THE FOLLOWING ITEMS WERE SUBJECT OF A
FORM 12B-25 AND ARE INCLUDED HEREIN:
(A) PART I, ITEM 1 (FINANCIAL STATEMENTS);
AND (B) PART I, ITEM 2 (CERTAIN PARTS OF
THE MANAGEMENT'S DISCUSSION AND ANALYSIS).
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
FOR THE QUARTERLY PERIOD ENDED 6/30/99
333-6440
(Commission file number)
Q-SEVEN SYSTEMS, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
UTAH 87-0567618
(State or Other jurisdiction of (IRS Employer Identification
Incorporation or Organization) No.)
FROHNKAMP 18 011-49-2173-330360
40789 MONHEIM, GERMANY (Issuer's telephone number)
(Address of Principal Executive
Offices)
DOWNSTREAM INCORPORATED - DSI
6337 HIGHLAND DRIVE, SALT LAKE CITY, UTAH 84121
(Former Name, Former Address and Former Fiscal Year,
if changed since last Report)
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 [ ]
SHARES OUTSTANDING
CLASS AT AUGUST 1, 1999
----- ------------------
COMMON STOCK 12,500,000
$0.001 PAR VALUE PER SHARE
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Q-SEVEN SYSTEMS, INC. AND SUBSIDIARY
(FORMERLY - DOWNSTREAM INCORPORATED - DSI)
(A DEVELOPMENT STAGE COMPANY)
Consolidated Financial Statements
June 30, 1999
<PAGE>
Q-SEVEN SYSTEMS, INC. AND SUBSIDIARY
TABLE OF CONTENTS
Page(s)
Accountants' compilation report..............................................1
Consolidated balance sheet...................................................2
Consolidated statements of operations........................................3
Consolidated statements of stockholders' equity..............................4
Consolidated statements of cash flows........................................5
Notes to consolidated financial statements..................................6-10
<PAGE>
Salibello & Broder
Certified Public Accountants
510 Seventh Avenue
New York, NY 10019
ACCOUNTANTS' COMPILATION REPORT
Board of Directors
Q-Seven Systems, Inc. and Subsidiary
(A Development Stage Company)
Salt Lake City, Utah
We have compiled the accompanying balance sheet of Q-Seven Systems, Inc.
and Subsidiary (a development stage company) as of June 30, 1999 and the related
statements of operations, stockholders' equity and cash flows for the three
months and six months ended June 30, 1999 and 1998 and from inception on
November 26, 1996 through June 30, 1999 in accordance with Statements on
Standards for Accounting and Review Services issued by the American Institute of
Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
We are not independent with respect to Q-Seven Systems, Inc. and
Subsidiary.
New York, New York
August 17, 1999
-1-
<PAGE>
Q-SEVEN SYSTEMS, INC. AND SUBSIDIARY
(FORMERLY - DOWNSTREAM INCORPORATED - DSI)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
ASSETS
------
Current assets:
Cash $ 31,800
Accounts receivable 161,535
-----------
Total current assets 193,335
Fixed assets, net 712
Total assets $ 194,047
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 80,968
-----------
Commitments
Stockholders' equity:
Preferred stock, 50,000,000 shares authorized
of $0.001 par value, no shares issues and
outstanding -
Common stock, 100,000,000 shares authorized
of $0.001 par value, 12,500,000 shares
issued and outstanding 12,500
Additional paid-in capital 196,169
Deficit accumulated during the development stage (95,590)
-----------
Total stockholders' equity 113,079
-----------
Total liabilities and stockholders' equity $ 194,047
===========
See accountants' compilation report and accompanying notes.
-2-
<PAGE>
<TABLE>
<CAPTION>
Q-SEVEN SYSTEMS, INC. AND SUBSIDIARY
(FORMERLY - DOWNSTREAM INCORPORATED - DSI)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months For the Six Months From Inception
Ended June 30, Ended June 30, on November 26,
--------------------------- --------------------------- 1996 Through
1999 1998 1999 1998 June 30, 1999
----------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Net sales $ 224,248 $ 107,365 $ 434,917 $ 279,856 $ 891,902
Cost of sales 68,679 53,916 181,093 126,197 303,574
----------- ----------- ----------- ----------- -----------
Gross profit 155,569 53,449 253,824 153,659 588,328
----------- ----------- ----------- ----------- -----------
Operating expenses
General and administrative 103,732 59,408 221,422 106,777 613,225
Depreciation and amortization 68 83 136 167 966
----------- ----------- ----------- ----------- -----------
Total operating expenses 103,800 59,491 221,558 106,944 614,191
----------- ----------- ----------- ----------- -----------
Net income (loss) from operations 51,769 (6,042) 32,266 46,715 (25,863)
Other income 0 358 21 581 2,283
----------- ----------- ----------- ----------- -----------
Net income (loss) $ 51,769 $ (5,684) $ 32,287 $ 47,296 $ (23,580)
=========== =========== =========== =========== ===========
Net earnings (loss) per share $ 0 $ 0 $ 0 $ 0
Weighted average number of shares
outstanding 12,500,000 12,234,000 12,491,500 12,234,000
=========== =========== =========== ===========
</TABLE>
See accountants' compilation report and accompanying notes.
-3-
<PAGE>
Q-SEVEN SYSTEMS, INC. AND SUBSIDIARY
(FORMERLY - DOWNSTREAM INCORPORATED - DSI)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the
------------------------------------ Paid-In Development
Shares Amount Capital Stage Total
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, November 26, 1996 0 $0 $0 $0 $0
Common stock issued for services
rendered valued at $0.005 per share 1,500,000 1,500 6,000 0 7,500
Common stock issued for cash
valued at $0.005 per share 1,800,000 1,800 7,200 0 9,000
Net loss from inception on
November 26, 1996
through December 31, 1996 0 0 0 (10,991) (10,991)
============ ============ ============ ============ ============
Balance, December 31, 1996 3,300,000 3,300 13,200 (10,991) 5,509
Common stock issued for cash
valued at $0.05 per share 1,034,000 1,034 50,666 0 51,700
Stock offering costs 0 0 (13,696) 0 (13,696)
Net loss for the year ended
December 31, 1997 0 0 0 (25,446) (25,446)
============ ============ ============ ============ ============
Balance, December 31, 1997 4,334,000 4,344 50,170 (36,437) 18,067
Common stock issued for services
at $0.50 per share 166,000 166 82,834 0 83,000
Net loss for the year ended
December 31, 1998 0 0 0 (91,440) (91,440)
============ ============ ============ ============ ============
Balance, December 31, 1998 4,500,000 4,500 133,004 (127,877) (9,627)
Common stock issued for cash
valued at $0.05 per share 100,000 100 4,900 0 5,000
Common stock valued at $0.008
per share issued in exchange
for 100% of the issued and
outstanding shares of Q-7 7,900,000 7,900 58,265 0 66,165
Net income for the six months
ended June 30, 1999 (unaudited) 0 0 0 32,287 32,287
============ ============ ============ ============ ============
Balance, June 30, 1999 (unaudited) 12,500,000 $ 12,500 $ 196,169 $ (95,590) $ 113,079
============ ============ ============ ============ ============
</TABLE>
See accountants' compilation report and accompanying notes.
-4-
<PAGE>
<TABLE>
<CAPTION>
Q-SEVEN SYSTEMS, INC. AND SUBSIDIARY
(FORMERLY - DOWNSTREAM INCORPORATED - DSI)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Three Months Ended For the Six Months Ended From Inception
June 30, June 30, on November 26,
----------------------------------------------------------------- 1996 Through
1999 1998 1999 1998 June 30, 1999
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $51,769 $(5,684) $32,287 $47,296 $(23,580)
Adjustments to reconcile net income (loss)
to net cash (used in) provided by
operating activities:
Depreciation and amortization expense 68 83 136 167 956
Decrease (increase) in accounts receivable (28,885) (5,134) (59,249) (70,126) (161,535)
Increase (decrease) in accounts payable (22,182) (9,180) 31,329 37,993 55,968
Stock issued for services 0 0 0 0 90,500
--------- --------- --------- --------- ---------
Net cash (used) provided by operating
activities 770 (19,915) 4,503 15,330 (37,691)
Cash flows from investing activities:
Purchase of fixed assets 0 0 0 0 (1,359)
Organization costs paid 0 0 0 0 (309)
--------- --------- --------- --------- ---------
Net cash provided by investing activities 0 0 0 0 (1,668)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Stock issuance cost 0 0 0 0 (13,696)
Additional paid-in capital 0 0 13,397 0 19,155
Common stock issued for cash 0 0 5,000 0 65,700
--------- --------- --------- --------- ---------
Net cash provided by financing activities 0 0 18,397 0 71,159
--------- --------- --------- --------- ---------
Net increase in cash and cash equivalents 770 (19,915) 22,900 15,330 31,800
Cash and cash equivalents at beginning of period 31,030 56,951 8,900 21,706 0
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period $ 31,800 $ 37,036 $ 31,800 $ 37,036 $ 31,800
--------- --------- --------- --------- ---------
</TABLE>
See accountants' compilation report and accompanying notes.
-5-
<PAGE>
Q-SEVEN SYSTEMS, INC. AND SUBSIDIARY
(FORMERLY - DOWNSTREAM INCORPORATED - DSI)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
Note 1 - Organization and summary of significant accounting policies
Business organization
Q-Seven Systems, Inc., formerly Downstream Incorporated - DSI ("the
Company"), was incorporated under the laws of the State of Utah on November 26,
1996 to engage in the business of financial consulting.
