Friday, August 19, 2005 3:04:14 PM
MMXT- Earnings out!
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(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, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ________
Commission file number 0-29049
MEDIAMAX TECHNOLOGY CORPORATION (FKA QUIET TIGER, INC.)
--------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 77-0140428
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
668 N. 44th Street, Suite 233, Phoenix, Arizona 85008
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(Address of principal executive offices (zip code))
(602) 267-3800
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the last 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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at June 30, 2005
------------------------------ -----------------------------
Common Stock, par value $0.001 182,794,325
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1
MEDIAMAX TECHNOLOGY CORPORATION (FKA QUIET TIGER, INC.)
INDEX TO FORM 10-QSB
PART I. FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Consolidated Balance Sheet as of June 30, 2005 (unaudited).......... 3
Consolidated Statements of Operation for the three
months ended June 30, 2005 and 2004 and the six
months ended June 30, 2005 and 2004 (unaudited).................. 4
Consolidated Statements of Changes in Stockholders'
Equity for the six months ended June 30, 2005 and
2004 (unaudited)................................................. 5
Consolidated Statements of Cash Flow for the three
months ended June 30, 2005 and 2004 and the six
months ended June 30, 2005 and 2004 (unaudited).................. 6
Notes to Consolidated Financial Statements for the
three months ended June 30, 2005 and 2004 and the
six months ended June 30, 2005 and 2004.......................... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ....................................... 16
Item 3. Controls and Procedures ............................................ 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .................................................. 24
Item 2. Changes in Securities .............................................. 24
Item 3. Defaults Upon Senior Securities .................................... 24
Item 4. Submissions of Matters to a Vote of Security Holders ............... 24
Item 5. Other Information .................................................. 24
Item 6. Exhibits and Reports on Form 8-K ................................... 24
Signatures ................................................................. 24
2
MEDIAMAX TECHNOLOGY CORPORATION
FKA QUIET TIGER INC.
CONSOLIDATED BALANCE SHEET
UNAUDITED
At June 30, 2005
ASSETS
CURRENT ASSETS:
Cash $ 1,072
Deferred reorganization costs 72,915
Advances to affiliate 10,275
------------
Total current assets 84,262
OTHER ASSETS:
Furniture and equipment, net 5,824
Finance fee 250,000
Investments 100,000
Exclusive marketing agreement, net 1,521,645
Deposits 11,129
------------
Total assets $ 1,972,860
============
LIABILITIES
CURRENT
Accounts payable $ 465,273
------------
Total current liabilities 465,273
Note payable 150,000
------------
615,273
------------
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value, 0
50,000,000 shares authorized, none issued
Common stock, $.001 par value, 350,000,000 shares 182,794
authorized, 182,794,325 issued and outstanding
Additional paid-in capital 11,448,522
Additional paid-in capital stock options 100,500
Accumulated (deficit) (10,374,229)
------------
Total stockholders' equity 1,357,587
------------
Total liabilities and stockholders' equity $ 1,972,860
============
See accompanying notes to these unaudited consolidated financial statements.
3
MEDIAMAX TECHNOLOGY CORPORATION
FKA QUIET TIGER INC.
CONSOLIDATED STATEMENTS OF OPERATION
UNAUDITED
Three months ended Six months ended
June 30, June 30,
2005 2004 2005 2004
------------- ------------- ------------- -------------
REVENUES
Licensing revenue $ 85,652 $ 30,064 $ 99,438 $ 45,037
------------- ------------- ------------- -------------
Total Revenue 85,652 30,064 99,438 45,037
OPERATIING EXPENSES
General and administrative 160,544 233,427 303,272 371,737
Sales & marketing 44,461 70,395 247,741 76,505
Consulting 11,600 1,250 33,100 291,330
Legal & accounting 67,449 27,199 112,526 27,199
Interest expense 2,244 0 4,581 0
Amortization and depreciation 101,821 101,821 203,642 101,821
------------- ------------- ------------- -------------
Total Operating Expenses 388,119 434,092 904,862 868,592
Net (Loss) ($ 302,467) ($ 404,028) ($ 805,424) ($ 823,555)
============= ============= ============= =============
(LOSS) INCOME PER SHARE:
Basic and diluted (loss) per share ($ 0.00) ($ 0.00) ($ 0.00) ($ 0.01)
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic and diluted 182,794,325 171,108,045 182,647,916 132,712,769
============= ============= ============= =============
See accompanying notes to these unaudited consolidated financial statements.
4
MEDIAMAX TECHNOLOGY CORPORATION (FKA QUIET TIGER, INC.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
UNAUDITED
Paid-In Stock Subscriptions Deferred Accumulated
Shares Amount Capital Options Receivable Compensation (Deficit) Total
------------ --------- ----------- ---------- ---------- ------------ ------------ -----------
Balance at December 31, 2003 55,432,778 $ 55,433 $ 7,408,951 $ 100,500 $ 0 $ 0 ($ 8,028,064) ($ 463,180)
Shares issued in private placement
for cash 17,690,476 17,690 612,310 630,000
Shares issued for debt 17,337,738 17,337 510,095 527,432
Shares issued for exclusive marketing
agreement 64,000,000 64,000 1,856,000 1,920,000
Shares issued for services 21,050,000 21,050 612,950 (165,000) 469,000
Net (Loss) for the six months ended
June 30, 2004 (823,555) (823,555)
------------ --------- ----------- ---------- ---------- ------------ ------------ -----------
Balance at June 30, 2004 175,510,992 175,510 11,000,306 100,500 0 (165,000) (8,851,619) 2,259,697
============ ========= =========== ========== ========== ============ ============ ===========
Balance at December 31, 2004 181,894,325 $ 181,894 $11,413,922 $ 100,500 $ 0 $ 0 ($ 9,568,805) $2,127,511
Shares issued for services 500,000 500 21,000 21,500
Shares issued for payables 400,000 400 13,600 14,000
Net (Loss) for the six months ended
June 30, 2005 (805,424) (805,424)
------------ --------- ----------- ---------- ---------- ------------ ------------ -----------
Balance at June 30, 2005 182,794,325 $ 182,794 $11,448,522 $ 100,500 $ 0 $ 0 ($10,374,229) $1,357,587
============ ========= =========== ========== ========== ============ ============ ===========
See accompanying notes to these unaudited consolidated financial statements.
5
MEDIAMAX TECHNOLOGY CORPORATION (FKA QUIET TIGER, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
Three months ended Six months ended
June 30, June 30,
2005 2004 2005 2004
-------------- -------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) for the period (302,467) (404,028) (805,424) (823,555)
Adjustments to reconcile net
cash used by operations:
Amortization and depreciation expense 101,821 101,821 203,642 101,821
Common stock issued for services 0 86,500 35,500 439,000
Common stock issued for payables 0 11,681 0 11,681
Changes in assets and liabilities:
(Increase)/decrease in receivable from affiliates 169,889 (39,663) 253,706 (183,097)
(Increase)/decrease in deferred reorganization costs (6,847) 0 (72,915) 0
(Increase)/decrease in prepaid expenses 0 0 0 0
(Increase)/decrease in deposits 0 (479) 0 (479)
Increase/(decrease) in accounts payable 33,690 (6,660) 281,142 27,309
Increase/(decrease) in payable to affiliates 0 76,766 0 67,148
Increase/(decrease) in accrued interest 2,244 0 4,581 0
----------- ----------- ----------- -----------
Net cash (used) by operating activities (1,670) (174,062) (99,768) (360,172)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for equipment 0 0 0 (7,714)
Investment in DarkNoise Technologies 0 (20,000) 0 (70,000)
Cash payment on assumed debt under exclusive marketing agreement 0 0 0 (25,000)
----------- ----------- ----------- -----------
Net cash (used) in investing activities 0 (20,000) 0 (102,714)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock 0 300,000 100,000 630,000
Proceeds from sale of debenture 0 0 0 0
----------- ----------- ----------- -----------
Net cash (used) in financing activities 0 300,000 100,000 630,000
----------- ----------- ----------- -----------
Net Increase (decrease) in cash (1,670) 105,938 232 167,114
Cash at beginning of period 2,742 62,016 840 840
----------- ----------- ----------- -----------
Cash at end of period 1,072 167,954 1,072 167,954
=========== =========== =========== ===========
Interest expense $ 2,244 $ 0 $ 4,581 $ 0
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Issuance of 64,000,000 common shares and assumption of $ 0 $ 0 $ 0 $ 2,028,860
$108,860 of debt for and exclusive marketing agreement with
SunnComm International Inc.
Issuance of common shares for unearned services $ 0 $ 82,500 $ 0 $ 165,000
Payment of debenture and accrued interest for 886,073 $ 0 $ 0 $ 0 $ 26,582
common shares
Payment of debt to affiliates for 16,305,653 common shares $ 0 $ 0 $ 0 $ 489,169
Issuance of 1,000,000 shares for consulting fees pertaining $ 0 $ 0 $ 0 $ 30,000
to acquisitions
See accompanying notes to these unaudited consolidated financial statements.
6
MEDIAMAX TECHNOLOGY CORPORATION
(FKA QUIET TIGER, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 2005
The unaudited financial statements included herein were prepared from the
records of the Company in accordance with Generally Accepted Accounting
Principles. These financial statements reflect all adjustments which are, in the
opinion of management, necessary to provide a fair statement of the results of
operations and financial position for the interim periods. Such financial
statements generally conform to the presentation reflected in the Company's
Forms 10-QSB and 10-KSB filed with the Securities and Exchange Commission for
the year ended December 31, 2004. The current interim period reported herein
should be read in conjunction with the Company's Form 10-KSB subject to
independent audit at the end of the year.
On March 1, 2005, the Company filed a Definitive Schedule 14C with the
Securities and Exchange Commission stating that the holders of a majority of the
outstanding shares of the Company's common stock took action by written consent
changing the name of the company from Quiet Tiger Inc. to MediaMax Technology
Corporation.
On March 18, 2005, the Company received all the required signatures from
DarkNoise Technologies Ltd., "DarkNoise", pertaining to an Intellectual Property
Transfer Agreement whereby DarkNoise will transfer patent applications and
related documentation, technology demonstrators and prototypes to the Company.
On June 11, 2005, the Company entered into an Agreement and Plan of Merger (the
"Agreement") with SunnComm International, Inc. ("SunnComm"). The Agreement
provides for the Company to acquire SunnComm in a reverse merger and supersedes
the non-binding letter of intent previously agreed to by both companies on March
30, 2005.
The Agreement provides for the issuance of the Company's common shares in
exchange for all of the outstanding common shares of SunnComm on a one-for-one
basis. The consummation of the merger is subject to the issuance of a fairness
opinion from an independent valuation expert. Additional conditions to the
consummation of the merger include, but are not limited to, audited financial
statements, the registration with the SEC of the Company's shares to be issued
in the transaction and shareholder approval of the merger by a majority of the
shareholders of both companies.
The Agreement provides for the directors of SunnComm to become board members of
the Company and for SunnComm's president, Peter H. Jacobs, to serve as the Chief
Executive Officer. It also provides for an amendment to the existing exclusive
marketing agreement with SunnComm whereby any defaults on the part of the
Company are waived by SunnComm through July 31, 2005, and the earliest that
SunnComm can exercise any right of termination due to any default by the Company
is March 31, 2006.
On June 30, 2005 the Company filed its third post effective amendment to a
registration statement originally filed on June 29, 2004 with the Securities and
Exchange Commission which registered 96,290,414 common shares owned by SunnComm
International, Inc. The registration statement allows SunnComm International
Inc. to sell the registered shares in accordance with the plan of distribution
described in the registration statement.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
GOING CONCERN AND OPERATIONS
The accompanying consolidated financial statements have been prepared on the
basis of accounting principles applicable to a going concern, which contemplates
the realization of assets and extinguishment of liabilities in the normal course
of business.
At June 30, 2005, the Company had negative working capital of $381,011 which is
not sufficient working capital to fund its planned operations during the next
twelve months.
