PAGE> 60
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>
YEARS ENDING
DECEMBER 31
------------
<S> <C>
2000 $130,000
2001 114,000
2002 118,000
2003 121,000
2004 125,000
--------
$608,000
</TABLE>
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. In August 2000, the
parties entered into a settlement agreement, the terms of which provide for the
Company's abandonment of its appeal and payment to the order fulfillment company
of $150,000 in installments until August 1, 2001. The Company made its first
payment to the order fulfillment company of $20,000 in August 2000.
F-29
<PAGE> 61
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.
F-30
<PAGE> 62
MEDIAX CORPORATION
BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 (UNAUDITED) 1999 (AUDITED)
--------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,778 $ 760,307
Accounts receivable, net of reserve of $8,500 536,110 2,218
Inventories 12,308 12,855
Prepaid advertising costs 610,790 708,125
Other prepaid expenses 46,089 52,097
------------ ------------
Total current assets 1,217,075 1,535,602
------------ ------------
Property and equipment, at cost:
Computer equipment 455,425 334,640
Office equipment 56,243 36,580
Leasehold improvements 52,265 7,630
------------ ------------
563,933 378,850
Less accumulated depreciation and amortization (321,179) (276,723)
------------ ------------
Property and equipment, net 242,754 102,127
Deposits and other assets 36,392 35,372
------------ ------------
$ 1,496,221 $ 1,673,101
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 562,100 $ 400,556
Accrued payroll and related costs 60,217 28,048
Accrued expenses 27,733 19,916
Advances from officer 50,000
------------ ------------
Total current liabilities 700,050 448,520
Long-term liabilities:
Notes payable 2,124,309 2,238,877
------------ ------------
Total liabilities 2,824,359 2,687,397
------------ ------------
Commitments and contingencies
Stockholders' deficit:
Preferred stock, $.0001 par value per share;
10,000,000 authorized and no shares issued -- --
Common stock, $.0001 par value per share;
25,000,000 shares authorized; 7,826,943 and
6,667,800 shares issued and outstanding,
for 2000 and 1999, respectively 783 667
Additional paid-in capital 13,436,023 12,154,940
Subscription advances 320,793 278,993
Stockholder notes and accrued interest receivable (118,830) (115,830)
Accumulated deficit (14,966,907) (13,333,066)
------------ ------------
Total stockholders' deficit (1,328,138) (1,014,296)
------------ ------------
$ 1,496,221 $ 1,673,101
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE> 63
MEDIAX CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Net Sales $ 1,053,125 $ 26,919
----------- -----------
Cost and Operating Expenses
Operating and development 1,216,786 859,193
Sales and marketing 505,608 378,878
General and administrative 870,361 2,462,008
----------- -----------
2,592,755 3,700,079
----------- -----------
Operating loss (1,539,630) (3,673,160)
----------- -----------
Other Income (Expenses)
Interest income 13,408 10,604
Interest expense (107,619) (1,386,445)
----------- -----------
(94,211) (1,375,841)
----------- -----------
Net loss $(1,633,841) $(5,049,001)
=========== ===========
Basic and diluted net loss per common share $ (.23) $ (1.01)
=========== ===========
Weighted average number of common shares
outstanding; Basic and diluted 7,197,650 4,991,446
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE> 64
MEDIAX CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,633,841) $(5,049,001)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 44,853 34,980
Estimated value of shares issued
for services rendered 9,375 1,605,400
Estimated value of options granted to employees 1,062 618
Estimated value of options granted
for consulting services 131,254 453,600
Estimated value of beneficial conversion and
induced conversion of debt -- 1,066,462
Amortization of debt issuance costs -- 176,000
Interest accrued on convertible debt 106,740 137,099
Interest accrued on stockholder notes receivable (3,000) (3,000)
Changes in operating assets and liabilities:
Accounts receivable (533,892) 68,123
Prepaid expense 6,008 (13,641)
Inventories 547 79,454
Prepaid advertising costs 97,335 --
Deposits and other assets (1,417)
Accounts payable and accrued expenses 201,530 (189,993)
----------- -----------
Net cash used in operating activities (1,573,446) (1,633,899)
----------- -----------
Cash flows from investing activities:
Advances from officer 50,000 --
Acquisition of intangible assets -- (209,002)
Purchase of fixed assets (185,083) (31,158)
----------- -----------
Net cash used in investing activities (135,083) (240,160)
----------- -----------
Cash flows from financing activities:
Subscription advances 100,000 138,993
