UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 1999.
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No fee required) for the transition period from to
Commission file number: 000-22373
---------
Chattown.com Network, Inc.
------------------------------
(Name of Small Business Issuer in Its Charter)
Delaware 58-2027283
---------- -----------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
268 West 400 South, Suite 300, Salt Lake City, Utah 84101
-----------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(801) 575-8073
------------------------------------
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of each Exchange on Which
Registered
-------------------------- ---------------------------------
Common Stock ($0.001 Par Value) None
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
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B not contained in this form, and no disclosure will be contained,
to the best of registrant'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 [X].
The issuer's total consolidated revenues for the year ended December 31, 1999,
were $ 10,263.
The aggregate market value of the registrant's Common Stock, $0.001 par value
(the only class of voting stock), held by non-affiliates was approximately
$1,483,274 based on the average closing bid and asked prices for the Common
Stock on March 30, 2000.
At March 30, 2000, the number of shares outstanding of the registrant's Common
Stock, $0.001 par value (the only class of voting stock), was 10,943,565.
<PAGE>
TABLE OF CONTENTS
Page
PART I
Item 1. Description of Business.........................................1
Item 2. Description of Property.........................................4
Item 3. Legal Proceedings...............................................4
Item 4. Submission of Matters to a Vote of Security-Holders.............4
PART II
Item 5. Market for Common Equity and Related Stockholder Matters........4
Item 6. Management's Discussion and Analysis or Plan of Operation.......5
Item 7. Financial Statements...................................F-1 to F-11
Item 8. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure........................................8
PART III
Item 9. Directors and Executive Officers................................8
Item 10. Executive Compensation..........................................9
Item 11. Security Ownership of Certain Beneficial Owners and
Management.....................................................11
Item 12. Certain Relationships and Related Transactions.................11
Item 13. Exhibits, List and Reports on Form 8-K.........................12
Signatures ....................................................13
Index to Exhibits..............................................14
<PAGE>
ITEM 1. DESCRIPTION OF BUSINESS
General
As used herein the term "Company" refers to Chattown.com Network, Inc., its
subsidiaries and predecessors, unless indicated otherwise. Chattown.com Network,
Inc. was originally incorporated in the State of Delaware on January 6, 1993, as
Vaxcel, Inc. Vaxcel, Inc. ("Vaxcel") was formed as a wholly- owned subsidiary of
CytRx Corporation ("CytRx"). In May 1997, Vaxcel completed a merger with
Zynaxis, Inc. (Zynaxis), resulting in the issuance of an aggregate of 12.5% of
its outstanding (post-merger) shares of common stock to the former shareholders
of Zynaxis. Vaxcel has historically engaged in the development and
commercialization of vaccine adjuvants and delivery systems and a novel vaccine
for the treatment of cancer.
However, in the second quarter of 1999 Vaxcel sold all the rights to its
technologies for cash and discontinued all of its operations. In addition, CytRx
terminated its license of Optivax to Vaxcel, resulting in the assignment to
CytRx of Vaxcel's rights and obligations under its license agreement to Corixa
Corporation. Vaxcel continues to hold rights to develop and commercialize a
certain cancer antigen under a license agreement from University College London,
but no longer has any employees or other ability to develop its technologies
further without assistance. The Company's current management has no prior
experience in developing such cancer antigens. Accordingly, the Company has no
plans to continue to develop and commercialize the cancer antigen. However,
management may try to sell its rights in the cancer antigen or acquire a company
in the biomedical field that could make use of the rights Vaxcel holds in the
cancer antigen.
On June 2, 1999, A-Z Professional Consultants, Inc., a Utah corporation ("A-Z"),
entered into a Stock Acquisition Agreement ("Agreement") with CytRx Corporation,
a Delaware corporation ("Cytrx"), the parent company of Vaxcel. Pursuant to the
Agreement A-Z purchased Nine Million Six Hundred Twenty- Five Thousand
(9,625,000) shares of the common stock of Vaxcel, (the Company) from CytRx. (See
Form 8-K filed September 20, 1999).
The Company during the third quarter of 1999 settled all of its liabilities from
the proceeds it collected from the sale of the technologies it held. The Company
is now a shell company with no operations whose purpose is to find suitable
operations through a merger or acquisition. On February 3, 2000, the Company
changed its name to Chattown.com Network, Inc. The name change occurred at the
request of Thomas Clay and Mark Schellenberger who have entered into a contract
to sell an Internet business to the Company. The Company's new name will better
reflect the type of business which will be carried out by the Company following
the closing of the acquisition which is scheduled to occur on March 30, 2000.
On February 3, 2000, the Company amended its Articles of Incorporation to change
the number of its authorized $0.001 par value shares of common stock from
30,000,000 to 200,000,000.
Acquisition of a business opportunity
On February 17, 2000, the Company entered into a Stock Purchase Agreement with
Thomas Clay and Mark Schellenberger for the purchase of a 100% interest in Value
Plus Marketing, Inc. ("Value"), a private company headquartered in Sarasota,
Florida.
1
<PAGE>
Basic Terms of the Stock Purchase Agreement
Pursuant to the Stock Purchase Agreement, the Company is required to issue a
total of Twenty Four Million (24,000,000) shares of its common stock in exchange
for 100% of the total issued and outstanding shares of Value. The current
controlling shareholder, A-Z Professional Consultants, Inc. has agreed to cancel
a total of Two Hundred Thousand (200,000) shares in exchange for the Company
agreeing to effect no reverse splits for at least Twenty Four (24) months from
the closing.
