U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Quarter ended: March 31, 1998
Commission File No. 0-23780
MEDIAX CORPORATION
(Exact Name of Small Business Issuer as Specified in its Charter)
Nevada
(State or Other Jurisdiction of Incorporation or Organization)
84-1107138
(I.R.S. Employer Identification Number)
8522 National Boulevard, Suite 110, Culver City, California 90232
(Address of Principal Executive Offices, Including Zip Code)
(310) 815-8002
Issuer's Telephone Number
Securities Registered Pursuant to Section 12(b) of the Act: None.
Securities Registered Pursuant to Section 12(g) of the Act:
SHARES OF COMMON STOCK, $.0001 PAR VALUE
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No []
The aggregate market value of the Issuer's Common Stock, $.0001 Par Value, held
by non-affiliates of the Issuer, based on the closing sale price of the Common
Stock on April 30, 1998 as reported on the OTC Bulletin Board, was approximately
$3,150,000.
As of April 30, 1998 there were 16,080,447 shares of the Issuer's Common Stock,
$.0001 Par Value, outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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MEDIAX CORPORATION
FORM 10-QSB
Page
PART I
Item 1. Financial Statements
Condensed Balance Sheet as of March 31, 1998 (unaudited) ....2
Condensed Statements of Operations for the Three
Months Ended March 31, 1998 and 1997 (unaudited)............3
Condensed Statements of Cash Flows for the Three
Months Ended March 31, 1998 and 1997 (unaudited)............4
Notes to Condensed Financial Statements .....................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................6
PART II
Item 1. Legal Proceedings........................................8
Item 2. Changes In Securities....................................8
Item 3. Defaults Upon Senior Securities..........................8
Item 4. Submission of Matters to a Vote of Security Holders......8
Item 5. Other Information........................................8
Item 6. Exhibits And Reports On Form 8-K.........................8
Signatures...................................................10
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MEDIAX CORPORATION
(A Development Stage Company)
Condensed Balance Sheet (Unaudited)
March 31,
ASSETS 1998
---------------------
Current assets:
Cash and cash equivalents $ 50,384
Accounts receivable, net 270,980
Inventories 65,133
Prepaid advertising costs 600,000
Other prepaid expenses 12,497
---------------------
Total current assets 998,994
Property and equipment
Computers and office equipment 214,464
Software 144,666
Furniture and fixtures 18,423
---------------------
377,553
Less: accumulated depreciation (186,846)
190,707
Other assets
Note and interest receivable - officer 108,830
Deferred software development costs 300,000
License agreement and trademark 21,153
Organization costs, net 2,049
Deposits and other assets 9,339
---------------------
441,371
1,631,072
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Convertible debentures payable 857,258
Accrued expenses 150,752
Accounts payable - trade 129,979
Accounts payable - related parties 19,091
Product refund reserve 64,906
Obligation under capital lease 4,584
---------------------
1,226,570
Commitments, contingency and subsequent events --
Stockholders' equity (deficit)
Preferred stock, $.0001 par value per shares; 10,000,000 shares
authorized and no shares issued --
Common stock, $.0001 par value per share; 75,000,000 shares
authorized; 16,080,447 shares issued and outstanding 1,608
Additional paid-in capital 3,238,930
Deficit accumulated during the development stage (2,836,036)
----------------------
404,502
$ 1,631,072
======================
The accompanying notes are an integral part of this condensed statement.
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MEDIAX CORPORATION
(A Development Stage Company)
Condensed Statements of Operations
(Unaudited)
For the Quarter Ended
March 31,
1998 1997
----------------------- ----------------------
Sales/Cost of sales
Sales $ 266,122 $ 155,080
Allowances for returns (71,514) --
Cost of sales (140,611) (76,896)
---------------------- ----------------------
Gross profit 53,997 78,184
General and administrative expenses
Amortization and depreciation 14,529 10,535
Professional, legal and accounting services 113,355 189,096
Marketing and selling 237,501 14,838
Rent and utilities 30,255 19,763
Salaries 118,706 85,343
Other administrative 75,862 20,665
----------------------- ----------------------
590,208 340,240
OTHER INCOME (EXPENSES)
Interest income 2,579 1,561
Interest expense (21,123) (18,257)
Other (loss) income (2,093) 10,307
---------------------- ----------------------
(20,637) (6,389)
---------------------- ----------------------
Net loss $(556,848) $ (268,445)
======================= ======================
Basic and diluted weighted average number of
common shares 15,980,447 13,967,695
====================== ======================
Basic and diluted net loss per common share $ (.03) $ (.02)
====================== ======================
The accompanying notes are an integral part of this condensed statement.
