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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, 2000
Commission File No. 0-23780
MEDIAX CORPORATION
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(Exact Name of Small Business Issuer as Specified in its Charter)
Nevada
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(State or Other Jurisdiction of Incorporation or Organization)
84-1107138
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(I.R.S. Employer Identification Number)
3455 La Cienega Boulevard, Building C, Los Angeles, California 90016
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(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, 2000 as reported on the OTC Bulletin Board, was approximately
$6,526,015.
As of July 31, 2000 there were 7,641,184 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
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PART I
Item 1. Financial Statements
Balance Sheets as of June 30, 2000 (unaudited)
and December 31, 1999 (audited).................................... 3
Statements of Operations for the Three and Six Months Ended
June 30, 2000 and 1999 (unaudited)................................. 4
Statements of Cash Flows for the Six Months Ended
June 30, 2000 and 1999 (unaudited)................................. 6
Notes to the Financial Statements (unaudited)...................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 11
PART II
Item 1. Legal Proceedings.................................................. 15
Item 2. Changes in Securities and Use of Proceeds.......................... 15
Item 3. Defaults Upon Senior Securities.................................... 15
Item 4. Submission of Matters to a Vote of Securities Holders.............. 15
Item 5. Other Information.................................................. 15
Item 6. Exhibits and Reports on Form 8-K................................... 15
Signatures......................................................... 16
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MEDIAX CORPORATION
BALANCE SHEET
June 30, December 31,
2000 1999
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(unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents $ 205,305 $ 760,307
Accounts receivable, net of reserve of $8,500 633,276 2,218
Inventories 12,309 12,855
Prepaid advertising costs 708,125 708,125
Other prepaid expenses 34,317 52,097
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Total current assets 1,593,332 1,535,602
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Property and equipment, at cost:
431,673 334,640
Computer equipment
Office equipment 54,145 36,580
Leasehold improvements 7,630 7,630
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493,448 378,850
(302,116) (276,723)
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Less accumulated depreciation and amortization 191,332 102,127
Property and equipment, net
Deposits and other assets 34,900 35,372
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$ 1,819,564 $ 1,673,101
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LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 500,890 $ 400,556
Accrued payroll and related costs 35,616 28,048
Accrued expenses -- 19,916
Deferred revenue 150,000 --
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Total current liabilities 686,506 448,520
Long-term liabilities:
Convertible notes payable 1,772,405 2,238,877
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Total liabilities 2,458,911 2,687,397
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Commitments and contingencies
Stockholders' deficit:
Preferred stock, $.0001 par value per share;
10,000,000 authorized and no shares issued -- --
Common stock, $.0001 par value per share;
25,000,000 shares authorized; 7,641,184 and
6,667,800 shares issued and outstanding,
for 2000 and 1999, respectively 764 667
Additional paid-in capital 13,300,055 12,154,940
Subscription advances 320,793 278,993
Stockholder notes and accrued interest receivable (117,830) (115,830)
Accumulated deficit (14,143,129) (13,333,066)
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Total stockholders' deficit (639,347) (1,014,296)
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$ 1,819,564 $ 1,673,101
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The accompanying notes are an integral part of these financial statements.
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MEDIAX CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE
THREE MONTHS ENDED
JUNE 30,
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2000 1999
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Net Sales $ 791,984 $ 12,115
Cost and Operating Expenses
Operating and development 374,138 470,489
Sales and marketing 162,526 137,275
General and administrative 212,314 230,466
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748,978 838,230
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Operating income (loss) 43,006 (826,115)
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Other Income (Expenses)
Interest income 3,954 1,000
Interest expense (22,798) (37,859)
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(18,844) (36,859)
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Net income (loss) $ 24,162 $ (862,974)
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Basic earnings (loss) per common share $ .004 $ (.167)
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Diluted earnings (loss) per common share $ .004 $ (.167)
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Weighted average number of common shares
outstanding; Basic 6,037,724 5,161,387
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Weighted average number of common shares
outstanding; Diluted 6,037,724 5,161,387
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The accompanying notes are an integral part of these financial statements.
