U. S. SECURITIES & EXCHANGE COMMISSION


WASHINGTON, D.C. 20549


FORM 10-QSB





x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934For the quarterly period ended March 31, 2004o
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934





Commission file Number 0-29711


Subjex Corporation


(Exact name of small business issuer)





5720 Smetana Dr, Suite 325, Minnetonka, MN 55343


(Address of principal executive offices)





Minnesota

41-1596056(State of incorporation)

IRS Employer Identification number




5720 Smetana Dr, Suite 325, Minnetonka, MN 55343
 (Address of principal executive offices)


(952) 931-0501


(Registrant's telephone number)


Check whether the issuer (1) filed all reports required to be filed by





Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter periods 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 o





There were 34,906,236  shares of common stock outstanding as of March 31, 2004.





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SUBJEX CORPORATION INDEX


Page NumberPART I - FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSBalance Sheets as of March 31, 2004
and December 31, 2003 (unaudited)
3Statements of Operations for the Three
Months Ended March 31, 2004 and
March 31, 2003 (unaudited)
4Statements of Cash Flows for the Three
Months Ended March 31, 2004 and
March 31, 2003 (unaudited)
5Notes to the Financial Statements (unaudited)
6ITEM 2. PLAN OF OPERATIONPART II  OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGSITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDSITEM 3. DEFAULTS UPON SENIOR SECURITIESITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSITEM 5. OTHER INFORMATIONITEM 6. EXHIBITS AND REPORTS ON FORM 8-KCERTIFICATION PURSUANT TO SECTION 06 OF THE SABANES-OXLEY ACT OF 2002CERTIFICATIONSSIGNATURES





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PART I - FINANCIAL INFORMATION





ITEM 1. Financial Statements


BALANCE SHEETS (unaudited)





|                                                                                                                                       |  | March 31, |            | December 31, |  
|-------------------------------------------------------------------------------------------------------------------------------------- |  | --------- | ---------- | ------------ | -
|                                                                                                                                       |  | 2004      |            | 2003         |  
|                                                                                                                                       |  |           |            |              |  
|ASSETS                                                                                                                                 |  |           |            |              |  
|Current Assets:                                                                                                                        |  |           |            |              |  
|Cash                                                                                                                                   |  | $         | 45         |              | $
|Accounts receivable, net                                                                                                               |  |           | -          |              |  
|Prepaid expenses                                                                                                                       |  |           | 2,000      |              |  
|                                                                                                                                       |  |           |            |              |  
|                                                                                                                                       |  |           |            |              |  
|Total current assets                                                                                                                   |  |           | 2,045      |              |  
|                                                                                                                                       |  |           |            |              |  
|Fixed assets, net                                                                                                                      |  |           | 4,745      |              |  
|                                                                                                                                       |  |           |            |              |  
|                                                                                                                                       |  |           |            |              |  
|                                                                                                                                       |  |           |            |              |  
|Total assets                                                                                                                           |  | $         | 6,790      |              | $
|                                                                                                                                       |  |           |            |              |  
|                                                                                                                                       |  |           |            |              |  
|                                                                                                                                       |  |           |            |              |  
|LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                                                  |  |           |            |              |  
|                                                                                                                                       |  |           |            |              |  
|Current Liabilities:                                                                                                                   |  |           |            |              |  
|Subordinated convertible notes payable                                                                                                 |  | $         | 22,800     |              | $
|Demand notes payable                                                                                                                   |  |           | 20,000     |              |  
|Accounts payable                                                                                                                       |  |           | 91,632     |              |  
|Accrued expenses:                                                                                                                      |  |           |            |              |  
|Payroll and payroll taxes                                                                                                              |  |           | 190,351    |              |  
|Other                                                                                                                                  |  |           | 28,516     |              |  
|                                                                                                                                       |  |           |            |              |  
|                                                                                                                                       |  |           |            |              |  
|Total current liabilities                                                                                                              |  |           | 353,299    |              |  
|                                                                                                                                       |  |           |            |              |  
|Long-term debt:                                                                                                                        |  |           |            |              |  
|Notes payable                                                                                                                          |  |           | 4,791      |              |  
|                                                                                                                                       |  |           |            |              |  
|                                                                                                                                       |  |           |            |              |  
|Total liabilities                                                                                                                      |  |           | 358,090    |              |  
|                                                                                                                                       |  |           |            |              |  
|                                                                                                                                       |  |           |            |              |  
|Stockholders' deficit:                                                                                                                 |  |           |            |              |  
|Undesignated stock, no par or stated value;                                                                                            |  |           |            |              |  
|10,000,000 shares authorized: none issued or outstanding                                                                               |  |           | -          |              |  
|Common stock, no par or stated value;                                                                                                  |  |           |            |              |  
|40,000,000 shares authorized: 34,906,236 and33,694,236 shares issued and outstanding atMarch 31,2004 and December 31,2003,respectively |  |           | 3,869,698  |              |  
|                                                                                                                                       |  |           |            |              |  
|Note receivable - officer                                                                                                              |  |           | (38,292    | )            |  
|Accumulated deficit                                                                                                                    |  |           | (4,182,706 | )            |  
|                                                                                                                                       |  |           |            |              |  
|                                                                                                                                       |  |           |            |              |  
|Stockholders' deficit                                                                                                                  |  |           | (351,300   | )            |  
|                                                                                                                                       |  |           |            |              |  
|                                                                                                                                       |  |           |            |              |  
|                                                                                                                                       |  |           |            |              |  
|Total liabilities and stockholders deficit                                                                                            |  | $         | 6,790      |              | $
|                                                                                                                                       |  |           |            |              |  