Additional funding will be required to maintain its Exclusive Marketing
Agreement for MediaMax with SunnComm International Inc. and to finance general
and administrative expenses. These circumstances raise substantial doubt about
the Company's ability to continue as a going concern. In order to meet the
Company's continuing financing needs, management of the Company intends to raise
working capital through the sale of its disk manufacturing equipment, common
stock or other securities, and ultimately achieving profitable operations.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RESTATEMENT OF SHARE AMOUNTS
On December 24, 2001, the Company effected a share consolidation of one new
common share for each fifteen pre-consolidated shares.
All of the common authorized and issued shares were affected by the
consolidation of December 24, 2001 and forward stock split of June 28, 2002. All
share amounts in this entire report are stated post reverse of December 24, 2001
and post forward stock split of June 28, 2002 unless otherwise indicated. The
Company has restated the prior periods to reflect this share consolidation to
January 1, 1997.
On June 28, 2002, the Company effected a forward stock split of 9.3563 shares
for 1 share.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiary. All intercompany accounts and transactions were eliminated.
INTANGIBLE ASSETS
The Company periodically evaluates the recoverability of intangible assets and
takes into account events or circumstances that warrant revised estimates of
useful lives or that indicate that impairment exists. The Company's intangible
assets will be subject to amortization when put into productive use.
LONG-LIVED ASSETS
On January 1, 2002, the Company has adopted SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" which requires that long-lived
assets to be held and used be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable.
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
The Company evaluates its long-lived assets for impairment whenever changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future undiscounted cash flows
expected to be generated by the asset. If assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the carrying
amounts exceed the fair values of the assets. Assets to be disposed of are
reported at the lower of carrying values or fair values, less costs of disposal.
SHARE BASED COMPENSATION
SFAS No. 123" Accounting for Stock-Based Compensation" defines fair value based
methods of accounting for an employee stock option or similar equity instrument.
This statement gives entities a choice of recognizing related compensation
expense by adopting the new fair value method or to continue to measure
compensation using the intrinsic value approach under Accounting Principles
Board (APB) Opinion No. 25. The Company has elected to utilize APB No. 25 for
measurement; and will, pursuant to SFAS No. 123, disclose supplementally the pro
forma effects on net income and earnings per share of using the new measurement
criteria.
During the second quarter of 2004 the Company issued options to purchase 83,333
common shares at $.20 per share and options to purchase 62,375 common shares at
$.56 were cancelled. During the third quarter of 2004, the Company issued
options to purchase 83,333 common shares at $.20 per share. Also during the
third quarter, the Company issued warrants to purchase 900,000 common shares at
strike prices from $.25 to $5.00 per share with expiration dates ranging from
June 30, 2006 to September 30, 2006. During the fourth quarter the Company
issued options to purchase 83,333 common shares at $.20 per share. Also during
the fourth quarter, the Company issued a $50,000 debenture convertible into
2,000,000 shares of common stock.
During the first quarter of 2005 the Company issued options to purchase 83,333
common shares at $.20 per share to an employee. Also during the first quarter of
2005 two convertible promissory notes were issued for $100,000 convertible into
4,000,000 common shares at $.025 per share.
During the second quarter of 2005 the Company issued options to purchase 83,333
common shares at $.20 per share to an employee.
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
Common stock equivalents outstanding at June 30 were as follows:
------------------------------------------------------
2005 2004
# of Avg. Exercise # of Avg. Exercise
common price per common price per
shares share shares share
Outstanding stock options
convertible into common stock
Options Outstanding (1) 460,329 $0.234 126,996 $0.320
Outstanding warrants
convertible into common stock
Warrants Outstanding (2) 900,000 $0.920 0 $0.000
Outstanding Notes
convertible into common stock
Convertible Notes 6,000,000 $0.025 0 $0.000
Outstanding (3)
(1) All options issued and outstanding expire on October 30, 2007.
(2) A total of 500,000 issued and outstanding warrants at a strike price at
$.25 per share expire on June 30, 2006. A total of 400,000 issued and
outstanding warrants at a weighted average strike price of $1.75 per share
ranging from $.25 per share to $5.00 per share all expire on September 30,
2006.
(3) Three debentures totaling $150,000 are convertible at $.025 per share into
6,000,000 common shares at the option of the Holder and all expire on
December 31, 2006. Accrued interest at June 30, 2005 of $4,748 is also
convertible into 189,917 shares of common stock at $.025 per share at the
option of the Holder.
EQUIPMENT
The floppy disk burnishing equipment was originally stated at cost and
subsequently fully impaired to reflect its fair value. The equipment is held for
sale. A modified units of production method, that was based upon units produced
subject to a certain minimum level, was used to depreciate substantially all
disk manufacturing equipment. The straight line method is used for all other
equipment. The estimated depreciable lives range from 3 to 5 years for
machinery, equipment and fixtures.
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
INCOME TAXES
The Company has adopted the provisions of SFAS No. 109, "Accounting for Income
Taxes". SFAS 109 requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of events that have been included in the
consolidated financial statements or tax returns. Under this method, deferred
tax liabilities and assets are determined based on the difference between the
financial statement and tax basis of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
REVENUE RECOGNITION
The Company recognizes licensing revenue during the period the implementation of
its copy management program is placed on a CD or DVD by the customer. This event
typically occurs at the manufacturing stage of the CD or DVD. The Company relies
on unit production reports from its customers as its basis for revenue
recognition. No future performance obligation exists once the copy management
program is delivered by the Company.
(LOSS) PER COMMON SHARE
(Loss) per common share is computed based on the weighted average number of
common shares outstanding during each period. Convertible debt and equity
instruments such as debentures and stock options are not considered in the
calculation of net loss per share, as their inclusion would be antidilutive.
EQUIPMENT HELD FOR SALE
On January 8, 2001, the Company acquired plant, equipment and other assets,
including specialized manufacturing equipment, manufacturing set-ups, real
estate lease, fixtures and related equipment and other property with an
estimated fair value of approximately $4.0 million. In consideration for the
acquisition of the assets, the Company issued 12,007,258 shares of its
restricted common stock to the sellers. In determining the amount of the
Company's consideration for the assets, the parties estimated the present fair
market value of all such assets to be equivalent to approximately $.32 per share
issued.
The equipment has been fully impaired and is currently idle in a storage
facility waiting to be sold.
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
DEFERRED REORGANIZATION COSTS
On June 11, 2005, the Company entered into an Agreement and Plan of Merger (the
"Agreement") with SunnComm International, Inc. ("SunnComm"). The Agreement
provides for the Company to acquire SunnComm in a reverse merger and supersedes
the non-binding letter of intent previously agreed to by both companies on March
30, 2005. The Company has incurred $72,915 of costs pertaining to the Agreement
to acquire all of the outstanding common shares of SunnComm International Inc.
on a proposed 1 for 1 exchange ratio subject to certain conditions.
The Company anticipates incurring additional expenses prior to the successful
acquisition of all of the outstanding common shares of SunnComm whereupon all
costs incurred would be reclassified as a reorganization expense to shareholders
equity. In the event that the Company is not successful it will expense all
deferred reorganization costs within the period that the determination was made.
INTANGIBLES
On January 28, 2004 the Company entered into a binding Memorandum of
Understanding, "MOU", with DarkNoise Technologies Limited, a United Kingdom
company, "DarkNoise" which was changed by a definitive agreement on March 18,
2005.
The Company advanced $50,000 in cash to DarkNoise during the first quarter of
2004 under the original terms of the MOU. Also during the first quarter the
Company paid a consultant 1,000,000 restricted common shares at a deemed value
of $.03 per share to evaluate the transaction. During the second quarter of
2004, the Company advanced an additional $20,000 in cash.
The definitive agreement provided the Company with all of the Intellectual
Property patent applications and related documentation, technology demonstrators
and prototypes of Darknoise. The Company plans to engage SunnComm International,
Inc., "SunnComm", and an institutional leader in the development of audio
processing and music engineering technologies to further develop the
intellectual property so that it can be integrated with SunnComm's MediaMax
technology.
Once developed and integrated, the Agreement requires the Company to undertake
sales and marketing of the product. DarkNoise will receive a 25% royalty on the
incremental net revenues generated by the inclusion of the technology with the
product or products being marketed by the Company at that time.
FINANCING FEE
On September 23, 2004, the Company issued 3,333,333 restricted common shares
valued at $250,000 to the Double U Master Fund, L.P. as a commitment fee for a
Private Equity Credit Agreement which would enable the Company to raise up to
$5,000,000 through the sale of its common stock. The commitment fee will be
amortized over the two year life of the Agreement which will begin upon its
registration with the Securities and Exchange Commission. The Company has not
set a date for the registration of the Agreement.
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
EXCLUSIVE MARKETING AGREEMENT
On June 11, 2005 the Exclusive Marketing Agreement, "Marketing Agreement", was
amended as part of the Definitive Agreement for the Company to acquire SunnComm
in a reverse merger. The agreement prohibited SunnComm to terminate the
Marketing Agreement prior to March 31, 2006 and relieved the Company from its
obligation to advance cash to SunnComm for advance royalty payments until July
31, 2005. All the other terms of the original Marketing Agreement remained the
same.
On March 4, 2004 the written consent, of a majority of disinterested outstanding
common share holders of record at February 4, 2004 of the Company, became
effective to approve the issuance of 10,152,704 restricted common shares valued
by the Company at $.03 per share to SunnComm Technologies, Inc., "SunnComm", for
$304,581 of debt incurred for cash advances and administrative and overhead
expenses charged to the Company and to approve the issuance of 64,000,000
restricted common shares valued by the Company at $.03 per share for a total
consideration of $1,920,000 to SunnComm and the assumption of a $110,000
outstanding debt due to a consultant for an Exclusive Marketing Agreement with
its commercial copy protection technology on CD's and all of its continuing
upgrades. The Agreement provides the Company with 40% of the revenues derived
from all existing licensing agreements held by SunnComm and future revenue
generating agreements for the technology. When annual gross revenues of $3.6
million are achieved, the Company will receive 50% of the licensing revenues.
The agreement also requires the Company to advance $138,000 a month against
future royalties and an additional $12,000 for services being provided by
SunnComm. The Exclusive Marketing Agreement gives the Company the exclusive
marketing rights for SunnComm's optical media enhancement and control
technologies. Under the terms of the Exclusive Marketing Agreement, the Company
must pay for all of its sales and marketing costs and SunnComm must pay for all
of its development and upgrade costs. SunnComm also agreed to indemnify the
Company against consumer complaints and product related litigation.
ACCOUNTS PAYABLE
The Company's accounts payable are comprised of vendors that it deals with on a
month to month basis. Included in accounts payable is a liability of $283,860 to
an entertainment consultant for marketing services.
CONVERTIBLE NOTES
The Company has three convertible promissory notes outstanding to the same
holder for a total of $150,000 at 8% per annum. All accrued interest and
principal on all three notes are due and payable in one balloon payment in full
on December 31, 2006. Accrued interest at June 30, 2005 on all notes was $4,748.
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
COMMITMENTS AND CONTINGENCIES
Operating Lease
The Company leases office space pursuant to a non-cancelable operating lease
agreement. Future minimum lease payments pursuant to the lease as of June 30,
2005 were as follows:
2005 24,133
2006 7,100
--------
$31,233
========
Rent expense was $23,982 for the six months ended June 30, 2005.
Exclusive Marketing Agreement
On June 11, 2005 the Company entered into an Amended Exclusive Marketing
Agreement with SunnComm to market its commercial copy protection technology on
CD's and all of its continuing upgrades. The exclusivity lasts as long as the
Company is current in its payments and will continue in perpetuity. The
Agreement provides the Company with approximately 50% of the revenues derived
from all existing licensing agreements held by SunnComm for the technology and
after July 31, 2005 it requires the Company to advance $138,000 a month against
future royalties and an additional $12,000 for services being provided by
SunnComm. The Exclusive Marketing Agreement gives the Company the exclusive
marketing rights for SunnComm's optical media enhancement and control
technologies. Under the terms of the Exclusive Marketing Agreement, the Company
must pay for all of its sales and marketing costs and SunnComm must pay for all
of its development and upgrade costs.