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MEDIAX CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE
SIX MONTHS ENDED
JUNE 30,
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2000 1999
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Net Sales $ 808,575 $ 54,118
Cost and Operating Expenses
Operating and development 755,889 571,718
Sales and marketing 274,457 240,527
General and administrative 548,710 2,136,647
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1,579,056 2,948,892
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Operating loss (770,481) (2,894,774)
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Other Income (Expenses)
Interest income 11,023 2,060
Interest expense (50,605) (441,033)
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(39,582) (438,973)
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Net loss $ (810,063) $(3,333,747)
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Basic earnings (loss) per common share $ (.114) $ (.737)
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Diluted earnings (loss) per common share $ (.114) $ (.737)
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Weighted average number of common shares
outstanding; Basic 7,076,990 4,519,931
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Weighted average number of common shares
outstanding; Diluted 7,076,990 4,519,931
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The accompanying notes are an integral part of these financial statements.
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MEDIAX CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months Ended
June 30,
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2000 1999
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Cash flows from operating activities:
Net loss $ (810,063) $(3,333,747)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 25,865 23,257
Estimated value of shares issued
for services rendered 9,375 1,605,400
Estimated value of options granted to employees 708 618
Estimated value of options granted
for consulting services 100,594 453,600
Estimated value of beneficial conversion and
induced conversion of debt -- 371,876
Interest accrued on convertible debt 49,863 68,105
Interest accrued on stockholder notes receivable (2,000) (2,000)
Changes in operating assets and liabilities:
Accounts receivable (631,058) 1,398
Prepaid expense 17,780 18,486
Inventories 546 1,088
Accounts payable and accrued expenses 87,986 (173,019)
Deferred revenue 150,000 --
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Net cash used in operating activities (1,004,404) (964,938)
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Cash flows from investing activities:
Acquisition of intangible assets -- (196,803)
Purchase of fixed assets (114,598) (20,151)
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Net cash used in investing activities (114,598) (216,954)
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Cash flows from financing activities:
Subscription advances 100,000 187,250
Net proceeds from sale of stock to investors 460,000 441,500
Net proceeds from the exercise of options and
warrants -- 613,007
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Net cash provided by financing activities 560,000 1,241,757
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Change in cash and cash equivalents (555,002) 59,865
Cash and cash equivalents, beginning of period 760,307 19,975
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Cash and cash equivalents, end of period $ 205,305 $ 79,840
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Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 741 $ --
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Income taxes $ -- $ --
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Supplemental schedule of non-cash investing and
financing activities:
Conversion of convertible debt to equity $ 516,335 $ 350,000
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The accompanying notes are an integral part of these financial statements.
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MEDIAX CORPORATION
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
Note 1: BASIS OF PRESENTATION
The financial statements of MediaX Corporation ("MediaX") for the three and six
months ended June 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, 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 June 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 this
transaction, 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.
RECLASSIFICATION - The financial statements for the prior periods have been
reclassified to conform to current period's presentation.
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. In connection with this policy, MediaX has recorded $150,000 of
deferred revenue as of June 30, 2000, representing costs to be incurred under a
fixed-price contract.
CONCENTRATION OF SALES RISK - Two customers accounted for 93% and 91% of net
sales for the three and six month periods ended June 30, 2000, respectively.
Accounts receivable from these customers at June 30, 2000 comprised 96% of the
total accounts receivable. The loss of either of these customers would have a
significant impact on operating results.
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BASIC AND DILUTED LOSS PER SHARE - MediaX has presented basic and diluted loss
per share amounts for the six months ended June 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 six months ended June
30, 2000.