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MEDIAX CORPORATION
(A Development Stage Company)
Condensed Statements of Cash Flows (Unaudited)
For the Quarter Ended
March 31,
1998 1997
-------------------- --------------------
Cash Flows from Operating Activities
Net income (loss) $ (556,848) $ (268,445)
Adjustments to reconcile to net cash provided by operating
activities:
Amortization and depreciation 14,529 10,535
Changes in assets and liabilities
Decrease (increase) in accounts receivable (260,637) (32,520)
(Increase) in prepaid expense -- (2,768)
(Increase) in inventories (13,316) --
(Increase) in deposits and other assets 23,892 (1,038)
Increase (decrease) in accounts payable - trade 51,279 (945)
Increase (decrease) in accounts payable - related parties (5,364) --
Increase (decrease) in accrued and other expenses 150,753 4,964
(Decrease) increase in product refund reserve 64,906 --
------------------- --------------------
Net cash (used) by operating activities (530,806) (290,217)
-------------------- --------------------
Cash Flows from Investing Activities:
Reduction in goodwill -- 227,157
Purchase of fixed assets (4,172) (8,923)
Proceeds from sale of fixed assets -- 12,536
-------------------- -------------------
Net cash (used) by investing activities (4,172) 230,770
-------------------- -------------------
Cash Flow from Financing Activities:
Principal payments on capital lease (1,086) (5,047)
Net proceeds from sale of stock to private investors 200,000 366,293
Payments on notes payable (6,225) (306,065)
Proceeds received from issuance of notes payable and
convertible debentures
-- 450,000
-------------------- -------------------
Net cash provided by financing activities 192,689 505,181
-------------------- -------------------
Increase (decrease) in cash and cash equivalents (342,289) 445,734
Cash and cash equivalents, beginning of period 392,673 224,331
-------------------- -------------------
Cash and cash equivalents, end of period $ 50,384 $ 670,065
==================== ===================
Supplemental Disclosures of Cash Flow information:
No cash was paid during the quarter for income taxes or interest
The accompanying notes are an integral part of this condensed statement.
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Note 1: BASIS OF PRESENTATION
The condensed financial statements of MediaX Corporation (the "Company") for the
three months ended March 31, 1996 and 1997 are unaudited and reflect all
adjustments, consisting of normal recurring adjustments as well as additional
adjustments, which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented. These condensed
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's Annual Report on Form 10-KSB for its
fiscal year ended December 31, 1997. The results of operations for the three
months ended March 31, 1998 are not necessarily indicative of the results for
the entire year ending December 31, 1998.
Note 2: NET EARNINGS (LOSS) PER SHARE
Net earnings per share is based on the weighted average number of common and
common equivalent shares outstanding during each period. Common stock
equivalents have been excluded from the computation for the three months ended
March 31, 1996 and 1997, loss periods, as their inclusion would be
anti-dilutive.
Note 3: GOING CONCERN
The Company has minimal capital resources presently available to meet
obligations which normally can be expected to be incurred by similar companies,
and to carry out its planned operations and has an accumulated deficit of
($2,836,036) at March 31, 1998. These factors raise substantial doubt about the
Company's ability to continue as a going concern.
Management believes that its cash flow requirements in the next year can be met
from its anticipated cash flows from initial sales of "Peter Norton, PC Guru"
and that the Company can also obtain additional equity or debt financing. There
is no assurance that the Company will be able to obtain such financing. The
financial statements, herein, do not include any adjustments that might result
from the outcome of this uncertainty.
Note 4: OTHER TRANSACTIONS
On February 13, 1998, the Company sold 200,000 shares of common stock to an
accredited unrelated investor for $200,000.
On March 1, 1998, the Company replaced the two convertible debentures described
in Note 4d. 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, 1998. 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 $.60 per share.
