10QSB 1 mede_10qsb.txt QUARTERLY REPORT UNITED STATES 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 March 31, 2003 TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from ______________ to ______________ Commission file number 000-32231 MEDIA AND ENTERTAINMENT.COM, INC. -------------------------------------- (Exact name of small business issuer as specified in its charter) Nevada 52-2236253 ------------- -------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 10120 S. Eastern Avenue, Suite 200, Las Vegas, NV 89052 ------------------------------------------------------- (Address of principal executive offices) (818) 562-8282 -------------------- (Issuer's telephone number) As of May 16, 2003, the issuer had 15,500,635 shares of common stock, $.001 par value, outstanding. Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X] -i- Media and Entertainment.com, Inc. Quarterly Report on Form 10-QSB Quarter Ended March 31, 2003 Table of Contents Page Independent Accountants' Review Report.................................iii PART I - FINANCIAL INFORMATION Item 1. Financial Statements: Balance Sheet as of March 31, 2003 (Unaudited)......................1 Statement of Operations and Accumulated Deficit (Unaudited) for the Three Months Ended March 31, 2003 and 2002 and from inception to March 31, 2003..............................2 Statement of Changes in Stockholders' Equity (Deficit) (Unaudited) as of March 31, 2003...................................3 Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2003 and 2002 and from inception to March 31, 2003..............................5 Notes to Financial Statements.......................................6 Item 2. Management's Discussion and Analysis or Plan of Operation.......18 Item 3. Controls and Procedures.........................................19 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K................................20 SIGNATURES..............................................................21 CERTIFICATIONS..........................................................22 EXHIBIT INDEX...........................................................23 -ii- INDEPENDENT ACCOUNTANTS' REVIEW REPORT To the Board of Directors Media And Entertainment.com, Inc.: We have reviewed the accompanying balance sheets of Media and Entertainment.com, Inc. (a Nevada corporation) (a development stage company) as of March 31, 2003 and 2002 and the related statements of operations and accumulated deficit, changes in stockholders' equity and cash flows for the three months ended March 31, 2003 and 2002 and for the period April 27, 2000 (Inception date) to March 31, 2003, respectively, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. All information included in these financial statements is the representation of the management of Media and Entertainment.com, Inc. The financial statements of Media and Entertainment.com, Inc. as of March 31, 2001, were reviewed by other accountants, whose report dated August 10, 2001 stated that they were not aware of any material modifications that should be made to those statements in order for them to be in conformity with generally accepted accounting principles in the United States of America. A review consists principally of inquiries of Company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with generally accepted accounting principles in the United States of America. As discussed in Note 3, certain conditions indicate that the Company may be unable to continue as a going concern. However, management plans to continue the business as set forth therein. The accompanying financial statements do no include any adjustments to the financial statements that might be necessary should the Company be unable to continue as a going concern. Chavez & Koch, CPA's, Ltd. May 20, 2003 Henderson, Nevada -iii- MEDIA AND ENTERTAINMENT.COM, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEET AS OF MARCH 31, 2003 UNAUDITED ---------------- 03/31/2003 ---------------- ASSETS ASSETS: Current assets: Cash $ 193 Accounts receivable 8,375 ---------------- Total current assets 8,568 Fixed assets: Computer Equipment 97,927 Software 1,388 Furniture & fixtures 1,613 Less: accumulated depreciation (18,085) ---------------- Total fixed assets 82,843 Other assets: Officer's salary advance 37,000 Refundable deposits 760 ---------------- Total other assets 37,760 ---------------- TOTAL ASSETS $ 129,171 ================ LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Current liabilities: Accounts payable $ 69,655 Accrued expenses 19,700 Payroll tax liabilities 18,664 Loan payable - officer, director & shareholder 165,562 ---------------- Total current liabilities 273,581 ---------------- TOTAL LIABILITIES 273,581 ---------------- Stockholders' equity: Convertible preferred stock, $0.001 par value 5,000,000 shares authorized, 100 shares issued and outstanding at 03/31/03 2 Additional paid-in capital - convertible preferred stock 132,848 Paid-in capital - stock warrants 22,150 Common stock, $0.001 par value, 50,000,000 shares authorized, 11,075,765 outstanding at 03/31/03 11,075 Additional paid-in capital - common stock 2,024,283 Deferred compensation (303,465) Accumulated deficit during development stage (2,031,303) ---------------- Total stockholders' equity (144,410) ---------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 129,171 ================ The accompanying independent accountants' review report and notes to financial statements should be read in conjunction with these Balance Sheets. -1- MEDIA AND ENTERTAINMENT.COM, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT FOR THE THREE MONTHS ENDED MARCH 31, 2003 & 2002 AND FROM INCEPTION TO MARCH 31, 2003 UNAUDITED ---------------------------------------- Three months ended Inception to -------------------------- ------------ 03/31/2003 03/31/2002 03/31/2003 ------------ ------------ ------------ REVENUE $ - $ - $ 25,615 COST OF GOODS SOLD - - - ------------ ------------ ------------ GROSS PROFIT - - 25,615 ------------ ------------ ------------ EXPENSES: Selling, general and administrative 16,254 153,144 724,716 Selling, general and administrative, related party - 500 652,660 Depreciation expense 5,268 471 18,085 ------------ ------------ ------------ Total expenses 21,522 154,115 1,395,461 ------------ ------------ ------------ OPERATING INCOME (LOSS) (21,522) (154,115) (1,369,846) ------------ ------------ ------------ OTHER INCOME/(EXPENSES): Research and development expense (15,025) (48,421) (644,466) Interest expense (2,687) - (17,003) Interest income - - 12 ------------ ------------ ------------ Total other income/(expenses) (17,712) (48,421) (661,457) ------------ ------------ ------------ NET ORDINARY INCOME (LOSS) $ (39,234) $ (202,536) $(2,031,303) ------------ ------------ ------------ Accumulated Deficit, beginning of period (1,992,069) (925,830) - Accumulated Deficit, end of period $(2,031,303) $(1,128,366) $(2,031,303) ============ ============ ============ Basic weighted average number of common shares outstanding 11,075,765 9,554,420 9,104,644 ============ ============ ============ Basic Net Income (Loss) per Share (0.00) (0.02) (0.22) ============ ============ ============ The accompanying independent accountants' review report and notes to financial statements should be read in conjunction with these Statements of Operations and Accumulated Deficit. -2- MEDIA AND ENTERTAINMENT.COM, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) AS OF MARCH 31, 2003 (UNAUDITED)
Add'l Paid- Add'l in Paid Convertible Capital- Paid-in Common Stock In Deferred Accumulated Total Preferred Stock Convertible Capital - Capital Deficit Stockh- Shares Value preferred Stock Shares Value Common Compensation Development olders' stock warrants stock Stage Equity -------- -------- --------- --------- ----------- -------- --------- ------------ ----------- ------- Issued for cash August 31, 2000 - $ - $ - $ - 3,250,000 $ 3,250 $ 5,250 $ - $ - $ 8,500 Issued for cash November 10, 2000 - - - - 1,699,750 1,700 168,275 - - 169,975 Accumulated deficit December 31, 2000 - - - - - - - - (94,537) (94,537) -------- -------- --------- --------- ----------- -------- --------- ------------- ---------- ------- Balance at December 31, 2000 - $ - $ - $ - 4,949,750 $ 4,950 $173,525 $ - $ (94,537) $83,938 ======== ======== ========= ========= =========== ======== ========= ============= ========== ======= Issued for services June 1, 2001 - - - - 52,000 52 5,148 (5,200) - - June 7, 2001 - - - - 455,000 455 129,220 (129,675) - - July 31, 2001 - - - - 200,000 200 59,800 (60,000) - - August 1, 2001 - - - - 100,000 100 29,900 (30,000) - - August 8, 2001 - - - - 100,000 100 29,900 (30,000) - - August 20, 2001 - - - - 500,000 500 124,500 (125,000) - - August 23, 2001 - - - - 200,000 200 49,800 (50,000) - - September 5, 2001 - - - - 50,000 50 14,172 (14,222) - - September 11, 2001 - - - - 200,000 200 56,692 (56,892) - - October 15, 2001 - - - - 50,000 50 17,450 (17,500) - - December 20, 2001 - - - - 50,000 50 20,950 (21,000) - - Issued for stock awards July 31, 2001 - - - - 920,000 920 275,080 (276,000) Nexcode acquisition August 6, 2001 - - - - 1,200,000 1,200 404,800 - - 406,000 Issued for stock awards October 5, 2001 - - - - 500,000 500 154,500 (155,000) - - Issued for stock awards October 25, 2001 - - - - 10,000 10 5,990 (6,000) - - Future services received December 31, 2001 - - - - - - - 235,769 - 235,769 Net income (loss) December 31, 2001 - - - - - - - - (831,293)(831,293) -------- -------- --------- --------- ----------- -------- --------- ------------- ----------- ------- Balance at December 31, 2001 - $ - $ - $ - 9,536,750 $ 9,537$1,551,427 $(740,720) $(925,830)$(105,586) ======== ======== ========= ========= =========== ======== ========= ============= ========== ======= Issued for cash March 31, 2002 - - - - 120,969 120 37,380 - - 37,500 Future services received March 31, 2002 - - - - - - - 133,789 - 133,789 Net income (loss) March 31, 2002 - - - - - - - - (202,536)(202,536) -------- -------- --------- --------- ----------- -------- --------- ------------- ---------- ------- Balance at March 31, 2002 - - $ - $ - 9,657,719 $ 9,657 $1,588,807 $(606,931) $(1,128,366)$(136,833) ======== ======== ========= ========= =========== ======== ========= ============= ========== =======
The accompanying independent accountants' review report and notes to financial statements should be read in conjunction with this Statement of Changes in Stockholders' Equity (Deficit). -3- MEDIA AND ENTERTAINMENT.COM, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED) AS OF MARCH 31, 2003 (UNAUDITED)
Add'l Paid- Add'l in Paid Convertible Capital- Paid-in Common Stock In Deferred Accumulated Total Preferred Stock Convertible Capital - Capital Deficit Stockh- Shares Value preferred Stock Shares Value Common Compensation Development olders' stock warrants stock Stage Equity -------- -------- --------- --------- ----------- -------- --------- ------------- ----------- ------- Issued for cash April 9, 2002 - - - - 142,645 143 44,077 - - 44,220 Issued for cash May 9, 2002 - - - - 270,000 270 80,730 - - 81,000 Issued for cash June 9, 2002 - - - - 855,401 855 264,319 - - 265,174 Net income (loss) June 30, 2002 - - - - - - - - (109,488)(109,488) -------- -------- --------- --------- ----------- -------- --------- ------------- ----------- ------- Balance at June 30, 2002 - $ - $ - $ - 10,925,765 $10,925 $1,977,933 $ (606,931)$(1,237,854)$144,073 ======== ======== ========= ========= =========== ======== ========= ============= =========== ======= Issued for cash July 1, 2002 - - - - 150,000 150 46,350 - - 46,500 Issued for cash September 19, 2002 100 - 8,571 1,429 - - - - - 10,000 Future services received September 30, 2002 - - - - - - - 303,466 - 303,466 Net income (loss) September 30, 2002 - - - - - - - - (552,862) (552,862) -------- -------- --------- --------- ----------- -------- --------- ------------- ----------- ------- Balance at September 100 $ - $ 8,571 $ 1,429 11,075,765 $11,075 $2,024,283 $ (303,465)$(1,790,716)$(48,823) 30, 2002 ======== ======== ========= ========= =========== ======== ========= ============= =========== ======= Issued for cash October 8, 2002 800 1 68,567 11,432 - - - - - 80,000 Issued for cash October 22, 2002 100 - 8,571 1,429 - - - - - 10,000 Issued for cash November 8, 2002 50 - 4,285 715 - - - - - 5,000 Issued for cash December 5, 2002 500 1 42,854 7,145 - - - - - 50,000 Net income (loss) December 31, 2002 - - - - - - - - (201,353)(201,353) -------- -------- --------- --------- ----------- -------- --------- ------------- ----------- ------- Balance at December 31, 2002 1,550 $ 2 $132,848 $ 22,150 $11,075,765 $11,075 $2,024,283 $ (303,465)$(1,992,069)$(105,176) ======== ======== ========= ========= =========== ======== ========= ============= =========== ======= Net Income (loss) March 31, 2003 - - - - - - - - (39,234) (39,234) -------- -------- --------- --------- ----------- -------- --------- ------------- ----------- ------- 1,550 $ 2 $132,848 $ 22,150 $11,075,765 $11,075 $2,024,283 $ (303,465)$(2,031,303)$(144,410) ======== ======== ========= ========= =========== ======== ========= ============= =========== =======
