SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB/A
(MARK ONE)
/x/ QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
/ / TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____________ to ___________
Commission File No. 0-23780
MEDIAX CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Nevada 84-1107138
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
8522 National Boulevard, Suite 110 Culver City, California
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (310) 815-8002
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(Former Name, Former Address and Former
Fiscal Year if Changed Since Last Report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
As of August 14, 1997, there were 14,663,139 shares of the Company's
Common Stock, $.0001 Par Value, outstanding.
Transitional Small Business Disclosure Format (check one): YES NO x
MEDIAX CORPORATION
FORM 10-QSB/A
For the Quarter Ended June 30, 1997
Table of Contents
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.............................................3
Balance Sheet, June 30, 1997 (unaudited).........................3
Statements of Operations
Three Months Ended June 30, 1996 and 1997 (unaudited).........4
Six Months Ended June 30, 1996 and 1997 (unaudited)...........5
Statements of Cash Flows
Six Months Ended June 30, 1996 and 1997 (unaudited)...........6
Notes to Financial Statements....................................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................8
PART II
OTHER INFORMATION AND SIGNATURES
Item 1. Legal Proceedings...............................................12
Item 2. Changes in Securities...........................................12
Item 6. Exhibits and Reports of Form 8-K................................12
Signatures......................................................13
2
PART I FINANCIAL INFORMATION
Item 1: Financial Statements
MEDIAX CORPORATION
Balance Sheet (unaudited)
June 30, 1997
Current Assets:
Cash and cash equivalents $ 359,925
Accounts receivable - trade 23,511
Accounts receivable - other 19,480
Prepaid expenses 14,709
-------------
417,625
-------------
Property and Equipment:
Computer and office equipment 186,048
Software 62,563
Furniture and fixtures 10,418
Leasehold Improvements 4,027
-------------
263,056
Less: Accumulated depreciation (142,325)
-------------
120,731
-------------
Other Assets:
Note and interest receivable - officer 105,917
License agreement and deferred software costs 120,000
Organization costs, net 2,757
Other 12,174
-------------
240,848
=============
$ 779,204
=============
Current Liabilities:
Accounts payable - trade $ 45,095
Accounts payable - related parties 39,248
Obligation under capital lease, current portion 3,755
Notes payable, to former MediaX
Shareholders, current portion 42,500
Notes payable 466,428
-------------
597,026
-------------
Long Term Liabilities
Obligation under capital lease, non-current portion 3,292
Stockholders' Equity:
Common stock, $.0001 par value. Authorized
75,000,000 shares; issued and outstanding
14,663,139 shares. 1,466
Additional paid-in capital 1,821,204
Deficit accumulated during the development stage (1,643,784)
-------------
178,886
-------------
$ 779,204
=============
The accompanying notes are an integral part of this statement.
3
MEDIAX CORPORATION
Statements of Operations (unaudited)
Three Months Ended June 30, 1996 and 1997
1996 1997
------------- -------------
SALES/COST OF SALES
Sales $ 16 $ -
Cost of sales 6,280 238,605
------------- -------------
Gross profit (6,264) (238,605)
------------- -------------
GENERAL AND ADMINISTRATIVE
EXPENSES 80,744 228,800
------------- -------------
OTHER INCOME (EXPENSES)
Interest income - 4,261
Interest expense (8,049) (19,358)
------------- -------------
(8,049) (15,097)
------------- -------------
Net loss $ (95,057) $ (482,502)
============= =============
Net loss per common share $ (0.03) $ (0.03)
============= =============
Weighted average number of common shares
used in computation of net loss per share 8,842,143 14,411,217
============= =============
The accompanying notes are an integral part of this statement.
4
MEDIAX CORPORATION
Statements of Operations (unaudited)
Six Months Ended June 30, 1996 and 1997
1996 1997
------------- -------------
SALES/COST OF SALES
Sales $ 16 $ 155,080
Cost of sales 6,280 386,721
------------- -------------
Gross profit (6,264) (231,641)
------------- -------------
GENERAL AND ADMINISTRATIVE
EXPENSES 121,888 455,092
------------- -----------
OTHER INCOME (EXPENSES)
Interest income - 5,823
Interest expense (8,519) (24,325)
Miscellaneous income 1,000 10,305
------------- -------------
(7,519) (8,197)
------------- -------------
Net loss $ (135,671) $ (694,930)
============= =============
Net loss per common share $ (0.01) $ (0.05)
============= =============
Weighted average number of common
shares used in computation
of net loss per share 11,000,122 14,188,746
============= =============
The accompanying notes are an integral part of this statement.