Q-Seven Systems, Inc. ("Q-7") was incorporated under the laws of the State
of Nevada on May 18, 1999 for the purpose of acquiring marketing rights to a
certain Internet user management software program, and to acquire X-Real
Intertainment, Ltd., which owns six Internet pay sites. X-Real Intertainment,
Inc. Ltd. (formerly X-Real GbR, a partnership) ("X-Real") was incorporated under
the laws of the Bahamas on April 23, 1999. X- Real was originally organized as a
partnership under the laws of the Federal Republic of Germany to engage in
various forms of Internet commerce. The acquisition of X-Real by Q-7 was
accounted for as a pooling of interest.
On May 24, 1999, the Company in accordance with an agreement and plan of
share exchange, acquired 100% of the issued and outstanding shares of Q-7 for
7,900,000 shares of its common stock. The acquisition was accounted for as a
pooling of interest. Accordingly, there is no adjustment to the carrying values
of assets or liabilities.
Principles of consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary, Q-7. The consolidated financial
statements of Q-7 include the accounts of its wholly-owned subsidiary, X-Real.
Intercompany accounts and transactions have been eliminated in consolidation.
Basis of presentation
The following table represents a reconciliation of net sales and net income
previously reported by the Company to those presented in the accompanying
consolidated financial statements.
- 6 -
<PAGE>
Q-SEVEN SYSTEMS, INC. AND SUBSIDIARY
(FORMERLY - DOWNSTREAM INCORPORATED - DSI)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
Note 1 - Organization and summary of significant accounting policies (continued)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales:
Q-Seven Systems, Inc. $ 0 $ 410 $ 0 $ 104,017
Q- 7 0 0 0 0
X-Real 224,248 106,995 434,917 175,839
---------- ----------- ---------- ----------
Consolidated $ 224,248 $ 107,365 $ 434,917 $ 279,856
========== =========== ========== ==========
Net income:
Q-Seven Systems, Inc. $ (15,654) $ (19,998) $ (25,447) $ 20,163
Q- 7 0 0 0 0
X-Real 67,423 14,314 57,734 27,133
---------- ----------- ---------- ----------
Consolidated $ 51,769 $ (5,684) $ 32,287 $ 47,296
========== =========== ========== ==========
</TABLE>
Cash and cash equivalents
Cash equivalents include short-term, highly liquid investments with
maturities of three months or less at the time of acquisition.
Translation of foreign currency
The financial position and results of operations of Q-7's foreign
subsidiary are measured using Deutsche mark as the functional currency. Revenues
and expenses have been translated into U.S. Dollars at average exchange rates
prevailing during the period. Assets and liabilities have been translated at the
rates of exchange at the balance sheet date. Translation gains and losses are
deferred as a separate component of shareholders' equity, unless there is a sale
or complete liquidation of the underlying foreign investment. Aggregate foreign
currency transaction gains and losses are included in determining net earnings.
Fixed assets and depreciation
Fixed assets are carried at cost. Depreciation is calculated using the
straight-line method over their estimated useful lives of 5 years.
- 7 -
<PAGE>
Q-SEVEN SYSTEMS, INC. AND SUBSIDIARY
(FORMERLY - DOWNSTREAM INCORPORATED - DSI)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
Note 1 - Organization and summary of significant accounting policies (continued)
Basic loss per share
The computations of basic loss per share of common stock are based on the
weighted average number of shares outstanding during the period of the financial
statements.
Provision for taxes
At June 30, 1999, the Company had net operating loss carryforwards of
approximately $78,000 that may be offset against future taxable income through
2013. No tax benefit has been reported in the financial statements because the
Company's U.S. operations have not commenced and future earnings cannot be
determined. Accordingly, the potential tax benefits of the net operating loss
carryforwards are offset by a valuation allowance of the same amount.
Income taxes are not imposed on corporations in the Bahamas.
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 the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Note 2 - Accounts receivable
X-Real conducts all of its business on the Internet, and all revenues are
collected by electronic means. All revenue collections and refunds are managed
by a corporation with which X-Real has a service agreement (Note 4). Collected
funds are held by the service company for 60 days before they are released to
X-Real. Funds collected in 1998 and released to X-Real in 1999 are classified as
accounts receivable. The cost of sales related to the receivables are deducted
from the amount released. These costs are classified as accounts payable and
accrued expenses.
- 8 -
<PAGE>
Q-SEVEN SYSTEMS, INC. AND SUBSIDIARY
(FORMERLY - DOWNSTREAM INCORPORATED - DSI)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
Note 3 - Fixed assets
Fixed assets at June 30, 1999 consisted of the following:
Fax machine $ 935
Televisions 424
---------
1,359
Less accumulated depreciation (647)
---------
Net fixed assets $ 712
=========
Note 4 - Service agreement
X-Real owns several Internet pay sites which are managed by a corporation
(the provider). The provider assumes responsibility for the costs of operating
the sites. In exchange, the provider receives a percentage of the gross revenues
of the sites as a service fee. The agreement can be terminated any time with a
notice of 180 days.
Note 5 - Stock transactions
On December 10, 1996, the Company issued 1,500,000 shares of common stock
for services rendered by a related party. The shares were valued at $0.005 per
share.
On December 10, 1996, the Company issued 1,800,000 shares of stock for cash
at $0.005 per share.
During the year ended December 31, 1997, the Company issued common stock in
a public offering valued at $0.05 per share.
On October 2, 1998, the Company issued 166,000 shares of stock for services
rendered by a related party. The shares were valued at $0.50 per share.
On January 16, 1999, the Company issued 100,000 shares of stock for cash at
$0.05 per share.
On May 24, 1999, the Company issued 7,900,000 shares of stock valued at
$0.008 per share in exchange for the issued and outstanding shares of Q-7.
- 9 -
<PAGE>
Q-SEVEN SYSTEMS, INC. AND SUBSIDIARY
(FORMERLY - DOWNSTREAM INCORPORATED - DSI)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
Note 6 - Commitments
The Company committed to pay the former officer of the Company $2,500
per month, under a consulting agreement.
- 10 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
On May 24, 1999, the Company acquired all issued and outstanding shares of
common stock of Q-Seven Systems, Inc. ("Q-Seven Nevada"), a Nevada corporation
(the "Q-Seven Acquisition"). Q-Seven Nevada, which is now a wholly owned
subsidiary of the Company, owns the exclusive, worldwide rights to market the so
called User Management Software (the "software") developed by Q-Seven Systems
GmbH, a German corporation, and all of the issued and outstanding shares of
X-Real Intertainment, a Bahamian corporation ("X-Real"), which owns and operates
six adult entertainment websites.
The software is a modulized suite offering users a system for the backend
administration of various types of e-commerce sites on the Internet, including
online gaming, adult entertainment, and online shopping. The software gives
frequent and, management believes, accurate feedback to the administrator
concerning clients and their activities. Management believes that the software
is extremely easy to use and that non-computer professionals can administer the
system. The software also allows for secure online billing over the Internet.
Portions of the software are still being developed and no sales of the
software have yet been made. The main server and three of the casino modules for
the use with an online gaming application of the software are currently in the
beta testing phase, and management believes that it will be ready for shipment
by the end of August 1999.
The next modules that the Company plans to develop include a sportsbook
module, a multi-player casino games module, a live video module and several
client-specific modules. The number of programmers assisting in the development
of the software has been increased in an effort to make the development process
quicker and more efficient.
The Company believes that its main competitors in the area of online gaming
software are Starnet Communications International Inc., in Vancouver, British
Columbia, and Bossmedia AB, a Swedish company.
Starnet's products are the most common online gaming software products at
the moment. They offer the largest number of different games. Management
believes that Starnet's products differ from the products
11
<PAGE>
of the Company in the following ways: Starnet only licenses co-hosted casinos on
their own servers in Antigua which requires the licensee to obtain an Antigua
gaming license. In addition, Management believes that Starnet's licensees must
share up to 40% of their net gaming revenues with Starnet.
Bossmedia was one of the first companies that offered online gaming
software that featured multi-player games. Management believes that Bossmedia's
gambling software also can be used only on Bossmedia's own servers in Antigua.
In addition, management believes that Bossmedia's customers are required to pay
a high setup fee and a royalty fee based on a certain percentage of the net
gaming revenues.
The Company's wholly owned indirect subsidiary, X-Real, owns and operates
six adult entertainment websites directed to viewers in Germany. Four of these
websites operate on a subscription basis. The other two pages operate both on a
subscription and a per-minute basis. In April 1999, X-Real entered into an
affiliate program with webmasters that advertise its websites. Participating
webmasters can share in up to 50% of the revenues that were generated by X-Real
as a result of their advertising of X-Real's websites. The affiliate program
increased subscriptions for X-Real's websites by over 200% within one month of
inception. No assurances can be given that this increase is permanent.
The competition in the area of adult entertainment websites is steadily
increasing. X-Real's sites were some of the first to enter this market, and
management believes that some of its websites have achieved a significant market
brand recognition in Germany. Although the number of X-Real's competitors in
this area is increasing, management believes that X-Real will be able to
maintain and perhaps extend its market position in Germany.
