<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB/A
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
MegaChain.com, Ltd.
...........................................
(Name of Issuer)
Delaware 11-3177042
............................... ....................
(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)
34 West 8th Avenue Vancouver, BC, CANADA V5Y 1M7
.......................................... ..............
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (604) 873-3847
...............
Securities to be registered pursuant to 12(b) of the Act:
Title of each class
Name of each exchange on which
To be so registered
each class is to be registered
None None
............... ...............
None None
............... ...............
Securities to be registered pursuant to Section 12(g) of the Act:
Common stock, Par Value $0.001
...........................................
(Title of class)
..............................................
(Title of class)
<PAGE> 2
INDEX
PAGE NO.
PART I DESCRIPTION OF BUSINESS
Item 1 Description of Business
Item 2 Management Discussion and Analysis or Plan of Operation
Item 3 Description of Property
Item 4 Security Ownership of Certain Beneficial Owners and Management
Item 5 Directors, Executive Officers, Promoters And Control Persons
Item 6 Executive Compensation
Item 7 Certain Relationships and Related Transactions
Item 8 Legal Proceedings
Item 9 Market for Common Equity and Related Stockholder Matters
Item 10 Recent Sales of Unregistered Securities
Item 11 Description of Securities
Item 12 Indemnification of Officers and Directors
Item 13 Financial Statements and Exhibits
Item 14 Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure
PART II FINANCIAL INFORMATION
Financial Statements and Exhibits
INDEPENDENT AUDITORS' REPORT
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENT OF STOCKHOLDERS'
EQUITY (DEFICIT)
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART III EXHIBITS
Exhibit SEC Ref. Title of Document Page
No. No.
1 (3)(i),(4) Certificate of Incorporation, as amended
2 (3)(ii) By-Laws
3 (10) Form of Options granted to Executive
Officers
4 (10) Form of Options granted to Consultants
5 (21) Subsidiaries
7 (10) Management Agreement
8 (10) Option Agreement
9 (10) Option Agreement for EEC
SIGNATURES
<PAGE> 3
PART I
ITEM 1. Description of Business
(a) Business Development.
MegaChain.com Ltd., ("MegaChain" or the "Company") was originally incorporated
as EC Capital Ltd. ("EC"), in the State of Delaware on September 10, 1993. In
October 1995, the Company completed a public offering of 1,100,000 shares of
common stock and received net proceeds of approximately $472,000.
IN SEPTEMBER 1996, THE COMPANY ACQUIRED NORTHERN LIGHTS SOFTWARE, LTD., A NEW
YORK CORPORATION THAT PROVIDED TRAINING AND CONSULTING SERVICES TO SQL SERVER
DATABASES ("NORTHERN NY"), BY ISSUING 8,000,000 SHARES OF ITS COMMON STOCK IN
EXCHANGE FOR 7,000,000 ISSUED AND OUTSTANDING SHARES OF NORTHERN NY.
THE COMPANY THEN SPLIT ITS OUTSTANDING SHARES ON A TWO-FOR-ONE BASIS AND CHANGED
ITS NAME TO NORTHERN LIGHTS SOFTWARE LTD. IN THE FIRST HALF OF 1997 NORTHERN NY
CEASED OPERATIONS DUE TO UNDER CAPITALIZATION AND SIGNIFICANT LOSSES FROM COST
OVERRUNS. NORTHERN NY REMAINS INACTIVE TO DATE.
IN SEPTEMBER 1997 THE COMPANY CHANGED ITS NAME TO FORMQUEST INTERNATIONAL LTD.
FORMQUEST ACTED AS A HOLDING COMPANY AND NEVER HAD ANY OPERATIONS. IN FEBRUARY
1999, FORMQUEST DISPOSED OF THE ASSETS OF ITS SUBSIDIARY, NORTHERN LIGHTS
SOFTWARE LTD. TO AN ENTITY CONTROLLED BY A PRINCIPAL STOCKHOLDER, MR. JOHN
FORMICOLA, FOR THE ASSUMPTION OF LIABILITIES IN THE AMOUNT OF $463,593 AS
DISCLOSED IN THE FINANCIAL STATEMENTS.