The accompanying notes are an integral part of these financial statements.





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STATEMENTS OF OPERATIONS (unaudited)





|                                                               |  | Three Months Ended March 31, |           
|-------------------------------------------------------------- |  | ---------------------------- | ----------
|                                                               |  | 2004                         |           
|                                                               |  |                              |           
|                                                               |  |                              |           
|Revenues                                                       |  | $                            | 5,042     
|                                                               |  |                              |           
|                                                               |  |                              |           
|Expenses:                                                      |  |                              |           
|Selling, general and administrative                            |  |                              | 57,940    
|                                                               |  |                              |           
|                                                               |  |                              |           
|Total operating expense                                        |  |                              | 57,940    
|                                                               |  |                              |           
|                                                               |  |                              |           
|Operating loss                                                 |  |                              | (52,898   
|                                                               |  |                              |           
|Other income (expense)                                         |  |                              |           
|Interest expense                                               |  |                              | (161      
|                                                               |  |                              |           
|                                                               |  |                              |           
|Net loss                                                       |  | $                            | (53,059   
|                                                               |  |                              |           
|                                                               |  |                              |           
|Net loss per basic and diluted common share                    |  | $                            | (0.002    
|                                                               |  |                              |           
|                                                               |  |                              |           
|Weighted average common shares
outstanding - basic and diluted |  |                              | 34,300,236
|                                                               |  |                              |           




The accompanying notes are an integral part of these financial statements.





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STATEMENTS





|                                                                         |  | Three Months Ended March 31, |        
|------------------------------------------------------------------------ |  | ---------------------------- | -------
|                                                                         |  | 2004                         |        
|                                                                         |  |                              |        
|Cash flow from operating activities:                                     |  |                              |        
|Net loss                                                                 |  | $                            | (53,059
|Adjustments to reconcile net loss to
net cash from operating activities: |  |                              |        
|Depreciation and amortization                                            |  |                              | 1,192  
|Changes in operating assets and liabilities:                             |  |                              |        
|Accounts receivable                                                      |  |                              | 300    
|Prepaid expenses                                                         |  |                              | -      
|Accounts payable                                                         |  |                              | (5     
|Payroll and payroll taxes payable                                        |  |                              | (17,952
|Other accrued expenses                                                   |  |                              | 999    
|                                                                         |  |                              |        
|Net cash used by operating activities                                    |  |                              | (68,525
|                                                                         |  |                              |        
|                                                                         |  |                              |        
|Cash flow from investing activities:                                     |  |                              |        
|Purchase of property and equipment                                       |  |                              | -      
|                                                                         |  |                              |        
|                                                                         |  |                              |        
|Net cash flows used in investing activities                              |  |                              | -      
|                                                                         |  |                              |        
|                                                                         |  |                              |        
|Cash flow from financing activities:                                     |  |                              |        
|Proceeds from issuance of capital stock                                  |  |                              | 65,500 
|Proceeds from stock subscriptions                                        |  |                              | -      
|Proceeds from notes from stockholder                                     |  |                              | -      
|Principal payments on convertible notes payable                          |  |                              | (200   
|Principal payments on long-term debt                                     |  |                              | (483   
|Principal payments on note payable - related party                       |  |                              | -      
|                                                                         |  |                              |        
|                                                                         |  |                              |        
|Net cash provided by financing activities                                |  |                              | 64,817 
|                                                                         |  |                              |        
|                                                                         |  |                              |        
|Decrease in cash                                                         |  |                              | (3,708 
|Cash at beginning of period                                              |  |                              | 3,753  
|                                                                         |  |                              |        
|                                                                         |  |                              |        
|Cash at end of period                                                    |  | $                            | 45     
|                                                                         |  |                              |        




The accompanying notes are an integral part of these financial statements.