The Company also anticipates issuing, pursuant to a compensation agreement dated
March 17, 2000, a total of Five Hundred Thousand (500,000) shares of its common
stock to Richard D. Surber for services rendered to the Company in serving as
its president, responding to shareholder concerns, finding buyers for the
Company's technology, drafting documents, and preparing and filing with the
United States Securities and Exchange Commission, on behalf of the Company,
Forms 10-Q and 10-K, and amendments thereto, Schedule 14C, and Forms 8-K. The
500,000 shares to be issued to Mr. Surber will be registered by the Company
pursuant to a Form S-8 registration statement.
Business of Value
Value was organized by the Sellers for the purpose of combining several web site
assets owned by the Sellers. Currently, Value does not have any assets. However,
at the time the Company closes on the acquisition of Value it is anticipated
that Value will own a number of web sites including the following sites:
Interactive Web Sites: ChattownUSA.com, Cyberlounge.com, Partyhouse.com,
Chattersworld.com, 1chatblvd.com, Chitterchatter.com, Chatsports.com
Search Portal: HoundDog.com
Interactive Dating Web Site: Loversonly.com
Political Web Site: Chatpolitics.com
Excepting the sites currently under development, the sites above currently offer
free and fee based Internet chat rooms, on line shopping and other e-commerce
services including free web based e-mail and free web hosting.
The parties anticipate closing on the Stock Purchase Agreement by no later than
March 30, 2000. Closing will be subject to all parties conducting the necessary
due diligence.
Upon closing the Stock Purchase Agreement, it is anticipated that the Board of
Directors of the Company will be reorganized and that Richard Surber and
BonnieJean C. Tippetts will resign as directors. Thomas Clay and Mark
Schellenberger, as majority shareholders of the Company following the closing
will have authority to appoint the Board of Directors of the Company by reason
of their ownership of in excess of 50% of the issued and outstanding shares of
the Company.
2
<PAGE>
Operation of Business After Acquisition
The Company's operation following its acquisition of a business will be
dependent on new management which the Company anticipates will be installed by
the acquiring shareholders, Thomas Clay and Mark Schellenberger. It may be
expected that the new business of the Company will present various risks, which
cannot be predicted at the present time.
Governmental Regulation
Upon closing the Stock Purchase Agreement, the Company will be subject to the
same federal, state and local laws as other companies conducting business on the
Internet. Today there are relatively few laws specifically directed toward
online services. However, due to the increasing popularity and use of the
Internet and online services, it is possible that laws and regulations will be
adopted with respect to the Internet and online services. These laws and
regulations could cover issues such as online contracts, user privacy, freedom
of expression, pricing, fraud, content and quality of products and services,
taxation, advertising, intellectual property rights and information security.
Applicability to the Internet of existing laws governing issues such as property
ownership, copyrights and other intellectual property issues, taxation, libel,
obscenity and personal privacy is uncertain.
Changes to existing laws or the passage of new laws intended to address Internet
issues could directly affect the way the Company does business or could create
uncertainty in the marketplace. This could reduce demand for the services of the
Company or increase the cost of doing business as a result of litigation costs
or increased service delivery costs, or could otherwise harm the Company's
business. In addition, because the Company's services are accessible worldwide,
and the Company facilitates sales of goods to users worldwide, foreign
jurisdictions may claim that the Company is required to comply with their laws.
In some jurisdictions, the Company may be required to collect value-added or
other taxes on its fees. The Company's failure to comply with foreign laws could
subject it to penalties ranging from fines to bans on its ability to offer its
services.
Competition
The Company anticipates that once the acquisition closes it will be involved in
intense competition with other Internet business entities, many of which will
have a competitive edge over the Company by virtue of their stronger financial
resources and prior experience in business.
The Internet industry is intensely competitive and there are many
well-established competitors. These competitors may have substantially greater
financial and other resources than the Company. These companies may be better
established in the marketplace.
The market for online products is new, rapidly evolving and intensely
competitive, and the Company expects competition to intensify in the future.
Barriers to entry are relatively low, and current and new competitors can launch
new sites at a relatively low cost using commercially available software.
The Company also potentially faces competition from a number of large online
communities and services that have expertise in developing online commerce and
in facilitating online person-to-person interaction. Some of these potential
competitors are Amazon.com, AOL, and Microsoft Corporation. Other large
companies with strong brand recognition and experience in online commerce also
may seek to compete in the online entertainment delivery market.
3
<PAGE>
Employees
The Company is a development stage company and currently has no employees other
than its president, Richard D. Surber. Upon closing the Stock Purchase
Agreement, the Company may acquire employees in order to operate its business.
ITEM 2. DESCRIPTION OF PROPERTY
The Company owns no real property. The Company currently uses the offices,
office equipment and support staff of Hudson Consulting Group, Inc. at 268 West
400 South, Suite 300, Salt Lake City, Utah 84101. The Company currently has no
written lease agreement.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fiscal year covered by this Report to a vote
of security holders, and therefore, this item is inapplicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is quoted on the Electronic Bulletin Board under the
symbol, CTWN (formerly VXCL). Trading in the common stock in the
over-the-counter market has been limited and sporadic and the quotations set
forth below are not necessarily indicative of actual market conditions. Further,
these prices reflect inter-dealer prices without retail mark-up, mark-down, or
commission, and may not necessarily reflect actual transactions. The high and
low bid prices for the common stock for each quarter of the fiscal years ended
December 31,1999 and 1998 are as follows:
Year Quarter Ending High Low
- ------------------------------------------------
1998 March 31 $0.69 $0.50
June 30 $1.03 $0.47
September 30 $0.63 $0.13
December 31 $0.13 $0.06
1999 March 31 $0.13 $0.06
June 30 $0.13 $0.06
September 30 $0.09 $0.06
December 31 $0.19 $0.07
- ------------------------------------------------
4
<PAGE>
On March 30, 2000, the number of holders of record of the Company's common stock
was 145. No cash dividends were paid during the fiscal years December 31, 1999
and 1998.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Plan of Operation
During the current fiscal year, the Company has settled all of its liabilities
from the proceeds it collected from the sale of the technologies it held. The
Company is currently a shell company whose purpose and plan is to acquire
operations through a merger or acquisition. Since the Company discontinued its
operations it has attempted to identify and acquire a favorable business
opportunity.
