UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A-2
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ____ to ____
------------------------------------------------------
Commission File Number: 000-27349
ZIASUN TECHNOLOGIES, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
NEVADA 84-1376402
- ------------------------------ -----------------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
462 Stevens Avenue, Suite 106, Solana Beach, CA 90275
- ---------------------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)
(858) 350-4060
----------------------------------------------------
(Registrant's telephone number, including area code)
Securities Registrant pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 Par Value
-----------------------------
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 12 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is contained in this form, and no disclosure will be
contained to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The issuer's revenues for the year ended December 31, 1999 were
$27,220,240.
As of March 31, 2000 there were 27,230,018 million shares of the
Registrant's Common Stock outstanding and the aggregate market value of such
shares held by non-affiliates of the Registrant (based on the closing bid of
such shares on the OTC Bulletin Board on March 31, 2000) was approximately
$210,131,842.
Documents Incorporated by Reference: See Exhibit List.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
<PAGE>
ZIASUN TECHNOLOGIES, INC.
FORM 10-KSB
For The Fiscal Year Ended December 31, 1999
INDEX
PART I
Page
----
Item 1. Description of Business ....................................... 1
Item 2. Description of Properties...................................... 21
Item 3. Legal Proceedings ............................................. 22
Item 4. Submission of Matters to a Vote of Security Holders ........... 22
PART II
Item 5. Market for Common Equity and Related Stockholder Matters....... 22
Item 6. Management Discussion and Analysis or Plan of Operation ....... 23
Item 7. Financial Statements .......................................... 26
Item 8. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosures .................................... 46
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act ............ 46
Item 10. Executive Compensation ....................................... 50
Item 11. Security Ownership of Certain Beneficial Owners
and Management .............................................. 52
Item 12. Certain Relationships and Related Transactions ............... 54
Item 13. Exhibits and Reports on Form 8-K ............................. 56
Signatures ............................................................ 60
(i)
<PAGE>
This Annual Report on Form 10-KSB and the documents incorporated herein by
reference contain forward-looking statements that have been made pursuant to the
provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are based on current expectations, estimates and
projections about ZiaSun and its subsidiaries industry, management's beliefs,
and assumptions made by management. Words such as "anticipates," "expects,"
"intends," "plans," "believes," "seeks," "estimates," variations of such words
and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and are
subject to certain risks, uncertainties and assumptions that are difficult to
predict; therefore, actual results and outcomes may differ materially from what
is expressed or forecasted in any such forward-looking statements. Such risks
and uncertainties include those set forth herein under "Risk Factors" on pages
13 through 20 as well as those noted in the documents incorporated herein by
reference. Unless required by law, ZiaSun undertakes no obligation to update
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
ZiaSun Technologies, Inc. (the "Company" or "ZiaSun") was organized under
the laws of the State of Nevada on March 19, 1996, under the name "Carlisle
Enterprises, Inc." The Company was incorporated for the purpose of executive
search and recruitment of employees for businesses. The Company currently owns
Internet based operations and holdings. The Company believes the continuing
shift of consumers from conventional shopping practices and distribution
channels to internet-based services, along with the huge growth potential of
International Internet usage will provide significant future growth
opportunities for its various e-commerce activities.
The Company actively seeks to acquire, structure, manage and consolidate
other select holdings through its wholly-owned subsidiaries operating in the
U.S. and in foreign markets. The objective is to acquire holdings which will
provide marketing and operating synergy with one another, are well positioned
and profitable in their targeted markets, and/or have demonstrated technical
expertise in certain areas of e-commerce. While the Company pursues certain
business opportunities, alliances and joint ventures, which will enhance
profitable growth and development, and help maximize the shareholders' equity,
the company does not typically openly advertise to attract such opportunities.
The two basic challenges in effectively implementing this strategy, while
preserving and continually developing the Company's core technology, are: 1)
Maintaining an active pipeline of potentially desirable, acquirable companies
through various business contacts and financial institutions, and 2) Maintaining
the financial wherewithal to move quickly enough, when an opportunity for a
synergistic acquisition arises, to complete the acquisition, and effectively
integrate the acquired entity into the Company's holdings at minimum cost and/or
disruption to the other entities. In some instances this will include the
challenge of effectively restructuring the acquired entities with one or more
existing entities to maximize their contribution to the Company's revenues and
profits.
The relative infancy of users of online financial services in the foreign
markets is another key to the Company's future growth. The Company is focused on
capturing a large market share of these foreign users and a significant
percentage of the growing number of U.S. users of Internet tools and services.
The U.S. domestic market is also projected to sustain its growth in domestic
e-commerce and online financial services usage, and is still developing in terms
of the number of educated users of these services.
The Company's business model is simple and proven in the Internet market
and presents continued long-term growth prospects. Substantial front-end revenue
is created by selling packages of Internet educational and e-commerce services
to businesses and/or consumers worldwide. The services and products sold contain
features designed to cross promote other portals, products and services of the
Company. These other products and services rely on backend commissions, fees,
profit sharing, and high-traffic to create revenue and operate with very low
overhead. This is expected to result in high profit margins for the Company.
Profit created by front-end sales of services, combined with net cash flow
generated by gains on investments and non-Internet groups, is being invested in
the further development of the high profit margin Internet groups. As this
operating model grows, the Company's base of loyal users, subscribers and
visitors to their websites and services will also grow. It will also build the
credibility necessary to establish further relationships, strategic alliances,
co-branding and licensing agreements with Internet companies with similar
interests.
1
<PAGE>
The Company is diversified enough to not be dependent on any single product
or service. Rather, the wholly-owned subsidiaries publish, market and service
many web products and services, and maintain the necessary value-added support
for these products and services. Therefore, any of the Company's groups,
Internet products or services, or joint ventures could be a stand-alone company.
This creates opportunities for sale or spin off of any holdings in order to
maximize shareholder equity.
The Company may divest or "spin off" equity interest in one or more of its
entities when it is strategically and economically advantageous to shareholders.
This could increase the shareholders' equity, and, at the same time, allow the
Company to focus on its core operations and holdings, once it has adequately
entrenched itself in the most profitable targeted markets. It is expected that
stock dividends or warrants resulting from a spin off or stock exchange, or cash
dividends resulting from a cash sale, would be issued to company shareholders if
and when the Company divests itself of any given entity.
Recent Developments.
- --------------------
During 1999, the Company undertook several acquisitions and/or mergers to
diversify and enter some technology-based arenas.
Acquisition of Asia4sale
------------------------
On March 25, 1999, the Company entered into an Acquisition Agreement and
Plan of Reorganization, under which the Company would acquire Asia4sale.com,
Ltd., ("Asia4sale"), a Hong Kong Registered Company. In exchange for 99 of the
100 shares of Asia4sale, the Company issued 100,000 (post-split adjusted) shares
of restricted common stock and paid $15,000 cash to the majority holder of the
capital stock of Asia4sale, thereby virtually making Asia4sale a wholly-owned
subsidiary of the Company. In addition, the Company made an unsecured loan of
$50,000 to Asia4sale upon closing of the acquisition and agreed to issue one (1)
additional share of restricted common stock for each two dollars ($2.00) of
actual earnings of Asia4sale for the period from April 1, 1999, through
September 31, 2000. Actual earnings of Asia4sale which are defined as net income
before income taxes, depreciation and interest expense were zero from April 1,
1999 through September 30, 1999. Asia4sale is in the business of Internet
related international e-commerce. In addition, the Company was granted the
option to repurchase the 100,000 (post split adjusted) shares issued in the
acquisition of Asia4sale for a period of one (1) year at a price of $3.00 per
share in the event that Asia4sale fails to reach positive cash flow from its
operations by September 30, 2000. As of the date of this registration statement,
Asia4sale has not yet reached positive cash flow. The acquisition was completed
on May 12, 1999.
Acquisition of Online Investors Advantage, Inc.
-----------------------------------------------
On March 31, 1999, the Company entered into an Acquisition Agreement and
Plan of Reorganization, under which the Company would acquire Online Investors
Advantage Incorporated ("OIA"), a Utah corporation. OIA is in the business of
training individual investors how to effectively use the financial planning and
investment tools available on the internet to manage their own investment
portfolios. The training is structured around a five-step discipline, which
includes searching for an investment, evaluating the investment and assessing
the risk, timing the purchase, establishing an exit point and monitoring the
investment. This is done through live workshops, and video-based, self-directed
home learning programs, which include the use of OIA's proprietary website
www.investortoolbox.com. In exchange for all of the capital stock of OIA, the
Company issued 1,000,000 (post-split adjusted) shares of restricted common stock
and paid $400,000 in cash, all of which was distributed pro-rata to the
shareholders of OIA, thereby making OIA a wholly-owned subsidiary of the
Company. In addition, the Company issued 5,000,000 (post-split adjusted) shares
2
<PAGE>
pro-rata to the shareholders of OIA. Those shares are currently being held in
escrow in accordance with the terms of the adjustment provision set forth in the
acquisition agreement, based on anticipated earnings of at least $2,500,000 for
OIA for the period from April 1, 1999, through March 31, 2000. As set forth in
the terms of the acquisition agreement, in the event that the actual earnings of
OIA are less than $2,500,000, for the specified period, then the total number of
shares being held in escrow shall be reduced on a one-share basis for each $1.00
of actual earnings of OIA less than $2,500,000. In the event that the actual
earnings of OIA is greater than $2,500,000, then the Company shall issue such
additional shares on the basis of one additional share for each $1.00 of actual
earnings of OIA greater than $2,500,000. The acquisition was completed on April
7, 1999. The actual earnings which are defined as net income before income
taxes, depreciation and interest expense, were approximately $3,700,000 through
April 1, 1999.
Business Model and Products
- ---------------------------
The Company's primary revenues are derived from their subsidiaries'
respective products and services, organized into the following groups:
Internet Consumer Services Group
--------------------------------
<TABLE>
<CAPTION>
Revenue From Operating Subsidiary Product/Service
------------ -------------------- ---------------
<S> <C> <C>
Online Education OIA Investors Toolbox
Off line Education OIA Live Workshops, Home Study
Online Financial Services Momentum Internet/ Swiftrade
</TABLE>
This is the Company's largest revenue producing group. It constitutes 86%
of net revenues for the twelve months ended June 30, 1999. E-learning and
training constitute the major portion of the Company's current business.
Front-end revenues are generated from memberships, subscriptions, attendance
fees for live workshops in major cities worldwide; and sales of Internet, audio,
and video home-study programs. At the same time, OIA helps build loyalty for,
and cross promotes other Internet Consumer Services offered by the Company. The
Company's online financial services portal, Swiftrade, generates front-end
revenue from referral fees per trading account; but projects substantially
higher future revenues from backend fees from transactions (orders), and profit
sharing agreements with its broker/dealer partners on various stock exchanges.
Asia4sale will generate front-end revenue from sales of regional e-commerce
franchises, while building a substantial free retail franchise structure to
serve as the distribution base for the products and services offered by the
Asia4sale "store."
Internet Media Sales
--------------------
<TABLE>
<CAPTION>
Primary
Revenue From Operating Subsidiary Product/Service
------------ -------------------- ---------------
<S> <C> <C>
Advertising on Websites Momentum Internet All Websites
Banner Advertising Momentum Internet PINmail/MediaHits
E-Mail List Rental Momentum Internet All Websites
Online Marketing Momentum Internet All Websites
</TABLE>
The company generates flat fees and fees per impression, visit,
click-through, or sign up for online advertisers of all types. Impressions are
generated by high traffic to the Company's websites, swiftrade.com, a portal for
stock trading in the USA, Hong Kong and the UK; mfinance.com, allows some 10,000
registered subscribers to access certain Asian business and financial news fed
by AFX-Asia a joint venture with France Presse and the "Financial Times" of
London; searchdragon.com, an Asia business directory listing more than 5,000
Asian business websites; mediahits.com, an advertising banner network, and by a
large volume of banners placed on those PINmail pages used by the general
public. It constitutes 7% of net revenues for the year ended December 31, 1999.
3
<PAGE>
Internet Support Services
-------------------------
<TABLE>
<CAPTION>
Primary
Revenue From Operating Subsidiary Product/Service
------------ -------------------- ---------------
<S> <C> <C>
E-Mail Customer Service Momentum Asia ServiceLive
Telephone Customer Service Momentum Asia ServiceLive
Database Management Momentum Asia ServiceLive/
Momentum Direct
</TABLE>
The support services furnished by this group include responding to e-mail
and telephone inquiries via return e-mail and telephone. Those inquiries
typically include questions regarding; trading accounts, password information,
billing and technical questions for PINmail accounts, MediaHits, Mfinance
subscribers and Asia4Sale stores. This group also responds to inquiries for
banner advertising and co-branded websites. Working from internet databases,
where customer information is stored, the customer service personnel are trained
to answer frequently asked questions regarding opening new accounts. Future
revenue will be derived from monthly fees paid by non-related customers. The
support services are being offered to webmasters of other websites, which are
currently being serviced from high-cost areas of the world. The Company has
space for substantial expansion, operates out of a very low-cost region, and is
negotiating with several potentially large users of the service, including
E*Trade Group, GE Capital, and Asia Pre-Press Technologies, a US-based company.
The proposal for E*Trade Group has been submitted to the Vice President of
Service Quality. According to E*Trade management, the proposal is temporarily on
hold until they reach capacity in their new customer service facility in
Atlanta. The proposal for GE Capital is in process, and responses are being
prepared to numerous questions regarding the Company's ability to handle their
back office and technical support requirements. There is a verbal agreement in
place with Asia Pre-Press Technologies to e-mail customer service and database
encoding services. APPT has numerous U.S.-based customers. Quantifiable cost
savings can be achieved by client users of ServiceLive, at the same time
allowing the Company to generate positive cash flow due to its established low
cost base. It makes up 7% of net revenues for the year ended December 31, 1999.
Printing and Direct Mail
------------------------
<TABLE>
<CAPTION>
Primary
Revenue From Operating Subsidiary Product/Service
------------ -------------------- ---------------
<S> <C> <C>
List Rental Momentum Asia Momentum Direct
Design/layout Momentum Asia Momentum Direct
Printing Momentum Asia Momentum Direct
Lettershop Momentum Asia Momentum Direct
</TABLE>
The wholly-owned subsidiary Momentum Asia has a substantial base of
clients, for which it provides printing and direct mail services. Momentum
Direct, a newly formed division of Momentum Asia is actively marketing these
services to large multi-national corporations. This division is profitable, and
will continue to grow by the addition of new clients and makes up 3% of net
revenues for the six months ended June 30, 1999.
Internet Investment Ventures
----------------------------
This group is managed through the Company and its subsidiary Momentum Asia,
and has a portfolio of holdings in public and private companies, held as
Marketable Securities and Investments Held to Maturity, depending on the
Company's strategy at the time of acquisition. This group continues to
aggressively pursue further investments in startup Internet related companies
with solid management and realistic business plans. Both short-term and
long-term gains are available from this group.
4
<PAGE>
Summary:
--------
The Company is currently increasing its front-end sales revenues from
non-Internet related operations and cash gains on sales of investments. It is
anticipated that sales from these areas will continue to increase substantially
in the next two years. However, the Company's business plan projects backend
revenue in the form of commissions, transaction fees, and profit sharing from
its Internet Consumer Services Group (e-commerce and online financial services)
will outgrow and exceed front-end revenue within the next two years.
The Company's Subsidiaries and the Nature of Products and Services Offered
- --------------------------------------------------------------------------
"OIA" provides in-depth consumer training in the optimum use of Internet
investment and financial management tools and services via workshops, home
study, and online subscriptions OIA recently expanded into the International
marketplace. In addition, OIA currently has a working relationship with
Optioninvestor.com and Telescan. OIA and its data providers have formed
"Investors Toolbox" (www.investorstoolbox.com), a proprietary website for its
subscribers and members for ongoing investment analysis.
Optioninvestor.com is an online investment newsletter purchased at
wholesale to provide to OIA subscribers. Telescan is a financial and investment
news and data provider. OIA procures Telscan's services and custom tailors the
data to OIA's needs.
"Momentum Internet", either publishes its own online publications or enters
into Joint Venture agreements with strategic partners, who have positive cash
flow, and will provide marketing and operating synergy with Momentum Internet in
their targeted markets. The company then develops, hosts, manages and promotes
its own websites. Most sales are in U.S. Dollars, and the Asian economic crisis
has had a positive impact on operations due to favorable exchange rates and
lower facility costs. Momentum Internet manages all online activities for its
clients, including Barclays International Funds Asia from its Manila and Hong
Kong main offices. Following is Momentum Internet's mix of products and
services:
Swiftrade (www.swiftrade.com) is an online trading and financial services
portal, which provides Internet access for retail and institutional users to
international electronic stock trading. Currently, the Swiftrade site is
utilized in a joint venture with West America Securities Corporation, a fully
registered broker dealer located in the United States, which provides users
direct electronic access to trading of stocks, options, mutual funds and other
financial instruments available on U.S. markets and exchanges. West America
Securities has agreed to pay Swiftrade, (a wholly-owned subsidiary of Momentum
Internet, incorporated under the laws of the British Virgin Islands) referral
fees for each new account. It is the first online trading system designed
specifically for, and targeted at, overseas investors trading in the U.S. stock
markets. Trades are cleared through West America Securities and its clearing
agent, Emmett A. Larkin, Inc.
Swiftrade plans to facilitate online trading from a single Internet
portal on several of the world's largest stock markets, including London, Hong
Kong Sydney, Singapore, and Frankfurt in 1999, with others to be added in the
future. The Company, through its subsidiaries, earns a $40.00 account fee for
each account referred from its website exposure to West America Securities. This
fee includes the cost of new account customer service via e-mail, which is
provided by the Company's Internet Support Group. In addition to the joint
venture with West America Securities for the U.S. markets, Momentum Internet has
entered into strategic partnership agreements in the brokerage industries in
Hong Kong and London. Swiftrade's proprietary software, developed by Momentum
Internet for the purpose of linking Swiftrade users with stock exchanges in
London and Hong Kong, provides a direct link to the floor of these and other
non-U.S. Stock Exchanges. Swiftrade utilizes a news and data feed from Reuters
Hong Kong Limited ("Reuters HK") which, through links with the Company's
proprietary software, allows the Company to provide instantaneous online links
between the real-time data feed provided by Reuters, the orders place by users,
and the brokerage trading desk. The software, complete with live feeds from the
exchange floors, ensures accurate trade execution, instant confirmation of
trades and accurate balances and positions. Momentum Internet receives
transaction (order) fees from its partner brokerages in London and Hong Kong.
5
<PAGE>
Neither the Company nor any of its subsidiaries is directly involved in the
brokerage business, or owns or operates an "online brokerage." The Company is in
the business of web site creation, management and introduction. The Company
introduces the web site to the general public using a variety of methods,
including some of its own high traffic Internet technology.
Swiftrade can represent more than one broker in each market and be readily
positioned in any other market where the Company sees growth opportunities.
Minimal spending is required for advertising and infrastructure that brokerage
houses typically must spend to maintain market share. Swiftrade shares in
transaction fees without the burden of increasing costs.
"PINMAIL" (www.pinmail.com) gives all websites the ability to offer
web-based e-mail from their pages, as do major sites like Netscape and Yahoo!.
PINmail also provides customized corporate versions and premium e-mail accounts
for individuals.
"PINmail for Webmasters" is the free system for those who wish to add
e-mail service to their own website. This service is completely free to
webmasters and users. Webmasters can add this service to any website by simply
downloading some HTML code and pasting it onto their pages.
"PINmail for Corporations" is a completely customized system using
corporate logos and colors. The Company's software interface is custom designed
to suit the clients' needs. This tailored corporate account will then operate
with any client's unique domain name. There is no setup charge for this service.
However, a monthly, tiered rate is charged for the number of e-mail users
registered for the service at the end of each month.
"PINmail for Individuals" is a premium version for business travelers and
others who need their e-mail in a single easily managed location. A small annual
fee is charged, and users of the premium service enjoy three PINmail addresses,
auto-forwarding to other e-mail accounts, and an auto-responder, which can be
set to answer messages when the user is offline.
"MFINANCE" (www.mfinance.com) is an online financial publication providing
comprehensive data on US, Asian, and European stock markets, plus additional
finance and investment information for individual investors in Europe and Asia.
MFinance is continually being upgraded, and additional news feeds and stock data
from Reuters On-Line S.A. ("Reuters Online") will enhance the site's position as
a world-class resource for financial and investment information. Revenue comes
from subscriptions to a premium service and advertising. Regular advertisers
include Barclays International Funds Asia and the Far Eastern Economic Review.
"SEARCH DRAGON" (www.searchdragon.com) an online business directory and
search engine, is a popular destination for those looking for information on the
Asian region. The website now covers Hong Kong, Indonesia, Macau, Malaysia, the
Philippines, Singapore, Taiwan and Thailand. The Company's proprietary software
allows webmasters of business related sites to submit their own listings and
update them whenever necessary. SearchDragon is essentially a marketing tool for
Swiftrade banner advertisements, and not an independent revenue generator.
All websites are hosted on dedicated high-speed servers in Los Angeles,
California, directly connected to the Internet backbone with 24-hour technical
support.
"Momentum Asia" is a second subsidiary which provides a wide range of
compatible graphic design, copy writing, printing, database management, and
e-mail customer service operations. Through its service known as ServiceLive,
this subsidiary, provides compatible e-mail response service and database
management for the high-traffic websites and services managed by Momentum
Internet and other subsidiaries of the Company.
A Partial List of Momentum Asia's International Customer Base Includes:
Federal Express (United States)
Enron Power (United States)
Neo-Art, Inc. (Netherlands)
IDESS Maritime Training Schools (Norway)
Ritchie Brothers Auctioneers, Ltd. (Canada)
Metroplex Casinos (Malaysia)
The Philippine Government (Philippines)
Subic Telecommunications Co., Inc. (Philippines)
(A joint venture between AT&T (U.S.). and PLDT (Philippines)
6
<PAGE>
None of these customers except Neo-Art is expected to contribute more than
$50,000.00 per year to Momentum Asia. Neo-Art is expected to contribute
approximately $75,000.00 to gross revenues in printing and design fees.
"BestWay Beverages" also a wholly-owned subsidiary is currently inactive.
However, it still holds the exclusive distribution franchise in the USA, Canada
and Mexico for a patented in-store beverage bottling center manufactured by
BEVEX, Inc. BestWay Beverages consists of what was formerly the core business of
BestWay USA before the purchase of Momentum Internet and Momentum Asia.
Target Markets
- --------------
Internet-based business is perhaps the most dynamic industry the world has
ever seen. It is rapidly becoming the primary worldwide medium for data
exchange, commerce, education and news. Moreover, the Company believes the
international growth rate of both business and individual Internet users will
increase dramatically over the next five years.
As the number of Internet users rapidly increases over the next few years,
the Company intends to continue developing investment and finance management
products, services and technologies, which will effectively fulfill the
information, commerce and education needs of these users to maximize their
beneficial use of all the features the Internet has to offer.
The Company has selected three categories of international, Internet-based
business as their primary target market(s).
1. International online stock trading and investment services with unique
educational capabilities and ongoing investor support services.
The Company believes there are several primary factors, which attract
Internet users to online investing. These include: ease of use, low transaction
fees, real-time comprehensive information and a self-service environment.
OIA, a pioneer in financial/investment training for consumers in the US
market, is already moving into key international markets as well. As the
popularity of online trading grows, the demand for OIA's products and services
is expected to grow accordingly.
Swiftrade, an online trading service, facilitates international online
trading. The Company expects Swiftrade to become an international online trading
network in the future.
The synergy between OIA and Swiftrade effectively positions the Company to
capitalize on the stock trading and investment services market. The Company
believes the Internet will continue to attract additional online investors,
especially as those investors who have completed the OIA training program
realize that effectively self-managing their investment portfolio is made
possible by following the guidelines developed by OIA.
As stock exchanges around the world move to the Internet, the Company
expects to continually strengthen its competitive position in the international
marketplace, and to be on the ground floor to service these markets.
2. E-commerce to facilitate the purchase and/or sale of goods and
services between and/or among businesses and individuals throughout
the Pacific Rim.
The Company believes e-commerce will probably become the major vehicle for
the sale and/or barter of goods and services on an international basis.
Accordingly, the Company and its subsidiaries have developed products and
services like SearchDragon, Mfinance and the e-commerce based Asia4Sale. The
ability to effectively market these products and services will be enhanced by
the increasing bandwidth capabilities and reduced transmission times, which are
becoming more readily available for the Internet on an international level. The
increasing use of DSL lines and low-orbiting satellite direct digital
communications are significantly increasing the megabits per second, which can
be transmitted, considerably beyond the capacity of standard telephone and ISDN
lines. According to Pacific Bell, data transfers on a DSL line are up to 50
times faster than a 28.8 modem connection, and 16 or more kb/sec. faster than an
ISDN line. Further, because the potential market is so large, the Company
believes it could establish and maintain a profitable operation from a
relatively small percentage of that market.
7
<PAGE>
Emerging global procurement will require international vendor expertise to
create and manage complex electronic supply chains composed of thousands of
manufacturers, distributors, forwarders and buyers located throughout the world.
The overlap between e-commerce in the Pacific Rim and e-commerce in the USA is
substantial. American companies continually outsource many labor-intensive
manufacturing processes in this region.
The Company believes the business futures of the two regions are
inextricably linked. In various conversations with clients and/or potential
clients in the Pacific Rim, those clients have identified the effective use of
the Internet as a primary key to restoring their international competitive
position. Moreover, it appears their expenditures on Internet services are
rising at a pace that outstrips even that of the US.
The Company's e-commerce products and services provide:
o A worldwide shopping service, which offers a wide variety of
Asian-made products to wholesalers, retailers, and franchise
storefronts, which can be owned and managed by anyone, anywhere,
with a computer and an Internet connection.
o Auction and barter sites aimed specifically at the rapidly
growing Pacific Rim business-to-business market.
The Company believes Internet-based business in the Pacific Rim is going to
expand rapidly. Moreover, long-term links will be established with global
procurement networks over the next five years. The products and services the
Company has developed thus far, along with other products and services currently
in the planning stage, should give the Company a strong presence early on in
this fast growing area of e-commerce.
3. Web-based and non web-based marketing development and support services
for Internet-oriented companies, who do not have the wherewithal
internally for the development of same.
Every day, an increasing number of businesses around the world are
expanding their marketing and sales activities into cyberspace. In order to do
so, many of these companies have had to retain the services of specialists in
website development and management.
As more and more companies utilize the Internet for global marketing, the
demand for Internet-based marketing, customer service and sales support systems
is increasing. This seems to be particularly true in the Pacific Rim, where use
of the Internet is growing rapidly. The Company intends to establish itself on
the ground floor of this rapidly growing market niche.
The Company is currently developing a mix of web marketing and compatible
support services for this niche. Because this subsidiary is in the Philippines,
they are able to provide services, which are equivalent to US-based competitors,
at much lower prices.
This subsidiary has had ongoing operations in the Pacific Rim for several
years now. As a result, they have specific knowledge regarding the prevailing
business principles and practices in this region of the world. The company
believes this business experience, along with the contact network, which has
already been developed, gives the Company a potential advantage over many
US-based companies who have little or no experience doing business in the
Pacific Rim. The Company expects this to be a beneficial leverage point in
establishing a presence in this niche market.
There is a challenge for the Company in effectively identifying and
positioning the Company in the most beneficial markets and/or market segments at
the optimum time. The Company expects to meet this challenge through aggressive
marketing, supported by equally aggressive ongoing media and investor relations
programs. The Company has active programs in place to continually increase the
awareness of the Company in both the financial/investment community and the
marketplace they serve.
8
<PAGE>
Marketing Plan
- --------------
The Company's marketing plan is a combination of vertical integration and
cross-pollination. It is intended to build exposure and market share while
maintaining profitable operations. This differs from some Internet-based
companies who have focused significant effort on establishing a customer base,
but given minimal thought to ensuring return on investment.
While this latter approach generates a considerable amount of web traffic,
it does not necessarily contribute significant revenues. The Company's plan
emphasizes both aggressive pursuit of a user base and market share, along with
the marketing of value added products to this user base.
The ongoing successful implementation of the marketing plan presents some
continuing challenges, not the least of which is effectively presenting the
Company's products and services, so the potential customer perceives them as the
clear value-added choice among the alternative products and services in the
marketplace. Since it is a crowded marketplace, the Company expends a
considerable amount of time and effort focusing their marketing message on those
significant points of differentiation the Company's products and services
provide over the competitors products and services.
Another challenge in this arena is keeping the marketing message and
materials up to date in one of the most dynamic markets which has ever existed.
The Company expects to accomplish this by utilizing the services of certain
consultants, who are specialists and forward looking in the Internet arena, so
the Company has constantly updated, current knowledge regarding what is going on
in the marketplace they serve. The company clearly recognizes the importance of
being the first to introduce a new beneficial product or service to the
marketplace.
The Marketing Plan includes three levels of marketing activity:
LEVEL 1.
--------
The first level follows the traditional Internet paradigms, wherein several
of the Company's products include free services to attract the largest possible
number of users. PINmail which receives approximately 83,500 impressions per
month and Media Hits which receives approximately 250,000 impressions per month,
are the major products in this category. Search Dragon and Mfinance are expected
to attract a lesser numbers of users.
LEVEL 2.
-------
The second level includes two categories:
(1) Those products and services marketed primarily to individuals, which
include the online and offline financial services education capabilities of OIA,
the online trading capability of Swiftrade, and the Asia4Sale e-commerce
operation. Asia4sale is promoted to both potential customers and potential
operators of franchised stores. Asia4sale and Swiftrade are expected to be
low-cost operations with good contributions to margin.
(2) Those products and services marketed primarily to businesses, which
include the database management, direct mail, and telephone e-mail customer
service products offered by the Company's ServiceLive and Momentum Direct
Internet support. The relatively low facility and labor costs in the Company's
Asian operations allows the Company to offer these products and services at very
competitive prices and generate targeted margins.
LEVEL 3.
-------
The third level includes backend revenues generated by commissions, fees
and profit sharing agreements. These revenues, which are generated automatically
as services are used, increase in proportion with the use of services provided.
This requires minimal additional overhead spending or monitoring.
9
<PAGE>
The same direct marketing capacity the Company offers to contract customers
is used to promote the Company's frontline revenue generators. Impressions on
the high-traffic free sites are recorded and classified in a tailored database,
which is in itself a valuable asset. The sales force then selectively and
directly promotes the appropriate services to each category of net user. While
the Company's revenue-earning services also use the more traditional marketing
methods employed by their competitors, the large base of potential customers
developed by the Company's high-traffic sites should provide a leverage point
over competition.
The Company's marketing plan also relies heavily on cross-pollination at
every level of the vertical integration program. The Company's products and
services are clustered into compatible groups, each of which will be served by a
single web portal. For example, a Swiftrade customer will immediately be exposed
to the compatible services offered by OIA. The two are combined with an advanced
Reuters news/data feed in the Company's Stock Trading & Finance Portal.
Swiftrade and other services will in turn be promoted at OIA seminars and in OIA
marketing materials.
OIA video-based home-study programs, which cost $1,995.00 and live 2-day
workshops, which cost $2,995.00 if the attendee registers at the live preview,
or $3,995.00 if the participant registers after the fact, are promoted both
online and through a traditional multistage marketing program. The multistage
marketing program includes direct mail, radio, television, newspaper, free
"Introduction to Online Investing seminars" via the internet, and word-of-mouth
incentives wherein prior seminar attendees are allowed to attend a refresher
workshop at no charge, or extend their subscription to www.investorstoolbox.com
for six months at no charge if they induce some other party to register for an
OIA workshop. This incentive is a $495.00 value. Television commercials are used
to advertise OIA's free online trading seminars, and attract both two-day
workshop attendees and home study candidates. OIA's brochures and audio tapes
are used to build further interest and customer loyalty. The two-day workshops
are OIA's principal revenue generator.
Those introduction seminar attendees, who do not elect to attend the
two-day training workshops, are candidates for video-based educational
materials. OIA is well positioned to continue providing both
financial/investment education and services, while developing a growing customer
base for itself, Swiftrade and other compatible products and services.
Individuals and businesses interested in doing business in the Pacific Rim
will be drawn to the Pacific Rim business portal at Dragonasia.com, where they
will find the Search Dragon search engine, the Dragon Warehouse Store, Mfinance
and Asian-specific co-branded editions of OIA and Swiftrade.
The Company's web marketing and support services are grouped under the
Logistical Internet Media Essentials (www.limesystems.com) site. These include a
variety of services aimed at businesses developing a web presence and a
compatible sales support system. Included are the PINmail free e-mail service,
the MediaHits advertising banner network, business Internet showrooms (in
cooperation with Asia4Sale), and the database management, direct mail, and
telephone and e-mail customer service products offered by the Company's
ServiceLive and Momentum Direct Internet support services. Any customer who is
drawn to one service will be immediately presented with a wide range of
compatible services, with interconnections to the other portals.