The accompanying independent accountants' review report and notes to financial statements should be read in conjunction with this Statement of Changes in Stockholders' Equity (Deficit). -4- MEDIA AND ENTERTAINMENT. COM, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2003 & 2002 AND FROM INCEPTION TO MARCH 31, 2003
UNAUDITED ---------------------------------------- Three months ended Inception to --------------------------- ------------ 03/31/2003 03/31/2002 03/31/2003 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) $ (39,234) $ (202,536) $ (2,031,303) Adjustments to reconcile net loss to net cash used by operations: Depreciation 5,268 471 18,085 Stock based compensation - 133,789 846,549 Accounts receivable - - (8,375) Nexcode acquisition - - 406,000 Decrease in deposits 2,000 - (760) Increase (decrease) in accounts payable 1,608 8,096 69,655 Accrued expense 2,688 - 19,700 Accrued payroll tax expense 931 - 18,664 ------------ ------------ ------------ Net cash (used) by operating activities (26,739) (60,180) (661,785) ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of fixed assets (1,614) - (100,928) Loan to officer, director & shareholder - (10,050) (37,000) ------------ ------------ ------------ Net cash used by investing activities (1,614) (10,050) (137,928) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock - 120 6,646 Increase in additional paid-in capital - 37,380 627,698 Loans from shareholders 24,003 39,395 165,562 ------------ ------------ ------------ Net cash provided by financing activities 24,003 76,895 799,906 ------------ ------------ ------------ NET INCREASE (DECREASE) IN CASH (4,350) 6,665 193 CASH, BEGINNING OF PERIOD 4,543 597 - ------------ ------------ ------------ CASH, END OF PERIOD $ 193 $ 7,262 $ 193 ============ ============ ============ SUPPLEMENTARY INFORMATION: Interest paid $ - $ - $ (4,329) ============ ============ ============ Income taxes paid $ - $ - $ - ============ ============ ============
The accompanying independent accountants' review report and notes to financial statements should be read in conjunction with these Statements of Cash Flows. -5- MEDIA AND ENTERTAINMENT.COM, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS QUARTER ENDED MARCH 31, 2003 NOTE 1 - ORGANIZATION AND PURPOSE Media and Entertainment.com, Inc. (a development stage company) was incorporated in the State of Nevada on April 27, 2000. Media & Entertainment.com is an Internet solutions company that has developed proprietary streaming and encryption software with broad applications. Since the acquisition of Nexcode, Inc. in August 2001, the Company's focus has turned to the commercialization of Nexcode's NetDVD StreamShare technology. Management believes, based on its knowledge of the industry, that the Company's software is able to compete in the marketplace with virtually all other companies. The Company has had an unsubstantial revenue generating operations to date, and therefore, in accordance with Statement on Financial Accounting Standards No. 7, the Company is considered a development stage company. Accordingly, some of the Company's accounting policies and procedures have not yet been established. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting The Company's policy is to prepare its financial statements on the accrual basis of accounting. The fiscal year end is December 31. Cash and Cash Equivalents Cash equivalents consist of highly liquid investments with maturities of three months or less when purchased. 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 disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reported period. Actual results could differ from those estimates. -6- MEDIA AND ENTERTAINMENT.COM, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) QUARTER ENDED MARCH 31, 2003 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Earnings Per Share Calculations Basic earnings per common share ("EPS") is computed by dividing income available to common stockholders by the weighed-average number of common shares outstanding for the period. The weighed- average number of common shares outstanding for computing basic weighted average number of common shares outstanding was 11,075,765 and 9,554,420 for the periods ended March 31, 2003 and 2002, respectively. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. As of March 31, 2003 and 2002, the Company had no outstanding securities that could have a dilutive effect on the outstanding common stock. Therefore, no diluted EPS was calculated. Fixed Assets Fixed assets are stated at cost. Expenditures that materially increase the life of the assets are capitalized. Ordinary maintenance and repairs are charged to expense as incurred. When assets are sold or otherwise disposed of, the cost and the related accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is recognized at that time. Depreciation is computed primarily on the straight-line method for financial statement purposes over the following estimated useful lives: Computer Equipment 5 Years Software 3 Years Depreciation expense for the periods ended March 31, 2003 and 2002 was $5,268 and $471, respectively. Income Taxes Income taxes are generally provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the basis of fixed assets for financial and income tax reporting. The Company has no deferred tax assets and liabilities representing the future tax return consequences of those differences because currently the Company has no material temporary timing differences that give rise to these tax assets and liabilities. Currently there are no federal income taxes due. Advertising Advertising costs are to be expensed when incurred. There were no advertising costs for the periods ended March 31, 2003 and 2002. -7- MEDIA AND ENTERTAINMENT.COM, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) QUARTER ENDED MARCH 31, 2003 