NEW ACCOUNTING PRONOUNCEMENTS - In March 2000, the Emerging Issues Task Force
reached a consensus on Issue No. 00-2, "Accounting for Web Site Development
Costs" to be applicable to all web site development costs incurred for the
quarter beginning after June 30, 2000. The consensus states that for specific
web site development costs, the accounting for such costs should be accounted
for under AICPA Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." Accordingly,
certain web site development costs which are presently being expensed as
incurred, will be capitalized and amortized. The adoption of EITF Issue No. 00-2
is not expected to have a material effect on our financial statements.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin (SAB) 101, "Revenue Recognition," which outlines the sic 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 fourth 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.
In March 2000, 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. FIN 44 is effective July 1, 2000,
but certain provisions cover specific events that occur after either December
15, 1998,or January 12, 2000. The adoption of certain other provisions of FIN 44
prior to March 31, 2000 did not have a material effect on the financial
statements. MediaX does not expect that the adoption of the remaining provisions
will have a material effect on the financial statements.
Note 4: CONVERTIBLE NOTES PAYABLE
The following transactions pertain to a convertible notes payable dated August
24, 1999. During the three and six months ended June 30, 2000, an investor
converted $516,335 of principal and accrued interest into common stock at an
average price of $1.25 per share or 413,800 shares. Interest expense related to
notes for the six months ended June 30, 2000 and 1999 is $49,863 and $68,105,
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 six months ended June 30, 2000, $100,000
of additional advances were received and $58,200 of the advances were utilized
to exercise warrants to purchase 218,000 common shares. As of June 30, 2000,
subscription advances were $320,793.
Note 6: COMMON STOCK ISSUANCES
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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).
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 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. MediaX received $470,000 net of offering costs of
$30,000.
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 6).
During the six months ended June 30, 2000, an investor converted $516,335 of
principal and accrued interest into common stock at an average price of $1.25
per share or 413,800 shares, pursuant to a 5% convertible note entered into in
1999.
In March 2000, MediaX issued 218,000 shares of common stock in connection with
the exercise of stock warrants for $58,200 (See Note 5).
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. There were no
options and/or warrants granted during the quarter ended June, 30, 2000. Total
consulting expense of $101,302 was recognized during the six months ended June
30, 2000 pursuant to SFAS 123.
During the quarter ended March 31, 2000, MediaX granted options to purchase a
total of 53,000 restricted common shares at exercise prices of $1.68 and $1.40
per share. The options vest immediately and are exercisable through March 31,
2002. Total consulting expense of $78,000 was recognized during the six months
ended June 30, 2000.
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 six months ended June 30, 2000.
MediaX has also recognized consulting and compensation expense of $23,302 during
the six months ended June 30,2000 for options previously issued.
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. 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. In addition, MediaX entered
into a stock purchase warrant agreement to purchase 100,000 shares of its common
stock at 125% of market price on the closing date, expiring October, 2003. If
the registration statement is not declared effective by September 30, 2000, all
agreements shall terminate. MediaX paid $10,000 offering costs for legal and
administrative expenses and issued 5,000 restricted common shares for finders
fees related to the agreement.
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 June
30, 2000 and December 31, 1999, stockholder notes and accrued interest
receivable was $117,830 and $115,830, respectively. As the notes are due from
the President and stockholder, MediaX has presented the receivables as an
increase of stockholders' deficit at June 30, 2000.