DarkNoise Development and Royalty Agreements
On March 18, 2005, the Company reached a definitive agreement with DarkNoise to
transfer only intellectual property and select equipment including inventions,
pending patents, research and development and property relating to current joint
development initiatives as consideration for the $70,000 previously advanced.
The Company plans to further develop the technology in order to ensure
effectiveness and compatibility with SunnComm's MediaMax technology. The Company
intends to share the research and development to date and the intellectual
property with SunnComm and one of its strategic technology partners in the
academic community, which specializes in audio processing and music engineering.
It is anticipated that this methodology could yield substantial incremental
levels of protection within SunnComm's MediaMax technology.
Once developed and integrated, the Agreement requires the Company to undertake
sales and marketing of the product. DarkNoise will receive a 25% royalty on the
incremental net revenues generated by the inclusion of the technology with the
product or products being marketed by the Company at that time.
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
Consulting Agreements
On January 7, 2005 the Company contracted with Edgecombe Consulting, LLC,
"Edgecombe", for consulting services pertaining to a potential merger with
SunnComm International, Inc. and to seek potential joint venture partners. The
agreement provides for Edgecombe to receive a total of 1,400,000 restricted
common shares at the rate of 350,000 restricted common shares at the end of each
quarter until December 31, 2005. The Company owed Edgecombe 700,000 restricted
common shares at June 30, 2005.
On April 15, 2005, the Company signed an agreement with a broker dealer to raise
approximately $5 million for the Company by July 31, 2005 and to provide
advisory services pertaining to the proposed acquisition of SunnComm. The
agreement expired on July 31, 2005. During the term of the agreement, the
Company made payments totaling $30,000 for an Advisory Fee and unaccountable
expenses.
STOCKHOLDERS' EQUITY
During the first quarter of 2005, the Company issued a total of 900,000 common
shares at a fair value of $35,500 under its 2004 Employee and Consultants Stock
Compensation Plan to an individual for legal and consulting services.
The Company did not issue any shares during the second quarter of 2005.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, INCLUDING, WITHOUT LIMITATION,
STATEMENTS REGARDING THE COMPANY'S EXPECTATIONS, BELIEFS, INTENTIONS OR FUTURE
STRATEGIES THAT ARE SIGNIFIED BY THE WORDS "EXPECTS", "ANTICIPATES", "INTENDS",
"BELIEVES", OR SIMILAR LANGUAGE. SUCH FORWARD-LOOKING STATEMENTS INCLUDE, BUT
ARE NOT LIMITED TO, THE SEEKING OF REVENUE PRODUCING ACQUISITIONS, THE
DEVELOPMENT PLANS FOR THE TECHNOLOGIES OF THE COMPANY, TRENDS IN THE RESULTS OF
THE COMPANY'S DEVELOPMENT, ANTICIPATED DEVELOPMENT PLANS, OPERATING EXPENSES AND
THE COMPANY'S ANTICIPATED CAPITAL REQUIREMENTS AND CAPITAL RESOURCES. THESE
FORWARD-LOOKING STATEMENTS INVOLVE RISKS, UNCERTAINTIES AND OTHER FACTORS. ALL
FORWARD-LOOKING STATEMENTS INCLUDED IN THIS DOCUMENT ARE BASED ON INFORMATION
AVAILABLE TO THE COMPANY ON THE DATE HEREOF AND SPEAK ONLY AS OF THE DATE
HEREOF. THE FACTORS DISCUSSED BELOW UNDER "FORWARD-LOOKING STATEMENTS" AND
ELSEWHERE IN THIS QUARTERLY REPORT ON FORM 10-KSB ARE AMONG THOSE FACTORS THAT
IN SOME CASES HAVE AFFECTED THE COMPANY'S RESULTS AND COULD CAUSE THE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS. IN ADDITION, THE FOLLOWING DISCUSSION IS INTENDED TO PROVIDE AN
ANALYSIS OF THE COMPANY'S FINANCIAL CONDITION AND PLAN OF OPERATION AND SHOULD
BE READ IN CONJUNCTION WITH THE COMPANY'S FINANCIAL STATEMENTS AND THE NOTES
THERETO.
General:
On February 20, 2003, the Company changed its name from Fan Energy Inc. to Quiet
Tiger, Inc. On April 1, 2005, the Company changed its name from Quiet Tiger,
Inc. to MediaMax Technology Corporation.
On December 24, 2001, the Company effected a share consolidation of one new
common share for each fifteen pre-consolidated shares.
On June 28, 2002, the Company effected a forward stock split of 9.3563 shares
for 1 share.
All of the common authorized and issued shares were affected by the
consolidation of December 24, 2001 and forward stock split of June 28, 2002. All
share amounts in this Form 10-KSB for the year ended December 31, 2003 have been
adjusted to include the post reverse of December 24, 2001 and post forward stock
split of June 28, 2002 unless otherwise indicated.
Originally formed as an Idaho corporation in the early 1900s, the Company's
predecessor was not successful in the exploration of mining properties. In 1988
the predecessor was merged into a newly-formed Nevada corporation as Eastern
Star Mining, Inc. and it was inactive thereafter, with no assets or liabilities
through the end of 1996. In early 1997 the corporation was reactivated when the
holder of a majority of the outstanding common stock transferred control of the
inactive corporation. The transferee elected new directors and officers and
caused the Company to effect a 10-into-1 reverse stock split. Thereafter, the
Company raised capital through the sale of its securities and acquired an
interest in oil and gas properties for cash and common stock.
The name of the corporation was changed to Fan Energy Inc. in December 1997. The
Company conducted no business activities until 1998 when it participated in
drilling oil and gas wells. In 1999 the Company received its first revenue from
the production from the wells in which it owned an interest. During the year
2000, the Company continued operating as an independent energy company engaged
in the exploration and acquisition of crude oil and natural gas reserves. On
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued
December 1, 2001, the Company sold all of its oil and gas interests to a
director for 236,331 shares of its own restricted common stock at a deemed value
of $75,777 and discontinued its oil and gas exploration business.
On January 8, 2001, the Company acquired plant, equipment and other assets,
including specialized manufacturing equipment, manufacturing set-ups, real
estate lease, fixtures and related equipment and other property with an
estimated fair value of at least $3.8 million from four independent sellers. In
consideration for the acquisition of the assets, the Company issued 12,007,252
shares of its restricted common stock to the sellers. The equipment valuation
was determined by a discounted cash flow of projected operating income using a
maximum cost of funds of 20% per annum. This was further supported by an
independent expert's valuation opinion of the replacement value of the
equipment. In determining the amount of Company's consideration for the assets,
the parties estimated the present fair market value of all such assets to be
equivalent to approximately $.32 per share issued. Also on January 8, 2001, the
Company sold 2,027,198 shares of restricted common stock to one of the sellers
for $650,000, of which $600,000 was paid by the secured note. The assets
acquired by the Company constituted plant, equipment and other physical property
intended to be used in the manufacture of 3.5 inch micro floppy disks. None of
the assets were previously used in such a business by the sellers.
On May 3, 2002, the Company acquired from Project 1000 Inc. "P1", a wholly owned
subsidiary of SunnComm International, Inc., "Digital Content Cloaking
Technology(TM)", known as MediaCloQ or MediaMaker ("P1 Technology"), which is a
Set of methodologies that are designed to work together to thwart illegal
copying or ripping of optical media that complies to IEC 90608 Redbook
standards. Each of the methodologies used is meant to work toward defeating the
various software products currently available on the market today that are used
for the purpose of making illegal copies of CDs or of individual audio tracks.
The Assets include, but are not limited to, P1's proprietary property which
includes all English and foreign language, all commercial and non-commercial,
and all present and future versions thereof, and all required and/or relevant P1
Documentation, Intellectual Property Rights and other proprietary rights
therein, and derivatives thereof that is required and/or relevant to the
development of current and future versions. The Company issued 23,837,710
restricted common shares to P1 for the P1 Technology resulting in a change of
control of the Company. The P1 Technology was recorded by the Company at P1's
cost.
At December 31, 2003 the Company believed that MediaCloQ was not marketable at
its state of development and impaired its entire carrying value of $674,629
which represented the cost basis of SunnComm International Inc. when it sold the
technology to the Company on May 3, 2002. The Company incurred consulting and
general and administrative expenses of $128,750 pertaining to the abandonment of
MediaCloQ(TM) during the first quarter of 2004.
On January 28, 2004 the Company entered into a binding Memorandum of
Understanding, "MOU", with DarkNoise Technologies Limited, a United Kingdom
company, "DarkNoise" which was changed by a definitive agreement on March 18,
2005.
The Company advanced $50,000 in cash to DarkNoise during the first quarter of
2004 under the original terms of the MOU. Also during the first quarter the
Company paid a consultant 1,000,000 restricted common shares at a deemed value
of $.03 per share to evaluate the transaction. During the second quarter of
2004, the Company advanced an additional $20,000 in cash.
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued
The definitive agreement provided the Company with all of the Intellectual
Property patent applications and related documentation, technology demonstrators
and prototypes of Darknoise. The Company plans to engage SunnComm International,
Inc., "SunnComm", and an institutional leader in the development of audio
processing and music engineering technologies to further develop the
intellectual property so that it can be integrated with SunnComm's MediaMax
technology.
Once developed and integrated, the Agreement requires the Company to undertake
sales and marketing of the product. DarkNoise will receive a 25% royalty on the
incremental net revenues generated by the inclusion of the technology with the
product or products being marketed by the Company at that time.
The technology is designed to plug the so-called "Analog Hole" and will
substantially restrict the uploading of music files to the Internet without
reducing playability on all devices (www.darknoisetechnologies.com). The
technology works by encoding the original digital audio file with a unique
hidden signal. The signal is embedded in the audio master and becomes an
indelible part of the actual audio file in addition to aiding in subsequent
origin identification. Should the original CD be copied, so, too, is the hidden
signal and identification `tag.' Unless illegally invoked, the listener is
unaware of the hidden signal's presence. Attempts to illegally copy the
protected audio using analog recording devices, analog-to-digital converters or
psycho-acoustic compression codes such as MP3 will invoke the hidden signal
which transforms to become audible within the range of human hearing, thus
ruining the unauthorized copy.
On March 4, 2004 the written consent, of a majority of disinterested outstanding
common share holders of record at February 4, 2004 of the Company, became
effective to approve the issuance of 10,152,704 restricted common shares valued
by the Company at $.03 per share to SunnComm Technologies, Inc., "SunnComm", for
$304,581 of debt incurred for cash advances and administrative and overhead
expenses charged to the Company and to approve the issuance of 64,000,000
restricted common shares valued by the Company at $.03 per share for a total
consideration of $1,920,000 to SunnComm and the assumption of a $110,000
outstanding debt due to a consultant for an Exclusive Marketing Agreement with
its commercial copy protection technology on CD's and all of its continuing
upgrades.
At December 31, 2004, the Company fully impaired the floppy disk refurbishing
The equipment is currently idle in a storage facility waiting to be put to
productive use.
On June 11, 2005, the Company entered into an Agreement and Plan of Merger (the
"Agreement") with SunnComm International, Inc. ("SunnComm"). The Agreement
provides for the Company to acquire SunnComm in a reverse merger and supersedes
the non-binding letter of intent previously agreed to by both companies on March
30, 2005.
The Agreement provides for the issuance of the Company's common shares in
exchange for all of the outstanding common shares of SunnComm on a one-for-one
basis. The consummation of the merger is subject to the issuance of a fairness
opinion from an independent valuation expert. Additional conditions to the
consummation of the merger include, but are not limited to, audited financial
statements, the registration with the SEC of the Company's shares to be issued
in the transaction and shareholder approval of the merger by a majority of the
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued
shareholders of both companies. Additionally, it provides for the directors of
SunnComm to become board members of the Company and for SunnComm's president,
Peter H. Jacobs, to serve as the Chief Executive Officer.