German regulators impose strict regulations on the content of adult
entertainment websites that are published on the Internet. An organization with
the name Jugendschutz.net has been formed which tries to ensure that minors will
not be able to gain access to adult content on webpages. X-Real cooperates with
Jugendschutz.net as well as the German regulators to maintain a process for its
webpages that ensures that only adults are able to gain access to those
webpages. Management believes that the areas of X-Real's webpages which are
accessible for every viewer comply with German law and are suitable for every
viewer.
12
<PAGE>
Results of Operations. Since the Q-Seven Acquisition the Company has
derived all of its revenues from its Internet adult entertainment business,
which is operated by the Company's indirectly wholly owned subsidiary X-Real.
Although the Company has not yet derived any revenues from the sale of its user
management software, management believes that once the Company begins selling
the software, which is expected to occur by the end of August 1999, such sales
will favorably impact the Company's results of operations during the remainder
of the Company's 1999 fiscal year and thereafter.
The following tables set forth, on a non-pro-forma basis, the Company's
operations data for the three months ended June 30, 1999 and June 30, 1998, the
six months ended June 30, 1999 and June 30, 1998, and the twelve months ended
December 31, 1998.
<TABLE>
<CAPTION>
Operations Data
For the Three For the Three For the Six For the Six For the Twelve
Months Ended Months Ended Months Ended Months Ended Months Ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998 December 31, 1998
------------- ------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Net Sales $224,248 $410 $434,917 $104,017 $104,017
Cost of Sales $68,679 $1,055 $181,093 $45,473 $45,473
Gross Profits $155,569 $(645) $253,824 $58,544 $58,544
Operating Expenses $103,800 $19,711 $221,558 $38,962 $150,888
Net Income (Loss) $51,769 $(20,356) $32,266 $19,582 $(92,344)
from Operations
Net Income (Loss) $51,769 $(19,998) $32,287 $20,163 $(91,440)
</TABLE>
The Company's net sales, cost of sales, gross profits, operating expenses,
net income from operations and net income for the three and six months ended
June 30, 1999 increased significantly compared with its net sales, cost of
sales, gross profit, operating expenses, net income from operations and net
income for the three and six months ended June 30, 1998. This increase as well
as the significant increase of the Company's total assets from $9,744 as of
December 31, 1998 to $194,047 as of June 30, 1999, is a direct result of the
Q-Seven Acquisition, which considerably changed the business of the Company.
Currently all of the Company's revenues are derived from its Internet adult
entertainment business, which is carried out through the Company's indirectly
wholly owned subsidiary X-Real. On a pro-forma basis, X-Real's net sales rose
from $106,995 for the three months ended June 30, 1998 to $224,248 for the three
months ended June 30, 1999. X-Real's net sales for the six months ended June 30,
1999 increased to $434,917 from $175,839 for the six months ended June 30, 1999.
Also on a pro-forma basis, X-Real's net income for the three months ended June
30, 1999 increased to $67,423 from $14,314 for the three months ended June 30,
1998. X-Real's net income for the six month ended June 30, 1999 increased to
$57,734 from $27,133 for the six months period ended June 30, 1998. The
considerable increase of X-Real's net sales and net income on a pro-forma basis
is a result of X-Real's opening of two new adult entertainment websites during
that period.
Liquidity and Capital Resources. At June 30, 1999, the Company had cash and
cash equivalents of $31,800 compared to $8,896 at December 31, 1998 and $37,036
at June 30, 1998.
13
<PAGE>
Year 2000. Many currently installed computer systems and software products
are coded to accept only two digit entries in the date code field and cannot
distinguish 21st century dates from 20th century dates. These date code fields
will need to distinguish 21st century dates from 20th century dates and, as a
result, many companies' software and computer systems may need to be upgraded or
replaced in order to comply with such "Year 2000" requirements.
The Company has completed assessing the Year 2000 issue. The Company has
not incurred material costs to date in this analysis, and management currently
does not believe that the cost of any additional actions will have a material
effect on the Company's results of operations or financial condition. Management
currently believes that the Company's systems and products are Year 2000
compliant in all material respects; however, those systems and products may
contain undetected errors or defects with Year 2000 date functions that may
result in material costs. Although management is not aware of any material
operational issues or costs associated with preparing the Company's systems and
products for the Year 2000, the Company may experience serious unanticipated
negative consequences (such as significant downtime for one or more X-Real
servers) or material costs caused by undetected errors or defects in the
technology used in the Company's systems and products, which could have a
material adverse effect on the Company's business, results of operation and
financial condition.
In addition, the Company utilizes third-party equipment, software and
content, including non-information technology systems ("non-IT systems"), such
as the Company's telephone system, that might not be Year 2000 compliant. The
Company is in the process of developing a plan to assess whether these third
parties are adequately addressing the Year 2000 issue and whether any of the
Company's non-IT systems have material Year 2000 compliance problems. Failure of
such third-party equipment, software or content to operate properly with regard
to the year 2000 and thereafter could require the Company to incur unanticipated
expenses to remedy any problems, which could have a material adverse effect on
the Company's business, results of operation, and financial condition.
The Company has not yet fully developed a comprehensive contingency plan to
address situations that may result if the Company is unable to achieve Year 2000
readiness of its critical operations. The cost of developing and implementing
such a plan may itself be material.
Forward-Looking Statements. The Company has made certain forward-looking
statements in this report. They use such words
14
<PAGE>
as "may," "will," "expect," "believe," "plan" and other similar terminology.
These statements reflect management's current expectations and involve a number
of risks and uncertainties. Actual results could differ materially due to the
success of operating initiatives, advertising and promotional efforts, Year 2000
compliance efforts, as well as changes in: global and local business and
economic conditions; currency exchange and interest rates; labor and other
operating costs; political or economic instability in local markets;
competition; consumer preferences, spending patterns and demographic trends;
legislation and government regulation; and accounting policies and practices.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In connection with the Q-Seven Acquisition, the Company issued on May 25,
1999, a total of 7,900,000 shares of its common stock to the three shareholders
of Q-Seven Nevada in exchange for their transfer to the Company of all issued
and outstanding shares of common stock of Q-Seven Nevada. Mr. Philipp
Kriependorf received 2,634,000, and Messrs. Philip Kamp and Olaf Cordt each
received 2,633,333 shares of the Company's common stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special shareholders' meeting was held on June 10, 1999. The shareholders
present at that meeting approved the proposal of the Company's board of
directors to change the Company's name from Downstream Incorporated - DSI to
Q-Seven Systems, Inc.
ITEM 5. OTHER INFORMATION
Material Contracts. Q-Seven Nevada and Q-Seven Systems GmbH have entered
into an Agreement (the "License Agreement") which grants Q-Seven Nevada the
exclusive and unlimited right to sell licenses of the software worldwide for
perpetuity. The License Agreement provides that Q-Seven Nevada shall pay Q-Seven
Systems GmbH a royalty fee of 90% of the revenue generated by the sale of
licenses for the software. A copy of the License Agreement has been filed as an
exhibit to this report. For a
15
<PAGE>
complete understanding of the terms of the License Agreement, you should read
this exhibit.
Change of Independent Accountant. The Company is in the process of changing
its independent accountant as part of the process of preparing to establish an
office in New York. The new independent accountant has not yet been appointed.
Contrary to what was inadvertently reported incorrectly in the Company's report
on Form 10-QSB that was filed with the Commission on August 16, 1999, the
accounting firm Salibello & Broder in New York has not been retained by the
Company as its new independent accountant. Salibello & Broder assisted the
Company in compiling its quarterly financial statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO. DESCRIPTION
3.1 Articles of Incorporation, as amended
3.2 By-laws
10.1 License Agreement between Q-Seven Systems GmbH and
Q-Seven Nevada
27.1 Financial Data Schedule
(b) Reports on Form 8-K
On June 8, 1999, the Company filed a report on Form 8-K in which the
following items were reported: (i) the Q-Seven Acquisition; (ii) the change in
control that resulted from the issuance of 7,900,000 shares of the Company's
common stock to the three shareholders of Q-Seven Nevada; (iii) the resignation
of then serving directors and officers and (iv) the appointment of new directors
and officers.
On June 15, 1999, the Company filed another report on Form 8-K in which it
was reported that (i) a special shareholders' meeting was held on June 10, 1999
during which it was decided to change the Company's name from Downstream
Incorporated - DSI to Q-Seven Systems, Inc.; (ii) Articles of Amendment
regarding the change of the Company's name were filed with the State of Utah;
and (iii) that the Company's OTC Bulletin Board trading symbol was changed to
QSSY.
16
<PAGE>
In accordance with the requirements of the Exchange Act, the registrant
caused this request to be signed on its behalf by the undersigned, thereunto
duly authorized.
Date: August 19, 1999 /s/ Philipp Kriependorf
----------------------------
Philipp Kriependorf
President
Date: August 19, 1999 /s/ Philip Kamp
----------------------------
Philip Kamp
Vice President and Treasurer
17
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
3.1 Articles of Incorporation, as amended
3.2 By-laws
10.1 License Agreement between Q-Seven Systems GmbH and
Q-Seven Nevada
27.1 Financial Data Schedule
18
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
DOWNSTREAM INCORPORATED
"DSI"
I, the undersigned, a natural person of the age of eighteen years or more,
acting as incorporator of a corporation under the Utah Revised Business
Corporation Act, adopt the following Articles of Incorporation for such
corporation:
ARTICLE I.- NAME
The name of this corporation is Downstream Incorporated - DSI.
