UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
-------------------------
FORM 10-QSB/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES ACT OF 1933
FOR THE QUARTER ENDED MARCH 31, 2004
COMMISSION FILE NO. 0-21991
-------------------------
MEDIAWORX, INC.
(Name of small business issuer in its charter)
WYOMING 2750 98-0152226
(State or other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
- ------------------------------- ---------------------------- -------------------
1895 PRESTON WHITE DRIVE, SUITE 250
RESTON, VIRGINIA 20191
(703) 860-6580
(Address and telephone number of principal executive offices and principal place
of business)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g)of the Exchange Act: Common Stock,
$.005 par value
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15 (d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [X] or [ ]
As of May 10, 2004, there were 8,155,143 shares of the Registrant's Common
Stock, par value $0.005, issued and outstanding.
Transitional Small Business Disclosure Format (check one). Yes [ ] No [X]
MEDIAWORX, INC.
FORM 10-QSB/A QUARTERLY REPORT
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED INCOME STATEMENTS
Consolidated Balance Sheets ...................................F-2
Consolidated Statements of Income .............................F-4
Consolidated Statements of Stockholders' Equity (Deficit) ......F-5
Consolidated Statements of Cash Flows .........................F-8
Notes to Consolidated Financial Statements ....................F-10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
PART II: OTHER INFORMATION
MEDIAWORX, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
---------
March 31, December 31,
ASSETS: 2004 2002
- ------- ------------ ------------
CURRENT ASSETS
Cash and Cash Equivalents $ 80,274 $ 101,807
Accounts Receivable 35,069 35,513
Prepaid Expenses 4,939 793
------------ ------------
Total Current Assets 120,282 138,113
------------ ------------
FIXED ASSETS
Furniture, Fixtures, and Equipment 16,580 7,362
Software 25,548 12,045
Less Accumulated Depreciation (4,426) (1,200)
------------ ------------
Net Fixed Assets 37,702 18,207
------------ ------------
OTHER ASSETS
Notes Receivable - Related Party 62,253 59,171
------------ ------------
Total Other Assets 62,253 59,171
------------ ------------
TOTAL ASSETS $ 220,237 $ 215,491
============ ============
See accompanying notes to financial statements.
F-2
MEDIAWORX, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(Continued)
March 31, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY: 2004 2003
- ------------------------------------ ------------ ------------
CURRENT LIABILITIES
Accounts Payable $ 48,043 $ 41,373
Accrued Expenses 39,071 40,369
Accrued Interest 39,738 23,408
Note Payable-Related Party 275,000 275,000
Short Term Notes Payable 100,000 100,000
------------ ------------
Total Current Liabilities 501,852 480,150
------------ ------------
NON-CURRENT LIABILITIES
Convertible Debenture 240,000 --
Long Term Note Payable 544,333 544,333
------------ ------------
Total Long Term Liabilities 784,333 544,333
------------ ------------
TOTAL LIABILITIES 1,286,185 1,024,483
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock - 10% Cumulative, $.10 par value,
4,000,000 Authorized; 3,500,000 and 0 Issued and
Outstanding at March 31, 2004 and
December 31, 2003 350,000 350,000
Common Stock - $.005 par value, 150,000,000
Authorized, 7,733,740 and 6,834,610 Issued and
Outstanding at March 31, 2004 and
December 31, 2003 38,669 34,097
Common Stock to be Issued, 250,000 and 250,000 1,250 1,250
Paid in Capital 1,073,938 763,136
Accumulated Deficit (2,529,805) (1,957,475)
------------ ------------
Total Stockholders' Equity (Deficit) (1,065,948) (808,992)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 220,237 $ 215,491
============ ============
See accompanying notes to financial statements.