This cross-pollination will be initiated by grouped exposure of compatible
products. It will also be aggressively promoted via the same direct marketing
system used to facilitate the vertical integration program. At every step of the
process, tailored databases will be maintained. Also, the sales staff will
select and present services, which are likely to add customer value at
competitive prices.
The combination of vertical integration, diversification, and
cross-pollination places the Company in a unique position among web companies.
It provides a broad enough base to withstand competition, a mechanism by which
the growth of any one component can be quickly capitalized upon by others and
the capacity to rapidly and flexibly adapt to changing market conditions. By
presenting customers with compatible packages of useful, value-oriented goods
and services, the Company enhances its own revenue-generating capabilities.
10
<PAGE>
Distribution methods of the products or services
- -------------------------------------------------
Management will seek out and investigate business opportunities through
every reasonably available fashion, including personal contacts, professionals,
securities broker dealers, venture capital personnel, members of the financial
community and others who may present unsolicited proposals. Strategic Alliances
The Company will continue to seek high-profile, interrelated companies as
strategic business partners to enter new markets or territories. On August 18,
1999, the Company's subsidiary OIA entered into an agreement with
"investorweb.com" of Melbourne, Australia, to be represented by Investor Web
under its license with the Australia Securities and Investment Commission, and
incorporate investorweb's financial website into OIA's workshops in Australia.
Investorweb.com has the requisite license for an Internet-based financial
services provider in Australia. This allows OIA to legally conduct business in
Australia.
Status of any publicly announced new product or services
- --------------------------------------------------------
Swiftrade - On February 2, 1999, the Company announced that its subsidiary,
Momentum Internet Incorporated, launched their "Plug and Play" online trading
software, a program designed to allow brokerage houses around the world to offer
secure online stock trading. The program was developed to work in almost any
market with brokerage firms through their own websites and under their own brand
names, or through the Swiftrade website operated by Momentum Internet. The
program has been contracted for use by brokerages in Hong Kong and the U.K.
Manila Office - On February 25, 1999, Momentum Internet announced that it
opened a new Internet development facility in Manila, Philippines, in order to
access a large pool of local, well educated, technically skilled design and
marketing talent. The focus of the Manila office is the development of Internet
platforms for global online stock treading, web-based e-mail applications,
online auction and barter software and international financial news delivery
systems.
Offer of Free E-Mail to all Websites - On March 29, 1999, the Company
announced that it plans to provide an e-mail service free to every website on
the Internet. The new system is based on the Company's existing e-mail program,
PINmail, which is offered through its subsidiary Momentum Internet. The new
PINmail service is intended to give all websites the ability to offer web-based
e-mail, from their pages, in the same manner as major sites like Netscape and
Yahoo!, free of charge to webmasters and users.
ServiceLive.com - On April 1, 1999, the Company announced the launch of its
new Internet customer service program, ServiceLive, a 24-hour e-mail and
telephone response center, developed by the Company in the Philippines. The
service is being offered on a contract basis to Internet companies worldwide.
Acquisition of Online Investors Advantage Inc. - On April 8, 1999, the
Company announced the acquisition of Online Investors Advantage, Inc., a Utah
based company ("OIA") specializing in online stock trading education and
training. OIA teaches investors who wish to trade securities by computer, how to
access and use the tools available on the Internet for optimum investing
results.
Approval by London Stock Exchange of Swiftrade - On April 14, 1999, the
Company announced that the London Stock Exchange gave approval for its live
stock price feed to be made available through the Company's online trading
system, Swiftrade.
Investors Toolbox - On May 27, 1999, the Company announced that its
subsidiary, OIA launched a comprehensive financial website, developed by
Telescan, Inc., for the exclusive use of OIA's students and graduates. Investors
Toolbox offers an in-depth range of financial information and tools which are
available on the web and was created by Telescan for the exclusive use of
individuals who complete OIA's workshops.
Global Launch of Online Investing Education Seminars - On July 29, 1999 the
Company announced that OIA, was launching its Online investing seminars and
workshops in Australia and New Zealand. OIA held workshops in Melbourne and
Sydney, Australia, in August and in Auckland and Wellington, New Zealand, in
August and September 1999.
11
<PAGE>
Free E-mail Service for All Websites Available - On August 11, 1999, the
Company announced that Momentum Internet launched its new service which will
provide free e-mail to webmaster and users. This new service will give websites
the ability to offer web-based e-mail from their web pages. In return for the
free service each website will carry banner ads on the e-mail pages, which will
be hosted and controlled from the Company's recently upgraded servers in
California.
Competitive business conditions and the Company's competitive position in the
industry and methods of competition
- --------------------------------------------------------------------------------
There are numerous companies engaged in endeavors similar to those engaged
in by the Company; many of these companies have substantial current assets and
cash reserves. Competitors also include many publicly held companies whose
business operations have proven unsuccessful, and whose only viable business
opportunity is that of providing a publicly held vehicle through which a private
entity may have access to the public capital markets. There is no reasonable way
to predict the competitive position of the Company or any other entity in these
endeavors.
Sources and availability of raw materials and names of principal suppliers
- --------------------------------------------------------------------------
The Company does not utilize any specialized raw materials. All necessary
required materials, if any, are readily available. The Company is not aware of
any existing or future problem that will materially affect the source and
availability of any materials which would be required by the Company.
Dependence on one or a few major customers
- ------------------------------------------
The Company believes that the diversity of the products and services
offered alleviates the dependence on any customer. Through the widespread use of
the Company's and its subsidiaries' products and services, in multimedia,
electronic commerce, publishing, Internet and other developing industries, the
Company will develop a wide base of customers. No customer in 1999 accounted for
more than 10% of the net sales.
Patents, trademarks, license, franchises, concessions, royalty agreements or
labor contracts
- --------------------------------------------------------------------------------
Neither the Company nor any of its subsidiaries presently holds any
patents, copyrights or trademarks for their products or services offered or the
names under which they operate. However, the Company and its subsidiaries are
currently in the process of seeking copyright and trademark protection of its
trade names and website addresses.
Need for Government approval
- ----------------------------
With the exception of the requirement that the Company and its subsidiaries
be registered or qualified to do business in the States and foreign countries in
which they will do business, the products and services provided through use of
the Company's technology are not subject to approval of any government
regulation.
Effect of existing or probable governmental regulations on the business.
- ------------------------------------------------------------------------
The Company's common stock is registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934. As a result of such registration, the Company
is subject to Regulation 14A of the Securities Exchange Act of 1934, as amended
(the "1934 Act"), which regulates proxy solicitations. Section 14(a) requires
all companies with securities registered pursuant to Section 12(g) thereof to
comply with the rules and regulations of the Commission regarding proxy
solicitations, as outlined in Regulation 14A. Matters submitted to stockholders
of the Company at a special or annual meeting thereof or pursuant to a written
consent will require the Company to provide its stockholders with the
information outlined in Schedules 14A or 14C of Regulation 14; preliminary
copies of this information must be submitted to the Commission at least 10 days
prior to the date that definitive copies of this information are forwarded to
stockholders.
12
<PAGE>
The Company is also required to file annual reports on Form 10-KSB and
quarterly reports on Form 10-QSB with the Commission on a regular basis, and
will be required to timely disclose certain events (e.g., changes in corporate
control; acquisitions or dispositions of a significant amount of assets other
than in the ordinary course of business; and bankruptcy) in a Current Report on
Form 8-K.
The Company is not aware of any other governmental regulations now in
existence or that may arise in the future that would have an effect on the
business of the Company.
Research and Development
- ------------------------
Research and Development ("R&D") expenditures for each of the last two
fiscal years, 1999 and 1998, was approximately $73,062 and $33,657,
respectively, which was comprised of the cost of man power and personnel in the
development of its products and services. In some cases (as described above),
customer contracts require direct payment for specific development requirements.
Costs and effects of compliance with environmental laws (Federal, State and
Local)
- --------------------------------------------------------------------------------
The Company does not plan to manufacture the products that are derived from
the application and use of its technology. The Company does not feel that it is
effected by any rules which have been enacted or adopted regulating the
discharge of material into the environment. However, environmental laws, rules
and regulations may have an adverse effect on any business venture viewed by the
Company as an attractive acquisition, reorganization or merger candidate, and
these factors may further limit the number of potential candidates available to
the Company for acquisition, reorganization or merger.
Number of total employees and number of full time employees.
- ------------------------------------------------------------
At the present time the Company and its subsidiaries cumulatively employ a
total of 91 persons of which 60 are full time employees. These full time
employees include, but are not limited to, D. Scott Elder, Ross W. Jardine,
Allen D. Hardman, Anthony Tobin and Dennis McGrory who are also officers and
directors of the Company.
RISK FACTORS
- ------------
Consideration should be given to the risks described below before making an
investment decision in the company. The risks and uncertainties described below
are not the only ones facing the company and there may be additional risks that
are not presently known or are currently deemed immaterial. All of these risks
may impair business operations.
The Company's present and proposed business operations will be highly
speculative and subject to the same types of risks inherent in any new or
unproven venture, as well as risk factors particular to the industries in which
it will operate, and will include, among other things, those types of risk
factors outlined below.
In any business venture, there are substantial risks specific to the
particular enterprise which cannot be ascertained until a potential acquisition,
reorganization or merger candidate has been identified; however, at a minimum,
the Company's present and proposed business operations will be highly
speculative and subject to the same types of risks inherent in any new or
unproven venture, and will include those types of risk factors outlined below.
Risks of "Penny Stock."
------------------------
The Company's common stock may, at some future time, be deemed to be "penny
stock" as that term is defined in Rule 3a51-1 of the Exchange Act of 1934. Penny
stocks are stocks (i) with a price of less than five dollars per share; (ii)
that are not traded on a "recognized" national exchange; (iii) whose prices are
not quoted on the NASDAQ automated quotation system (NASDAQ-listed stocks must
still meet requirement (i) above); or (iv) of an issuer with net tangible assets
less than US$2,000,000 (if the issuer has been in continuous operation for at
least three years) or US$5,000,000 (if in continuous operation for less than
three years), or with average annual revenues of less than US$6,000,000 for the
last three years.
13
<PAGE>
A principal exclusion from the definition of a penny stock is an equity
security that has a price of five dollars ($5.00) of more, excluding any broker
or dealer commissions, markups or markdowns. As of the date of this Registration
Statement the Company's common stock has a price in excess of $5.00 and would
not be deemed a penny stock.
If the Company's Common Stock were deemed a penny stock, section 15(g) and
Rule 3a51-1 of the Exchange Act of 1934 would require broker-dealers dealing in
the Company's Common Stock to provide potential investors with a document
disclosing the risks of penny stocks and to obtain a manually signed and dated
written receipt of the document before effecting any transaction in a penny
stock for the investor's account. Potential investors in the Company's common
stock are urged to obtain and read such disclosure carefully before purchasing
any shares that are deemed to be "penny stock."
Moreover, Rule 15g-9 of the Exchange Act of 1934 requires broker-dealers in
penny stocks to approve the account of any investor for transactions in such
stocks before selling any penny stock to that investor. This procedure requires
the broker-dealer to (i) obtain from the investor information concerning his or
her financial situation, investment experience and investment objectives; (ii)
reasonably determine, based on that information, that transactions in penny
stocks are suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating the risks of
penny stock transactions; (iii) provide the investor with a written statement
setting forth the basis on which the broker-dealer made the determination in
(ii) above; and (iv) receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor's financial
situation, investment experience and investment objectives. Compliance with
these requirements may make it more difficult for investors in the Company's
common stock to resell their shares to third parties or to otherwise dispose of
them.
Competition.
------------
There are numerous corporations, firms and individuals, which are engaged
in the type of business activities in which the Company is presently engaged.
Some of those entities are more experienced and possess substantially greater
financial, technical and personnel resources than the Company or its
subsidiaries. Many of the Company's competitors have longer operating histories.
In addition, many of the Company's competitors offer a wider range of services
and financial products than the Company, and thus may be able to respond more
quickly to new or changing opportunities, technologies and customer
requirements. Many of the Company's competitors also have greater name
recognition and larger customer bases that could be leveraged, thereby gaining
market share from the Company. Such competitors may conduct more extensive
promotional activities and offer better terms and lower prices to customers than
the Company can. Moreover, certain competitors have established cooperative
relationships among themselves or with third parties to enhance their services
and products. Accordingly, it is possible that new competitors or alliances
among existing competitors may significantly reduce the Company's market share.
General financial success within the securities industry over the past several
years has strengthened existing competitors. The Company believes that such
success will continue to attract new competitors to the industry, such as banks,
software development companies, insurance companies, providers of online
financial and information services and others, as such companies expand their
product lines. The current trend toward consolidation in the commercial banking
industry could further increase competition in all aspects of our business.
While the Company cannot predict the type and extent of competitive services
that commercial banks and other financial institutions ultimately may offer, or
whether legislative barriers will be modified, the Company may be adversely
affected by such competition or legislation. To the extent the Company's
competitors are able to attract and retain customers based on the convenience of
one-stop shopping, the Company's business or ability to grow could be adversely
affected. In many instances, the Company is competing with such organizations
for the same customers. In addition, competition among financial services firms
14
<PAGE>
exists for experienced technical and other personnel. There can be no assurance
that the Company will be able to compete effectively with current or future
competitors or that such competition will not have a material adverse effect on
the Company's business, financial condition and operating results. While the
Company hopes to be competitive with other similar companies, there can be no
assurance that such will be the case.
Volatile Market for Common Stock.
---------------------------------
The Company's common stock is quoted on the OTC Bulletin Board of the
National Association of Securities Dealers, Inc. (the "NASD") under the symbol
"ZSUN." The market price of the Company's Common Stock has been and is likely to
continue to be highly volatile and subject to wide fluctuations due to various
factors, many of which may be beyond the Company's control, including: quarterly
variations in operating results; announcements of technological innovations or
new software, services or products by the Company or its competitors; and
changes in financial estimates and recommendations by securities analysts. In
addition, there have been large price and volume fluctuations in the stock
market which have affected the market prices of securities of many technology
and services companies, often unrelated to the operating performance of such
companies. These broad market fluctuations, as well as general economic and
political conditions, may adversely affect the market price of the Company's
common stock. In the past, volatility in the market price of a company's
securities has often led to securities class action litigation. Such litigation
could result in substantial costs and aversion of the Company's attention and
resources, which could have a material adverse effect on the Company's business,
financial condition and operating results.
Dependence on Key Employees.
----------------------------
Historically, the Company and its subsidiaries have been heavily dependent
on the ability of D. Scott Elder, Ross W. Jardine, Anthony Tobin, Eric
Montandon, Allen D. Hardman, Scott Harris and David McCoy, who contribute
essential technical and management experience. In the event of future growth in
administration, marketing, manufacturing and customer support functions, the
Company may have to increase the depth and experience of its management team by
adding new members. The Company's success will depend to a large degree upon the
active participation of its key officers and employees. Loss of services of any
of the current officers and directors could have a significant adverse effect on
the operations and prospects of the Company. There can be no assurance that it
will be able to employ qualified persons on acceptable terms to replace officers
that become unavailable.
Discretionary Use of Proceeds.
------------------------------
Because of management's broad discretion with respect to the acquisition of
assets, property or business, the Company may be deemed to be a growth oriented
company. Although management intends to apply substantially all of the proceeds
that it may receive through the issuance of stock or debt to suitable
acquisitions such proceeds will not otherwise be designated for any more
specific purpose. The Company can provide no assurance that any allocation of
such proceeds will allow it to achieve its business objectives.
Unascertainable Risks Associated with Potential Future Acquired Businesses.
---------------------------------------------------------------------------
To the extent that the Company may acquire a business in a highly risky
industry, the Company will become subject to those risks. Similarly, if the
Company acquires a financially unstable business or a business that is in the
early stages of development, the Company will become subject to the numerous
risks to which such businesses are subject. Although management intends to
consider the risks inherent in any industry and business in which it may become
involved, there can be no assurance that it will correctly assess such risks.
15
<PAGE>
Risks Associated with Acquisitions, Strategic Relationships.
------------------------------------------------------------
The Company may acquire other companies or technologies in the future, and
the Company regularly evaluates such opportunities. Acquisitions entail numerous
risks, including: difficulties in the assimilation of acquired operations and
products; diversion of management's attention from other business concerns;
amortization of acquired intangible assets; and potential loss of key employees
of acquired companies. The Company has limited experience in assimilating
acquired organizations into our operations. No assurance can be given as to the
Company's ability to integrate successfully any operations, personnel, services
or products that might be acquired in the future. Failure to successfully
assimilate acquired organizations could have a material adverse effect on the
Company's business, financial condition and operating results. The Company has
established a number of strategic relationships with online and Internet service
providers and software and information service providers. There can be no
assurance that any such relationships will be maintained, or that if they are
maintained, they will be successful or profitable. Additionally, the Company may
not develop any new such relationships in the future. Due to the foregoing
factors, quarterly revenues and operating results are difficult to forecast. The
Company believes that period-to-period comparisons of the Company's operating
results will not necessarily be meaningful and you should not rely on them as
any indication of future performance. The Company's future quarterly operating
results may not consistently meet the expectations of securities analysts or
investors, which in turn may have an adverse effect on the market price of the
Company's Common Stock. Additionally, to the extent that the Company may acquire
a business in a highly risky industry, the Company will become subject to those
risks. Similarly, if the Company acquires a financially unstable business or a
business that is in the early stages of development, the Company will become
subject to the numerous risks to which such businesses are subject. Although
management intends to consider the risks inherent in any industry and business
in which it may become involved, there can be no assurance that it will
correctly assess such risks.
Uncertain Structure of Future Acquisitions.
-------------------------------------------
Management has had no preliminary contact or discussions regarding, and
there are no current plans, proposals or arrangements to acquire any other
specific assets, property or business. Accordingly, it is unclear whether such
any such acquisition would take the form of an exchange of capital stock, a
merger or an asset acquisition.
Conflicts of Interest; Related Party Transactions.
--------------------------------------------------
Although the Company has not identified any new potential acquisition
targets and management does not believe there is any "present potential" for
such transactions, the possibility exists that the Company may acquire or merge
with a business or company in which the Company's executive officers, directors,
beneficial owners or their affiliates may have an ownership interest. Although
there is no formal bylaw, stockholder resolution or agreement authorizing any
such transaction, corporate policy does not forbid it and such a transaction may
occur if management deems it to be in the best interests of the Company and its
stockholders, after consideration of the above referenced factors. A transaction
of this nature would present a conflict of interest to those parties with a
managerial position and/or an ownership interest in both the Company and the
acquired entity, and may compromise management's fiduciary duties to the
Company's stockholders. An independent appraisal of the acquired company may or
may not be obtained in the event a related party transaction is contemplated.
Furthermore, because management and/or beneficial owners of the Company's common
stock may be eligible for finder's fees or other compensation related to
potential acquisitions by the Company, such compensation may become a factor in
negotiations regarding such potential acquisitions. It is the Company's
intention that all future transactions be entered into on such terms as if
negotiated at arms length, unless the Company is able to received more favorable
terms from a related party.
Risks Associated with Systems Failures.
---------------------------------------
Many of the services and products offered by the Company and its
subsidiaries are through and over Internet, online service providers and
touch-tone telephone. Thus, the Company depends heavily on the integrity of the
electronic systems supporting this activity, including the Company's internal
software programs and computer systems. The Company's systems or any other
16
<PAGE>
systems of third parties whom the we utilize could slow down significantly or
fail for a variety of reasons including: undetected errors in the Company's
internal software programs or computer systems; the Company's inability to
effectively resolve any errors in the Company's internal software programs or
computer systems once they are detected; or heavy stress placed on the Company's
system during certain peak hours of usage of either the Company's own or its
third party provider systems. If the Company's systems or any other systems
which the Company relies on slow down significantly or fail even for a short
time, the Company's customers would suffer delays and dissatisfaction. The
Company could experience future system failures and degradations. The Company
could experience a number of adverse consequences as a result of these systems
failures including the loss of existing customers and the inability to attract
or retain new customers. There can be no assurance that the Company's network
structure or those of third party service providers will operate appropriately
in any of the following events: subsystem, component or software failure; a
power or telecommunications failure; human error; an earthquake, fire or other
natural disaster; or an act of God or war. There can be no assurance that in any
such event, we will be able to prevent an extended systems failure. Any such
systems failure that interrupts the Company's operations could have a material
adverse effect on the Company's business, financial condition and operating
results.
Risks Associated with Encryption Technology.
--------------------------------------------
A significant barrier to online commerce is the secure transmission of
confidential information over public networks. The Company relies on encryption
and authentication technology to provide secure transmission of confidential
information. There can be no assurance that advances in computer and
cryptography capabilities or other developments will not result in a compromise
of the encryption and authentication technology we use to protect customer
transaction data. If any such compromise of the Company 's security were to
occur, it could have a material adverse effect on the Company's business,
financial condition and operating results.
Risks Associated with Significant Fluctuations In Operating Results.
--------------------------------------------------------------------
The Company expects to experience large fluctuations in future quarterly
operating results that may be caused by many factors, including the following:
the timing of introductions or enhancements to online investing services and
other products by the Company or its competitors; market acceptance of online
investing services and products; the pace of development of the market for
online commerce; changes in trading volume in securities markets; trends in
securities markets; domestic and international regulation of the brokerage
industry; changes in pricing policies by the Company or its competitors; changes
in strategy; the success of or costs associated with acquisitions, joint
ventures or other strategic relationships; changes in key personnel; seasonal
trends; the extent of international expansion; the mix of international and
domestic revenues; changes in the level of operating expenses to support
projected growth; and general economic conditions. The Company has also
experienced fluctuations in the average number of customer transactions per day.
Thus, the rate of growth in customer transactions at any given time is not
necessarily indicative of future transaction activity.
Risks Associated with Management of a Changing Business.
--------------------------------------------------------
The Company has grown rapidly and the Company's business and operations
have changed substantially since the Company began offering online investing
services and products, and the Company expects this trend to continue. Such
rapid change and expansion places significant demands on the Company's
administrative, operational, financial and other resources. The Company expects
operating expenses and staffing levels to increase substantially in the future.
In particular, the Company intends to hire a significant number of additional
skilled personnel, including persons with experience in both the computer and
brokerage industries. Competition for such personnel is intense, and there can
be no assurance that the Company will be able to find or keep additional
17
<PAGE>
suitable senior managers or technical persons in the future. The Company also
expects to expend resources for future expansion of the Company's accounting and
internal information management systems and for a number of other new systems
and procedures. In addition, the Company expects that future expansion will
continue to challenge the Company's ability to successfully hire and retain
associates. If the Company's revenues do not keep up with operating expenses,
the Company's information management systems do not expand to meet increasing
demands, the Company fails to attract, assimilate and retain qualified
personnel, or the Company fails to manage the Company's expansion effectively,
there would be a material adverse effect on the Company's business, financial
condition and operating results. The rapid growth in the use of the Company's
services may strain the Company's ability to adequately expand technologically.
As the Company acquires new equipment and applications quickly, the Company has
less time and ability to test and validate hardware and software, which could
lead to performance problems. The Company also relies on a number of third
parties to process the Company's transactions, including online and Internet
service providers, back office processing organizations, service providers and
market-makers, all of which will need to expand the scope of the operations they
perform for us. Any backlog caused by a third party's inability to expand
sufficiently to meet the Company needs could have a material adverse effect on
our business, financial condition and operating results. As trading volume
increases, the Company may have difficulty hiring and training qualified
personnel at the necessary pace, and the shortage of licensed personnel could
cause a backlog in the processing of orders that need review, which could lead
to not only unsatisfied customers, but also to liability for orders that were
not executed on a timely basis.
Risks Associated with Early Stage of Market Development; and
Dependence on Online Commerce and the Internet.
--------------------------------------------------------------
The market for online investing services, particularly over the Internet,
is at an early stage of development and is rapidly evolving. Consequently,
demand and market acceptance for recently introduced services and products are
subject to a high level of uncertainty. For the Company, this uncertainty is
compounded by the risks that consumers will not adopt online commerce and that
commerce on the Internet will not adequately develop or flourish to permit the
Company to succeed. Sales of many of the Company's services and products will
depend on consumers adopting the Internet as a method of doing business. This
may not occur because of inadequate development of the necessary infrastructure,
such as a reliable network infrastructure, or complementary services and
products such as high-speed modems and communication lines. The Internet has
grown and is expected to grow both in number of users and amount of traffic.
There can be no assurance that the Internet infrastructure will continue to be
able to support the demands placed on it by this continued growth. In addition,
the Internet could lose its viability due to slow development or adoption of
standards and protocols to handle increased Internet activity, or due to
increased governmental regulation. Moreover, critical issues including security,
reliability, cost, ease of use, accessibility and quality of service remain
unresolved and may negatively affect the growth of Internet use or commerce on
the Internet. Because use of the Internet for commerce is new and evolving,
there can be no assurance that the Internet will prove to be a viable commercial
marketplace. If these critical issues are not resolved, if the necessary
infrastructure is not developed, or if the Internet does not become a viable
commercial marketplace, the Company business, financial condition and operating
results will be materially adversely affected. Adoption of online commerce by
individuals that have relied upon traditional means of commerce in the past will
require such individuals to accept new and very different methods of conducting
business. Moreover, the Company's online trading and investing services over the
Internet involve a new approach to investing research and trading which will
require intensive marketing and sales efforts to educate prospective customers
regarding the Internet's uses and benefits. For example, consumers who trade
with more traditional brokerage firms, or even discount brokers, may be
reluctant or slow to change to obtaining brokerage services over the Internet.
Also, concerns about security and privacy on the Internet may hinder the growth
of online investing research and trading, which could have a material adverse
effect on the Company 's business, financial condition and operating results.
18
<PAGE>
Risks Associated with the Securities Industry; Concentration of Services.
-------------------------------------------------------------------------
Most of the Company's revenue in the past has been from the Company's
online investor services and products, and the Company expects this business to
continue to account for most of the Company's revenue in the foreseeable future.
The Company, like other companies in the Internet securities industry, is
directly affected by economic and political conditions, broad trends in business
and finance and changes in volume and price levels of securities and futures
transactions. In recent months, the U.S. securities markets have fluctuated
considerably and a downturn in these markets could effect customer's interest in
our products and services and adversely affect the Company's operating results.
In October 1987 and October 1989, the stock market suffered major declines, as a
result of which many companies and firms suffered financial losses, and the
level of individual investor trading activity decreased after these events.
Reduced trading volume and prices have historically resulted in reduced revenues
to companies such as the Company's. When trading volume is low and investor and
customer interest or use of the Company's products and services diminishes, the
Company's operating results may be adversely affected because the Company's
overhead remains relatively fixed. Severe market fluctuations in the future
could have a material adverse effect on the Company's business, financial
condition and operating results. Some of the Company's competitors with more
diverse product and service offerings might withstand such a downturn in the
securities industry better than the Company would.
Risks Associated with Delays In Introduction of New Services and Products.
--------------------------------------------------------------------------
The Company's future success depends in part on the Company's ability to
develop and enhance the Company's services and products. There are significant
technical risks in the development of new services and products or enhanced
versions of existing services and products. There can be no assurance that the
Company will be successful in achieving any of the following: effectively using
new technologies; adapting the Company's services and products to emerging
industry standards; developing, introducing and marketing service and product
enhancements; or developing, introducing and marketing new services and
products. The Company may also experience difficulties that could delay or
prevent the development, introduction or marketing of these services and
products. Additionally, these new services and products may not adequately meet
the requirements of the marketplace or achieve market acceptance. If the Company
is unable to develop and introduce enhanced or new services and products quickly
enough to respond to market or customer requirements, or if they do not achieve
market acceptance, the Company's business, financial condition and operating
results will be materially adversely affected.
Risks Associated with Dependence on Intellectual Property Rights.
-----------------------------------------------------------------
Neither the Company or any of its subsidiaries presently holds any patents,
copyrights or trademarks for their products or services offered or the names
under which they operate. However, the Company and its subsidiaries are
currently in the process of seeking copyright and trademark protection of its
trade names and website addresses. The Company's success and ability to compete
are dependent to a degree of the Company's and its subsidiary's name and product
recognition. Accordingly, the Company will primarily rely on copyright, trade
secret and trademark law to protect our product, services and brand names offer
or under which the Company and its subsidiaries conduct their business.
Effective trademark protection may not be available for the Company's
trademarks. There can be no assurance that the Company will be able to secure
significant protection for the Company's trademarks. The Company's competitors
or others may adopt product or service names similar to the Company's, thereby
impeding the Company's ability to build brand identity and possibly leading to
customer confusion. The Company's inability to adequately protect our product,
brand, trade names and trademarks would have a material adverse effect on the
Company's business, financial condition and operating results. Despite any
precautions the Company takes, a third party may be able to copy or otherwise
obtain and use the Company's software or other proprietary information without
authorization or to develop similar software independently. Policing
unauthorized use of the Company's technology is made especially difficult by the
global nature of the Internet and difficulty in controlling the ultimate
destination or security of software or other data transmitted on it. The laws of
other countries may afford us little or no effective protection for the
Company's intellectual property. There can be no assurance that the steps the
Company takes will prevent misappropriation of the Company's technology or that
agreements entered into for that purpose will be enforceable. In addition,
litigation may be necessary in the future to enforce the Company's intellectual
property rights; protect the Company's trade secrets; determine the validity and
scope of the proprietary rights of others; or defend against claims of
19
<PAGE>
infringement or invalidity. Such litigation, whether successful or unsuccessful,
could result in substantial costs and diversions of resources, either of which
could have a material adverse effect on the Company's business, financial
condition and operating results.
Risks Associated with Infringement.
-----------------------------------
The Company may in the future receive notices of claims of infringement on
other parties' proprietary rights. There can be no assurance that claims for
infringement or invalidity (or any indemnification claims based on such claims)
will not be asserted or prosecuted against the Company. Any such claims, with or
without merit, could be time consuming and costly to defend or litigate, divert
the Company's attention and resources or require the Company to enter into
royalty or licensing agreements. There can be no assurance that such licenses
would be available on reasonable terms, if at all, and the assertion or
prosecution of any such claims could have a material adverse effect on the
Company's business, financial condition and operating results.
Risks Associated with Entering New Markets.
-------------------------------------------
One element of The Company's strategy is to leverage the Company's brand
names and services that the Company and its subsidiaries provide. No assurance
can be given that the Company will be able to successfully adapt the Company's
products and services for use in other markets. Even if the Company does adapt
the Company's products to other markets, no assurance can be given that the
Company will be able to compete successfully in any such new markets. There can
be no assurance that the Company's marketing efforts or the Company's pursuit of
any new opportunities will be successful. If the Company's efforts are not
successful, the Company could realize less than expected earnings, which in turn
could result in a decrease in the market value of the Company's Common Stock.
Furthermore, such efforts may divert management attention or inefficiently
utilize the Company's resources.
Risks Associated with International Strategy.
---------------------------------------------
One component of the Company's strategy is a planned increase in efforts to
attract additional international customers and to expand the Company's OIA
seminars, services and products into international markets. To date, the Company
has limited experience in providing investment services internationally. There
can be no assurance that the Company and the Company's subsidiaries will be able
to market the Company's branded services and products successfully in
international markets. In addition, there are certain risks inherent in doing
business in international markets, such as: unexpected changes in regulatory
requirements, tariffs and other trade barriers; difficulties in staffing and
managing foreign operations; political instability; fluctuations in currency
exchange rates; reduced protection for intellectual property rights in some
countries; seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world; and potentially adverse tax
consequences. Any of the foregoing could adversely impact the success of the
Company's international operations. Under these agreements, the Company relies
upon third parties for a variety of business and regulatory compliance matters.
The Company has limited control over the management and direction of these third
parties. The Company runs the risk that their action or inaction could harm the
Company's operations and/or the goodwill associated with the Company's brand
names. As a result, the risk to our operations and goodwill is higher. There can
be no assurance that one or more of the factors described above will not have a
material adverse effect on the Company's future international operations, if
any, and, consequently, on our business, financial condition and operating
results.
Equity Price Risk.
------------------
The Company through its subsidiary Momentum Asia holds a small portfolio of
marketable-equity traded securities that are subject to market price volatility.
Equity price fluctuations of plus or minus 15 percent would not have a material
impact on the Company. For its working capital and reserves that are required to
be segregated under Federal or other regulations, the Company invests in money
market funds, resale agreements, certificates of deposit, and commercial paper.
Money market funds do not have maturity dates and do not present a material
market risk. The other financial instruments are fixed rate investments with
short maturities and do not present a material interest rate risk.
20
<PAGE>
YEAR 2000 INFORMATION
---------------------
Impact of Year 2000
-------------------
During 1999 we completed our remediation and testing of our platform
systems, management support, systems, and our internal information technology
and non-information technology systems. Because of those planning and
implementation efforts, we experienced no disruptions in our information
technology and non-information technology systems and those systems have
successfully responded to the Year 2000 date change. We did not incur any
significant expenses during 1999 in conjunction with remediating our systems. We
are not aware of any material problems resulting from Year 2000 issues, either
with our products, internal systems, or the products and services of third
parties. We will continue to monitor our mission critical computer applications
and those of our suppliers and vendors throughout the year 2000 to ensure any
latent Year 2000 matters arising are addressed promptly.