ARTICLE II. - DURATION
The period of its duration is perpetual.
ARTICLE III. - PURPOSES
The purposes for which the corporation is organized are to engage in the
business of financial consulting - to assist clients in assessing their current
financial condition and their future financial needs - and to transact any
lawful act or activity for which corporations may be organized under the Utah
Revised Business Corporation Act.
<PAGE>
ARTICLE IV. - STOCK; PRE-EMPTIVE RIGHTS
The Corporation shall have authority to issue two classes of stock: (1)
Common Stock in the amount of One Hundred Million (100,000,000) shares having a
par value of $.001 each; (2) Preferred Stock in the amount of Fifty Million
(50,000,000) shares having a par value of $.001 each. No shares of any class of
stock shall have cumulative voting rights.
Each share of the Common Stock issued and outstanding shall have the
following voting rights, designations, preferences, limitations, restrictions
and relative rights:
(1) voting rights: unlimited voting rights of one vote per share on all
matters voted on by the Common Stock Shareholders, except as other wise required
by Utah Revised Statutes.
(2) designations: none.
(3) preferences: none.
(4) limitations: none, except as required by the Utah Revised Business
Corporation Act and/or these Articles of Incorporation.
(5) restrictions: none, except as required by the Utah Revised Business
Corporation Act and/or these Articles of Incorporation.
(6) rights: in the event of dissolution or liquidation each share shall
have equal rights.
(7) relative rights: none, except as established by the Utah Revised
Business Corporation Act and/or these Articles of Incorporation.
With respect to the authorized shares of Preferred Stock, the Board of
Directors shall have the authority, by resolution or resolutions, to:
(1) divide the Preferred Stock into more than one series;
(2) establish the number of shares of each series of Preferred Stock; and
<PAGE>
(3) establish the voting powers, designations, preferences, limitations,
restrictions and relative rights of each series of Preferred Stock.
Prior to the Board of Directors authorizing the issuance of any shares of
any series of Preferred Stock, the Board of Directors may first, by resolution
or resolutions, approve an amendment to these Articles of Incorporation which:
(1) designates, in whole or in part, the preferences, limitations, and
relative rights, within the limits set forth in U.C.A. Section 16-10a-601, of
any class of shares before the issuance of any shares of that class;
(2) creates one or more series within a class of shares, fixes the number
of shares of each such series, and designates, in whole or in part, the
preferences, limitations, and relative rights of the series, within the limits
set forth in Section 16-10a-601, all before the issuance of any shares of that
series;
(3) alters or revokes the preferences, limitations, and relative rights
granted to or imposed upon any wholly unissued class of shares or any wholly
unissued series of any class of shares; or
(4) increases or decreases the number of shares constituting any series,
the number of shares of which was originally fixed by the board of directors,
either before or after the issuance of shares of the series, provided that the
number may not be decreased below the number of shares of the series then
outstanding, or increased above the total number of authorized shares of the
applicable class of shares available for designation as a part of the series.
Each series of a class must be given a distinguishing designation. All
shares of a series must have preferences, limitations, and relative rights
identical with those of other shares of the
<PAGE>
same series and, except to the extent otherwise provided in the description of
the series, with those of other series of the same class.
Before issuing any shares of a class or series of Preferred Stock, or
having preferences, limitations, or relative rights designated by the board of
directors, and before any amendment to these Articles of Incorporation affecting
Preferred Stock shall be effective, the corporation must deliver to the Utah
Division of Corporations appropriate filing, in accordance with the procedure
set forth in Section 16-10a-601, Articles of Amendment.
Fully paid stock of this corporation shall not be liable to any call
(unless a certain series of Preferred Stock to be issued by resolution of the
Board of Directors is so designated, and a future date, time, and price of said
call is specified) and is nonassessable.
Shareholders of the Corporation shall have pre-emptive rights to acquire
additional shares of common stock issued by the Corporation.
ARTICLE V. - INITIAL REGISTERED AGENT
The name and address of this corporation's initial registered agent is:
Name of Agent Address of Registered Office
------------- ----------------------------
Barry A. Ellsworth 6337 Highland Drive
Salt Lake City, Utah 84121.
I hereby accept appointment as registered agent for this corporation.
/s/ Barry A. Ellsworth
----------------------
Barry A. Ellsworth
Registered Agent
<PAGE>
ARTICLE VI. - ELIMINATION OF PERSONAL LIABILITY OF DIRECTORS
1. The directors of the corporation are not liable to the corporation or to
its shareholders for monetary damages for any action taken or any failure to
take any action as a director, except liability for:
(a) the amount of a financial benefit received by a director to which
he/she is not entitled;
(b) an intentional infliction of harm on the corporation or the
shareholders;
(c) a violation of Utah Code Ann. ss. 16-10a-842; or
(d) an intentional violation of criminal law.
2. If the Utah Revised Business Corporation Act is subsequently amended to
authorize corporation action further eliminating or limiting the personal
liability of directors, then the liability of a director of the corporation
shall be eliminated or limited to the fullest extent permitted by the Utah
Revised Business Corporation Act, as so amended, and without the necessity for
further shareholder action in respect thereof.
3. Any repeal or modification of this Article by the shareholders of the
corporation shall not adversely affect any right or protection of a director of
the corporation hereunder in respect of any act or omission occurring prior to
the time of such repeal or modification.
<PAGE>
ARTICLE VII. - INDEMNIFICATION
1. The corporation shall indemnify its directors, officers, employees,
fiduciaries and agents to the full extent permitted by the Utah Revised Business
Corporation Act or any successor statute.
2. In particular, and not in derogation of the generality of the foregoing,
except as provided in paragraph 3 of this Article, the corporation shall
indemnify an individual made a party to a proceeding because he/she is or was a
director, against liability incurred in the proceeding if:
(a) his/her conduct was in good faith;
(b) he/she reasonably believed that his/her conduct was in, or not
opposed to, the corporation's best interests; and
(c) in the case of any criminal proceeding, he/she had no reasonable
cause to believe his conduct was unlawful.
3. The corporation shall not indemnify a director under paragraph 2 of this
Article
(a) in connection with a proceeding by or in the right of the
corporation in which the director was adjudged liable to the
corporation; or
(b) in connection with any other proceeding charging that the
director derived an improper personal benefit, whether or not
involving acts in his/her official capacity, in which proceeding
he/she was adjudged liable on the basis that he/she derived an
improper personal benefit.
4. Indemnification under paragraph 2 of this Article in connection with a
proceeding by or in the right of the corporation shall be limited to reasonable
expenses incurred in connection with the proceeding.
<PAGE>
ARTICLE VIII. - DIRECTORS
The number of directors constituting the initial Board of Directors of this
corporation is two. The names and addresses of the persons who are to serve as
directors until the first annual meeting of stockholders, or until successors
are elected and qualify, are as follows:
Name Address
---- -------
Barry A. Ellsworth 6337 Highland Drive
Salt Lake City, Utah 84121
James G. Slater 2169 Mabey Drive
Salt Lake City, Utah 84109
Joe Thomas 3791 E. Adonis Drive
Salt Lake City, Utah 84124
The number of directors may be changed from time to time by amendment of
the ByLaws, but there shall be not more than nine (9) nor less than three (3)
directors; provided, however, so long as this Corporation has fewer than three
(3) shareholders entitled to vote for the election of directors, the corporation
may have a minimum number of directors equal to or greater than the number of
those shareholders.
ARTICLE IX. - INCORPORATOR
The name and address of the incorporator is:
Name Address
---- -------
Barry A. Ellsworth 6337 Highland Drive
Salt Lake City, Utah 84121
DATED: This ___ day of November, 1996.
/s/ Barry A. Ellsworth
--------------------------------
Barry A. Ellsworth, Incorporator
<PAGE>
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION OF
DOWNSTREAM INCORPORATED - DSI
Pursuant to the provisions of Sections 16-10a-1001, et. seq, Utah Code
Annotated (1953), as amended, DOWNSTREAM INCORPORATED - DSI, a Utah corporation
(the "Corporation") hereby adopts these Articles of Amendment to its Articles of
Incorporation:
A. The name of the corporation is Downstream Incorporated - DSI.
B. By this amendment, Article IV of the Articles of Incorporation of the
Corporation is hereby amended to read in its entirety as follows:
ARTICLE IV. - STOCK; PRE-EMPTIVE RIGHTS
The Corporation shall have authority to issue two classes of stock: (l)
Common Stock in the amount of One Hundred Million (100,000,000) shares having a
par value of $.001 each; (2) Preferred Stock in the amount of Fifty Million
(50,000,000) shares having a par value of $.00l each. No shares of any class of
stock shall have cumulative voting rights.
Each share of the Common Stock issued and outstanding shall have the
following rights, designations, preferences, limitations. restrictions and
relative rights:
(1) voting rights: unlimited voting rights of one vote per share on all
matters voted on by the Common Stock Shareholders, except as otherwise required
by the Utah Revised Business Corporation Act.
(2) designations: none.
(3) preferences: none.
(4) limitations: none, except as required by the Utah Revised Business
Corporation Act and/or these Articles of Incorporation.
(5) restrictions: none, except as required by the Utah Revised Business
Corporation Act and/or these Articles of Incorporation
(6) rights: in the event of dissolution or liquidation each share shall
have equal rights.
(7) relative rights: none, except as established by the Utah Revised
Business Corporation Act and/or these Articles of Incorporation.