F-3
MEDIAWORX, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
For the Three Months Ended
March 31,
2004 2003
----------- -----------
Revenue $ 73,142 $ --
Cost of Goods Sold 55,382 --
----------- -----------
Gross Profit 17,760 --
----------- -----------
Operating Expenses
Selling and Marketing 99,158 --
Printing Services 22,449 --
General and Administrative 206,427 2,627
----------- -----------
Total Operating Expenses (307,034) 2,627
----------- -----------
Operating Income (Loss) (307,274) (2,627)
----------- -----------
Other Income (Expense)
Miscellaneous Income -- 8,745
Finance Fees (240,000) --
Interest Income (Expense) (22,056) (21,171)
----------- -----------
Total Other Income (Expense) (262,056) (12,426)
----------- -----------
Net Income (Loss) $ (572,056) $ (15,053)
=========== ===========
Basic Earnings Per Share $ (0.08) $ (0.07)
=========== ===========
Weighted Average Shares Outstanding 7,014,224 214,306
=========== ===========
See accompanying notes to financial statements
F-4
MEDIAWORX, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
Accumulated Retained
Preferred Stock Common Stock Paid in Comp. Earnings/
Shares Par Value Shares To be Issued Par Value Capital Income (Deficit)
--------- --------- -------- ------------ --------- -------- ----------- -------------
Balance at December 31, 2002 - $ - 214,306 - $ 1,072 $ 106,081 $ 2,500 $ (1,120,356)
Issuance of Stock for Services
June 17, 2003 - - 10,000 - 50 19,950 - -
Issuance of Stock for Services
June 30, 2003 - - 800,000 - 4,000 12,000 - -
Issuance of Shares in
Connection with MediaWorx
Merger, July 1, 2003 3,500,000 350,000 4,000,000 1,250 20,000 - - -
Shares Issued For Cash
July 31, 2003 - - 263,016 1,315 87,987
- -
Shares Issued For Cash
August 15, 2003 - - 160,647 803 62,746 - -
Shares Issued For Cash
September 2, 2003 - - 398,318 1,992 145,916 - -
Shares Issued For Cash
September 17, 2003 - - 288,323 1,441 100,811 - -
Shares Issued For Cash
October 3, 2003 - - 73,296 366 24,371 - -
Shares Issued for Cash
October 15, 2003 - - 69,298 347 23,041 - -
F-5
MEDIAWORX, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
(Continued)
Accumulated Retained
Preferred Stock Common Stock Paid in Comp. Earnings/
Shares Par Value Shares To be Issued Par Value Capital Income (Deficit)
--------- --------- -------- ------------ --------- --------- ----------- ----------
Shares Issued for Cash
November 1, 2003 - $ - 192,309 $ - $ 962 $ 63,942 $ - $ -
Shares Issued for Cash
November 18, 2003 - - 105,572 - 528 35,103 - -
Shares Issued for Cash
December 1, 2003 - - 113,868 - 569 37,861 - -
Shares Issued for Cash
December 15, 2003 - - 130,306 - 652 43,327 - -
- -
Other Comprehensive Loss (2,500)
Net Loss (837,119)
--------- --------- -------- ------------ --------- --------- ----------- ----------
Balance December 31, 2003 3,500,000 350,000 6,819,259 1,250 34,097 763,136 - (1,957,475)
Shares Issued For Cash
January 7, 2004 - - 173,520 - 867 57,695 - -
Shares Issued For Cash
January 19, 2004 - - 139,601 - 698 46,417 - -
Shares Issued For Cash
February 5, 2004 - - 207,309 - 1,037 68,930 - -
Shares Issued For Cash
February 28, 2004 - - 150,452 - 752 50,026 - -
Issuance of Convertible Debenture
February 24, 2004 5,854
F-6
MEDIAWORX, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
-----------
(Continued)
Accumulated Retained
Preferred Stock Common Stock Paid in Comp. Earnings
Shares Par Value Shares To be Issued Par Value Capital Income (Deficit)
--------- --------- -------- ------------ --------- --------- ----------- ----------
Shares Issued for Cash
March 1, 2004 - $ - 8,000 $ - $ 40 $ 3,543 $ - $ -
Shares Issued for Cash
March 2, 2004 - - 207,309 - 1,037 68,930 - -
Shares Issued for Cash
March 15, 2004 - - 28,290 - 141 9,407 - -
Net Loss (572,330)
--------- --------- --------- ------------ ---------- ---------- ---------- -----------
Balance March 31, 2004 3,500,000 $ 350,000 7,733,740 $ 1,250 $ 38,669 $1,073,938 $ - $(2,529,805)
========= ========= ========= ============ ========== ========== ========== ===========
See accompanying notes to financial statements.