ITEM 2. DESCRIPTION OF PROPERTIES
ZiaSun's main office is located at 462 Stevens Avenue, Suite 106, Solana
Beach, California 92075. This leased office facility serves as the corporate
headquarters for ZiaSun and houses the corporate offices of the BestWay
Beverages, Inc., a wholly owned subsidiary. The leased premises consists of
approximately 4,658 square feet and is leased through December 31, 2002.
MII through its wholly owned subsidiary, Momentum Associates Limited,
leases approximately 2,000 square feet of office space in Wanchai, Hong Kong.
This office space is leased through November 30, 2000. This houses Momentum
Internet administration and development staff.
MII through its wholly owned subsidiary, Momentum Internet Phils, Inc.,
leases approximately 1,275 square fee of office space in Pasig City,
Philippines. This office space is leased on a month to month basis.
MAI leases approximately 30,500 square foot of office and industrial space
in the Clark Special Economic Zone, Philippines, Clark Field, Pampanga. This
facility houses all operations of Momentum Asia, and is leased until November
30, 2016.
OIA leases approximately 4,440 feet of office space at 5252 North Edgewood
Drive, Provo Utah which serves as administrative offices for OIA. This office
space is leased through July 20, 2004.
OIA also leases approximately 1,940 square feet of office space at 852
North 1430 West, Unit #3, Westpoint Business Park, Orem Utah. This lease is for
a term of three years, through October 31, 2001, and serves as offices for OIA's
warehouse and fulfillment center.
OIA also leases approximately 2,000 square feet at the Turnberry Office
Park, 211 East 840 South, Unit #15, Orem Utah. The premises are leased on a
month to month basis with a 60 days notice to terminate. This lease is for a
term of three years and serves as offices for OIA's inside sales staff.
21
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
ZiaSun Technologies, Inc. v. Floyd D. Schneider, et al.
------------------------------------------------------
The company is a party Plaintiff in the matter of ZiaSun Technologies, Inc.
v. Floyd D. Schneider, et al., United States District Court, Western District of
Washington, C99-1025. This action arises from the defendants alleged defamatory
campaign against the Company and its officers and directors, This alleged
cybersmear campaign involved the defendants posting of statements about the
Company and its officers and directors which are alleged to be false and
defamatory.. The Company alleges that the defendants were and are knowingly
posting false statements with the intent on negatively impacting the Company's
stock prices in order for defendants to benefit financially in short selling. To
protect the Company, its shareholders and its officers and directors, on June
24, 1999, the Company filed a civil action in the United States District Court
of Washington seeking damages and injunction relief, alleging among other
things, Securities Fraud through the defendants posting of false and misleading
defamatory statements, violation of the Washington Consumer Protection Act,
Intentional Interference with Business Expectancy, Violation of Federal RICO
Statute 28 USA Sec. 1962, and violation of Washington's Criminal Profiteering
Act. The matter is pending at present time.
ZiaSun Technologies, Inc. v. Financialweb.Com, Inc., et al.
-----------------------------------------------------------
The company is a party Plaintiff in the matter of ZiaSun Technologies, Inc.
v. Financialweb.Com, Inc., et al., Circuit Court of Seminole County, Florida,
990-1136-CA-16-G. This action arises from the defendants posting of alleged
false and defamatory article about the Company on its website known as "The
Stock Detective." The defendants allegedly knowingly posted the false and
defamatory article with the intent on negatively impacting the Company's stock
prices in order for defendants to benefit financially. The Company requested
that defendant publish a retraction but defendant has refused to do so. To
protect the Company, its shareholders and its officers and directors, on June 3,
1999, the Company filed a civil action in the Circuit Court of Seminole County
Florida, seeking damages and injunction relief. The matter is pending at present
time.
With the exception of the legal proceedings set forth above, the Company is
not presently a party to any litigation, claim, or assessment. Further, the
Company is unaware of any unasserted claim or assessment, which will have a
material effect on the financial position or future operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies, or otherwise.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
The Company's Common Stock is listed and traded on the OTC Bulletin Board
under the symbol "ZSUN". There has been relatively limited trading activity in
the Company's stock since inception. The following table represents the high and
low closing prices for the Company's Common Stock for each quarter of the fiscal
year ended December 31, 1999.
Fiscal 1999 High Low
---------------------------------------------------------------
First Quarter $17.500 $9.875
Second Quarter $13.063 $6.094
Third Quarter $13.380 $7.000
Fourth Quarter $14.630 $6.970
The above high and low trading prices reflect the adjustment as a result of
the 2-for-1 forward stock split which took effect on May 14, 1999.
22
<PAGE>
Holders
-------
There were approximately 339 holders of record of the Company's Common
Stock as of December 31, 1999.
Dividends
---------
The Company has not declared any cash dividends with respect to its common
stock, and does not intend to declare dividends in the foreseeable future. There
are no material restrictions limiting, or that are likely to limit, the
Company's ability to pay dividends on its securities.
Recent Sales of Unregistered Securities.
---------------------------------------
During the fiscal year ended December 31, 1999, ZiaSun issued and/or sold
shares of unresgistered common stock in the following transactions:
On March 25, 1999, in conjunction with the acquisition of Asia4sale.com,
Ltd., a Hong Kong Registered Company ("Asia4sale"), ZiaSun issued 100,000 (post
split adjusted) shares of restricted common stock, in exchange for 99 of the 100
shares of Asia4sale, thereby making Asia4sale virtually a wholly-owned
subsidiary of the Company. ZiaSun sold Asia4sale in December 1999. On March 31,
1999, in conjunction with the acquisition of OIA, and in exchange for all of the
capital stock of OIA, ZiaSun issued 1,000,000 (post split adjusted) shares of
"restricted" common stock, thereby making OIA a wholly-owned subsidiary of
ZiaSun. In addition, ZiaSun issued an additional 5,000,000 (post split adjusted)
shares (the "Escrow Shares") pro-rata to the shareholders of OIA. The Escrow
Shares are being held in escrow pursuant to the terms of the adjustment
provision set forth in the acquisition agreement.
On April 10, 1999, ZiaSun issued 25,000 (post-split adjusted) shares of
"restricted" common stock to Allen D. Hardman, the current President of ZiaSun
upon the exercise by Mr. Hardman of the vested portion of his stock option.
The Company believes that the issuances of said shares were exempt from
registration under the Securities Act of 1933 by reason of Section 4 (2), a
transaction not involving a public offering. No underwriters were used in any of
the above transactions.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
DECEMBER 31, 1999 AND 1998
- ---------------------------
Changes in Financial Condition
------------------------------
On March 25, 1999, the Company acquired Asia4sale by issuing restricted
common stock of the Company for virtually all of the stock of Asia4sale and
$15,000 cash. On December 31, 1999, the Company sold Asis4sale for $5,000,000
cash and 300,000 shares of Internet Ventures, Ltd. On March 31, 1999, the
Company also acquired Online Investors Advantage (OIA) for restricted common
stock of the Company and $400,000 cash. These acquisitions were accounted for as
purchases. The acquisition of OIA has made a substantial, positive contribution
to the financial condition of the Company through year-end. The balance of
current assets at December 31, 1999 was $13,497,043 compared to a balance of
$2,261,618 at December 31,1998. The current liabilities balances are $4,230,620
and $600,013 for the same periods respectively. The resulting current ratio at
December 31, 1999 is 3.2:1. The current ratio at December 31, 1998 was 3.8:1.
The increase of current assets at December 31, 1999 over December 31, 1998
is due primarily to the increase of cash from $517,781 to $11,652,505, an
increase of $11,134,724, or 2,150%. This increase is due primarily to the
$5,000,000 in cash generated from the sale of Asia4sale, the positive cash flow
generated from the operations of OIA of approximately $4,000,000 at year end,
and the cash generated from the sale of equity securities. (See further
discussion of income below.)
Current assets at December 31, 1999 also increased due to the increase of
prepaid expenses from $7,370 to $131,772, an increase of $124,402, or 1,688%.
The increase in prepaid expenses is primarily due to the advance payments by OIA
for costs such as newspaper, radio and television advertising for future
seminars. Additionally, accounts receivable increased $254,414 or 28%, from
23
<PAGE>
$899,879 at December 31, 1998, to $1,154,293 at December 31, 1999. The balance
of accounts receivable at December 31, 1999 includes primarily OIA's fees for
completed seminars which are in the process of being charged and collected by
the Company's credit card processor totalling $744,000 and the trade receivables
of MAI of approximately $323,000. The substantial portion of these balances was
collected subsequent to year-end. The increases in current assets were offset
somewhat by the decrease in marketable securities from $786,588 in 1998 to
$540,234 in 1999, a decrease of $246,354 or 31%. This decrease is due primarily
to the sale of Chequemate stock.
The balance of current liabilities at December 31, 1999 is $4,230,620 and
at December 31, 1998 is $600,013. The increase of $3,630,607, or 605%, is due
primarily to the income taxes payable at December 31, 1999 of $2,083,763
relating to the U.S. earnings of OIA. Momentum Internet is a British Virgin
Islands company, Momentum Asia is a Philippine company and Asia4sale is a Hong
Kong company. These companies are subject to income taxation of the respective
countries of their registration. OIA is a Utah corporation, and therefore
subject to United States income tax. There were no income taxes payable at
December 31, 1998. Current liabilities at December 31, 1999 also increased for a
related party payable of $690,000, convertible to common stock at the trading
value of the shares on the date of conversion. Accounts payable and accrued
expenses increased $782,744, or 130%, from $600,013 at December 31, 1998 to
$1,382,757 at December 31, 1999. The increase is primarily due to the OIA
balance of approximately $718,000 at December 31, 1999.
The balance of equipment (net) increased from $503,779 to $795,219, an
increase of $270,164, or 58% from December 31, 1998 to 1999. Purchases during
1999 primarily included the office-related equipment of OIA of $250,000 and
printing equipment of MAI of $100,000. Depreciation expense for the current year
was $205,263 compared to $89,885 for the prior year.
Other assets increased $1,711,815, or 43% from $3,962,770 at December 31,
1998 to $5,674,585 at December 31, 1999. The increase is due primarily to the
addition of $2,538,567 of goodwill, (net) resulting from the acquisition of OIA.
Goodwill is the book value given to the difference between the purchase price
and the estimated fair market value of the net assets of OIA, and is amortized
over the estimated life of 10 years. The increase of other assets attributable
to goodwill was offset by the net decrease in the receivable from a related
party of $645,586 resulting from the substantial collection of that balance in
1999. Additionally, other assets decreased at December 31 1999, $49,356 for
equity losses in BEVEX and $158,457 for the sale of investments in restricted
stock.
At December 31, 1999, the Company has no long-term debt. The Company has
generated sufficient cash flow from operations to meet its current cash
obligations. During 1999, the Company also generated substantial cash flow from
the sale of Asia4sale and from the sale of investments in securities. The
Company anticipates continued positive cash flow from existing operations during
the next twelve months, and will continue to look for ways to invest its cash
flow in acquisitions of companies and other investments that will contribute in
a positive way to the Company's operating strategy.
Results of Operations
---------------------
During 1998, the company was winding down its activities with the beverage
centers. By January 1999 those operations had entirely ceased. The operations of
Momentum Asia and Momentum Internet are not included until the fourth quarter of
1998. The December 31, 1999 operations include Momentum Asia and Momentum
Internet from January 1, 1999 forward and the operations of Online Investors and
Asia4sale from April 1, 1999 forward.
As explained previously, the Company acquired OIA on March 31, 1999. This
acquisition has had considerable impact on the operating income of the Company
since that date.
Sales for the year ended December 31, 1999 were $27,220,240 compared to
$760,529 for 1998 resulting in an increase of $26,459,711, or 3,479%. Cost of
goods sold for the year was $17,274,957, or 63% of sales, resulting in gross
profit of $9,945,283, or 37% of sales. Cost of sales for 1998 was $341,277, or
45% of sales resulting in a gross margin of $419,252, or 55% of sales.
24
<PAGE>
Operating expenses primarily include depreciation and amortization expense
and general and administrative expenses. Depreciation and amortization expense
for the year ended December 31, 1999 includes depreciation of $205,263 and
amortization of goodwill of $468,450 and deferred compensation amortization of
$10,000. The Company recorded goodwill for the October, 1998 acquisitions of
Momentum Asia and Momentum Internet and the March, 1999 acquisitions of
Asia4sale and OIA. For the year ended December 31, 1998, the Company had
depreciation expense of $89,885. General and administrative expenses were
$4,632,905 or 17% of sales for the twelve months ended December 31, 1999 and
$492,936 or 65% of sales for the same period in 1998, resulting in an increase
of $4,139,969 or 840%. The increase is due to the twelve months of operating
expenses of MAI and MII and the operating expenses of OIA from April 1 to
December 31, 1999.
Other income increased from $971,049 in 1998 to $5,442,330 in 1999, an
increase of $4,471,281 or 460%. The increase is due primarily to the gain of
$4,778,596 from the sale of Asia4sale on December 31, 1999. This increase is
offset somewhat by the decrease in realized and unrealized gains on marketable
securities from $1,248,239 in 1998 to $584,980 in 1999, a decrease of $663,259
or 53%.
CAUTIONARY FORWARD - LOOKING STATEMENT
- --------------------------------------
Statements included in this Management's Discussion and Analysis of Financial
Condition and Results of Operations, and in future filings by the Company with
the Securities and Exchange Commission, in the Company's press releases and in
oral statements made with the approval of an authorized executive officer which
are not historical or current facts are "forward-looking statements" made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 and are subject to certain risks and uncertainties that could
cause actual results to differ materially from historical earnings and those
presently anticipated or projected. The Company wishes to caution readers not to
place undue reliance on any such forward-looking statements, which speak only as
of the date made. The following important factors, among others, in some cases
have affected and in the future could affect the Company's actual results and
could cause the Company's actual financial performance to differ materially from
that expressed in any forward-looking statement: (i) the extremely competitive
conditions that currently exist in the three dimensional software development
marketplace are expected to continue, placing further pressure on pricing which
could adversely impact sales and erode profit margins; (ii) many of the
Company's major competitors in its channels of distribution have significantly
greater financial resources than the Company; and (iii) the inability to carry
out marketing and sales plans would have a materially adverse impact on the
Company's projections. The foregoing list should not be construed as exhaustive
and the Company disclaims any obligation subsequently to revise any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
25
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
ZIASUN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
CONTENTS
--------
Page
----
Independent Auditors' Report............................................. 27
Consolidated Balance Sheet............................................... 28
Consolidated Statements of Operations.................................... 30
Consolidated Statements of Stockholders' Equity.......................... 31
Consolidated Statements of Cash Flows.................................... 32
Notes to the Consolidated Financial Statements........................... 34
26
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
ZiaSun Technologies, Inc. and Subsidiaries
Solana Beach, California
We have audited the accompanying consolidated balance sheet of ZiaSun
Technologies, Inc. and Subsidiaries as of December 31, 1999 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years ended December 31, 1999 and 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ZiaSun Technologies,
Inc. and Subsidiaries as of December 31, 1999 and the results of their
operations and their cash flows for the years ended December 31, 1999 and 1998
in conformity with generally accepted accounting principles.
Jones, Jensen & Company
Salt Lake City, Utah
March 25, 2000
27
<PAGE>
<PAGE>
ZIASUN TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
ASSETS
------
<TABLE>
<CAPTION>
December 31,
1999
------------
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 11,652,505
Trade receivables, net (note 2): 1,145,960
Interest receivable 8,333
Inventory (Note 2) 18,239
Marketable securities (Note 2) 540,234
Prepaid expenses (Note 2) 131,772
------------
Total Current Assets 13,497,043
------------
EQUIPMENT (Note 2)
Printing equipment 289,443
Machinery and equipment 393,091
Office equipment 153,734
Vehicles 17,163
Leasehold improvements 138,841
Less: accumulated depreciation (197,053)
------------
Total Equipment 795,219
------------
OTHER ASSETS
Equity investment (Note 11) 254,195
Goodwill - net 4,667,623
Receivables - related parties (Note 6) 88,679
Other assets (Note 3) 664,088
------------
Total Other Assets 5,674,585
------------
TOTAL ASSETS $ 19,966,847
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
ZIASUN TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
December 31,
1999
------------
<S> <C>
CURRENT LIABILITIES
Accounts payable $ 1,382,757
Related party payable (Note 6) 690,000
Taxes payable (Note 5) 2,083,763
Deferred income 74,100
------------
Total Current Liabilities 4,230,620
------------
Total Liabilities 4,230,620
------------
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY
Common stock: 50,000,000 shares authorized of $0.001
par value, 22,205,018 shares issued and outstanding 22,205
Additional paid-in capital 12,504,547
Treasury stock, 63,200 shares (34,030)
Other comprehensive income 54,230
Deferred compensation (30,000)
Retained earnings 3,219,275
------------
Total Stockholders' Equity 15,736,227
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,966,847
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
ZIASUN TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the Years Ended
December 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
SALES, NET $ 27,220,240 $ 760,529
COST OF GOODS SOLD 17,274,957 341,277
------------ ------------
Gross Margin 9,945,283 419,252
------------ ------------
OPERATING EXPENSES
Depreciation and amortization expense 683,713 89,885
Bad debt expense 132,586 18,160
Consulting fees - related party (Note 6) 190,060 20,000
General and administrative 4,632,905 492,936
------------ ------------
Total Operating Expenses 5,639,264 620,981
------------ ------------
Gain (Loss) from Operations 4,306,019 (201,729)
------------ ------------
OTHER INCOME (EXPENSE)
Loss on equity investment (Note 12) (49,356) (165,449)
Interest expense (22,299) -
Realized gain on marketable securities (Note 10) 470,185 535,801
Unrealized gain on marketable securities (Note 10) 114,795 712,438
Rental income - 17,379
Interest and dividend income 111,749 6,524
Loss on write off of assets (6,340) (135,644)
Gain on sale of subsidiary (Note 1) 4,778,596 -
Management fees 45,000 -
------------ ------------
Total Other Income (Expense) 5,442,330 971,049
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 9,748,349 769,320
INCOME TAXES (Note 5) (3,784,110) -
------------ ------------
NET INCOME 5,964,239 769,320
------------ ------------
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustment 15,436 (2,967)
------------ ------------
NET COMPREHENSIVE INCOME $ 5,979,675 $ 766,353
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 21,769,583 17,022,767
============ ============
BASIC INCOME PER SHARE $ 0.27 $ 0.05
============ ============
FULLY DILUTED WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 25,796,000 17,122,767
============ ============
FULLY DILUTED INCOME PER SHARE $ 0.23 $ 0.04
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
ZIASUN TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Other
Common Stock Additional Compre- Deferred
-------------------------- Paid-in Treasury hensive Compen- Retained
Shares Amount Capital Stock Income sation Earnings Total
------------ ------------ ------------ ------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1997 15,800,000 $ 15,800 $ 3,576,129 $ - $ - $ (40,000) $ (3,514,284) $ 37,645
Purchase of Momentum
ASIA, Inc. and
Momentum Internet, Inc. 5,130,000 5,130 5,347,265 (70,000) 41,761 - - 5,324,156
Currency translation
adjustment - - - - (2,967) - - (2,967)
Net income for the
year ended
December 31, 1998 - - - - - - 769,320 769,320
------------ ------------ ----------- ------------ ------------ ------------ ------------ ----------
Balance,
December 31, 1998 20,930,000 20,930 8,923,394 (70,000) 38,794 (40,000) (2,744,964) 6,128,154
Purchase of
ASIA4Sale.com, Ltd. 100,000 100 249,900 - - - - 250,000
Purchase of
Online Investors
Advantage, Inc. 1,150,000 1,150 2,873,850 - - - - 2,875,000
Exercise of stock
option at $2.00
per share 25,000 25 49,975 - - - - 50,000
Amortization of
deferred compensation - - - - - 10,000 - 10,000
Proceeds from the
sale of the Company's
common stock by a
Subsidiary - - 407,428 35,970 - - - 443,398
Adjustment for
forward stock split 18 - - - - - - -
Currency translation
adjustment - - - - 15,436 - - 15,436
Net income for
the year ended
December 31, 1999 - - - - - - 5,964,239 5,964,239
------------ ------------ ------------ ------------ ------------ ------------ ------------ ----------
Balance,
December 31, 1999 22,205,018 $ 22,205 $ 12,504,547 $ (34,030) $ 54,230 $ (30,000) $ 3,219,275 $15,736,227
============ ============ =========== ============ ============ ============ ============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
ZIASUN TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Years Ended
December 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 5,964,239 $ 769,320
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 683,713 89,885
Bad debt expense 132,586 18,160
Loss on equity investment 49,356 165,449
Unrealized gain on marketable securities (114,795) (712,438)
Realized gain on marketable securities (470,185) (535,801)
Gain on sale of subsidiary (4,778,596) -
Loss on write off of assets 6,340 135,644
Currency translation adjustment (15,436) 2,967
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (387,000) (564,890)
(Increase) decrease in inventory 31,761 (22,409)
(Increase) decrease in prepaids (124,402) (3,685)
Purchase of marketable securities (445,446) -
Sale of marketable securities 1,435,237 1,248,239
Payment of rental deposits (26,647) -
Increase (decrease) in accounts payable and
accrued expenses 332,842 (17,362)
Increase (decrease) in taxes payable 2,083,763 -
Increase (decrease) in deferred income 74,100 -
(Increase) decrease in receivable - related party receivable 645,586 -
------------ ------------
Net Cash Provided by (Used In) Operating Activities 5,077,016 (573,079)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of subsidiary 5,000,000 -
Purchases of property and equipment (405,813) (301,625)
------------ ------------
Net Cash Provided by Investing Activities 4,594,187 (301,625)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of the Company's common stock by a subsidiary 443,398 -
Proceeds from borrowings - related parties 690,000 -
Cash acquired in purchase of subsidiaries 280,123 173,298
Proceeds from exercise of stock options 50,000 -
------------ ------------
Net Cash Provided by Financing Activities 1,463,521 173,298
------------ ------------
NET INCREASE (DECREASE) IN CASH 11,134,724 444,752
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 517,781 73,029
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 11,652,505 $ 517,781
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
ZIASUN TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash Paid For:
Interest $ 22,299 $ -
Income taxes $ - $ -
Schedule of Non-Cash Financing Activities:
Purchase of subsidiaries for common stock $ 3,125,000 $ 5,534,156
Conversion of note receivable to treasury stock $ - $ 70,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
ZIASUN TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
The financial statements presented are those of ZiaSun Technologies, Inc.
(formerly BestWay U.S.A., Inc.) (the "Company"). The Company was
incorporated in the State of Nevada on March 19, 1996. The Company is a
holding company in the business of acquiring companies and operations with
business models developed around the Internet. The Company was considered a
development stage company as defined in SFAS No. 7 until the acquisition of
Momentum Asia, Inc. and Momentum Internet, Inc. in 1998. The Company
changed its name to "BestWay U.S.A., Inc." on April 17, 1997 and,
subsequently, changed its name to Ziasun Technologies, Inc. during 1998. On
September 10, 1998 in connection with the agreement and plan of
reorganization described below, the shareholders of the Company authorized
and the Company completed a reverse stock split of 1-for-2. On May 14,
1999, the Company's common stock was forward split on a 2 shares for 1
share basis. All references to shares of common stock have been
retroactively restated.
Momentum Internet, Inc. (MII), a wholly-owned subsidiary, was incorporated
under the laws of the British Virgin Islands on November 7, 1997. MII
controls a range of Internet products and services, including a copyrighted
international on-line stock trading web-site, a premium web-based e-mail
service, an advertising banner network, a finance web-site and an
Asia-focused search engine. MII has its main offices in Hong Kong.
Momentum Asia, Inc. (MAI), a wholly-owned subsidiary, was incorporated in
Manilla, Philippines on September 6, 1994 under the name of New Age
Publications, Inc. On June 17, 1998, the name was changed to Momentum Asia,
Inc. MAI provides a wide range of compatible graphic design, writing,
printing, database management, direct mailing and e-mail customer service
operations.
BestWay Beverages, Inc. (BBI), a wholly-owned subsidiary, was incorporated
in the State of Nevada on September 23, 1998. BBI holds the exclusive
distribution franchise rights in the U.S. and Mexico for a patented
in-store beverage center. BBI is a U.S. based corporation.
On October 5, 1998, the Company completed an agreement and plan of
reorganization whereby Ziasun issued 5,130,000 shares of its common stock
in exchange for all the outstanding common stock of MAI and MII. 4,000,000
shares were issued for MAI and 1,130,000 shares were issued for MII. The
reorganization was accounted for as a purchase of MAI and MII. At the time
of the acquisition, Ziasun had 15,800,000 shares outstanding. The financial
statements of Ziasun reflected a license valued at $50,000 and minimal
liabilities.
Swiftrade, Inc. (SI), a wholly-owned subsidiary of MII, was incorporated
under the laws of the British Virgin Islands in 1998 to operate an online
trading and financial website. It was inactive in 1998 and 1999.
Online Investors Advantage, Inc. (Online) was incorporated under the laws
of the State of Utah in 1997 to engage in the business of providing
workshops to individuals regarding investing in the stock market.
34
<PAGE>
ZIASUN TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS (Continued)
On March 31, 1999, the Company entered into an Acquisition Agreement and
Plan of Reorganization under which the Company acquired Online Investors
Advantage, Inc. (OIA), a Utah corporation. OIA is in the business of
training individuals how to effectively use the financial planning and
investment tools available on the internet to manage their own investment
portfolios. The training is structured around a five-step discipline, which
includes searching for an investment, evaluating the investment and
assessing the risk, timing the purchase, establishing an exit point and
monitoring the investment. This is done through live workshops, and
video-based, self-directed home learning programs, which include the use of
OIA's proprietary website, www.investortoolbox.com. In exchange for all of
the capital stock of OIA, the Company issued 1,000,000 (post-split
adjusted) shares of restricted common stock and paid $400,000 in cash, all
of which was distributed pro-rata to the shareholders of OIA, thereby
making OIA a wholly-owned subsidiary of the Company. In addition, the
Company issued 5,000,000 (post-split adjusted) shares pro-rata to the
shareholders of OIA. Those shares are currently being held in escrow in
accordance with the terms of the acquisition agreement, in the event that
the actual earnings of OIA are less than $2,500,000, for the period from
April 1, 1999 through March 31, 2000, then the total number of shares being
held in escrow shall be reduced on a one-share basis for each $0.50 of
actual earnings of OIA less than $2,500,000. In the event that the actual
earnings of OIA is greater than $2,500,000, the Company shall issue such
additional shares on the basis of one additional share for each $0.50 of
actual earnings of OIA greater than $2,500,000. The acquisition was
completed on April 7, 1999. The acquisition of OIA was accounted for as a
purchase. The contingent shares are not recorded as being issued in
accordance with APB 16, paragraphs 79 and 80.
Asia4sale was incorporated on April 9, 1996, duly organized, validly
existing and in good standing under the laws of Hong Kong. Asia4sale was
organized to buy and sell merchandise over the internet, buying and selling
goods directly from manufacturers in Asia. To be competitive in the Asian
market, the Company has acquired the assets of Pacific Barter, Ltd., a
company specializing in barter in Asia.
On March 25, 1999, the Company entered into an Acquisition Agreement and
Plan of Reorganization, under which the Company acquired Asia4sale.com,
Ltd., ("Asia4sale"). In exchange for 99 of the 100 shares of Asia4sale, the
Company issued 100,000 (post-split adjusted) shares of restricted common
stock and paid $15,000 cash to the majority holder of the capital stock of
Asia4sale, thereby virtually making Asia4sale a wholly-owned subsidiary of
the Company. In addition, the Company made an unsecured loan of $50,000 to
Asia4sale upon closing of the acquisition and agreed to issue one(1)
additional share of restricted common stock for each dollar ($1.00) of
actual earnings of Asia4sale for the period from April 1, 1999 through
September 30, 2000. Asia4sale is in the business of Internet related
international e-commerce. In addition, the Company was granted the option
to repurchase the 100,000 shares issued in the acquisition of Asia4sale for
a period of one (1) year at a price of $1.50 per share in the event that
Asia4sale fails to reach positive cash flow from its operations by
September 30, 2000. The acquisition was completed on May 12, 1999. The
acquisition of Asia4sale was accounted for as a purchase. The contingent
shares are not recorded as being issued in accordance with APB16,
paragraphs 79 and 80.
On December 31, 1999, the Company sold Asia4Sale for $5,000,000 cash and
300,000 shares of Internet Ventures, Ltd (IVL) a Samoan investment company.
No value was attributed to the shares of IVL because it is a private
company. The Company realized a gain of $4,778,596 on the sale.
35
<PAGE>
ZIASUN TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's financial statements are prepared using the accrual method of
accounting. The Company has elected a December 31 year end.
b. Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less to be cash equivalents. The detail of cash and cash
equivalents is as follows:
December 31,
-------------
1999
-------------
Demand Deposits:
U.S. $ 5,283,311
Foreign 164,043
-------------
5,447,354
-------------
Money Market Funds:
U.S. 5,804,011
Foreign -
-------------
5,804,011
-------------
Certificates of Deposit:
U.S. -
Foreign 400,735
-------------
400,735
-------------
Cash on Hand:
U.S. -
Foreign 405
-------------
405
-------------
TOTAL $ 11,652,505
=============
c. Inventory
Inventories of raw materials are stated at the lower of cost or market. The
cost of the inventory includes the purchase price and direct costs such as
freight-in.
d. Accounts Receivable
Accounts receivable are shown net of the allowance for doubtful accounts.
The allowance was $43,906 and $36,320 at December 31, 1999 and 1998,
respectively.
e. 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
financials statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
36
<PAGE>
ZIASUN TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
f. Foreign Operations
The Company currently conducts printing, database management, customer
service and direct mailing activities in the Philippines, a country with a
developing economy. The Philippines have experienced recently, or are
experiencing currently, economic or political instability. Hyperinflation,
volatile exchange rates and rapid political and legal change, often
accompanied by military insurrection, have been common in this and certain
other emerging markets in which the Company may conduct operations. The
Company may be materially adversely affected by possible political or
economic instability in any one or more of those countries. The risks
include, but are not limited to terrorism, military repression,
expropriation, changing fiscal regimes, extreme fluctuations in currency
exchange rates, high rates of inflation and the absence of industrial and
economic infrastructure. Changes in investment policies or shifts in the
prevailing political climate in any of the countries in which the Company
conducts exploration and development activities could adversely affect the
Company's business. Operations may be affected in varying degrees by
government regulations with respect to production restrictions, price
controls, export controls, income and other taxes, expropriation of
property, maintenance of claims, environmental legislation, labor, welfare
benefit policies, land use, land claims of local residents, water use and
safety. The effect of these factors cannot be accurately predicted.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
g. Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful life or lease term of
the related asset. Estimated useful lives are as follows:
Printing equipment 7 years
Machinery and equipment 5 years
Office equipment 5 years
Vehicles 10 years
Leasehold improvements 5 years
h. Marketable Securities
The Company has classified its marketable securities as "trading"
securities. Trading securities are stated at fair value. Realized and
unrealized gains and losses are included in other income.
Marketable securities at December 31, 1999 were $540,234 and have been
included in current assets.
37
<PAGE>
ZIASUN TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
i. Basic Income per Share of Common Stock
The basic income per share of common stock is based on the weighted average
number of shares issued and outstanding at the date of the consolidated
financial statements. Fully diluted income per share of common stock as
disclosed in the accompanying consolidated statements of operations
includes the stock options discussed in Note 9, the convertible debt
discussed in Note 6 and the contingent shares disclosed in Note 1 as common
stock equivalents.
<TABLE>
<CAPTION>
December 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Basic EPS Computation
---------------------
Numerator $ 5,964,239 $ 769,320
------------ ------------
Denominator:
Weighted common shares outstanding 21,769,583 17,022,767
------------ ------------
Basic EPS $ 0.27 $ 0.05
============ ============
Diluted EPS Computation
-----------------------
Numerator $ 5,964,239 $ 769,320
------------ ------------
Denominator:
Weighted common shares outstanding 21,769,583 17,022,767
Employee options 75,000 100,000
Purchase of subsidiaries (contingent) 3,847,917 -
Convertible debt 103,500 -
------------ ------------
Total Shares 25,796,000 17,122,767
------------ ------------
Diluted EPS $ 0.23 $ 0.04
============ ============
</TABLE>
38
<PAGE>
ZIASUN TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
j. Foreign Currency Translation
Monetary assets and liabilities denominated in foreign currencies are
translated into United States dollars at the period and exchange rate.