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Revenue Recognition The Company is in the process of developing and implementing accrual based revenue recognition policies. NOTE 3 - GOING CONCERN These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. As of March 31, 2003, the Company had recognized $25,615 of revenues to date and had accumulated losses of approximately $2,031,303 since inception. The Company's ability to continue as a going concern is contingent upon the successful completion of additional financing arrangements and its ability to achieve and maintain profitable operations. Management plans to raise equity capital to finance the operating and capital requirements of the Company. Amounts raised will be used for further development of the Company's products, to provide financing for marketing and promotion, to secure additional property and equipment, and for other working capital purposes. While the Company is expending its best efforts to achieve the above plans, there is no assurance that any such activity will generate funds that will be available for operations. NOTE 4 - STOCKHOLDERS' EQUITY A chronological history of Stockholders' Equity is as follows: April 27, 2000 - The Company incorporated in Nevada. The Company is authorized to issue 20,000,000 shares of its $0.001 par value common stock and 5,000,000 shares of its $0.001 par value preferred stock. May 3, 2000 - The Company issued 3,250,000 shares to the two company founders as follows: The Company issued to a founder 1,625,000 shares of $0.001 par value common stock in exchange for cash in the amount of $4,250. The Company issued to another founder 1,625,000 shares of $0.001 par value common stock in exchange for cash in the amount of $4,250. All of these shares were issued in accordance with Section 4(2) of the Securities Act of 1933. -8- MEDIA AND ENTERTAINMENT.COM, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) QUARTER ENDED MARCH 31, 2003 NOTE 4 - STOCKHOLDERS' EQUITY (CONTINUED) November 7, 2000 - The Company closed its offering pursuant to Rule 504, Regulation D, under the Securities Act of 1933, as amended, whereby it sold a total of 1,699,750 shares of its $0.001 par value common stock at $0.10 per share to outside investors. All of these shares were issued in exchange for cash in the amount of $169,975, before offering costs in the amount of $1,300. Of the total cash received, $1,700 is the stated value of common stock and $168,275 is considered additional paid- in capital. The Company sold all 1,699,750 shares of its common stock to approximately 84 unaffiliated shareholders, none of whom were/are officers or directors. On June 7, 2001, 455,000 shares of common stock were issued to two individuals in exchange for future services. The value of services is based on prior services provided by the individuals and on the cost of similar services provided by other similar service providers. The number of shares issued for services is based on the value of services divided by the par value of the shares. The Company issued 245,000 shares of common stock to an individual in exchange for a one-year management consulting agreement. The management consulting services are valued at $69,825. Shares were issued under Section 4 (2) of the Securities Act of 1933, and registered on a registration statement on Form S-8 under the Securities Act of 1933. The Company issued 210,000 shares of common stock to another individual in exchange for a one-year management consulting agreement. The management consulting services are valued at $59,850. Shares were issued under Section 4 (2) of the Securities Act of 1933, and registered on a registration statement on Form S-8 under the Securities Act of 1933. From March 14 through June 11, 2002, the Company sold an aggregate of 1,389,019 shares of $0.001 par value common stock for aggregate cash proceeds of $427,894 in a private placement to a total of 11 accredited investors. July 1, 2002 - The Company issued 150,000 shares to one individual as follows: The Company issued to an investor 150,000 shares of $0.001 par value common stock in exchange for cash in the amount of $46,500. From September 18 through December 5, 2002, the Company sold an aggregate of 1,550 shares of Series A Convertible Preferred Stock, $.001 par value, and 155 Class A Common Stock Warrants in a private placement to five individuals, as follows: -9- MEDIA AND ENTERTAINMENT.COM, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) QUARTER ENDED MARCH 31, 2003 NOTE 4 - STOCKHOLDERS' EQUITY (CONTINUED) September 18, 2002 - The Company issued 100 shares and 10 warrants to one individual as follows: The Company issued to an investor 100 shares of series A convertible preferred stock, $0.001 par value, convertible into 16,667 shares of common stock, at a conversion rate of $.60 per share of common stock and 10 class A stock warrants, convertible into 2,780 shares of common stock, at an exercise rate of $2.50 per share; in exchange for cash in the amount of $10,000. These warrants expire in 2005. October 8, 2002 - The Company issued 800 shares and 80 warrants to one individual as follows: The Company issued to an investor 800 shares of series A convertible preferred stock, $0.001 par value, convertible into 133,336 shares of common stock, at a conversion rate of $.60 per share of common stock and 80 class A stock warrants, convertible into 22,240 shares of common stock, at an exercise rate of $2.50 per share; in exchange for cash in the amount of $80,000. These warrants expire in 2005. October 22, 2002 - The Company issued 100 shares and 10 warrants to one individual as follows: The Company issued to an investor 100 shares of series A convertible preferred stock, $0.001 par value, convertible into 16,667 shares of common stock, at a conversion rate of $.60 per share of common stock and 10 class A stock warrants, convertible into 2,780 shares of common stock, at an exercise rate of $2.50 per share; in exchange for cash in the amount of $10,000. These warrants expire in 2005. November 8, 2002 - The Company issued 50 shares and 5 warrants to one individual as follows: The Company issued to an investor 50 shares of series A convertible preferred stock, $0.001 par value, convertible into 8,334 shares of common stock, at a conversion rate of $.60 per share of common stock and 10 class A stock warrants, convertible into 1,390 