5
MEDIAX CORPORATION
Statements of Cash Flows (unaudited)
Six Months Ended June 30, 1996 and 1997
1996 1997
-------------- ------------
Cash Flows from Operating Activities:
Net income (loss) $ (127,670) $ (694,930)
Adjustments to reconcile net cash
(used) provided by operating activities:
Amortization - 10,040
Depreciation - 17,524
Changes in operating assets and liabilities:
Accounts receivable (450) 76,824
Prepaid expenses (1,298) 439
Equipment (13,676) -
Other assets (51,096) (11,247)
Note and interest receivable - officer - (2,087)
Accounts payable - trade (19,601) (45,334)
Loans payable 58,073 -
Capital lease, current portion 11,615 (4,379)
------------- ---------------
Net cash (used) in
operating activities (144,103) (653,150)
------------- ---------------
Cash Flows from Investing Activities:
Reduction in goodwill (152,852) 227,157
Purchase of fixed assets (217,061) (22,705)
Disposition of fixed assets - 12,536
------------- ---------------
Net cash (used) in
investing activities (369,913) 216,988
------------- ---------------
Cash Flows from Financing Activities:
Increase (decrease) in long term debt 350,000 (62,315)
Increase (decrease) in long term lease 8,098 (2,222)
Increase (decrease) in loans payable 24,502 (250,000)
Proceeds from sale of stock
to private investors - 436,293
Proceeds received from issuance
of notes payable - 450,000
------------- ---------------
Net cash provided
by financing activities 382,600 571,756
------------- ---------------
Net (decrease) increase in cash
and cash equivalents (131,416) 135,594
------------- ---------------
Cash and cash equivalents
at beginning of period 231,254 224,331
------------- ---------------
Cash & cash equivalents at end of period $ 99,838 $ 359,925
================= ===============
Supplementary Disclosures of
Cash Flow Information:
No cash was paid during the period for income taxes or interest.
The accompanying notes are an integral part of this statement.
6
MEDIAX CORPORATION
Notes to Financial Statements (unaudited)
June 30, 1996 and 1997
(1) Basis of Presentation
The condensed financial statements of MediaX Corporation (the
"Company") for the six months ended June 30, 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 period 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
year ended December 31, 1996. The results of operations for the six
months ended June 30, 1997 are not necessarily indicative of the
results for the entire year ending December 31, 1997.
(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 and six months ended June 30, 1997, loss periods, as their
inclusion would be anti-dilutive.
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following information should be read in conjunction with the
financial statements and the notes thereto, as well as the section entitled
"Management's Discussion and Analysis or Plan of Operations" from the Company's
Annual Report on 10-KSB for its year ended December 31, 1996. 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/A 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. OTHER FACTORS
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE SET FORTH IN
SUCH FORWARD-LOOKING STATEMENTS INCLUDE THE RISKS AND UNCERTAINTIES DETAILED IN
THE COMPANY'S MOST RECENT FORM 10-KSB AND ITS OTHER FILINGS WITH THE SECURITIES
AND EXCHANGE COMMISSION FROM TIME TO TIME.
Overview
The technology market is currently expanding at an unprecedented rate.
Shipments of multimedia-equipped personal computers now exceed one million per
month and cumulative shipments to date exceed 80 million. This constantly
increasing hardware base has spurred demand for interactive multimedia content.
CD-ROM titles are sold through all mass-merchandising retail channels and
revenue from CD-ROM publishing is projected to surpass $4 billion in 1997.
Penetration of multimedia CD-ROMs in U.S. households reportedly now surpasses
33%. Internet subscribers are expected to grow from 10 million to over 100
million by 1999. Revenue from Internet content publishing alone is forecasted to
reach $15 billion in the next five years.
MediaX (the "Company") operates primarily by acquiring intellectual
properties and developing, authoring, producing, marketing and distributing
Company-owned interactive multimedia titles and software development tools; this
vertically integrated model contrasts with its earlier development and
production-for-fee service model (prior to 1997).
MediaX currently has several such Company-owned projects in various
stages of development and is continuing to review/acquire rights to new
intellectual properties on which it later typically pays a royalty on sales.
Through vertical integration and a focus on high marquis-value projects, the
Company intends to maintain strict control on both quality and costs and to
retain profits that are otherwise traditionally dispersed across several
separate entities (as is still common in this and the film and recording
industries).
