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: June 30, 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 July 31,1998 as reported on the OTC Bulletin Board, was approximately
$2,300,000
As of July 31, 1998 there were 18,317,110 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 June 30, 1998 (unaudited) .....2
Condensed Statements of Operations for the Three
and Six Months Ended June 30, 1998 and 1997
(unaudited)............................................3
Condensed Statements of Cash Flows for the Six Months Ended
June 30, 1998 and 1997 (unaudited)..........................5
Notes to Condensed Financial Statements .....................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................7
PART II
Item 1. Legal Proceedings........................................10
Item 2. Changes In Securities....................................10
Item 3. Defaults Upon Senior Securities..........................10
Item 4. Submission of Matters to a Vote of Security Holders......10
Item 5. Other Information........................................10
Item 6. Exhibits And Reports On Form 8-K.........................10
Signatures...................................................11
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MEDIAX CORPORATION
(A Development Stage Company)
Condensed Balance Sheet (Unaudited)
June 30,
ASSETS 1998
----------------------
Current assets:
Cash and cash equivalents $ 131,277
Accounts receivable, net 319,091
Inventories 64,646
Prepaid advertising costs 100,000
Other prepaid expenses 7,951
---------------------
Total current assets 622,965
Property and equipment
Computers and office equipment 215,348
Software 145,605
Furniture and fixtures 18,759
---------------------
379,712
Less: accumulated depreciation (201,246)
178,466
Other assets
Note and interest receivable - officer 109,830
Deferred software development costs 270,000
License agreement and trademark 22,043
Organization costs, net 1,813
Deposits and other assets 9,564
---------------------
413,250
1,214,681
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Convertible debentures payable 1,182,938
Accrued expenses 159,177
Accounts payable - trade 178,284
Accounts payable - related parties 16,765
Product refund reserve 116,282
Obligation under capital lease 3,124
---------------------
1,656,570
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; 18,332,500 shares issued and outstanding 1,833
Additional paid-in capital 3,538,705
Deficit accumulated during the development stage (3,982,427)
----------------------
(441,889)
$ 1,214,681
======================
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 Three Months Ended
June 30,
1998 1997
----------------------- -----------------------
Sales/Cost of sales
Sales $ 57,678 --
Allowances for returns (44,769) --
Cost of sales (127,242) (238,605)
---------------------- -----------------------
Gross profit (114,333) (238,605)
Other Operating Expenses
Amortization and depreciation 44,637 13,561
Professional, legal and accounting services 50,575 60,029
Marketing and selling 625,148 5,247
Rent and utilities 16,975 12,930
Salaries 141,453 89,970
General and administrative 128,793 47,063
----------------------- -----------------------
1,007,581 228,800
OTHER INCOME (EXPENSES)
Interest income 1,675 4,261
Interest expense (26,087) (19,358)
Other (loss) income -- --
---------------------- -----------------------
(24,412) (15,097)
---------------------- -----------------------
Net loss $(1,146,326) $ (482,502)
======================= =======================
Basic and diluted weighted average number of
common shares 17,002,653 14,411,217
====================== =======================
Basic and diluted net loss per common share $ (.07 ) $ (.03)
====================== =======================
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 Six Months Ended
June 30,
1998 1997
----------------------- -----------------------
Sales/Cost of sales
Sales $ 323,800 $ 155,080
Allowances for returns (116,282) --
Cost of sales (267,854) (386,721)
---------------------- -----------------------
Gross profit (60,336) (231,641)
Other Operating Expenses
Amortization and depreciation 59,166 27,564
Professional, legal and accounting services 92,107 152,273
Marketing and selling 806,967 5,372
Rent and utilities 38,201 24,920
Salaries 260,159 170,689
General and administrative 341,254 74,274
----------------------- -----------------------
1,597,854 455,092
OTHER INCOME (EXPENSES)
Interest income 4,254 5,823
Interest expense (47,210) (24,325)
Other (loss) income (2,093) 10,305
---------------------- -----------------------
(45,049) (8,197)
---------------------- -----------------------
Net loss $(1,703,239) $ (694,930)
======================= =======================