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Notes to the Financial Statements (unaudited)








Note 1.  Basis of Presentation





The accompanying unaudited condensed financial statements of Subjex Corporation (the Company) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. All adjustments which, in the opinion of management, are considered necessary for a fair presentation of the results of operations for the periods shown are of a normal recurring nature and have been reflected in the unaudited condensed financial statements. There are no additional material subsequent events or material contingencies that require disclosure. The results of operations for the periods presented are not necessarily indicative of the results expected for the full fiscal year or for any future period. The information included in these unaudited condensed financial statements should be read in conjunction with Plan of Operation contained in this report and with the financial statements and accompanying notes included in the Annual Report on Form 10-KSB for the year ended December 31, 2003.





Note 2.  Going Concern





The accompanying financial statements were prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the realization of assets and the satisfaction of its liabilities in the normal course of operations. Since inception the Company has incurred losses of approximately $4,182,706 and has a working capital deficit of $351,254 as of March 31, 2004. These issues raise substantial doubt about the Company's ability to continue as a going concern.





The Company continues to seek debt and equity financing to fund its working capital needs.  Failure of the Company raise additional debt and equity financing in the near future and achieve profitable operations in the long-term could result in the Company being unable to continue as a going concern.  No estimate can be made of the range of loss that is reasonably possible should the Company be unsuccessful.





The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the inability of the Company to continue as a going concern.





Note 3.  Payroll and Payroll Taxes





In March 2004, the Company agreed to a payment plan with the IRS related to employee payroll withholdings and payroll taxes in which the Company did not pay from October 1, 2000 through June 30, 2003 aggregating approximately $88,000 at December 31, 2003. This liability is included in accrued expenses  payroll and payroll taxes. The payment plan requires 24 monthly installments of $2,000 beginning April 15, 2004 and ending March 15, 2006. On March 15, 2006, the Company will work with the IRS to determine the resolution for final payment. Until all amounts owed are paid to the IRS, the IRS will maintain a federal tax lien on the Companys property.


In March 2004, the State of Minnesota placed a lien on the Companys property. The amount owed to the State of Minnesota is approximately $11,000 at December 31, 2003 and is included in accrued expenses  payroll and payroll taxes.


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ITEM 2. Plan of Operation





CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995





Statements in this discussion which are not historical facts may be considered "forward looking statements" within the meaning of Section 21E of the Securities Act of 1934, as amended. The words "believe", "expect", "anticipate", "estimate", and similar expressions identify forward looking statements. Any forward looking statement involves risks and uncertainties that could cause actual events or results to differ, perhaps materially, from the events described in the forward looking statements. Readers are cautioned not to place undue reliance on these forward looking statements. The Company undertakes no obligation to publicly update or revise any forward looking statement, whether as a result of new information, future events or otherwise. The risks associated with the Company's forward looking statements include, but are not limited to, risks associated with the Company's history of losses and uncertain profitability, sales and marketing strategies, competition, general economic conditions, reliance on key management and production people, current and future capital needs, dilution, effects of outstanding notes and convertible debentures, limited public market for the Companys capital Stock, low stock price, and lack of liquidity.





The following discussion and analysis should be read in conjunction with the Financial Statements, related notes and other information included in this report.




Description of Business





Overview





Subjex Corporation is an innovative provider of intelligent customer service solutions. Subjex Corporation has developed an Artificial Intelligence Software platform that is used to create virtual personalities developed on an open software distribution platform. The software chats with web site visitors, answers questions, and sells products for its clients. Making complex web site processes simple for web site visitors has become the key to rapid sales and customer retention. Subjex Corporation is setting a new standard in customer service technology that is both easily deployable and astoundingly inexpensive. The Subjex Corporation mission is to give massive value to our client base while providing Clear-continuous revenue and profit growth for our investor base. We are committed to fostering a community of developers from which our customers draw virtual personalitys expert in all areas of business.





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Principal Products and Services





SubjexCSR (Customer Service Representative) is Subjex Corporations flagship Artificial Intelligence product. SubjexCSR is used in conjunction with SubjexOPS (Operator Training System) which allows clients to train their implementation to sell their products and communicate with their users on their web site. This technology is used on the Subjex.com web site to sell itself by conducting dialogue with business owners (through text) to dynamically converse with a normal, human-like conversation chat. SubjexCSR can lower costs dramatically for companies who have web sites, and inbound calls from users of their web site. The system can converse eloquently with hundreds of simultaneous users for far less than the cost of one live operator, and can drastically increase sales (closing ratios) by recommending ideal products for that specific individual. The key to this product is its iterative "back and forth" methodology which actually conducts an interview conversation. The system is able to learn users needs in a way users are already familiar with - by "talking".