Non-monetary assets are translated at the historical exchange rate and all
income and expenses are translated at the exchange rates prevailing during
the period. Foreign exchange currency translation adjustments are included
in the stockholders' equity section.
k. Fair Value of Financial Instruments
As of December 31, 1999 and 1998, the fair value of cash, accounts
receivable and accounts and advances payable, including amounts due to and
from related parties, approximate carrying values because of the short-term
maturity of these instruments.
l. Advertising
Advertising costs are expensed as incurred.
m. Research and Development
The Company expenses immediately research and development costs incurred
for its own benefit. Research and development costs approximated $73,062
and $33,657 in 1999 and 1998, respectively. These costs are included in
general and administrative expense. The cost of research and development
performed for customers is included in the cost of sales.
n. Principles of Consolidation
The consolidated financial statements include the Company and its
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
o. Change in Accounting Principle
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which requires companies to record
derivatives as assets or liabilities, measured at fair market value. Gains
or losses resulting from changes in the values of those derivatives would
be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. The key criterion for hedge accounting is
that the hedging relationship must be highly effective in achieving
offsetting changes in fair value or cash flows. SFAS No. 133 is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999. The
adoption of this statement had no material impact on the Company's
financial statements.
39
<PAGE>
ZIASUN TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTANT POLICIES (Continued)
p. Stock Options
The Company accounts for its employee stock options under the fair value
method of Statement of Financial Accounting Standards No. 123.
q. Treasury Stock
The Company accounts for its investment in treasury stock using the cost
method. The proceeds are charged to paid-in capital.
r. Revenue Recognition Policy
The Company recognizes revenue upon delivery of the product and acceptance
of the product or services by the customer. Fees received for seminars are
deferred until the seminar is completed.
s. Goodwill
The Company has recorded goodwill on the purchases of MAI, MII, Online and
Asia4sale for the excess of the purchase price over the fair value of the
assets acquired and the liabilities assumed. The goodwill is amortized
using the straight-line method over 10 years. The goodwill is evaluated
annually for any impairment. If an impairment is recognized it is charged
to expense in that period. Goodwill related to the purchase of Asia4sale
has been charged to the sale of Asia4sale on December 31, 1999.
t. Prepaid Expenses and Deferred Revenues
The Company capitalizes costs incurred in preparing for its seminars. These
costs include education materials and meeting site costs. The advance fees
the Company receives are also deferred until the seminar is completed. At
the end of the seminar, the fees are recognized as revenues and the costs
are expensed. The detail of these capitalized prepaid expenses are
summarized as follows:
December 31,
1999
------------
Travel $ 5,854
Postage 43,436
Instructor salary 3,675
Meeting costs 9,067
Prepaid insurance 54,750
Prepaid rent 11,859
Other 3,131
------------
Total $ 131,772
40
<PAGE>
ZIASUN TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 3 - OTHER ASSETS
Other assets consisted of the following at December 31, 1999:
Memberships in country clubs $ 142,857
Prepaid rental deposits 54,818
Mortgage note receivable 250,000
License 50,000
Investment in restricted common stock 166,413
------------
Total $ 664,088
============
NOTE 4 - COMMITMENTS AND CONTINGENCIES
The Company currently leases a large facility under a 20 year
non-cancelable operating lease in the Philippines. The Company also leases
office space in California and Hong Kong under 5-year renewable leases
which began in 1998. Rent expense for the years ended December 31, 1999 and
1998 was $395,873 and $198,788 respectively.
Future minimum lease commitments are as follows:
2000 $ 331,308
2001 244,282
2002 242,749
2003 107,543
2004 80,294
Thereafter 1,435,820
------------
Total $ 2,441,996
============
The Company has an employment agreement with an officer for 5 years
beginning on July 1, 1997. The minimum salary is $120,000 per year, which
is to be evaluated annually.
NOTE 5 - INCOME TAXES
For the years ended December 31, 1999 and 1998, the provision for U.S. and
foreign income taxes consisted of the following:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Current:
U.S. $ 3,756,410 $ -
Foreign 27,700 -
Deferred:
U.S. - -
Foreign - -
------------ ------------
$ 3,784,110 $ -
============ ============
</TABLE>
41
<PAGE>
ZIASUN TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 5 - INCOME TAXES (Continued)
A reconciliation of income taxes at the federal statutory rate to the
effective tax rate is as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Income taxes computed at the U.S. statutory
rate $ 4,000,915 $ 307,700
Benefit of net income not subject to taxing
jurisdictions (74,600) (307,700)
Benefit of operating loss carryforward (142,205) -
------------ ------------
Taxes on income $ 3,784,110 $ -
============ ============
</TABLE>
The Company has no deferred tax liabilities or assets. The permanent
difference due to income not being subject to taxing jurisdictions pertains
to the British Virgin Islands where there is no income tax.
NOTE 6 - RELATED PARTY TRANSACTIONS
a. Receivables
During 1998 the Company had a receivable from a related party in the amount
of $734,265. The full amount was collected in 1999. At December 31, 1999
the Company had related party receivables of $88,679. The receivables are
non-interest bearing, due on demand and unsecured.
b. Officer Compensation
The Company's president is compensated for his services under a consulting
contract with a company which he controls. The contract provides for
$10,000 per month in consulting fees. Other officers of the Company were
paid a total of $70,060 in consulting fees in addition to their base
salaries during 1999.
c. Convertible Debt
In 1999, the Company received $690,000 in advances from shareholders. The
advances were non-interest bearing and unsecured. In 2000, the Company
agreed to convert the advances to common stock at the trading value of the
shares on the date of conversion.
NOTE 7 - ECONOMIC DEPENDENCE AND MAJOR CUSTOMERS
During 1998 the Company's marketing arrangement with one customer accounted
for approximately 26% of the Company's revenue. Sales to another customer
made up approximately 24% of the net sales in 1998. During 1999 the Company
had no customers which made up more than 10% of net sales.
42
<PAGE>
ZIASUN TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 8 - STOCK OPTIONS
On May 30, 1997, the Company gave its vice-president the option to purchase
100,000 shares of its common stock at $2.00. At the time of the granting of
the option, the stock was trading at approximately $2.40 per share. The
Company values the options at fair market value. Fair market value is
determined using the Black-Scholes option pricing model. The following
assumptions were used: risk free interest rate of 6%, four year expected
life, 35% expected volatility, and no expected dividends. Accordingly,
deferred compensation and contributed capital of $40,000 was recorded
during 1998. The options vest in 25,000 share increments for each year of
service beginning in 1999. The Company will record as expense $10,000 per
year for the next 4 years as the options vest.
NOTE 9 - BUSINESS SEGMENTS
Effective December 31, 1998, the Company adopted SFAS No. 131, "Disclosure
about Segments of an Enterprise and Related Information." Prior period
amounts have been related to conform to the requirements of this statement.
The Company conducts its operations principally in the industry of graphic
design, writing, printing, database management, direct mailing and e-mail
customer service operations through its Momentum Asia, Inc. subsidiary,
e-commerce through its Momentum Internet, Inc, and Asia4sale, Ltd.
subsidiaries and online and offline investor education services through its
Online Investors Advantage, Inc. subsidiary.
Certain financial information concerning the Company's operations in
different industries is as follows:
<TABLE>
<CAPTION>
Online
For the Investors
Years Ended Momentum Momentum Advantage Asia4sale Corporate
December 31, Asia, Inc. Internet, Inc. Inc. .com, Ltd Unallocated Total
------------ ------------ -------------- ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Net sales 1999 $ 1,791,528 $ 1,739,960 $23,562,420 $ 69,162 $ 57,170 $27,220,240
1998 312,195 448,334 - - - 760,529
Operating income (loss)
applicable to industry
segment 1999 (128,400) (482,428) 6,061,066 62,097 (1,206,316) 4,306,019
1998 (196,883) 148,306 - - (153,152) (201,729)
General corporate
expenses not allocated
to industry segment 1999 - - - - 1,206,316 1,206,316
1998 - - - - 153,152 153,152
Other income
(expenses) including
interest and gain
on sale of securities 1999 682,215 12,217 37,350 67,654 4,642,894 5,442,330
1998 1,106,693 - - - (135,644) 971,049
Operating assets 1999 4,314,785 638,464 5,084,881 59,740 9,868,977 19,966,847
</TABLE>
43
<PAGE>
ZIASUN TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 9 - BUSINESS SEGMENTS (Continued)
The corporate unallocated column represents the costs incurred by the
parent company which are unrelated to the operations of the subsidiaries.
Such costs included administrative salaries, professional services and
gains on sales of subsidiary.
NOTE 10 - MARKETABLE SECURITIES
The following is a summary of the Company's activity in marketable
securities for the year ended December 31, 1999:
<TABLE>
<CAPTION>
Beginning Ending
Balance Realized Unrealized Balance
Dec. 31, Gain Gain Dec. 31,
1998 Transfer Purchases Sales (Loss) (Loss) 1999
----------- ----------- ---------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Marketable
Securities
Titan - 35,760 2,105 (25,423) (10,337) (1,107) 998
Chequemate 774,723 - - (688,588) (46,843) 96,420 135,712
Books a Million 11,865 - - - - (9,404) 2,461
Compaq - - 9,488 - - (4,075) 5,413
Lucent - - 15,718 - - 5,282 21,000
E-trade - - 12,303 - - (1,853) 10,450
Dell - - 11,010 - - (810) 10,200
Microsoft - - 8,701 - - 2,974 11,675
AT&T - - 18,355 - - 1,970 20,325
Citigroup - - 21,474 - - 6,370 27,844
Home Depot - - 20,701 - - 10,237 30,938
Johnson & Johnson - - 19,928 - - (1,278) 18,650
Odwalla - - 147,984 - - (29,818) 118,166
UAL - - 20,195 - - 3,074 23,269
Genstar - - 55,686 - - 15,564 71,250
E-Group - - 4,132 - - (2,042) 2,090
AOL - - 4,386 - - 166 4,552
Loraca - - 4,616 (2,116) (384) 23,125 25,241
Harcourt - - 5,463 (13,562) 8,099 - -
Coms - - 1,266 (713) (553) - -
Barnes & Noble - - 2,433 (1,793) (640) - -
Xnet - - 9,157 (8,184) (973) - -
Barnes & Noble.com - - 3,983 (3,030) (953) - -
RH - - 18,360 (27,614) 9,254 - -
Perot Systems - - 10,400 (20,904) 10,504 - -
Yahoo - - 17,602 (18,310) 708 - -
----------- ----------- ----------- ----------- ----------- ----------- ------------
Total 786,588 35,760 445,446 (810,237) (32,118) 114,795 540,234
----------- ----------- ----------- ----------- ----------- ----------- ------------
Restricted
Common Stock
Laraca 289,110 - - (625,000) 502,303 - 166,413
Titan 35,760 (35,760) - - - - -
----------- ----------- ---------- ----------- ----------- ----------- ------------
Total 324,870 (35,760) - (625,000) 502,303 - 166,413
----------- ----------- ---------- ----------- ----------- ----------- ------------
$470,185 $ 114,795
=========== ===========
</TABLE>
44
<PAGE>
ZIASUN TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 11 - EQUITY INVESTMENT
The Company accounts for its investment in Bevex, Inc. using the equity
method of accounting. The Company owned 6,700,000 shares at December 31,
1999 and 1998.
Cost $ 469,000
Losses - 1998 (165,449)
- 1999 (49,356)
--------------
Net $ 254,195
==============
NOTE 12 - PURCHASE OF SUBSIDIARIES
A summary of the purchase of Asia4sale and Online Investors Advantage, Inc.
is as follows:
<TABLE>
<CAPTION>
Finders
Total Shares Asia4sale Online
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Goodwill $ 3,391,417 $ 375,000 $ 265,000 $ 2,751,417
Current assets =========== - - 339,757
Property and equipment - - 94,777
Current liabilities - - (285,951)
----------- ------------ ------------
Total Purchase Price $ 375,000 $ 265,000 $ 2,900,000
=========== ============ ============
Cash $ - $ 15,000 $ 400,000
Common stock (at $2.50 per share) 375,000 250,000 2,500,000
----------- ------------ ------------
Total Purchase Price $ 375,000 $ 265,000 $ 2,900,000
=========== ============ ============
</TABLE>
These purchases were valued at the trading price of the of the Ziasun
shares at the date of acquisition.
The accompanying proforma statement of operations has been prepared as
though Online was acquired on January 1, 1999. The summarized statement of
operations of the Company includes the operations of Online from April 1,
1999 through December 31, 1999. The summarized statements of operations of
Online for the three months ended March 31, 1999 is included below as a
proforma adjustment. The summarized statement of operations of Asia 4sale
from April 1, 1999 through December 31, 1999 is eliminated below as a
proforma adjustment because it was sold as of December 31, 1999.
45
<PAGE>
ZIASUN TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 12 - PURCHASE OF SUBSIDIARIES (Continued)
<TABLE>
<CAPTION>
Ziasun Proforma
Technologies Adjustments
Inc. and Increase Proforma
Subsidiaries Online Asia4Sale (Decrease) Consolidated
------------ ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES $ 27,220,240 $ 4,701,227 $ (1,242) $ - $ 31,920,225
COST OF SALES 17,274,957 3,754,850 - - 21,029,807
------------ ------------ -------------- ------------ ------------
GROSS PROFIT 9,945,283 946,377 (1,242) - 10,890,418
------------ ------------ -------------- ------------ ------------
OPERATING EXPENSE
Depreciation and amortization 683,713 6,133 (28,283) 74,512 736,075
General and administrative 4,955,551 302,600 (73,063) - 5,185,088
------------ ------------ -------------- ------------ ------------
Total Operating Expenses 5,639,264 308,733 (101,346) 74,512 5,921,163
------------ ------------ -------------- ------------ ------------
OPERATING INCOME (LOSS) 4,306,019 637,644 100,104 (74,512) 4,969,255
------------ ------------ -------------- ------------ ------------
OTHER INCOME
Loss on equity investment (49,356) - - - (49,356)
Gain on marketable securities 584,980 - - - 584,980
Gain on sale of security 4,778,596 - - - 4,778,596
Other income (expense) 128,110 3,022 (677) - 130,455
------------ ------------ -------------- ------------ ------------
Total Other Income 5,442,330 3,022 (677) - 5,444,675
------------ ------------ -------------- ------------ ------------
INCOME BEFORE INCOME TAXES 9,748,349 640,666 99,427 (74,512) 10,413,930
INCOME TAXES (3,784,110) (176,800) - - (3,960,910)
------------ ------------ -------------- ------------ ------------
NET INCOME $ 5,964,239 $ 463,866 $ 99,427 $ (74,512) $ 6,453,020
============ ============ ============== ============ ============
The proforma financial statements are prepared to include the amortization
of goodwill from January 1, 1999 to March 31, 1999.
Amortization expense $ 74,512
Accumulated amortization - goodwill (74,512)
------------
$ -
============
To record 1 year of amortization expense based on a ten-year life.
($2,980,467 x 3/120)
</TABLE>
NOTE 13 SUBSEQUENT EVENT
In accordance with the terms of the acquisition agreement for OIA the former
shareholders of OIA are to receive 1 share of the Company's common stock for
each $0.50 of earnings before interest, income taxes, depreciation, and
amortization for the year from April 1, 1999 through March 31, 2000. OIA's
earnings as defined above were $10,910,076. Accordingly, the Company would owe
21,820,152 shares of its common stock at March 31, 2000. The value of the shares
at March 31, 2000 was approximately $250,000,000. This value would be added to
the goodwill on the balance sheet of the Company. The Company is attempting to
renegotiate the terms of the transaction to issue less shares for additional
cash consideration. However, no agreement has been reached at the date of this
audit report.
46
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There has been no change of the independent auditors of the Company and
there are no disagreements with the independent auditors of the Company or its
subsidiaries.
PART III.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16 (a) OF THE EXCHANGE ACT
See Item 11 for information on the beneficial ownership of the Company's
securities.
(a) Identity of Directors and Executive Officers.
<TABLE>
<CAPTION>
Name and Address Age Position Term Served Since
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allen D. Hardman 58 President, CEO 1 Year February 25, 2000
462 Stevens Avenue and Director October 5, 1998
Suite 106
Solana Beach, CA 92075
D. Scott Elder 41 Chairman of 1 Year June 1, 1999
825 North 1430 West the Board;
Orem, UT 84057 Director 1 Year May 11, 1999
Anthony L. Tobin 53 Vice President; 1 Year February 25, 2000
12A, Pacific Bank Centre Chief Operating
56 Gloucester Road Officer of Asia
Wanchai, Hong Kong Operations;
Director October 5, 1998
Ross W. Jardine 38 Director 1 Year April 7, 1999
116 S. Pfeifferhorn Drive
Alpine, Utah 84004
Hans Von Meiss 53 Director 1 Year January 17, 2000
Rebwiesstrasse 31
8702 Zollikon Switzerland
Dennis E. McGrory 52 Secretary 1 Year February 25, 2000
462 Stevens Avenue
Solana Beach, CA 92075
</TABLE>
There are no arrangements or understandings between any of the directors or
executive officers, or any other person or person pursuant to which they were
selected as directors and/or officers.
Allen D. Hardman, 58, was appointed as a Director and the Vice President of
the Company on October 5, 1999. On February 25, 2000 Mr. Hardman was appointed
as President and Chief Executive Office of the Company, Mr. Hardman earned an
Industrial Engineering Technical Diploma from the University of Utah in 1966,
and a Bachelors Degree in Business Administration from California State
University in 1975. Mr. Hardman served as the Managing Director of Business
Relations for Roeslein & Associates from June 1993 through June 1997. Mr.
Hardman was the Vice President of Operations of Bestway USA from July 1997 until
the Company's spin-off of Bestway USA in October 1998. Mr. Hardman has 35 years
of varied business experience, some with small companies and some with
mid-to-large corporations. His work experience includes president for a company
furnishing pre-assembled manufacturing systems on a global basis, director of
business development for industrial manufacturing systems, national sales
manager for systems products, manufacturing engineering, product and systems
engineering, consulting engineering, operations management, project management
for multi-million dollar projects installed worldwide, manufacturing quality
control and customer service management.
47
<PAGE>
During the last several years, and particularly the last two years, Mr.
Hardman has restructured several small businesses to either establish their
viability as an enterprise and/or increase their operating proficiency and
potential for profitability. He has also been intimately involved in identifying
and establishing some strategic partner alliances and/or joint ventures. This
allowed the companies involved to improve their respective competitive
position(s) in the marketplace through improved product or intellectual property
designs, which resulted from the synergy realized by combining their individual
product offerings.
D. Scott Elder, 41, was elected as a director of the Company in May 1999,
and as the Chairman of the Board in June 1999. From 1994 to 1997, Mr. Elder
owned and operated two consulting businesses, D. Scott Elder & Associates and
The Business Alliance Company, which developed marketing and training programs.
In 1998 Mr. Elder continued to operate the consulting business of D. Scott Elder
& Associates and founded OIA with Ross W. Jardine. Mr. Elder served as the
President of OIA until his appointment as the CEO and Chairman of the Board of
the Company in June 1999. Mr. Elder has a degree in Communications from Brigham
Young University and an M.B.A. from the University of Phoenix in 1997. Mr. Elder
is also currently the Vice President of Online Investors Advantage, Inc., a Utah
Corporation ("OIA"), a company he co-founded with Ross Jardine in 1997. OIA
provides educational workshops and video-based home study training programs that
teach people how to use its Investor Toolbox web site in order to make sound
stock investing decisions and manage their own stock investments. OIA was
recently acquired by the Company.
Before devoting full time to OIA, Mr. Elder was the owner of The Business
Alliance Company, which developed joint-venture marketing and training programs.
Some of the companies Mr. Elder has developed joint-venture projects with
include General Mills, Procter & Gamble, Rubbermaid, and Zane Publishing, a
company that markets educational programs through Amway.
Mr. Anthony Tobin, 53, was appointed as a Director of the Company on
October 5, 1998 and as the Vice President of the Company and Chief Operating
Officer of Asia Operations on February 25, 2000. Mr. Tobin is also President of
Momentum Internet. From 1994 through November 1997, Mr. Tobin was the Managing
Director of Momentum Campaigns Ltd., Hong Kong, an advertising and public
relations consultancy company. In November 1997 Momentum Internet Incorporated
was formed to specialize in Internet projects. Mr. Tobin has served as the
President of Momentum Internet from 1997 to present. In May 1998 Momentum
Associates Ltd., a subsidiary of Momentum Internet, was formed to handle the
operations of Momentum Internet in Hong Kong. Mr. Tobin has more than 25 years
experience in Asia (Hong Kong, Singapore, and the Philippines) -- in journalism-
publishing, public relations, marketing, advertising, government information.
and the Internet. He was the former senior information communications officer in
the Hong Kong and Singapore governments. Mr. Tobin reported to the Prime
Minister's office in Singapore, advising on domestic and international publicity
policies and implementing new strategies in the Ministry of Information. He has
spent the last three years developing and marketing the Momentum Internet
Incorporated product roster. Mr. Tobin is also a Director and Manager of
Crossbow Consultants Ltd., an Internet publishing company, which has a
consulting, contract with Momentum Internet Incorporated, a subsidiary of the
Company.
Ross W. Jardine, 38, was appointed as a director of the Company on April 7,
1999 and is also the President of Online Investors Advantage, Inc., a Utah
Corporation ("OIA") a wholly owned subsidiary of the Company. Mr. Jardine
graduated cum laude from Brigham Young University in 1987 with a degree in
communications. In 1990 Mr. Jardine founded Jacobson & Jardine, Inc. a Sports
Marketing and Promotion company. Mr. Jardine served as President until August
1994 during which time Mr. Jardine was responsible for operations and the
developed and marketed licensed products for major sporting events. These
clients included National Football League, Indy 500, Kentucky Derby, America's
Cup 1992, Nabisco, Albertsons, Coca Cola, Fisher Price, American Home Products,
RJ Reynolds and many others. In 1994 he became interested in the Internet and
moved his business online. This experience led him to start a consulting
business focused on teaching other business owners how to get their own
businesses online. Mr. Jardine founded Electronic Marketing Services (later
renamed iMALL, Inc) in 1994 and served as President until January 1996. From
January 1996 through August 1997 Mr. Jardine served as speaker/consultant for
iMALL. iMALL went public in 1996 was recently sold to Excite@home for $425
million.
48
<PAGE>
In 1997 Mr. Jardine left iMALL to focus on creating a program to train
investors in using the Internet to invest. Together with D. Scott Elder, Mr.
Jardine founded OIA, (www.i-advantage.com), a company focused on teaching people
how to invest using their personal computers and the Internet. The Company
quickly established itself as a leader in online investor education, and is
highly recommended by the Security Blanket.com, (www.thesecurityblanket.com.)
OIA conducts dozens of workshops and seminars in cities around the country where
investors learn to use the most advanced investment tools available on the
Internet. Mr. Jardine serves as President of OIA and conducts many of the
training programs put on by OIA.
Hans von Meiss, 53, was appointed as a Director of the Company on January
17, 2000. Mr. Meiss received a degree in economics from the University of St.
Gallen in Switzerland in 1973 and masters in business administration at INSEAD,
Fontainebleau, France. For a period of seven years from 1984 to 1991, Mr. Meiss
served as an investment banker with Bankers Trust International Ltd. and Chase
Manhattan Ltd. in London. Mr. Weiss served as the CEO of Dr. Ing Koenig Ag, a
leading Swiss service center for flat steel and industrial fasteners, in Zurich
for a period of four years. Mr. Meiss for a period of three years from 1991 to
1994 served as a financial and management consultant. In 1994, he was the CEO of
Holding Co., a Dutch industrial group of companies, for a term of three years.
Mr Meiss also served as the CEO of Swiss Textile Group for a period of three
years beginning in 1997. Mr. Meiss has experience in investments in internet
related businesses. He as served on the Board of UTO Bank, a private bank in
Zurich, CAG, an industrial concern based in Vienna, McDaniels S.A., a financial
consulting firm in Lausanne, and as a member of the board of his own company, G.
Von Meiss AG.
Dennis E. McGrory, was appointed as the Secretary of the Company on
February 25, 2000. Mr. McGrory is an Air Force veteran where he served as a
court reporter and administrative specialist. Overall, Mr. McGrory has 30 years
of combined administrative experience, including Assistant to the City Editor
for a major newspaper, Legal Transcriber, Legal Assistant, Paralegal, and more
recently Office Manager for a large law firm wherein he was responsible for all
administrative functions. He is also currently the commander of the American
Legion San Dieguito Post 416. Directorships
No Director of the Company or person nominated or chosen to become a
Director holds any other directorship in any company with a class of securities
registered pursuant to section 12 of the Exchange Act or subject to the
requirements of section 15(d) of such Act or any other company registered as an
investment company under the Investment Company Act of 1940.
Identity of Significant Employees.
----------------------------------
In addition to the executive officers of the Company, the Company or its
subsidiaries rely on the services and expertise of Peter Graham Daley of
Momentum Associates Limited, Ross W. Jardine, the President of OIA, Scott Harris
and David McCoy employees of OIA and Eric Montandon, the President of Momentum
Asia, all of which persons make a significant contributions to the business of
the Company and its subsidiaries.
Family Relationships.
---------------------
There are no family relationships between any directors or executive
officers of the Company, either by blood or by marriage.
Involvement in Certain Legal Proceedings.
-----------------------------------------
During the past five years, no present or former director, executive
officer or person nominated to become a director or an executive officer of the
Company:
(1) was a general partner or executive officer of any business
against which any bankruptcy petition was filed, either at the
time of the bankruptcy or two years prior to that time;
49
<PAGE>
(2) was convicted in a criminal proceeding or named subject to a
pending criminal proceeding (excluding traffic violations and
other minor offenses);
(3) was subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type of
business, securities or banking activities; or
(4) was found by a court of competent jurisdiction (in a civil
action), the Securities and Exchange Commission or the Commodity
Futures Trading Commission to have violated a Federal or state
securities or commodities law, and the judgment has not been
reversed, suspended or vacated.
Section 16 (a) Beneficial Ownership Compliance.
----------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and persons who own more than ten percent of the
Company's Common Stock, to file initial reports of beneficial ownership on Form
3, changes in beneficial ownership on Form 4 and an annual statement of
beneficial ownership on Form 5, with the SEC. Such executive officers, directors
and greater than ten percent shareholders are required by SEC rules to furnish
the Company with copies of all such forms that they have filed.
Based solely on its review of the copies of such forms received by the
Company and representations from certain reporting persons, the Company believes
that during the period from November 16, 1999 (the date which the Company first
became subject to Section 16(a)) until December 31, 1999, all Section 16(a)
filing requirements applicable to its executive officers, directors and
ten-percent shareholders were complied with.
50
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid by the
Company for services rendered during the periods indicated:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
---------------------------
Long Term Compensation
--------------------------------------------------
Annual Compensation Awards Payouts
-----------------------------------------------------------------------------------------------
Securities All
Other Underlying Other
Annual Restricted Options/ LTIP Compen-
Name and Year or Compen- Stock SAR's Payouts sation
Principal Period Salary Bonus sation) Awards (#) ($) ($)
Position Ended ($) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Allen D. Hardman(1) 1999 $132,000 0 0 0 0 0 0
President and CEO 1998 $132,000 0 0 0 0 0 0
1997 $120,000 0 0 0 100,000 0 0
Anthony L. Tobin(2) 1999 $120,000 0 0 0 0 0 0
Vice President 1998 $121,800 0 $31,200 0 0 0 0
and COO of 1997 0 0 0 0 0 0 0
Asia Operations
D. Scott Elder(3) 1999 $102,360 $40,930 0 0 0 0 378,000
Chairman of the 1998 $ 31,500 0 0 0 0 0 174,127
Board of Directors 1997 $0 0 0 0 0 0 0
Dennis E. McGrory 1999 $0 0 0 0 0 0 0
Secretary 1998 $0 0 0 0 0 0 0
1997 $0 0 0 0 0 0 0
Ross D. Jardine 1999 $ 46,860 $123,430 0 0 0 0 378,000
President of OIA 1998 $0 0 0 0 0 0 208,520
1997 $0 0 0 0 0 0 0
Hans Von Meiss 1999 $0 0 0 0 0 0 0
Director 1998 $0 0 0 0 0 0 0
1997 $0 0 0 0 0 0 0
</TABLE>
- ---------------------------------------
(1) Mr. Hardman, the President and CEO of the Company is currently
subject to an Employment Agreement with the Company. See
Employment Contracts / Stock Options" below.
(2) Mr. Tobin is the owner of Crossbow Consultants Limited which
receives $10,000 per month from the Company's subsidiary,
Momentum Internet Incorporated, for the services provided by
Crossbow Consultants. In 1999, Crossbow received a total of
$120,000 from the Company's subsidiary, Momentum Internet
Incorporated, for the services provided by Crossbow Consultants.
In 1998 in addition to the $10,000 per month Crossbow received,
Mr. Tobin through his employment agreement with Momentum
Associates Limited, a subsidiary of Momentum Internet
Incorporated, also received a month housing allowance of
approximately $2,600 and a management fee of approximately $150
per month, for total 1998 compensation of $153,000.
51
<PAGE>
(3) In 1999, Mr. Elder received a base salary of $102,360, a bonus of
$40,930 and 378,000 in payment of deferred compensation from OIA,
for total 1999 compensation of $521,290.
In 1998, Mr. Elder received a base salary of $31,500, consulting
fees of $24,127, and $150,000 in payment of deferred
compensation, for total 1998 compensation of $205,627.
(4) In 1999, Mr. Jardine received a base salary of $46,860, a bonus
of $123,430 and $378,000 in payment of deferred compensation from
OIA, for total 1999 compensation of $548,290.
In 1998, Mr. Jardine received consulting fees of $58,520 and
$150,000 in payment of deferred compensation from OIA, for total
1998 compensation of $208,520.
- ---------------------------------------
Employment Contracts
--------------------
Allen D. Hardman. Allen D. Hardman, the President and CEO and a director of
the Company has an Employment Agreement with the Company which commenced on July
1, 1997 for a term of 5 years at an initial salary of $120,000 per year.
Pursuant to the terms of the agreement, the Company's board of directors may, in
its sole discretion, grant raises, bonuses, etc. in an amount not less that the
cost of living increase for the greater San Diego area. Additionally, Mr.
Hardman's Employment Agreement contains a stock option which entitles Mr.
Hardman the option to one hundred thousand (100,000) (post split adjusted)
shares of the Common Stock of the Company, at $2.00 per share, (subject to
adjustment for splits), in equal installments of twenty-five (25,000) (post
split adjusted) shares each beginning after one (1) year of employment for 4
consecutive years. On April 15, 1999 the Board of Directors of the Company
authorized the amendment to Mr. Hardman's Employment Agreement and the Stock
Option contained therein such that the Employment Agreement, as amended and
Stock Option were broken out into two separate agreements.
Stock Options
-------------
As stated above Mr. Hardman has a stock option which entitles Mr. Hardman
the option to one hundred thousand (100,000) (post split adjusted) shares of the
Common Stock of the Company, at $2.00 per share, (subject to adjustment for
splits), in equal installments of twenty-five (25,000) (post split adjusted)
shares each beginning after one (1) year of employment for 4 consecutive years.
On December 15, 1999, the Board of Directors adopted the ZiaSun
Technologies, Inc. 1999 Stock Option Plan (the "1999 Plan"). The 1999 Plan
allows the Company to attract and retain employees and directors of the Company
and its subsidiaries and to provide such persons with incentives and awards for
superior performance. The 1999 Plan is administered by a committee appointed by
the Board of Directors of the Company, which has broad flexibility in designing
stock-based incentives. The Board of Directors determines the number of shares
granted and the option exercise price, but such exercise price of Incentive
Stock Options (ISO) may not be less than one hundred percent of the fair market
value of Common Stock on the grant date.
52
<PAGE>
STOCK INCENTIVE AWARDS
The following tables reflect certain information, with respect to stock
options granted to certain executive officers and directors during fiscal 1999.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
---------------------------------------
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES OR BASE
GRANTED IN FISCAL PRICE EXPIRATION
NAME (#) YEAR(%) ($/SH) DATE
- ------------------------------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
</TABLE>
No options or stock appreciation rights were granted to any executive officer in
1999.
Any incentive awards, stock options or warrants shall be made at the
discretion of the board of directors or a committee designed by the board of
directors.
The following tables reflect certain information, with respect to the
exercise of stock options by certain executive officers during fiscal 1999.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND
FY-END OPTION VALUES
-------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END(#) FY-END($)
SHARES VALUE --------------- -------------------
ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) ($) UNEXERCISABLE UNEXERCISABLE
- ------------------------------- ----------- -------- --------------- -------------------
<S> <C> <C> <C> <C>
Allen D. Hardman 25,000 $200,000 75,000 $838,500
Anthony Tobin 0 0 0 0
D. Scott Elder 0 0 0 0
Dennis McGrory 0 0 0 0
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
-----------------------------------------------
The following table sets forth security ownership information as of the
close of business on March 31, 2000, for any person or group, known by the
Company to own more than five percent (5%) of the Company's voting securities.
