U.S. SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 **FORM 10-KSB**
 
 ANNUAL REPORT FILED PURSUANT TO SECTION 13 OR 15(d) OF
 THE SECURITIES EXCHANGE ACT OF 1934
 
 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
 Commission file number 0-29711
  
 Subjex Corporation
 (Exact name of issuer as specified in charter)
 
 Minnesota

41-1596056(State or other jurisdiction of incorporation)

(IRS Employer ID Number)
 
 5720 Smetana Dr. Suite 325, Minnetonka, MN 55343
 (address of principal executive offices)
 
 Issuer's telephone number is (952) 931-0501
 
 Securities registered pursuant to Section 12(b) of the Act: NONE
 
 Securities registered pursuant to Section 12(g) of the Act:
 
 Common Stock, No par value

Over-the-Counter Bulletin Board(Title of Class)

(Name of Exchange on which registered)
 
 Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the past 12 months, and (2) has been subject to such filing requirements for the past 90 days.
 
 Yesx

Noo
 
 Check if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of Issuers knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.
 
 Transitional Small Business Disclosure Format  Yes x No o
 
  
 SUBJEX CORPORATION
 FORM 10-KSB
 
 YEAR ENDED DECEMBER 31, 2003
 
 INDEX
 
 ITEM


PAGEPART I1.
Description of Business

32.
Description of Property

43.
Legal Proceedings

44.
Submission of Matters to a Vote of Security Holders

4PART II5.
Market for Common Equity and Related Stockholder Matters

46.
Management's Discussion & Analysis of Financial Condition and Results of Operations

47.
Financial Statements

58.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

58A.
Controls and Procedures

5PART III9.
Directors, Executive Officers, Promoters and Control Persons, Compliance with Section 16(a) of the Exchange Act

510.
Executive Compensation

611.
Security Ownership of Certain Beneficial Owners and Managementand Related Stockholder Matters

612.
Certain Relationships and Related Transactions

2013.
Exhibits and Reports on Form 8-K

2014.
Principal Accountant Fees and Services

20Signatures

22Financial Statements

F-1Articles of Incorporation

F-2
 
 2 
 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 annual report on Form 10-KSB.
 
 ITEM 1. 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.
 
 3 
 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 user s are already familiar with - by "talking".
 
 Today, Subjex is the only customer service solution that meets all the demands of a web-based contact center utilizing software dialogue and iteration. 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 all 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.
 
 Recent Developments
 
 In 2003 and early 2004 Subjex Corporation has made large sales increases and is quickly increasing new registered users of the technology. Now averaging eight new clients per day, the company is reducing its reliance on selling stock to survive. In 2003 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 huge percentage growth in 2004, managements feels that the Company will become profitable on an ongoing basis in mid 2004. In 2003 the Company has been able to raise additional monies through private issuances of its stock. Receipt of these monies allowed the Company to significantly increase its marketing efforts with out increasing expenditures.
 
 4 
 ITEM 2. Description of Property
 
 The Company's principal office is located at 5720 Smetana Dr. Suite 325, Minnetonka, MN 55343, occupying approximately 1100 square feet and utilized entirely for office space. The lease is month to month. The space is rented under a written lease, which provides for a monthly payment of rent and a pro-rata share of annual operating expenses. Management believes that comparable office space is readily available if the Company were to lose its lease.
 
 ITEM 3: Legal Proceedings
 
 There were no legal proceedings pending or, to the Company's knowledge, that would be material to the financial position of the Company.
 
 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 2003.
 
 PART II
 
 ITEM 5: Market for Common Equity and Related Stockholder Matters
 
 (a) Market Information
 
 The Companys Common Stock is traded on the Over the Counter Bulletin Board since January 2000 under the symbol PGBN. Since the commencement of trading, the Company has changed it ticker symbol in 2003 to SBJX. Its high and low sales prices of common stock were $0.15 and $0.035, respectively. Since the Company is not NASDAQ qualified, these prices are inter-dealer prices and may not reflect actual value or transactions.
 
 The estimated aggregate market value on March 17, 2004, of the voting common stock held by non-affiliates was $1,997,991 based upon an average bid and asked price of $.07 of such common stock at that date on the Over-The-Counter Bulletin Board (OTCBB: SBJX). The number of shares outstanding of each of the issuer's common stock as of March 17, 2004 was 34,806,236 shares.
 
 Price per Share  Calendar Year 2003
 
 Quarter

High

LowFirst

$
0.11

$
0.04Second

$
0.10

$
0.04Third

$
0.15

$
0.04Fourth

$
0.11

$
0.035 
 5 
 Price per Share  Calendar Year 2002
 
 Quarter

High

LowFirst

$
0.10

$
0.03Second

$
0.33

$
0.02Third

$
0.23

$
0.08Fourth

$
0.20

$
0.07 
 On December 31, 2003 there were 252 holders of the Companys outstanding 33,694,236 shares of common stock.
 
 (b) Dividends
 
 The Company has not paid dividends on its common stock and does not expect to in 2004. Although it is the company intention to pay dividends in 2005, there is no assurance that any dividends will be paid in the future, as dividends are dependent upon earnings. Any earnings, for the 2004, will be utilized to invest in projects intended to build the Companys economic base.
 
 (c) Recent Sales of Unregistered Securities
 
 The following discussion describes all securities sold by us during the past year without registration.
 
 In 2003 The Company sold common stock in the amount of 4,454,957 to fund basic operations. The Company did not use underwriters, and all securities were sold by the Company. The Company did not make any public offerings of any securities; all sales were private, to accredited individuals only. The securities were sold for cash at approximately 0.05 cents per share with a no par value. There were no underwriting discounts or commissions paid on these securities.
 