<PAGE>
With respect to the authorized shares of Preferred Stock, the Board of
Directors shall have the authority, by resolution or resolutions, to:
(1) divide the Preferred Stock into more than one series;
(2) establish the number of shares of each series of Preferred Stock; and
(3) establish the voting powers, designations, preferences, limitations,
restrictions and relative rights of each series of Preferred Stock.
Prior to the Board of Directors authorizing the issuance of any shares of
any series of Preferred Stock, the Board of Directors may first, by resolution
or resolutions, approve an amendment to these Articles of Incorporation which:
(1) designates, in whole or in pan, the preferences, limitations, and
relative rights, within the limits set forth in U.C.A. Section 16-10a-601, of
any class of shares before the issuance of any shares of that class;
(2) creates one or more series within a class of shares, fixes the number
of shares of each such series, and designates, in whole or in part, the
preferences, limitations, and relative rights of the series, within the limits
set forth in Section 16-10a-601, all before the issuance of any shares of that
series;
(3) alters or revokes the preferences, limitations, and relative rights
granted to or imposed upon any wholly unissued class of shares or any wholly
unissued series of any class of shares; or
(4) increases or decreases the number of shares constituting any series,
the number of shares of which was originally fixed by the board of directors,
either before or after the issuance of shares of the series, provided that the
number may not be decreased below the number of shares of the series then
outstanding, or increased above the total number of authorized shares of the
applicable class of shares available for designation as a part of the series.
Each series of a class must be given a distinguishing designation. All
shares of a series must have preferences, limitations, and relative rights
identical with those of other shares of the same series and, except to the
extent otherwise provided in the description of the series, with those of other
series of the same class.
Before issuing any shares of a class or series of Preferred Stock, or
having preferences, limitations, or relative rights designated by the Board of
Directors, and before any amendment to these Articles of Incorporation affecting
Preferred Stock shall be effective, the corporation must deliver to the Utah
Division of Corporations an appropriate filing, in accordance with the procedure
set forth in Section 16-10a-601, of Articles of Amendment.
<PAGE>
Fully paid stock of this corporation shall not be liable to any call
(unless a certain series of Preferred Stock to be issued by resolution of the
Board of Directors is so designated, and a future date, time, and price of said
call is specified) and is non-assessable.
Shareholders of the corporation shall not have pre-emptive rights to
acquire any additional shares of common stock or preferred stock issued by the
Corporation.
C. The date of the adoption of this Amendment by the shareholders of the
Corporation was January 30, 1997.
D. As of January 30, 1997, the date on which the Amendment was approved, there
were outstanding Three Million Three Hundred Thousand (3,300,000) shares of the
Corporation's Common Stock, and zero (0) shares of the Corporation's Preferred
Stock. Therefore, the Common Stock was the only class of shares of the
Corporation entitled to vote and to be counted with respect to the adoption of
the Amendment, of which each share was entitled to one (1) vote on the adoption
of the Amendment.
E. The number of votes indisputably represented at the meeting of shareholders
at which the Amendment was adopted was Three Million Three Hundred Thousand
(3,300,000), and the number of votes cast for the adoption of the Amendment, was
Three Million Three Hundred Thousand (3,300,000) and the number of votes cast
against the adoption of the Amendment was Zero (0). The number of votes cast for
the adoption of the Amendment was sufficient under the Corporation's Articles of
Incorporation and applicable law for the approval of the Amendment.
The undersigned does hereby acknowledge, under penalties of perjury, that
this document is the act and deed of the Corporation, and that the facts herein
stated are true.
DATED this 30th day of January, 1997.
DOWNSTREAM INCORPORATED - DSI
By: /s/ Barry A. Ellsworth
-------------------------------
Barry A. Ellsworth
<PAGE>
ARTICLES OF AMENDMENT TO THE ARTICLES
OF INCORPORATION OF
DOWNSTREAM INCORPORATED - DSI
The undersigned, being the duly elected President of Downstream
Incorporated - DSI, a Utah corporation (the "Corporation"), pursuant to Section
16-10a-1001 et seq. of the Utah Revised Business Corporation Act, executes the
following Articles of Amendment to its Articles of Incorporation as filed with
the Division of Corporations and Commercial Code of Utah on the 26th day of
November, 1996:
1. Name: Article l of the Articles of Incorporation of the Corporation currently
reads:
ARTICLE I. - NAME
The name of this corporation is Downstream Incorporated - DSI.
2. Amendment: Without altering or amending any other provision of the Articles
of Incorporation, Article I of the Articles of Incorporation is hereby amended
to read in its entirety as follows:
ARTICLE I. - NAME
The name of the corporation is Q-Seven Systems, Inc.
3. Date of the Adoption of the Amendment: The Articles of Amendment were adopted
by a majority of the shareholders of the Corporation in conformity with the
procedures of the Utah Revised Business Corporation Act at a special meeting of
the shareholders held on the 10 day of June, 1999.
4. Vote: Twelve million, five hundred thousand (12,500,000) shares of capital
stock of the Corporation were issued and outstanding as of the date of adoption
of the Articles of Amendment. All shares of capital stock were entitled to vote
as a single class on the Adoption of the Articles of Amendment. The number of
votes cast for the adoption of the Amendment was sufficient under the
Corporation's Articles of Incorporation and applicable law for the approval of
the Amendment. The Articles of Amendment were approved and adopted by the
shareholders of the Corporation by written consent as follows:
For Against
9,741,000 0
<PAGE>
The following shareholders of record were present at the meeting, either in
person or telephonically, and the number of votes each shareholder was entitled
to cast is indicated next to each of their names. All voted in favor of the
motion to change the name of the Corporation from Downstream Incorporated - DSI
to Q-Seven Systems.
Philipp Krienpendorf: a shareholder of record owning 2,633,334 voting
common shares;
Philip Kamp: a shareholder of record owning 2,633,333 voting common voting
shares;
Olaf Cordt: a shareholder of record owning 2,633,333 voting common shares;
Barry Ellsworth: a shareholder of record owning 1,200,000 voting common
shares;
Jim Slater: a shareholder of record owning 266,000 voting common shares;
Jody Ellsworth: a shareholder of record owning 2,633,334 voting common
shares;
Dick Cutler: a shareholder of record owning 100,000 voting common shares.
[The remainder of this page has intentionally been left blank.]
<PAGE>
IN WITNESS WHEREOF, the undersigned executes these Articles of Amendment
and certifies to the truth of the facts herein stated this 10th day of June,
1999.
/s/ Ph. Kriependorf
-----------------------------
Philipp Kriependorf
President
EXHIBIT 3.2
BY-LAWS
OF
DOWNSTREAM INCORPORATED
"DSI"
(now known as Q-Seven Systems, Inc.)
<PAGE>
TABLE OF CONTENTS
ARTICLE I. OFFICES............................................................1
ARTICLE II. SHAREHOLDERS......................................................1
Annual Meeting.................................................................1
Special Meeting................................................................1
Place of Meeting...............................................................1
Notice of Meeting..............................................................2
Closing of Transfer Books or Fixing of Record Date.............................2
Voting Lists...................................................................2
Quorum.........................................................................2
Proxies........................................................................3
Voting of Shares...............................................................3
Voting of Shares by Certain Holders............................................3
Informal Action by Shareholders................................................3
ARTICLE III. BOARD OF DIRECTORS...............................................4
Elimination of Directors' Liability............................................4
General Powers.................................................................4
Number, Tenure and Qualifications..............................................4
Regular Meetings...............................................................5
Special Meetings...............................................................5
Meeting by Telephone...........................................................5
Notice.........................................................................5
Quorum.........................................................................5
Manner of Acting...............................................................5
Vacancies......................................................................5
Removals.......................................................................6
Resignation....................................................................6
Compensation...................................................................6
Presumption of Assent..........................................................6
Chairman.......................................................................6
ARTICLE IV. OFFICERS..........................................................6
Number.........................................................................6
Election and Term of Office....................................................6
Resignations...................................................................7
Removal........................................................................7
Vacancies......................................................................7
The President..................................................................7
The Vice-President.............................................................7
The Secretary..................................................................7
The Treasurer..................................................................8
Assistant Secretaries and Assistant Treasurers.................................8
-i-
<PAGE>
Salaries.......................................................................8
Other Officers.................................................................8
ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS..............................8
Contracts......................................................................8
Loans..........................................................................8
Checks Drafts, Etc.............................................................8
Deposits.......................................................................9
ARTICLE VI. INDEMNIFICATION...................................................9
Indemnification................................................................9
Determination..................................................................9
General Indemnification.......................................................10
Advances......................................................................10
Scope of Indemnification......................................................10
Insurance.....................................................................10
ARTICLE VII. CERTIFICATES FOR SHARES AND THEIR TRANSFER......................10
Certificates for Shares.......................................................10
Transfer of Shares............................................................11
Consideration for Shares......................................................11
Registered Shareholders.......................................................11
ARTICLE VIII. FISCAL YEAR....................................................11
ARTICLE IX. DIVIDENDS........................................................11
ARTICLE X. CORPORATE SEAL....................................................11
ARTICLE XI. WAIVER OF NOTICE.................................................12
ARTICLE XII. AMENDMENTS......................................................12
ARTICLE XIII. PROCEDURE FOR CONDUCTING MEETING...............................12
-ii-
<PAGE>
ARTICLE I. OFFICES
The principal office of the corporation in the State of Utah shall be
located in Salt Lake City. The corporation may have such other offices, either
within or without the State of Utah, as the Board of Directors may designate or
as the business of the corporation may require from time to time.