Net proceeds from sale of stock to investors 460,000 441,500
Net proceeds from the exercise of options
and warrants -- 877,824
Net proceeds received from issuance of notes
payable 400,000 2,007,043
----------- -----------
3,465,360
-----------
960,000
-----------
</TABLE>
F-33
<PAGE> 65
<TABLE>
<S> <C> <C>
Net cash provided by financing activities 1,591,301
(748,529)
Change in cash and cash equivalents 760,307 19,975
----------- -----------
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period $ 11,778 $ 1,611,276
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 879 $ --
=========== ===========
Income taxes $ -- $ --
=========== ===========
Supplemental schedule of non-cash investing and financing activities:
Conversion of convertible debt to equity $ 621,308 $ 350,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE> 66
MEDIAX CORPORATION
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
Note 1: BASIS OF PRESENTATION
The financial statements of MediaX Corporation ("MediaX") for the three and nine
months ended September 30, 2000 and 1999 are unaudited. Certain information and
note disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been omitted.
These financial statements should be read in conjunction with the audited
financial statements and notes thereto included in MediaX's Form 10-KSB as of
and for the year ended December 31, 1999. In the opinion of management, the
financial statements contain all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the financial position of MediaX for
the periods presented. The interim operating results may not be indicative of
operating results for the full year or for any other interim periods.
Note 2: THE COMPANY
MediaX began as a real-time 3D computer game and educational software developer.
Late in 1998, its business plan successfully changed to integrate internally
developed 3D engineering and technology with web site design for the Internet.
MediaX provides website design, hosting, online marketing, platforms for third
party advertising and e-commerce for music artists and for its own entertainment
destination site - amuZnet.com. Additionally, it produces exclusive new media
content for the Internet, in audio and video form, which it is syndicating to
several large Tier-1 partners, such as ZapMedia and Yahoo!. Some of the material
is also produced with the view, to repurpose it for interactive satellite
broadcasting and other broadband channels. However, there can be no assurance
that it will meet its objectives or successfully implement its business plan.
Note 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DEVELOPMENT STAGE - Effective January 2000, as a result of several contracts
entered into by MediaX to provide web design, marketing and other Internet
services, management has determined that it is no longer in the development
stage. All references to cumulative statements of operations and statements of
cash flows have been eliminated in these accompanying financial statements.
GOING CONCERN - The accompanying financial statements have been prepared
assuming MediaX will continue as a going concern, which contemplates, among
other things, the realization of assets and satisfaction of liabilities in the
normal course of business. Losses from operations through September 30, 2000 and
lack of operating history, among other matters, raise substantial doubt about
its ability to continue as a going concern. In the absence of continued
significant sales and profits, MediaX intends to fund operations through
additional debt and equity financing arrangements which management believes will
be sufficient to fund its capital expenditures, working capital requirements and
other cash requirements through December 31, 2000. In April 2000, MediaX entered
into a private equity line of credit agreement with an investor to purchase an
aggregate $6,000,000 of its common stock. Should MediaX fail to register the
related shares with the SEC within the prescribed time frame, increase sales or
raise additional funds, MediaX will have insufficient funds for its intended
operations and capital expenditures which will have a material adverse effect on
MediaX's operating results. MediaX's financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
REVENUE RECOGNITION - All revenue generated from fixed-price contracts is
recognized on the percentage-of-completion method of accounting based on the
ratio of costs incurred to total estimated costs. All revenue generated from
time and material contracts is recognized as services are provided. Revenues
from maintenance agreements are recognized ratably over the terms of the
agreements. MediaX has recognized as the services were rendered $150,000 of
previously recorded deferred revenue in the current quarter.