 The Company has relied on section 4(2) of the section of the Securities Act of 1933 under which the Company claimed exemption from registration. The Company did not silicate for funds publicly, and had acquired signed subscription agreements from the accredited participants of the securities sold. The securities sold by the Company are not convertible warrants or options and therefore there are no terms of conversion or exercise of the securities sold.
 
 The net offering proceeds to the Company was $221,810 which the Company used for the payment of employee salary, office rent; purchase of equipment; repayment of indebtedness; working capital. There were no indirect payments to directors, officers, or their associates; to persons owning ten (10) percent or more of any class of equity securities of the issuer; and to affiliates of the issuer; or Direct or indirect payments to others for monies raised.
 
 ITEM 6: Management's Discussion & Analysis of Financial Condition and Results of Operations
 
 The Company decreased its operating expenses to $351,366 in 2003 compared to 788,167 in 2002 and $1,705,711 in 2001.In the year 2002 the Company decreased it expenditures by 47%, and in 2003 the Company further decreased its expenditures by another 55% while increasing its revenue 99%. This operational improvement was accomplished by using the Companys own automation technology for the Companys own operations. The Subjex technology is designed to increase operational and sales efficiency with fewer employees, and it is working. This manifested itself with the largest cost savings in 2003 with payroll expenses decreasing $260,000 or 60% with consulting costs increasing $32,000 or 60%. Marketing and promotion costs were also decreased as a result of the technologys ability to autonomously close sales. In 2003 the Company adjusted the accounts payable account on the books for amounts the Company had disputed and felt that it did not owe in the amount of $48,052.
 
 The Company generated increased revenues of $47,276 in 2003 compared to revenues of $23,812 in 2002. Most of the revenue increase in 2003 was due to recognizing previous revenue generated from the Subjex technology, held on the books as deferred revenue. Our revenue levels by themselves were not sufficient to sustain the Companys operations in 2003; therefore funds were raised from the sale of common stock to the Companys investor base to meet its financial needs. The Company has adopted a just-in-time funding method, in an effort to hold off dilution of its stock, by not raising more funds than necessary while its stock price is low.
 
 The uncertain nature of the market has historically made revenue prediction of future sales results difficult for the Company. The Company, however, has increased its marketing efforts significantly, and is seeing large numbers of new clients using our software platform. The Company has recently seen growth rates as large as 22 new clients per day. This revenue growth is being analyzed in an effort to devise a predictable future revenue projections model in 2004.
 
 For the first 6 months of 2004 the Company expects to continue to raise small amounts of dollars from the issuance of common stock from its current investor base. This funding is expected to bring the company into an ongoing positive cash flow situation as a result of operations and revenues. The Company does not expect to experience significant negative fluctuations in its future operating results. Due to the incremental growth of its current revenues designed into the business model, management expects a predictable revenue growth track to emerge in 2004. Factors that may affect the Company's operating results include the continued success of marketing efforts, and potential mergers or acquisitions. Management does not feel that it needs additional staff, marketing or otherwise to bring the company profitable. To that end the company has used its own technology with its built-in sales and post sale abilities to automate the majority of its operation, which is proving to be massively effective, for cost effective growth and the retention of corporate resources.
 
 6 
 Liquidity and Capital Resources
 
 The accumulated deficit from inception to December 31, 2003 was $4,074,647.To date most of the operations of the Company has depended on monies raised through the issuance of common stock. The Company is continuing to raise monies through private sales of its common stock as necessary. The Company feels that these issuances will provide it sufficient monies to sustain operations until operating revenues are sufficient to cover operating expenses.
 The Company has and will continue using its capital resources to bring the company profitable. Once this is accomplished the company will focus its use of capital resources on the continued enhancement of its business automation methodology that brought the Company profitable. After profitability is reached management is expects an increasing growth curve in the Companys profit margin with decreasing necessary resources. The Company will use this profit to further grow its market share, start its dividend program, and additionally start a stock support and buy back program. This stock buy back program is intended to support the stock price and build a stock reserve for future use in acquisitions.
 
 ITEM 7: Financial Statements
 
 The financial statements of the Company are included herein following the signatures.
 
 ITEM 8: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
 In our current report dated November 12, 2003, we reported that our independent auditors, Callahan, Johnston & Associates, LLC, resigned as our independent auditors. In March 2004 we engaged Carver, Moquist & Associates, LLC as our independent auditors.
 
 7 
 PART III
 
 ITEM 9. Directors, Executive Officers, Promoters and Control Persons, Compliance with Section 16(a) of the Exchange Act
 
 MANAGEMENT
 
 The executive officers and Directors of the Company are as follows:
 
 Name

Age

PositionAndrew D. Hyder

37

Chief Executive Officer
President
Chairman of the Board
 
 Andrew D. Hyder has been the President and Chief Executive Officer and a Director since October 1999. He is the founder of the company and has served as President and Chief Executive Officer since its inception in 1998. He brings extensive marketing, software development, and artificial intelligence skills to the company. Andrew served as President of Interactive Host, a successful web development, hosting and search engine, positioning company. Here Andrew developed a search engine ranking and positioning expert system that was later sold and netted over one-half million dollars.
 
 He has founded and managed several technology and advertising companies. He has expertise in general areas of business, including several specialized areas such as, finance, direct mail marketing, and corporate branding. Andrew knows five different computer programming languages such as C++, Java, Cobol, the Visual languages (Basic, C, Java), JavaScript, HTML and Perl; his technical experiences span just about every type of PC platform in use today, from Unix/Linux, Mac to Win/NT. He began computer programming flight simulators in 1978 at age 12.
 