The registered office of the corporation required by the Utah Revised
Business Corporation Act to be maintained in the State of Utah may be, but need
not be, identical with the principal office in the State of Utah, and the
address of the registered office may be changed from time to time by the Board
of Directors.
ARTICLE II. SHAREHOLDERS
SECTION 1. ANNUAL MEETING. Unless otherwise designated by the Board of
Directors, the annual meeting of the shareholders shall be held on the first
Friday in the month of May in each year, beginning with the year 1997, at the
hour of 10:00 a.m. for the purpose of electing directors and for the transaction
of such other business as may come before the meeting. If the day fixed for the
annual meeting shall be a legal holiday in the State of Utah, such meeting shall
be held on the next succeeding business day. If the election of directors shall
not be held on the day designated herein or any annual meeting of the
shareholders, or at any adjournment thereof, the Board of Directors shall cause
the election to be held at a special meeting of the shareholders as soon
thereafter as is convenient.
SECTION 2. SPECIAL MEETING. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by statute, may be called by
the President, the Chairman of the Board of Directors or by the Board of
Directors, and shall be called by the President at the request of the holders of
not less than ten percent (10%) of all outstanding shares of the corporation
entitled to vote at the meeting.
SECTION 3. PLACE OF MEETING. The Board of Directors may designate any
place, either within or without the State of Utah, as the place of meeting for
any annual meeting or for any special meeting called by the Board of Directors.
A waiver of notice signed by all shareholders entitled to vote at a meeting may
designate any place, either within or without the State of Utah, as the place
for the holding of such meeting. If no designation is made, or if a special
meeting be otherwise called, the place of meeting shall be the principal office
of the corporation in the State of Utah.
SECTION 4. NOTICE OF MEETING. Written notice stating the place, day and
hour of the meeting and, in case of a special meeting, the purpose or purposes
for which the meeting is called, shall, unless otherwise prescribed by statute,
be delivered not less than ten (10) nor more than fifty (50) days before the
date of the meeting, either personally or by mail, by or at the direction of the
President, or the Secretary, or the persons calling the meeting, to each
shareholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to
<PAGE>
be delivered when deposited in the United States mail, addressed to the
shareholder at his address as it appears on the stock transfer books of the
corporation, with postage thereon prepaid.
SECTION 5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors of the
corporation may provide that the stock transfer books shall be closed for a
stated period but not to exceed, in any case, fifty (50) days. If the stock
transfer books shall be closed for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of shareholders, such books shall
be closed for at least ten days immediately preceding such meeting. In lieu of
closing the stock transfer books, the Board of Directors may fix in advance a
date as the record date for any such determination of shareholders, such date in
any case to be not more than fifty (50) days and, in case of a meeting of
shareholders, not less than ten (10) days prior to the date on which the
particular action requiring such determination of shareholders, is to be taken.
If the stock transfer books are not closed and no record date is fixed for the
determination of shareholders, or shareholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on which
the resolution of the Board of Directors declaring such dividend is adopted, as
the case may be, shall be the record date for such determination of
shareholders. When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this section, such
determination shall apply to any adjournment thereof.
SECTION 6. VOTING LISTS. The officer or agent having charge of the stock
transfer books for shares of the corporation shall make a complete list of the
shareholders entitled to vote at each meeting of shareholders or any adjournment
thereof, arranged in alphabetical order, with the address of and the number of
shares held by each. Such list shall be produced and kept open at the time and
place of the meeting and shall be subject to the inspection of any shareholder
during the whole time of the meeting for the purposes thereof.
SECTION 7. QUORUM. A majority of the outstanding shares of the corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than a majority of the outstanding shares
are represented at a meeting, a majority of the shares so represented may
adjourn the meeting from time to time without further notice. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
noticed. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
SECTION 8. PROXIES. At all meetings of shareholders, a shareholder may vote
in person or by proxy executed in writing by the shareholder or by his duly
authorized attorney-in-fact. Such proxy shall be filed with the secretary of the
corporation before or at the time of the meeting. No proxy shall be valid after
eleven months from the date of its execution, unless otherwise provided in the
proxy.
-2-
<PAGE>
SECTION 9. VOTING OF SHARES. Each outstanding share entitled to vote shall
be entitled to one vote upon each matter submitted to a vote at a meeting of
shareholders, unless provided otherwise in the corporation's Articles of
Incorporation.
SECTION 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares outstanding in the
name of another corporation may be voted by such officer, agent or proxy as the
by-laws of such corporation may prescribe, or, in the absence of such provision,
as the Board of Directors of such corporation may determine.
Shares held by an administrator, executor, guardian or conservator may be
voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name if authority so to do be
contained in an appropriate order of the court by which such receiver was
appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither shares of its own stock held by the corporation, nor those held by
another corporation if a majority of the shares entitled to vote for the
election of directors of such other corporation are held by the corporation,
shall be voted at any meeting or counted in determining the total number of
outstanding shares at any given time for purposes of any meeting.
SECTION 11. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be
taken at a meeting of the shareholders, or any action which may be taken at a
meeting of the shareholders, may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the
shareholders entitled to vote with respect to the subject matter thereof.
ARTICLE III. BOARD OF DIRECTORS
SECTION 1. ELIMINATION OF DIRECTORS' LIABILITY.
1. The directors of the corporation are not liable to the corporation or to
its shareholders for monetary damages for any action taken or any failure to
take any action as a director, except liability for:
(a) the amount of a financial benefit received by a director to which
he/she is not entitled;
-3-
<PAGE>
(b) an intentional infliction of harm on the corporation or the
shareholders;
(c) a violation of Utah Code Ann. ss. 16-10a-842; or
(d) an intentional violation of criminal law.
2. If the Utah Revised Business Corporation Act is amended after approval
by the shareholders of this Article to authorize corporation action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the corporation shall be eliminated or limited to the fullest
extent permitted by the Utah Revised Business Corporation Act, as so amended,
and without the necessity for further shareholder action in respect thereof.
3. Any repeal or modification of this Article by the shareholders of the
corporation shall not adversely affect any right or protection of a director of
the corporation hereunder in respect of any act or omission occurring prior to
the time of such repeal or modification.
SECTION 2. GENERAL POWERS. The business and affairs of the corporation
shall be managed by its Board of Directors. The Board of Directors may designate
a committee or committees consisting of not less than two directors, which
committee or committees shall have and may exercise all of the authority
designated to it or them by the Board of Directors; but, the designation of such
committees and the delegation thereto of authority shall not operate to relieve
the Board of Directors or any member thereof of any responsibility imposed upon
it or him by law.
SECTION 3. NUMBER, TENURE AND QUALIFICATIONS. The number of directors of
the corporation shall be not less than one (1) nor more than nine (9) as
determined, from time to time, by the Board of Directors.
Each Director shall hold office until the next annual meeting of
shareholders and until his successor shall have been elected and qualified.
Directors need not be residents of the State of Utah or shareholders of the
corporation. The Board of Directors may elect from its own number a Chairman of
the Board, who shall preside at all meetings of the Board of Directors, and
shall perform such other duties as may be prescribed from time to time by the
Board of Directors.
SECTION 4. REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held without other notice than this by-law immediately after, and at
the same place as, the annual meeting of shareholders. The Board of Directors
may provide, by resolution, the time and place, either within or without the
State of Utah, for the holding of additional regular meetings without other
notice than such resolution.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by or at the request of the President or the Chairman of the Board of
Directors or any two Directors. The person or persons authorized to call special
meetings of the Board of Directors may fix any place, either within or without
the State of Utah, as the place for holding any special meeting of the Board of
Directors called by them.
-4-
<PAGE>
SECTION 6. MEETING BY TELEPHONE. Members of the Board of Directors or any
committee designated by the Board may participate in a meeting of the Board as
committee by means of conference telephone or similar communications equipment
by which all persons participating in the meeting can hear each other, and
participation in a meeting under this section shall constitute presence in
person at the meeting.
SECTION 7. NOTICE. Notice of any special meeting shall be given at least
two days previously thereto by written notice delivered personally or mailed to
each Director at his business address, or by telegram. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail, so
addressed, with postage thereon prepaid. If notice be given by telegram such
notice shall be deemed to be delivered when the telegram is delivered to the
telegraph company. Any Director may waive notice of any meeting. The attendance
of a Director at a meeting shall constitute a waiver of notice of such meeting,
except where a Director attends a meeting for the express purpose of objecting
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
SECTION 8. QUORUM. A majority of the number of Directors fixed by Section
shall constitute a quorum for the transaction of business at any meeting of the
Board of Directors, but if less than such majority is present at a meeting, a
majority of the Directors present may adjourn the meeting from time to time
without further notice.
SECTION 9. MANNER OF ACTING. The act of the majority of the Directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors. Any action which may be taken at a meeting of the Directors may be
taken without a meeting if a consent in writing, setting forth the action so
taken, shall be signed by all of the Directors.
SECTION 10. VACANCIES. Any vacancy occurring in the Board of Directors may
be filled by the affirmative vote of a majority of the remaining Directors
though less than a quorum of the Board of Directors. A Director elected to fill
a vacancy shall be elected for the unexpired term of his predecessor in office.