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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 FORWARD-LOOKING
STATEMENTS MAY BE IDENTIFIED BY THE USE OF CERTAIN FORWARD-LOOKING TERMINOLOGY,
SUCH AS "MAY," "WILL," "EXPECT," "ANTICIPATE," "INTEND," "ESTIMATE," "BELIEVE"
OR COMPARABLE TERMINOLOGY THAT INVOLVES RISKS OR UNCERTAINTIES. ACTUAL FUTURE
RESULTS AND TRENDS MAY DIFFER MATERIALLY FROM HISTORICAL AND ANTICIPATED
RESULTS, WHICH MAY OCCUR AS A RESULT OF A VARIETY OF FACTORS. SUCH RISKS AND
UNCERTAINTIES INCLUDE, WITHOUT LIMITATION, MEDIAX'S LIMITED OPERATING HISTORY,
THE UNPREDICTABILITY OF ITS FUTURE REVENUES, THE UNPREDICTABLE AND EVOLVING
NATURE OF ITS KEY MARKETS, THE INTENSELY COMPETITIVE ONLINE COMMERCE AND
ENTERTAINMENT ENVIRONMENTS, MEDIAX'S DEPENDENCE ON ITS STRATEGIC ALLIANCES,
DEPENDENCE ON KEY PERSONNEL, DEPENDENCE ON THIRD PARTIES FOR INTERNET
OPERATIONS, DEPENDENCE ON CONTENT ACQUISITION, CREATION AND LICENSING, THE
MANAGEMENT OF GROWTH AND MEDIAX'S NEED FOR ADDITIONAL CAPITAL EXCEPT AS REQUIRED
BY LAW. MEDIAX UNDERTAKES NO OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENT,
WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE. READERS
SHOULD CAREFULLY REVIEW THE FACTORS SET FORTH IN OTHER REPORTS OR DOCUMENTS THAT
MEDIAX FILES FROM TIME-TO-TIME WITH THE SEC AND MATTERS GENERALLY AFFECTING
ONLINE COMMERCE AND ONLINE SALE OF ENTERTAINMENT-RELATED PRODUCTS, INCLUDING,
BUT NOT LIMITED TO, MUSIC RETAILING.
OVERVIEW
Originally founded as a multi-media production studio in 1995, MediaX Inc.
was acquired by ZeitGeist Werks, Inc and went public in 1996 and was
subsequently renamed MediaX Corporation ("MediaX"). MediaX began as a real-time
3D computer game development company, developing high marquee-value intellectual
properties, such as the exclusive license for George Orwell's "1984" for
distribution through both conventional and Internet distribution channels, as
well as licensing it to large publishers.
After the acquisition MediaX's business development strategy began to
focus on the production of new media content for Internet and Broadband
channels; website design and hosting and Internet-based commerce and on-line
marketing. MediaX believes that since any 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.
Leading edge on-line campaigns, such as the full screen real-time
streaming graphically intense event in June 1999 for Paul McCartney, could not
have been produced without this skill set. Subsequently MediaX has entered into
several contracts that require and recognize this development and technology
skill set. With the varied expertise of MediaX's Chairman, President and
Executive Vice President in the areas of artist and record company management,
film production, software development &distribution and proprietary technology
development, MediaX expects to bridge an existing gap in the entertainment and
technology markets and become a successful player in the Internet content
production, marketing, third party advertising 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
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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, NSYNC, and as a supplier of content and chat partner with
Yahoo!, MediaX believes that amuZnet.com is on the path to become a substantial
entertainment destination site. MediaX's team of engineers and graphic artists
develops, designs and maintains all MediaX designed/owned sites in this network
in house and hosts all services on the MediaX and/or Navisite server system,
including the real time streaming of video and audio.
MediaX continues to produce new and exclusive content for the Internet and
based on the technological structure of this product 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 additional technological effort. This
affords MediaX several outlets for the same digital interactive content it
produces.
MediaX has signed contracts with EchoStar (Dish Network) for the launch of
an Interactive Satellite Entertainment Channel and hopes to further tap into the
rapidly emerging efforts of cable and telecom companies with its existing
technology and content. However, there can be no assurance that MediaX will
achieve its objectives or successfully implement its broadband business plan.
GOING CONCERN
MediaX has incurred significant net losses since its inception. As of June
30, 2000, MediaX has accumulated losses of $14,143,129. As it seeks to expand
aggressively, MediaX believes that its operating expenses will continue at a
certain level as a result of the financial commitments related to the
development of new websites, marketing channels, deployment of advertising
campaigns, future marketing agreements and campaigns, acquisition of
entertainment content and improvements to its existing Internet sites and other
capital expenditures. The ability of MediaX to generate and enhance
profitability depends upon its ability to substantially increase its net sales.
To the extent that significantly higher net sales do not result from MediaX's
selling and marketing efforts, MediaX will be materially adversely affected.