 Andrew has a firm grasp of modern technologies as applied to corporate infrastructure and what it takes to build a successful public technology organization. At Subjex, he is responsible for the vision and direction of the corporation and supervision and leadership of the companys Artificial Intelligence research and development.
 
 Name

Age

PositionScott Bjerstedt

24

Chief Technology Officer
Board Member
 
 C.T.O. Scott Bjerstedt is the Chief Technology Officer at Subjex, responsible for managing technical operations. Scott spearheaded the engineering and development of the Subjex Platform and continues research and development of the next generation Subjex Platform. Scott has years of experience in IP security and encryption. Scott periodically serves as an expert witness on security cases for the US federal government, manages Subjex's Minneapolis Data Center, and is organizing the expansion of additional Data centers in Europe and Asia. Scott has expertise in all modern computer languages and on all computing platforms.
 
 Audit Committee Financial Expert
 
 We do not currently have a serving audit committee and, accordingly, we do not have an audit committee financial expert serving on an audit committee.
 
 8 
 Section (a) Beneficial Ownership Reporting Compliance
 
 Section 16(a) of the Securities Exchange Act of 1934 requires executive officers and directors and persons who beneficially own more than 10% of the Companys Common Stock to file initial reports of ownership and reports of changes in ownership with the Securities and Exchange Commission (SEC). Executive officers, directors, and greater than 10% beneficial owners are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.
 
 Based solely on a review of the copies of such forms furnished to the Company and written representations from the executive officers, directors and holders of 10% or more of the Companys Common Stock, the Company believes that its executive officers, directors and 10% shareholders complied with all Section 16(a) filing requirements applicable to them.
 
 Code of Ethics
 
 We are in the process of adopting a code of ethics for our principal executive officers and financial officers. In the meantime, our management intends to promote honest and ethical conduct, full and fair disclosure in our reports to the SEC, and compliance with applicable governmental laws and regulations.
 
 ITEM 10: Executive Compensation
 
 Summary Compensation Table
 
 The following table sets forth the compensation earned in certain fiscal years by the Companys Chief Executive Officer including the fiscal year ended December 31, 2003.
 
 Annual CompensationName and Principal Position

Year

Salary

Bonus

All Other CompensationAndrew D. Hyder


2003

$
17,083Director, President and


2002

$
48,333


-


-Chief Executive Officer


2001

$
18,000


-


- 
 As authorized by the board of directors, in 2003 Andrew Hyder converted $62,500 of his note with the Company to a restricted stock grant by the Company for 1,125,000 shares of common stock. This was a conversion of debt to equity.
 
 ITEM 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
 PRINCIPAL SHAREHOLDERS
 
 The following table sets forth certain information with respect to beneficial ownership of the Companys Common Stock as of March 31, 2004 by: (i) each Director of the Company, (ii)each Named Executive Officer (iii)all Directors and executive officers of the Company as a group and (iv)each person or entity known by the Company to own beneficially more than five percent of the Companys Common Stock. The address of each of the following shareholders is the same as the Company.
 
 Name and address of Beneficial owner

Amount and Nature of Beneficial Owner

Percent of Class (1)Andrew D. Hyder (2)


5,763,243


16.2
%Scott Bjerstedt


950,000


2.7
%All Directors and Officers


6,713,243


18.9
% 
 9 
 (1) Beneficial ownership is determined in accordance with rules of the Securities and Exchange Commission and includes generally voting power and/or investment power with respect to securities. Shares of Common Stock subject to options or warrants currently exercisable or exercisable within 60 days of March 31, 2004 (Currently Exercisable Options) are deemed outstanding for computing the beneficial ownership percentage of the person holding such options but are not deemed outstanding for computing the beneficial ownership percentage of any other person. Except as indicated by footnote, the persons named in the table above have the sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them.
 
 (2)Includes 25,000 shares held by Mr. Hyders daughter, and includes 398,600 shares issuable pursuant to Currently Exercisable Options.
 
 Securities Authorized Under Equity Compensation Plans
 
 The following table lists the securities authorized for issuance under any equity compensation plans approved by our shareholders and any equity compensation plans not approved by our shareholders. This chart also includes individual compensation arrangements. Descriptions of these plans are provided below.
 
 Equity Compensation Plan Information
 
 Number of securities to be issued upon exercise of outstanding options, warrants and rights

Weighted-average exercise price of outstanding options, warrants and rights

Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)Plan category

(a)

(b)

(c)Equity compensation plans approved by security holders


-

$
N/A


-Equity compensation plans not approved by security holders (1)


1,877,970


0.48


1,682,030Total


1,877,970

$
0.48


1,682,030 
 (1) Represents options to buy 817,970 shares and warrants to buy 1,060,000 shares
 
 During 1999, the Company adopted the Pagelab Network, Inc. Stock Option and Stock Award Plan (the Plan). The Plan permits the granting of incentive stock options meeting the requirements of Section 422 of the Internal Revenue Code of 1986, as amended, and nonqualified options, which do not meet the requirements of Section 422. A total of 2,500,000 shares have been reserved under the Plan through the period ending December 31, 2003. All options will be granted at an exercise price not less than the fair market value of the common stock on the grant date according to the plan provisions. The options granted to participants owning more than 10 percent of the Companys outstanding voting stock must be granted at an exercise price not less than 110 percent of fair market value of the common stock on that date. The options shall expire on the date determined by the Board of Directors, but not greater than 10 years from the grant date.
 