In conjunction with the Agreement, the Company entered into an amended Exclusive
Marketing Agreement, "Marketing Agreement", as part of the Definitive Agreement
for the Company to acquire SunnComm in a reverse merger. The Marketing Agreement
prohibited SunnComm from terminating the Marketing Agreement prior to March 31,
2006 and relieved the Company from its obligation to advance cash to SunnComm
for advance royalty payments until July 31, 2005. All the other terms of the
original Marketing Agreement remained the same.
The Agreement provides the Company with 40% of the revenues derived from all
existing licensing agreements held by SunnComm and future revenue generating
agreements for the technology. When annual gross revenues of $3.6 million are
achieved, the Company will receive 50% of the licensing revenues. The agreement
also requires the Company to advance $138,000 a month against future royalties
and an additional $12,000 for services being provided by SunnComm. The Exclusive
Marketing Agreement gives the Company the exclusive marketing rights for
SunnComm's optical media enhancement and control technologies. Under the terms
of the Exclusive Marketing Agreement, the Company must pay for all of its sales
and marketing costs and SunnComm must pay for all of its development and upgrade
costs. SunnComm also agreed to indemnify the Company against consumer complaints
and product related litigation.
The Company is marketing MediaMax, which is a collection of technologies that
provides copy management for CDs and DVDs while simultaneously enhancing and
expanding the consumer's experience. MediaMax is tightly integrated with
Microsoft's (NASDAQ:MSFT - News) Windows Media Platform and the Digital Rights
Management capabilities associated with the latest Windows Media Platforms. The
company licenses and uses Windows Media Audio Digital Rights Management
capabilities from Microsoft Corporation as the security feature for music files
which end up residing on the consumer's computer.
Results of Operations:
Comparison of the Three and Six Months Ended June 30, 2005 and 2004
During the first quarter of 2004 the Company was no longer considered a
development stage company as a result of revenue generated during that quarter
and anticipated recurring revenue under licensing agreements covered under the
exclusive marketing agreement with SunnComm International Inc.
The Company recognized $99,438 of revenue during the first six months of 2005
which was more than double the $45,037 of revenue during the first six months of
2004. During the three months ended June 30, 2005, the Company generated $85,652
of revenue which was almost three times the $30,064 of revenue generated during
the three months ended June 30, 2004. All revenues were from licensing revenue
for the MediaMax product. The revenue during the six months ended June 30, 2005
was from 17 record labels of which approximately 40% were independent and during
the six months ended June 30, 2004, revenue was generated from 19 record labels
of which approximately 36% were independent.
During the six months ended 2005, general and administrative expenses was
comprised of $158,114 of payroll expenses & employee benefits, $72,000 of
administrative support fees from SunnComm, $33,288 of investor relation
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued
expenses, $31,600 of rent and telephone expenses, and $8,270 of miscellaneous
office expenses.
Payroll expense requiring cash expenditures during the six months ended 2005 was
$51,625 more than the six months ended 2004 due to salary increases and employee
benefits. Payroll expense and benefits were $16,881 less during the three months
ended June 30, 2005 than the same period ended 2004 largely due to health
insurance expenses.
Administrative support fees during the six months ended 2005 were $24,000
greater than 2004 because the exclusive marketing agreement had only been in
effect for one month during the first quarter 2004. There was no difference the
three months ended June 30, 2005 compared to the same period ended 2004.
Investor relation expense during the six months ended 2005 was $24,397 greater
than the same period ended 2004 because the Company incurred significant
expenses pertaining to a shareholder meeting during April 2005. The higher
amount of $16,596 during the three months ended 2005 as compared to 2004 was
caused for the same reason.
Rent and telephone expenses only was $3,367 higher during the six months ended
June 30, 2005 as compared to 2004. The difference was mainly caused from
increased marketing activity during the three months ended June 30, 2005 which
was $4,230 greater than the same period ended June 30, 2004.
Sales and marketing expenses of $247,741 during the six months ended June 30,
2005 was significantly greater than the $76,505 incurred during the same period
ended 2004. The difference was due to a consulting fee of $200,000 paid to Artie
Ripp, an entertainment consultant, during the first quarter of 2005. Mr. Ripp
was historically successful in the negotiating and obtaining a licensing
agreements with Universal, EMI and Koch from which the Company would receive 40%
of the revenues. There was no difference the three months ended June 30, 2005
compared to the same period ended 2004.
During the first quarter of 2004 the Company paid for $300,000 of consulting
fees with 10,000,000 restricted common shares for consulting pertaining to
general corporate matters for which $270,000 was allocated and to potential
acquisitions for which $30,000 was allocated. The Company also paid $20,880 in
cash for consulting services pertaining to the Company getting listed on the
Frankfurt and Berlin stock exchanges and to salespersons for contacting
potential customers after the signing of the exclusive marketing agreement.
Expenses of $30,000 were incurred during the first six months of 2005 to a
broker dealer for their work in preparing a report for the board of directors of
the Company pertaining to the reasonableness of a proposed one share for one
share Exchange Ratio between the Company and SunnComm in a proposed acquisition
of SunnComm subject to an independent fairness opinion.
During the six months ended 2005 the Company incurred $112,526 of legal and
accounting expenses pertaining to proposed financings and the public reporting
requirements of the Company. Expenses for the same period ended 2004 were
$27,199 because the Company was only incurring accounting expenses for its 1934
Act reporting requirements. Expenses during the three months ended June 30, 2005
were about 2.5 times that of the same period during 2004 for the same reason.
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued
Interest expense of $2,244 and $4,581 for the three and six months ended June
30, 2005, respectively, were from three convertible notes totaling $150,000
accruing interest at 8% per annum. The convertible notes were not outstanding
during the same periods during 2004.
Liquidity and Capital Resources:
At June 30, 2005 the Company had $1,072 of cash included in its $84,262 of
current assets. The Company had $465,273 of current payables leaving a working
capital deficit of $381,011.
During the first quarter of 2005, the Company raised $100,000 in cash from the
issuance of convertible promissory notes accruing interest at 8% per annum that
are convertible into common shares of the Company at $.025 per share.
During the first quarter of 2004, the Company raised $330,000 in from three
accredited investors for restricted common stock. The Company also retired
$515,751 of debt by issuing 17,191,726 restricted common shares primarily to
affiliates. The Company raised an additional $300,000 in cash during the second
quarter 2004 from an accredited investor for 2,500,000 restricted common shares
and warrants to purchase an additional 500,000 common shares at $.25 per share.
During the second quarter of 2005 the Company entered into a definitive
agreement with SunnComm to acquire all of its shares in a 1 share for 1 share
exchange. Significant expenses were incurred prior to the issuance of the offer
and the drafting of the definitive agreement which were paid for with cash and
common shares of the Company. Expenses of $72,915 at June 30, 2005 pertaining to
the acquisition have been capitalized.
SunnComm advanced $244,950 in cash to the Company and paid expenses on behalf of
the Company which, after second quarter revenue collected by SunnComm and the
administration fee owed to SunnComm, reduced the Company's receivable from
SunnComm for advances against future royalties by $253,706 during the six months
ended June 30, 2005.
On June 11, 2005 the Exclusive Marketing Agreement, "Marketing Agreement", was
amended as part of the Definitive Agreement for the Company to acquire SunnComm
in a reverse merger. The agreement prohibited SunnComm from terminating the
Marketing Agreement prior to March 31, 2006 and relieved the Company from its
obligation to advance cash to SunnComm for advance royalty payments until July
31, 2005. All the other terms of the original Marketing Agreement remained the
same.
During the first quarter of 2004 the Company entered into an Exclusive Marketing
Agreement with SunnComm to sell its MediaMax technology. The agreement requires
the Company to advance $138,000 a month in cash against future royalty payments
in order to maintain the exclusivity. The Company made its first payment during
March 2004.
On April 15, 2005, the Company signed an agreement with a broker dealer to raise
approximately $5 million for the Company by July 31, 2005 and to provide
advisory services pertaining to the proposed acquisition of SunnComm. The
agreement expired on July 31, 2005. During the term of the agreement, the
Company made payments totaling $30,000 for an Advisory Fee and unaccountable
expenses.
21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued
The Company is currently in discussions with new prospective parties regarding
the financing of the Company. The Company and SunnComm believe that they will
jointly need a minimum of $3 million to continue their respective operations and
complete the anticipated acquisition of SunnComm over the ensuing months. An
additional $2 million will be required to develop and market additional
technologies which both companies believe are needed to maintain a competitive
edge in the marketplace.
Forward Looking Statements:
Certain statements made in this report on Form 10-QSB are "forward looking"
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Such statements involve known and unknown risks, uncertainties and other
factors that may cause actual results, performance or achievements of the
Company to be materially different from any future results implied by such
forward looking statements. Although the Company believes that the expectations
reflected in such forward looking statements are based upon reasonable
assumptions, the Company's actual results could differ materially from those set
forth in the forward looking statements. Certain factors that might cause such a
difference might include: the failure of the registrants efforts to secure
additional equity capital, the inability to successfully execute the revised
business plan, the success or failure to implement the management to operate
possible acquisitions profitably, and the registrant's planned marketing, public
relations and promotional campaigns.
The Company believes that revenues during 2005 may be substantially greater than
2004 based upon its customers response to SunnComm's "MediaMax (Version 5) Copy
Management and Enhancement Technology" product. The positive customer response
is a result of excellent test results on the product from Belgium-based PMTC, an
international multimedia test center, and the products compatibility on
platforms commonly used by consumers which are resistant to copy protected
products.
Risk Factors:
The Company continues to be subject to a number of risk factors, including the
ability of management to successfully market the MediaMax technology, acquire
and manage compatible revenue generating operating companies to the MediaMax
technology, the financial loss that may be incurred due to its inability to
complete a proposed acquisition of SunnComm, the need for additional funds,
competition and the difficulties faced by development stage companies in
general.
22
ITEM 3: CONTROLS AND PROCEDURES
a) Disclosure controls and procedures. Within 90 days before filing this report,
an evaluation was performed under the supervision and with the participation of
the Company's management, including the CEO and CFO, of the effectiveness of the
design and operation of its disclosure controls and procedures. Based on that
evaluation, the Company's management, including the CEO and CFO, concluded that
the Company's disclosure control and procedures were effective as of the date of
the evaluation.
(b) Internal controls. Since the date of the evaluation described above, there
have not been any significant changes in the Company's internal accounting
controls or in other factors that could significantly affect those controls.
23
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no legal proceedings against the Company and the Company is unaware of
any proceedings contemplated against it.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual general shareholder meeting on on April 29, 2005 in
Phoenix, Arizona for all shareholders of record at March 30, 2005. The meeting
involved the election of three directors to each serve a three year term on the
board of directors. The directors elected were Wade P. Carrigan, Albert Golusin
and William H. Whitmore, Jr., resulting in there being a total of three total
directors in the company.
The two matters voted upon by the shareholders were the election of the
directors as a group and the appointment of Semple & Cooper LLP as independent
registered public accountants to audit the Company's financial statements for
the year 2005. A total of 165,559,840 votes were in favor of the two matters put
before the shareholders which represented 100% of all of the votes cast. There
were no abstentions or negative votes.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31.1 Quarterly Certification of Chief Executive Officer Pursuant To
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Quarterly Certification Chief Financial Officer Pursuant To
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certificate of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certificate of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
(1) Form 8-K filed on June 11, 2005 for definitive agreement of the
company to acquire SunnComm International, Inc.
SIGNATURES
Pursuant to the requirements 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.
MEDIAMAX TECHNOLOGY CORPORATION
Signatures Title Date
---------- ----- ----
/s/ William H. Whitmore, Jr. Chief Executive Officer August 10, 2005
------------------------
William H. Whitmore, Jr.