Under this scenario, MediaX may need to utilize its common stock to fund its
operations through fiscal 2000. On April 2000, MediaX entered into a private
equity line of credit agreement with an investor to purchase an aggregate
$6,000,000 of its common stock. Should MediaX fail to register this transaction,
increase sales or raise the additional funds, MediaX will have insufficient
funds for its intended operations and capital expenditures and will have a
material adverse effect on MediaX's operating results. Accordingly, the
accompanying financial statements have been presented under the assumption
MediaX will continue as a going concern.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30,
1999
Net sales are composed of website design fees, marketing campaigns,
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 and marketing campaigns, membership dues,
advertising and sponsorship revenue, which has a higher margin than product
sales. Sales for the three months ended June 30, 2000 was $791,984 compared to
$12,115 or an increase of 6,537% for the same quarter last year. The change is
attributable to increased website design and 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.
Cost and Operating Expenses are composed of operating and development
expense, sales and marketing; and
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general and administrative expense. Operating and development expense consists
primarily of payroll and related expenses for website design and management;
network system and telecommunications infrastructure; Internet content creation
and acquisitions; royalties; database license fees and cost of merchandise sold
to customers, including product fulfillment and outbound shipping and handling
charges. Operating and development expense was $374,138 for the three months
ended June 30, 2000 compared to $470,489 for the corresponding period in 1999, a
decrease of 20.3%. The decrease is attributable to a one-time charge of $345,600
in 1999 for options granted to consulting agreements for content acquisitions,
offset by increases 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.
Sales and marketing expense consists primarily of payments related to
marketing agreements, advertising and promotion, as well as payroll and related
expenses for personnel engaged in marketing and selling and credit card fees.
Sales and marketing expense was $162,526 for the three months ended June 30,
2000, compared to $137,275 for the same quarter last year, an increase of 18.4%.
The increase is attributable to slight increase in payroll and associated costs;
implementation of marketing and promotion strategies to increase its customer
base, brand awareness and travel.
General and administrative expense consists of payroll and related
expenses for personnel, professional fees, insurance and other general and
corporate expenses. General and administrative expense was $212,314 for the
three months ended June 30, 2000, compared to $230,466 for the three months
ended June 30, 1999, a decrease of 7.9%. The decrease is attributable to a
one-time non-cash charge of $50,309 for shares and options issued for services
rendered in 1999 partially offset by an increase to payroll and related
expenses, and other general and corporate expenses incurred in the current
quarter.
Total other income (expense) consists of interest income on cash
equivalents and notes receivable, and interest expense associated with
convertible debts and short-term borrowings. Total other expense was $18,844 for
the three months ended June 30, 2000, compared to $36,859 for the corresponding
period in 1999, a decrease of 48.9%. The decrease is attributable to a lower
balance of convertible debt as compared to 1999 and a slight increase in
interest income earned from cash equivalents in the current quarter.
Net Income (Loss). As a result of the above factors, MediaX's net income
was $24,162 for the three months ended June 30, 2000 compared to a net loss of
$862,974 for the three months ended June 30, 1999.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
Sales for the six months ended June 30, 2000 was $808,575 compared to
$54,118 for the same period last year, an increase of 1,394.1% 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.
Cost and Operating Expenses are composed of operating and development
expense, sales and marketing; and general and administrative expense. Operating
and development expense was $755,889 for the six months ended June 30, 2000
compared to $571,718 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
$100,594 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 $274,457 for the six months ended June 30,
2000, compared to $240,527 for the same period in 1999. The increase is
attributable to slight increase in payroll and associated costs; implementation
of marketing and promotion strategies to increase its customer base, brand
awareness and travel.
General and administrative expense was $548,710 for the six months ended
June 30, 2000, compared to $2,136,647 for the six months ended June 30, 1999.
The decrease is attributable to a net 1999 non-cash charge of $1,713,310 for
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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 $39,582 for the six months ended June 30, 2000,
compared to $438,973 for the corresponding period in 1999. The decrease is
attributable primarily to a 1999 one-time non-cash interest expense of $371,876
related to an inducement to convert debt to equity partially offset by interest
income earned from cash equivalents in the current year.