shares of common stock, at an exercise rate of $2.50 per share; in exchange for cash in the amount of $5,000. These warrants expire in 2005. December 5, 2002 - The Company issued 500 shares and 50 warrants to one individual as follows: The Company issued to an investor 500 shares of series A convertible preferred stock, $0.001 par value, convertible into 83,335 shares of common stock, at a conversion rate of $.60 per share of common stock and 50 class A stock warrants, convertible into 13,900 shares of common stock, at an exercise rate of $2.50 per share; in exchange for cash in the amount of $50,000. These warrants expire in 2005. -10- MEDIA AND ENTERTAINMENT.COM, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) QUARTER ENDED MARCH 31, 2003 NOTE 4 - STOCKHOLDERS' EQUITY (CONTINUED) All shares issued during 2002, were issued pursuant to Rule 506 of Regulation D under the Securities Act of 1933. Stock Subscriptions On June 1, 2001, 52,000 shares of common stock were issued to two individuals in exchange for future services. The value of the services is based on prior services provided by the individuals and on the cost of similar services provided by other similar service providers. The number of shares issued for services is based on the fair market value of $0.10 per share. The Company issued 28,000 shares of common stock to an individual in exchange for a one-year management consulting agreement. The management consulting services are valued at $2,800. Shares were issued under an exemption from the registration provisions of Section 5 of the Securities Act of 1933, pursuant to Section 4 (2) of the Securities Act of 1933. The Company issued 24,000 shares of common stock to another individual in exchange for a one-year management consulting agreement. The management consulting services are valued at $2,400. Shares were issued under an exemption from the registration provisions of Section 5 of the Securities Act of 1933, pursuant to Section 4 (2) of the Securities Act of 1933. On June 7, 2001, 455,000 shares of common stock were issued to two individuals in exchange for future services. The value of the services is based on prior services provided by the individuals and on the cost of similar services provided by other similar service providers. The Company issued 245,000 shares of common stock to an individual in exchange for a one-year management consulting agreement. The management consulting services are valued at $69,825. Shares were issued under an exemption from the registration provisions of Section 5 of the Securities Act of 1933, pursuant to Section 4 (2) of the Securities Act of 1933. The Company issued 210,000 shares of common stock to another individual in exchange for a one-year management consulting agreement. The management consulting services are valued at $59,850. Shares were issued under Section 4 (2) of the Securities Act of 1933, and registered on a registration statement on Form S-8 under the Securities Act of 1933. On July 31, 2001, 200,000 shares of common stock were issued to three individuals and one organization in exchange for future services. The value of the services is based on prior services provided by the individuals and on the cost of similar services provided by other similar service providers. -11- MEDIA AND ENTERTAINMENT.COM, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) QUARTER ENDED MARCH 31, 2003 NOTE 4 - STOCKHOLDERS' EQUITY (CONTINUED) The Company issued 50,000 shares of common stock to an individual in exchange for a one-year management consulting agreement. The management consulting services are valued at $15,000. Shares were issued under an exemption from the registration provisions of Section 5 of the Securities Act of 1933 pursuant to Section 4 (2) of the Securities Act of 1933. The Company issued 50,000 shares of common stock to another individual in exchange for a one-year management consulting agreement. The management consulting services are valued at $15,000. Shares were issued under an exemption from the registration provisions of Section 5 of the Securities Act of 1933 pursuant to Section 4 (2) of the Securities Act of 1933. The Company issued 50,000 shares of common stock to an organization in exchange for a one-year management consulting agreement. The management consulting services are valued at $15,000. Shares were issued under an exemption from the registration provisions of Section 5 of the Securities Act of 1933 pursuant to Section 4 (2) of the Securities Act of 1933. The Company issued 50,000 shares of common stock to another individual in exchange for a one-year management consulting agreement. The management consulting services are valued at $15,000. Shares were issued under an exemption from the registration provisions of Section 5 of the Securities Act of 1933 pursuant to Section 4 (2) of the Securities Act of 1933. In August 2001, 400,000 shares of common stock were issued to two individuals and one organization in exchange for future services. The value of the services is based on prior services provided by the individuals and on the cost of similar services provided by other similar service providers. The Company issued 100,000 shares of common stock to an individual in exchange for a one-year management consulting agreement. The management consulting services are valued at $30,000. Shares were issued under an exemption from the registration provisions of Section 5 of the Securities Act of 1933 pursuant to Section 4 (2) of the Securities Act of 1933. The Company issued 200,000 shares of common stock to an organization in exchange for a six-month management consulting agreement. The management consulting services are valued at $50,000. Shares were issued under an exemption from the registration provisions of Section 5 of the Securities Act of 1933 pursuant to Section 4 (2) of the Securities Act of 1933. In September 2001, 750,000 shares of common stock were issued to three individuals and one organization in exchange for future services. -12- MEDIA AND ENTERTAINMENT.COM, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) QUARTER ENDED MARCH 31, 2003 NOTE 4 - STOCKHOLDERS' EQUITY (CONTINUED) The value of the services is based on prior services provided by the individuals and on the cost of similar services provided by other similar service providers. The Company issued 500,000 shares of common stock