/s/ Albert A. Golusin Chief Financial Officer August 10, 2005
------------------------
Albert A. Golusin
24
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(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, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ________
Commission file number 0-29049
MEDIAMAX TECHNOLOGY CORPORATION (FKA QUIET TIGER, INC.)
--------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 77-0140428
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
668 N. 44th Street, Suite 233, Phoenix, Arizona 85008
---------------------------------------------------
(Address of principal executive offices (zip code))
(602) 267-3800
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the last 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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at June 30, 2005
------------------------------ -----------------------------
Common Stock, par value $0.001 182,794,325
================================================================================
1
MEDIAMAX TECHNOLOGY CORPORATION (FKA QUIET TIGER, INC.)
INDEX TO FORM 10-QSB
PART I. FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Consolidated Balance Sheet as of June 30, 2005 (unaudited).......... 3
Consolidated Statements of Operation for the three
months ended June 30, 2005 and 2004 and the six
months ended June 30, 2005 and 2004 (unaudited).................. 4
Consolidated Statements of Changes in Stockholders'
Equity for the six months ended June 30, 2005 and
2004 (unaudited)................................................. 5
Consolidated Statements of Cash Flow for the three
months ended June 30, 2005 and 2004 and the six
months ended June 30, 2005 and 2004 (unaudited).................. 6
Notes to Consolidated Financial Statements for the
three months ended June 30, 2005 and 2004 and the
six months ended June 30, 2005 and 2004.......................... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ....................................... 16
Item 3. Controls and Procedures ............................................ 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .................................................. 24
Item 2. Changes in Securities .............................................. 24
Item 3. Defaults Upon Senior Securities .................................... 24
Item 4. Submissions of Matters to a Vote of Security Holders ............... 24
Item 5. Other Information .................................................. 24
Item 6. Exhibits and Reports on Form 8-K ................................... 24
Signatures ................................................................. 24
2
MEDIAMAX TECHNOLOGY CORPORATION
FKA QUIET TIGER INC.
CONSOLIDATED BALANCE SHEET
UNAUDITED
At June 30, 2005
ASSETS
CURRENT ASSETS:
Cash $ 1,072
Deferred reorganization costs 72,915
Advances to affiliate 10,275
------------
Total current assets 84,262
OTHER ASSETS:
Furniture and equipment, net 5,824
Finance fee 250,000
Investments 100,000
Exclusive marketing agreement, net 1,521,645
Deposits 11,129
------------
Total assets $ 1,972,860
============
LIABILITIES
CURRENT
Accounts payable $ 465,273
------------
Total current liabilities 465,273
Note payable 150,000
------------
615,273
------------
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value, 0
50,000,000 shares authorized, none issued
Common stock, $.001 par value, 350,000,000 shares 182,794
authorized, 182,794,325 issued and outstanding
Additional paid-in capital 11,448,522
Additional paid-in capital stock options 100,500
Accumulated (deficit) (10,374,229)
------------
Total stockholders' equity 1,357,587
------------
Total liabilities and stockholders' equity $ 1,972,860
============
See accompanying notes to these unaudited consolidated financial statements.
3
MEDIAMAX TECHNOLOGY CORPORATION
FKA QUIET TIGER INC.
CONSOLIDATED STATEMENTS OF OPERATION
UNAUDITED
Three months ended Six months ended
June 30, June 30,
2005 2004 2005 2004
------------- ------------- ------------- -------------
REVENUES
Licensing revenue $ 85,652 $ 30,064 $ 99,438 $ 45,037
------------- ------------- ------------- -------------
Total Revenue 85,652 30,064 99,438 45,037
OPERATIING EXPENSES
General and administrative 160,544 233,427 303,272 371,737
Sales & marketing 44,461 70,395 247,741 76,505
Consulting 11,600 1,250 33,100 291,330
Legal & accounting 67,449 27,199 112,526 27,199
Interest expense 2,244 0 4,581 0
Amortization and depreciation 101,821 101,821 203,642 101,821
------------- ------------- ------------- -------------
Total Operating Expenses 388,119 434,092 904,862 868,592
Net (Loss) ($ 302,467) ($ 404,028) ($ 805,424) ($ 823,555)
============= ============= ============= =============
(LOSS) INCOME PER SHARE:
Basic and diluted (loss) per share ($ 0.00) ($ 0.00) ($ 0.00) ($ 0.01)
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic and diluted 182,794,325 171,108,045 182,647,916 132,712,769
============= ============= ============= =============
See accompanying notes to these unaudited consolidated financial statements.
4
MEDIAMAX TECHNOLOGY CORPORATION (FKA QUIET TIGER, INC.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
UNAUDITED
Paid-In Stock Subscriptions Deferred Accumulated
Shares Amount Capital Options Receivable Compensation (Deficit) Total
------------ --------- ----------- ---------- ---------- ------------ ------------ -----------
Balance at December 31, 2003 55,432,778 $ 55,433 $ 7,408,951 $ 100,500 $ 0 $ 0 ($ 8,028,064) ($ 463,180)
Shares issued in private placement
for cash 17,690,476 17,690 612,310 630,000
Shares issued for debt 17,337,738 17,337 510,095 527,432
Shares issued for exclusive marketing
agreement 64,000,000 64,000 1,856,000 1,920,000
Shares issued for services 21,050,000 21,050 612,950 (165,000) 469,000
Net (Loss) for the six months ended
June 30, 2004 (823,555) (823,555)
------------ --------- ----------- ---------- ---------- ------------ ------------ -----------
Balance at June 30, 2004 175,510,992 175,510 11,000,306 100,500 0 (165,000) (8,851,619) 2,259,697
============ ========= =========== ========== ========== ============ ============ ===========
Balance at December 31, 2004 181,894,325 $ 181,894 $11,413,922 $ 100,500 $ 0 $ 0 ($ 9,568,805) $2,127,511
Shares issued for services 500,000 500 21,000 21,500
Shares issued for payables 400,000 400 13,600 14,000
Net (Loss) for the six months ended
June 30, 2005 (805,424) (805,424)
------------ --------- ----------- ---------- ---------- ------------ ------------ -----------
Balance at June 30, 2005 182,794,325 $ 182,794 $11,448,522 $ 100,500 $ 0 $ 0 ($10,374,229) $1,357,587
============ ========= =========== ========== ========== ============ ============ ===========
See accompanying notes to these unaudited consolidated financial statements.
5
MEDIAMAX TECHNOLOGY CORPORATION (FKA QUIET TIGER, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
Three months ended Six months ended
June 30, June 30,
2005 2004 2005 2004
-------------- -------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) for the period (302,467) (404,028) (805,424) (823,555)
Adjustments to reconcile net
cash used by operations:
Amortization and depreciation expense 101,821 101,821 203,642 101,821
Common stock issued for services 0 86,500 35,500 439,000
Common stock issued for payables 0 11,681 0 11,681
Changes in assets and liabilities:
(Increase)/decrease in receivable from affiliates 169,889 (39,663) 253,706 (183,097)
(Increase)/decrease in deferred reorganization costs (6,847) 0 (72,915) 0
(Increase)/decrease in prepaid expenses 0 0 0 0
(Increase)/decrease in deposits 0 (479) 0 (479)
Increase/(decrease) in accounts payable 33,690 (6,660) 281,142 27,309
Increase/(decrease) in payable to affiliates 0 76,766 0 67,148
Increase/(decrease) in accrued interest 2,244 0 4,581 0
----------- ----------- ----------- -----------
Net cash (used) by operating activities (1,670) (174,062) (99,768) (360,172)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for equipment 0 0 0 (7,714)
Investment in DarkNoise Technologies 0 (20,000) 0 (70,000)
Cash payment on assumed debt under exclusive marketing agreement 0 0 0 (25,000)
----------- ----------- ----------- -----------
Net cash (used) in investing activities 0 (20,000) 0 (102,714)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock 0 300,000 100,000 630,000
Proceeds from sale of debenture 0 0 0 0
----------- ----------- ----------- -----------
Net cash (used) in financing activities 0 300,000 100,000 630,000
----------- ----------- ----------- -----------
Net Increase (decrease) in cash (1,670) 105,938 232 167,114
Cash at beginning of period 2,742 62,016 840 840
----------- ----------- ----------- -----------
Cash at end of period 1,072 167,954 1,072 167,954
=========== =========== =========== ===========
Interest expense $ 2,244 $ 0 $ 4,581 $ 0
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Issuance of 64,000,000 common shares and assumption of $ 0 $ 0 $ 0 $ 2,028,860
$108,860 of debt for and exclusive marketing agreement with
SunnComm International Inc.
Issuance of common shares for unearned services $ 0 $ 82,500 $ 0 $ 165,000
Payment of debenture and accrued interest for 886,073 $ 0 $ 0 $ 0 $ 26,582
common shares
Payment of debt to affiliates for 16,305,653 common shares $ 0 $ 0 $ 0 $ 489,169
Issuance of 1,000,000 shares for consulting fees pertaining $ 0 $ 0 $ 0 $ 30,000
to acquisitions
See accompanying notes to these unaudited consolidated financial statements.
6
MEDIAMAX TECHNOLOGY CORPORATION
(FKA QUIET TIGER, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 2005
The unaudited financial statements included herein were prepared from the
records of the Company in accordance with Generally Accepted Accounting
Principles. These financial statements reflect all adjustments which are, in the
opinion of management, necessary to provide a fair statement of the results of
operations and financial position for the interim periods. Such financial
statements generally conform to the presentation reflected in the Company's
Forms 10-QSB and 10-KSB filed with the Securities and Exchange Commission for
the year ended December 31, 2004. The current interim period reported herein
should be read in conjunction with the Company's Form 10-KSB subject to
independent audit at the end of the year.
On March 1, 2005, the Company filed a Definitive Schedule 14C with the
Securities and Exchange Commission stating that the holders of a majority of the
outstanding shares of the Company's common stock took action by written consent
changing the name of the company from Quiet Tiger Inc. to MediaMax Technology
Corporation.
On March 18, 2005, the Company received all the required signatures from
DarkNoise Technologies Ltd., "DarkNoise", pertaining to an Intellectual Property
Transfer Agreement whereby DarkNoise will transfer patent applications and
related documentation, technology demonstrators and prototypes to the Company.
On June 11, 2005, the Company entered into an Agreement and Plan of Merger (the
"Agreement") with SunnComm International, Inc. ("SunnComm"). The Agreement
provides for the Company to acquire SunnComm in a reverse merger and supersedes
the non-binding letter of intent previously agreed to by both companies on March
30, 2005.
The Agreement provides for the issuance of the Company's common shares in
exchange for all of the outstanding common shares of SunnComm on a one-for-one
basis. The consummation of the merger is subject to the issuance of a fairness
opinion from an independent valuation expert. Additional conditions to the
consummation of the merger include, but are not limited to, audited financial
statements, the registration with the SEC of the Company's shares to be issued
in the transaction and shareholder approval of the merger by a majority of the
shareholders of both companies.
The Agreement provides for the directors of SunnComm to become board members of
the Company and for SunnComm's president, Peter H. Jacobs, to serve as the Chief
Executive Officer. It also provides for an amendment to the existing exclusive
marketing agreement with SunnComm whereby any defaults on the part of the
Company are waived by SunnComm through July 31, 2005, and the earliest that
SunnComm can exercise any right of termination due to any default by the Company
is March 31, 2006.
On June 30, 2005 the Company filed its third post effective amendment to a
registration statement originally filed on June 29, 2004 with the Securities and
Exchange Commission which registered 96,290,414 common shares owned by SunnComm
International, Inc. The registration statement allows SunnComm International
Inc. to sell the registered shares in accordance with the plan of distribution
described in the registration statement.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
GOING CONCERN AND OPERATIONS
The accompanying consolidated financial statements have been prepared on the
basis of accounting principles applicable to a going concern, which contemplates
the realization of assets and extinguishment of liabilities in the normal course
of business.
At June 30, 2005, the Company had negative working capital of $381,011 which is
not sufficient working capital to fund its planned operations during the next
twelve months.