Note 5: SUBSEQUENT EVENTS
On April 14, 1998, the Company sold 100,000 shares of common stock to an
accredited unrelated investor for $100,000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following information should be read in conjunction with the financial
statements and the notes thereto. The analysis set forth below is provided
pursuant to applicable Securities and Exchange Commission regulations and is not
intended to serve as a basis for projections of future events.
FORWARD-LOOKING STATEMENTS
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS DISCUSSED
IN THIS FORM 10-QSB ARE FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO CERTAIN
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE SET FORTH IN SUCH FORWARD LOOKING STATEMENTS. SUCH RISKS AND
UNCERTAINTIES INCLUDE, WITHOUT LIMITATION, THE COMPANY'S DEPENDENCE ON THE
TIMELY DEVELOPMENT, INTRODUCTION AND CUSTOMER ACCEPTANCE OF PRODUCTS, THE IMPACT
OF COMPETITION AND DOWNWARD PRICING PRESSURES, THE ABILITY OF THE COMPANY TO
REDUCE ITS OPERATING EXPENSES AND RAISE ANY NEEDED CAPITAL, THE EFFECT OF
CHANGING ECONOMIC CONDITIONS, AND RISKS IN TECHNOLOGY DEVELOPMENT.
GOING CONCERN
The Company has experienced recurring net losses and has limited liquid
resources. Management's intent is to increase the Company's sales and continue
to secure additional sources of capital. In the interim, the Company 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 the Company's common stock. The Company may need to
utilize its common stock to fund its operations through fiscal 1998.
Accordingly, the accompanying consolidated financial statements have been
presented under the assumption the Company will continue as a going concern.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997
The Company's net sales for the three months ended March 31, 1998 was
$194,608 as compared to $155,080 for the comparable period last year, resulting
in an increase of $39,528 or 25 %. The improvement is primarily attributable to
the introduction and sales of the Company's newest product, Peter Norton PC
Guru, which encompassed over ninety percent (90%) of the Company's sales mix
during the current quarter.
The Company's cost of sales for the three months ended March 31, 1998 was
$140,611 as compared to $76,896 for the comparable period last year, resulting
in an increase of $63,715 or 83%. The increase in cost of sales is again,
primarily attributable to the introduction and sales of the Company's newest
product, Peter Norton PC Guru and its additional overhead related to the
production of the new product. A change in sales mix also caused an increase of
23% in relative cost of sales.
The Company's total amortization and depreciation for the three months
ended March 31, 1998 was $14,529 as compared to $10,535 for the comparable
period last year. The increase is attributable to additions of depreciable
assets over the comparable quarter last year.
The Company's professional, legal and accounting services were $113,355
for the three months ended March 31, 1998, as compared to $189,096 for the
comparable period last year. The decrease is primarily attributable to a
decrease in professional services provided by consultants under professional
advisory and management agreements over the same period last year.
The Company's marketing and selling expenses for the current quarter were
$237,501 as compared to $14,838 for the same quarter last year. The increase is
directly related to the marketing and selling of the Company's newest product,
Peter Norton PC Guru and the continued marketing of the Company as an
international software developer.
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The Company's rent and utilities for the current quarter was $30,255 as
compared to $19,763 for the same quarter last year. The increase is a direct
result of the newly renewed leases of the Company's premises affecting the
current quarter over the same quarter last year.
The Company's salaries for the current quarter increased to $118,706 from
$85,343 from the same quarter last year. The increase is attributable to
addtional employees and salary increases which includes provisional increases in
the Company's agreements with its executive officers. However, not all officers'
have elected to exercise their right to the salary increase.
The Company's net loss for the three months ended March 31, 1998 was
$556,848 as compared to $268,445 for the comparable period last year. The
increase in net loss of $288,403 is primarily attributable to an increase in
marketing and selling expenses, generating promotion for the Company's newest
product, Peter Norton PC Guru, including initial overhead associated with the
production of the new product offset by a decrease in professional, legal and
accounting services, as previously discussed.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had negative working capital of $227,576 ,
as compared to working capital of $134,046 at December 31, 1997. The decline in
working capital is attributable to the Company utilizing its working capital for
the payment of current liabilities for on going operations during the quarter
ended March 31, 1998.