Basic and diluted weighted average number of
common shares 16,591,755 14,188,746
======================= =======================
Basic and diluted net loss per common share $ (.10 ) $ (.05)
====================== =======================
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 Six Ended
June 30,
1998 1997
-------------------- --------------------
Cash Flows from Operating Activities
Net income (loss) $ (1,703,239) $ (694,930)
Adjustments to reconcile to net cash provided by operating
activities:
Amortization and depreciation 59,165 27,564
Changes in assets and liabilities
(Increase) decrease in accounts receivable (309,432) 76,824
Decrease in prepaid expense 530,121 439
(Increase) in inventories (12,829) --
(Increase) in deposits and other assets (3,115) (13,334)
Increase (decrease) in accounts payable - trade 99,614 (45,334)
(Decrease) in accounts payable - related parties (19,853) --
Increase in accrued and other expenses 159,140 --
Increase in product refund reserve 116,282 --
------------------- --------------------
Net cash (used) by operating activities (1,084,146) (648,771)
-------------------- --------------------
Cash Flows from Investing Activities:
Reduction in goodwill -- 227,157
Purchase of fixed assets (6,330) (22,705)
Proceeds from sale of fixed assets -- 12,536
-------------------- --------------------
Net cash (used) provided by investing activities (6,330) 216,988
-------------------- --------------------
Cash Flow from Financing Activities:
Principal payments on capital lease (2,546) (6,601)
Net proceeds from sale of stock to private investors 500,000 436,293
Payments on notes payable (14,468) (312,315)
Proceeds received from issuance of notes payable and
convertible debentures
346,094 450,000
-------------------- --------------------
Net cash provided by financing activities 829,080 567,377
-------------------- --------------------
(Decrease) increase in cash and cash equivalents (261,396) 135,594
Cash and cash equivalents, beginning of period 392,673 224,331
-------------------- --------------------
Cash and cash equivalents, end of period $ 131,277 $ 359,925
==================== ====================
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 June 30, 1997 and 1998 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 June 30, 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
June 30, 1997 and 1998, 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
$3,982,427 at June 30, 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",
release of Big Brother, from E-commerce sales the Company is planning to
commence within the near future and other projects currently in negotiations,
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 April 14, 1998, the Company sold 400,000 shares of common stock to an
accredited unrelated investor for $100,000. On June 5, 1998, the Company sold
588,230 shares of common stock to an accredited unrelated investor for $100,000.
On June 30, 1998, the Company sold 480,786 shares of common stock to an
accredited unrelated investor for $50,000. On June 30, 1998, the Company sold
367,647 shares of common stock to an accredited unrelated investor for $50,000.
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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 June 30, 1998 Compared to Three Months Ended June 30,
1997
The Company's net sales for the three months ended June 30, 1998 was
$12,909 as compared to none for the comparable period last year. The improvement
is 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 June 30, 1998 was
$127,242 as compared to $238,605 for the comparable period last year, resulting
in a change of $111,363 or 47%. The decrease in cost of sales is again,
primarily attributable to the lower introduction and development costs of the
Company's newest product, Peter Norton PC Guru and its lower overhead related to
the production of the new product.
The Company's total amortization and depreciation for the three months
ended June 30, 1998 was $44,637 as compared to $13,561 for the comparable period
last year. The change is primarily attributable to the amortization of software
development cost associated with PC Guru.
The Company's professional, legal and accounting services were $50,575 for
the three months ended June 30, 1998, as compared to $60,029 for the comparable
period last year. The change 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
$625,148 as compared to $5,247 for the same quarter last year. The change 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 $16,975 as
compared to $12,930 for the same quarter last year. The change 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 $141,453 from
$89,970 from the same quarter last year. The increase is attributable to
additional employees.