CONCENTRATION OF SALES RISK - Two customers accounted for 95% and 93% of net
sales for the three and nine month periods ended September 30, 2000,
respectively. Accounts receivable from these customers at September 30, 2000
comprised 96% of the total accounts receivable. The loss of either of these
customers would have a significant impact on operating results.
F-35
<PAGE> 67
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 three and the nine months ended September 30, 2000 and
1999 pursuant to Statement of Financial Accounting Standards ("SFAS") No. 128
"Earnings per Share". Basic and diluted loss per share was computed based on the
weighted average number of shares outstanding for the period. Basic and diluted
loss per share are the same(in the periods with losses) as the effect of common
stock equivalents (such as stock options, warrants, etc) on loss per share are
antidilutive and thus not included in the diluted per share calculation.
SEGMENT INFORMATION - MediaX has adopted Statement of Financial Accounting
Standards No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and
Related Information." SFAS 131 changes the way public companies report
information about segments of their business in their annual financial
statements and requires them to report selected segment information in their
quarterly reports issued to stockholders. It also requires entity-wide
disclosures about the products and services an entity provides, the material
countries in which it holds assets and reports revenues and its major customers.
MediaX does not yet have any reportable segments for the nine months ended
September 30, 2000.
WEBSITE DEVELOPMENT COSTS - MediaX has adopted, the Emerging Issues Task Force
Issue No. 00-2, "Accounting for Web Site Development Costs" to be applicable to
all web site development costs incurred for the quarter beginning after June 30,
2000. The issue states that for specific web site development costs, the
accounting for such costs should be accounted for under AICPA Statement of
Position 98-1 (SOP 98-1), "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." Accordingly, certain web site
development costs which were being expensed as incurred, are capitalized and
amortized. The adoption of EITF Issue No. 00-2 did not have a material effect on
our financial statements.
STOCK BASED COMPENSATION - MediaX has adopted, the FASB issued FASB
Interpretation No. 44 (FIN 44) Accounting for Certain Transactions involving
Stock Compensation, an interpretation of APB Opinion No. 25 FIN 44 clarifies the
application of Opinion 25 for (a) the definition of employee for purposes of
applying Opinion 25, (b) the criteria for determining whether a plan qualifies
as a noncompensatory plan, (c) the accounting consequence for various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. The adoption of FIN 44 did not have a material effect on the
financial statements.
NEW ACCOUNTING PRONOUNCEMENTS - In December 1999, the Securities and Exchange
Commission issued Staff Accounting Bulletin (SAB) 101, "Revenue Recognition,"
which outlines the basic criteria that must be met to recognize revenue and
provides guidance for presentation of revenue and for disclosure related to
revenue recognition policies in financial statements filed with the Securities
and Exchange Commission. The effective date of this pronouncement is the second
quarter of the fiscal year beginning after December 15, 1999. MediaX believes
that adopting SAB 101 will not have a material impact on its financial position
and results of operations.
The FASB issued Statement of Financial Accounting Standards No. 133 ("SFAS
133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities on the balance sheet at their fair value. This
statement is effective for financial statements for all fiscal quarters of all
fiscal years beginning after June 5, 2000 (as amended by SFAS 137). MediaX does
not expect the adoption of this standard to have a material impact on its
results of operations, financial position or cash flows as it currently does not
engage in a any derivative or hedging activities.
Note 4: NOTES PAYABLE
During the three and nine months ended September 30, 2000, an investor converted
$104,973 and $621,308 of principal and accrued interest into 185,759 and 599,559
common shares pursuant to a convertible notes payable dated August 24, 1999.