Background
Although the Company and its predecessor entities have been in
existence since 1986, its current
8
operations have been in place only since its merger with MediaX in June 1996.
Accordingly, the Company is still in many respects subject to many of the
risks and uncertainties inherent in a new enterprise.
The Company develops, produces and markets 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-ROMs. Two recently
released CD-ROM entertainment products are "On the Road with BB King" and
"Queensryche's Promised Land" which are being distributed by MCA and EMI
records, respectively. The gold master of a product called "Surf & Destroy" has
been delivered to Grolier Interactive. However, at this point in time it is
questionable that it will be released, since Grolier is in the process of
restructuring its game department.
The Company was selected by Apple Computer to produce the Welcome
Experience for their high-end, limited edition Twentieth Anniversary MacIntosh
which was delivered in February for a March 1997 introduction. The Company
developed the production to capitalize on the Twentieth Anniversary MacIntosh's
extreme multimedia capabilities. The multimedia presentation features
leading-edge animation, digital video, interactive 3D graphics, original
soundtrack and theater quality audio.
During December 1996, the Company signed an Electronic Rights License
Agreement with Newspeak Media, Inc., which grants the Company the production and
exclusive publishing rights for an interactive project based on George Orwell's
novel "1984," entitled "Big Brother," in consideration for an agreed upon
royalty. Production has commenced and the product is expected to be released
into the market in Spring 1998.
The Company has signed a contract with Peter Norton and Verbum for the
exclusive publishing and marketing rights for an interactive, multimedia
infotainment project entitled "Peter Norton - PC Guru," for which there is an
option for up to five CD-ROMs. The Company has commenced work on the first such
CD-ROM, which is expected to be released in late 1997. Peter Norton - PC Guru is
a Windows 3.1 and Windows 95 CD-ROM developed specifically to help PC users
understand and use their computer systems to enhance both work and home life and
to get support when a problem or question arises. It will introduce the user to
key hardware internals and numerous software solutions for common personal and
professional applications through illustrated, animated tutorials, and hands-on
experience with demonstration versions of popular software products included on
the disc. Software update, support and other current information will be
provided to owners of the CD via "hot-links" to active third party Internet Web
sites and a specific companion PC Guru website. The information provided on the
disk will be comprehensive and accurate, from top technical experts. The major
sections of the disk cover system software and hardware, peripheral devices,
major application categories (such as "creativity" and "learning"),
trouble-shooting, hands-on demonstration software applications and usable
utilities and system customizing elements such as background graphics and
start-up sounds. The additional ability to connect directly from the CD-ROM to
major Internet sites will assure that the user, even long after the purchase of
the CD-ROM, will always have the opportunity to bring his knowledge up-to-date
and, in addition, take advantage of many existing download opportunities for
free software on the Internet.
MediaX has recently signed marketing co-op agreements with two of the
industry's most influential companies to participate in the Norton project and
promotional activity -- Symantec/Norton Utilities Group for Symantec software,
and AT&T for comprehensive co-marketing with its WorldNet Internet Service.
The Company's Orwell-based "Big Brother" project is progressing on
schedule for a Spring 1998 introduction. Additional personnel for the game
design and engineering area have been hired to bring staffing up to the
necessary levels. Talks for marketing cooperation are currently proceeding with
several domestic and international companies.
The Company is in the advanced development stage for Media Manager.
Multimedia, Internet and traditional text processing and desktop or printing
productions (accessing data on existing networks or archives, such as legal or
medical documents) almost always involve many individuals or groups of people
9
with various talents and specialties. Often these groups work together on one
project, either within the same location or in separate locations, connected
through LAN's or wide area networks. A single multimedia production, for
example, can consist of 6,000 to 20,000 files composed of graphic bitmap images,
sound files and animation. Keeping track of those files or, more importantly,
managing modifications to various files and keeping track of which individual or
group is actually working on a file, or a set of files, at any given time can be
a never-ending and cost intensive task for production companies, law firms or
any large corporation. An absolute critical task is indexing, sharing,
retrieving and maintaining such files and their multiple versions on a real-time
basis. The objective of Media Manager is to manage this process by cataloging
all work, automatically keeping historical information and maintaining strict
version control.
Media Manager should administrate this task in a very transparent and
visual manner, reproducing thumbnails of graphic images, sound files and text
and spreadsheets files among others. File access will be achieved by simply
double clicking those images. Media Manager should store digital data of any
kind in a proprietary storage system, manage and version control it and create a
flexible, transparent and visual archiving/administration system which can be
dynamically used by different individuals or project groups over a LAN network
or over the Internet.