 ITEM 12. Certain Relationships and Related Transactions
 
 In October 1999, the Company amended its Articles of Incorporation to increase the authorized shares of the Company from 25,000,000 to 50,000,000 shares, of which 40,000,000 shares have been designated as Common Stock and 10,000,000 are Undesignated.
 
 Mr. Hyder advanced in the form of 6% notes, approximately $230,000 to the Company since its inception. A portion of these loans ($150,000) was used to purchase intellectual property from Commission Junction, Inc., located in Santa Barbara, CA. At December 31, 2003, indebtedness owed to Mr. Hyder, after repayments or other reductions during the course of 2003, was $0.
 
 ITEM 13. Exhibits and Reports on Form 8-K
 
 (A)  EXHIBITS.
 
 None.
 
 (B)  REPORTS ON FORM 8-K .
 
 On November 12, 2003 we filed a current report on Form 8-K/A, dated October 27, 2003, under Item 4 related to a change in our independent auditor.
 
 10 
 (C)  Exhibits
 
 Copies of the following documents are included as exhibits to this report pursuant to Item 601 of Regulation S-B.
 
 SEC Ref. No.

Title of Document

Location9E-411

Amended Articles of Incorporation

F-2
 
 (C)  Exhibits
 
 Copies of the following documents are included as exhibits to this report pursuant to Item 601 of Regulation S-B.
 
 SEC Ref. No.

Title of Document

Location9E-411

Amended Articles of Incorporation

F-2
 
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
 Our independent auditor, Carver Moquist & Associates, LLC, billed an aggregate of $10,500 for the 2003 year for professional services rendered for the audit of our annual financial statements. Caver Moquist & Associates, LLC did not bill us for any audit-related fees, tax fees or other fees for the year then ended.
 
 Our former independent auditor, Callahan, Johnston & Associates, LLC, billed an aggregate of $12,693 for the 2003 year and $10,543 for the 2002 year for professional services rendered for the audit of our annual financial statements and review of the financial statements including our quarterly reports. Callahan, Johnston & Associates, LLC, did not bill us for any audit-related fees or other fees for the past two fiscal years.
 
 We do not have an audit committee and as a result our entire board of directors performs the duties of an audit committee. Our board of directors evaluates the scope and cost of the engagement of an auditor before the auditor renders audit and non-audit services. As a result, we do not rely on established pre-approval policies and procedures.
 
 SIGNATURES
 
 Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Issuer has duly caused this report to be signed on its behalf by the undersigned officers and/or Directors, there unto duly authorized.
 
 Subjex Corporation
 
 Date: April 13, 2004
 
 NAME

TITLE/s/Andrew D. Hyder

President and Chief Executive Officer,Chief Financial Officer (and PrincipalAndrew D. Hyder

Financial Officer) and Director
 
 11 
 Exhibit Index
 
 Exhibit 99.1 Certificate pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 12 
 ITEM 7. Financial Statements
 
 SUBJEX CORPORATION
 
 FINANCIAL STATEMENTS
 
 YEARS ENDED DECEMBER 31, 2003 AND 2002
 
 SUBJEX CORPORATION
 (f/k/a PAGELAB NETWORK, INC.)
 
 FINANCIAL STATEMENTS
 
 YEARS ENDED DECEMBER 31, 2003 AND 2002
 
 TABLE OF CONTENTS
 
 
 PageIndependent Auditors' Report

1Financial Statements:Balance Sheets

3Statements of Operations

4Statements of Stockholders' Deficit

5Statements of Cash Flows

6Notes to Financial Statements

7
 
  
 Carver Moquist & Associates, LLC
 Certified Public Accountants and Consultants
 
 INDEPENDENT AUDITORS REPORT
 
 To The Board of Directors
 Subjex Corporation
 Minnetonka, Minnesota
 
 We have audited the accompanying balance sheet of Subjex Corporation, as of December 31, 2003, and the related statements of operations, stockholders deficit and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
 
 We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit of the financial statements provides a reasonable basis for our opinion.
 
 In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Subjex Corporation, as of December 31, 2003, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
 
 The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 2, the Company incurred a net loss of $308,924 during the year ended December 31, 2003, and, as of that date, had an excess of liabilities over assets of $358,467. Those conditions raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this matter.
 
 /s/ Carver Moquist & Associates, LLC
 CARVER MOQUIST & ASSOCIATES, LLC
 Minneapolis, Minnesota
 May 1, 2004
 
 1550 American Blvd. E, Suite 680, Minneapolis, MN 55423
 Telephone: (952)854-5700 Fax: (952)854-1163
 
 1 
 Callahan, Johnston & Associates, LLC
 Certified Public Accountants and Consultants
 
 INDEPENDENT AUDITORS REPORT
 
 To The Board of Directors
 Subjex Corporation
 Minneapolis, Minnesota
 
 We have audited the accompanying balance sheet of Subjex Corporation, as of December 31, 2002, and the related statements of operations, stockholders deficit and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
 
 We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit of the financial statements provides a reasonable basis for our opinion.
 
 In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Subjex Corporation, as of December 31, 2002, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
 
 The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 2, the Company incurred a net loss of $778,309 during the year ended December 31, 2002, and, as of that date, had an excess of liabilities over assets of $576,963. Those conditions raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this matter.
 