to an organization in exchange for a one-year management consulting agreement. The management consulting services are valued at $125,000. Shares were issued under an exemption from the registration provisions of Section 5 of the Securities Act of 1933 pursuant to Section 4 (2) of the Securities Act of 1933. The Company issued 50,000 shares of common stock to an individual in exchange for a one-year management consulting agreement. The management consulting services are valued at $14,222. Shares were issued under an exemption from the registration provisions of Section 5 of the Securities Act of 1933 pursuant to Section 4 (2) of the Securities Act of 1933. The Company issued 100,000 shares of common stock to an individual in exchange for a one-year management consulting agreement. The management consulting services are valued at $28,446. Shares were issued under an exemption from the registration provisions of Section 5 of the Securities Act of 1933 pursuant to Section 4 (2) of the Securities Act of 1933. The Company issued 100,000 shares of common stock to an individual in exchange for a one-year management consulting agreement. The management consulting services are valued at $28,446. Shares were issued under an exemption from the registration provisions of Section 5 of the Securities Act of 1933 pursuant to Section 4 (2) of the Securities Act of 1933. Stock Based Award Agreements On July 31, 2001, 920,000 shares of common stock were issued to five individuals as part of the 2001 Stock Option and Incentive Plan of the Company as follows: The Company issued 120,000 shares of common stock to an individual as a matter of separate inducement and agreement in connection with his employment with or service to the Company. The shares are valued at $36,000. Shares were issued under an exemption from the registration provisions of Section 5 of the Securities Act of 1933 pursuant to Section 4 (2) of the Securities Act of 1933. The Company issued 100,000 shares of common stock to another individual as a matter of separate inducement and agreement in connection with his employment with or service to the Company. The shares are valued at $30,000. Shares were issued under an exemption from the registration provisions of Section 5 of the Securities Act of 1933 pursuant to Section 4 (2) of the Securities Act of 1933. -13- MEDIA AND ENTERTAINMENT.COM, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) QUARTER ENDED MARCH 31, 2003 NOTE 4 - STOCKHOLDERS' EQUITY (CONTINUED) The Company issued 250,000 shares of common stock to another individual as a matter of separate inducement and agreement in connection with his employment with or service to the Company. The shares are valued at $75,000. Shares were issued under an exemption from the registration provisions of Section 5 of the Securities Act of 1933 pursuant to Section 4 (2) of the Securities Act of 1933. The Company issued 250,000 shares of common stock to another individual as a matter of separate inducement and agreement in connection with his employment with or service to the Company. The shares are valued at $75,000. Shares were issued under an exemption from the registration provisions of Section 5 of the Securities Act of 1933 pursuant to Section 4 (2) of the Securities Act of 1933. The Company issued 200,000 shares of common stock to another individual as a matter of separate inducement and agreement in connection with his employment with or service to the Company. The shares are valued at $60,000. Shares were issued under an exemption from the registration provisions of Section 5 of the Securities Act of 1933 pursuant to Section 4 (2) of the Securities Act of 1933. In October 2001, 560,000 shares of common stock were issued to five individuals as part of the 2001 Stock Option and Incentive Plan of the Company as follows: The Company issued 250,000 shares of common stock to an individual as a matter of separate inducement and agreement in connection with his employment with or service to the Company. The shares are valued at $150,000. Shares were issued under an exemption from the registration provisions of Section 5 of the Securities Act of 1933 pursuant to Section 4 (2) of the Securities Act of 1933. The Company issued 250,000 shares of common stock to another individual as a matter of separate inducement and agreement in connection with his employment with or service to the Company. The shares are valued at $150,000. Shares were issued under an exemption from the registration provisions of Section 5 of the Securities Act of 1933 pursuant to Section 4 (2) of the Securities Act of 1933. The Company issued 5,000 shares of common stock to another individual as a matter of separate inducement and agreement in connection with his employment with or service to the Company. The shares are valued at $3,000. Shares were issued under an exemption from the registration provisions of Section 5 of the Securities Act of 1933 pursuant to Section 4 (2) of the Securities Act of 1933. The Company issued 5,000 shares of common stock to another individual as a matter of separate inducement and agreement in connection with his employment with or service to the Company. The shares are valued at $3,000. Shares were issued under an exemption from the registration provisions of Section 5 of the Securities Act of 1933 pursuant to Section 4 (2) of the Securities Act of 1933. -14- MEDIA AND ENTERTAINMENT.COM, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) QUARTER ENDED MARCH 31, 2003 NOTE 4 - STOCKHOLDERS' EQUITY (CONTINUED) The Company issued 50,000 shares of common stock to another individual as a matter of separate inducement and agreement in connection with his employment with or service to the Company. The shares are valued at $17,500. Shares were issued under an exemption from the registration provisions of Section 5 of the Securities Act of 1933 pursuant to Section 4 (2) of the Securities Act of 1933. On December 20, 2001, 50,000 shares of common stock were issued to an individual as part of the 2001 Stock Option and Incentive Plan of the Company as follows: The Company issued 50,000 shares of common stock to an individual as a matter of separate inducement and agreement in connection with his employment with or service to the Company. The shares are valued at $21,000. Shares were issued under an exemption from the registration provisions of Section 