F-36
<PAGE> 68
Additionally during the quarter, MediaX received proceeds of $400,000 from notes
payables from two unrelated investors the terms, of which are yet to be
determined.
Interest expense related to notes for the nine months ended September 30, 2000
and 1999 is $106,740 and $137,099, respectively.
Note 5: SUBSCRIPTION ADVANCES
Subscription advances represents monies received in advance from certain
investors for the future exercise of warrants or purchase of stock. The total
number of warrants to be exercised or the total number of shares to be purchased
has not yet been determined. During the three and nine months ended September
30, 2000, $0 and $100,000 of additional advances were received and $0 and
$58,200 of the advances were utilized to exercise warrants to purchase 0 and
218,000 common shares, respectively. As of September 30, 2000, subscription
advances were $320,793.
Note 6: COMMON STOCK ISSUANCES
On April 25, 2000, MediaX entered into a securities purchase agreement with an
investor, whereby it sold to the investor $500,000 less offering costs of
$30,000 of restricted common stock or 326,584 shares at $1.531 per share. MediaX
granted the investor registration rights with respect to the shares purchased
and has filed such registration statement on May 31, 2000. If any, additional
shares would be required based on MediaX's obligation right to reprice, as
defined, these shares would be covered under the registration agreement. As of
the date of this report, the registration statement has not been declared
effective by the SEC.
On April 28, 2000, MediaX issued 5,000 restricted common shares for finders fees
and paid $10,000 offering costs in relation to a private equity line agreement
(See Note 8).
On May 30, 2000, MediaX issued 10,000 restricted common shares to an outside
consultant for services valued at $9,375 (based on the market value of the stock
on the date of issuance).
Note 7: OPTIONS AND WARRANTS
From time to time, MediaX issues stock options and/or warrants pursuant to
various consulting and outside service provider agreements. During the current
quarter, MediaX entered into various agreements with third parties to design,
and host websites. Pursuant to the agreements, MediaX is to receive a percentage
of all revenues generated on and in connection with the sites. In connection
with the agreements, MediaX granted 250,000 options to the third parties,
exercisable at exercise prices ranging from $.72 to $.82 per share, vesting
quarterly over one to two years and expiring through September 01, 2002. The
options were valued at $67,000 using the Black-Scholes model pursuant to FAS
123. MediaX will recognize the expense as the options vest. During the three
months ended September 30, 2000, the Company recognized $14,563 as operating and
development expense.
During the current quarter, MediaX entered into an agreement with a vendor. In
connection with this agreement, MediaX granted 120,000 options to the vendor
that vest immediately at an exercise price of $2.50 per share, exercisable
through December 2003. The options were valued at $4,800 using the Black-Scholes
model pursuant to FAS 123. MediaX recognized the entire expense during the
current quarter as consulting expense.
MediaX granted options to an employee to purchase 20,000 common stock at an
exercise price of $.97 (estimated to be the fair market value). The options vest
over a three-year period and are exercisable through December 2008.
During the quarter ended March 31, 2000, MediaX granted options to purchase a
total of 53,000 restricted common shares at exercise prices of $1.68 and $1.40
per share. The options vest immediately and are exercisable through March 31,
2002. Additionally, MediaX granted options to an employee to purchase 50,000
common stock at an exercise price of $2.81 (estimated to be the fair market
value). The options vest over a three-year period and are exercisable through
December 2008. A total of $125 of compensation expense will be recorded over
the vesting period, of which none was recognized for the nine months ended
September 30, 2000.
F-37
<PAGE> 69
Total estimated value of options granted to employees and for consulting
services totaled $31,014 and $132,316 during the three and nine months ended
September 30,2000, respectively.