The Company's net loss for the three months ended June 30, 1998 was
$1,146,326 as compared to $482,502 for the comparable period last year. The
increase in net loss is mostly 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. Also, additional overhead and development costs have been incurred
on the Company's newest product, "Big Brother".
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
The Company's net sales for the six months ended June 30, 1998 was
$207,518 as compared to $155,080 for the comparable period last year, resulting
in an increase of $52,438 or 34 %. The improvement is primarily attributable to
the introduction and sales of the Company's product, Peter Norton PC Guru, which
encompassed over ninety percent (90%) of the Company's sales mix during the
current period .
The Company's cost of sales for the six months ended June 30, 1998 was
$267,854 as compared to $386,721 for the comparable period last year, resulting
in an decrease of $118,867 or 31%. The change in cost of sales is again,
primarily attributable to lower introduction and costs of the Company's newest
product, Peter Norton PC Guru and its lower overhead related to the production
of the new product. A change in sales mix also caused a decrease of 120% in
relative cost of sales.
The Company's total amortization and depreciation for the six months ended
June 30, 1998 was $59,166 as compared to $27,564 for the comparable period last
year. The increase is primarily attributable the amortization of software
development cost associated with PC Guru.
The Company's professional, legal and accounting services were $92,107 for
the six months ended June 30, 1998, as compared to $152,273 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
$806,967 as compared to $5,372 for the same period 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.
The Company's rent and utilities for the six months ended June 30, 1998,
was $38,201 as compared to $24,920 for the same period last year. The increase
is a direct result of the newly renewed leases of the Company's premises
affecting the current period over the same time last year.
The Company's salaries for the six months ended June 30, 1998, increased
to $260,159 from $170,689 from the same period last year. The increase is
attributable to additional employees.
The Company's net loss for the six months ended June 30, 1998 was
$1,703,239 as compared to $694,930 for the comparable period last year. The
increase in net loss of $1,008,309 is primarily attributable to an increase in
marketing and selling expenses as well as salary and overhead costs, generating
promotion for the Company's newest product, Peter Norton PC Guru, offset by a
decrease in professional , legal and accounting services , as previously
discussed. Also, additional overhead and development costs have been incurred on
the Company's newest product, "Big Brother".
[MEDIAX\10Q:10Q0698.doc]-5
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LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had negative working capital of $1,033,605 ,
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 six months
ended June 30, 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.
As of the date of this Report, the Company had no material commitments for
capital expenditures.
CASH FLOWS
Cash used by operating activities was $1,084,146 for the six months ended
June 30, 1998 as compared to $648,771 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.
Cash used in investing activities was $6,330 for the six months ended June
30, 1998 as compared to $216,988 cash provided for the comparable period last
year. The change is primarily attributable to having no reduction in goodwill
during the current period as there was during the same time last year.
Cash provided by financing activities was $829,080 for the six months
ended June 30, 1998 as compared to $567,377 for the comparable period last year.
The change is primarily attributable to higher payments on notes payable last
year and having fewer issuances of debt during the current period over the same
time last year.
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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 April 14, 1998, the Company sold 400,000 shares of common stock to an
accredited unrelated investor for $100,000. On June 5, 1998, the Company sold
588,230 shares of common stock to an accredited unrelated investor for $100,000.
On June 30, 1998, the Company sold 480,786 shares of common stock to an
accredited unrelated investor for $50,000. On June 30, 1998, the Company sold
367,647 shares of common stock to an accredited unrelated investor for $50,000.
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
None
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
Company's fiscal quarter ended June 30, 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: August 12, 1998 MEDIAX CORPORATION
/s/ Nancy Poertner
---------------------------------------
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
/s/ Nancy Poertner President, Secretary
------------------------
Nancy Poertner
/s/ Rainer Poertner
------------------------
Rainer Poertner
/s/ Matthew MacLaurin
------------------------
Matthew MacLaurin
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EXHIBIT 27 - FINANCIAL DATA SCHEDULE