To date, opportunities have been made available to the Company through its
officers and directors and through professional advisors. The Company has
reviewed and evaluated a number of business ventures for possible acquisition or
participation by the Company.
The Company has now entered into an agreement to purchase Value Plus Marketing,
Inc., and intends to become an operating business through this acquisition.
Following the acquisition of Value by the Company, it is anticipated that the
Company will, under the direction of new management, be involved in the business
of owning and operating several Internet websites. (See Item 1, "Business of
Value")
The Company's operation following its acquisition of Value will be dependent on
new management which the Company anticipates will be installed by the acquiring
shareholders, Thomas Clay and Mark Schellenberger. It may be expected that the
new business of the Company will present various risks, which cannot be
predicted at the present time. It is expected that the Company may not be able
to satisfy all of its cash requirements over the next twelve month period from
cash flows generated by the Company's business operations. In order to sustain
its cash needs the Company may need to obtain debt or equity financing. There is
no guarantee that the company will be able to raise money with either debt or
equity financing.
It is not expected that the Company will be involved in research and development
activities over the next twelve month period, with the exception of development
of new websites for its Internet business. The Company has no immediate plans
for the purchase or sale of significant plant or equipment.
The Company currently has one employee, its president, Richard D. Surber.
Following the acquisition, the company may increase the number of employees in
order to successfully operate its proposed Internet business. The exact number
of employees which may be hired in the coming twelve month period is unknown at
present.
[THIS SPACE LEFT BLANK INTENTIONALLY]
5
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The Company's financial statements for the fiscal years ended December 31, 1999
and 1998 are attached hereto as pages F-1 through F-11.
6
[THIS SPACE LEFT BLANK INTENTIONALLY]
<PAGE>
CHATTOWN.COM NETWORK, INC.
(formerly Vaxcel, Inc.)
Financial Statements
December 31, 1999 and 1998
7
<PAGE>
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CHATTOWN.COM NETWORK, INC.
(Formerly Vaxcel, Inc.)
(A Development Stage Company)
Contents
- --------------------------------------------------------------------------------
Page
Report of Tanner + Co. F-2
Report of Ernst & Young LLP F-3
Balance sheet F-4
Statement of operations F-5
Statement of stockholders' equity F-6
Statement of cash flows F-7
Notes to financial statements F-8
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Chattown.com Network, Inc.
(formerly Vaxcel, Inc.)
We have audited the accompanying balance sheet of Chattown.com Network, Inc.
(formerly Vaxcel, Inc.) (a development stage company) as of December 31, 1999,
and the related statements of operations, stockholders' equity and cash flows
for the year ended December 31, 1999. 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 generally accepted auditing standards.
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 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 Chattown.com Network, Inc.
(formerly Vaxcel, Inc.) (a development stage company) as of December 31, 1999
and the results of its operations and its cash flows for the year ended December
31, 1999.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 2 to the
financial statements, the Company has no revenue generating activities and has
recurring losses from operations and an accumulated deficit. These conditions
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
TANNER + CO.
/s/ TANNER + CO.
- -----------------
Salt Lake City, Utah
March 17, 2000
F-2
<PAGE>
ERNST & YOUNG LLP
600 Peachtree Lane, Suite 2800
Atlanta, Georgia 30308-2215
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Chattown.com Network, Inc. (f/k/a Vaxcel, Inc.)
We have audited the accompanying balance sheet of Chattown.com Network, Inc.
(f/k/a Vaxcel, Inc.) as of December 31, 1998, and the related statements of
operations, stockholders' equity, and cash flows for each of the two years in
the period ended December 31, 1998. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 audits provide 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 Chattown.com Network, Inc.
(f/k/a Vaxcel, Inc.) at December 31, 1998 and the results of its operations and
its cash flows for each of the two years in the period ended December 31, 1998,
in conformity with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, the Company's recurring
losses from operations and accumulated deficit raise substantial doubt about its
ability to continue as a going concern. Management's plans as to these matters
are also described in Note 2. The 1998 financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Ernst & Young LLP
- ----------------------
Atlanta, Georgia
March 9, 1999
F-3
<PAGE>
<TABLE>
CHATTOWN.COM NETWORK, INC.
(formerly Vaxcel, Inc.)
(A Development Stage Company)
Balance Sheet
December 31,
- --------------------------------------------------------------------------------
<CAPTION>
1999 1998
-------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 10,263 $ -
Prepaid expense 17,500 -
------------- ----------
Total current assets 27,763 -
Net assets of discontinued operations - 358,161
------------- ----------
Total assets $ 27,763 $ 358,161
============= ==========
Liabilities and Stockholders' Equity
Current liabilities $ - $ -
Stockholders' equity
Preferred stock, $.001 par value,
2,000,000 shares authorized;
no shares issued and outstanding - -
Common stock, $.001 par value,
200,000,000 shares authorized;
11,494,656 and 10,994,656 shares
issued and outstanding, respectively 11,495 10,995
Additional paid-in capital 12,520,267 12,485,767
Accumulated deficit (12,503,999) (12,138,601)
------------- ----------
Total stockholders' equity 27,763 358,161
------------- ----------
Total liabilities and stockholders' equity $ 27,763 $ 358,161
============== ==========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-4
<PAGE>
<TABLE>
CHATTOWN.COM NETWORK, INC.
(formerly Vaxcel, Inc.)