Note 8: CONTRACTS
PRIVATE EQUITY LINE OF CREDIT AGREEMENT - On April 28, 2000, MediaX entered into
a private equity line of credit agreement with an investor, whereby MediaX from
time to time at its discretion, will issue and sell to the investor up to
$6,000,000 (aggregate purchase price) of restricted common stock in quantities
at Mediax's discretion at that time. The purchase price shall be set at 14% off
the market price on the day a put notice is made. MediaX granted the investor
registration rights with respect to the shares underlying the agreement
(2,500,000 shares) and to have such registration declared effective on or before
September 30, 2000 which had been extended indefinitely. In addition, MediaX
entered into a stock purchase warrant agreement to purchase 100,000 shares of
its common stock at 125% of market price on the closing date, expiring October,
2003. MediaX paid $10,000 offering costs for legal and administrative expenses
and issued 5,000 restricted common shares for finders fees related to the
agreement. As of September 30, 2000, MediaX has not utilized this opportunity
and no shares have been issued.
Note 9: RELATED PARTY TRANSACTIONS
Stockholder notes and accrued interest receivable represents monies loaned to
Ms. Nancy Poertner, MediaX's President and stockholder. The notes, which are due
on demand, are uncollateralized and bear interest at 4% per annum. As of
September 30, 2000 and December 31, 1999, stockholder notes and accrued interest
receivable was $118,830 and $115,830, respectively. Total interest expense
recognized for the three and nine month period ended September 30, 2000 was
$1,000 and $9,000. As the notes are due from the President and stockholder,
MediaX has presented the receivables as an increase of stockholders' deficit at
September 30, 2000.
Advances from officer in the amount of $50,000 represent money received from Mr.
Rainer Poertner, MediaX's Chairman. Mr. Rainer Poertner and Ms. Nancy Poertner,
are husband and wife.
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.
F-38
<PAGE> 70
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.
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
II-1
<PAGE> 71
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.
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.
<TABLE>
<S> <C>
SEC Registration Fee $ 180.61
Accounting Fees and Expenses $ 5,000.00
Miscellaneous, including legal fees $20,000.00
----------
TOTAL $25,180.61
==========
</TABLE>
II-2
<PAGE> 72
RECENT SALES OF UNREGISTERED SECURITIES
Securities Purchase Agreement - On December 6, 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 1,059,322 shares at $.472 per share. In
connection with this transaction, MediaX entered into a stock purchase warrant
agreement in which the investor may purchase 1,059,322 shares of its common
stock at $.472 per share expiring December 6, 2005. MediaX granted the investor
registration rights with respect to the shares purchased and underlying the
warrants and to have the registration statement declared effective using its
best efforts within sixty days. Exemption from registration under the Securities
Act of 1933, as amended ("Act"), is claimed for the sale of these securities in
reliance upon the exemption offered by Section 4(2) of the Act.
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. The
registration statement was declared effective on November 15, 2000 and per the
terms of the agreement, MediaX may be obligated to pay liquidated damages in the
amount of approximately $36,667. MediaX received $470,000 net of offering costs
paid to legal and escrow services and finders fees of $30,000. Exemption from
registration under the Act is claimed for the sale of these securities in
reliance upon the exemption offered by Section 4(2) of the Act.
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 put
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. The registration statement was declared effective on November 15,
2000. MediaX has yet to utilize this credit and may be obligated to pay
liquidated damages in the amount of approximately $25,000. 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. Exemption from registration under the Act is claimed for the sale
of these securities in reliance upon the exemption offered by Section 4(2) of
the Act.
On May 30, 2000, MediaX issued 10,000 restricted common shares to an outside
consultant in exchange for investor relations services provided. Exemption from
registration under the Act is claimed for the sale of these securities in
reliance upon the exemption offered by Section 4(2) of the Act.
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 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.
II-3
<PAGE> 73
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 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 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 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 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 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 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 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 December 1998, MediaX issued 190,000 shares of common stock valued at
$185,625 (based on
II-4
<PAGE> 74
the market value on the date of grant) to consultants for services rendered.
Exemption from registration under the Act is claimed for the sale of all the
securities set forth above in reliance upon the exemption afforded by Section
4(2) of the Act.