 /s/ Callahan, Johnston & Associates, LLC
 
 CALLAHAN, JOHNSTON & ASSOCIATES, LLC
 Minneapolis, Minnesota
 March 21, 2003
 
 7400 Lyndale Avenue South, Suite 140, Richfield, MN 55423
 Telephone: (612)861-0970 Fax: (612)861-5827
 
 2 
 SUBJEX CORPORATION
 BALANCE SHEETS
 
 December 31,2003

2002ASSETSCurrent Assets:Cash

$
3,753

$
28,842Accounts receivable, net


300


-Prepaid expenses


2,000


4,630Total current assets


6,053


33,472Fixed assets, net


5,937


5,330Intangibles, net


-


-Total assets

$
11,990

$
38,802LIABILITIES AND STOCKHOLDERS' DEFICITCurrent Liabilities:Subordinated convertible notes payable

$
23,000

$
23,000Demand notes payable


20,000


20,000Current maturities of notes payable - related party


-


51,002Accounts payable


91,637


129,469Accrued expenses:Payroll and payroll taxes


208,303


167,081Other


27,517


80,584Subscribed stock


-


133,100Total current liabilities


370,457


604,236Long-term debt:Notes payable - related party


-


11,529Notes payable


5,274


-Total liabilities


375,731


615,765Stockholders' 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: 33,694,236 and 24,611,888 shares issued and outstanding in 2003 and 2002


3,804,198


3,243,760Note receivable - officer


(38,292
)

-Accumulated deficit


(4,129,647
)

(3,820,723
)Stockholders' deficit


(363,741
)

(576,963
)Total liabilities and stockholders deficit

$
11,990

$
38,802 
 The accompanying notes are an integral part of these financial statements.
 
 3 
 SUBJEX CORPORATION
 STATEMENTS OF OPERATIONS
 
 Years Ended December 31,2003

2002Revenues

$
47,276

$
23,812Expenses:Selling, general and administrative


351,366


783,422Asset impairment


-


4,745Total operating expense


351,366


788,167Operating loss


(304,090
)

(764,355
)Other income (expense)Interest expense


(5,084
)

(13,954
)Other


250


-Net loss

$
(308,924
)
$
(778,309
)Net loss per basic and diluted common share

$
(0.01
)
$
(0.04
)Weighted average common shares
outstanding - basic and dilutes


29,168,062


17,551,684 
 The accompanying notes are an integral part of these financial statements.
 
 4 
 SUBJEX CORPORATION
 STATEMENTS OF STOCKHOLDERS' DEFICIT
 
 YEARS ENDED DECEMBER 31, 2003 AND 2002
 
 Amount

ReceivableNoteOfficer

AccumulatedDeficit

StockholdersDeficitBALANCE, January 1, 2002


11,980,064

$
2,349,283

$
-




$
$(693,131
)Stock issued for consulting services at $.10 per share


280,000


28,000


-





28,000Stock issued to purchase furniture at $.08 per share


22,000


1,760


-





1,760Stock issued to settle liability at $.03 to $.35 per share


2,067,378


278,922


-





278,922Stock issued to employees at $.06 to $.35 per share


2,832,521


263,160


-





263,160Stock issued for cash at $.10 to $.23 per share


7,459,925


322,635


-





322,635Net loss


-


-


-





(778,309
)BALANCE, December 31, 2002


24,641,888


3,243,760


-





(576,963
)Stock Subscription at $.10 per share


1,331,000


133,100


-





133,100Stock compensation expense


960,000


77,900


-





77,900Stock issued for conversion of note payable - related partyat$.05pershare


1,125,000


56,250


-





56,250Common stock issuance at $.05 per share


4,454,957


221,810


-





221,810Subordinated convertible note at $.10 per share


100,000


10,000


-





10,000Stock issued to settle liabilities at $.03 to $.10 per share


315,557


23,086


-





23,086Shares issued to officer


765,834


38,292


(38,292
)




-Net loss


-


-


-





(308,924
)BALANCE, December 31, 2003


33,694,236

$
3,804,198

$
(38,292
)



$
$(363,741
) 
 The accompanying notes are an integral part of these financial statements.
 
 5 
 SUBJEX CORPORATION
 STATEMENTS OF CASH FLOW
 
 Years Ended December 31,2003

2002Cash flow from operating activities:Net loss

$
(308,924
)
$
(778,309
)Adjustments to reconcile net loss tonet cash from operating activities:Depreciation and amortization


4,872


26,893Stock compensation expense


77,900


28,000Allowance for doubtful accounts


-


2,000Loss on asset impairment


-


4,745Compensation expense for issuance of common stock options


-


263,160Changes in operating assets and liabilities:Accounts receivable


(300
)

(2,000
)Prepaid expenses


2,630


(4,629
)Accounts payable


(20,746
)

122,682Payroll and payroll taxes payable


41,222


-Other accrued expenses


(47,067
)

(33,074
)Net cash used by operating activities


(250,413
)

(370,532
)Cash flow from investing activities:Purchase of property and equipment


-


(9,208
)Net cash flows used in investing activities


-


(9,208
)Cash flow from financing activities:Proceeds from issuance of capital stock


221,810


322,635Proceeds from stock subscriptions


-


133,100Proceeds from subordinated note payable


10,000


-Proceeds from notes from stockholder


-


250Principal payments on long-term debt


(205
)

(47,473
)Principal payments on note payable - related party


(6,281
)

-Net cash provided by financing activities


225,324


408,512Increase (decrease) in cash position


(25,089
)

28,772Cash at beginning of year


28,842


70Cash at end of year

$
3,753

$
28,842 
 The accompanying notes are an integral part of these financial statements.
 
 6 
 SUBJEX CORPORATION
 NOTES TO THE FINANCIAL STATEMENTS
 YEARS ENDED DECEMBER 31, 2003 AND 2002
 
 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Nature of Business
 
 Subjex Corporation (formerly known as Pagelab Network, Inc.) Provides a software service, Subject CSR, in an ASP (application service provider) model. Customers can use the software online or by downloading it, and do not need to install in on there server. This software service is wrapped in a subscription model, and is billed monthly until customer cancellation.
 