Additional funding will be required to maintain its Exclusive Marketing
Agreement for MediaMax with SunnComm International Inc. and to finance general
and administrative expenses. These circumstances raise substantial doubt about
the Company's ability to continue as a going concern. In order to meet the
Company's continuing financing needs, management of the Company intends to raise
working capital through the sale of its disk manufacturing equipment, common
stock or other securities, and ultimately achieving profitable operations.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RESTATEMENT OF SHARE AMOUNTS
On December 24, 2001, the Company effected a share consolidation of one new
common share for each fifteen pre-consolidated shares.
All of the common authorized and issued shares were affected by the
consolidation of December 24, 2001 and forward stock split of June 28, 2002. All
share amounts in this entire report are stated post reverse of December 24, 2001
and post forward stock split of June 28, 2002 unless otherwise indicated. The
Company has restated the prior periods to reflect this share consolidation to
January 1, 1997.
On June 28, 2002, the Company effected a forward stock split of 9.3563 shares
for 1 share.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiary. All intercompany accounts and transactions were eliminated.
INTANGIBLE ASSETS
The Company periodically evaluates the recoverability of intangible assets and
takes into account events or circumstances that warrant revised estimates of
useful lives or that indicate that impairment exists. The Company's intangible
assets will be subject to amortization when put into productive use.
LONG-LIVED ASSETS
On January 1, 2002, the Company has adopted SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" which requires that long-lived
assets to be held and used be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable.
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
The Company evaluates its long-lived assets for impairment whenever changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future undiscounted cash flows
expected to be generated by the asset. If assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the carrying
amounts exceed the fair values of the assets. Assets to be disposed of are
reported at the lower of carrying values or fair values, less costs of disposal.
SHARE BASED COMPENSATION
SFAS No. 123" Accounting for Stock-Based Compensation" defines fair value based
methods of accounting for an employee stock option or similar equity instrument.
This statement gives entities a choice of recognizing related compensation
expense by adopting the new fair value method or to continue to measure
compensation using the intrinsic value approach under Accounting Principles
Board (APB) Opinion No. 25. The Company has elected to utilize APB No. 25 for
measurement; and will, pursuant to SFAS No. 123, disclose supplementally the pro
forma effects on net income and earnings per share of using the new measurement
criteria.
During the second quarter of 2004 the Company issued options to purchase 83,333
common shares at $.20 per share and options to purchase 62,375 common shares at
$.56 were cancelled. During the third quarter of 2004, the Company issued
options to purchase 83,333 common shares at $.20 per share. Also during the
third quarter, the Company issued warrants to purchase 900,000 common shares at
strike prices from $.25 to $5.00 per share with expiration dates ranging from
June 30, 2006 to September 30, 2006. During the fourth quarter the Company
issued options to purchase 83,333 common shares at $.20 per share. Also during
the fourth quarter, the Company issued a $50,000 debenture convertible into
2,000,000 shares of common stock.
During the first quarter of 2005 the Company issued options to purchase 83,333
common shares at $.20 per share to an employee. Also during the first quarter of
2005 two convertible promissory notes were issued for $100,000 convertible into
4,000,000 common shares at $.025 per share.
During the second quarter of 2005 the Company issued options to purchase 83,333
common shares at $.20 per share to an employee.
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
Common stock equivalents outstanding at June 30 were as follows:
------------------------------------------------------
2005 2004
# of Avg. Exercise # of Avg. Exercise
common price per common price per
shares share shares share
Outstanding stock options
convertible into common stock
Options Outstanding (1) 460,329 $0.234 126,996 $0.320
Outstanding warrants
convertible into common stock
Warrants Outstanding (2) 900,000 $0.920 0 $0.000
Outstanding Notes
convertible into common stock
Convertible Notes 6,000,000 $0.025 0 $0.000
Outstanding (3)
(1) All options issued and outstanding expire on October 30, 2007.
(2) A total of 500,000 issued and outstanding warrants at a strike price at
$.25 per share expire on June 30, 2006. A total of 400,000 issued and
outstanding warrants at a weighted average strike price of $1.75 per share
ranging from $.25 per share to $5.00 per share all expire on September 30,
2006.
(3) Three debentures totaling $150,000 are convertible at $.025 per share into
6,000,000 common shares at the option of the Holder and all expire on
December 31, 2006. Accrued interest at June 30, 2005 of $4,748 is also
convertible into 189,917 shares of common stock at $.025 per share at the
option of the Holder.
EQUIPMENT
The floppy disk burnishing equipment was originally stated at cost and
subsequently fully impaired to reflect its fair value. The equipment is held for
sale. A modified units of production method, that was based upon units produced
subject to a certain minimum level, was used to depreciate substantially all
disk manufacturing equipment. The straight line method is used for all other
equipment. The estimated depreciable lives range from 3 to 5 years for
machinery, equipment and fixtures.
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
INCOME TAXES
The Company has adopted the provisions of SFAS No. 109, "Accounting for Income
Taxes". SFAS 109 requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of events that have been included in the
consolidated financial statements or tax returns. Under this method, deferred
tax liabilities and assets are determined based on the difference between the
financial statement and tax basis of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
REVENUE RECOGNITION
The Company recognizes licensing revenue during the period the implementation of
its copy management program is placed on a CD or DVD by the customer. This event
typically occurs at the manufacturing stage of the CD or DVD. The Company relies
on unit production reports from its customers as its basis for revenue
recognition. No future performance obligation exists once the copy management
program is delivered by the Company.
(LOSS) PER COMMON SHARE
(Loss) per common share is computed based on the weighted average number of
common shares outstanding during each period. Convertible debt and equity
instruments such as debentures and stock options are not considered in the
calculation of net loss per share, as their inclusion would be antidilutive.
EQUIPMENT HELD FOR SALE
On January 8, 2001, the Company acquired plant, equipment and other assets,
including specialized manufacturing equipment, manufacturing set-ups, real
estate lease, fixtures and related equipment and other property with an
estimated fair value of approximately $4.0 million. In consideration for the
acquisition of the assets, the Company issued 12,007,258 shares of its
restricted common stock to the sellers. In determining the amount of the
Company's consideration for the assets, the parties estimated the present fair
market value of all such assets to be equivalent to approximately $.32 per share
issued.
The equipment has been fully impaired and is currently idle in a storage
facility waiting to be sold.
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
DEFERRED REORGANIZATION COSTS
On June 11, 2005, the Company entered into an Agreement and Plan of Merger (the
"Agreement") with SunnComm International, Inc. ("SunnComm"). The Agreement
provides for the Company to acquire SunnComm in a reverse merger and supersedes
the non-binding letter of intent previously agreed to by both companies on March
30, 2005. The Company has incurred $72,915 of costs pertaining to the Agreement
to acquire all of the outstanding common shares of SunnComm International Inc.
on a proposed 1 for 1 exchange ratio subject to certain conditions.
The Company anticipates incurring additional expenses prior to the successful
acquisition of all of the outstanding common shares of SunnComm whereupon all
costs incurred would be reclassified as a reorganization expense to shareholders
equity. In the event that the Company is not successful it will expense all
deferred reorganization costs within the period that the determination was made.
INTANGIBLES
On January 28, 2004 the Company entered into a binding Memorandum of
Understanding, "MOU", with DarkNoise Technologies Limited, a United Kingdom
company, "DarkNoise" which was changed by a definitive agreement on March 18,
2005.
The Company advanced $50,000 in cash to DarkNoise during the first quarter of
2004 under the original terms of the MOU. Also during the first quarter the
Company paid a consultant 1,000,000 restricted common shares at a deemed value
of $.03 per share to evaluate the transaction. During the second quarter of
2004, the Company advanced an additional $20,000 in cash.
The definitive agreement provided the Company with all of the Intellectual
Property patent applications and related documentation, technology demonstrators
and prototypes of Darknoise. The Company plans to engage SunnComm International,
Inc., "SunnComm", and an institutional leader in the development of audio
processing and music engineering technologies to further develop the
intellectual property so that it can be integrated with SunnComm's MediaMax
technology.
Once developed and integrated, the Agreement requires the Company to undertake
sales and marketing of the product. DarkNoise will receive a 25% royalty on the
incremental net revenues generated by the inclusion of the technology with the
product or products being marketed by the Company at that time.
FINANCING FEE
On September 23, 2004, the Company issued 3,333,333 restricted common shares
valued at $250,000 to the Double U Master Fund, L.P. as a commitment fee for a
Private Equity Credit Agreement which would enable the Company to raise up to
$5,000,000 through the sale of its common stock. The commitment fee will be
amortized over the two year life of the Agreement which will begin upon its
registration with the Securities and Exchange Commission. The Company has not
set a date for the registration of the Agreement.
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
EXCLUSIVE MARKETING AGREEMENT
On June 11, 2005 the Exclusive Marketing Agreement, "Marketing Agreement", was
amended as part of the Definitive Agreement for the Company to acquire SunnComm
in a reverse merger. The agreement prohibited SunnComm to terminate the
Marketing Agreement prior to March 31, 2006 and relieved the Company from its
obligation to advance cash to SunnComm for advance royalty payments until July
31, 2005. All the other terms of the original Marketing Agreement remained the
same.
On March 4, 2004 the written consent, of a majority of disinterested outstanding
common share holders of record at February 4, 2004 of the Company, became
effective to approve the issuance of 10,152,704 restricted common shares valued
by the Company at $.03 per share to SunnComm Technologies, Inc., "SunnComm", for
$304,581 of debt incurred for cash advances and administrative and overhead
expenses charged to the Company and to approve the issuance of 64,000,000
restricted common shares valued by the Company at $.03 per share for a total
consideration of $1,920,000 to SunnComm and the assumption of a $110,000
outstanding debt due to a consultant for an Exclusive Marketing Agreement with
its commercial copy protection technology on CD's and all of its continuing
upgrades. The Agreement provides the Company with 40% of the revenues derived
from all existing licensing agreements held by SunnComm and future revenue
generating agreements for the technology. When annual gross revenues of $3.6
million are achieved, the Company will receive 50% of the licensing revenues.
The agreement also requires the Company to advance $138,000 a month against
future royalties and an additional $12,000 for services being provided by
SunnComm. The Exclusive Marketing Agreement gives the Company the exclusive
marketing rights for SunnComm's optical media enhancement and control
technologies. Under the terms of the Exclusive Marketing Agreement, the Company
must pay for all of its sales and marketing costs and SunnComm must pay for all
of its development and upgrade costs. SunnComm also agreed to indemnify the
Company against consumer complaints and product related litigation.
ACCOUNTS PAYABLE
The Company's accounts payable are comprised of vendors that it deals with on a
month to month basis. Included in accounts payable is a liability of $283,860 to
an entertainment consultant for marketing services.
CONVERTIBLE NOTES
The Company has three convertible promissory notes outstanding to the same
holder for a total of $150,000 at 8% per annum. All accrued interest and
principal on all three notes are due and payable in one balloon payment in full
on December 31, 2006. Accrued interest at June 30, 2005 on all notes was $4,748.
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
COMMITMENTS AND CONTINGENCIES
Operating Lease
The Company leases office space pursuant to a non-cancelable operating lease
agreement. Future minimum lease payments pursuant to the lease as of June 30,
2005 were as follows:
2005 24,133
2006 7,100
--------
$31,233
========
Rent expense was $23,982 for the six months ended June 30, 2005.
Exclusive Marketing Agreement
On June 11, 2005 the Company entered into an Amended Exclusive Marketing
Agreement with SunnComm to market its commercial copy protection technology on
CD's and all of its continuing upgrades. The exclusivity lasts as long as the
Company is current in its payments and will continue in perpetuity. The
Agreement provides the Company with approximately 50% of the revenues derived
from all existing licensing agreements held by SunnComm for the technology and
after July 31, 2005 it requires the Company to advance $138,000 a month against
future royalties and an additional $12,000 for services being provided by
SunnComm. The Exclusive Marketing Agreement gives the Company the exclusive
marketing rights for SunnComm's optical media enhancement and control
technologies. Under the terms of the Exclusive Marketing Agreement, the Company
must pay for all of its sales and marketing costs and SunnComm must pay for all
of its development and upgrade costs.