(A Development Stage Company)
Statement of Operations
Years Ended December 31, and Cumulative Amounts
- --------------------------------------------------------------------------------
<CAPTION>
Cumulative
1999 1998 1997 Amounts
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues - interest and
other income $ 10,263 $ - $ - $
Stock compensation expense (17,500) - - (17,500)
-------------- ------------ ----------- ------------
Loss from continuing operations
before income tax (7,237) - - (17,500)
Income taxes - - - -
-------------- ------------ ----------- ------------
Loss from continuing operations (7,237) - - (17,500)
Loss from discontinued operations (358,161) (4,993,289) (2,599,298) -
-------------- ------------ ----------- ------------
Net loss $ (365,398) $ (4,993,289) $(2,599,298) $ (17,500)
-------------- ------------ ----------- ------------
Loss per common share - basic and diluted:
Continuing operations $ - $ - $ - $ -
Discontinued operations (.03) (.45) (.26) -
-------------- ------------ ----------- ------------
$ (.03) $ (.45) $ (.26) $ -
-------------- ------------ ----------- ------------
Weighted average common shares
outstanding - basic and diluted 11,119,656 10,996,905 9,939,680 11,244,656
============== ============ =========== ============
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-5
<PAGE>
<TABLE>
CHATTOWN.COM NETWORK, INC.
(formerly Vaxcel, Inc.)
(A Development Stage Company)
Statement of Stockholders' Equity
January 1, 1997 Through December 31, 1999
- --------------------------------------------------------------------------------
<CAPTION>
Common Stock Additional
--------------------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 8,250,004 $ 8,250 $ 4,697,750 $ (4,546,014) $ 159,986
Issuance of common stock 5,333 5 8,000 8,005
Pre-merger capital contribution by CytRx 163,396 163,396
Issuance of common stock in connection
with merger, net of transaction costs 2,745,733 2,746 7,556,615 7,559,361
Net loss (2,599,298) (2,599,298)
----------- ---------- ---------- ----------- -----------
Balance at December 31, 1997 11,001,070 11,001 12,425,761 (7,145,312) 5,291,450
Retirement of common shares (6,414) (6) 6 -
Beneficial conversion feature of
convertible notes 60,000 60,000
Net loss (4,993,289) (4,993,289)
----------- ---------- ---------- ----------- -----------
Balance at December 31, 1998 10,994,656 10,995 12,485,767 (12,138,601) 358,161
Issuance of common stock for services 500,000 500 34,500 - 35,000
Net loss (365,398) (365,398)
----------- ---------- ---------- ----------- -----------
Balance at December 31, 1999 11,494,656 $ 11,495 $12,520,267 $(12,503,999) $ 27,763
=========== ========== ========== =========== ============
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-6
<PAGE>
<TABLE>
CHATTOWN.COM NETWORK, INC.
(formerly Vaxcel, Inc.)
(A Development Stage Company)
Statement of Cash Flows
Years Ended December 31, and Cumulative Amounts
- --------------------------------------------------------------------------------
<CAPTION>
Cumulative
1999 1998 1997 Amounts
-------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net loss $ (365,398) $(4,993,289) $(2,599,298) $ (17,500)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Stock compensation expense 17,500 - - 17,500
Loss from discontinued operations 358,161 4,993,289 2,599,298 -
---------- ---------- ----------- -----------
Net cash provided by
operating activities 10,263 - - -
---------- ---------- ----------- -----------
Cash flow from investing activities: - - - -
---------- ---------- ----------- -----------
Cash flows from financing activities: - - - -
---------- ---------- ----------- -----------
Net increase in cash and cash equivalents 10,263 - - -
Cash and cash equivalents at beginning of period - - - 10,263
---------- ---------- ----------- -----------
Cash and cash equivalents at end of period $ 10,263 $ - $ - $ 10,263
========== ========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-7
<PAGE>
CHATTOWN.COM NETWORK, INC.
(formerly Vaxcel, Inc.)
(A Development Stage Company)
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
Notes to Financial Statements
December 31, 1999
- --------------------------------------------------------------------------------
1. Organization and Summary of Significant Accounting Policies
Organization
Chattown.com Network, Inc. (formerly Vaxcel, Inc.) (the Company) was formed on
January 6, 1993 as a wholly-owned subsidiary of CytRx corporation (CytRx). On
June 2, 1999, A-Z Professional Consultants, Inc., a Utah corporation ("A-Z"),
entered into a Stock Acquisiton Agreement ("Agreement") with CytRX. A-Z
purchased 9,625,000 shares or 87.5% of the Company's issued and outstanding
shares of common stock and discontinued all operations of the Company. In
addition, CytRx terminated its license of Optivax to Vaxcel, resulting in the
assignment of CytRx of Vaxcel's rights and obligations under its license
agreement to Corixa Corporation.
The Company has no planned principal operations and is considered a development
stage company, beginning June 2, 1999, as defined in SFAS No. 7. Cumulative
amounts reflect operations from June 2, 1999 through December 31, 1999. The
Company has, at the present time, not paid any dividends and any dividends that
may be paid in the future will depend upon the financial requirements of the
Company and other relevant factors.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid investments with a maturity of three months or less to be cash
equivalents.
Prepaid Expense
On September 17, 1999, the Company issued 500,000 shares of its common stock to
its President for services. The prepaid expense consists of the value of the
common stock which was unearned as of December 31, 1999. The amount was earned
subsequent to December 31, 1999.
Loss Per Common and Common Equivalent Share
The computation of basic earnings per common share is computed using the
weighted average number of common shares outstanding during the year.
The computation of diluted earnings per common share is based on the weighted
average number of shares outstanding during the year plus common stock
equivalents which would arise from the exercise of stock options and warrants
outstanding using the treasury stock method and the average market price per
share during the year. Common stock equivalents are not included in the diluted
earnings per share calculation when their effect is antidilutive.