<TABLE>
<CAPTION>
Title of Name of Amount of Percent of
Class Beneficial Owner Ownership Class
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock D. Scott Elder 2,100,000 7.71%
1156 East 100 North
Orem, UT 84097
Common Stock Ross W. Jardine 2,100,000 7.71%
116 S. Pfeifferhorn Drive
Alpine, Utah 84004
Common Stock Momentum Media Ltd. 3,499,980 12.85%
304 Dominion Centre
43 Queen's Road
East Wanchai, Hong Kong
</TABLE>
53
<PAGE>
(b) Security Ownership of Management
The following table sets forth security ownership information as of the
close of business on March 31, 2000, for any director, executive officer or
group of the Company's voting securities:
<TABLE>
<CAPTION>
Title of Name of Amount of Percent of
Class Beneficial Owner Ownership Class
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock D. Scott Elder 2,100,000 7.71%
1156 East 100 North
Orem, UT 84097
Common Stock Ross W. Jardine 2,100,000 7.71%
116 S. Pfeifferhorn Drive
Alpine, Utah 84004
Common Stock Anthony L. Tobin(1) 1,000,000 3.67%
12A Pacific Bank Centre
56 Gloucester Road
Wanchai, Hong Kong
Common Stock Allen D. Hardman 50,500 0.0018%
462 Stevens Avenue
Suite 106
Solana Beach, CA 92075
Common Stock Dennis McGrory 155 nil
462 Stevens Avenue
Suite 106
Solana Beach, CA 92075
Common Stock Hans Von Meiss 6,250 nil
Rebwiesstrasse 31
8702 Zollikon Switzerland
Common Stock All Directors and Officers 5,256,905 19.30%
as a Group (6 persons)
</TABLE>
- --------------------------------------------------
(1) Anthony L. Tobin does not direct own any shares of the Company.
However, indirectly Mr. Tobin, as the sole director of Vulcan Consultants
Ltd., the owner of 1,000,000 (post split adjusted) shares as stated above,
has sole voting power over said shares.
Each of the persons listed in the above table possesses sole investment
power and sole voting power over the shares set forth in the above table.
Except as set forth above, no other Officer or Director of the Company owns
any shares directly or indirectly.
There are no present arrangements or pledges of the Company's securities
which may result in a change in control of the Company.
54
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Acquisition of Asia4sale
------------------------
On March 25, 1999, the Company entered into an Acquisition Agreement and
Plan of Reorganization, under which the Company would acquire Asia4sale.com,
Ltd., ("Asia4sale"), a Hong Kong Registered Company. In exchange for 99 of the
100 shares of Asia4sale, the Company issued 100,000 (post-split adjusted) shares
of restricted common stock and paid $15,000 cash to the majority holder of the
capital stock of Asia4sale, thereby virtually making Asia4sale a wholly-owned
subsidiary of the Company. In addition, the Company made an unsecured loan of
$50,000 to Asia4sale upon closing of the acquisition and agreed to issue one (1)
additional share of restricted common stock for each two dollars ($2.00) of
actual earnings of Asia4sale for the period from April 1, 1999, through
September 31, 2000. Asia4sale is in the business of Internet related
international e-commerce. In addition, the Company was granted the option to
repurchase the 100,000 (post split adjusted) shares issued in the acquisition of
Asia4sale for a period of one (1) year at a price of $3.00 per share in the
event that Asia4sale fails to reach positive cash flow from its operations by
September 30, 2000. As of the date of this registration statement, Asia4sale has
not yet reached positive cash flow. The acquisition was completed on May 12,
1999.
Sale of Asia4sale
-----------------
The Company sold all interest in Asia4sale.com Ltd., in December 1999 for
$5,000,000 cash and 300,000 shares of the purchaser, Internet Ventures Ltd.
Acquisition of Online Investors Advantage, Inc.
----------------------------------------------
On March 31, 1999, the Company entered into an Acquisition Agreement and
Plan of Reorganization, under which the Company would acquire Online Investors
Advantage Incorporated ("OIA"), a Utah corporation. Online Investor's Advantage
is in the business of training individuals how to effectively use the financial
planning and investment tools available on the internet to manage their own
investment portfolios. The training is structured around a five-step discipline,
which includes searching for an investment, evaluating the investment and
assessing the risk, timing the purchase, establishing an exit point and
monitoring the investment. This is done through live workshops, and video-based,
self-directed home learning programs, which include the use of OIA's proprietary
website www.investortoolbox.com. In exchange for all of the capital stock of
OIA, the Company issued 1,000,000 (post-split adjusted) shares of restricted
common stock and paid $400,000 in cash, all of which was distributed pro-rata to
the shareholders of OIA, thereby making OIA a wholly-owned subsidiary of the
Company. In addition, the Company issued 5,000,000 (post-split adjusted) shares
pro-rata to the shareholders of OIA. Those shares are currently being held in
escrow in accordance with the terms of the adjustment provision set forth in the
acquisition agreement, based on anticipated earnings of at least $2,500,000 for
OIA for the period from April 1, 1999, through March 31, 2000. As set forth in
the terms of the acquisition agreement, in the event that the actual earnings of
OIA are less than $2,500,000, for the specified period, then the total number of
shares being held in escrow shall be reduced on a one-share basis for each $1.00
of actual earnings of OIA less than $2,500,000. In the event that the actual
earnings of OIA is greater than $2,500,000, then the Company shall issue such
additional shares on the basis of one additional share for each $1.00 of actual
earnings of OIA greater than $2,500,000. The acquisition was completed on April
7, 1999.
Consulting Agreement
--------------------
On April 1, 1999, Momentum Internet Incorporated, a wholly-owned subsidiary
of the Company entered into a Consulting Agreement with Crossbow Consultants
Limited, a personal services corporation owned by the Company's President,
Anthony L. Tobin. Under the terms of this agreement, Crossbow will provide all
administrative, promotional and technical support, as required, for Momentum
Internet to carry on its Internet publishing and marketing operations, including
but not limited to the assistance in the Internet publishing and marketing of
Momentum Internet's products Swiftrade, Mfinance, PINmail, MediaHits, Search
Dragon and such others as developed by Momentum Internet from time to time.
Under the terms of this agreement Momentum Internet pays Crossbow a monthly fee
of US$10,000 per month.
55
<PAGE>
Subsequent Events
-----------------
On January 1, 2000, On January 14, 2000, the Company entered into a
Consulting Agreement with Netgenesis Strategic Internet Marketing, Ltd.,
("Netgenesis"), whereby the Company engaged Netgenesis to provide advice and
counsel to the Company with regard to the Company's press releases, marketing
strategies, investor relations, advertising and financial websites. A copy of
the Consulting Agreement between the Company and Netgenesis is attached hereto
and incorporated herein by reference. See Item 13 Exhibits
On January 14, 2000, the Company entered into a Client Service Agreement
with Continental Capital & Equity Corporation ("CCEC"), whereby the Company
engaged CCEC to publicize the Company to brokers, prospective investors,
institutional investors, analysts, other industry professionals and
shareholders. The services to be provided by CCEC consists of (a) to review and
analyze various aspects of the Company's goals and make recommendations on
feasibility and achievement of desired goals, (b) the review of the general
information and recent filings of the Company and produce a direct mail Company
profile for circulation, (c) to provide exposure to its network of firms and
brokers that may be interested in participating with the Company and schedule
and conduct the necessary due diligence and obtain the required approvals
necessary for those firms to participate, and (d) at the Company's request, to
be available to the Company to field any calls from firms and brokers inquiring
about the Company. A copy of the Client Service Agreement and related Stock
Purchase Warrant and Registration Rights Agreement pertaining to CCEC's
compensation are attached hereto and incorporated herein by reference. See Item
13 Exhibits.
TRANSACTIONS WITH PROMOTERS
There have been no material transactions, series of similar transactions,
currently proposed transactions, or series of similar transactions, to which the
Company or any of its subsidiaries was or is to be a party, in which the amount
involved exceeded $60,000 and in which any promoter or founder, or any member of
the immediate family of any of the foregoing persons, had a material interest.
However, see the caption "Transactions with Management and Others" of this
Registration Statement Item 8. Description of Securities.
56
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits attached or incorporated by reference pursuant to Item
601 of Regulation S-B.
Exhibit
Number Description
- --------------------------------------------------------------------------------
2.1(+) Acquisition Agreement and Plan of Reorganization between ZiaSun
Technologies, Inc. and Momentum Internet Incorporated dated October 5,
1998. (Incorporated by reference from the Registrant's Registration
Statement on Form 10-SB filed on September 16, 1999; Commission File
No. 000-27349).
2.2(+) Acquisition Agreement and Plan of Reorganization between ZiaSun
Technologies, Inc. and Momentum Asia, Inc. dated October 5, 1998.
(Incorporated by reference from the Registrant's Registration
Statement on Form 10-SB filed on September 16, 1999; Commission File
No. 000-27349).
2.3(+) Acquisition Agreement and Plan of Reorganization between ZiaSun
Technologies, Inc. and Asia4sale.com, Ltd., dated March 25, 1999.
(Incorporated by reference from the Registrant's Registration
Statement on Form 10-SB filed on September 16, 1999; Commission File
No. 000-27349).
2.4(+) Acquisition Agreement and Plan of Reorganization between ZiaSun
Technologies, Inc. and Online Investors Advantage, Inc., dated March
31, 1999. (Incorporated by reference from the Registrant's
Registration Statement on Form 10-SB filed on September 16, 1999;
Commission File No. 000-27349).
3.1(a)(+) Original Articles of Incorporation.(Incorporated by reference from the
Registrant's Registration Statement on Form 10-SB filed on September
16, 1999; Commission File No. 000-27349).
3.1(b)(+) Certificate of Amendment to Articles of Incorporation filed April 29,
1997. (Incorporated by reference from the Registrant's Registration
Statement on Form 10-SB filed on September 16, 1999; Commission File
No. 000-27349).
3.1(c)(+) Certificate of Amendment to Articles of Incorporation filed September
10, 1998 changing the name of the Company to ZiaSun Technologies, Inc.
(Incorporated by reference from the Registrant's Registration
Statement on Form 10-SB filed on September 16, 1999; Commission File
No. 000-27349).
3.1(d)(+) Certificate filed pursuant to NRS Section 78.207.(Incorporated by
reference from the Registrant's Registration Statement on Form 10-SB
filed on September 16, 1999; Commission File No. 000-27349).
3.1(e)(+) Restated Article of Incorporation filed August 16, 1999.(Incorporated
by reference from the Registrant's Registration Statement on Form
10-SB filed on September 16, 1999; Commission File No. 000-27349).
3.2(+) Amended and Restated By-laws. (Incorporated by reference from the
Registrant's Registration Statement on Form 10-SB filed on September
16, 1999; Commission File No. 000-27349).
10.1(+) License Agreement between Fountain Fresh International and Katori
Consultants, Ltd. dated April 17, 1997.(Incorporated by reference from
the Registrant's Registration Statement on Form 10-SB filed on
September 16, 1999; Commission File No. 000-27349).
10.2(+) Assignment of License Agreement by Katori Consultants Ltd., to the
Company dated April 18, 1999. (Incorporated by reference from the
Registrant's Registration Statement on Form 10-SB filed on September
16, 1999; Commission File No. 000-27349).
10.3(+) Unsecured Promissory Note for $50,000 from Asai4sale.com in favor of
the Company dated March 31, 1999. (Incorporated by reference from the
Registrant's Registration Statement on Form 10-SB filed on September
16, 1999; Commission File No. 000-27349).
57
<PAGE>
10.4(+) Stock Option Agreement between Brian Hodgson and the Company dated
March 25, 1999. (Incorporated by reference from the Registrant's
Registration Statement on Form 10-SB filed on September 16, 1999;
Commission File No. 000-27349).
10.5(+) Agreement between the Company and Global Direct Marketing Limited
dated February 12, 1999. (Incorporated by reference from the
Registrant's Registration Statement on Form 10-SB filed on September
16, 1999; Commission File No. 000-27349).
10.6(+) Agreement between Asia4sale.com, Ltd., and Hong Kong Telecom IMS dated
March 29, 1999. (Incorporated by reference from the Registrant's
Registration Statement on Form 10-SB filed on September 16, 1999;
Commission File No. 000-27349).
10.7(+) Agreement between Momentum Internet, Inc., and Hays Business Systems
dated April 1, 1999. (Incorporated by reference from the Registrant's
Registration Statement on Form 10-SB filed on September 16, 1999;
Commission File No. 000-27349).
10.8(+) Loan Agreement between Momentum Asia, Inc. (formerly New Age
Publications, Inc.) and Touchstone Transport Services, Inc.
(Incorporated by reference from the Registrant's Registration
Statement on Form 10-SB filed on September 16, 1999; Commission File
No. 000-27349).
10.9(+) Real Estate Mortgage Momentum Asia, Inc. (formerly New Age
Publications, Inc.) and Touchstone Transport Services, Inc.
(Incorporated by reference from the Registrant's Registration
Statement on Form 10-SB filed on September 16, 1999; Commission File
No. 000-27349).
10.10(+) Subscribers Agreement between Momentum Asia, Inc., (formerly New Age
Publications, Inc.), and Torquay Associates Ltd. (Incorporated by
reference from the Registrant's Registration Statement on Form 10-SB
filed on September 16, 1999; Commission File No. 000-27349).
10.11(+) Reuters Investor Distribution Agreement with Momentum Internet Inc.,
dated April 22, 1999. (Incorporated by reference from the Registrant's
Registration Statement on Form 10-SB filed on September 16, 1999;
Commission File No. 000-27349).
10.12(+) Market Datafeed Service Agreement with Stock Exchange Information
Services Limited dated May 3, 1999. (Incorporated by reference from
the Registrant's Registration Statement on Form 10-SB filed on
September 16, 1999; Commission File No. 000-27349).
10.13(+) Agreement between Momentum Internet, Inc., and Options Direct dated
May 18, 1999. (Incorporated by reference from the Registrant's
Registration Statement on Form 10-SB filed on September 16, 1999;
Commission File No. 000-27349).
10.14((+) Agreement between Asia4sale.com, Ltd., and Karrex dated June 25, 1999.
(Incorporated by reference from the Registrant's Registration
Statement on Form 10-SB filed on September 16, 1999; Commission File
No. 000-27349).
10.15(+) Agreement between Momentum Internet, Inc., and United Mok Ying Kie
Limited dated June 29, 1999. (Incorporated by reference from the
Registrant's Registration Statement on Form 10-SB filed on September
16, 1999; Commission File No. 000-27349).
10.16(+) Reuters Service Contract with Momentum Internet Inc. (Incorporated by
reference from the Registrant's Registration Statement on Form 10-SB
filed on September 16, 1999; Commission File No. 000-27349).
58
<PAGE>
10.17(+) Online Stock Trading Agreement between Swiftrade, Inc. and WdoT.rade
Inc. dated July 1, 1999. (Incorporated by reference from the
Registrant's Registration Statement on Form 10-SB filed on September
16, 1999; Commission File No. 000-27349).
10.18(+) Lease Agreement between the Company and Propco L.P. (Incorporated by
reference from the Registrant's Registration Statement on Form 10-SB
filed on September 16, 1999; Commission File No. 000-27349).
10.19(+) Addendum to Lease between the Company and Propco L.P. (Incorporated by
reference from the Registrant's Registration Statement on Form 10-SB
filed on September 16, 1999; Commission File No. 000-27349).
10.20(+) Tenancy Agreement between Momentum Associates Limited and Hong Kong
Finance Property Company Limited dated December 1, 1998. (Incorporated
by reference from the Registrant's Registration Statement on Form
10-SB filed on September 16, 1999; Commission File No. 000-27349).
10.21(+) Contract of Lease between Rebecca A. Ynares and Momentum Internet
(Philippines) Inc. dated December 1998. (Incorporated by reference
from the Registrant's Registration Statement on Form 10-SB filed on
September 16, 1999; Commission File No. 000-27349).
10.22(+) First Amendment to Contract of Lease between Rebecca A. Ynares and
Momentum Internet (Philippines) Inc. (Incorporated by reference from
the Registrant's Registration Statement on Form 10-SB filed on
September 16, 1999; Commission File No. 000-27349).
10.23(+) Contract of Lease between Philippine International Trading Corporation
and Momentum Internet (Philippines) Inc. (Incorporated by reference
from the Registrant's Registration Statement on Form 10-SB filed on
September 16, 1999; Commission File No. 000-27349).
10.24(+) Sublease Agreement between Philexcel Textiles Incorporated and
Momentum Asia, Inc. (formerly New Age Publications, Inc.)
(Incorporated by reference from the Registrant's Registration
Statement on Form 10-SB filed on September 16, 1999; Commission File
No. 000-27349).
10.25(+) Amended Sublease Agreement between Philexcel Textiles Incorporated and
Momentum Asia, Inc. (formerly New Age Publications, Inc.)
(Incorporated by reference from the Registrant's Registration
Statement on Form 10-SB filed on September 16, 1999; Commission File
No. 000-27349).
10.26(+) Lease Agreement between EsNET Properties L.C. and Online Investors
Advantage, Inc., dated May 25, 1999. (Incorporated by reference from
the Registrant's Registration Statement on Form 10-SB filed on
September 16, 1999; Commission File No. 000-27349).
10.27(+) Lease Agreement between Dc Mason Ltd., and Online Investors Advantage,
Inc., dated October 7, 1998. (Incorporated by reference from the
Registrant's Registration Statement on Form 10-SB filed on September
16, 1999; Commission File No. 000-27349).
10.28(+) Lease Agreement between Gordon Jacobson and Online Investors
Advantage, Inc., dated June 22, 1999. (Incorporated by reference from
the Registrant's Registration Statement on Form 10-SB filed on
September 16, 1999; Commission File No. 000-27349).
10.29(+) Employment Agreement and Stock Option between the Company and Allen D.
Hardman dated July 1, 1997. (Incorporated by reference from the
Registrant's Registration Statement on Form 10-SB filed on September
16, 1999; Commission File No. 000-27349).
10.30(+) Amendment to Employment Agreement between the Company and Allen D.
Hardman. (Incorporated by reference from the Registrant's Registration
Statement on Form 10-SB filed on September 16, 1999; Commission File
No. 000-27349).
10.31(+) Non-Qualified Stock Option Agreement between the Company and Allen D.
Hardman. (Incorporated by reference from the Registrant's Registration
Statement on Form 10-SB filed on September 16, 1999; Commission File
No. 000-27349).
59
<PAGE>
10.32(+) Agreement between Momentum Associates Limited and Peter Graham Daley.
(Incorporated by reference from the Registrant's Registration
Statement on Form 10-SB filed on September 16, 1999; Commission File
No. 000-27349).
10.33(+) Agreement between Momentum Associates Limited and Anthony L. Tobin.
(Incorporated by reference from the Registrant's Registration
Statement on Form 10-SB filed on September 16, 1999; Commission File
No. 000-27349).
10.34(+) Agreement between Momentum Internet Inc., and Crossbow Consultants
Limited. (Incorporated by reference from the Registrant's Registration
Statement on Form 10-SB filed on September 16, 1999; Commission File
No. 000-27349).
10.35(+) Agreement between Asia4sale.com Ltd., and Momentum Internet Inc.,
dated March 25, 1999. (Incorporated by reference from the Registrant's
Registration Statement on Form 10-SB filed on September 16, 1999;
Commission File No. 000-27349).
10.36(++) ZiaSun Technologies, Inc. - 1999 Stock Option Plan.
10.37(++) Consulting Agreement dated January 1, 2000 between the Company and
Netgenesis Strategic Internet Marketing, Ltd.
10.38(++) Client Service Agreement dated January 14, 2000 between the Company
and Continental Capital & Equity Corporation.
10.39(++) Common Stock Purchase Warrant issued to Continental Capital & Equity
Corporation.
10.40(++) Registration Rights Agreement between the Company and Continental
Capital & Equity Corporation.
27(+)(+) Financial Data Schedule
(+) Previously filed.
(++) Filed herewith.
(b) Reports on Form 8-K.
There were no other reports on Form 8-K filed during the quarter of the
period covered. However, subsequent to the period covered by this report the
Company filed a Form 8-k on January 18, 2000, and an amended Form 8-K/A on
January 21, 2000.
- --------------------------------------------------------------------------------
EXHIBIT INDEX
The following Exhibit Index sets forth the Exhibit attached hereto.
Exhibit
Number Description
- --------------------------------------------------------------------------------
10.36(++) ZiaSun Technologies, Inc. - 1999 Stock Option Plan.
10.37(++) Consulting Agreement dated January 1, 2000 between the Company and
Netgenesis Strategic Internet Marketing, Ltd.
10.38(++) Client Service Agreement dated January 14, 2000 between the Company
and Continental Capital & Equity Corporation.
10.39(++) Common Stock Purchase Warrant issued to Continental Capital & Equity
Corporation.
10.40(++) Registration Rights Agreement between the Company and Continental
Capital & Equity Corporation.
60
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the Undersigned, thereunto duly authorized.
ZIASUN TECHNOLOGIES, INC.
A Nevada Corporation
Dated: May 10, 2000 /S/ Allen D. Hardman
------------------------------
By: Allen D. Hardman
Its: President and CEO and
Principal Accounting Officer
61
ZIASUN TECHNOLOGIES, INC.
(A Nevada Corporation)
1999 STOCK OPTION PLAN
- --------------------------------------------------------------------------------
The following constitutes the provisions of the 1999 Stock Option Plan of
ZiaSun Technologies, Inc.
ARTICLE 1
OVERVIEW
1.1 Purpose. The purpose of the 1999 Stock Option Plan (the "Plan") is to
attract, retain, and reward persons providing services to ZiaSun Techonolgies,
Inc., a Nevada Corporation, and any successor corporation thereto (collectively
referred to as the "Company"), and any present or future parent and/or
subsidiary corporations of such corporation (all of which along with the Company
being individually referred to as a "Participating Company" and collectively
referred to as the "Participating Company Group"), and to motivate such persons
to contribute to the growth and profits of the Participating Company Group in
the future. For purposes of the Plan, a parent corporation and a subsidiary
corporation shall be as defined in Sections 424(e) and 424(f) of the Internal
Revenue Code of 1986, as amended (the "Code").
1.2 Administration. The following provisions shall govern the
administration of the Plan:
(a) Administration By Board And/Or Committee. The Plan shall be
administered by the Board of Directors of the Company (the "Board")
and/or by a duly appointed committee of the Board having such powers
as shall be specified by the Board. Any subsequent references herein
to the Board shall also mean the committee if such committee has been
appointed, and unless the powers of the committee have been
specifically limited.
(b) Committee Powers. The Committee shall effect the grant of options
under the Plan by execution of instruments in writing in a form
approved by the Committee. Subject to the express terms and conditions
of the Plan, the Committee shall have full power to construe the Plan
and the terms of any option granted under the Plan, to prescribe,
amend and rescind rules and regulations relating to the Plan or
options and to make all other determinations necessary or advisable
for the Plan's administration, including, without limitation, the
power to:
(i) determine which persons meet the requirements of Sections 2,
3, and 4 hereof for selection as participants in the Plan;
(ii) determine to whom of the eligible persons, if any, options
shall be granted under the Plan;
1
<PAGE>
(iii) establish the terms and conditions required or permitted to
be included in every option agreement or any amendments thereto,
including whether options to be granted thereunder shall be
"Incentive Stock Options," as defined in section 422 of the Code,
or nonqualified stock options not described in sections 422(b) or
423(a) of the Code;
(iv) specify the number of shares to be covered by each option;
(v) determine the method by which fair market value of shares of
the Company's common stock will be established under the Plan;
(vi) take appropriate action to amend any option hereunder,
provided that no such action may be taken without the written
consent of the affected optionee;
(vii) cancel outstanding options and issue replacement options
therefor with the consent of the affected optionee; and
(viii) make all other determinations deemed necessary or
advisable for administering the Plan.
The Committee's determination on the foregoing matters shall be conclusive.
(c) Special Rule for Officers and Directors. The grant of options to
employees who are officers or directors of the Company and to
nonemployee directors of the Company may be made by and all discretion
with respect to the material terms of the options may be exercised by
either (i) the Board of Directors, or (ii) a duly appointed committee
of the Board composed solely of two or more nonemployee directors
having full authority to act in the matter. The term "nonemployee
directors" shall have the meaning set forth in Rule 16b-3 as
promulgated by the Securities and Exchange Commission ("SEC") under
section 16(b) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as that rule may be amended from time to time, and as
interpreted by the SEC ("Rule 16b-3").
(d) Options Authorized. Options may be either Incentive Stock Options
as defined in Section 422 of the Code ("Incentive Stock Options") or
nonqualified stock options.
1.3 Eligibility.
(a) Eligible Persons. Options may be granted only to employees
(including officers) and directors of the Participating Company Group,
or to individuals who are rendering services as consultants, advisors,
or other independent contractors to the Participating Company Group.
The Board shall, in its sole discretion, determine which persons shall
be granted Options (an "Optionee"). Notwithstanding any other
provision of the Plan, no Eligible Person shall in any single calendar
year be granted options to purchase more than an aggregate of three
hundred thousand (300,000) shares of the Company's common stock under
the Plan, as adjusted pursuant to Section 6.2.
2
<PAGE>
(b) Restrictions on Option Grants. A director of a Participating
Company may only be granted a nonqualified stock option unless the
director is also an employee of the Participating Company Group. An
individual who is rendering services as a consultant, advisor, or
other independent contractor may only be granted a nonqualified stock
option.
1.4 Shares Subject to Option. Options shall be for the purchase of shares
of the authorized but unissued common stock or treasury shares of common stock
$0.001 par value of the Company (the "Stock"), subject to adjustment as provided
in Section 6.2 below. The maximum number of shares of Stock which may be issued
under the Plan shall be Two Million Five Hundred Thousand (2,500,000) shares. In
the event that any outstanding Option for any reason expires or is terminated or
canceled and/or shares of Stock subject to repurchase are repurchased by the
Company, the shares allocable to the unexercised portion of such Option, or such
repurchased shares, may again be subject to an Option grant. Notwithstanding the
foregoing, any such shares shall be made subject to a new Option only if the
grant of such new Option and the issuance of such shares pursuant to such new
Option would not cause the Plan or any Option granted under the Plan to
contravene Rule 16b-3.
1.5 Time for Granting Options. All Options shall be granted, if at all,
within seven (7) years from the earlier of the date the Plan is adopted by the
Board or the date the Plan approved by the stockholders of the Company.
1.6 Terms, Conditions and Form of Options. Subject to the provisions of the
Plan, the Board shall determine for each Option (which need not be identical)
the number of shares of Stock for which the Option shall be granted, the
exercise price of the Option, the timing and terms of exercisability and vesting
of the Option, the time of expiration of the Option, the effect of the
Optionee's termination of employment or service, whether the Option is to be
treated as an Incentive Stock Option or as a nonqualified stock option, the
method for satisfaction of any tax withholding obligation arising in connection
with the Option, including by the withholding or delivery of shares of stock,
and all other terms and conditions of the Option not inconsistent with the Plan.
Options granted pursuant to the Plan shall be evidenced by written agreements
specifying the number of shares of Stock covered thereby, in such form as the
Board shall from time to time establish, which agreements may incorporate all or
any of the terms of the Plan by reference and shall comply with and be subject
to the following terms and conditions:
ARTICLE 2
INCENTIVE STOCK OPTIONS
2.1 Incentive Stock Option Terms and Conditions. Options granted to
employees (but not to nonemployee directors) under the terms and conditions of
this Section 2 are intended to be Incentive Stock Options under section 422 of
3
<PAGE>
the Code. Each Incentive Stock Option granted under the Plan shall be authorized
by action of the Committee and shall be evidenced by a written agreement in such
form as the Committee shall from time to time approve, which agreement shall
comply with and be subject to the following terms and conditions:
(a) Exercise Price. The exercise price for each Option shall be
established at the sole discretion of the Board; provided, however,
that:
(i) the exercise price per share for an Incentive Stock Option
shall be not less than one hundred percent (100%) of the fair
market value, as determined by the Board, of a share of Stock on
the date of the granting of the Option;
(ii) no Incentive Stock Option granted to an Optionee who at the
time the Option is granted owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes
of stock of a Participating Company within the meaning of Section
422(b)(6) of the Code (a "Ten Percent Owner Optionee") shall have
an exercise price per share less than one hundred ten percent
(110%) of the fair market value, as determined by the Board, of a
share of Stock on the date of the granting of the Option.
Notwithstanding the foregoing, an Option may be granted with an
exercise price lower than the minimum exercise price set forth
above if such Option is granted pursuant to an assumption or
substitution for another option in a manner qualifying with the
provisions of Section 424(a) of the Code.
(b) Exercise Period of Options. The Board shall have the power to set,
including by amendment of an Option, the time or times within which
each Option shall be exercisable or the event or events upon the
occurrence of which all or a portion of each Option shall be
exercisable and the term of each Option; provided, however, that no
Option shall be exercisable after the expiration of seven (7) years
after the date such Option is granted. No Incentive Stock Option
granted to an individual who owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of
stock of the Company, as determined under the stock ownership rules
specified in Subsection 2.1(c), shall be exercisable after the
expiration of seven (7) years from the date on which that option is
granted.
(c) Determination of Stock Ownership. For purposes of determining in
Subsections 2.1(a) and 2.1(b) whether an employee owns stock
possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company, an employee shall be
considered as owning the stock owned, directly or indirectly, by or
for his or her brothers and sisters (whether by the whole or half
blood), spouse, ancestors, and lineal descendants. Stock owned,
directly or indirectly, by or for a corporation, partnership, estate,
or trust shall be considered as being owned proportionately by or for
its shareholders, partners, or beneficiaries. Stock with respect to
which the employee holds an option shall not be counted.
4
<PAGE>
(d) Right to Exercise. Each Incentive Stock Option shall become
exercisable and vest according to the terms and conditions established
by the Board and reflected in the written agreement evidencing the
option. Notwithstanding the preceding sentence, all outstanding
Incentive Stock Options shall immediately become exercisable in full
in the event that (i) the shareholders of the Company approve a
dissolution or liquidation of the Company or a sale of all or
substantially all of the Company's assets to another entity; (ii) a
tender within the meaning of section 14 of the Securities Exchange Act
of 1934, as amended, is made for five percent (5%) or more of the
Company's outstanding capital stock by any person other than the
Company or an affiliate; or (iii) the Company effects an underwritten
public offering of its securities pursuant to a registration statement
filed under the Securities Act of 1933. Each Incentive Stock Option
shall be subject to termination before its date of expiration as
provided in Subsection 2.1(e).
(e) Termination of Employee Options. If an optionee who is an employee
ceases to be an employee of the Company, his or her rights to exercise
an Incentive Stock Option then held shall be only as follows:
(i) Death. If an optionee dies while he or she is employed by the
Company, the optionee's estate shall have the right for a period
of six (6) months (or such longer period as the Committee may
determine at the date of grant or during the term of the option)
after the date of death to exercise the option to the extent the
optionee was entitled to exercise the option on that date,
provided the date of exercise is in no event after the expiration
of the term of the option. To the extent the option is not
exercised within this period, the option will terminate. An
optionee's "estate" shall mean the optionee's legal
representative or any person who acquires the right to exercise
an option by reason of the optionee's death.
(ii) Disability. If an optionee's employment with the Company
ends because the optionee becomes disabled, the optionee or his
or her qualified representative (in the event of the optionee's
mental disability) shall have the right for a period of twelve
(12) months after the date on which the optionee's employment
ends to exercise the option to the extent the optionee was
entitled to exercise the option on that date, provided the date
of exercise is in no event after the expiration of the term of
the option. To the extent the option is not exercised within this
period, the option will terminate.
(iii) Resignation. If an optionee voluntarily resigns from the
Company, the optionee shall have the right for a period of two
(2) months after the date of resignation to exercise the option
to the extent the optionee was entitled to exercise the option on
that date, provided the date of exercise is in no event after the
expiration of the term of the option. To the extent the option is
not exercised within this period, the option will terminate.
5
<PAGE>
(iv) Termination for Reasons other than Cause. If an optionee's
employment is terminated by the Company for reasons other than
"Cause," the optionee shall have the right for a period of two
(2) months after the date of termination to exercise the option
to the extent the optionee was entitled to exercise the option on
that date, provided the date of exercise is in no event after the
expiration of the term of the option. To the extent the option is
not exercised within this period, the option will terminate. The
termination of an optionee's employment by the Company will be
for reasons other than Cause if the termination is NOT due to an
act by the optionee that is described below under "Termination
for Cause."
(v) Termination for Cause. If an optionee's employment is
terminated by the Company for "Cause," the optionee shall have
the right for a period of one (1) month after the date of
termination to exercise the option to the extent the optionee was
entitled to exercise the option on that date, provided the date
of exercise is in no event after the expiration of the term of
the option. To the extent the option is not exercised within this
period, the option will terminate. For the purpose of this
clause, "Cause" shall mean that: the optionee is determined by
the Committee to have committed an act of embezzlement, fraud,
dishonesty, or breach of fiduciary duty to the Company, or to
have deliberately disregarded the rules of the Company which
resulted in loss, damage, or injury to the Company, or because
the optionee has made any unauthorized disclosure of any of the
secrets or confidential information of the Company, has induced
any client or customer of the Company to break any contract with
the Company, has induced any principal for whom the Company acts
as agent to terminate the agency relationship, or has engaged in
any conduct that constitutes unfair competition with the Company.
(f) Notice of Sale. If an optionee sells or otherwise disposes of any
Shares acquired upon exercise of an Incentive Stock Option, the
optionee shall give the Company notice of the sale or disposition
within five business (5) days thereafter.