5 of the Securities Act of 1933 pursuant to Section 4 (2) of the Securities Act of 1933. As of March 31, 2003, a total of 3,387,000 shares had been issued in exchange for an agreement to perform future services valued at $976,489, of which services valued at $673,024 had been provided and expensed. Acquisitions The Company issued 1,200,000 shares of restricted common stock to Nexcode, Inc. as the purchase price for all Nexcode assets. The services are valued at $1,200. Of the total received, $1,200 is the stated value of common stock and $0 is considered additional paid-in capital. The shares shall subsequently be distributed to officers of Nexcode, Inc. as follows: Nana Valley, Chief Executive Officer, 400,000 shares Ceasar Collazo, Chief Technology Officer, 400,000 shares Michael Brown, Chief Operating Officer, 400,000 shares NOTE 5 - RELATED PARTY TRANSACTIONS Officer's compensation of $10,774 was included in general and administrative expenses, as of March 31, 2003. As of March 31, 2003, the Company had a salary advance to the former president of the company in the amount of $37,000. This advance occurred prior to the passing of the Sarbanes-Oxley Act of 2002. The Company received two loans with current balances of $36,420 and $129,142 from two shareholders, each bearing interest at 7%, in accordance with loan agreements that the Company had executed with both lenders, respectively. For the period ended March 31, 2003, the Company had accrued interest expense of $12,660 related to these notes. -15- MEDIA AND ENTERTAINMENT.COM, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) QUARTER ENDED MARCH 31, 2003 NOTE 5 - RELATED PARTY TRANSACTIONS (CONTINUED) The officers and directors of the Company are involved in other business activities and may, in the future, become involved in other business opportunities. If a specific business opportunity becomes available, such person may face a conflict in selecting between the Company and their other business interests. The Company has not formulated a policy for the resolution of such conflicts. NOTE 6 - MATERIAL CONTRACTS/AGREEMENTS On August 16, 2001, the Company executed an asset purchase agreement with Nexcode, Inc. whereby the Company purchased all of the assets of Nexcode in exchange for 1,200,000 shares of $0.001 par value common stock of the Company. All tangible and intangible assets were acquired, including Copyrights, Trademarks, Patents, and Technologies or Proprietary Processes, existing and future versions. The 1,200,000 shares of common stock of the Company were issued to the current shareholders of Nexcode on a pro-rata basis (see note 4 Stockholders' Equity). The Company was to enter into employment agreements with each of the three current officers and directors of Nexcode that will include a base salary of $78,000 plus bonuses and stock options. Stock options will be granted based upon the performance of the Company with a minimum of 100,000 shares and a maximum of 1,000,000 shares of $0.001 par value common stock of the Company. As of June 30, 2002, the Company has paid $40,000 to Nexcode for the purpose of developing the assets of Nexcode. The Company is engaged in efforts to raise a minimum of $250,000 of capital to set up a new infrastructure for and to launch and roll out products related to the assets. NOTE 7 - RECLASSIFICATIONS Certain reclassifications have been made to the March 31, 2002 amounts to conform with the March 31, 2003 financial statements presentation. These reclassifications had no effect on net earnings. Other reclassifications have been made to describe the accounts more appropriately. -16- MEDIA AND ENTERTAINMENT.COM, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS (CONTINUED) QUARTER ENDED MARCH 31, 2003 NOTE 8 - RECENT PRONOUNCEMENTS During 2001, the Financial Accounting Standards Board released SFAS 142 which is to be applied starting with fiscal years beginning after December 31, 2001. SFAS 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets. Currently the Company has no acquired goodwill or other intangible assets; therefore, this standard has no effect on the financial statements when adopted. In August 2001, the Financial Accounting Standards Board released SFAS 143 which is to be applied starting with fiscal years beginning after June 15, 2002. SFAS 143 addresses financial accounting and reporting for asset retirement obligations. Currently, the Company has no obligations associated with the retirement of tangible long-lived assets; therefore, this standard has no effect on the financial statements when adopted. In October 2001, the Financial Accounting Standards Board released SFAS 144 which is to be applied starting with fiscal years beginning after December 15, 2001. SFAS 144 addresses financial accounting and reporting for impairment or disposal of long-lived assets. Currently, the Company has no long-lived assets; therefore, this standard has no effect on the financial statements when adopted. -17- Item 2. Management's Plan of Operation. Forward-Looking Statements This Quarterly Report contains forward-looking statements about our business, financial condition and prospects that reflect management's assumptions and beliefs based on information currently available. We can give no assurance that the expectations indicated by such forward-looking statements will be realized. If any of our management's assumptions should prove incorrect, or if any of the risks and uncertainties underlying such expectations should materialize, our actual results may differ materially from those indicated by the forward-looking statements. The key factors that are not within our control and that may have a direct bearing on operating results include, but are not limited to, acceptance of our services, our ability to expand our customer base, managements' ability to raise capital in the future, the retention of key employees and changes in the regulation of our industry. There may be other risks and circumstances that management may be unable to predict. When used in this quarterly report, words such as, "believes," "expects," "intends," "plans," "anticipates," "estimates" and similar expressions are intended to identify forward-looking statements, as defined in Section 21E of the Securities Exchange Act of 1934, although there may be certain forward-looking statements not accompanied by