In February, 1999 the Company acquired all of the issued and outstanding
shares of 573795 BC Ltd. ("573795"), a company incorporated in October of 1998
and organized under the laws of the Province of British Columbia,Canada by
issuing 6,000,000 common shares to 573795's shareholders. Messrs Bill and Tom
Lavin were the sole shareholders of 573795. SUBSEQUENT TO THE ACQUISITION MESSRS
LAVIN OWNED APPROXIMATELY 46 PERCENT OF THE ISSUED AND OUTSTANDING STOCK OF
FORMQUEST.
In April, 1999, the Company completed the sale of 2,000,000 shares of common
stock at a price of $0.50 per share resulting in $958,000. The Company also
changed its name to MegaChain.com Ltd.
In August, 1999, the shareholders authorized an additional 10,000,000, $0.0001
par value common shares as well as the creation of 5,000,000, $0.0001 par value
preferred shares without attributes.
MegaChain is devoting substantially all of its present efforts in securing and
establishing its business, and although its planned operations have commenced
there have been no significant revenues derived there from.
<PAGE> 4
Business of the Issuer
MEGACHAIN IS IN THE BUSINESS OF ELECTRONIC DIRECT MARKETING [EDM]. TO THIS END
IT HAS DESIGNED AND CREATED A SOFTWARE SYSTEM THAT USES THE INTERNET, EMAIL AND
A MULTI-TIERED COMMISSION PROGRAM FOR THE PURPOSE OF ADVERTISING WEBSITES AND
THEIR GOODS AND SERVICES.
MEGACHAIN INTENDS TO USE THIS SOFTWARE TO CREATE IT'S OWN MARKETABLE ADVERTISING
SERVICE.
THE SOFTWARE SYSTEM TRACKS RESPONSES TO EMAIL ADVERTISEMENTS, IDENTIFYING THE
INDIVIDUAL WHO RESPONDED AND THE CORRESPONDING INDIVIDUAL OR INDIVIDUALS WHO
REFERRED THEM. IT ALSO TRACKS THE SUBSEQUENT COMMISSIONS GENERATED BY THOSE
RESPONSES AND TO WHOM THOSE COMMISSIONS ARE DUE.
AS AN ADVERTISING SERVICE, MEGACHAIN'S OPERATION IS BASED ON A NETWORK OF
RELATIONSHIPS BETWEEN VENDORS WHO AGREE TO PAY FOR REFERRALS TO THEIR WEB SITE
AND/OR SALES OF THEIR GOODS AND SERVICES AND INDIVIDUALS WHO SIGN UP WITH
MEGACHAIN AS AGENTS. THESE AGENTS AGREE TO FORWARD THE VENDOR EMAIL
ADVERTISEMENTS TO THEIR FRIENDS, RELATIVES AND BUSINESS ASSOCIATES AND ARE
PROMISED COMMISSIONS FOR THOSE INDIVIDUALS THEY CONTACT WHO RESPOND TO THE EMAIL
INCENTIVES.
THE SOFTWARE IS CAPABLE OF SUPPORTING AND TRACKING UP TO 100 LEVELS OF AGENTS
BUT FOR MOST PURPOSES REFERRAL COMMISSIONS WILL BE PAID TO A MAXIMUM OF TEN
LEVELS. THE AMOUNT OF COMMISSIONS PAYABLE TO THE AGENT WILL BE CLEARLY POSTED
FOR EACH INCENTIVE THAT IS TO BE FORWARDED.
MEGACHAIN INTENDS TO CREATE A REVENUE STREAM BY SHARING IN THE COMMISSIONS
GENERATED BY REFERRALS. OUR BUSINESS PLAN SUGGESTS THAT THE COMPANY RECEIVE 50%
OF ALL GENERATED COMMISSIONS BUT IN ACTUAL PRACTICE IT IS INTENDED TO USE THIS
ONLY AS A GUIDELINE AND TO RESERVE THE RIGHT TO APPORTION A GREATER OR LESSER
PERCENTAGE TO THE AGENT CHAIN AS BUSINESS DEMANDS. IT MAY BE IN MEGACHAIN'S BEST
INTEREST, FOR EXAMPLE, TO PASS 90% OF REFERRAL COMMISSIONS TO THE AGENT CHAIN ON
A PARTICULAR INCENTIVE.