(g) Other Reasons. If an optionee's employment with the Company ends
for any reason not mentioned above in this Subsection 2(e), all rights
of the optionee in an Incentive Stock Option, to the extent that it
has not been exercised, shall terminate 30 days after the date the
optionee's employment ends.
(h) Limit on Exercise of Incentive Stock Options. To the extent that
the aggregate fair market value (determined as of the time the option
is granted) of the Stock with respect to which Incentive Stock Options
are exercisable for the first time by any individual during any
calendar year (under all plans of the Company and its parent and
subsidiary corporations) exceeds One Hundred Thousand Dollars
($100,000), the options shall be treated as options that are not
Incentive Stock Options.
6
<PAGE>
ARTICLE 3
NONQUALIFIED STOCK OPTION
3.1 Nonqualified Stock Option Terms and Conditions. The options granted
under the terms and conditions of this Section 3 are nonqualified stock options
and are not intended to qualify as either a qualified stock option or an
Incentive Stock Option as those terms are defined by applicable provisions of
the Code. Each nonqualified stock option granted under the Plan shall be
authorized by action of the Committee and shall be evidenced by a written
agreement in such form as the Committee shall from time to time approve, which
agreement shall comply with and be subject to the following terms and
conditions:
(a) Exercise Price. The exercise price of each nonqualified stock
option shall not be less than eighty five percent (85%) of the fair
market value of a Share of the Company on the date the option is
granted; provided, however, that the exercise price of a nonqualified
stock option granted to an individual who owns stock possessing more
than ten percent (10%) of the combined voting power of the Company,
its parent, or subsidiaries shall not be less than one hundred ten
percent (110%) of the fair market value of a Share of the Company on
the date the option is granted.
(b) Exercise Period of Options. The Board shall have the power to set,
including by amendment of an Option, the time or times within which
each Option shall be exercisable or the event or events upon the
occurrence of which all or a portion of each Option shall be
exercisable and the term of each Option; provided, however, that no
Option shall be exercisable after the expiration of seven (7) years
after the date such Option is granted. No nonqualified stock option
granted to an individual who owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of
stock of the Company, as determined under the stock ownership rules
specified in Subsection 3.1(c), shall be exercisable after the
expiration of seven (7) years from the date on which that option is
granted.
(c) Determination of Stock Ownership. For purposes of determining in
Subsections 3.1(a)and 3.1(b) whether an employee owns stock possessing
more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company, an employee shall be considered as
owning the stock owned, directly or indirectly, by or for his or her
brothers and sisters (whether by the whole or half blood), spouse,
ancestors, and lineal descendants. Stock owned, directly or
indirectly, by or for a corporation, partnership, estate, or trust
shall be considered as being owned proportionately by or for its
shareholders, partners, or beneficiaries. Stock with respect to which
the employee holds an option shall not be counted.
7
<PAGE>
(d) Right to Exercise. Each nonqualified stock option shall become
exercisable and vest according to the terms and conditions established
by the Committee and reflected in the written agreement evidencing the
option. Each nonqualified stock option shall be subject to termination
before its date of expiration as provided in Subsection 3.1(e).
(e) Terminations of Options. If an optionee ceases to be an employee
of the Company, his or her rights to exercise a nonqualified stock
option then held shall be only as follows:
(i) Death. If an optionee dies while he or she is employed by the
Company, the optionee's estate shall have the right for a period
of six (6) months (or such longer period as the Committee may
determine at the date of grant or during the term of the option)
after the date of death to exercise the option to the extent the
optionee was entitled to exercise the option on that date,
provided the date of exercise is in no event after the expiration
of the term of the option. To the extent the option is not
exercised within this period, the option will terminate. An
optionee's "estate" shall mean the optionee's legal
representative or any person who acquires the right to exercise
an option by reason of the optionee's death.
(ii) Disability. If an optionee's employment with the Company
ends because the optionee becomes disabled, the optionee or his
or her qualified representative (in the event of the optionee's
mental disability) shall have the right for a period of twelve
(12) months after the date on which the optionee's employment
ends to exercise the option to the extent the optionee was
entitled to exercise the option on that date, provided the date
of exercise is in no event after the expiration of the term of
the option. To the extent the option is not exercised within this
period, the option will terminate.
(iii) Resignation. If an optionee voluntarily resigns from the
Company, the optionee shall have the right for a period of two
(2) months after the date of resignation to exercise the option
to the extent the optionee was entitled to exercise the option on
that date, provided the date of exercise is in no event after the
expiration of the term of the option. To the extent the option is
not exercised within this period, the option will terminate.
(iv) Termination For Reasons Other Than Cause. If an optionee's
employment is terminated by the Company for reasons other than
"Cause," the optionee shall have the right for a period of two
(2) months after the date of termination to exercise the option
to the extent the optionee was entitled to exercise the option on
that date, provided the date of exercise is in no event after the
expiration of the term of the option. To the extent the option is
not exercised within this period, the option will terminate. The
termination of an optionee's employment by the Company will be
for reasons other than Cause if the termination is NOT due to an
act by the optionee that is described below under "Termination
for Cause."
8
<PAGE>
(v) Termination For Cause. If an optionee's employment is
terminated by the Company for "Cause," the optionee shall have
the right for a period of one (1) month after the date of
termination to exercise the option to the extent the optionee was
entitled to exercise the option on that date, provided the date
of exercise is in no event after the expiration of the term of
the option. To the extent the option is not exercised within this
period, the option will terminate. For the purpose of this
clause, "Cause" shall mean that: the optionee is determined by
the Committee to have committed an act of embezzlement, fraud,
dishonesty, or breach of fiduciary duty to the Company, or to
have deliberately disregarded the rules of the Company which
resulted in loss, damage, or injury to the Company, or because
the optionee has made any unauthorized disclosure of any of the
secrets or confidential information of the Company, has induced
any client or customer of the Company to break any contract with
the Company, has induced any principal for whom the Company acts
as agent to terminate the agency relationship, or has engaged in
any conduct that constitutes unfair competition with the Company.
ARTICLE 4
NON-EMPLOYEE DIRECTOR OPTIONS
4.1 Grants to Non-Employee Directors. All options granted to nonemployee
directors shall be subject to the following terms and conditions:
(a) Limits. The aggregate amount of Shares (as adjusted pursuant to
Section 6.2) subject to options granted to all nonemployee directors
as a group shall not exceed twenty percent (20%) of the Shares plus
Shares underlying expired or terminated options that are added back to
the number of Shares available under the Plan.
(b) Nonqualified Options. All stock options granted to nonemployee
directors pursuant to the Plan shall be nonqualified stock options.
(c) Exercise Price. The exercise price of each option granted to a
nonemployee director shall not be less than 85% of fair market value
per Share; provided, however, that the exercise price of an option
granted to a nonemployee director who owns stock possessing more than
ten percent (10%) of the combined voting power of the Company, its
parent, or subsidiaries shall not be less than one hundred ten percent
(110%) of the fair market value of a Share of the Company on the date
the option is granted. The fair market value of the Shares shall be
determined by the Board.
9
<PAGE>
(d) Duration of Options. Each option granted to a nonemployee director
shall be for a term determined by the Board; provided, however, that
the term of any option may not exceed seven (7) years.
(e) Right to Exercise. Each option granted to a nonemployee director
shall become exercisable and vest according to the terms and
conditions established by the Board and reflected in the written
agreement evidencing the option. Each option granted to a nonemployee
director shall be subject to termination before its date of expiration
as provided in Subsection 4.1(f).
(f) Terminations of Non-employee Director Options. If a non-employee
director ceases to be a director of the Company, his or her rights to
exercise an option then held shall be only as follows:
(i) Death. If a nonemployee director dies while he or she is
serving on the Board of the Company, the director's estate shall
have the right for a period of six (6) months (or such longer
period as the Committee may determine at the date of grant or
during the term of the option) after the date of death to
exercise the option to the extent the director was entitled to
exercise the option on that date, provided the date of exercise
is in no event after the expiration of the term of the option. To
the extent the option is not exercised within this period, the
option will terminate. A director's "estate" shall mean the
director's legal representative or any person who acquires the
right to exercise an option by reason of the director's death.
(ii) Disability. If a nonemployee director's Board membership
ends because the director becomes disabled, the director or his
or her qualified representative (in the event of the director's
mental disability) shall have the right for a period of twelve
(12) months after the date on which the director's Board
membership ends to exercise the option to the extent the director
was entitled to exercise the option on that date, provided the
date of exercise is in no event after the expiration of the term
of the option. To the extent the option is not exercised within
this period, the option will terminate.
(iii) Resignation. If a nonemployee director voluntarily resigns
from the Company's Board, the director shall have the right for a
period of six (6) months after the date of resignation to
exercise the option to the extent the director was entitled to
exercise the option on that date, provided the date of exercise
is in no event after the expiration of the term of the option. To
the extent the option is not exercised within this period, the
option will terminate.
(iv) Termination for Reasons other than Cause. If a nonemployee
director's Board membership is terminated by the Company for
reasons other than "Cause," the director shall have the right for
a period of six (6) months after the date of termination to
10
<PAGE>
exercise the option to the extent the director was entitled to
exercise the option on that date, provided the date of exercise
is in no event after the expiration of the term of the option. To
the extent the option is not exercised within this period, the
option will terminate. The termination of a nonemployee
director's Board membership will be for reasons other than Cause
if the termination is NOT due to an act by the director that is
described below under "Termination for Cause."
(v) Termination For Cause. If a nonemployee director's Board
membership is terminated by the Company for "Cause," the director
shall have the right for a period of one (1) month after the date
of termination to exercise the option to the extent the director
was entitled to exercise the option on that date, provided the
date of exercise is in no event after the expiration of the term
of the option. To the extent the option is not exercised within
this period, the option will terminate. For the purpose of this
clause, "Cause" shall mean that: the director is determined by
the Committee to have committed an act of embezzlement, fraud,
dishonesty, or breach of fiduciary duty to the Company, or to
have deliberately disregarded the rules of the Company which
resulted in loss, damage, or injury to the Company, or because
the director has made any unauthorized disclosure of any of the
secrets or confidential information of the Company, has induced
any client or customer of the Company to break any contract with
the Company, has induced any principal for whom the Company acts
as agent to terminate the agency relationship, or has engaged in
any conduct that constitutes unfair competition with the Company.
(vi) Other Reasons. If a nonemployee director's Board membership
ends for any reason not mentioned above in this Subsection
4.1(f), all rights of the director in an option, to the extent
that it has not been exercised, shall terminate on the date the
director's Board membership ends.
ARTICLE 5
STANDARD FORMS OF STOCK OPTION AGREEMENT
5.1 Incentive Stock Options. Unless otherwise provided for by the Board at
the time an Option is granted, an Option designated as an Incentive Stock Option
shall comply with and be subject to the terms and conditions of an Incentive
Stock Option Agreement which shall be in such form as designated by the Board of
Directors or Committee from time to time.
5.2 Nonqualified Stock Options. Unless otherwise provided for by the Board
at the time an Option is granted, an Option designated as a Nonqualified Stock
Option shall comply with and be subject to the terms and conditions of a
Nonqualified Stock Option Agreement which shall be in such form as designated by
the Board of Directors or Committee from time to time.
11
<PAGE>
5.3 Standard Term For Options. Unless otherwise provided for by the Board
in the grant of an Option, any Option granted hereunder shall be exercisable for
a term of seven (7) years.
5.4 Authority To Vary Terms. The Board shall have the authority from time
to time to modify, extend, renew or vary the terms of any of the standard forms
of Stock Option Agreement described in Article 6 below either in connection with
the grant or amendment of an individual Option or in connection with the
authorization of a new standard form or forms; provided, however, that the terms
and conditions of such revised or amended standard form or forms of stock option
agreement shall be in accordance with the terms of the Plan. Such authority
shall include, but not by way of limitation, the authority to grant Options
which are not immediately exercisable.
ARTICLE 6
ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO ALL OPTIONS
The following terms and conditions shall apply to all options granted
pursuant to the plan:
6.1 Payment of Exercise Price.
(a) Excersise of Options. Optionees may exercise options only by
providing written notice to the Company at the address specified in
the written agreement evidencing the option. The notice must be
accompanied by full payment in cash for the Shares as to which the
options are exercised.
(b) Forms of Payment Authorized. Payment of the exercise price for the
number of shares of Stock being purchased pursuant to any Option shall
be made (i) in cash, by check, or cash equivalent, (ii) by tender to
the Company of shares of the Company's stock owned by the Optionee
having a fair market value, as determined by the Board (but without
regard to any restrictions on transferability applicable to such stock
by reason of federal or state securities laws or agreements with an
underwriter for the Company), not less than the exercise price, (iii)
by the assignment of the proceeds of a sale of some or all of the
shares being acquired upon the exercise of the Option (including,
without limitation, through an exercise complying with the provisions
of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System), (iv) by the withholding of
shares being acquired upon exercise of the Option having a fair market
value, as determined by the Board (but without regard to any
restrictions on transferability applicable to such stock by reason of
federal or state securities laws or agreements with an underwriter for
the Company), not less than the exercise price, or (v) by any
combination thereof. The Board may at any time or from time to time
grant Options which do not permit all of the foregoing forms of
consideration to be used in payment of the exercise price and/or which
otherwise restrict one (1) or more forms of consideration.
12
<PAGE>
(c) Tender of Company Stock. Notwithstanding the foregoing, an Option
may not be exercised by tender to the Company of shares of the
Company's stock to the extent such tender of stock, as determined by
the Board, would constitute a violation of the provisions of any law,
regulation and/or agreement restricting the redemption of the
Company's stock. Unless otherwise provided by the Board, an Option may
not be exercised by tender to the Company of shares of the Company's
stock unless such shares of the Company's stock either have been owned
by the Optionee for more than six (6) months or were not acquired,
directly or indirectly, from the Company. An optionee may also
exercise an option by the delivery and surrender of Shares which (i)
have been owned by the optionee for at least six (6) months or for
such other period as the Committee may require; and (ii) have an
aggregate fair market value on the date of surrender equal to the
exercise price. In addition, an option may be exercised by delivering
to the Company (i) an exercise notice instructing the Company to
deliver the certificates for the Shares purchased to a designated
brokerage firm; and (ii) a copy of irrevocable instructions delivered
to the brokerage firm to sell the Shares acquired upon exercise of the
option and to deliver to the Company from the sale proceeds sufficient
cash to pay the exercise price and applicable withholding taxes
arising as a result of the exercise
(d) Assignment of Proceeds of Sale. The Company reserves, at any and
all times, the right, in the Company's sole and absolute discretion,
to establish, decline to approve and/or terminate any program and/or
procedures for the exercise of Options by means of an assignment of
the proceeds of a sale of some or all of the shares of Stock to be
acquired upon such exercise.
6.2 Adjustment of and Changes In Capitalization.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of Shares covered by each
outstanding option, and the number of Shares which have been
authorized for issuance under the Plan but as to which no options have
yet been granted, as well as the price per Share covered by each
outstanding option, shall be proportionately adjusted for any increase
or decrease in the number of issued Shares resulting from a stock
split, reverse stock split, stock dividend, recapitalization,
combination or reclassification of the Shares, or any other increase
or decrease in the number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have
been "effected without receipt of consideration." Such adjustment
shall be made by the Board of Directors, whose determination in that
respect shall be final, binding, and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of Shares subject to an option.
13
<PAGE>
(b) Dissolution, Liquidation, Sale, or Merger. In the event of a
proposed dissolution or liquidation of the Company, options
outstanding under the Plan shall terminate immediately before the
consummation of such proposed action. The Board will, in such
circumstances, provide written notice to the optionees of the expected
dates of termination of outstanding options and consummation of the
proposed dissolution or liquidation.
In the event of a proposed sale of all or substantially all of
the assets of the Company, or the merger of the Company with or into
another corporation in a transaction in which the Company is not the
surviving corporation, outstanding options may be assumed or
equivalent options may be substituted by the successor corporation (or
a parent or subsidiary of the successor corporation), unless the
successor corporation does not agree to assume the options or to
substitute equivalent options. If outstanding options are not assumed
or substituted by equivalent options, all outstanding options shall
terminate immediately before the consummation of the sale or merger
(subject to the actual consummation of the sale or merger) and the
Company shall provide written notice to the optionees of the expected
dates of termination of the options and consummation of the
transaction. If the transaction is not consummated, unexercised
options shall continue in accordance with their original terms.
(c) Notice of Adjustments, Fractional Shares. To the extent the
foregoing adjustments relate to stock or securities of the Company,
such adjustments shall be made by the Committee, whose determination
in that respect shall be final, binding, and conclusive. No right to
purchase fractional shares shall result from any adjustment in options
pursuant to this Section 6.2. In case of any such adjustment, the
shares subject to the option shall be rounded down to the nearest
whole share. Notice of any adjustment shall be given by the Company to
each holder of an option which was in fact so adjusted and the
adjustment (whether or not notice is given) shall be effective and
binding for all purposes of the Plan.
No adjustment shall be made for dividends or other rights for
which the record date is prior to the date of such issuance, except as
provided in this Section 6.2.
Any issue by the Company of shares of stock of any class, or
securities convertible into shares of any class, shall not affect the
number or price of Shares subject to the option, and no adjustment by
reason thereof shall be made. The grant of an option pursuant to the
Plan shall not affect in any way the right or power of the Company to
make adjustments, reclassifications, reorganizations or changes of its
capital or business structure or to merge or to consolidate or to
dissolve, liquidate or sell, or transfer all or any part of its
business or assets.
14
<PAGE>
6.3 Transfer of Control. A "Transfer of Control" shall be deemed to have
occurred in the event any of the following occurs with respect to the Company:
(a) the acquisition of direct or indirect ownership of stock by any
person, entity or group of persons or entities acting in concert
possessing more than a majority of the beneficial interest in the
voting stock of the Company;
(b) the direct or indirect sale or exchange by the stockholders of the
Company of all or substantially all of the stock of the Company where
the stockholders of the Company before such sale or exchange do not
retain, directly or indirectly, at least a majority of the beneficial
interest in the voting stock of the Company after such sale or
exchange;
(c) a merger or consolidation where the stockholders of the Company
before such merger or consolidation do not retain, directly or
indirectly, at least a majority of the beneficial interest in the
voting stock of the Company after such merger or consolidation;
(d) the sale, exchange, or transfer of all, or substantially all, of
the assets of the Company other than a sale, exchange, or transfer to
one (1) or more subsidiary of the Company; or
(e) a liquidation or dissolution of the Company. For purposes of the
foregoing, if a group of persons or entities begins to act in concert,
and if such group meets the beneficial ownership requirements set
forth in clause (a) above, then such acquisition shall be deemed to
have occurred on the date the Company first becomes aware of such
group or its actions.
(f) a Stock Option Agreement may, in the discretion of the Board,
provide for accelerated vesting in the event of a Transfer of Control.
In the event of a Transfer of Control, the surviving, continuing,
successor, or purchasing corporation or parent corporation thereof, as
the case may be (the "Acquiring Corporation"), shall either assume the
Company's rights and obligations under outstanding stock option
agreements or substitute options for the Acquiring Corporation's stock
for such outstanding Options. In the event the Acquiring Corporation
elects not to assume or substitute for such outstanding Options in
connection with the Transfer of Control, any unexercisable and/or
unvested shares subject to such outstanding stock option agreements
shall be immediately exercisable and fully vested as of the date
thirty (30) days prior to the proposed effective date of the Transfer
of Control. The exercise and/or vesting of any Option that was
permissible solely by reason of this Section 6.3 shall be conditioned
upon the consummation of the Transfer of Control. Any Options which
are neither assumed or substituted for by the Acquiring Corporation in
connection with the Transfer of Control nor exercised as of the date
of the Transfer of Control shall terminate and cease to be outstanding
effective as of the date of the Transfer of Control.
15
<PAGE>
6.4 Options Non-Transferable. During the lifetime of the Optionee, the
Option shall be exercisable only by the Optionee. No Option shall be assignable
or transferable by the Optionee, except by will or by the laws of descent and
distribution. In addition, in order for Shares acquired upon exercise of
Incentive Stock Options to receive the tax treatment afforded such Shares, the
Shares may not be disposed of within two years from the date of the option grant
nor within one year after the date of transfer of such Shares to the optionee.
6.5 Termination or Amendment of Plan or Options. The Board, including any
duly appointed committee of the Board, may terminate or amend the Plan or any
Option at any time; provided, however, that without the approval of the
Company's stockholders, there shall be (a) no increase in the total number of
shares of Stock covered by the Plan (except by operation of the provisions of
Section 6.2 above), (b) no change in the class eligible to receive Incentive
Stock Options, and (c) no expansion in the class eligible to receive
nonqualified stock options. In addition to the foregoing, the approval of the
Company's stockholders shall be sought for any amendment to the Plan for which
the Board deems stockholder approval necessary in order to comply with Rule
16b-3. In any event, no amendment may adversely affect any then outstanding
Option or any unexercised portion thereof, without the consent of the Optionee,
unless such amendment is required to enable an Option designated as an Incentive
Stock Option to qualify as an Incentive Stock Option.
The Plan, unless sooner terminated, shall terminate on December 14, 2006,
seven (7) years from the date the Plan was originally adopted by the Board. An
option may not be granted under the Plan after the Plan is terminated.
6.6 Information to Optionees. The Company shall provide to each Optionee
during the period for which he or she has one or more outstanding options,
copies of all annual reports and all other information which is provided to
shareholders of the Company. The Company shall not be required to provide such
information to key employees whose duties in connection with the Company assure
their access to equivalent information.
6.7 Privileges of Stock Ownership, Securities Law Compliance. No Optionee
shall be entitled to the privileges of stock ownership as to any Shares not
actually issued and delivered to the Optionee. The exercise of any option under
the Plan shall be conditioned upon the registration of the Shares with the SEC
and qualification of the options and underlying Shares under the California
securities laws, unless in the opinion of counsel to the Company registration or
qualification is not necessary. The Company shall diligently endeavor to comply
with all applicable securities laws before any options are granted under the
Plan and before any Shares are issued pursuant to the exercise of such options.
6.8 Limitation of Rights.
(a) No Right to an Option. Nothing in the Plan shall be construed to
give any employee or any nonemployee director of the Company any right
to be granted an option.
(b) No Employment Rights. Neither the Plan nor the granting of an
option nor any other action taken pursuant to the Plan shall
constitute or be evidence of any agreement or understanding, express
16
<PAGE>
or implied, that the Company will employ or continue the Board
membership of an optionee for any period of time, or in any position,
or at any particular rate of compensation.
ARTICLE 7
MISCELLANEOUS PROVISIONS
7.1 Effective Date of Plan. The Plan will become effective upon approval by
the Company's shareholders within twelve (12) months of the date the Plan is
adopted by the Company's Board of Directors. Options may be granted under the
Plan at any time after the Plan becomes effective and before the termination of
the Plan.
7.2 Indemnification. To the extent permitted by applicable law in effect
from time to time, no member of the Board or the Committee shall be liable for
any action or omission of any other member of the Board or Committee nor for any
act or omission on the member's own part, excepting only the member's own
willful misconduct or gross negligence. The Company shall pay expenses incurred
by, and satisfy a judgment or fine rendered or levied against, a present or
former director or member of the Committee in any action against such person
(whether or not the Company is joined as a party defendant) to impose liability
or a penalty on such person for an act alleged to have been committed by such
person while a director or member of the Committee arising with respect to the
Plan or administration thereof or out of membership on the Committee or by the
Company, or all or any combination of the preceding; provided the director or
Committee member was acting in good faith, within what such director or
Committee member reasonably believed to have been within the scope of his or her
employment or authority and for a purpose which he or she reasonably believed to
be in the best interests of the Company or its shareholders. Payments authorized
hereunder include amounts paid and expenses incurred in settling any such action
or threatened action. This section does not apply to any action instituted or
maintained in the right of the Company by a shareholder or holder of a voting
trust certificate representing shares of the Company. The provisions of this
section shall apply to the estate, executor, administrator, heirs, legatees or
devisees of a director or Committee member, and the term "person" as used in
this section shall include the estate, executor, administrator, heirs, legatees
or devisees of such person.
7.3 Withholding. The Company shall have the right to condition the issuance
of Shares upon exercise of an option upon payment by the optionee of any
applicable taxes required to be withheld under federal, state or local tax laws
or regulations in connection with the exercise. To the extent permitted in an
optionee's stock option agreement, an optionee may elect to pay such tax by (i)
requesting the Company to withhold a sufficient number of Shares from the total
number of Shares issuable upon exercise of the option or (ii) delivering a
sufficient number of Shares which have been held by the optionee for at least
six (6) months (or such other period as the Committee may require) to the
Company. This election is subject to approval or disapproval by the Committee.
The value of Shares withheld or delivered shall be the fair market value of the
Shares on the date the exercise becomes taxable as determined by the Committee.
17
<PAGE>
7.4 Further Assurances. All parties to this Plan agree to perform any and
all further acts and to execute and deliver any documents that may reasonably be
necessary to carry out the provisions of this Plan.
7.5 Attorneys' Fees. In any legal action or other proceeding brought by any
party to enforce or interpret the terms of this Plan, the prevailing party shall
be entitled to recover reasonable attorneys' fees and costs.
7.6 Governing Law. The Plan and all determinations made and actions taken
pursuant hereto, to the extent not otherwise governed by the Code or the
securities laws of the United States, shall be governed by the law of the State
of California.
7.7 Notices. Any written notice to the Company required by any of the
provisions of the Plan shall be addressed to the chief personnel officer or to
the chief executive officer of the Company, and shall become effective when it
is received by the office of the chief personnel officer or the chief executive
officer.
7.8 Entire Agreement. This Plan, together with those documents that are
referenced in the Plan, are intended to be the final, complete, and exclusive
statement of the terms of the agreement between Employee and the Company with
regard to the subject matter of this Plan. This Agreement supersedes all other
prior agreements, communications, and statements, whether written or oral,
express or implied, pertaining to that subject matter. This Plan may not be
contradicted by evidence of any prior or contemporaneous statements or
agreements, oral or written, and may not be explained or supplemented by
evidence of consistent additional terms. This Plan does not effect the terms and
conditions of any options granted by the Company prior to the date of adoption
of this Plan by the Board of Directors.
7.9 Successors and Assigns. Optionee agrees that he will not assign, sell,
transfer, delegate, or otherwise dispose of, whether voluntarily or
involuntarily, or by operation of law, any rights or obligations under this
Plan, except as expressly permitted by this Plan. Any such purported assignment,
sale, transfer, delegation, or other disposition shall be null and void. Subject
to the limitations set forth in this Plan, the Plan shall be binding on and
inure to the benefit of the successors and assigns of the Company and any
successors and permitted assigns of Employee, including any of his executors,
administrators, or other legal representatives. It shall not benefit any person
or entity other than those specifically enumerated in this Agreement.
7.10 Severability. If any provision of this Plan, or its application to any
person, place, or circumstance, is held by an arbitrator or a court of competent
jurisdiction to be invalid, unenforceable, or void, that provision shall be
enforced to the greatest extent permitted by law, and the remainder of this
Agreement and of that provision shall remain in full force and effect as applied
to other persons, places, and circumstances.
18
<PAGE>
7.11 Interpretation. This Plan shall be construed as a whole, according to
its fair meaning, and not in favor of or against any party. By way of example
and not in limitation, this Plan shall not be construed in favor of the party
receiving a benefit nor against the party responsible for any particular
language in this Plan. Captions are used for reference purposes only and should
be ignored in the interpretation of the Plan. Unless the context requires
otherwise, all references in this Plan to Paragraphs are to the paragraphs of
this Plan.
The undersigned hereby certify that the foregoing Stock Option Plan was
duly adopted and approved by the Board of Directors on December 15, 1999.
/S/ D. Scott Elder Allen D. Hardman
- ---------------------------------- -----------------------------------
D. Scott Elder Allen D. Hardman
Chairman of the Board & CEO Vice-President
19
CONSULTING AGREEMENT
This Consulting Agreement ("Agreement") made on this 1st day of January,
2000, by and between ZiaSun Technologies, Inc., a Nevada corporation, located at
462 Stevens Avenue, Suite 106, Solana Beach, California ("Client"), and
Netgenesis Strategic Internet Marketing, Ltd., located at 304-1040 Mainland
Street, Vancouver, BC V6B 2R9, an entity organized under the laws of British
Columbia ("Consultant"), is made in consideration of the mutual promises made
herein and set forth as follows:
ARTICLE 1. TERM OF CONTRACT
1.1 This Agreement will become effective on the date first stated above and
will continue in effect until the services provided for in this Agreement have
been performed, or until terminated as provided in Article 6, below.
ARTICLE 2. SERVICES TO BE PERFORMED BY CONSULTANT
2.1 Services: Consultant agrees to perform the following consulting
services to Client:
2.1.1 Strategic business development consultation.
2.1.2 Advice and counsel concerning Client's press releases, marketing
strategies, investor relations, advertising, and financial websites.
2.1.3 Consultant shall assist Client in the selection and management
of qualified subcontractors, by performing the following tasks: (1)
identify qualified subcontractors; (2) provide subcontractors with a
detailed description of the scope of work to be performed on behalf of
Client; (3) prepare a proposal for Client's approval with recommended
subcontractors and overall project cost; (4) oversee work performed by such
subcontractors; and, (7) oversee the implementation of programs or
procedures developed by such subcontractors.
2.1.4 Subject to the direction and control of Client, Consultant shall
assist in directing and managing Client's employees responsible for
investors' relations.
2.2 Delivery Schedule: Within ten (10) days following execution of this
Agreement and receipt of the payment due upon execution, Consultant shall
deliver a draft of the Investor's Report to Client for review and approval. All
other services shall commence immediately upon execution of this Agreement and
receipt of the payment due upon execution, and shall continue throughout the
term of this Agreement.
2.3 Method of Performing Services: Consultant will determine the method,
details, and means of performing the above-described services. Consultant may
perform the Services under this Agreement at any suitable time and location of
Consultant's choice.
2.4 Status of Consultant: Consultant is and shall remain an independent
contractor. Consultant and any agents or employees of Consultant shall not act
as an officer or employee of Client. Client assumes no liability for
Consultant's actions in performance, or responsibility for taxes, funds,
payments or other commitments, implied or expressed, by or for Consultant.
Consultant has no authority to assume or create any commitment or obligation on
behalf of, or to bind, Client in any respect.
1
<PAGE>
2.5 Use of Employees or Subcontractors: Upon Client's prior written
approval if any additional cost to Client will be incurred, Consultant may use
any employees or subcontractors as Consultant deems necessary to perform the
services required of Consultant by this Agreement. Client acknowledges and
agrees that Consultant may realize a commission on the use of such employees and
subcontractors for the performance of additional services as described in
paragraph 3.4, below, and such commission shall be an included cost in any
proposal submitted to Client by Consultant. Notwithstanding the foregoing, any
proposal prepared by Consultant which includes consulting fees to be charged by
Consultant to Client shall be clearly identified and quoted as such.
ARTICLE 3. COMPENSATION
3.1 Retainer Fee: Client shall pay an annual retainer fee, which shall be
due and payable, as follows ("Retainer Fee"):
3.1.1 Year One: One hundred twenty thousand and no/100 dollars
($120,000.00):
$30,000.00 Upon execution of this Agreement.
$7,500.00 On the first day of each month of the first twelve
months of this Agreement, commencing January 1, 2000.
3.1.2 Year Two and Beyond: Sixty thousand and no/100 dollars
($60,000.00):
$5,000.00 On the first day of each month of this Agreement,
commencing January 1, 2001.
3.2 Share Fee: As additional compensation, within fifteen (15) days after
execution of this Agreement, the Client shall issue share certificates to
Consultant representing thirty thousand (30,000) shares of the Client's common
stock ("Share Fee"). Consultant acknowledges and understands said stock is
unregistered, restricted stock, as more fully described in the Memorandum from
George G. Chachas, Esq., to ZiaSun Technologies, Inc., dated February 17, 2000,
and the SEC Release No. 33-7390, dated February 20, 1997, copies of which are
attached hereto as Exhibit "A" and made a part hereof by this reference.
Consultant agrees to fully comply with the requirements set forth in Exhibit
"A," as amended from time to time, and acknowledges that any certificate(s) for
shares of the Client issued pursuant to this paragraph will contain the
following restrictive legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION FOR THESE SHARES UNDER SUCH ACT OR AN OPINION OF THE
COMPANY'S COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SAID ACT.
2
<PAGE>
3.2 Invoicing and Payment Terms: Consultant shall submit to Client an
invoice for the Retainer Fee and all additional services rendered on or before
the first of each month. Client agrees to pay the net amount due to Consultant
within ten (10) days after receipt of the statement.
3.3 Payment of Expenses: Consultant shall be responsible for its normal and
customary overhead business expenses incurred in performing services under this
Agreement, including without limitation, telephone, facsimile, postage,
photocopying, supplies, rent, employee salaries and benefits, insurance, and
travel expenses. Consultant shall obtain the prior written approval of Client
for any expenses to be billed to Client in addition to the Retainer Fee set
forth above.