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 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 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 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 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 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 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 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 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 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> 75
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 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 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 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 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.
EXHIBITS
<TABLE>
<CAPTION>
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 Incorporated by reference to Exhibit
Articles of Incorporation 3.1(a) to MediaX's Registration
dated February 23, 1996, for the Statement on Form 10-KSB for the year
name change to Zeitgeist Werks, Inc. ended December 31, 1995
3.1(b) Articles of Amendment to the Incorporated by reference to Exhibit
Articles of Incorporation 3.1(b) to MediaX's Registration
dated August 15, 1996, for the Statement on Form 10-KSB for the year
name change to MediaX Corporation ended December 31, 1996
3.1(c) Certificate of Amendment Reverse Incorporated by reference to Exhibit
Split 3.1(c) to MediaX's Schedule 14C
3.1(d) Certificate of Amendment to Incorporated by reference to Exhibit
Articles of Incorporation of 3.1(d) to MediaX's Registration
MediaX Statement on Form S-3
3.1(e) Certificate of Designation of Rights and Filed electronically herewith
Preferences of the Series A Convertible
Preferred Stock of MediaX Corporation
3.2 Bylaws Incorporated by reference to Exhibit
3.2 to MediaX's Registration Statement
on Form S-18 (No. 33-28258)
4.1 Form of Series A Convertible Preferred Filed electronically herein
</TABLE>
II-6
<PAGE> 76
<TABLE>
<S> <C> <C>
Stock Certificate
5.1 Opinion re legality of Richard O. Weed Filed electronically herewith
10.1 Securities Purchase Agreement with CTI Filed electronically herewith
II Limited.
10.2 Registration Rights Agreement Filed electronically herewith
Between MediaX Corp. and
CTI II Limited.
10.3 Stock Purchase Warrant Filed electronically herewith
10.4 Form of Opinion of MediaX Corp.'s Filed electronically herewith
Independent Counsel
16.1 Letter on Change in Certifying Incorporated by reference to
Accountant Exhibit 16.1 to MediaX's
Form 8-K filed January 11, 2000
23.1 Consent of Richard O. Weed Filed electronically herewith
23.2 Consent of Corbin & Wertz To be filed electronically
23.3 Consent of Davis & Co., CPA's P.C. To be filed electronically
</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,
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
II-7
<PAGE> 77
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.
II-8
<PAGE> 78
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 Los Angeles, California on January 3, 2001.
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 January 3, 2001.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/Nancy Poertner President, Secretary, and Director January 3, 2001
---------------------------
Nancy Poertner
/s/Rainer Poertner Director January 3, 2001
---------------------------
Rainer Poertner
/s/Matthew MacLaurin Executive V.P. and Director January 3, 2001
---------------------------
Matthew MacLaurin
/s/Jackie Cabellon Controller (Principal Accounting Officer) January 3, 2001
---------------------------
Jackie Cabellon
</TABLE>
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<PAGE> 79
EXHIBIT INDEX
<TABLE>
NO. DESCRIPTION
----- -----------
<S> <C> <C>
3.1(e) Certificate of Designation of Rights and Filed electronically herewith
Preferences of the Series A Convertible
Preferred Stock of MediaX Corporation
4.1 Form of Series A Convertible Preferred Filed electronically herein
Stock Certificate
5.1 Opinion re legality of Richard O. Weed Filed electronically herewith
10.1 Securities Purchase Agreement with CTI Filed electronically herewith
II Limited.
10.2 Registration Rights Agreement Filed electronically herewith
Between MediaX Corp. and
CTI II Limited.
10.3 Stock Purchase Warrant Filed electronically herewith
10.4 Form of Opinion of MediaX Corp.'s Filed electronically herewith
Independent Counsel
23.1 Consent of Richard O. Weed Filed electronically herewith
23.2 Consent of Corbin & Wertz To be filed electronically herewith
23.3 Consent of Davis & Co., CPA's P.C. To be filed electronically herewith
</TABLE>