F-7
MEDIAWORX, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
-----------
For the Three Months Ended
March 31,
2004 2003
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
Net Income (Loss) $(572,330) $ (15,053)
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Depreciation 3,226 108
Change in Operating Assets and Liabilities:
(Increase) Decrease in Accounts Receivable 444 --
(Increase) Decrease in Prepaid Expenses (4,146) (3,778)
(Increase) Decrease in Related Party Receivable (3,082) --
Increase (Decrease) in Accounts Payable 6,670 (3,239)
Increase (Decrease) in Accrued Payroll & Taxes (1,298) --
Increase (Decrease) in Accrued Interest 16,330 21,171
--------- ---------
Net Cash Used in Operating Activities (554,186) (791)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Short Term Loan to Related Party -- 5,331
Purchase of Marketable Securities -- (5,331)
Purchase of Property and Equipment (9,218) --
Purchase of Software (13,503) --
--------- ---------
Net Cash Used in Investing Activities (22,721) --
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issurance of Convertible Debenture 245,854
Proceeds from Sale of Common Stock 309,520 --
--------- ---------
Net Cash Used in Financing Activities 555,374 --
--------- ---------
See accompanying notes to financial statements.
F-8
MEDIAWORX, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
----------
(Continued)
For the Three Months Ended
March 31,
2004 2003
--------- ---------
Net (Decrease) Increase in Cash and Cash Equivalents $ (21,533) $ (791)
Cash and Cash Equivalents at Beginning of Period 101,807 10,759
--------- ---------
Cash and Cash Equivalents at End of Period $ 80,274 $ 9,968
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ -- $ --
Franchise and income taxes $ 110 $ --
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
None
See accompanying notes to financial statements
F-9
MEDIAWORX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------
This summary of accounting policies for MediaWorx, Inc. is presented to assist
in understanding the Company's financial statements. The accounting policies
conform to generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
Interim Reporting
- -----------------
The unaudited financial statements as of March 31, 2004 and for the three month
period then ended, in the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to fairly state the financial
position and results of operations for the three months. Operating results for
interim periods are not necessarily indicative of the results which can be
expected for full years.
Organization and Basis of Presentation
- --------------------------------------
The Company was incorporated under the laws of the State of Wyoming in 1963
under the name MacTay Investment Co. The company changed its name to Advanced
Gaming Technology, Inc. in 1991. In June 2002, the Company ceased its primary
operating activities, developing and marketing technology for the casino and
hospitality industry.
On July 1, 2003, the Company completed a reverse triangular merger involving
Advanced Capital Services, LLC, a Nevada limited liability company, The
MediaWorx, Inc. a wholly owned subsidiary of Solar Satellite Communications,
Inc. and the Company and it's newly formed wholly owned subsidiary MediaWorx
Acquisition Company, LLC. As a result of the merger the Company acquired the
assets of The MediaWorx, Inc., which consisted primarily of a business plan and
the people involved in the management and procurement of print, packaging, and
cross-media services. See Note 8 for detailed description of merger.
Nature of Operations
- --------------------
MediaWorx, Inc. is a media production and management business. The services that
the Company provides include print, audio/video, digital asset management,
graphic design, production and fulfillment for traditional and web-based
marketing and communications products and services. MediaWorx provides the
Company's sales representatives with the support and leverage of a strong
customer service culture, in-house pre-press capabilities, e-business solutions,
and a base of production partners that can fulfill the complexity of any
Customer order. The Company is a virtual printing company- it neither owns nor
has its capital tied up in printing equipment or facilities but works with an
established network of the most capable, technologically advanced printers and
production houses.
F-10
MEDIAWORX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------
(Continued)
- -----------
Use of Estimates
- ----------------
The financial statements are prepared in conformity with accounting principles
generally accepted in the United States of America. In preparing the financial
statements, management is required to make estimates and assumptions that effect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities as of the date of the balance sheet and statement of
operations for the year then ended. Actual results may differ from these
estimates. Estimates are used when accounting for allowance for bad debts,
collectibility of accounts receivable, amounts due to services providers,
depreciation, and litigation contingencies, among others.
Principals of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of MediaWorx, Inc and
its wholly owned subsidiary MediaWorx Company, LLC. All significant intercompany
accounts and transactions have been eliminated.
Cash Equivalents
- ----------------
For the purpose of reporting cash flows, the Company considers all highly liquid
debt instruments purchased with maturity of three months of less to be cash
equivalents to the extent the funds are not being held for investment purposes.
Concentration of Credit Risk
- ----------------------------
The Company has no significant off-balance-sheet concentrations of credit risk
such as foreign exchange contracts, options contracts or other foreign hedging
arrangements.