3.4 Additional Services: Upon submission by Consultant to Client, and
Client's prior written approval, of a detailed proposal which specifically
outlines cost, deliverables, and date(s) of performance, Consultant shall
perform the following additional services, the cost of which shall be in
addition to the Retainer Fee and billed on a cost-plus basis:
o Lead generation campaign.
o Shareholders/Investor communications.
o Client Investor Fact Sheet sent to Consultant's exclusive
database of 14,000+ investors.
o Writing and scheduling of all Client's press releases.
o Distribute Client Fact Sheet to Consultant's broker network.
o Financial Community Investor Relations Support System (establish
national network of investors, stockbrokers, analysts, and
traders who are both informed and interested in the Client's
company).
Client's approval shall be evidenced by execution of Consultant's proposal by
both parties, and shall be attached to this Agreement. Upon execution and
attachment, such proposal(s) shall be incorporated herein by this reference and
made a part of this Agreement.
3.5 M&A Fee: In the event Consultant is the procuring cause (i.e., the
first communication between Client and the third party occurs solely as the
result of Consultant's introduction) of a successful merger, acquisition, or
receipt of financing by Client, Consultant shall be paid additional compensation
in an amount equal to three percent (3%) of the total merger/acquisition value,
or five percent (5%) of the total amount of financing secured on behalf of the
Client ("M&A Fee"). The M&A Fee shall be due and payable to Consultant within
fifteen (15) days following the close of the applicable transaction.
ARTICLE 4. OBLIGATIONS OF CONSULTANT
4.1 Non-Exclusive Relationship: Client acknowledges and agrees that the
relationship with Consultant is non-exclusive and Consultant may represent,
perform services for, and contract with, as many additional clients, persons or
companies as Consultant in Consultant's sole discretion sees fit.
3
<PAGE>
4.2 Consultant's Qualifications: Consultant represents and warrants that
Consultant has the qualifications and skills necessary to perform the services
under this Agreement in a competent and professional manner, and is able to
fulfill the requirements of this Agreement. Consultant shall comply with all
applicable federal, state and local laws in the performance of its obligations
hereunder, and all materials used by Consultant in fulfilling its obligations
under this Agreement shall not infringe upon any third party copyright, patent,
trade secret or other proprietary right. Consultant acknowledges and agrees that
failure to perform all the services required under this agreement constitutes a
material breach of the Agreement.
4.3 Availability of Mark Harris: Consultant acknowledges and agrees that a
material consideration of this Agreement is that Mark Harris shall be in charge
of all services rendered to Client by Consultant under this Agreement, and that
the unavailability of Mark Harris to oversee the performance of such services
shall constitute a material breach of this Agreement.
4.4 Indemnity: Consultant agrees to indemnify, defend, and hold Client free
and harmless from all claims, demands, losses, costs, expenses, obligations,
liabilities, damages, recoveries, and deficiencies, including interest,
penalties, attorneys' fees, and costs, including without limitation expert
witnesses' fees, that Client may incur as a result of a breach by Consultant of
any representation or agreement contained in this Agreement.
4.5 Assignment: Neither this Agreement nor any duties or obligations under
this Agreement may be assigned by Consultant without the prior written consent
of Client.
ARTICLE 5. OBLIGATIONS OF CLIENT
5.1 Compliance with Requests: Client agrees to comply with all reasonable
requests of Consultant necessary to the performance of Consultant's duties under
this Agreement.
5.2 Place of Work: Client agrees to furnish an office for Mark Harris on
Client's premises for use by said representative of Consultant from time-to-time
when visiting the San Diego area to facilitate his performance of the
above-described services.
5.3 Company Provided Information: Client assumes full responsibility for
the accuracy and completeness of all information provided to Consultant.
5.4 Indemnity: Client agrees to indemnify, defend, and hold Consultant free
and harmless from all claims, demands, losses, costs, expenses, obligations,
liabilities, damages, recoveries, and deficiencies, including interest,
penalties, attorneys' fees, and costs, including without limitation expert
witnesses' fees, that Consultant may incur as a result of any information
provided to Consultant by Client under this Agreement.
ARTICLE 6. TERMINATION OF AGREEMENT
6.1 Termination on Notice: Notwithstanding any other provision of this
Agreement, either party may terminate this Agreement at any time by giving
thirty (30) days written notice to the other party. Unless otherwise terminated
as provided in this Agreement, this Agreement will continue in force until the
Services provided for in this Agreement have been fully and completely
performed.
4
<PAGE>
6.2 Termination on Occurrence of Stated Events: This Agreement will
terminate automatically on the occurrence of any of the following events:
6.2.1 Unavailability of Mark Harris to manage and oversee all services
rendered to Client by Consultant under this Agreement.
6.2.2 Bankruptcy or insolvency of either party.
6.2.3 Dissolution of either party.
6.2.4 Assignment of this Agreement by Consultant without the prior
written consent of Client.
6.3 Termination for Default: If either party defaults in the performance of
this Agreement or materially breaches any of its provisions, the non-breaching
party may terminate this Agreement by giving written notification to the
breaching party. Termination will take effect immediately on receipt of notice
by the breaching party or five (5) days after mailing of notice, whichever
occurs first. For the purposes of this paragraph, material breach of this
Agreement includes, but is not limited to, the following:
6.3.1 Consultant's failure to perform the services specified in this
Agreement.
6.3.2 Consultant's material breach of any representation or agreement
contained in Article 4, above.
6.3.3 Client's material breach of any representation or agreement
contained in Article 5, above.
6.3.4 Client's failure to pay Consultant any compensation due within
thirty (30) days after written demand for payment.
ARTICLE 7. CLIENT INFORMATION
7.1 Nondisclosure/Nonuse of Client Information: Consultant agrees that all
information provided by Client to Consultant under this Agreement shall not be
disclosed or used by Consultant for any purpose other than Consultant's
performance under this Agreement.
7.2 Confidential Information: Any written, printed, graphic, or
electronically or magnetically recorded information furnished by Client for
Consultant's use is and shall remain the sole property of Client. This
proprietary information includes, but is not limited to, investor lists,
marketing information, planning, drawings, specifications, and information
concerning Client's employees, products, services, prices, and operations.
Consultant will keep this confidential information in the strictest confidence,
and will not disclose it by any means to any person except with Consultant's
prior written approval, and only to the extent necessary to perform the services
under this Agreement. This prohibition also applies to Consultant's employees,
agents, and subcontractors. On termination of this Agreement or request by
Client, Consultant will return within two (2) days any confidential information
in Consultant's possession to Client.
5
<PAGE>
ARTICLE 8. GENERAL PROVISIONS
8.1 Notices: Any notices to be given by either party to the other shall be
in writing and may be transmitted either by personal delivery or by mail,
registered or certified, postage prepaid with return receipt requested. Mailed
notices shall be addressed to the parties at the addresses appearing in the
introductory paragraph of this Agreement, but each party may change that address
by written notice in accordance with this section. Notices delivered personally
shall be deemed communicated as of the date of actual receipt. Mailed notices
shall be deemed communicated as of five (5) days after the date of mailing.
8.2 Attorneys' Fees and Costs: If this Agreement gives rise to a lawsuit or
other legal proceeding between any of the parties hereto, the prevailing party
shall be entitled to recover court costs, necessary disbursements (including
expert witnesses' fees) and reasonable attorneys' fees, in addition to any other
relief such party may be entitled.
8.3 Entire Agreement: This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the services provided by Consultant to Client under this Agreement, and
contains all of the covenants and agreements between the parties with respect to
this Agreement in any manner whatsoever. Each party to this Agreement
acknowledges that no representations, inducements, promises, or agreements,
orally or otherwise, have been made by any party, or anyone acting on behalf of
any party, which are not embodied herein, and that no other agreement,
statement, or promise not contained in this Agreement shall be valid or binding.
8.4 Modifications: Any modification of this Agreement will be effective
only if it is in writing signed by the party to be charged.
8.5 Effect of Waiver: The failure of either party to insist on strict
compliance with any of the terms, covenants, or conditions of this Agreement by
the other party shall not be deemed a waiver of that term, covenant, or
condition, nor shall any waiver or relinquishment of any right or power at any
one time or times be deemed a waiver or relinquishment of that right or power
for all or any other times.
8.6 Partial Invalidity: If any provision in this Agreement is held by a
court of competent jurisdiction to be invalid, void, or unenforceable, the
remaining provisions shall nevertheless continue in full force without being
impaired or invalidated in any way.
8.7 Law Governing Agreement: This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
8.8 Jurisdiction/Venue: Jurisdiction and venue for any dispute arising out
of this Agreement shall be exclusively in the County of San Diego, State of
California.
8.8 Construction: If any construction is to be made of any provision of
this Agreement, it shall not be construed against either party on the ground
such party was the drafter of the Agreement or any particular provision.
8.9 Time: Time is of the essence in this Agreement.
6
<PAGE>
8.10 Corporate Authorization: If any signatory of this Agreement is a
corporation, said signatory represents and warrants that this Agreement and the
undersigned's execution of this Agreement have been duly authorized and approved
by the corporation's Board of Directors. The undersigned officers and
representatives of the corporation(s) executing this Agreement on behalf of the
corporation(s) represent and warrant they are officers of the corporation(s)
with full authority to execute this Agreement on behalf of the corporation(s).
IN WITNESS WHEREOF, the undersigned have executed this Agreement, effective
as of the date first above written.
CLIENT: CONSULTANT:
ZiaSun Technologies, Inc. Netgenesis Strategic Internet
Marketing, Ltd.
/S/ D. Scott Elder /S/Mark Harris
- ---------------------------------- -----------------------------------
By: Scott Elder By: Mark Harris
Its: Chairman & CEO Its: Managing Director
- -and-
/S/ Allen D. Hardman
- ----------------------------------
By: Allen D. Hardman
Its: Executive Vice President
7
CLIENT SERVICE AGREEMENT
THIS AGREEMENT is made and entered into this 14th day of January, 2000,
between CONTINENTAL CAPITAL & EQUITY CORPORATION, a Florida Corporation located
at 195 Wekiva Springs Road, Suite 200, Longwood, FL 32779, (hereinafter referred
to as "CCEC") and ZiaSun Technologies, Inc., a Nevada Corporation, located at
462 Stevens Avenue, Suite 106 Solana Beach, CA 92075 (hereinafter referred to as
the "Corporation").
WITNESSETH:
A. Whereas, CCEC is a financial relations and direct marketing advertising
firm specializing in the dissemination of information about publicly traded
companies, and
B. Whereas, the Corporation is publicly held with its common stock trading
on the NASD Over the Counter Bulletin Board under the symbol "ZSUN"; and
C. Whereas, the Corporation has filed a Registration Statement on Form
10-SB, pursuant to Section 12(g) of the Securities Exchange Act of 1934. As of
the date of this Agreement, the Registration Statement has become effective but
the Securities and Exchange Commission has not yet reached a position of no
further comments.
D. Whereas, the Corporation desires to publicize itself with the intention
of making its name and business better known to shareholders, investors,
brokerage houses, institutional investors, analysts and other industry
professionals, and
E. Whereas, CCEC is willing to accept the Corporation as a client.
NOW THEREFORE, in consideration of the mutual covenants herein contained,
it is agreed:
1. ENGAGEMENT. The Corporation hereby engages CCEC to publicize the
Corporation to brokers, prospective investors, institutional investors,
analysts, other industry professionals and shareholders described in Section 2
of this Agreement, and subject to the further provisions of this Agreement. CCEC
hereby accepts the Corporation as a client and agrees to publicize it as
described in Section 2 of this Agreement, but subject to the further provisions
of this Agreement.
2. MARKETING PROGRAM. Consists of the following components:
(A) CCEC will review and analyze various aspects of the Corporation's
goals and make recommendations on feasibility and achievement of desired
goals.
(B) CCEC will review all of the general information and recent filings
of the Corporation and produce a 100,000 piece direct mail package to
include an 11" X 17" self mailer and an ample number of corporate profiles
to provide one profile for each respondent to the original mailing, both
items to be approved by the Corporation prior to circulation
1
<PAGE>
(C) CCEC will provide exposure to its network of firms and brokers
that may be interested in participating with the Corporation and schedule
and conduct the necessary due diligence and obtain the required approvals
necessary for those firms to participate. CCEC will also interview and make
determinations on any firms or brokers referred by the Corporation with
regard to their participation.
(D) At the Corporation's request, CCEC will be available to the
Corporation to field any calls from firms and brokers inquiring about the
Corporation.
(E) CCEC will use its best efforts to obtain the Corporation exposure
on radio programming, in independent financial newsletters, and through
online fax and Internet broadcast services.
(F) CCEC will promote the Corporation on the Worldwide Internet via
CCEC's home web site (www.insidewallstreet.com). Further CCEC shall create
banner ads for placement on financial web sites with hyperlinks back to the
Corporation's feature page on CCEC's home web site. The banner ads shall
run for four (4) months.
(G) At the Corporation's request, CCEC shall write, produce and assist
the Corporation in releasing all press announcements. The Corporation shall
be solely responsible for paying all fees associated with the actual
release(s) through BusinessWire, P.R. Newswire, or any other comparable
news dissemination source.
(H) CCEC will create, build and continually enhance a fax database of
all brokers, investors, analysts and media contacts who have expressed an
interest in receiving on-going information on the Corporation. CCEC will
assist the Corporation in setting up an account with a fax broadcasting
agency to manage the actual broadcasting in the event Corporation does not
have this capability in-house. Further, CCEC will, at its election,
mass-fax broadcast select releases to its network of U.S. stockbrokers,
analysts and institutional investors.
(I) CCEC will obtain express written approval from the Corporation on
all material produced by CCEC prior to disseminating such information to
the public.
3. TIME OF PERFORMANCE. Services to be performed under this Agreement shall
commence upon execution of this Agreement and shall continue for a period of
twelve (12) months.
4. COMPENSATION AND EXPENSES. In consideration of the services to be
performed by CCEC, the Corporation agrees to pay compensation to CCEC as
follows:
(A) Cash Compensation. Two hundred fifty thousand dollars
($250,000.00), payable in cash due upon execution of this Agreement.
(B) Warrants. Warrants entitling CCEC to purchase two hundred thousand
(200,000) shares of the Corporation's common stock with the exercise price
based on the Closing Bid of the Common Stock of the Corporation as reported
on the NASD Over the Counter Bulletin Board, as of the date of execution of
this Agreement (the "Closing Bid"), and calculated as follows:
2
<PAGE>
(i) Round 1. CCEC shall have the right to purchase 50,000 shares
of the Common Stock of the Corporation, at an Exercise Price
equal to one hundred twenty-five percent (125%) of the
Closing Bid;
(ii) Round 2. CCEC shall have the right to purchase 50,000 shares
of the Common Stock of the Corporation, at an Exercise Price
equal to one hundred fifty percent (150%) of the Closing
Bid;
(iii)Round 3. CCEC shall have the right to purchase 50,000
shares of the Common Stock of the Corporation, at an
Exercise Price equal to one hundred seventy-five percent
(175%) of the Closing Bid; and
(iv) Round 4. CCEC shall have the right to purchase 50,000 shares
of the Common Stock of the Corporation, at an Exercise Price
equal to two hundred percent (200%) of the Closing Bid.
(C) Terms of Warrant. The terms and conditions of the Warrant are set
forth in the Warrant attached hereto as Exhibit 1, and incorporated herein
by this reference.
(D) Renewal of Agreement. If Rounds 1 and 2 of the Warrant as set
forth in section 1.3(a) and (b) of the Warrant, are exercised by CCEC, then
CCEC shall automatically be granted a $250,000, 12 month Client Service
Agreement renewal, payable in cash within thirty (30) days of CCEC's
exercise of Round 2 of warrants as set forth in section 1.3(b) of the
Warrant.
(E) Registration Rights for Warrant Shares. The shares issuable upon
exercise of the Warrant shall be subject to certain piggyback and demand
registration rights as set forth in that certain Registration Rights
Agreement, a copy of which is attached hereto as Exhibit 2.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Corporation
represents and warrants to CCEC, each such representation and warranty being
deemed to be material that:
(A) The Corporation will cooperate fully and timely with CCEC to
enable CCEC to perform its obligations under this Agreement.
(B) The execution and performance of this Agreement by the Corporation
has been duly authorized by the Board of Directors of the Corporation in
accordance with applicable law, and, to the extent required, by the
requisite number of shareholders of the Corporation;
(C) The performance by the Corporation of this Agreement will not
violate any applicable court decree, law or regulation, nor will it violate
any provisions of the organizational documents of the Corporation or any
contractual obligation by which the Corporation may be bound.
3
<PAGE>
(D) The Corporation will promptly deliver to CCEC a complete due
diligence package to include the most recent annual report to Shareholders,
and the most recent quarterly report of the Corporation on Form 10-QSB, the
last six (6) months of press releases and all other relevant materials,
including but not limited to corporate reports, brochures, etc.
(E) The Corporation will promptly deliver to CCEC a list of names and
addresses of all shareholders of the Corporation of which it is aware.
(F) The Corporation will promptly deliver to CCEC a list of brokers
and market makers of the Corporation's securities which have been following
the Corporation.
(G) Because CCEC will rely on such information to be supplied it by
the Corporation, all such information shall be true, accurate, complete and
not misleading, in all respects.
(H) The Corporation will act diligently and promptly in reviewing
materials submitted to it by CCEC to enhance timely distribution of the
materials and will inform CCEC of any inaccuracies contained therein prior
to the projected publication date.
6. DISCLAIMER BY CCEC. CCEC WILL BE THE PREPARER OF CERTAIN PROMOTIONAL
MATERIALS. CCEC MAKES NO REPRESENTATION THAT (A) ITS SERVICE WILL RESULT IN ANY
ENHANCEMENT TO THE COMPANY (B) THE PRICE OF THE COMPANY'S PUBLICLY TRADED
SECURITIES WILL INCREASE, (C) ANY PERSON WILL PURCHASE SECURITIES IN THE
COMPANY, OR (D) ANY INVESTOR WILL LEND MONEY TO OR INVEST IN OR WITH THE
COMPANY.
7. EARLY TERMINATION. If the Corporation fails to cooperate with CCEC, or
fails to make timely payment of the compensation set forth in Section 4 of this
Agreement CCEC shall have the right to terminate any further performance under
this Agreement. In such event all compensation shall become immediately due and
payable and/or deliverable, and CCEC shall be entitled to receive and retain the
same as liquidated damages, and not as a penalty, in lieu of all other remedies,
the parties acknowledging and agreeing that it would be too difficult currently
to determine the exact extent of CCEC's damage, but that the receipt and
retention of such compensation is reasonable present estimate of such damage.
8. LIMITATION OF CCEC LIABILITY. If CCEC fails to perform its services
hereunder, its entire liability to the Corporation shall not exceed the lesser
of (a) the amount of cash compensation CCEC has received from the Corporation
under Section 4 of this Agreement and the gain on any sale of shares issuable
upon exercise of the Warrants, or (b) the actual damage to the Corporation as a
result of such non-performance. IN NO EVENT WILL CCEC BE LIABLE FOR ANY
4
<PAGE>
INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES NOR FOR ANY CLAIM AGAINST THE COMPANY
BY ANY PERSON OR ENTITY ARISING FROM OR IN ANY WAY RELATED TO THIS AGREEMENT,
UNLESS SUCH DAMAGES RESULT DIRECTLY OR INDIRECTLY FROM MISSTATEMENTS,
MISREPRESENTATIONS, OMISSIONS BY CCEC OR FROM THE USE OR PUBLICATION, BY CCEC,
OF INFORMATION NOT AUTHORIZED IN WRITING BY THE COMPANY, FOR USE OR PUBLICATION.
9. OWNERSHIP OF MATERIALS. Upon the initial payment by the Corporation to
CCEC as set forth in section 4(A) above, all right, title and interest in and to
materials to be produced by CCEC in connection with this contract and other
services to be rendered under this Agreement shall be the sole and exclusive
property of the Corporation.
10. CONFIDENTIALITY. Until such time as the same may become publicly known,
CCEC agrees that any information of a confidential nature will not be revealed
or disclosed to any person or entity, except in the performance of this
Agreement, and upon completion of its services and upon written request of the
Corporation all materials and original documentation provided by the Corporation
will be returned to it. CCEC will, however, require Confidentiality Agreements
from its own employees and from contractors CCEC reasonably believes will come
in contact with confidential material.
11. NOTICES. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed to have been duly given
on the date of service if served personally on the party to whom notice is to be
given, or on the third (3rd) business day after mailing if mailed to the party
to whom notice is to be given, by first class mail, registered or certified,
postage prepaid, and properly addressed as follows:
If to the Corporation, addressed to it at: If to CCEC, addressed to it at:
- ----------------------------------------- ------------------------------
Mr. Allen D. Hardman Executive Vice President Mr. Bruce Elliot
ZiaSun Technologies, Inc. 195 Wekiva Springs Road
462 Stevens Avenue Suite 200
Suite 106 Longwood, FL 32779
Solana Beach, CA 92075
12. SEVERABILITY. In case any provision of this Agreement shall be invalid,
illegal, or unenforceable, the validity, legality and enforceability of the
remaining provisions of this Agreement or any provision of the other Agreements
shall not in any way be affected or impaired thereby.
13. ARBITRATION. Any controversy or claim arising out of or relating to the
Client Service Agreement, or the breach thereof, shall be settled by arbitration
in accordance with the commercial arbitration rules of the American Arbitration
Association, and judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof.
5
<PAGE>
14. MISCELLANEOUS.
(A) Governing Law; Choice of Forum. This Agreement shall be governed
by and construed in accordance with the laws of the State of California
applicable to agreements made and to be performed entirely within such
State and without regard to its choice of law principles. All parties
hereto (i) consents to submit itself to the personal jurisdiction of any
federal court located in the State of California or any California state
court in the event any dispute arises out of this Agreement or any of the
transactions contemplated by this Agreement, (ii) agrees that Venue for any
such dispute arises out of this Agreement or any of the transactions
contemplated by this Agreement shall be any federal court located in the
State of California or any California state court, (iii) agrees that they
will not attempt to deny or defeat such personal jurisdiction by motion or
other request for leave from any such court and (iv) agrees that it will
not bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than a federal court
sitting in the State of California or a California state court.
(B) Currency. In all instances, references to dollars shall be deemed
to be United States Dollars.
(C) Counterparts and/or Facsimile Signature This Agreement may be
executed in any number of counterparts, including counterparts transmitted
by telecopier or FAX, any one of which shall constitute an original of this
Agreement. When counterparts of facsimile copies have been executed by all
parties, they shall have the same effect as if the signatures to each
counterpart or copy were upon the same document and copies of such
documents shall be deemed valid as originals. The parties agree that all
such signatures may be transferred to a single document upon the request of
any party.
Executed as of the date and year first above written.
ZiaSun Technologies, Inc.
Dated: 01/14/2000 /S/ D. Scott Elder
-----------------------------------
By: D. Scott Elder
Its: Chairman and CEO
Dated: 01/14/2000 /S/ Allen D. Hardman
-----------------------------------
By: Allen D. Hardman
Its: Executive Vice President
Continental Capital & Equity Corporation
Dated: 01/14/2000 /S/ Dodi B. Zirkle
-----------------------------------
By: Dodi B. Zirkle
Its: Chief Operating Officer
6
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
UNDER ANY STATE SECURITIES LAWS. SUCH WARRANT AND SHARES MAY NOT BE SOLD OR
OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL THAT SUCH REGISTRATION IS
NOT REQUIRED.
ZIASUN TECHNOLOGIES, INC.
COMMON STOCK PURCHASE WARRANT
Warrant No. ZW-001
Issue Date: January 14, 2000
Exercise Price: See Section 1.3
Warrant to Purchase: 200,000 Shares of Common Stock
Expires: See Section 1.4
Transferable or Exercisable Upon Conditions Herein Specified
THIS CERTIFIES that for value received, Continental Capital & Equity
Corporation, a Florida Corporation, hereafter referred to as the "Holder", is
entitled to subscribe for and purchase from ZiaSun Technologies, Inc., a Nevada
Corporation, hereinafter referred to as ("ZiaSun" or the "Corporation"), Two
Hundred Thousand (200,000) shares of the Common Stock, $0.001 par value per
share (the "Common Stock"), of the Corporation (such shares to be subject to
adjustment in accordance with Section 4. hereof, hereinafter sometimes called
the "Warrant Shares" at the exercise price and within the exercise period, as
set forth herein.
1. Exercise of Warrant.
-------------------
1.1 Method of Exercise. The rights represented by this Warrant may be
exercised by the Holder hereof, in whole at any time or in part from time to
time during the Exercise Period, but not as to a fractional share of Common
Stock, by the surrender of this Warrant (properly endorsed) at the office of the
Corporation, at 462 Stevens Avenue, Suite 106, Solana Beach, California 92075,
or at such other agency or office of the Corporation in the United States of
America as it may designate by notice in writing to the Holder hereof at the
address of such Holder appearing on the books of the Corporation), and by
payment to the Corporation of the Exercise Price in an acceptable form of
payment as set forth in section 1.6 below.
1.2 Delivery of Shares Upon Exercise. In the event of any exercise of the
rights represented by this Warrant, (i) a certificate or certificates for the
shares of Common Stock so purchased, registered in the name of the person
entitled to receive the same, shall be mailed to the Holder hereof within a
reasonable time, not exceeding ten (10) days, after the rights represented by
this Warrant shall have been so exercised; provided, however, that the
1
<PAGE>
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any such certificate in
a name other than that of the registered Holder thereof, and the Corporation
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the
Corporation the amount of such tax or shall have established to the satisfaction
of the Corporation that such tax has been paid; (ii) unless this Warrant has
expired, a new Warrant representing the number of shares (except a remaining
fractional share), if any, with respect to which this Warrant shall not then
have been exercised shall also be issued to the Holder hereof within such time.
The person in whose name any certificate for shares of Common Stock is issued
upon exercise of this Warrant shall for all purposes be deemed to have become
the holder of record of such shares on the date on which this Warrant was
surrendered and payment of the Exercise Price was made, irrespective of the date
of delivery of such certificate, except that, if the date of such surrender and
payment is a date when the stock transfer books of the Corporation are closed,
such person shall be deemed to have become the holder of record of such shares
at the close of business on the next succeeding date on which the stock transfer
books are open. The issuance of any shares of Common Stock pursuant to the terms
of this Warrant shall at all times be subject to the requirements of the ACT, as
amended, and to the applicable foreign and state securities and blue sky laws
then in effect.
1.3 Exercise Price. The Exercise Price for the Warrants shall be based upon
the Closing Bid of the Common Stock of the Corporation as reported on the NASD
Over the Counter Bulletin Board, as of the date of issuance of this Warrant (the
"Closing Bid"), and shall be calculated as follows:
(a) Round 1. The Holder shall have the right to purchase 50,000
shares of the Common Stock of the Corporation, at an Exercise
Price equal to one hundred twenty-five percent (125%) of the
Closing Bid;
(b) Round 2. The Holder shall have the right to purchase 50,000
shares of the Common Stock of the Corporation, at an Exercise
Price equal to one hundred fifty percent (150%) of the Closing
Bid;
(c) Round 3. The Holder shall have the right to purchase 50,000
shares of the Common Stock of the Corporation, at an Exercise
Price equal to one hundred seventy-five percent (175%) of the
Closing Bid; and
(d) Round 4. The Holder shall have the right to purchase 50,000
shares of the Common Stock of the Corporation, at an Exercise
Price equal to two hundred percent (200%) of the Closing Bid.
1.4 Exercise Period. The rights represented by the Warrant may be Exercised
during the Exercise Periods as follows:
(a) Round 1. The Holder shall have the right to purchase 50,000
shares of the Common Stock of the Corporation, at the Exercise
Price set forth in Section 1.3(a), beginning on the date hereof
and ending on the close of business one hundred eighty (180) days
from date of issuance;
2
<PAGE>
(b) Round 2. The Holder shall have the right to purchase 50,000
shares of the Common Stock of the Corporation, at the Exercise
Price set forth in Section 1.3(b), beginning on the date hereof
and ending on the close of business two hundred ten (210) days
from date of issuance, subject to extension as set forth in
Section 1.5 below.
(c) Round 3. The Holder shall have the right to purchase 50,000
shares of the Common Stock of the Corporation, at the Exercise
Price set forth in Section 1.3(c), beginning on the date hereof
and ending on the close of business two hundred forty (240) days
from date of issuance, subject to extension as set forth in
Section 1.5 below.
(d) Round 4. The Holder shall have the right to purchase 50,000
shares of the Common Stock of the Corporation, at the Exercise
Price set forth in Section 1.3(c), beginning on the date hereof
and ending on the close of business two hundred seventy (270)
days from date of issuance, subject to extension as set forth in
Section 1.5 below.
1.5 Extension of Exercise Period. In the event that Round 1 of the Warrants
as set forth in Section 1.3(a) is exercised by the Holder, then the Exercise
Period for Round 2, Round 3 and Round 4, as set forth in Section 1.4(b), (c) and
(d), above, shall be extended for an additional period of sixty (60) days, from
the date that a Registration Statement registering the Shares issuable upon
exercise of Round 1, is deemed effective.
By way of Example only , if Round 1 is exercised on the 180th day
following issuance of this Warrant, and a Registration Statement with
regard to Round 1 is deemed effective the 240th day following issuance
of this Warrant, then the exercise period for Rounds 2, 3 and 4 would
end on the 300th day following issuance of this Warrant.
1.6 Forms of Payment Authorized. Upon Exercise of the Warrant, the Holder
shall deliver to the Corporation, at the time of giving the notice of exercise
payment in one of the following forms:
(a) Cash Payment. Payment in form of cash, by certified or official
bank check or via wire transfer, in United States Dollars for each share
being purchased; or
(b) Payment With Shares of the Corporation. Holder may also pay the
Purchase Price by delivering and surrendering to the Corporation Shares
which:
(i) have been owned by the Holder for at least six (6) months;
and
3
<PAGE>
(ii) have an aggregate fair market value on the date of surrender
equal to the Purchase Price.
(iii) In the event that the number of shares evidenced by the
certificates delivered exceeds the number required, the Company
will reimburse the differential through a payment to the Holder
by check.
(c) Cashless Exercise or Conversion Right. In lieu of exercising the
Warrant as specified above, the Holder may from time to time convert the
Warrant, during the Exercise Period at the Exercise Price set forth above,
in whole or in part, into a number of shares of Common Stock determined by:
(i) dividing the aggregate fair market value of the Shares, or
other securities otherwise issuable upon exercise of the Warrant,
minus the aggregate Exercise Price of such Shares, by
(ii) the fair market value of one Share. The fair market value of
the Share shall be determined pursuant to Section 1.6(d) below.
- --------------------------------------------------------------------------------
By way of example only, and assuming the following, the number of
shares to be issued to Holder under the Conversion Right would be
calculated as follows:
(i) The Closing Bid of the Common Stock on date of issuance of the
Warrant is $12.00
(ii) The closing bid for the Company's common stock is $20.00 on the
date that Holder exercises the rights to Round 1.
(iii) The Holder has the right to purchase 50,000 shares;
(iv) The exercise price of the Option is $15.00 (i.e. 125% of $12.00)
Aggregate Fair market value of Shares (50,000 x $20.00) = 1,000,000
Aggregate Warrant Exercise Price is (50,000 x $15.00) = 750,000
Fair market value of one share (Closing Bid) = $20.00
(Aggregate Fair market value of Shares) minus (Aggregate Warrant Price)
-----------------------------------------------------------------------
Fair Market Value of one Share
12,500 Shares to be Issued = (1,000,000 - 750,000) i.e. 250,000
-------------------- -------
$20.00 $20.00
- --------------------------------------------------------------------------------
4
<PAGE>
(d) Fair Market Value. If the Shares are traded in a public market,
the fair market value of the Shares shall be the closing bid or price of
the Shares (or the closing price of the Corporation's Common Stock in which
the Shares are convertible) reported for the business day immediately
before Holder delivers its Notice of Exercise to the Corporation. If the
Shares are not traded in a public market, the Board of Directors of the
Corporation shall determine fair market value in its reasonable good faith
judgment. The foregoing notwithstanding, if Holder advises the Board of
Directors in writing that Holder disagrees with such determination, then
the Corporation and Holder shall promptly agree upon a reputable investment
banking firm to undertake such valuation. If the valuation of such
investment banking firm is greater than that determination by the Board of
Directors, then all fees and expenses of such investment banking firm shall
be paid by the Corporation. In all other circumstances, such fees and
expense shall be paid by Holder.