Stock Based Compensation
The Company grants stock options for a fixed number of shares to key employees,
directors and consultants with an exercise price equal to the fair market value
of the shares at the date of grant. The Accounting for Stock Issued to Employees
("APB 25"), and, accordingly recognizes no compensation expense is recognized to
the extent that the quoted market price per share exceeds the exercise price on
the date such criteria are achieved or are probable.
- --------------------------------------------------------------------------------
F-8
<PAGE>
CHATTOWN.COM NETWORK, INC.
(formerly Vaxcel, Inc.)
(A Development Stage Company)
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
1. Organization and Summary of Significant Accounting Policies (continued)
In October 1995, the FASB issued Statement of Financial Accounting Standards No.
123, Accounting for Stock-based Compensation ("Statement 123"), which provides
an alternative to APB 25 in accounting for stock-based compensation issued to
employees. However, the Company has continued to account for stock-based
compensation in accordance with APB 25.
Use of Estimates in the Preparation of Financial Statements 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 the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Concentration of Credit Risk
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such account and believes it is not exposed to any significant credit risk on
cash and cash equivalents.
2. Going Concern
As of December 31, 1999, the Company's revenue generating activities are not in
place, and the Company has incurred a loss for the period then ended. These
factors raise substantial doubt about the Company's ability to continue as a
going concern.
Management intends to seek additional funding through business ventures. There
can be no assurance that such funds will be available to the Company, or
available on terms of acceptable to the Company.
3. Discontinued Operations
On June 2, 1999, the Company discontinued all of its operations and became a
development stage company (see note 1). Condensed discontinued operations are as
follows:
[THIS SPACE LEFT BLANK INTENTIONALLY]
- --------------------------------------------------------------------------------
F-9
<PAGE>
CHATTOWN.COM NETWORK, INC.
(formerly Vaxcel, Inc.)
(A Development Stage Company)
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
3. Discontinued Operations (continued)
Years Ended December 31,
---------------------------------------------
1999 1998 1997
---------------------------------------------
Revenues $ - $ 254,471 $ 288,504
------------- ----------- ----------
Transactions with
affiliates - 172,261 381,806
Acquired incomplete
research and
development - - 951,017
Impairment loss - 3,212,615 -
Other costs and
expenses 358,161 1,862,884 1,554,979
----------------------------------------------
358,161 5,247,760 2,887,802
----------------------------------------------
Net loss $ (358,161) $(4,993,289) $(2,599,298)
============== ============ ===========
The assets and liabilities of the Company are included in the net assets of
discontinued operations at December 31, 1999 and 1998.
4. Income Taxes
At December 31, 1999, the Company had net operating loss carryforwards of
approximately $12,000,000 and research and development tax credit carryforwards
of approximately $111,000. These carryforwards are available to offset future
taxable income and begin to expire in 2008. The utilization of the net operating
loss carryforwards is dependent upon the tax laws in effect at the time the net
operating loss carryforwards can be utilized. The Tax Reform Act of 1986
significantly limits the annual amount that can be utilized for certain of these
carryforwards as a result of the change in ownership.
A valuation allowance has been established for the net deferred tax asset due to
the uncertainty of the Company's ability to realize such asset.
5. Fair Value of Financial Instruments
The Company's financial instruments consist of cash. The carrying amount of cash
approximates fair value because of the short-term nature of these items.
- --------------------------------------------------------------------------------
F-10
<PAGE>
CHATTOWN.COM NETWORK, INC.
(formerly Vaxcel, Inc.)
(A Development Stage Company)
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
6. Recent Accounting Pronouncements
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective date of FASB
Statement No. 133." SFAS 133 establishes accounting and reporting standards for
derivative instruments and requires recognition of all derivatives as assets or
liabilities in the statement of financial position and measurement of those
instruments at fair value. SFAS 133 is now effective for fiscal years beginning
after June 15, 2000. The Company believes that the adoption of SFAS 133 will not
have any material effect on the financial statements of the Company.
7. Subsequent Event
Subsequent to the year ended December 31, 1999, the Company signed a Stock
Purchase Agreement with another company. Pursuant to the terms of the Agreement,
the Company plans to purchase 100% interest in the company in exchange for
24,000,000 shares of the Company's common stock. This Agreement is contingent
upon the completion of due diligence by both parties and other factors.
- --------------------------------------------------------------------------------
F-11
<PAGE>
ITEM 8.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
On March 14, 2000, Chattown.com Network, Inc. ("the Company" formerly known as
Vaxcel, Inc.) dismissed Ernst & Young LLP ("E&Y), the principal accountant
previously engaged to audit the Company's financial statements. Effective March
14, 2000, the Company retained Tanner + Co. ("Tanner") as the principal
accountants to replace E&Y. The Company's audit committee and board of directors
approved the change of accountants from E&Y to Tanner.
The audit reports of E&Y on the Company's financial statements for the fiscal
years ending December 31, 1997 and 1998 did not contain any adverse opinion or
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope, or accounting principles, except such reports were modified to
include an explanatory paragraph for a going concern uncertainty.
In connection with the audits of the fiscal years ending December 31, 1997 and
1998 and the subsequent interim periods through March 14, 2000, the date of
termination, the Company had no disagreements with E&Y on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures, which disagreements, if not resolved to their satisfaction,
would have caused E&Y to make reference in connection with their opinion to the
subject matter of the disagreement. In addition, during that time there were no
reportable events (as defined in Item 304(a)(1)(iv) of Regulation S-B).