Revenue Recognition
- -------------------
The Company's revenues are derived from customized printing and cross media
services. Revenue is recognized when earned as the services are provided or the
product is delivered in accordance with the underlying purchase order. The
Company recognizes gross revenues under the provision of Emerging Issues Task
Force (EITF) Issue No. 99-19 "Recording Revenue Gross as Principal vs. Net as an
Agent". The Company acts as the principal, takes title to the products and has
the risk and rewards of ownership. The Company has not yet generated any revenue
while acting as an agent or broker. If the Company acts as an agent or broker,
the Company will account for those revenues on a net basis.
F-11
MEDIAWORX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property and Equipment
- ----------------------
Property and equipment is stated at cost. Depreciation is computed on the
straight-line method, based on the estimated useful lives of the assets of
generally three to five years. Expenditures for maintenance and repairs are
charged to operations as incurred. Major overhauls and improvements are
capitalized and depreciated over their useful lives. Upon sale or other
disposition of property and equipment, the cost and related accumulated
depreciation or amortization if removed from the accounts, and any gain or loss
is included in the determination of income or loss.
Net Income (Loss) Per Common Share
- ----------------------------------
Basic earnings per share are computed by dividing earnings available to common
stockholders by the weighted average number of common shares outstanding during
the period. The effect of outstanding common stock equivalents would be
anti-dilutive for 2004 and 2003 and are thus not considered.
Reclassifications
- -----------------
Certain reclassifications have been made in the 2003 financial statements to
conform with the March 31, 2004 presentation.
NOTE 2 - INCOME TAXES
- ---------------------
Deferred income taxes (benefits) are provided for certain income and expenses
which are recognized in different periods for tax and financial reporting
purposes. The Company had net operating loss carry forwards for income tax
purposes of approximately $36,459,114, expiring at various dates from December
31, 2015 through December 31, 2023. A loss generated in a particular year will
expire for federal tax purposes if not utilized within twenty years. The
Internal Revenue Code contains provisions that would reduce or limit the
availability and utilization of this net operating loss carry forwards if
certain ownership changes have been or will be taking place. In accordance with
SFAS No. 109, a valuation allowance is provided when it is more likely than not
that all or some portion of the deferred tax asset will not be realized. Due to
the uncertainty with respect to the ultimate realization of the loss carry
forwards, the Company established a valuation allowance for the entire net
deferred income tax asset as of December 31, 2003.
F-12
MEDIAWORX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - PREFERRED STOCK
- ------------------------
The Company has authorized 4,000,000 shares at $.10 par value convertible
preferred stock. Shares of the Series A Preferred Stock are convertible at the
option of the holder on a one-for-five basis, subject to adjustment for
dilution, into shares of common stock. Each share of Series A Preferred Stock
will be automatically converted into common stock upon a sale or transfer of all
or substantially all of MediaWorx's assets for cash or securities, or a
statutory share exchange in which stockholders of MediaWorx may participate.
Each share of Series A Preferred Stock has voting rights equal to the voting
rights of the common stock on an as if converted basis. Upon any liquidation,
dissolution or winding up of MediaWorx, whether voluntary or involuntary, the
holders of record of shares of Series A Preferred Stock shall be entitled,
before any distribution or payment is made upon outstanding shares of common
stock, to be paid an amount equal to the Original Issue Price. If, upon such
liquidation, the assets to be distributed among the holders of Series A
Preferred Stock shall be insufficient to permit such payment, then the entire
assets of MediaWorx to be so distributed shall be distributed ratably among the
holders of Series A Preferred Stock.
On July 1, 2003, the Company issued 3,500,000 shares of preferred stock in
connection with the merger between its wholly owned subsidiary, MediaWorx
Company, LLC and Advanced Capital Services, LLC.
NOTE 4 - COMMON STOCK
- ---------------------
The Company has authorized 150,000,000 shares of $0.005 par value common stock.
On June 17, 2003, the Company issued 1,000,000 shares of common stock (10,000
shares after retroactive adjustment for the 100:1 stock split described below)
to a former officer in exchange for continued consulting for the Company. The
shares were valued at $.02 and the Company recorded $20,000 of consulting
expenses.
On June 23, 2003, the Board of Directors approved a proposal to effectuate a 100
to 1 reverse stock split of the Company's outstanding common shares with no
effect on the par value or on the number of authorized shares. As a result of
this action, the total number of outstanding shares of common stock is reduced
from 22,430,587 to 224,306 shares.
On June 30, 2003, the Company issued 800,000 shares of common stock to the Law
Offices of Henry S. Meyer under a legal services and consulting agreement
entered into February 1, 2003. The shares were valued at $.02 and the Company
recorded $16,000 of consulting expenses.