Net Loss. As a result of the these factors, MediaX's net loss was $810,063
for the six months ended June 30, 2000 compared to $3,333,747 for the six months
ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, MediaX had positive working capital of $906,826, 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 six months ended June 30, 2000.
Net cash used in operating activities of $1,000,404 for the six months
ended June 30, 2000 was primarily attributed to a net loss of $810,063, offset
by $25,865 non-cash charge for depreciation and amortization; a $110,677
non-cash charge for stock-based compensation for consulting services and common
stock issued to employees and non-employees; $47,863 for accrued interest on
convertible debt and on stockholder notes receivable; and change in operating
assets and liabilities of $374,746. Net cash used in operating activities of
$964,938 for the six months ended June 30, 1999 was primarily attributable to a
net loss $3,333,747, offset by $23,257 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;
$371,876 for beneficial conversion of debentures; and $66,105 for accrued
interest on convertible debt and on stockholder notes receivable ;and change in
other operating assets and liabilities of $152,047.
Net cash used in investing activities was $114,598 for the six months
ended June 30, 2000 and consisted of purchases of fixed assets. Net cash used in
investing activities was $216,954 for the six months ended June 30, 1999 and
consisted of acquisitions of intangible assets and purchases of fixed assets.
Net cash provided by financing activities was $560,000 for the six months
ended June 30, 2000, and consisted of proceeds from subscription advances and
sale of stock to investors. Net cash provided by financing activities was
$1,241,757 for the six months ended June 30, 1999, and consisted primarily of
net proceeds from sale of stock to investors, subscription advances, and
exercise of options and warrants.
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. Should MediaX fail to
register this transaction, increase sales or raise the additional funds, MediaX
will have insufficient funds for its intended operations and capital
expenditures and will have a material adverse effect on MediaX's operating
results.
INFLATION
MediaX believes that inflation has not had a material effect on its
results of operations.
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PART II
ITEM 1. LEGAL PROCEEDINGS
Valley Media, Inc. ("Valley") commenced an arbitration proceeding against MediaX
Corporation ("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, the arbitrator found in favor of Valley and awarded $170,000 in damages,
plus the cost of the arbitration. MediaX has recorded approximately $183,000 in
the 1999 balance sheet and statement of operations. On May 31, 2000, MediaX
filed a Notice of Appeal and is currently in the process of settling the claim.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
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 Securities Act of 1933, as amended
("Act"), is claimed for the sale of all the securities set forth above in
reliance upon the exemption offered by Section 4(2) of the Act.
On April 28, 2000, MediaX issued 5,000 restricted common shares for
finders fees in relation to a private equity line agreement it entered into with
an investor. Exemption from registration under the Securities Act of 1933, as
amended ("Act"), is claimed for the sale of all the securities set forth above
in reliance upon the exemption offered by Section 4(2) of the Act.
During the three months ended June 30, 2000, an investor converted
$413,760 of principal and accrued interest into common stock at an average price
of $1.224 per share or 337,819 shares, pursuant to a 5% convertible note entered
into in 1999. Exemption from registration under the Securities Act of 1933, as
amended ("Act"), is claimed for the sale of all the securities set forth above
in reliance upon the exemption offered 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
No matters were submitted to the security holders for a vote during the
period covered by this report.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
27 Financial Data Schedule.
(b) REPORTS ON FORM 8-K.
None
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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: July 31, 2000 MEDIAX CORPORATION
By: /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 July 31, 2000
Nancy Poertner and Director
/s/ Rainer Poertner Chairman and Director July 31, 2000
Rainer Poertner
/s/ Matthew MacLaurin Executive V.P. and July 31, 2000
Matthew MacLaurin Director
/s/ Jacqueline Cabellon Controller July 31, 2000
Jacqueline Cabellon (Principal Accounting Officer)
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27 FINANCIAL DATA SCHEDULE