 Revenue Recognition
 
 Revenue from the sale of software and other products is recognized when an agreement is made, delivery is complete, no significant obligations remain unfulfilled, and collection of the resulting receivable is probable. In instances where a significant obligation exists, revenue recognition is delayed until the obligation has been satisfied. Revenue from services, including training and consulting are recognized as the services are performed.
 
 (continued) 
 SUBJEX CORPORATION
 NOTES TO THE FINANCIAL STATEMENTS
 YEARS ENDED DECEMBER 31, 2003 AND 2002
 
 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 Cash Equivalents
 
 For purposes of reporting cash flows, cash equivalents include investment instruments purchased with a maturity of three months or less. There were no cash equivalents in 2003 or 2002.
 
 Fixed Assets
 
 Fixed assets are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. When assets are retired or otherwise disposed of, the cost and related accumulate depreciation are removed from the accounts and the resulting gain or loss is recognized in income for the period. The cost of maintenance and repairs is expensed as incurred; significant renewals and betterments are capitalized. Deduction is made for retirements resulting from renewals and betterments.
 
 Useful LivesComputers and equipment


3 to 5 yearsFurniture


5 to 7 yearsOperations equipment


5 years  (continued) 
 SUBJEX CORPORATION
 NOTES TO THE FINANCIAL STATEMENTS
 YEARS ENDED DECEMBER 31, 2003 AND 2002
 
 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 Impairment of Long-Lived Assets
 
 The Company evaluates the carrying value of its long-lived assets periodically to determine potential impairment by comparing the carrying value of the long-lived assets with the estimated future cash flows expected to result from the use of the assets, including cash flows from disposition. Should the sum of the expected future cash flows be less than the carrying value, the Company would recognize an impairment loss. An impairment loss would be measured by comparing the amount by which the carrying value exceeds the fair value of the long-lived assets and intangibles.
 
 During 2002, fixed assets and intangible assets were deemed to be impaired and written down to their fair value. Fair value, which was determined by reference to the present value of the estimated future cash inflows of such assets, exceeded their carrying value by $4,745. The impairment loss was charge to operations in 2002.
 
 Financial Instruments
 
 Short-Term Assets and Liabilities: The fair value of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, stock subscriptions and short-term debt approximate their carrying values due to the short-term nature of these financial instruments.
 
 Research and Development
 
 Research and development costs, whether performed by the Company or by outside parties under contract, are charged to operations as incurred.
 
 Software Development Costs
 
 The Company capitalizes certain software development and production costs once technological feasibility has been achieved. Software development costs incurred prior to achieving technological feasibility are expensed as incurred.
  (continued) 
 SUBJEX CORPORATION
 NOTES TO THE FINANCIAL STATEMENTS
 YEARS ENDED DECEMBER 31, 2003 AND 2002
 
 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 Software Development Costs (Continued)
 
 Management has determined that technological feasibility occurred at the time the Companys software was available for general release to customers. Accordingly, no computer software development costs have been capitalized in the accompanying financial statements. In accordance with SFAS No. 86, costs of software maintenance and customer support since the software became available for general release have been charged to expense as incurred. Amounts expensed for ongoing software maintenance in the accompanying financial statements are as follows:
 
 2003

$
10,0002002

$
50,000 
 Basic and Diluted Net Loss Per Share
 
 Basic per-share amounts are computed, generally, by dividing net income or loss by the weighted-average number of common shares outstanding. Diluted per-share amounts assume the conversion, exercise, or issuance of all potential common stock instruments, unless their effect is antidilutive, thereby reducing the loss or increasing the income per common share.
 
 The Company has granted options and warrants to purchase shares of common stock at various amounts per share (see Note 6). Those options and warrants were not included in the computation of diluted earnings per share because the Company incurred losses in both years. The inclusion of potential common shares in the calculation of dilutes loss per share would have an antidilutive effect. Therefore, basic and diluted loss per share amounts are the same in each year presented.
 
 Stock-Based Consideration
 
 The Company has applied the fair value-based method of accounting for employee and nonemployee stock-based compensation or consideration in accordance with FASB Statement 123.
  (continued) 
 SUBJEX CORPORATION
 NOTES TO THE FINANCIAL STATEMENTS
 YEARS ENDED DECEMBER 31, 2003 AND 2002
 
 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 Concentrations, Risks and Uncertainties
 
 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.
 
 Accounts Receivable
 
 The Company sells to companies worldwide. The Company grants uncollateralized credit to customers, but requires deposits on unique orders. While the ultimate collectibility may differ, management does not feel any variance would materially effect its financial statements.
 
 2003

2002Accounts receivable

$
2,300

$
2,000Allowance for doubtful accounts


(2,000
)

(2,000
)Accounts receivable, net

$
300

$
- - 
 Disputed Liabilities
 
 The Company has disputed liabilities as disclosed in Note 10. During 2003, the Company reversed $48,052 of disputed liabilities as the Company determined that the likelihood of payment was remote. As of December 31, 2003 there are no amounts reflected in the accompanying financial statements for disputed liabilities. Management feels that no amounts will ever have to be paid for known disputed liabilities. Due to uncertainties, however, it is at least reasonably possible that managements estimate will change during the next year. That amount can not be estimated.
  (continued) 
 SUBJEX CORPORATION
 NOTES TO THE FINANCIAL STATEMENTS
 YEARS ENDED DECEMBER 31, 2003 AND 2002
 
 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 Comprehensive Income
 
 SFAS No. 130 establishes standards for the reporting and disclosure of comprehensive income and its components which will be presented in association with the Companys financial statements. Comprehensive income is defined as the change in a business enterprises equity during a period arising from transactions, events or circumstances relating to nonowner sources, such as foreign currency translation adjustments and unrealized gains or losses on available-for-sale securities. It includes all changes in equity during a period except those resulting from investments by or distributions to owners. For the years ended December 31, 2003 and 2002, net income and comprehensive income were equivalent.
 Income Taxes
 
 The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109,Accounting for Income Taxes which requires the use of the liability method of accounting for income taxes. The Companys net operating loss carry forwards are fully allowed for due to questions regarding the Companys ability to utilize these losses before they expire.
 