On July 1, 2003, the Company issued 4,000,000 shares of common stock in
connection with the merger between its wholly owned subsidiary, MediaWorx
Company, LLC and Advanced Capital Services, LLC.
F-13
MEDIAWORX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 - COMMON STOCK (continued)
- ---------------------------------
Between July 31, 2003 and December 31, 2003, the Company issued 1,794,953 shares
of common stock in connection with a regulation S offering. The shares were
issued from $.34 to $.40 per share.
During the first quarter ended March 31, 2004, the Company issued 914,481 shares
of common stock to various people in connection with a regulation S offering.
The shares were issued from $.34 to $.45 per share.
NOTE 5 - NOTES PAYABLE
- ----------------------
A note payable to SDA List Brokers, Inc. (SDA), in the amount of $940,939,
accrued interest at 9%, and was due in monthly payments of $6,200 beginning
March 1, 2000. On June 25, 2003, this note and the accrued interest totaling
$1,046,504 was settled by the Company in return for issuing a promissory note to
SDA in the amount of $25,000, with 2% interest per annum, and a warrant to
purchase up to 100,000 shares of common stock of the Company. If the warrant is
not exercised by the expiration date of June 25, 2004 then the Company shall pay
SDA $75,000. As a result of this transaction, debt forgiveness income in the
amount of $946,504 was recognized during the year ended December 31, 2003.
Equity Line of Credit
- ---------------------
In February 2004, the Company entered into an equity line of credit with Cornell
Capital Partners, L.P. Under the terms of the agreement, the Company may sell up
to $5,000,000 of its common stock. The sale price is 95% of the lowest closing
bid price for the five days immediately following the notice date. The Company
also gave Cornell Capital Partners an unsecured convertible debenture in the
amount of $240,000 as compensation, as well as 5% of any proceeds from the
equity line of credit.
Unsecured Convertible Debenture
- -------------------------------
During February, 2004 the Company issued an unsecured convertible debenture in
connection with the Equity Line of Credit. The $240,000 is due and payable, with
5% interest, three years from the date of issuance, unless sooner converted into
shares of common stock. The debenture is convertible, subject to a maximum cap
of $50,000 per day any time up to the maturity at a conversion price equal to
100% of the lowest closing bid price of the common stock for the three preceding
trading days. At maturity, the Company has the option to pay the principal
balance and accrued interest in cash or convert the debenture into common shares
at a price equal to 100% of the lowest closing bid price for the three prior
trading days.
F-14
MEDIAWORX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 - NOTES PAYABLE (Continued)
- ----------------------------------
As of March 31, 2004 and December 31, 2003 the following amounts are due:
March 31, December 31,
2004 2003
------------ ------------
Note Payable-Related Party
Note Payable, Interest at 2%, payable to shareholder
of Company upon request $ 275,000 $ 275,000
============ ============
Long-Term Note Payable
Convertible Debenture $ 240,000 $ -
Note Payable, Interest at 12%, Due May 2008 544,333 544,333
------------ ------------
Total Long-Term Note Payable $ 784,333 $ 544,333
============ ============
NOTE 6 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
The Company filed for reorganization under Chapter 11 of the US Bankruptcy Code
in Las Vegas, Nevada on August 26, 1998. Under Chapter 11, certain claims
against the Debtor in existence prior to the filing of the petitions for relief
under the Federal Bankruptcy Laws are stayed while the Debtor continues business
operations as Debtor-in-possession. These claims were reflected in the March 31,
1999 balance sheet as "liabilities subject to compromise". The bankruptcy plan
was approved June 29, 1999 and became effective on August 19, 1999. On February
15, 2000, the Bankruptcy Court in the District of Las Vegas approved the final
decree of the Company closing the Chapter 11 bankruptcy case of the Company.
The Company accounted for the reorganization using fresh-start reporting.
Accordingly, all assets and liabilities were restated to reflect their
reorganization value, which approximates fair value at the date of
reorganization.
NOTE 7 - GOING CONCERN
- ----------------------
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States, which
contemplates the Company as a going concern. However, the Company has sustained
substantial operating losses in recent years and has used substantial amounts of
working capital in its operations. Realization of a major portion of the assets
reflected on the accompanying balance sheet is dependent upon continued
operations of the Company, which, in turn, is dependent upon the Company's
ability to meet its financing requirements and succeed in its future operations.