During the fiscal years ending December 31, 1997 and 1998, and the subsequent
interim period through March 14, 2000, the date of termination, and prior to
such appointment, the Company did not consult with Tanner regarding the
application of generally accepted accounting principles to a specific
transaction, either proposed or completed, or the type of audit opinion that
might be rendered on the Company's consolidated financial statements. Since
there were no disagreements or reportable events (as defined in Item 304(a)(2)
of Regulation S-B), the Company did not consult Tanner in respect to these
matters during that time.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
NAME AGE POSITION
- ------------------------------------------------------------------
Richard D. Surber 27 President and Director
BonnieJean C. Tippetts 58 Vice President and Director
- ------------------------------------------------------------------
Richard D. Surber, 27, graduated from the University of Utah with a Bachelor of
Science degree in Finance and then with a Juris Doctorate with an emphasis in
corporate law, including securities, taxation, and bankruptcy. He has been an
officer and director of several public companies which include: CyberAmerica
Corporation (OTCBB: CYAA) (president and director from 1992 to the present),
which is a holding company whose subsidiaries invest in real estate and provide
financial consulting services; Kelly's Coffee, Group, Inc., a shell company
whose plan is to acquire an unidentified company (president and director from
May, 1999 to the present); Innovative Property Development Corporation ("IPDC"),
N.K.A. China Mall USA.com, Inc., a former subsidiary of CyberAmerica
Corporation, which currently is a non-reporting Chinese Internet company
(president and director 1992 to June, 1999); Eurotronics Corporation, F.K.A.
8
<PAGE>
Hamilton Exploration, Inc., a shell company which is currently unrelated to the
Company (president and director 1994-1996), and whose post-1996 operations if
any are not known; Area Investment Development Company, which was a shell
company unrelated to the Company (president and director 1994-1996), and which
has recently acquired an Internet company whose content revolves around
religious events; Youthline USA, Inc., F.K.A. Ult-i-Med Health Centers, Inc., a
non reporting shell company that acquired an educational company which
distributes education newspapers to children in grades K-12 (secretary and
director from April 6, 1999 to July 29,1999); Premier Brands, Inc., a shell
company (president and director April, 1998 - September, 1998); and Golden
Opportunity Development Corporation, a wholly owned subsidiary of CyberAmerica
Corporation, (president and director from September, 1999 to present) whose
operations consist of operating a 324 room hotel in Baton Rouge, Louisiana. Mr.
Surber is also the President and a Director of several private shell companies
that intend to become fully reporting public companies. Mr. Surber began his
term as the Company's President and Director on September 17, 1999.
BonnieJean C. Tippetts, 58, was appointed a Vice President, Secretary and
Director of the Company on November 17, 1999. Since 1991, Ms. Tippetts has been
employed by Canton Financial Services Corporation, a business and consulting
firm and a sibling corporation to CyberAmerica Corporation. Ms. Tippetts has
over 30 years of experience in the business field. Her corporate experience
includes starting, purchasing, operating and selling various businesses. She has
been President or Director of more than a dozen corporations over the past 30
years. She is currently the President of A-Z Professional Consultants, Inc., a
management and corporate consulting firm. Ms. Tippetts earned a Bachelor of Arts
degree from Lewis & Clark College in Portland, Oregon in 1960; obtained a
Bachelor of Science degree from Brigham Young University in Provo, Utah in 1965;
and was awarded a Master of Arts degree from the University of Northern Colorado
in Greeley, Colorado in 1970.
Compliance with Section 16(a) of the Exchange Act
Based solely upon a review of Forms 3, 4 and 5 furnished to the Company, the
Company is not aware of any person who at any time during the fiscal year ended
December 31, 1999 was a director, officer, or beneficial owner of more than ten
percent of the Common Stock of the Company, and who failed to file, on a timely
basis, reports required by Section 16(a) of the Securities Exchange Act of 1934
during such fiscal year.
ITEM 10. EXECUTIVE COMPENSATION
Executive Compensation
No compensation in excess of $100,000 was awarded to, earned by, or paid to any
executive officer of the Company during the year 1999. The following table and
the accompanying notes provide summary information for each of the last three
fiscal years concerning cash and non-cash compensation paid or accrued by the
Company's chief executive officer(s) for the past three years and each of the
four other most highly compensated executive officers of the Company whose total
salary and bonus exceeded $100,000.
9
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Name and Year Annual Compensation Awards Payouts
------------- ------------------- ------ -------
Restricted Securities
Name and Other Annual Stock Underlying LTIP All Other
Principal Year Salary Bonus Compensation Award(s) Options/ payouts Compensation
Position ($) ($) ($) ($) SARs(#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard 1999 - - - - - - 500,000 shares(1)
Surber, 1998 - - - - - - -
President 1997 - - - - - - -
- --------------- -------- ------------ ---------- ----------------- ------------ -------------- ---------- -----------------
Mark J. 1999 $ 24,167 - - - - - $ 100,000(2)
Newman, 1998 $ 140,000 - - - 500,000 - $ 5,000(3)
Former 1997 $ 129,500 $13,000 - - - - $ 4,750(3)
President and
CEO
- --------------- -------- ------------ ---------- ----------------- ------------ -------------- ---------- -----------------
Mark W. 1999 - - - - - - -
Reynolds, 1998 $101,000 $25,000 - - - - $ 5,000(4)
Former CFO 1997 $ 94,000 $12,500 - - - - $ 4,750(4)
and Secretary
- --------------- -------- ------------ ---------- ----------------- ------------ -------------- ---------- -----------------
Paul J. Wilson, 1999 - - - - - - -
Former 1998 $207,750 - - - - - $ 4,815(3)
President and 1997 $214,000 - - - - - $ 4,750(3)
CEO
- --------------- -------- ------------ ---------- ----------------- ------------ -------------- ---------- -----------------
</TABLE>
Employment Agreements
Mr. Paul J. Wilson's employment agreement expired effective August 16, 1998 and
was not renewed. Since that date, Dr. Mark J. Newman has served in the capacity
of President and Chief Executive Officer. The annual cash compensation for Dr.
Newman was $140,000 during 1998 and increased to $145,000 on January 1, 1999.
Effective February 28, 1999, Dr. Newman left the Company to pursue other
interests. Dr. Newman is no longer associated with the Company.