AGENTS MAY INCREASE THEIR CHANCE FOR EARNING COMMISSIONS BY RECRUITING OTHER
AGENTS TO PARTICIPATE IN THE MEGACHAIN OPPORTUNITY AS WELL. THE SOFTWARE TRACKS
WHO IS BEING RECRUITED BY WHOM AND APPROPRIATELY CREDITS EACH AGENT WHEN AN
INDIVIDUAL RESPONDS TO AN EMAIL ADVERTISEMENT.
AN INDIVIDUAL BECOMES AN AGENT UPON COMPLETION OF THE AGENT REGISTRATION FORM.
THE NECESSITY OF A UNIQUE NAME AND EMAIL ADDRESS INSURES THAT EACH AGENT CAN
ONLY REGISTER ONCE. UPON REGISTRATION AGENTS RECEIVE A USER ID AND PASSWORD,
WHICH ALLOW THEM TO ENTER A PART OF THE WEB SITE THAT DISPLAYS DETAILS INCLUDING
COMMISSIONS PAID TO DATE, COMMISSIONS DUE, NUMBER OF RESPONSES PER EMAIL
INCENTIVE FROM THEIR LIST OF CONTACTS AND OTHER PERTINENT INFORMATION.
WHEN MEGACHAIN CONTRACTS WITH A VENDOR TO CREATE AND DISTRIBUTE AN EMAIL
ADVERTISEMENT, THE VENDOR'S PRODUCT INFORMATION IS ADDED TO MEGACHAIN'S
DATABASE. THIS DATABASE RECORDS THE PRODUCT DESCRIPTION, THE AMOUNT OF
COMMISSION AN AGENT WILL BE PAID FOR EACH SALE, EMAIL ADDRESS OR WEB SITE VISIT,
THE NUMBER OF LEVELS OF SUB-AGENTS COMMISSIONS WILL BE PAID TO AND THE AMOUNT OF
COMMISSIONS THAT EACH LEVEL OF SUB-AGENT WILL RECEIVE.
<PAGE> 5
AN EMAIL THAT CONTAINS DETAILS OF THE PRODUCT BEING ADVERTISED, THE COMMISSIONS
AVAILABLE AND A SAMPLE OF THE ACTUAL ADVERTISEMENT IS THEN SENT FROM MEGACHAIN
TO EVERY AGENT. EACH AGENT DECIDES WHETHER TO FORWARD THE ADVERTISEMENT TO ALL
OF HIS PERSONAL EMAIL CONTACTS, TO ONLY SOME OF THEM OR NOT TO FORWARD THE
PARTICULAR ADVERTISEMENT AT ALL.
MANAGEMENT ANTICIPATES THAT THE MEGACHAIN SYSTEM WILL ALLOW AGENTS WITH PERSONAL
EMAIL LISTS OF THEIR OWN [SUCH AS ARE CONTAINED IN CONTACT MANAGEMENT SOFTWARE
PACKAGES LIKE 'OUTLOOK' AND 'MAXIMIZER'], TO EASILY ADD THESE EXISTING LISTS TO
THEIR MEGACHAIN EMAIL LIST.
THE EMAIL DIRECT MARKETING FIELD IS RAPIDLY BECOMING MORE COMPETITIVE. THERE ARE
A GROWING NUMBER OF BUSINESSES THAT SEEK TO CREATE 'PERMISSION-BASED', 'OPT-IN'
OR 'SPECIFIC INTEREST' TARGETED-EMAIL ADVERTISING SERVICES. TO DATE, THE COMPANY
IS ONLY AWARE OF ONE OTHER COMPETITOR THAT IS ADDRESSING THE NEED FOR A SOFTWARE
SYSTEM THAT TRACKS MULTI-TIERED COMMISSION-BASED REFERRALS. THE COMPANY BELIEVES
THE MEGACHAIN SOFTWARE, BY VIRTUE OF THE FACT THAT IT CAN CREATE REVENUE STREAMS
FOR ANY EXISTING COMPANY WITH A DATABASE [AS WELL AS INDIVIDUALS], IS POSITIONED
WELL TO COMPETE WITH OTHER EMAIL DIRECT MARKETING PROGRAMS.