such expressions. General Media and Entertainment.com, Inc. is an Internet solutions company. We believe that our software establishes a new standard for the streaming of digital information via the Internet. It enables Internet users to view all types of online video in full screen format, at high speed, high quality, and greatly reduced cost, reducing the need for expensive high-speed connections. The technology can make it possible to produce streaming of scheduled and live video over the Internet. Media and Entertainment.com is pursuing the commercialization of its software, which we believe establishes a new standard for the streaming of digital information via the Internet. We believe our software offers a technological advantage that gives us the opportunity to either launch our own stand-alone streaming media system or join forces with the existing media companies by allowing them to incorporate our software into their current delivery systems and share in the projected revenue streams. Utilizing the latest in digital and streaming technology, our services should lead to more efficient and effective dissemination of traditional cinema advertising materials. Material Changes in Results of Operations For the three months ended March 31, 2003, we incurred a net loss of $39,234 on revenues of $0. Total expenses for the three-month period, primarily representing general and administrative expenses, as well as research and development expenses, were $39,234, including interest expense of $2,687, compared to $202,536 for the comparable period last year. We have scaled back our operations since we did not receive revenues from contracts we entered into previously. Until such time as we are able to obtain additional financing, we have taken appropriate measures to reduce our overhead. Material Changes in Financial Condition As of March 31, 2003, we had a working capital deficit of $265,013, compared to a deficit of $231,433 at December 31, 2002. -18- For the three months ended March 31, 2003, we experienced a net decrease in cash of $4,350. We have cut back our operations to match our projected available cash. Our ability to implement our growth strategy is dependent upon expanding current revenues from sales of our products and services and obtaining additional financing. If we are unable to generate sufficient sustainable revenues or obtain additional financing to meet our financial obligations, we will have to further reduce our operations, and we will not be able to continue as a going concern. Our independent accountants have indicated in their review report, dated May 20, 2003, that there is substantial doubt about our ability to continue as a going concern without increased revenues and additional financing. For the three months ended March 31, 2003, we used $26,739 in operating activities, compared to $60,180 used in the comparable period last year, primarily as a result of our net loss. For the three months ended March 31, 2003, we used $1,614 in investing activities, consisting of the purchase of fixed assets. For the three months ended March 31, 2003, we had net cash provided by financing activities of $24,003, in the form of a loan from an officer. Continuing Operations Our priorities for the next twelve months of operations are to continue to develop and subsequently market our products and services to establish our business in the compression technology software industry. We are focused on our organizational activities, raising capital and establishing a business presence with vendors, business owners and referral sources. As we generate revenue from our activities, we may elect to hire salaried or hourly employees to operate certain aspects of our business. We may be unable to compete successfully, and the competitive pressures we may face may have an adverse effect on our business, results of operations and financial condition. Additionally, intensified competition could force us out of business. We require additional capital, which we intend to raise through one or more public or private offerings of equity and/or debt. There are no preliminary loan agreements or understandings between us, our officers, directors or affiliates or lending institutions. We have no arrangements or commitments for accounts and accounts receivable financing. We cannot guarantee you that any such financing can be obtained or, if obtained, that it will be on reasonable terms. Item 3. Controls and Procedures. Within 90 days of the filing of this report, management, including our Chief Executive and Financial Officer, evaluated the effectiveness of the design of our disclosure controls and procedures, as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934. Based on that evaluation, our Chief Executive and Financial Officer concluded that our disclosure controls and procedures are effective. There have been no significant changes (including any corrective actions with regard to significant deficiencies and material weaknesses) in our internal controls or in other factors that could significantly affect these controls subsequent to the date of management's evaluation. -19- PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 99.1 Statement of the Chief Executive and Financial Officer pursuant to 18 U.S.C. Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K. None. -20- SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: May 20, 2003 MEDIA AND ENTERTAINMENT.COM, INC. By: /s/ Benedict L. Paglia ----------------------- Benedict L. Paglia Acting Chief Executive and Financial Officer, Vice President and Secretary (Duly authorized officer and Principal Financial Officer) -21- CERTIFICATIONS I, Benedict L. Paglia, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Media and Entertainment.com, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d- 14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 20, 2003 By: /s/ Benedict L.Paglia ----------------------- Benedict L. Paglia Acting Chief Executive and Financial Officer, Vice President and Secretary (Principal executive officer and principal financial officer) -22- Media and Entertainment.com, Inc. Quarterly Report on Form 10-QSB Quarter Ended March 31, 2003 Exhibit Index Exhibit No. Description 99.1 Statement of the Chief Executive and Financial Officer pursuant to 18 U.S.C. Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002. -23-