DarkNoise Development and Royalty Agreements
On March 18, 2005, the Company reached a definitive agreement with DarkNoise to
transfer only intellectual property and select equipment including inventions,
pending patents, research and development and property relating to current joint
development initiatives as consideration for the $70,000 previously advanced.
The Company plans to further develop the technology in order to ensure
effectiveness and compatibility with SunnComm's MediaMax technology. The Company
intends to share the research and development to date and the intellectual
property with SunnComm and one of its strategic technology partners in the
academic community, which specializes in audio processing and music engineering.
It is anticipated that this methodology could yield substantial incremental
levels of protection within SunnComm's MediaMax technology.
Once developed and integrated, the Agreement requires the Company to undertake
sales and marketing of the product. DarkNoise will receive a 25% royalty on the
incremental net revenues generated by the inclusion of the technology with the
product or products being marketed by the Company at that time.
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
Consulting Agreements
On January 7, 2005 the Company contracted with Edgecombe Consulting, LLC,
"Edgecombe", for consulting services pertaining to a potential merger with
SunnComm International, Inc. and to seek potential joint venture partners. The
agreement provides for Edgecombe to receive a total of 1,400,000 restricted
common shares at the rate of 350,000 restricted common shares at the end of each
quarter until December 31, 2005. The Company owed Edgecombe 700,000 restricted
common shares at June 30, 2005.
On April 15, 2005, the Company signed an agreement with a broker dealer to raise
approximately $5 million for the Company by July 31, 2005 and to provide
advisory services pertaining to the proposed acquisition of SunnComm. The
agreement expired on July 31, 2005. During the term of the agreement, the
Company made payments totaling $30,000 for an Advisory Fee and unaccountable
expenses.
STOCKHOLDERS' EQUITY
During the first quarter of 2005, the Company issued a total of 900,000 common
shares at a fair value of $35,500 under its 2004 Employee and Consultants Stock
Compensation Plan to an individual for legal and consulting services.
The Company did not issue any shares during the second quarter of 2005.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, INCLUDING, WITHOUT LIMITATION,
STATEMENTS REGARDING THE COMPANY'S EXPECTATIONS, BELIEFS, INTENTIONS OR FUTURE
STRATEGIES THAT ARE SIGNIFIED BY THE WORDS "EXPECTS", "ANTICIPATES", "INTENDS",
"BELIEVES", OR SIMILAR LANGUAGE. SUCH FORWARD-LOOKING STATEMENTS INCLUDE, BUT
ARE NOT LIMITED TO, THE SEEKING OF REVENUE PRODUCING ACQUISITIONS, THE
DEVELOPMENT PLANS FOR THE TECHNOLOGIES OF THE COMPANY, TRENDS IN THE RESULTS OF
THE COMPANY'S DEVELOPMENT, ANTICIPATED DEVELOPMENT PLANS, OPERATING EXPENSES AND
THE COMPANY'S ANTICIPATED CAPITAL REQUIREMENTS AND CAPITAL RESOURCES. THESE
FORWARD-LOOKING STATEMENTS INVOLVE RISKS, UNCERTAINTIES AND OTHER FACTORS. ALL
FORWARD-LOOKING STATEMENTS INCLUDED IN THIS DOCUMENT ARE BASED ON INFORMATION
AVAILABLE TO THE COMPANY ON THE DATE HEREOF AND SPEAK ONLY AS OF THE DATE
HEREOF. THE FACTORS DISCUSSED BELOW UNDER "FORWARD-LOOKING STATEMENTS" AND
ELSEWHERE IN THIS QUARTERLY REPORT ON FORM 10-KSB ARE AMONG THOSE FACTORS THAT
IN SOME CASES HAVE AFFECTED THE COMPANY'S RESULTS AND COULD CAUSE THE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS. IN ADDITION, THE FOLLOWING DISCUSSION IS INTENDED TO PROVIDE AN
ANALYSIS OF THE COMPANY'S FINANCIAL CONDITION AND PLAN OF OPERATION AND SHOULD
BE READ IN CONJUNCTION WITH THE COMPANY'S FINANCIAL STATEMENTS AND THE NOTES
THERETO.
General:
On February 20, 2003, the Company changed its name from Fan Energy Inc. to Quiet
Tiger, Inc. On April 1, 2005, the Company changed its name from Quiet Tiger,
Inc. to MediaMax Technology Corporation.
On December 24, 2001, the Company effected a share consolidation of one new
common share for each fifteen pre-consolidated shares.
On June 28, 2002, the Company effected a forward stock split of 9.3563 shares
for 1 share.
All of the common authorized and issued shares were affected by the
consolidation of December 24, 2001 and forward stock split of June 28, 2002. All
share amounts in this Form 10-KSB for the year ended December 31, 2003 have been
adjusted to include the post reverse of December 24, 2001 and post forward stock
split of June 28, 2002 unless otherwise indicated.
Originally formed as an Idaho corporation in the early 1900s, the Company's
predecessor was not successful in the exploration of mining properties. In 1988
the predecessor was merged into a newly-formed Nevada corporation as Eastern
Star Mining, Inc. and it was inactive thereafter, with no assets or liabilities
through the end of 1996. In early 1997 the corporation was reactivated when the
holder of a majority of the outstanding common stock transferred control of the
inactive corporation. The transferee elected new directors and officers and
caused the Company to effect a 10-into-1 reverse stock split. Thereafter, the
Company raised capital through the sale of its securities and acquired an
interest in oil and gas properties for cash and common stock.
The name of the corporation was changed to Fan Energy Inc. in December 1997. The
Company conducted no business activities until 1998 when it participated in
drilling oil and gas wells. In 1999 the Company received its first revenue from
the production from the wells in which it owned an interest. During the year
2000, the Company continued operating as an independent energy company engaged
in the exploration and acquisition of crude oil and natural gas reserves. On
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued
December 1, 2001, the Company sold all of its oil and gas interests to a
director for 236,331 shares of its own restricted common stock at a deemed value
of $75,777 and discontinued its oil and gas exploration business.
On January 8, 2001, the Company acquired plant, equipment and other assets,
including specialized manufacturing equipment, manufacturing set-ups, real
estate lease, fixtures and related equipment and other property with an
estimated fair value of at least $3.8 million from four independent sellers. In
consideration for the acquisition of the assets, the Company issued 12,007,252
shares of its restricted common stock to the sellers. The equipment valuation
was determined by a discounted cash flow of projected operating income using a
maximum cost of funds of 20% per annum. This was further supported by an
independent expert's valuation opinion of the replacement value of the
equipment. In determining the amount of Company's consideration for the assets,
the parties estimated the present fair market value of all such assets to be
equivalent to approximately $.32 per share issued. Also on January 8, 2001, the
Company sold 2,027,198 shares of restricted common stock to one of the sellers
for $650,000, of which $600,000 was paid by the secured note. The assets
acquired by the Company constituted plant, equipment and other physical property
intended to be used in the manufacture of 3.5 inch micro floppy disks. None of
the assets were previously used in such a business by the sellers.
On May 3, 2002, the Company acquired from Project 1000 Inc. "P1", a wholly owned
subsidiary of SunnComm International, Inc., "Digital Content Cloaking
Technology(TM)", known as MediaCloQ or MediaMaker ("P1 Technology"), which is a
Set of methodologies that are designed to work together to thwart illegal
copying or ripping of optical media that complies to IEC 90608 Redbook
standards. Each of the methodologies used is meant to work toward defeating the
various software products currently available on the market today that are used
for the purpose of making illegal copies of CDs or of individual audio tracks.
The Assets include, but are not limited to, P1's proprietary property which
includes all English and foreign language, all commercial and non-commercial,
and all present and future versions thereof, and all required and/or relevant P1
Documentation, Intellectual Property Rights and other proprietary rights
therein, and derivatives thereof that is required and/or relevant to the
development of current and future versions. The Company issued 23,837,710
restricted common shares to P1 for the P1 Technology resulting in a change of
control of the Company. The P1 Technology was recorded by the Company at P1's
cost.
At December 31, 2003 the Company believed that MediaCloQ was not marketable at
its state of development and impaired its entire carrying value of $674,629
which represented the cost basis of SunnComm International Inc. when it sold the
technology to the Company on May 3, 2002. The Company incurred consulting and
general and administrative expenses of $128,750 pertaining to the abandonment of
MediaCloQ(TM) during the first quarter of 2004.
On January 28, 2004 the Company entered into a binding Memorandum of
Understanding, "MOU", with DarkNoise Technologies Limited, a United Kingdom
company, "DarkNoise" which was changed by a definitive agreement on March 18,
2005.
The Company advanced $50,000 in cash to DarkNoise during the first quarter of
2004 under the original terms of the MOU. Also during the first quarter the
Company paid a consultant 1,000,000 restricted common shares at a deemed value
of $.03 per share to evaluate the transaction. During the second quarter of
2004, the Company advanced an additional $20,000 in cash.
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued
The definitive agreement provided the Company with all of the Intellectual
Property patent applications and related documentation, technology demonstrators
and prototypes of Darknoise. The Company plans to engage SunnComm International,
Inc., "SunnComm", and an institutional leader in the development of audio
processing and music engineering technologies to further develop the
intellectual property so that it can be integrated with SunnComm's MediaMax
technology.
Once developed and integrated, the Agreement requires the Company to undertake
sales and marketing of the product. DarkNoise will receive a 25% royalty on the
incremental net revenues generated by the inclusion of the technology with the
product or products being marketed by the Company at that time.
The technology is designed to plug the so-called "Analog Hole" and will
substantially restrict the uploading of music files to the Internet without
reducing playability on all devices (www.darknoisetechnologies.com). The
technology works by encoding the original digital audio file with a unique
hidden signal. The signal is embedded in the audio master and becomes an
indelible part of the actual audio file in addition to aiding in subsequent
origin identification. Should the original CD be copied, so, too, is the hidden
signal and identification `tag.' Unless illegally invoked, the listener is
unaware of the hidden signal's presence. Attempts to illegally copy the
protected audio using analog recording devices, analog-to-digital converters or
psycho-acoustic compression codes such as MP3 will invoke the hidden signal
which transforms to become audible within the range of human hearing, thus
ruining the unauthorized copy.
On March 4, 2004 the written consent, of a majority of disinterested outstanding
common share holders of record at February 4, 2004 of the Company, became
effective to approve the issuance of 10,152,704 restricted common shares valued
by the Company at $.03 per share to SunnComm Technologies, Inc., "SunnComm", for
$304,581 of debt incurred for cash advances and administrative and overhead
expenses charged to the Company and to approve the issuance of 64,000,000
restricted common shares valued by the Company at $.03 per share for a total
consideration of $1,920,000 to SunnComm and the assumption of a $110,000
outstanding debt due to a consultant for an Exclusive Marketing Agreement with
its commercial copy protection technology on CD's and all of its continuing
upgrades.
At December 31, 2004, the Company fully impaired the floppy disk refurbishing
The equipment is currently idle in a storage facility waiting to be put to
productive use.
On June 11, 2005, the Company entered into an Agreement and Plan of Merger (the
"Agreement") with SunnComm International, Inc. ("SunnComm"). The Agreement
provides for the Company to acquire SunnComm in a reverse merger and supersedes
the non-binding letter of intent previously agreed to by both companies on March
30, 2005.
The Agreement provides for the issuance of the Company's common shares in
exchange for all of the outstanding common shares of SunnComm on a one-for-one
basis. The consummation of the merger is subject to the issuance of a fairness
opinion from an independent valuation expert. Additional conditions to the
consummation of the merger include, but are not limited to, audited financial
statements, the registration with the SEC of the Company's shares to be issued
in the transaction and shareholder approval of the merger by a majority of the
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued
shareholders of both companies. Additionally, it provides for the directors of
SunnComm to become board members of the Company and for SunnComm's president,
Peter H. Jacobs, to serve as the Chief Executive Officer.