Media Manager will run on a Windows 95 or Windows NT platform and will
also perform the function of HTML server. Users who are on various other
machines and/or different operating platforms (i.e., MacIntosh's or SGI's)
should be able to browse any media regardless of operating system or computing
platform, as well as check files in and out. As an add-on, Media Manager should
provide a stand alone Web server application, so clients can also run a simple
Web server.
Results of Operations
Prior to the merger with MediaX in June 1996, the Company's business
activities were very limited. Therefore, there are no meaningful comparisons
which can be made between the results for the six months ended June 30, 1996 and
1997 because there were no business activities during the six months ended June
30, 1996.
Liquidity and Capital Resources
Cash and cash equivalents increased $135,594 from December 31, 1996 to
June 30, 1997. Over the same period, the Company's working capital deficit of
$179,401 was reduced from a deficit of $435,564 at December 31, 1996 due
primarily to cash received in stock and debt issuances. During May 1997, the
Company issued 500,000 shares to two unrelated private investors at an average
price of $0.76 for a total of $400,000. One of the investors holds warrants to
purchase up to 100,000 shares for $1.20 each before June 12, 2000.
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, that new
products are released and 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 year ending December 31, 1997. If
the Company decides to commence with additional productions, it may be necessary
to raise additional capital. 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
10
its resources, the adverse consequences would be severe. Both the management 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 June 30, 1997 the Company had no material commitments for capital
expenditures.
Product Development
At present the Company has no product for sale in the retail channel.
The Company is planning to release its first two MediaX-owned products, "Peter
Norton - PC Guru" and "Media Manager" into the market during the last quarter of
1997, and its third product "Big Brother" in the first half of 1998.
There can be no assurance that new products will be released by the
Company or if released, that such release will be on a timely basis; or that any
products will achieve any significant degree of market acceptance or that such
acceptance, if attained, will be sustained for any significant period; or that
such products will be profitable or that profitability, if any, will be
sustained. As well, the Company's success will depend in part on its ability to
respond promptly to market feedback and provide adequate technical support and
service to customers and there can be no assurance that the Company will be
successful in so responding. Failure to complete on a timely basis, or lack of
demand for new products upon completion and distribution, would have a material
adverse effect upon the Company and such adverse effect would be severe.
The Company believes continued investment in research and development
to develop state-of-the-art technology for incorporation into its products is
required if it is to remain competitive in the marketplace.
The Company depends on the successful development of new products,
including new titles and the adaptation of existing titles to new platforms and
technologies, to expand its product offerings and to augment revenues from
products that have declined in revenue prospects. The Company also depends on
upgrades of existing products to lengthen the life cycle of such products.
Finally, the Company must continually anticipate and adapt its products to
emerging personal computer platforms and environments. If the Company's products
become outdated and lose market share, or if new products or product upgrades
are not introduced when planned or do not achieve the revenues anticipated by
the Company, the Company's operating results could be materially adversely
affected.
Exclusive of licensing agreements and acquisitions, the length of time
required to develop the Company's products and product upgrades typically ranges
from nine to 16 months, as is common in the multimedia industry. Theoretically,
the Company could experience delays in the planned release of new products or
product upgrades from one to 15 months as a result of completing development,
product testing and quality assurance. There can be no assurance that such
delays from the planned product release dates will not occur in the future.
Additionally, there can be no assurance that the Company will be able to release
new products on schedule or that such new products, if released, will achieve
market acceptance. If a product's release is delayed, it may lose market
position and the Company's expected return on its investment in the product
could be materially delayed or diminished.
11
PART II OTHER INFORMATION
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 May 8, 1997 the Company sold 100,000 shares of common stock and
100,000 warrants (each warrant to purchase one share of common stock each at
$1.20 per warrant before June 12, 2000) to an accredited investor, for $70,000.
The Company relied on an exemption provided by Regulation D.
During August 1997, the Company received a loan for $320,000 from an
unaffiliated person. The loan accrues interest at prime plus 2% and is due July
1998. The note holder has the option to convert all or part of the principal sum
and any accrued interest into shares at $1.00 per share. The Company relied on
an exemption provided by Regulation D.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits filed with this report:
Exhibit 27: Financial Data Schedule
(b) Reports filed on Form 8-K: none filed by the Company during the
quarter for which this report is filed.
12
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
MEDIAX CORPORATION
Date: August 14, 1997 By: /s/ Nancy Poertner
------------------
Nancy Poertner
President