Today, Subjex is the only customer service solution that is targeting small business while meeting all the demands of a web-based contact center. The companys Subjex dialogue platform supports each function of customer service from the introduction to the sales process to post sale support.


Trademarks and Patents








The Company holds trademarks and patent protection for most of its business that management feels are relevant to protect the company interests. The Company continues to maintain a patent on business functions of its some of its products.





Environmental Compliance








The Company believes it is in compliance with all current federal and state environmental laws.




Employees





The Company currently has 6 full-time employees. Of the Company's full-time employees, everyone is involved in sales, marketing and administrative functions and most are involved in engineering, research and development. The Company's employees are not represented by any labor unions. The Company considers its relations with its employees to be very good.





Competition








The Company is aware of other companies selling solutions that appear to be similar to Subjex; however management is not aware of any companies that are selling the same solution as we have designed. In addition management has made the decision to focus all of our marketing efforts directly to small businesses, which our pricing model reflects. Our competitions solutions are less effective, extremely complex for the small business owner, and vastly more expensive. Our demographic target - to our knowledge - has never been exposed to this type of technology, because no one has priced an appealing product within the budget of small business. Management believes that while some companies my have greater resources than Subjex, we have superior products, at a lower price, and the experience to take a huge part of the market before our competitors realize it.





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Recent Developments








In early 2004 Subjex Corporation has made large signup increases and is quickly increasing new registered users on the technology. In the first quarter of 2004 the Company had 318 new businesses signup on our platform versus only 13 in fourth quarter of 2004. Now averaging 8 new signups per day or 730 per quarter, the Company is reducing its reliance on selling stock to survive. In first quarter 2004 the Company raised only as much money as it needed to execute its plan. With many cost saving measures in place since 2002, and our growth in signups so far in 2004, managements feels that the Company will become profitable on an ongoing basis in late 2004. In the first quarter of 2004, the Company has been able to raise additional monies through private issuances of its stock to accredited individuals. Receipt of these monies allowed the Company to significantly increase its marketing efforts with out increasing expenditures.





The Company has generated immaterial revenues in the quarter ended March 31, 2004. Operating expenses have been lowered for the same quarter of the previous year. However recent percentages of increases in sales are significant. More importantly the Company has further improved its marketing approach that we expect to grow according to the same percentages for the foreseeable future. The results of our Affiliate, search engine marketing and direct mail campaign have given us a method of growing the business that management feels is becoming more predictable and sustainable with very little expenditures. The Company now has 2,000,000 people who have submitted their domain site to the search portal Subjex.net, which we are now using for our e-mail campaign to sell SubjexCSR product. This list is growing by an average of 30,000 good submissions per month.





Although we have increased our marketing efforts and incurred increased interest in our product we do not know exactly when this will bring substantial sales growth or profitable operations. The Companys cash balances are not sufficient to meet its operational needs, which is why the Company has relied on the on going sales of unregistered shares to fund operational needs. Profitable operations are however expected by the end of 2004. As sales increase the Company expects future operational cash requirements to remain at their current levels. This is because of the automation of the sales, training and installation (i.e. delivery) of the Companys products. Until this occurs, the Company requires additional capital investment to maintain its current operations.





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PART II  OTHER INFORMATION





Item 1. - Legal Proceedings





In March 2004, the Company agreed to a payment plan with the IRS related to employee payroll withholdings and payroll taxes in which the Company did not pay from October 1, 2000 through June 30, 2003 aggregating approximately $88,000 at December 31, 2003. This liability is included in accrued expenses  payroll and payroll taxes. The payment plan requires 24 monthly installments of $2,000 beginning April 15, 2004 and ending March 15, 2006. On March 15, 2006, the Company will work with the IRS to determine the resolution for final payment. Until all amounts owed are paid to the IRS, the IRS will maintain a federal tax lien on the Companys property.





In March 2004, the State of Minnesota placed a lien on the Companys property. The amount owed to the State of Minnesota is approximately $11,000 at December 31, 2003 and is included in accrued expenses  payroll and payroll taxes.




Item 2 - Changes in Securities and Use of Proceeds





During the three months ended March 31, 2004, the Company sold 1,212,000 shares of unregistered common stock for $65,500.





Item 3 - Defaults on Senior Securities





None.





Item 4 - Submission of Matters to a Vote of Security Holders





It is acknowledged that any sale or substantial restructuring of the Company will require a shareholders vote. No matters were submitted to the vote of the Companys stockholders in this quarter.





Item 5 - Other Information





None.





Item 6  Exhibits and reports on form 8-K





None





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SIGNATURES





Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused the report to be signed on its behalf by the undersigned hereunto duly authorized.








**Subjex Corporation**(registrant)Date:  May 14, 2004
By:
/s/ Andrew HyderTitle CEO (acting CFO)




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