 Reclassifications
 
 Certain reclassifications have been made to the 2002 financial statements to conform to the 2003 presentation. These reclassifications had no net income effect.
 
 NOTE 2 - BASIS OF PRESENTATION
 
 The financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has incurred a net loss of $308,924 and $778,309 in the years ended December 31, 2003 and 2002, respectively, and has incurred net losses of $4,129,647 inception to date. In addition, as of December 31, 2003 and 2002, the Company had a stockholders deficit of $363,741 and $576,963, respectively.
  (continued) 
 SUBJEX CORPORATION
 NOTES TO THE FINANCIAL STATEMENTS
 YEARS ENDED DECEMBER 31, 2003 AND 2002
 
 NOTE 2 - BASIS OF PRESENTATION (Continued)
 
 These factors, among others, indicate that the Company may not be able to continue as a going concern for a reasonable period of time. In 2003, the Company raised working capital through the issuance of common stock, exercise of warrants and receipt of proceeds for subscribed stock totaling $221,810. In 2002, sufficient working capital could not be raised and the Company was forced to terminate employees. At present the Company is fully dependent upon equity financing as cash flows from operating activities are not sufficient to cover operating expenses.
 
 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.
 
 NOTE 3 - PROPERTY AND EQUIPMENT
 
 Property and equipment consisted of the following at December 31:
 
 2003

2002Office and computer equipment

$
25,219

$
19,852Accumulated depreciation


(19,282
)

(14,522
)$
5,937

$
5,330 
 Depreciation expense was $4,872 in 2003 and $6,316 in 2002.
 
 NOTE 4 - INTANGIBLE ASSETS
 
 Intangible assets consisted of the following at December 31:
 
 2003

2002Technology

$
165,760

$
165,760Trademarks


1,715


1,715Accumulated amortization


(167,475
)

(167,475
)$
- -

$
- -  (continued) 
 SUBJEX CORPORATION
 NOTES TO THE FINANCIAL STATEMENTS
 YEARS ENDED DECEMBER 31, 2003 AND 2002
 
 NOTE 5 - DEBT
 
 Long-term debt consisted of the following at December 31:
 
 Notes Payable  Due on Demand
 
 The notes payable  due on demand, represent short-term operating loans granted the Company in 2001 and 2000. These notes are unsecured, due on demand and bear interest at 12%. Due to cash flow difficulties the Company has been unable to repay these amounts. A summary of activity is as follows:
 
 2003

2002Beginning of year

$
20,000

$
41,500Stock issued in repayment


- -


(21,500
)End of year

$
20,000

$
20,000 
 Convertible Notes Payable
 
 The convertible notes payable are unsecured, bear interest at 10% and were due at various dates, with all currently being due. Due to cash flow difficulties the Company has been unable to repay these amounts. A summary of activity is as follows:
 
 2003

2002Beginning of year

$
23,000

$
94,000Repayments:Proceeds from issuance of new note payable


10,000


- -Stock issued in repayment


(10,000
)

(71,000
)End of year

$
23,000

$
23,000 
 In 2003, $10,000 of this note was converted into the Companys common stock at $0.10 per share.
  (continued) 
 SUBJEX CORPORATION
 NOTES TO THE FINANCIAL STATEMENTS
 YEARS ENDED DECEMBER 31, 2003 AND 2002
 
 NOTE 5  DEBT (Continued)
 
 Convertible Notes Payable (Continued)
 
 The holders of these notes have the right to convert each dollar of unpaid principal to one share of common stock. As additional incentive, the Company also granted warrants to purchase 94,000 shares of the Companys common stock for $1.00 per share. These warrants were immediately exercisable and expired December 31, 2002. The value ascribed to these warrants was nominal using the Black-Scholes option pricing model. In 2002, $71,000 shares of this indebtedness was converted into the Companys common stock at $.04 per share.
 
 Notes Payable  Related Party
 
 2003

20026% note payable to majority stockholder,
payable in monthly installments of
$2,915, including interest, to April 1,
2004, unsecured.

$
--

$
42,5316% note payable to majority stockholder,
payable in full, including interest,
on -September 1, 2003, unsecured.


--


20,000--


62,531Less current maturities


--


(51,002
)$
--

$
11,529 
 During 2003, $56,250 of the outstanding balance to the shareholder was converted into 1,125,000 shares of common stock. The remaining amount was paid to the shareholder in cash. Interest on the notes payable  related party totaled $8,047 in 2003 and $6,085 in 2002.
  (continued) 
 SUBJEX CORPORATION
 NOTES TO THE FINANCIAL STATEMENTS
 YEARS ENDED DECEMBER 31, 2003 AND 2002
 
 NOTE 6  STOCKHOLDERS EQUITY
 
 Subscribed Stock:
 
 In November and December 2002, the Company collected stock proceeds totaling $133,100 towards the purchase of 1,331,000 shares of the Companys common stock at $.10 per share. On January 31, 2003, the Company issued 1,331,000 in satisfaction of this obligation.
 