THE AGENT SALES FORCE IS RECRUITED IN A VARIETY OF WAYS. AN INDIVIDUAL SURFING
THE WEB CAN DISCOVER THE MEGACHAIN WEB SITE AND SIGN UP DIRECTLY. UPON READING
THE INSTRUCTIONS AND SIGNING UP, HE MAY ENTER HIS LIST COMPOSED OF EMAIL
ADDRESSES OF HIS PERSONAL CONTACTS. THESE CONTACTS CAN IN TURN BE SOLICITED BY
EMAIL TO BECOME AGENTS AND ENTER THEIR PERSONAL EMAIL LISTS. THIS TYPE OF
PROLIFERATION OF A SALES FORCE ON THE INTERNET HAS BECOME KNOWN AS VIRAL
MARKETING AND IS IN COMMON USAGE AMONG MANY OF THE MORE RECENT ADVERTISING
COMPANIES ON THE INTERNET.
ADDITIONALLY, ANY WEBSITE WITH TRAFFIC CAN ELECT TO POST A MEGACHAIN BANNER. ANY
AGENT ENTERING THE MEGACHAIN SYSTEM VIA A BANNER OF THIS NATURE BECOMES A PART
OF THE AGENT CHAIN OF THE WEBSITE THEY FOUND THE BANNER ON. MEGACHAIN ALSO
CONTACTS INTERNET SERVICE PROVIDERS AND OTHER ORGANIZATIONS WHO HAVE CONTACT
WITH LARGE NUMBERS OF INDIVIDUALS WITH EMAIL ADDRESSES. MEGACHAIN ADVISES THESE
COMPANIES THAT THEY CAN CREATE A NEW POTENTIAL REVENUE STREAM FOR THEIR BUSINESS
BY CONVINCING THEIR CONTACTS TO BECOME MEGACHAIN AGENTS.
THE INFORMATION REQUIRED TO COMPLETE AN AGENT REGISTRATION FORM INCLUDES FIRST
NAME, LAST NAME, EMAIL ADDRESS, ADDRESS, CITY, STATE OR PROVINCE, COUNTRY,
POSTAL ZIP CODE AND PHONE NUMBER. A BIRTH DATE IS ALSO REQUIRED AS AN INDIVIDUAL
MUST BE 18 OR OLDER TO PARTICIPATE AS A MEGACHAIN AGENT. AFTER THIS INFORMATION
IS ENTERED THE AGENT MUST CHOOSE A LOGIN NAME AND A PASSWORD.
MEGACHAIN IS COMPENSATED BY THE VENDOR AFTER THE VENDOR EMAIL CAMPAIGN RUNS ITS
COURSE. A VENDOR INCENTIVE EMAIL ADVERTISING CAMPAIGN RUNS FOR A SPECIFIC AMOUNT
OF TIME [LIMITED TIME OFFER]. THE VENDOR AGREES IN ADVANCE WHAT AMOUNT OF
COMMISSION IT IS PREPARED TO PAY UPON A RESULT [EITHER SALE, EMAIL CAPTURE OR
IDENTIFIED WEB VISITOR]. WHEN THE CAMPAIGN TIME IS EXPIRED, MEGACHAIN PROVIDES A
DETAILED INVOICE TO THE VENDOR THAT CONTAINS THE EXACT NUMBER OF RESPONSES AND
THE NAME AND OR EMAIL ADDRESS OF THE RESPONDENT. IT IS AT THIS JUNCTURE THAT THE
VENDOR PAYS MEGACHAIN. IN ITS CURRENT VERSION, THIS IS THE ONLY REVENUE STREAM
THAT ACCRUES TO MEGACHAIN.