In conjunction with the Agreement, the Company entered into an amended Exclusive
Marketing Agreement, "Marketing Agreement", as part of the Definitive Agreement
for the Company to acquire SunnComm in a reverse merger. The Marketing Agreement
prohibited SunnComm from terminating the Marketing Agreement prior to March 31,
2006 and relieved the Company from its obligation to advance cash to SunnComm
for advance royalty payments until July 31, 2005. All the other terms of the
original Marketing Agreement remained the same.
The Agreement provides the Company with 40% of the revenues derived from all
existing licensing agreements held by SunnComm and future revenue generating
agreements for the technology. When annual gross revenues of $3.6 million are
achieved, the Company will receive 50% of the licensing revenues. The agreement
also requires the Company to advance $138,000 a month against future royalties
and an additional $12,000 for services being provided by SunnComm. The Exclusive
Marketing Agreement gives the Company the exclusive marketing rights for
SunnComm's optical media enhancement and control technologies. Under the terms
of the Exclusive Marketing Agreement, the Company must pay for all of its sales
and marketing costs and SunnComm must pay for all of its development and upgrade
costs. SunnComm also agreed to indemnify the Company against consumer complaints
and product related litigation.
The Company is marketing MediaMax, which is a collection of technologies that
provides copy management for CDs and DVDs while simultaneously enhancing and
expanding the consumer's experience. MediaMax is tightly integrated with
Microsoft's (NASDAQ:MSFT - News) Windows Media Platform and the Digital Rights
Management capabilities associated with the latest Windows Media Platforms. The
company licenses and uses Windows Media Audio Digital Rights Management
capabilities from Microsoft Corporation as the security feature for music files
which end up residing on the consumer's computer.
Results of Operations:
Comparison of the Three and Six Months Ended June 30, 2005 and 2004
During the first quarter of 2004 the Company was no longer considered a
development stage company as a result of revenue generated during that quarter
and anticipated recurring revenue under licensing agreements covered under the
exclusive marketing agreement with SunnComm International Inc.
The Company recognized $99,438 of revenue during the first six months of 2005
which was more than double the $45,037 of revenue during the first six months of
2004. During the three months ended June 30, 2005, the Company generated $85,652
of revenue which was almost three times the $30,064 of revenue generated during
the three months ended June 30, 2004. All revenues were from licensing revenue
for the MediaMax product. The revenue during the six months ended June 30, 2005
was from 17 record labels of which approximately 40% were independent and during
the six months ended June 30, 2004, revenue was generated from 19 record labels
of which approximately 36% were independent.
During the six months ended 2005, general and administrative expenses was
comprised of $158,114 of payroll expenses & employee benefits, $72,000 of
administrative support fees from SunnComm, $33,288 of investor relation
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued
expenses, $31,600 of rent and telephone expenses, and $8,270 of miscellaneous
office expenses.
Payroll expense requiring cash expenditures during the six months ended 2005 was
$51,625 more than the six months ended 2004 due to salary increases and employee
benefits. Payroll expense and benefits were $16,881 less during the three months
ended June 30, 2005 than the same period ended 2004 largely due to health
insurance expenses.
Administrative support fees during the six months ended 2005 were $24,000
greater than 2004 because the exclusive marketing agreement had only been in
effect for one month during the first quarter 2004. There was no difference the
three months ended June 30, 2005 compared to the same period ended 2004.
Investor relation expense during the six months ended 2005 was $24,397 greater
than the same period ended 2004 because the Company incurred significant
expenses pertaining to a shareholder meeting during April 2005. The higher
amount of $16,596 during the three months ended 2005 as compared to 2004 was
caused for the same reason.
Rent and telephone expenses only was $3,367 higher during the six months ended
June 30, 2005 as compared to 2004. The difference was mainly caused from
increased marketing activity during the three months ended June 30, 2005 which
was $4,230 greater than the same period ended June 30, 2004.
Sales and marketing expenses of $247,741 during the six months ended June 30,
2005 was significantly greater than the $76,505 incurred during the same period
ended 2004. The difference was due to a consulting fee of $200,000 paid to Artie
Ripp, an entertainment consultant, during the first quarter of 2005. Mr. Ripp
was historically successful in the negotiating and obtaining a licensing
agreements with Universal, EMI and Koch from which the Company would receive 40%
of the revenues. There was no difference the three months ended June 30, 2005
compared to the same period ended 2004.
During the first quarter of 2004 the Company paid for $300,000 of consulting
fees with 10,000,000 restricted common shares for consulting pertaining to
general corporate matters for which $270,000 was allocated and to potential
acquisitions for which $30,000 was allocated. The Company also paid $20,880 in
cash for consulting services pertaining to the Company getting listed on the
Frankfurt and Berlin stock exchanges and to salespersons for contacting
potential customers after the signing of the exclusive marketing agreement.
Expenses of $30,000 were incurred during the first six months of 2005 to a
broker dealer for their work in preparing a report for the board of directors of
the Company pertaining to the reasonableness of a proposed one share for one
share Exchange Ratio between the Company and SunnComm in a proposed acquisition
of SunnComm subject to an independent fairness opinion.
During the six months ended 2005 the Company incurred $112,526 of legal and
accounting expenses pertaining to proposed financings and the public reporting
requirements of the Company. Expenses for the same period ended 2004 were
$27,199 because the Company was only incurring accounting expenses for its 1934
Act reporting requirements. Expenses during the three months ended June 30, 2005
were about 2.5 times that of the same period during 2004 for the same reason.
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued
Interest expense of $2,244 and $4,581 for the three and six months ended June
30, 2005, respectively, were from three convertible notes totaling $150,000
accruing interest at 8% per annum. The convertible notes were not outstanding
during the same periods during 2004.
Liquidity and Capital Resources:
At June 30, 2005 the Company had $1,072 of cash included in its $84,262 of
current assets. The Company had $465,273 of current payables leaving a working
capital deficit of $381,011.
During the first quarter of 2005, the Company raised $100,000 in cash from the
issuance of convertible promissory notes accruing interest at 8% per annum that
are convertible into common shares of the Company at $.025 per share.
During the first quarter of 2004, the Company raised $330,000 in from three
accredited investors for restricted common stock. The Company also retired
$515,751 of debt by issuing 17,191,726 restricted common shares primarily to
affiliates. The Company raised an additional $300,000 in cash during the second
quarter 2004 from an accredited investor for 2,500,000 restricted common shares
and warrants to purchase an additional 500,000 common shares at $.25 per share.
During the second quarter of 2005 the Company entered into a definitive
agreement with SunnComm to acquire all of its shares in a 1 share for 1 share
exchange. Significant expenses were incurred prior to the issuance of the offer
and the drafting of the definitive agreement which were paid for with cash and
common shares of the Company. Expenses of $72,915 at June 30, 2005 pertaining to
the acquisition have been capitalized.
SunnComm advanced $244,950 in cash to the Company and paid expenses on behalf of
the Company which, after second quarter revenue collected by SunnComm and the
administration fee owed to SunnComm, reduced the Company's receivable from
SunnComm for advances against future royalties by $253,706 during the six months
ended June 30, 2005.
On June 11, 2005 the Exclusive Marketing Agreement, "Marketing Agreement", was
amended as part of the Definitive Agreement for the Company to acquire SunnComm
in a reverse merger. The agreement prohibited SunnComm from terminating the
Marketing Agreement prior to March 31, 2006 and relieved the Company from its
obligation to advance cash to SunnComm for advance royalty payments until July
31, 2005. All the other terms of the original Marketing Agreement remained the
same.
During the first quarter of 2004 the Company entered into an Exclusive Marketing
Agreement with SunnComm to sell its MediaMax technology. The agreement requires
the Company to advance $138,000 a month in cash against future royalty payments
in order to maintain the exclusivity. The Company made its first payment during
March 2004.
On April 15, 2005, the Company signed an agreement with a broker dealer to raise
approximately $5 million for the Company by July 31, 2005 and to provide
advisory services pertaining to the proposed acquisition of SunnComm. The
agreement expired on July 31, 2005. During the term of the agreement, the
Company made payments totaling $30,000 for an Advisory Fee and unaccountable
expenses.
21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued
The Company is currently in discussions with new prospective parties regarding
the financing of the Company. The Company and SunnComm believe that they will
jointly need a minimum of $3 million to continue their respective operations and
complete the anticipated acquisition of SunnComm over the ensuing months. An
additional $2 million will be required to develop and market additional
technologies which both companies believe are needed to maintain a competitive
edge in the marketplace.
Forward Looking Statements:
Certain statements made in this report on Form 10-QSB are "forward looking"
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Such statements involve known and unknown risks, uncertainties and other
factors that may cause actual results, performance or achievements of the
Company to be materially different from any future results implied by such
forward looking statements. Although the Company believes that the expectations
reflected in such forward looking statements are based upon reasonable
assumptions, the Company's actual results could differ materially from those set
forth in the forward looking statements. Certain factors that might cause such a
difference might include: the failure of the registrants efforts to secure
additional equity capital, the inability to successfully execute the revised
business plan, the success or failure to implement the management to operate
possible acquisitions profitably, and the registrant's planned marketing, public
relations and promotional campaigns.
The Company believes that revenues during 2005 may be substantially greater than
2004 based upon its customers response to SunnComm's "MediaMax (Version 5) Copy
Management and Enhancement Technology" product. The positive customer response
is a result of excellent test results on the product from Belgium-based PMTC, an
international multimedia test center, and the products compatibility on
platforms commonly used by consumers which are resistant to copy protected
products.
Risk Factors:
The Company continues to be subject to a number of risk factors, including the
ability of management to successfully market the MediaMax technology, acquire
and manage compatible revenue generating operating companies to the MediaMax
technology, the financial loss that may be incurred due to its inability to
complete a proposed acquisition of SunnComm, the need for additional funds,
competition and the difficulties faced by development stage companies in
general.
22
ITEM 3: CONTROLS AND PROCEDURES
a) Disclosure controls and procedures. Within 90 days before filing this report,
an evaluation was performed under the supervision and with the participation of
the Company's management, including the CEO and CFO, of the effectiveness of the
design and operation of its disclosure controls and procedures. Based on that
evaluation, the Company's management, including the CEO and CFO, concluded that
the Company's disclosure control and procedures were effective as of the date of
the evaluation.
(b) Internal controls. Since the date of the evaluation described above, there
have not been any significant changes in the Company's internal accounting
controls or in other factors that could significantly affect those controls.
23
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no legal proceedings against the Company and the Company is unaware of
any proceedings contemplated against it.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual general shareholder meeting on on April 29, 2005 in
Phoenix, Arizona for all shareholders of record at March 30, 2005. The meeting
involved the election of three directors to each serve a three year term on the
board of directors. The directors elected were Wade P. Carrigan, Albert Golusin
and William H. Whitmore, Jr., resulting in there being a total of three total
directors in the company.
The two matters voted upon by the shareholders were the election of the
directors as a group and the appointment of Semple & Cooper LLP as independent
registered public accountants to audit the Company's financial statements for
the year 2005. A total of 165,559,840 votes were in favor of the two matters put
before the shareholders which represented 100% of all of the votes cast. There
were no abstentions or negative votes.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31.1 Quarterly Certification of Chief Executive Officer Pursuant To
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Quarterly Certification Chief Financial Officer Pursuant To
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certificate of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certificate of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
(1) Form 8-K filed on June 11, 2005 for definitive agreement of the
company to acquire SunnComm International, Inc.
SIGNATURES
Pursuant to the requirements 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.
MEDIAMAX TECHNOLOGY CORPORATION
Signatures Title Date
---------- ----- ----
/s/ William H. Whitmore, Jr. Chief Executive Officer August 10, 2005
------------------------
William H. Whitmore, Jr.
/s/ Albert A. Golusin Chief Financial Officer August 10, 2005
------------------------
Albert A. Golusin
24
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