Management believes that actions presently being taken to revise the Company's
operating and financial requirements provide them with the opportunity for the
Company to continue as a going concern.
F-15
MEDIAWORX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8 - MERGER
- ---------------
On July 1, 2003, the Company completed a reverse triangular merger ("the
Merger") whereby the Company acquired the assets a subsidiary of Solar Satellite
Communication, Inc. ("SSCI"), a print and cross-media marketing and management
company. The Merger involved Advanced Capital Services, LLC, a Nevada limited
liability company ("ACLLC"), MediaWorx Acquisition Company, LLC, a newly formed
Nevada limited liability company and wholly owned subsidiary of the Company
("MWAC"), and the Company.
ACLLC, owned by Diamond Capital LLC and Quest Capital Resources, LLC, purchased
the assets of The MediaWorx, Inc., a wholly owned subsidiary of Solar Satellite
Communication, Inc., a Colorado corporation, for 3,000,000 ACLLC membership
interests. The assets of SSCI were primarily the business plan and people
involved in the management and procurement of print, packaging, and cross-media
services.
On July 1, 2003, as part of the Merger, ACLLC was merged pursuant to Nevada law
into MWAC. As a consequence of the Merger, MWAC became the surviving entity and
continues to be a wholly owned subsidiary of the Company. A copy of the
associated Plan of Merger was filed with a Schedule 14C Information Statement on
July 1, 2003.
In the exchange, as described above, the original members of ACLLC received
4,000,000 of the Company's common shares and 3,500,000 preferred shares
convertible 1 to 5 into common shares with voting rights as if converted, i.e.,
17,500,000 common shares, and SSCI received 250,000 of the Company's shares. As
of December 31, 2003, the 250,000 common shares have not been issued to SSCI.
Additionally, ACLLC purchased a convertible promissory note held by Private
Investors Equity, LLC that was originated when SSCI received $500,000 from
Private Investors Equity, LLC. In lieu of exercising the default provisions,
ACLLC converted the Note and accrued interest into 27,216,650 SSCI common shares
and converted 250,000 Preferred C shares into shares with conversion rights of 1
to 40 into shares having conversion and voting rights of 1 to 360. These shares
were partially distributed to ACLLC and to the owners of ACLLC, Diamond Capital
LLC and Quest Capital Resources, LLC. As a result, MWAC now has 49% voting
control of SSCI and Diamond and Quest respectively each own 23% voting control
of SSCI. Furthermore as a result of this transaction, MWAC holds the note
payable of $500,000 and accrued interest due to Private Investors Equity, LLC.
The following table summarizes the estimated fair values of the assets acquired
and liabilities assumed at the date of acquisition. The allocation of the
purchase price is subject to refinement when the valuation of certain intangible
assets are adjusted.
F-16
MEDIAWORX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8 - MERGER (Continued)
- ---------------------------
2003
----------
Assets:
Investment in SSCI $1,191,333
==========
Liabilities:
Accrued expenses $ 46,333
Long Term Debt 775,000
----------
Total Liabilities 821,333
Equity:
Preferred Stock $ 350,000
Common Stock 20,000
----------
Total Equity 370,000
==========
Total Liabilities and Equity $1,191,333
==========
The results of operations for MWAC have been included in the consolidated
financial statements since the inception of MWAC. The aggregate purchase price
was 4,000,000 common shares valued at par value (4,000,000 x $.005) and
3,500,000 preferred shares valued at par value (3,500,000 x $.10). Total value
of $370,000.
The acquired intangible assets of $1,199,333 was assigned to research and
development assets that were written off at the date of acquisition in
accordance with FASB interpretation No. 4, Applicability of FASB Statement No. 2
to Business Combinations Accounted for by the Purchase Method. Those write-offs
are included in Other Expense - Write Down of Investment.
F-17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This quarterly report on Form 10-QSB/A and the information incorporated by
reference herein contain "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Such statements include, but are
not limited to, declarations regarding the intent, belief or current
expectations of the Company and its management, projected sales, gross margin
and net income figures, the availability of capital resources, and plans
concerning products and market acceptance. Forward-looking statements are
inherently subject to risks and uncertainties, many of which cannot be predicted
with accuracy and some of which may not even be anticipated. Future events and
actual results, financial and otherwise, could differ materially from those set
forth in or contemplated by the forward-looking statements herein and any
forward looking statements should be considered accordingly.