Any directorship to be filled by reason of an increase in the number of
Directors may be filled by election by the Board of Directors for a term of
office continuing only until the next election of Directors by the shareholders.
SECTION 11. REMOVALS. Directors may be removed at any time without cause by
vote of the shareholders holding a majority of the shares outstanding and
entitled to vote. Such vacancy shall be filled by the directors then in office,
though less than a quorum, and any person so designated or appointed shall hold
office until the next annual meeting or until his successor is duly elected and
qualified; provided that any directorship to be filled by reason of removal by
the shareholders may be filled by election by the shareholders at the meeting at
which the director is removed. No reduction of the authorized number of
directors shall have the effect of removing any director prior to the expiration
of his term of office.
SECTION 12. RESIGNATION. A director may resign at any time by delivering
written notification thereof to the President or Secretary of the corporation.
Resignation shall become
-5-
<PAGE>
effective upon its acceptance by the Board of Directors; provided, however, that
if the Board of Directors has not acted thereon within ten (10) days after the
date of its delivery, the resignation shall be deemed accepted upon the tenth
day.
SECTION 13. COMPENSATION. By resolution of the Board of Directors, each
Director may be paid his expenses, if any, of attendance at each meeting of the
Board of Directors, and may be paid a stated salary as Director or a fixed sum
for attendance at each meeting of the Board of Directors or both. No such
payment shall preclude any Director from serving the corporation in any other
capacity and receiving compensation therefor.
SECTION 14. PRESUMPTION OF ASSENT. A Director of the corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his dissent shall be entered in the minutes of the meeting or unless he shall
file his written dissent to such action with the person acting as the secretary
of the meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary of the corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a Director
who voted in favor of such action.
SECTION 15. CHAIRMAN. The Board of Directors may elect from its own number
a Chairman of the Board, who shall preside at all meetings of the Board of
Directors, and shall perform such other duties as may be prescribed from time to
time by the Board of Directors.
ARTICLE IV. OFFICERS
SECTION 1. NUMBER. The officers of the corporation shall be a President,
one or more Vice-Presidents (the number thereof to be determined by the Board of
Directors), a Secretary and a Treasurer, each of whom shall be elected by the
Board of Directors. Such other officers and assistant officers as may be deemed
necessary may be elected or appointed by the Board of Directors. Any two or more
offices may be held by the same person.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the corporation to
be elected by the Board of Directors shall be elected annually by the Board of
Directors at the first meeting of the Board of Directors held after each annual
meeting of the shareholders. If the election of officers shall not be held at
such meeting, such election shall be held as soon thereafter as conveniently may
be. Each officer shall hold office until his successor shall have been duly
elected and shall have qualified or until his death or until he shall resign or
shall have been removed in the manner hereinafter provided.
SECTION 3. RESIGNATIONS. Any corporate officer may resign at any time by
delivering a written resignation either to the corporate President or to the
corporate Secretary. Unless otherwise specified therein, such resignation shall
take effect upon delivery.
SECTION 4. REMOVAL. Any officer or agent may be removed by the Board of
Directors whenever in its judgment, the best interests of the corporation will
be served thereby,
-6-
<PAGE>
but any such removal shall be without prejudice to the contract rights, if any,
of the person so removed. Election or appointment of an officer or agent shall
not of itself create contract rights.
SECTION 5. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the Board
of Directors for the unexpired portion of the term.
SECTION 6. THE PRESIDENT. The President shall be the principal executive
officer of the corporation and, subject to the control of the Board of
Directors, shall in general supervise and control all of the business and
affairs of the corporation. He shall when present, preside at all meetings of
the shareholders and of the Board of Directors, unless the Directors have
designated a Chairman in accordance with Section, of these By-Laws. He may sign,
with the Secretary or any other proper officer of the corporation thereunto
authorized by the Board of Directors, certificates for shares of the
corporation, any deeds, mortgages, bonds, contracts, or other instruments which
the Board of Directors has authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated by the Board of
Directors or by these By-Laws to some other officer or agent of the corporation,
or shall be required by law to be otherwise signed or executed; and in general
shall perform all duties incident to the office of President and such other
duties as may be prescribed by the Board of Directors from time to time.
SECTION 7. THE VICE-PRESIDENT. In the absence of the President or in the
event of his death, inability or refusal to act, the Vice-President (or in the
event there be more than one Vice-President, the Vice-Presidents in the order
designated at the time of their election, or in the absence of any designation,
then in the order of their election) shall perform the duties of the President,
and when so acting, shall have all the powers of and be subject to all the
restrictions upon the President. Any Vice-President may sign, with the Secretary
or an Assistant Secretary, certificates for shares of the corporation; and shall
perform such other duties as from time to time may be assigned to him by the
President or by the Board of Directors.
SECTION 8. THE SECRETARY. The Secretary shall: (a) keep the minutes of the
proceedings of the shareholders and of the Board of Directors in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these ByLaws or as required by law; (c) be
custodian of the corporate records and of the seal of the corporation and see
that the seal of the corporation is affixed to all documents the execution of
which on behalf of the corporation under its seal is duly authorized; (d) keep a
register of the post office address of each shareholder; (e) sign with the
President, or a Vice President, certificates for shares of the corporation, the
issuance of which shall have been authorized by resolution of the Board of
Directors; (f) have general charge of the stock transfer books of the
corporation; and (g) in general perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the President or by the Board of Directors.
SECTION 9. THE TREASURER. The Treasurer shall: (a) have charge and custody
of and be responsible for all funds and securities of the corporation; (b)
receive and give receipts for moneys due and payable to the corporation from any
source whatsoever, and deposit all such moneys in the name of the corporation in
such banks, trust companies or other depositories as shall be selected in
accordance with the provisions of Article.
-7-
<PAGE>
SECTION 10. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The Assistant
Secretaries, when authorized by the Board of Directors, may sign with the
President or a Vice-President certificates for shares of the corporation the
issuance of which shall have been authorized by a resolution of the Board of
Directors. The Assistant Treasurers shall, respectively, if required by the
Board of Directors, give bonds for the faithful discharge of their duties in
such sums and with such sureties as the Board of Directors shall determine. The
Assistant Secretaries and Assistant Treasurers, in general, shall perform such
duties as shall be assigned to them by the Secretary or the Treasurer,
respectively, or by the President or the Board of Directors.
SECTION 11. SALARIES. The salaries of the officers shall be fixed from time
to time by the Board of Directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a Director of the
corporation.
SECTION 12. OTHER OFFICERS. Other officers shall perform such duties and
have such powers as may be assigned to them by the Board of Directors.
ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. The Board of Directors may authorize any officer or
officers, agent or agents to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the corporation, and such authority
may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the corporation
and no evidences of indebtedness shall be issued in its name unless authorized
by a resolution of the Board of Directors. Such authority may be general or
confined to specific instances.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation shall be signed by such officer or officers, agent or agents of
the corporation and in such manner as shall from time to time be determined by
resolution of the Board of Directors.
SECTION 4. DEPOSITS. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositaries as the Board of Directors may
select.
ARTICLE VI. INDEMNIFICATION
SECTION 1. INDEMNIFICATION. The corporation shall indemnify its directors,
officers, employees, fiduciaries and agents to the full extent permitted by the
Utah Revised Business Corporation Act or any successor statute. In particular,
and not in derogation of the generality of the foregoing, except as provided in
this section, the corporation shall indemnify an
-8-
<PAGE>
individual made a party to a proceeding because he/she is or was a director,
against liability incurred in the proceeding if:
(a) his/her conduct was in good faith;
(b) he/she reasonably believed that his/her conduct was in, or at
least not opposed to, the corporation's best interests; and
(c) in the case of any criminal proceeding, he/she had no reasonable
cause to believe his conduct was unlawful.
The corporation shall not indemnify a director under this section:
(a) in connection with a proceeding by or in the right of the
corporation in which the director was adjudged liable to the corporation;
or
(b) in connection with any other proceeding charging that the director
derived an improper personal benefit, whether or not involving acts in
his/her official capacity, in which proceeding he/she was adjudged liable
on the basis that he/she derived an improper personal benefit. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in
the best interest of the corporation, and with respect to any criminal
action or proceeding, had reasonable cause to believe that his conduct was
unlawful.
SECTION 2. DETERMINATION. To the extent that a director, officer, employee
or agent of the corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Section or in defense
of any claim, issue or matter therein, he shall be indemnified against expenses
(including attorney's fees) which he actually and reasonably incurred in
connection therewith. Any other indemnification under Section not ordered by a
court shall be made by the corporation upon a determination that indemnification
of the director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in Section
hereof. Such determination shall be made either by (a) the Board of Directors by
a majority vote of a quorum consisting of Directors who were not parties to such
action, suit or proceeding, (b) by independent legal counsel in a written
opinion, or (c) by the shareholders by a majority vote of a quorum of
shareholders at any meeting duly called for such purpose.
SECTION 3. GENERAL INDEMNIFICATION. The indemnification and advancement of
expenses provided by this Article may not be construed to be exclusive of any of
the rights to which a person seeking indemnification or advancement of expenses
may be entitled under any by-law, agreement, vote of shareholders or
disinterested directors or otherwise, both as to an action in his official
capacity and as to an action in another capacity while holding office.
-9-
<PAGE>
SECTION 4. ADVANCES. Expenses incurred in defending a civil or criminal
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of the action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent that he
shall repay the amount advanced if it is ultimately determined that he is not
entitled to be indemnified by the corporation as authorized by this Article.