During the term of his employment, Dr. Newman received options to purchase up to
an aggregate of 715,000 shares of Vaxcel Common Stock. Options as to 215,000
shares have an exercise price of $1.50 per share and vest upon the achievement
of certain corporate milestones. Options as to 500,000 shares had an exercise
price of $.625 per share and vested primarily upon events surrounding the sale
or merger of the Company. As of April 22, 1999, Dr. Newman had vested with
respect to options to purchase 110,000 shares. The Company had also guaranteed
to Dr. Newman that, as a result of the successful sale or merger of the Company
to a third party, Dr. Newman would receive a combination of stock options and a
performance bonus having a gross value equal to at least $100,000.
- ----------------------
(1)On March 17, 2000 the Company agreed to issue 500,000 shares of the Company's
common stock to Richard D. Surber for services rendered to the Company during
the period September 17, 1999 to March 17, 2000. The 500,000 shares listed are
total compensation paid for the said six month period.
(2)Represents monies paid as part of a severance package upon sale of the
Company by CytRx.
(3)Vaxcel's matching contribution to CytRx's 401(k) Plan during the period
Vaxcel was a wholly owned subsidiary of CytRx. Vaxcel did not have a 401(k)
Plan, but employees of Vaxcel were eligible to participate in CytRx's 401(k)
Plan.
(4)CytRx's matching contribution to its 401(k) Plan.
10
<PAGE>
Compensation of Directors
The Company's directors are not currently compensated.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information concerning the ownership of
the Company's Common Stock as of March 27, 2000, with respect to: (i) each
person known to the Company to be the beneficial owner of more than five percent
of the Company's Common Stock; (ii) all directors; and (iii) directors and
executive officers of the Company as a group. The notes accompanying the
information in the table below are necessary for a complete understanding of the
figures provided below. As of March 30, 2000, there were 10,943,565 shares of
Common Stock issued and outstanding.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature Percent of
Title of Class Beneficial Owner of Beneficial Ownership Class
-------------- ------------------- ----------------------- --------
<S> <C> <C> <C>
Common Stock Richard D. Surber 500,000(5) 4.3%
($0.001 par value) 268 West 400 South, Suite 300
Salt Lake City, Utah 84101
Common Stock BonnieJean Tippetts 9,625,000(6) 87.9%
($0.001) par value 268 West 400 South, Suite 300
Salt Lake City, Utah 84101
Common Stock A-Z Professional Consultants, Inc. 9,625,000 87.9%
($0.001) par value 268 West 400 South, Suite 300
Salt Lake City, Utah 84101
Common Stock Directors and Executive Officers as a 10,125,000 88.4%
($0.001) par value Group
- ------------------------- ------------------------------------------ -------------------------------- ----------------
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 17, 2000, the Company entered into a Compensation Agreement with
Richard D. Surber pursuant to which the Company agreed to issue 500,000 shares
of its common stock for services rendered in connection with his service as
president and a director of the Company with responsibility for the
- -------------------
(5)Richard D. Surber has the right, pursuant to a written compensation agreement
with the Company, to receive 500,000 shares of the Company's common stock for
services he rendered to the Company while serving as its president for the
period September 17, 1999 to March 17, 2000.
(6)The shares owned by A-Z Professional Consultants, Inc. are attributed to
BonnieJean Tippetts as president of the A-Z Professional Consultants, Inc.
200,000 shares are to be canceled pursuant to a Stock Cancellation agreement
between the Company and A-Z Professional Consultants, Inc.
11
<PAGE>
Company's operations and activities including assisting in the preparation of
the required 10-KSB and 10- QSB filings, Form 8-K, and filing of a Schedule 14C
with the Securities and Exchange Commission and other miscellaneous services.
Richard D. Surber was president of the Company at the time of entering into the
Compensation agreement. Consequently, the transaction may not be deemed to have
been at arms length.
During 1999, the Company issued stock valued at $416,000 to A-Z Professional
Consultants. Inc. ("A-Z"), the major shareholder of the Company, for consulting
services in relation to finding a merger or business opportunity for the
Company. Because A-Z was the major shareholder of the Company at the time these
services were rendered and the agreement to provide the services was entered
into, the transaction may not be deemed to have been at arms length.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. Exhibits required to be attached by Item 601 of Regulation S-B
are listed in the Index to Exhibits beginning on page 14 of this Form
10-KSB, which is incorporated herein by reference.
(b) Reports on Form 8-K. On September 17, 1999 the Company filed a Form 8-K
disclosing the purchase of 9,625,000 shares of the Company's common stock
by A-Z Professional Consultants, Inc. ("A-Z"), a Utah corporation. The
purchase gave A-Z a majority interest in the Company's common stock.
[THIS SPACE LEFT BLANK INTENTIONALLY]
12
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, this 3rd day of April, 2000.
Chattown.com Network, Inc.
/s/ Richard Surber
--------------------------------------
Richard Surber, President and Director
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
/s/ Richard Surber President and Director April 3, 2000
-------------------------
Richard Surber
/s/ BonnieJean C. Tippetts Vice President and Director April 3, 2000
- ---------------------------
BonnieJean C.Tippetts
[THIS SPACE LEFT BLANK INTENTIONALLY]
13
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Page No. Description
2.1 * Agreement and Plan of Merger and Contribution dated
December 6, 1996, by and among CytRx Corporation,
Vaxcel, Inc., Vaxcel Merger Subsidiary, Inc. and
Zynaxis, Inc. ( incorporated by reference to the
Company's Registration Statement on Form S-4 (File No
333-19125) filed on March 26, 1997).
3.1 * Certificate of Incorporation ( incorporated by
reference to the Company's Registration Statement on
Form S-4 (File No. 333-19125)filed on March 26, 1997)
3.2 * By-Laws (incorporated by reference to the Company's
Registration Statement on Form S-4 (File No. 333-
19125) filed on March 26, 1997).