The following discussion should be read in conjunction with the Financial
Statements and notes thereto:
OVERVIEW
MediaWorx, Inc. is a media production and management agency. The Company manages
the production of all of a Customer's marketing and communication materials,
including printing, packaging, signage, direct mail, fulfillment, promotional
specialties, audio/video, digital asset management, multi-media and Web
publications. The Company provides consultative input to insure that concepts
are turned into practical solutions. As a single source solution partner, we
simplify the process for our Customers and seek "best fit" solutions. MediaWorx
is targeting commercial and other organizations with annual media expenditures
of $100,000 or more.
MediaWorx recognizes that print and media buying encompasses a strong
relationship aspect between the provider and the Customer. MediaWorx's business
model is built on providing the Company's sales representatives with the support
and leverage of a strong customer service culture, in-house pre-press
capabilities, e-business solutions, and a base of production partners that can
fulfill the complexity of any Customer order. The Company is a virtual
printing/cross-media publishing company- it neither owns nor has its capital
tied up in printing/multi-media equipment or facilities but works with an
established network of the most capable, technologically advanced printers and
production houses. MediaWorx's Customer's benefit by getting superior customer
service - an end-to-end, single source solution from design and pre-press, to
production by the most cost-effective and time efficient production house,
through distribution and digital asset management.
The Company's business strategy is three-fold:
o Concentrate on commercial printing, a $110 billion business in the United
States. This is still a highly fragmented industry with more than 58,000
entities providing printing services. MediaWorx has identified and
contracted with a network of select printers with specific capabilities,
equipment and technology that can be matched with specific printing jobs.
18
o Hire high volume Account Representatives and acquire Print Brokers with
existing "books" of business. Account Representatives/Brokers recognize the
following benefits of joining MediaWorx: increased sales productivity as
the Company takes on the administrative and client management functions
freeing them to sell more; additional product offerings resulting from the
expanded list of printers available; and additional customer support and
customer continuity. Most importantly these benefits result in increased
earning potential for the Account Representatives/Brokers, as well as the
opportunity to participate in the upside growth of a public company.
o Expand into other media. The processes from design through fulfillment are
similar for electronic media. It is a relatively simple extension for
MediaWorx to offer other media products and services, thus providing
significant benefits to Customers in the management and control of their
intangible assets such as trademarks, logos, and service marks.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2004 COMPARED TO THREE MONTHS ENDED MARCH 31, 2003
REVENUES AND GROSS PROFITS
The Company had sales of $73,142 in the first quarter and gross margin of
$17,760, 24.3% of sales. Sales were generated from 23 different customers. The
Company had no sales and no customers for the same period in 2003.
Consistent with the Company's business strategy to hire sales representative,
the Company hired three sales representatives at the end of March, bringing the
total number of sales representatives to 6.
The new sales representatives, the previous sales representatives filling their
pipeline, and a general improvement in overall business conditions has resulted
in an increase is sales activity in the 2nd quarter. April billings are $72,593
and as of May 10th, work in process is over $75,000.
OPERATING EXPENSES
Operating expenses for the three months ended March 31, 2004 were $307,034
compared to $2,627 for the same period in 2003.
Operating expenses increased from 2003 as a result of our beginning operations
in July 2003. In 2004, operating expenses included $99,158 for sales and
marketing expense, $22,449 for printing services (pre-press department), and
$206,427 for general and administrative costs.
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OTHER EXPENSES
Other expenses consisted of $16,202 in interest expense. This compared to
$12,426 in other expense for the same period in 2003, made up of $21,171 in
interest expense and $8,745 in other income.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a cash balance of $89,274. The Company will require additional
capital to continue operations. There is no assurance that capital will be
available.
The Company engaged an offshore licensed brokerage firm to raise on a best
efforts basis from $1.5 million to $3.0 million, depending on market price, for
11,000,000 of the Company's common stock. During the first quarter, the Company
completed a placement of 914,481 shares of common stock with investors located
outside of the United States in exchange for $309,521. The shares were offered
pursuant to an exemption from registration afforded by Regulation S to the
Securities Act of 1933. Shares sold pursuant to Regulation S are deemed
restricted and may not be sold to any U.S. Person (as that term is defined in
the Regulation) for a period of one (1) year from date of sale. Thereafter, the
shares will be subject to the restrictions of Rule 144.