2. Covenants as to Common Stock. The Corporation covenants and agrees that
all shares of Common Stock which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be validly issued, fully paid
and nonassessable, and free from all taxes, liens and charges with respect to
the issue thereof without limiting the generality of the foregoing, the
Corporation covenants that it will from time to time take all actions as may be
requisite to assure that the stated or par value, if any, of the Common Stock is
at all times equal to or less than the then exercise price per share of Common
Stock issuable upon exercise of this Warrant. The Corporation further covenants
and agrees that the Corporation will at all times have authorized and reserved,
free from preemptive rights, a sufficient number of shares of its Common Stock
to provide for the exercise of the rights represented by this Warrant. The
Corporation further covenants and agrees that if any shares of Common Stock to
be reserved for the purpose of the issuance of shares upon the exercise of this
Warrant require registration with or approval of any governmental authority
under any Federal or State law before such shares may be validly issued or
delivered upon exercise, then, the Corporation will in good faith and as
expeditiously as possible endeavor to secure such registration or approval, as
the case may be. If and so long as the Common Stock issuable upon the exercise
of this Warrant is listed on any national securities exchange, the Corporation
will, if permitted by the rules of such exchange, list and keep listed on such
exchange, upon official notice of issuance, all shares of such Common Stock
issuable upon exercise of this Warrant.
3. Registration Rights. The Corporation agrees that the Shares issuable
upon exercise of this Warrant, shall be subject to the registration rights set
forth in that certain Registration Rights Agreement executed concurrently
herewith, a copy of which is attached hereto as Exhibit A.
4. Adjustment of Warrant Shares.
4.1 If at any time the Corporation shall (i) take a record of the
shareholders of Common Stock for the purpose of entitling them to receive a
dividend payable in, or other distribution of, additional shares of Common
Stock, (ii) subdivide the outstanding shares of Common Stock into a larger
5
<PAGE>
number of shares of Common Stock, or (iii) combine the outstanding shares of
Common Stock into a smaller number of shares of Common Stock, then the Exercise
Price shall be adjusted to equal the product of the Exercise Price in effect
immediately prior to the event giving rise to the adjustment multiplied by a
fraction the numerator of which is equal to the number of shares of Common Stock
outstanding immediately prior to the event giving rise to the adjustment and the
denominator of which is equal to the number of shares of Common Stock
outstanding immediately after such event upon any such adjustment of the
Exercise Price, the holder hereof shall thereafter be entitled to purchase upon
the exercise of this Warrant, at the Exercise Price resulting from such
adjustment, the number of shares of Common Stock (calculated to the nearest
1/100th of a share) obtained by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of shares of Common Stock
issuable on the exercise hereof immediately prior to such adjustment and
dividing the product thereof by the Exercise Price resulting from such
adjustment. No adjustment in the Exercise Price shall be required to be made
unless such adjustment would require an increase or decrease of at least $0.10,
provided, however, that any adjustments which by reason of this section are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment.
4.2 Anything contained herein to the contrary notwithstanding, in case, at
any time after the date hereof, of any capital reorganization or any
reclassification of the stock of the Corporation (other than a change in par
value or from par value to no par value or from no par value to par value or as
a result of a stock dividend or subdivision, split-up or combination of shares),
or the consolidation or merger of the Corporation with or into another
corporation (other than a consolidation or merger in which the Corporation is
the continuing corporation and which does not result in any change in the Common
Stock), or any statutory exchange of securities with another corporation
(including any exchange effected in connection with a merger of a third
corporation into the Corporation), or the sale or disposition of all or
substantially all of the properties and assets of the Corporation to another
corporation, in which holders of Common Stock shall be entitled to receive cash,
stock, securities or other property with respect to or in exchange for Common
Stock, then, as a condition of such reorganization, reclassification,
consolidation, merger, exchange, sale or other disposition, the Corporation or
the successor or purchaser, as the case may be, shall make lawful and adequate
provision so that this Warrant shall thereafter be exercisable for, and upon
exercise the holder hereof shall be entitled to receive, the amount and kind of
cash, stock, securities or other property which the holder of the number of
shares of Common Stock deliverable (immediately prior to the time of such
reorganization, reclassification, consolidation, merger, exchange, sale or other
disposition) upon exercise of this Warrant would have been entitled to receive
upon or as a result of such reorganization, reclassification, consolidation,
merger, sale or other disposition. The provisions of this Section 4.2 shall
similarly apply to successive reorganizations, reclassification, consolidations,
mergers, exchanges, sales or other dispositions.
4.3 Whenever the number of Warrant Shares shall be adjusted as provided in
Section 4.1 above, the Corporation shall forthwith file, at the office of the
transfer agent for the Common Stock or at such other place as may be designated
by the Corporation, a statement, signed by its chief financial officer, showing
in reasonable detail the facts requiring such adjustment and the number of
Warrant Shares that shall be in effect after such adjustment. Upon request by
6
<PAGE>
the holder of this Warrant, the Corporation shall also cause a copy of such
statement to be sent by first-class, certified mail, return receipt requested,
postage prepaid, to the holder of this Warrant at such holder's address
appearing on the Corporation's records, and, if not so previously mailed, shall
provide a copy of such statement to the holder hereof at the time of exercise.
5. No Stockholder Rights. This Warrant shall not entitle the holder hereof
to any voting or other rights as a stockholder of the Corporation.
6. Transfer Restriction Legend. Each certificate representing shares
initially issued upon exercise of this Warrant (and subsequently issued if
appropriate), unless at the time of exercise such shares are registered under
the Securities Act, shall bear the following legend (and any additional legend
required by applicable securities laws or any securities exchange or NASDAQ at
the time of such exercise) on the face thereof:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or the
securities laws of any state and may not be sold, transferred,
hypothecated or otherwise assigned except pursuant to a registration
statement with respect to such securities which is effective under
such act and under any applicable state securities laws unless, in the
opinion of counsel reasonably satisfactory to the Company, an
exemption from the registration requirements of such act and state
securities laws is available."
Any certificate issued at any time upon transfer of, or in exchange for or
replacement of, any certificate bearing such legend (except a new certificate
issued upon completion of a public distribution of the securities represented
thereby pursuant to a registration under the Securities Act) shall also bear
such legend unless, in the opinion of counsel for the registered holder thereof
reasonably acceptable to the Company, the shares represented thereby need no
longer be subject to the restrictions in this Section. The provisions of this
Section 6., shall be binding upon all subsequent holders of certificates bearing
the above legend, and shall also be applicable to all subsequent holders of this
Warrant.
7. Condition for Issuance of Shares upon Exercise. The Corporation will be
able to issue the shares of Common Stock upon exercise of the Warrant only if
there is a then current Private Placement Memorandum or registration statement
available for and distributed to the warrant holders relating to such Common
Stock, or only if such Warrant and Common Stock is qualified for sale or exempt
from registration and qualification under applicable federal securities laws and
state securities laws of the jurisdiction in which various holders of the
Warrants reside. The Corporation reserves the right in its sole discretion to
determine not to apply for exemptions or to register such Common Stock in any
jurisdiction where the time and expense do not justify such exemption filing or
registration. The Warrants may be deprived of any value in the event the
Corporation does not satisfy or the Corporation chooses not to satisfy any such
requirements. Although it is the present intention of the Corporation to satisfy
such requirements, there can be no assurance that the Corporation will be able
to do so.
7
<PAGE>
8. Holder Representation and Acknowledgment. The Holder by accepting this
Warrant agrees and acknowledges that the Warrant is being purchased for its own
account, for investment purposes only, and not for the account of any other
person, and not with a view to distribution, assignment or resale to others or
to fractionalization in whole or in part, and the Holder further represents,
warrants and agrees as follows: no other person has or will have a direct or
indirect beneficial interest in this Warrant and the Holder will not sell,
hypothecate or otherwise transfer his Warrant except in accordance with the Act,
as amended and applicable state securities laws or unless, in the opinion of
counsel for the Holder acceptable to the Corporation, an exemption from the
registration of the Act and such laws is available.
9. Transfer of Warrant. Subject to Section 6. hereof, this Warrant and all
rights hereunder are transferable in whole, (or in part), at the agency or
office of the Corporation referred to in Section 1. hereof by the Holder hereof
in person or by duly authorized attorney, upon surrender of this Warrant
properly endorsed. Each taker and holder of this Warrant, by taking or holding
the same, consents and agrees that this Warrant, when endorsed, in blank, shall
be deemed negotiable, and, when so endorsed the holder hereof may be treated by
the Corporation and all other persons dealing with this Warrant as the absolute
owner hereof for all purposes and as the person entitled to exercise the rights
represented by this Warrant, or to the transfer hereof on the books of the
Corporation, any notice to the contrary notwithstanding; but until each transfer
on such books, the Corporation may treat the registered holder hereof as the
owner hereof for all purposes.
10. Elimination of Fractional Interests. The Corporation shall not be
required to issue stock certificates representing fractions of shares of Common
Stock, nor shall it be required to pay cash in lieu of fractional interests, it
being the intent of the parties that all fractional interests shall be
eliminated.
11. Exchange of Warrant. This Warrant is exchangeable, upon the surrender
hereof by the Holder hereof at the office or agency of the Corporation
designated in Section 1 hereof, for a new Warrant of like tenor representing the
right to subscribe for and purchase the number of Warrant Shares which may be
subscribed for and purchased hereunder.
12. Notices to Warrant Holders. Nothing contained in this Warrant shall be
construed as conferring upon the holder hereof the right to vote or to consent
to or receive notice as a shareholder in respect of any meetings of shareholders
for the election of Directors or any other matter, or as having any rights
whatsoever as a shareholder of the Corporation. If, however, at any time prior
to the expiration of the Warrant and prior to its exercise, any of the following
events shall occur:
8
<PAGE>
12.1 The Corporation shall offer to all of the holders of its Common
Stock any additional shares of stock of the Corporation or securities
convertible into or exchangeable for shares of stock of the Corporation, or
any option, right or warrant to subscribe therefore, or
12.2 A dissolution, liquidation or winding up of the Corporation
(other than in connection with a consolidation or merger) or a sale of all
or substantially all of its property, assets and business as an entirety
(whether by merger, consolidation or sale of assets) shall be proposed.
Then, in any one or more of the above said events, the Corporation shall
give written notice of such events at least fifteen (15) days prior to the date
fixed as a record date or the date of closing the transfer books for the
determination of the shareholders entitled to such convertible or exchangeable
securities or subscription rights, or entitled to vote on such proposed
dissolution, liquidation, winding up or sale. Such notice shall specify such
record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the issuance of any convertible or
exchangeable securities, or subscription rights, options or warrants, or any
proposed dissolution, liquidation, winding up or sale.
13. Lost, Stolen, Mutilated, Destroyed Warrant. Upon surrender by the
holder of this Warrant to the Corporation, the Corporation at its expense will
issue in exchange therefore, and deliver to such holder, a new Warrant. Upon
receipt of evidence satisfactory to the Corporation of the loss, theft,
destruction or mutilation of this Warrant, and in the case of any such loss,
theft or destruction, upon delivery by such holder of an indemnity agreement or
security satisfactory to the Corporation, and in case of any such mutilation,
upon surrender and cancellation of this Warrant, the Corporation, upon
reimbursement of all reasonable expenses incident thereto, will issue and
deliver to such holder a new Warrant of like tenor, in lieu of such lost,
stolen, destroyed or mutilated Warrant. Any Warrant delivered to such holder in
accordance with this Section 13., shall bear the same securities legends as the
Warrant which it replaced.
14. Governing Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of California applicable to contracts
made therein.
15. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt requested:
15.1 If to the registered holder of this Warrant, to the address of
such holder as shown on the books of the Corporation; or
15.2 If the Corporation, at 462 Stevens Avenue, Suite 106, Solana
Beach, California 92075.
16. Successors. All the covenants, agreements, representations and
warranties contained in this Warrant shall bind the parties hereto and their
respective heirs, executors, administrators, distributees, successors and
assigns.
9
<PAGE>
17. Headings. The Article and Section headings in this Warrant are inserted
for purposes of convenience only and shall have no substantive effect.
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be executed
by its duly authorized officers as of the date first above written.
ZIASUN TECHNOLOGIES, INC.
A Nevada Corporation
/S/ D. Scott Elder /S/ Allen D. Hardman
- --------------------------------- -----------------------------------
By: D. Scott Elder By: Allen D. Hardman
Its: Chairman and CEO Its: Executive Vice President
10
<PAGE>
FORM OF EXERCISE
[To be signed only upon exercise of the Warrant]
The Undersigned, the Holder of the attached Warrant, hereby irrevocably elects
to exercise the purchase right represented by such Warrant for, and to purchase
hereunder _______________ shares of Common Stock of ZiaSun Technologies, Inc., a
Nevada Corporation, and:
[ ] herewith tenders payment of $__________________ in full payment of the
exercise price for such shares, or
[ ] herewith tenders and delivers __________________ shares of the Common
Stock of the Corporation, pursuant to Section 1.6(b), which have been owned by
the Holder for at least six (6) months and have an aggregate fair market value
on the date of surrender equal to the aggregate Exercise Price of
$__________________; or
[ ] hereby waives receipt of ______________ of the Warrant shares as
calculated pursuant to Section 1.6(c) and agrees to take delivery of only
______________ shares, pursuant to said conversion, without any exchange of
money,
and requests that the certificate for such shares purchased hereunder be issued
in the name of, and delivered to:
-----------------------------------
Name as Shares are to be registered
-----------------------------------
Address
-----------------------------------
City, State and Zip
-----------------------------------
SNN / EIN
If said number of shares shall not be all the shares purchasable hereunder, that
a new Warrant for the balance of the remaining shares purchasable under the
within Warrant be requested in the name of, and delivered to, the undersigned at
the address stated below.
The undersigned further acknowledges that the undersigned is/are acquiring the
shares purchasable under the Warrant for investment for its own account and not
as the nominee or agent, and not with the view to, or for resale in connection
with, any distribution of such shares within the meaning of the Securities Act.
Dated: ____________________________ __________________________________
Signature of Warrant Holder(s)
<PAGE>
FORM OF ASSIGNMENT
[To be signed only upon transfer of a Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto:
____________________________, whose address is ____________________________
_____________________________________________, all of the rights represented by
the within Warrant to purchase ____________________________ shares of the Common
Stock of ZiaSun Technologies, Inc. to which the within Warrant relates, and
appoints _______________________________________, Attorney to transfer such
rights on the books of ZiaSun Technologies, Inc., with full power of
substitution in the premises.
- ------------------------------------ ------------------------------------
Signature of Warrant Holder(s) Signature of Warrant Holder(s)
------------------------------------
Name of Holder of Warrant
------------------------------------
Address of Holder of Warrant:
------------------------------------
City, State and Zip
REGISTRATION RIGHTS AGREEMENT
Issuer: ZiaSun Technologies, Inc. (the "Company" or "ZiaSun")
Address: 462 Stevens Avenue, Suite 106
Solana Beach, CA 92075
Date: January 14, 2000
This Registration Rights Agreement (the "Agreement") is entered into as of the
above date by and between Continental Capital & Equity Corporation, a Florida
Corporation, hereinafter referred to as "CCEC", whose address is 195 Wekiva
Springs Road, Suite 200, Longwood, FL 32779 and the above Company, whose address
is set forth above.
RECITALS
A. Whereas, concurrently with the execution of this Agreement, CCEC and the
Company have executed a Client Services Agreement (the "CSA") under which CCEC
has acquired Warrants (the "Warrants") pursuant to which CCEC has the right to
acquire from the Company the 200,000 shares of common stock (as defined in the
Warrant), with pricing per share calculated as set forth in the CSA.
B. Whereas, by this Agreement, CCEC and the Company desire to set forth the
registration rights of the shares issuable upon exercise of the Warrants, all as
provided herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth, the parties hereto mutually agree as follows:
1. Registration Rights. The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Section 1:
1.1.1 The term "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended
(the "Securities Act"), and the declaration or ordering of effectiveness of
such registration statement or document;
1.1.2 The term "Registrable Securities" means (i) the Shares of Common
Stock of the Company issuable or issued upon exercise of the Warrants, or
conversion of said Warrants; and (ii) any Common Stock of the Company
issued (or issuable upon the conversion or exercise of any Warrant, right
or other security which is issued) as a dividend or other distribution with
respect to, or in exchange for or in replacement of, any stock referred to
in this subsection 1.1.1(i).
1
<PAGE>
1.1.3 The term "SEC" means the Securities and Exchange Commission.
1.2 Company Registration.
1.2.1 Piggyback Registration. If at any time or from time to time, the
Company shall determine to register any of its securities, for its own
account or the account of any of its shareholders, other than a
registration on S-8 relating solely to employee stock option or purchase
plans, or a registration on Form S-4 relating solely to an SEC Rule 145
transaction, or any successor to such forms, which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of Registrable Securities, the
Company will:
(i) promptly give to CCEC written notice thereof (which shall
include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable blue sky or
other state securities laws); and
(ii) include in such registration (and compliance), and in any
underwriting involved therein, all the Registrable Securities
specified in a written request or requests, made within 20 days after
receipt of such written notice from the Company, by CCEC, except as
set forth in subsection 1.3 below.
Notwithstanding the above, if the Company shall determine to complete a
registration on Form S-4 relating solely to an SEC Rule 145 transaction, or a
successor form, and the Company in its sole discretion determines that the
concurrent registration of the Registrable Securities will not material effect
or delay the registration of the underlying transaction which is the subject of
the Form S-4 registration, then the Company will include in the Form S-4
registration statement the registration of the Registrable Securities.
1.2.2 Demand Registration. Subject to the underwriting provisions
contained in this document, if at any time or from time to time following
the exercise of Round 1 of Warrants as set forth in section 1.3(a) of the
Warrant, CCEC provides the Company with a written demand (the "Demand")
that the Company effect a registration under the Act of all or any part of
Registrable Securities, then the Company shall use very reasonable effort
to effect such registration (a "Demand Registration") as to all Registrable
Securities included in the Demand received by the Company. Subject to (i)
the provisions of Section 1.3 hereof and (ii) the absolute priority of
CCEC, the Company may include in any Demand Registration, other securities
of the Company whether being sold for the accounts of others or for the
account of the Company.
1.2.3 Limitations on Demand Registrations. The rights of the CCEC to
effect a Demand Registration shall be limited as follows:
(i) The Company shall not be required to effect Demand
Registrations unless the Company qualifies to use Form S-3 or any
similar short form registration. ZiaSun shall use every reasonable
effort to qualify for registration on Form S-3 or its successor form;
and,
2
<PAGE>
(ii) ZiaSun shall not be required to effect a registration
pursuant to this subsection within 90 days of the effective date of
any other registration statement; and, the Company shall not be
obligated to effect a registration, qualification, or compliance under
this Article III during the period starting sixty (60) days prior to
the Company's good faith estimate of the date of filing of, and ending
on a date one hundred eighty (180) days following the effective date
of, a Company-initiated registration (other than a registration of
securities in a Rule 145 transaction or with respect to an employee
benefit plan), provided that the Company is actively employing in good
faith all reasonable efforts to cause such registration to become
effective; and,
(iii) ZiaSun shall not be required to effect a registration
pursuant to this subsection if it has, within the 12 month period
preceding the date of any request under this subsection already
effected two registrations pursuant to this subsection; and,
(iv) ZiaSun shall not be required to effect a registration
pursuant to this subsection unless CCEC's request for registration
proposes to dispose of shares of Registrable Securities having an
aggregate price to the public (before deduction of underwriting
discounts and expenses of sale) of at least $250,000; and,
(v) ZiaSun shall not be required to effect a registration
pursuant to this subsection if ZiaSun shall furnish to CCEC a
certificate signed by the President of ZiaSun stating that in the good
faith judgment of the Board of Directors of ZiaSun, it would be
seriously detrimental to ZiaSun and its shareholders for such Form S-3
registration to be effected at such time, in which event ZiaSun shall
have the right to defer the filing of the Form S-3 registration
statement for a period of not more than 90 days after receipt of the
request of CCEC under this Section, provided, however, that ZiaSun
shall not utilize this right more than once in any 12-month period;
and,
(vi) Unless waived by CCEC, any Demand Registration must be
firmly underwritten by underwriters selected by the CCEC, subject to
the approval of the Company, which approval shall not be unreasonably
withheld, and the Company and the CCEC shall obtain the commitment of
such underwriter to firmly underwrite the offering; and,
(vii) Subject to the foregoing, ZiaSun will use its best efforts
to effect promptly the registration of all shares of Registrable
Securities on Form S-3 to the extent requested by CCEC thereof for
purposes of disposition; and,
3
<PAGE>
(viii) The Company will not be deemed to have provided a Demand
Registration hereunder unless, in addition to the satisfaction of any
other conditions required by this Agreement, such registration has
become effective.
1.2.4 Additional Qualifications. The Company shall use its best
efforts to cause such Registrable Securities to be registered on Form S-3
or such other short form, and to be qualified in such jurisdictions as CCEC
may reasonably request; provided, however, that the Company shall not be
required to effect more than one (1) registration pursuant to this
paragraph in any six (6) month period. The obligations of this paragraph
shall be subject to the limitations set forth above.
1.3 Underwriting. If the registration of which the Company gives notice is
for a registered public offering involving an underwriting, the Company shall so
advise CCEC as a part of the written notice given pursuant to section 1.2. In
such event the right of CCEC to registration pursuant to section 1.2 shall be
conditioned upon participation in such underwriting and the inclusion of such
Registrable Securities in the underwriting to the extent provided herein. All
shareholders, including CCEC, proposing to distribute their securities through
such underwriting shall (together with the Company and the other shareholders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. *
* Notwithstanding any other provision of this Agreement, if the
managing underwriter advises the Company that marketing factors
require a limitation of the number of shares to be underwritten, then
the Company shall so advise all holders of Registrable Securities and
the number of shares of Registrable Securities that may be included in
the registration and underwriting shall be allocated among all holders
of Registrable Securities in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities held by such holders
at the time of filing the registration statement.
If such offering is other than the first registered offering of ZiaSun
securities to the public, the underwriter may not limit the Registrable
Securities to be included in such offering to less than 20% of the securities
included therein (based on aggregate market values.) ZiaSun shall advise CCEC
and all shareholders of Registrable Securities which would otherwise be
registered and underwritten pursuant hereto of any such limitations, and the
number of shares of Registrable Securities that may be included in the
registration. If CCEC disapproves of the terms of any such underwriting, they
may elect to withdraw there from by written notice to ZiaSun and the
underwriter. Any securities excluded or withdrawn from such underwriting shall
not be transferred prior to 90 days after the effective date of the registration
statement for such underwriting, or such shorter period as the underwriter may
require.
1.4 Expenses of Registration. All expenses incurred in connection with any
registration, qualification or compliance pursuant to this Section 1 including
without limitation, all registration, filing and qualification fees, printing
expenses, fees and disbursements of counsel for the Company and expenses of any
special audits incidental to or required by such registration, shall be borne by
the Company except the Company shall not be required to pay underwriters' fees,
discounts or commissions relating to Registrable Securities. All expenses of any
registered offering not otherwise borne by the Company shall be borne pro rata
among CCEC and the shareholders participating in the offering and the Company.
4
<PAGE>
Further, the Company shall not be required to pay for expenses of any
registration proceeding begun pursuant to this Section, the request of which has
been subsequently withdrawn by CCEC, in which case, such expenses shall be borne
by the CCEC (including Registrable Securities) requesting or causing such
withdrawal.
1.5 Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this
Registration Rights Agreement, the Company will keep CCEC advised in writing as
to the initiation of each registration, qualification and compliance and as to
the completion thereof. Except as otherwise provided in subsection 1.3, at its
expense the Company will:
1.5.1 Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of
CCEC, keep such registration statement effective for up to 90 days or until
CCEC has completed the distribution described in the registration statement
relating thereto, whichever first occurs; and.
1.5.2 Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of
the Securities Act with respect to the disposition of all securities
covered by such registration statement.
1.5.3 Furnish to CCEC copies of a prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and
such other documents as they may reasonably request in order to facilitate
the disposition of Registrable Securities owned by them.
1.5.4 Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or, Blue
Sky laws of such jurisdictions as shall be reasonably requested by CCEC,
provided that the Company shall not be required in connection therewith or
as a condition thereto to qualify to do business or to file a general
consent to service of process in any such states or jurisdictions.
1.5.5 In the event of any underwritten public offering enter into and
perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. CCEC shall
also enter into and perform its obligations under such an agreement.
1.5.6 Notify CCEC and each shareholder of Registrable Securities
covered by such registration statement at any time when a prospectus
relating thereto is required to be delivered under the Securities Act or
the happening of any event as a result of which the prospectus included in
5
<PAGE>
such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
1.6 Indemnification.
1.6.1 The Company will indemnify CCEC and each of its officers,
directors and partners, and each person controlling such, with respect to
which such registration, qualification or compliance has been effected
pursuant to this Rights Agreement, and each underwriter, if any, and each
person who controls any underwriter of the Registrable Securities held by
or issuable to CCEC, against all claims, losses, expenses, damages and
liabilities (or actions in respect thereto) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained
in any prospectus, offering circular or other document (including any
related registration statement, notification or the like) incident to any
such registration, qualification or compliance, or based on any omission
(or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statement therein not misleading,
or any violation or alleged violation by the Company of the Securities Act,
the Securities Exchange Act of 1934, as amended ("Exchange Act"), or any
state securities law applicable to the Company or any rule or regulation
promulgated under the Securities Act, the Exchange Act or any such state
law and relating to action or inaction required of the Company in
connection with any such registration, qualification of compliance, and
will reimburse CCEC, each of its officers, directors and partners, and each
person controlling such, each such underwriter and each person who controls
any such underwriter, within a reasonable amount of time after incurred for
any reasonable legal and any other expenses incurred in connection with
investigating, defending or settling any such claim, loss, damage,
liability or action; provided, however, that the indemnity agreement
contained in this subsection 1.6.1 shall not apply to amounts paid in
settlement of any such claim, loss, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld); and provided further, that the Company
will not be liable in any such case to the extent that any such claim,
loss, damage or liability arises out of or is based on any untrue statement
or omission based upon written information furnished to the Company by an
instrument duly executed by CCEC or underwriter specifically for use
therein.
1.6.2 CCEC will, if Registrable Securities held by or issuable are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors
and officers, each underwriter, if any, of the Company's securities covered
by such a registration statement, each person who controls the Company
within the meaning of the Securities Act, and each other such shareholder,
each of its officers, directors and partners and each person controlling
such shareholder, against all claims, losses, expenses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained
6
<PAGE>
in any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company, such shareholders,
such directors, officers, partners, persons or underwriters for any
reasonable legal or any other expenses incurred in connection with
investigating, defending or settling any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or
alleged omission) is made in such registration statement, prospectus,
offering circular or other document in reliance upon and in conformity with
written information furnished to the Company by an instrument duly executed
by CCEC specifically for use therein; provided, however, that the indemnity
agreement contained in this subsection 1.6.2 shall not apply to amounts
paid in settlement of any such claim, loss, damage, liability or action if
such settlement is effected without the consent of CCEC (which consent
shall not be unreasonably- withheld); and provided further, that the total
amount for which CCEC shall be liable under this subsection 1.6.2 shall not
in any event exceed the aggregate proceeds received by such from the sale
of Registrable Securities held by same in such registration.
1.6.3 Each party entitled to indemnification under this subsection 1.5
(the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting therefrom; provided
that counsel for the Indemnifying Party, who shall conduct the defense of
such claim or litigation, shall be approved, by the Indemnified Party
(whose approval shall not be unreasonably withheld), and the Indemnified
Party may participate in such defense at such party's expense; and provided
further, that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
hereunder, unless such failure resulted in prejudice to the Indemnifying
Party; and provided further, that an Indemnified Party (together with all
other Indemnified Parties which may be represented without conflict by one
counsel) shall have the right to retain one separate counsel, with the fees
and expenses to be paid by the Indemnifying Party, if representation of
such Indemnified Party by the counsel retained by the Indemnifying Party
would be inappropriate due to actual or potential differing interests
between such Indemnified Party and any other party represented by such
counsel in such proceeding. No Indemnifying Party, in the defense of any
such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release
from all liability in respect to such claim or litigation.
7
<PAGE>
1.7 Information by CCEC. CCEC shall promptly furnish to the Company such
information regarding themselves and the distribution proposed by such as the
Company may request in writing and as shall be required in connection with any
registration, qualification or compliance referred to herein.
1.8 Rule 144 Reporting. With a view to making available to shareholders and
CCEC, the benefits of certain rules and regulations of the SEC which may permit
the sale of the Registrable Securities to the public without registration, the
Company agrees at all times to:
1.8.1 Make and keep public information available, as those terms are
understood and defined in SEC Rule 144, after 90 days after the effective
date of the first registration filed by the Company for an offering of its
securities to the general public;
1.8.2 File with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange
Act (at any time after it has become subject to such reporting
requirements); and
1.8.3 So long as CCEC owns any Registrable Securities, to furnish to
such upon request with a written statement by the Company as to its
compliance with the reporting requirements of said Rule 144 (at any time
after 90 days after the effective date of the first registration statement
filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after
it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports
and documents so filed by the Company as CCEC may reasonably request in
complying with any rule or regulation of the SEC allowing CCEC to sell any
such securities without registration.
1.9 Transfer of Registration Rights. CCEC's rights to cause the Company to
register their securities and keep information available, granted to them by the
Company under subsections 1.2 and 1.7 may not be assigned to a transferee or
assignee of CCEC's Registrable Securities not sold to the public. The Company
prohibits the transfer of any CCEC's rights under this subsection 1.8.
2. General.
2.1 Waivers and Amendments. With the written consent of CCEC the
obligations of the Company and the rights of CCEC under this agreement may be
waived (either generally or in a particular instance, either retroactively or
prospectively, and either for a specified period of time or indefinitely), and
with the same consent the Company, when authorized by resolution of its Board of
Directors, may enter into a supplementary agreement for the purpose of adding
any provisions to or changing in any manner or eliminating any of the provisions
of this Agreement; provided, however, that no such modification, amendment or
waiver shall reduce the aforesaid percentage of Registrable Securities. Upon the
effectuation of each such waiver, consent, agreement of amendment or
modification, the Company shall promptly give written notice thereof to CCEC and
the record shareholders of the Registrable Securities who have not previously
consented thereto in writing. This Agreement or any provision hereof may be
changed, waived, discharged or terminated only by a statement in writing signed
by the party against which enforcement of the change, waiver, discharge or
termination is sought, except to the extent provided in this subsection 2.1.
8
<PAGE>
2.2 Governing Law. This Agreement shall be governed in all respects by the
laws of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within
California.
2.3 Attorneys Fees. The parties agree that if any legal action is necessary
to enforce the terms of this Agreement, the prevailing party shall be entitled
to reasonable attorneys' fees in addition to any other relief to which that
party may be entitled.
2.4 Successors and Assigns. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
2.5 Entire Agreement. Except as set forth below, this Agreement and the
other documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof.
2.6 Notices. etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by first class mail,
postage prepaid, certified or registered mail, return receipt requested,
addressed (a) if to CCEC, at such address as set forth in the heading to this
Agreement, or at such other address as furnished to the Company in writing, or
(b) if to the Company, at the Company's, address set forth in the heading to
this Agreement, or at such other address as the Company shall have furnished to
CCEC in writing.
2.7 Severability. In case any provision of this Agreement shall be invalid,
illegal, or unenforceable, the validity, legality and enforceability of the
remaining provisions of this Agreement or any provision of the other Agreements
shall not in any way be affected or impaired thereby.
2.8 Titles and Subtitles. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
2.9 Counterparts and/or Facsimile Signature..8 Counterparts and/or
Facsimile Signature. This Agreement may be executed in any number of
counterparts, including counterparts transmitted by telecopier or FAX, any one
of which shall constitute an original of this Agreement. When counterparts of
facsimile copies have been executed by all parties, they shall have the same
effect as if the signatures to each counterpart or copy were upon the same
document and copies of such documents shall be deemed valid as originals. The
parties agree that all such signatures may be transferred to a single document
upon the request of any party.
9
<PAGE>
AGREED AND ACCEPTED, effective as of the date first above written.
ZiaSun Technologies, Inc.
ZiaSun Technologies, Inc.
Dated: 01/14/2000 /S/ D. Scott Elder
-----------------------------------
By: D. Scott Elder
Its: Chairman and CEO
Dated: 01/14/2000 /S/ Allen D. Hardman
-----------------------------------
By: Allen D. Hardman
Its: Executive Vice President
Continental Capital & Equity Corporation
Dated: 01/14/2000 /S/ Dodi B. Zirkle
-----------------------------------
By: Dodi B. Zirkle
Its: Chief Operating Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 11,652,505
<SECURITIES> 540,234
<RECEIVABLES> 1,198,199
<ALLOWANCES> 43,906
<INVENTORY> 18,239
<CURRENT-ASSETS> 13,497,043
<PP&E> 992,272
<DEPRECIATION> (197,053)
<TOTAL-ASSETS> 19,966,847
<CURRENT-LIABILITIES> 4,230,620
<BONDS> 0
0
0
<COMMON> 22,205
<OTHER-SE> 15,736,227
<TOTAL-LIABILITY-AND-EQUITY> 19,966,847
<SALES> 27,220,240
<TOTAL-REVENUES> 27,220,240
<CGS> 17,274,957
<TOTAL-COSTS> 5,639,264
<OTHER-EXPENSES> (5,442,330)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,299
<INCOME-PRETAX> 9,748,349
<INCOME-TAX> 3,784,110
<INCOME-CONTINUING> 5,964,239
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,964,239
<EPS-BASIC> 0.27
<EPS-DILUTED> 0.23
</TABLE>