10.1 * Amended and Restated License Agreement dated October
10, 1996 by and between Vaxcel, Inc. and CytRx
Corporation (incorporated by reference to the
Company's Registration Statement on Form S-4 (File No
333-19125) filed on March 26, 1997).
10.2 * Amended and Restated Supply Agreement dated October
10, 1996 by and between Vaxcel, Inc. and CytRx
Corporation ( incorporated by reference to the
Company's Registration Statement on Form S-4 (File No
333-19125) filed on March 26, 1997).
10.3 * Services and Facilities Use Agreement dated October
10, 1996 by and between Vaxcel, Inc. and CytRx
Corporation ( incorporated by reference to the
Company's Registration Statement on Form S-4 (File No
333-19125) filed on March 26, 1997).
10.4 * Vaxcel, Inc. 1993 Stock Option Plan (incorporated by
reference to the Company's Registration Statement on
Form S-4 (File No.333-19125) filed on March 26, 1997)
10.5 * Convertible Note dated March 30, 1998 by and between
Vaxcel, Inc. and CytRx Corporation (incorporated by
reference to the Company's Annual Report on Form 10-K
filed on March 31, 1999).
10.6 * Convertible Note dated December 18, 1998 by and
between Vaxcel, Inc. and CytRx Corporation
(incorporated by reference to the Company's Annual
Report on Form 10-K filed on March 31, 1999).
14
<PAGE>
10.7 * Convertible Note dated January 7, 1999 by and between
Vaxcel, Inc. and CytRx Corporation (incorporated by
reference to the Company's Annual Report on Form 10-K
filed on March 31, 1999).
10.8 * Option Agreement dated January 27, 1999 by and
between Vaxcel, Inc. and Innovax Corporation
(incorporated by reference to the Company's Annual
Report on Form 10-K filed on March 31, 1999).
10.9 16 Compensation Agreement dated March 17, 2000 between
the Company and Richard D. Surber for 500,000 shares
of the Company's common stock.
27.1 * Financial Data Schedule (incorporated by reference
to the Company's Annual Report on Form 10-K filed on
March 31, 1999).
- --------------------------------------
* Previously filed as indicated and incorporated herein by reference from the
referenced filings previously made by the Company.
15
<PAGE>
COMPENSATION AGREEMENT
This Compensation Agreement (the "Agreement") is made this 17th day of
March 2000, by and between, Chattown.com Network, Inc. ("Chattown") and Richard
D. Surber ("Surber").
WHEREAS, Surber has served as an executive officer of Chattown, in the
capacity of President and as a Director of Chattown for the period from
September 17, 1999 until at least March 17, 2000 and for such services has not
been paid any compensation for those services; and
WHEREAS, Chattown believes that the services provided by Surber, as
President and a Director of Chattown, have provided valuable benefit to Chattown
and that Surber should be compensated for such services; and
WHEREAS, Chattown and Surber have agreed upon terms and conditions for the
transfer of such compensation by Chattown to Surber as are set forth herein and
that such compensation shall consist of Five Hundred Thousand (500,000) shares
of the common stock of Chattown issued to Surber under the provisions of
Chattown's employee stock benefit plan.
NOW, THEREFORE, in consideration of the promises, services provided, the
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Chattown and Surber agree as follows:
1. Employment. Surber was appointed as President and Director of Chattown on
September 17, 1999 and has served in those positions continually through at
least the 17th of March, 2000. During that period Surber has been the sole
executive officer of Chattown and responsible for the operation of the
corporations operations and activities. During this period Surber has been
instrumental in seeing that Chattown has prepared and filed its 10-KSB,
annual report, the required 10-Q reports of the company, two registration
statements under S-8 and a Schedule 14C, various consulting and purchase
agreements have also been negotiated and entered into during this period.
2. Compensation. For the entire period during which Surber has served as both
President and Director of Chattown he has not been paid any salary or any
other form of compensation. The parties hereto have agreed that reasonable
and justifiable compensation for his services to Chattown during the six
month period of his service would be Five Hundred Thousand (500,000) shares
of the common stock of Chattown, valued at $0.07 per share (the trading
price of the Chattown shares on September 17, 1999) and having a total
value of $35,000, issued to Surber pursuant to Chattown's employee's stock
benefits plans as provided for by a filing under S-8 by Chattown.
3. Release. Surber and Chattown each agree that this compensation represents
full and complete payment for all services provided by Surber to Chattown
during his term as President and Director of Chattown and that no further
or additional salary, compensation, reimbursement or other obligations
arising from this employment will be due or remain after the delivery of
the above set forth shares of common stock to Surber for his services as
rendered through the 17th day of March 2000. Future compensation shall be
as agreed upon between the parties at some future date.
16
<PAGE>
4. Place of Service. All services provided by Surber were performed within the
State of Utah.
5. Governing Law. This Agreement was negotiated and is being contracted for in
the state of Utah and shall be governed by the laws of the State of Utah,
and the United States of America, notwithstanding any conflict-of-law
provision to the contrary.
6. Entire Agreement. This Agreement contains the entire agreement between the
parties hereto and supersedes any and all prior agreements, arrangements or
understandings between the parties relating to the subject matter of this
Agreement. No oral understandings, statements, promises, or inducements
contrary to the terms of this Agreement exist.
IN WITNESS WHEREOF, the Parties have executed this Agreement on the date first
written above.
Chattown.com Network, Inc.
"Chattown" Richard D. Surber
A Delaware Corporation An individual resident of Utah
By: /s/ BonnieJean C. Tippets /s/ Richard Surber
------------------------- ------------------
Name: BonnieJean Tippetts
Title: Vice-President/Secretary
17
<PAGE>