SECTION 5. SCOPE OF INDEMNIFICATION. The indemnification and advancement of
expenses authorized by this Article shall apply to all present and future
directors, officers, employees and agents of the corporation and shall continue
as to such persons who cease to be directors, officers, employees, or agents of
the corporation and shall inure to the benefit of the heirs, executors, and
administrators of all such persons and shall be in addition to all other
indemnification and advancement of expenses provided by law.
SECTION 6. INSURANCE. The corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee, or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity or arising out of his status in any
such capacity, whether or not the corporation would have the power to indemnify
him against any such liability under the provisions of this Article VI or the
laws of the State of Utah, as the same may hereafter be amended or modified.
ARTICLE VII. CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of the
corporation shall be in such form as shall be determined by the Board of
Directors. Such certificates shall be signed by the President or Vice-President
and by the Secretary or an Assistant Secretary and sealed with the corporate
seal or a facsimile thereof. The signatures of such officers upon a certificate
may be facsimiles if the certificate is countersigned by a transfer agent, or
registered by a registrar, other than the corporation itself or one of its
employees. All certificates for shares shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the shares
represented thereby are issued, with the number of shares and date of issue,
shall be entered on the stock transfer books of the corporation. All
certificates surrendered to the corporation for transfer shall be canceled and
no new certificate shall be issued until the former certificates for a like
number of shares shall have been surrendered and canceled, except that in case
of a lost, destroyed or mutilated certificate a new one may be issued therefor
upon such terms and indemnity to the corporation as the Board of Directors may
prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of the corporation shall
be made only on the stock transfer books of the corporation by the holder of
record thereof or by his legal representative, who shall furnish proper evidence
of authority to transfer, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the corporation, and on
surrender for cancellation of the certificate for such shares. The person in
-10-
<PAGE>
whose name shares stand on the books of the corporation shall be deemed by the
corporation to be the owner thereof for all purposes.
SECTION 3. CONSIDERATION FOR SHARES. The capital stock of the corporation
shall be issued for such consideration as shall be fixed from time to time by
the Board of Directors, but in no event shall such value be less than the par
value of such shares. In the absence of fraud, the determination of the Board of
Directors as to the value of any property or services received in full or
partial payment for shares shall be conclusive.
SECTION 4. REGISTERED SHAREHOLDERS. The corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder thereof
in fact and shall not be bound to recognize any equitable or other claim to or
interest in the shares.
ARTICLE VIII. FISCAL YEAR
The fiscal year of the corporation shall begin on the first day of January
and end on the last day of December in each year.
ARTICLE IX. DIVIDENDS
The Board of Directors may, from time to time, declare and the corporation
may pay dividends on its outstanding shares in the manner, and upon the terms
and conditions provided by law and its articles of incorporation.
ARTICLE X. CORPORATE SEAL
The Board of Directors may in its discretion provide a corporate seal.
ARTICLE XI. WAIVER OF NOTICE
Whenever any notice is required to be given to any shareholder or Director
of the corporation under the provisions of these By-Laws or under the provisions
of the Articles of Incorporation or under the provisions of the Utah Revised
Business Corporation Act, a waiver thereof in writing signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice.
Attendance of a Director at any meeting of Directors shall constitute a
waiver of notice of such meeting, except where a Director attends for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened.
-11-
<PAGE>
ARTICLE XII. AMENDMENTS
These By-Laws may be altered, amended or repealed and new by-laws may be
adopted by the Board of Directors at any regular or special meeting of the Board
of Directors.
ARTICLE XIII. PROCEDURE FOR CONDUCTING MEETING
All shareholder and director meetings shall be conducted in accordance with
the rules and procedures set forth in the most current edition of Roberts' Rules
of Order.
A true copy adopted by the Board of Directors on the 26th day of November,
1996.
ATTEST:
/s/ Barry A. Ellsworth
----------------------
President
-12-
EXHIBIT 10.1
Agreement
between
Q-Seven Systems GmbH
Frohnkamp 18
40789 Monheim
Germany
Herein referred to as "LICENSOR"
and
Q-Seven Systems, Inc.
1800 East Sahara Avenue
Las Vegas
Nevada
USA
Herein referred to as "LICENSEE"
General Provisions
The LICENSOR has developed and owns a modularized software suite that can be
used to distribute products and services and collect payments through the
internet. Further the suite maintains User accounts and handles credit card
transfers. This program hereinafter will be referred to as the "SOFTWARE",
whether as source code or compiled program.
The LICENSEE has extensive experience and the necessary labor force to market
the software.
Establishing the terms and conditions of their mutual partnership the parties
agree as follows:
(1)
The LICENSOR grants to the LICENSEE the exclusive and unlimited right to sell
licenses of the SOFTWARE worldwide for perpetuity. Exclusive shall be defined to
mean that the LICENSOR cannot sell, license or other wise transfer to any third
party said SOFTWARE in its present form or any future form or application it may
have, unless it does so through LICENSEE. A license of the SOFTWARE is the right
to use one copy of the SOFTWARE for a particular purpose including the
installation of one copy of the SOFTWARE on a machine to be specified by the
buyer of the License and the necessary training for the staff of the buyer to
operate the SOFTWARE.
1
<PAGE>
The LICENSOR will provide installation of the SOFTWARE and training for the
staff of the buyer. Prices and conditions under which such service is provided
will be subject to a separate agreement between LICENSOR and buyer.
The LICENSEE cannot transfer any right to sell licenses of the SOFTWARE to any
third party unless said third party is a wholly owned subsidiary of LICENSEE.
The LICENSEE is free to choose price and conditions under which he sells
licenses of the SOFTWARE.
The ownership of the SOFTWARE remains at all times with the LICENSOR.
(2)
The parties agree that the LICENSOR receives from the LICENSEE a royalty fee of
90% of the revenue generated by the sale of licenses of the software. The
payment of such royalty fees is due immediately after each payment received by
the LICENSEE.
The Licensee has to disclose all information about any client or prospective
sale to Licensor immediately after receipt of such information.
All agreements made by LICENSEE with buyers of licenses of the SOFTWARE
involving any manpower or equipment of the LICENSOR need the formal approval of
LICENSOR.
(3)
LICENSOR warrants to the buyers of licenses of the SOFTWARE that the SOFTWARE
shall conform in all material respects to the Documentation then provided with
the SOFTWARE.
LICENSOR'S sole obligation under this warranty shall be limited to using its
reasonable efforts to correct any defects and supply the buyer with a corrected
version of the SOFTWARE (or an Update including an appropriate error
correction), as soon as practicable after the buyer has notified LICENSOR of
such defects. All other warranties and liabilities comply with the regulation of
the German law.
2
<PAGE>
(4)
All costs directly related to the sale of licenses of the SOFTWARE have to be
paid by LICENSEE. Licensor will bear all other expenses especially hereunder
marketing and software development costs not directly related to a particular
sale of a license of the SOFTWARE.
(5)
LICENSOR will use reasonable efforts to develop the SOFTWARE according to the
Product Development Plan attached to this Agreement. From time to time, the
parties will adjust this Product Development Plan to the then current market
demands, the Licensor's capacities and financial situation and other
determinants influencing the development of the SOFTWARE.
Further, the LICENSOR will use reasonable efforts to market the software. The
amount of money spent, the target groups, target markets and marketing
instruments are in LICENSOR'S sole discretion.
LICENSOR will provide technical support for the operation of the SOFTWARE to
buyers of licenses of the SOFTWARE. Prices and conditions under which such
service is provided will be subject to a separate agreement between LICENSOR and
buyer.
(7)
This Agreement and the Support Agreement reflects the entire understanding of
the parties with respect to the subject matter of this agreement No
supplementary agreements exist. All additions and modifications of this
agreement have to be in written form and require the approval of both parties.
Any invalid portion of this agreement will not affect the validity of the entire
agreement. The patties will replace the invalid portion with a provision meeting
their original understanding.
This Agreement will be governed by the laws of the State of Nevada.
3
<PAGE>
In witness thereof, the parties have caused this Agreement to be executed by
their duly authorized representatives.
For LICENSOR For LICENSEE
/s/ Ph. Kriependorf /s/ Ph. Kriependorf
- ------------------------------ ------------------------------
Philipp Kriependorf Philipp Kriependorf
Managing Director President and Director
/s/ Ph. Kamp
------------------------------
Philip Kamp
Director
/s/ Olaf Cordt
------------------------------
Olaf Cordt
Secretary and Director
4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF JUNE 30, 1999 AND THE STATEMENT OF OPERATIONS OF Q-SEVEN SYSTEMS,
INC. AND SUBSIDIARIES FOR THE SIX MONTHS ENDED JUNE 30, 1999 INCLUDED ON FORM
10-QSB FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 32
<SECURITIES> 0
<RECEIVABLES> 161
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 193
<PP&E> 1
<DEPRECIATION> 0
<TOTAL-ASSETS> 194
<CURRENT-LIABILITIES> 81
<BONDS> 0
0
0
<COMMON> 12
<OTHER-SE> 101
<TOTAL-LIABILITY-AND-EQUITY> 194
<SALES> 435
<TOTAL-REVENUES> 435
<CGS> 181
<TOTAL-COSTS> 222
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 32
<INCOME-TAX> 0
<INCOME-CONTINUING> 32
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