In February 2004, the Company entered into an equity line of credit with Cornell
Capital Partners, L.P. Pursuant to the equity line of credit, the Company may,
at it's discretion, periodically sell to Cornell Capital Partners shares of
common stock for a total purchase price of up to $5,000,000. For each share of
common stock purchased under the equity line of credit, Cornell Capital Partners
will pay 95% of the bid price on the Over-the-Counter Bulletin Board or other
principal market on which our common stock is traded for the five days
immediately following the notice date. The bid price is defined as the closing
bid price, as reported by Bloomberg L.P., of the common stock on the principal
market or if the common stock is not traded on a principal market, the highest
reported bid price as furnished by the National Association of Securities
Dealers, Inc. Cornell Capital Partners may not own more than 9.9% of our
outstanding common stock at any time. Although Cornell Capital Partners can
repeatedly acquire and sell shares, the 9.9% limitation may hinder or delay our
ability to draw down additional advances if such advance would cause Cornell
Capital Partners to own more than 9.9% of the Company's common stock. Cornell
Capital Partners is a private limited partnership whose business operations are
conducted through its general partner, Yorkville Advisors, LLC. The Company also
gave Cornell Capital Partners a compensation debenture in the amount of $240,000
upon execution of the equity line of credit. Further, the Company has agreed to
pay Cornell Capital Partners, L.P. 5% of the proceeds that we receive under the
Equity Line of Credit. In addition, the Company engaged Newbridge Securities
Corporation, a registered broker-dealer, to advise the Company in connection
with the equity line of credit. For its services, Newbridge Securities
Corporation received 4,762 shares of our common stock.
In order to continue to facilitate the Company's capital requirements, in
agreement with Private Investors' Equity, LLC, the interest payments for the
months August 2003 through August 2004 will be capitalized. The new principal
balance will be approximately $612,000. Private Investor's Equity will be
granted 200,000 warrants in consideration for this extension.
20
INFLATION AND REGULATION
The Company's operations have not been, and in the near term are not expected to
be, materially affected by inflation or changing prices. The Company encounters
competition from a variety of firms offering similar products in its market
area. Many of these firms have long-standing customer relationships and are well
staffed and well financed. The Company believes that competition in the industry
is based on competitive pricing, although the ability, reputation and technical
support of a concern is also significant. The Company does not believe that any
recently enacted or presently pending proposed legislation will have a material
adverse effect on its results of operations.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company may become involved in various lawsuits and legal
proceedings which arise in the ordinary course of business. However, litigation
is subject to inherent uncertainties, and an adverse result in these or other
matters may arise from time to time that may harm our business. Currently the
Company is not aware of any such legal proceedings or claims that we believe
will have, individually or in the aggregate, a material adverse affect on the
business, financial condition or operating results.
ITEM 2. CHANGES IN SECURITIES
During the first quarter of 2004, the Company completed a placement of 914, 481
shares of common stock with investors located outside of the United States in
exchange for $309,521. The shares were offered pursuant to an exemption from
registration afforded by Regulation S to the Securities Act of 1933. Shares sold
pursuant to Regulation S are deemed restricted and may not be sold to any U.S.
Person (as that term is defined in the Regulation) for a period of one (1) year
from date of sale. Thereafter, the shares will be subject to the restrictions of
Rule 144.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION
None.
21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
Exhibit 32.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
Form 8-K: None
22
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MEDIAWORX, INC.
(Registrant)
DATE: August 25, 2004 By: /s/ LINDA A. BROENNIMAN
--------------------------------------------
Linda A. Broenniman
Chief Executive Officer and Director
(Principal Executive and Financial Officer)
23
EXHIBIT 31.1
SECTION 302 CERTIFICATIONS
I, Linda Broenniman, certify that:
1. I have reviewed this quarterly report on form 10-QSB of MediaWorx,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
exchange act rules 13a-14 and 15d-14 for the registrant and have:
a) designed such disclosure controls and proceduresto ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
control which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
24
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls.
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of my most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: August 25, 2004
/s/ Linda Broenniman
- --------------------------------------------
Linda Broenniman
Chief Executive Officer and Director
(Principal Executive and Financial Officer)
25
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of MediaWorx, Inc. on Form
10-QSB for the period ending September 30, 2003, as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Linda Broenniman,
Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that, to the best of my knowledge and belief:
(1) the Report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and result of
operations of the Company.
/s/ Linda Broenniman
- ----------------------------------------------
Linda Broenniman
Chief Executive Officer and Director
(Principal Executive and Financial Officer)
August 25, 2004
A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
has been provided to the Company and will be retained by the Company and
furnished to the Securities and Exchange Commission or its staff upon request.
26