The Company's success and ongoing financial viability is contingent upon
its selling of its products and the related generation of cash flows. The
Company is currently generating relatively little revenue and related cash flows
and anticipates this trend will continue until such time, if any, new products
are released and current products accepted in the marketplace. Management
believes that its existing cash and working capital balances will be sufficient
to meet its working capital needs for the balance of the fiscal year ending
December 31, 1998. However, the Company may need to utilize its common stock to
fund its operations through fiscal 1998. If the Company decides to commence with
additional productions, it may be necessary to raise additional financing.
The Company evaluates its liquidity and capital needs on a continuous
basis and based on the Company's requirements and capital market conditions may,
from time to time, raise working capital through additional debt or equity
financing. There is no assurance that such financing will be available in the
future to meet additional capital needs of the Company, 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 the Company's working capital
needs otherwise exceed its resources, the adverse consequences would be severe.
The generation of the Company's current growth and the expansion of the
Company's current business involve significant financial risk and require
significant capital investment.
The Company plans to raise up to an additional $1 million through private
placements of it's common stock to provide working capital for the Company's
planned business activities. The first stage of a private placement of $500,000
in aggregate has been agreed upon with $100,000 being funded as of the date of
this Report. The success, or lack thereof, of this additional funding may have a
material impact on the future of the Company. Similarly, the lack of sufficient
sales of the Company's products will have a material impact on the future of the
Company.
As of the date of this Report, the Company had no material commitments for
capital expenditures.
CASH FLOWS
Cash used by operating activities was $530,806 for the three months ended
March 31, 1998 as compared to $290,217 for the comparable period last year. The
change is primarily attributable to the increase in operating net loss and
slower collections on growing receivables resulting from an increase in sales
over the same period last year. Additionally, the change in operating cash flows
is attributable to the new production and overhead associated with the
production of the Peter Norton PC Guru product.
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Cash used in investing activities was $4,172 for the three months ended
March 31, 1998 as compared to $230,770 cash provided for the comparable period
last year. The change is primarily attributable to having no recution in
goodwill during the current quarter ended March 31, 1998 as there was during the
same period last year.
Cash provided by financing activities was $192,689 for the three months
ended March 31, 1998 as compared to $505,181 for the comparable period last
year. The change is primarily attributable to having fewer private placements
during the current quarter over the same period last year.
PART II
ITEM 1. LEGAL PROCEEDINGS
There are no pending legal proceedings, and the Company is not aware of
any threatened legal proceedings to which it is a party.
ITEM 2. CHANGES IN SECURITIES
On February 13, 1998, the Company sold 200,000 shares of common stock and
100,000 warrants (each warrant to purchase one share of common stock at an
exercise price of $1.50 per share, exercisable for five years from the date of
sale) to an accredited investor for $200,000.
On March 1, 1998, the Company replaced the two convertible debentures with
a new convertible debenture due September 1, 1998, for $850,000 which pays
interest at the same rate as the replaced debenture. 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 $.60 per share.
On April 14, 1998, the Company sold 100,000 shares of common stock to an
accredited unrelated investor for $100,000.
Exemption from registration under the Securities Act of 1933, as amended
(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.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
ITEM 5. OTHER TRANSACTIONS
On January 2, 1998, the Company engaged a firm to act as sales
representative in Canada for the Company's software. As part of the
consideration for such services, the Company granted the principal of the firm
options to purchase 25,000 shares of the Company's common stock at a exercise
price of $.87 per share. On March 31, 1998, 5,000 shares of the option are
immediately exercisable, with the remaining shares of the option vesting each
three months after at the rate of 2,500 shares per three months.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 3. EXHIBITS.
NUMBER DESCRIPTION LOCATION
27 Financial Data Schedule Filed herewith electronically
(b) REPORTS ON FORM 8-K.
No Reports on Form 8-K were filed during the fourth quarter of
the Company's fiscal quarter ended March 31, 1998.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: May 13, 1998 MEDIAX CORPORATION
/s/ Nancy Poertner, President
---------------------------------------
Nancy Poertner, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the Registrant
and in the capacities and on the dates indicated.
Signature Title Date
/s/ Nancy Poertner President, Secretary May 13, 1998
----------------------------- and Director
Nancy Poertner
/s/ Rainer Poertner Director May 13, 1998
-----------------------------
Rainer Poertner
/s/ Matthew MacLaurin Executive V.P. May 13, 1998
----------------------------- and Director
Matthew MacLaurin
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