 Stock Options:
 
 During 1999, the Company adopted the Pagelab Network, Inc. Stock Option and Stock Award Plan (the Plan). The Plan permits the granting of incentive stock options meeting the requirements of Section 422 of the Internal Revenue Code of 1986, as amended, and nonqualified options, which do not meet the requirements of Section 422. A total of 2,500,000 shares have been reserved under the Plan through the period ending December 31, 2003. All options will be granted at an exercise price not less than the fair market value of the common stock on the grant date according to the plan provisions. The options granted to participants owning more than 10 percent of the Companys outstanding voting stock must be granted at an exercise price not less than 110 percent of fair market value of the common stock on that date. The options shall expire on the date determined by the Board of Directors, but not greater than 10 years from the grant date.
 
 The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted-average assumptions:
 
 Expected dividend yield


- -Expected stock price volatility


20
%Risk-free interest rate


5.20
%Expected life of options


2 - 3 years  (continued) 
 SUBJEX CORPORATION
 NOTES TO THE FINANCIAL STATEMENTS
 YEARS ENDED DECEMBER 31, 2003 AND 2002
 
 NOTE 6  STOCKHOLDERS EQUITY  (Continued)
 
 A summary of outstanding options under the Plan is as follows:
 
 2003

2002Shares

Weighted-AverageExercisePrice

Weighted-AverageExerciseShares

PriceOutstanding at
beginning of period


817,970

$
.20 to .50


828,970

$
.20 to .50Granted


- -


- -


- -


- -Exercised


- -


- -


(9,000
)

.10Canceled


- -


- -


- -


- -Outstanding at
end of period


817,970

$
.20 to .50


817,970

$
.20 to .50 
 Warrants:
 
 The Company issued detachable warrants with the sale of common stock to purchase 654,800 shares of common stock in 2002. Warrants for 300,000 shares expire in June 2004 and have an exercise price of $0.10 per share. Warrants for 354,800 shares of common stock expire from June 2005 to June 2017, become exercisable when the Companys share price reaches $1.00 per share and have an exercise price of $0.25 per share.
 
 The Company issued detachable warrants with the sale of common stock to purchase 60,000 shares of common stock in December 2003. The warrants have a three year life and an exercise price of $0.25 per share.
  (continued) 
 SUBJEX CORPORATION
 NOTES TO THE FINANCIAL STATEMENTS
 YEARS ENDED DECEMBER 31, 2003 AND 2002
 
 NOTE 7 - INCOME TAXES
 
 The Companys net operating loss carryforwards are fully allowed for due to questions regarding the Companys ability to utilize these losses before they expire.
 
 2003

2002Deferred tax asset relating to net
operating loss carryforwards

$
927,000

$
860,000Valuation allowance


(927,000
)

(860,000
)Net deferred tax asset

$
- -

$
- - 
 At December 31, 2003, the Company has carryforwards as follows:
 
 Federal

State2014

$
49,000

$
49,0002015


1,010,000


1,010,0002016


1,051,000


1,051,0002017


778,000


778,0002018


200,000


200,000$
3,088,000

$
3,088,000 
 NOTE 8 - SUPPLEMENTAL INFORMATION
 
 2003

2002Supplemental disclosure of
cash flow information:Cash paid during the year for interest

$
17,320

$
4,689Supplemental disclosure of non-cash investing
and activities:Common stock issued for fixed assets

$
- -

$
1,760Common stock issued and warrants and
options exercised to settle:Liabilities

$
23,086

$
278,972  (continued) 
 SUBJEX CORPORATION
 NOTES TO THE FINANCIAL STATEMENTS
 YEARS ENDED DECEMBER 31, 2003 AND 2002
 
 NOTE 9 - LEASE
 
 The Company leases its offices under a month-to-month operating lease. Rent expense was $14,733 in 2003 and $9,335 in 2002. In February 2004, the Company signed a lease to rent its office space under a two-year lease agreement expiring February 2006. The lease requires monthly lease payments of $921 plus a proportionate share of real estate taxes, maintenance and insurance.
 
 Future minimum rental commitments for this lease are as follows:
 
 2004 -


$10,129

2005 -


$11,050

2006 -


$921
 
 Note 10  Joint Venture
 
 On December 10, 2003 Subjex Corporation and ShangHai Geason Digital Technology Co., Ltd., a Chinese corporation, signed a joint venture agreement to form a new company called Subjex China to be headquartered in ShangHai, China. Under the terms of the Agreement, existing assets, contracts, revenues and cash of ShangHai Geason Digital Technology will be put into the new company, along with up to 1 million shares of U.S. based Subjex Corporation (SBJX). The final value of cash and asset contribution will be more than $2,000,000 USD. The equity split of the new company will be 50/50 between the owners of ShangHai Geason Digital Technology and Subjex Corporation. As of December 31, 2003, the only activity in the new company has been the issuance of a warrant for 500,000 shares of the Company stock at an exercise price of $0.25 to ShangHai Geason Digital Technology Co., Ltd. The value of the warrants was $8,500 on the date of grant using the Black Scholes option-pricing model with the following assumptions: expected dividend yield 0.0%, risk-free interest rate of 4.5%, and an expected life of two years.
 
 Note 11  Subsequent Events
 
 In March 2004, the Company agreed to a payment plan with the IRS related to employee payroll withholdings and payroll taxes which accrued 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 was approximately $11,000 on December 31, 2003 this is included in accrued expenses  payroll and payroll taxes.