IT HAS BEEN DISCUSSED THAT ONCE A CRITICAL MASS OF EMAIL RECIPIENTS ARE
COLLECTED, A 'SET-UP' FEE AND A CHARGE FOR 'IMPRESSIONS' [THE NUMBER OF PEOPLE
<PAGE> 6
WHO SIMPLY RECEIVE THE EMAIL, NOT HOW MANY RESPOND], MAY ALSO BE A FUTURE VIABLE
SOURCE OF REVENUE FOR MEGACHAIN. AGENTS ARE COMPENSATED WITHIN 30 DAYS AFTER THE
VENDOR PAYS MEGACHAIN. AGENTS ARE MADE AWARE THAT MEGACHAIN IS NOT LIABLE IN THE
EVENT THE VENDOR DOES NOT PAY MEGACHAIN. THE MEGACHAIN SOFTWARE ACCOUNTS EXACTLY
FOR ALL AGENT AND SUB AGENT PAYMENTS. ALL AGENTS WITHIN THE SYSTEM ARE PAID
DIRECTLY FROM MEGACHAIN.
MegaChain can provide any company with an Internet presence, a powerful, cost
effective means of advertising and selling its product or service through the
use of an innovative software suite combining multi-level marketing techniques
and the use of personalized E-mail messages offering valuable product
incentives.
E-mail received from a friend, relative or business acquaintance has a greater
likelihood of being read than does unsolicited E-mail. MegaChain's clients have
the unique advantage of having their advertisements sent by agents to a group of
individuals with whom the agent has a personal relationship and whom the agent
believes may have an interest in the content of the advertisement. The
advertiser only pays for certified referrals (an individual registering on the
advertiser's web page as a result of the MegaChain system).
Individuals who register as agents with MegaChain can earn commissions by
forwarding promotional e-mails to their friends and acquaintances. Each
recipient of the E-mail may also register as an agent with MegaChain and earn
commissions through the same process. Furthermore, companies with pre-existing
databases, such as list brokers and Internet Service Providers, can themselves
become Agents, and secure an additional revenue stream.
DETAILED BREAKDOWN OF THE MEGACHAIN SOFTWARE SUITE
The first step in creating an effective Multi-Level Marketing program is to
recruit a sales force. MegaChain refers to its sales force as "Agents".
In addition to introducing their personal contacts to new products, the primary
objective of Agents is to recruit their own eChain network. To assist Agents in
achieving this objective, MegaChain provides an agent recruiting E-mail which
explains the benefits of the MegaChain Program. Agents download this E-mail from
the MegaChain web site and then forward it to their contacts.
The E-mail is uniquely coded so that when contacts respond to become Agents they
will be added to the recruiting Agent's eChain. An "eChain" is an Agent's
Multi-Level Marketing E-mail chain, which includes the contacts in their
personal database and any Agents that they have recruited. The recruiting Agent
will share in the revenues from all qualified referrals or products purchased
through the new Agent's eChain. Moreover, when Agents create their own eChain,
the initial recruiting Agent continues to share in these revenues as explained
in the commission structure section.
Consumers can be directly recruited to become MegaChain Agents via a product
response E-mail. The E-mail explaining the Agent program is automatically sent
to consumers when they respond to a MegaChain client's advertisement. If the
consumer becomes an Agent, they are automatically added to the contacting
Agent's eChain. If the consumer is not interested in becoming an Agent, they are
tagged and will not receive future solicitations.
Individuals may also sign up directly to become Agents on the MegaChain web
<PAGE> 7
sites. Agents recruited in this manner become part of MegaChain's eChain.
Agent Registration
The individual becomes an Agent upon completion of the agent registration form.
A software mechanism will ensure an individual can only registered once. Upon
registration Agents receive a User ID and password, which allows them to access
MegaChain's reporting module.
Management anticipates that the MegaChain system will integrate with most major
contact management software packages. This will aid Agents in creating and
managing their eChain.
MegaHit
MegaHit's function is to send qualified referrals to MegaChain's clients. When
MegaChain contracts with a client, the client's product information is added to
MegaChain's database. This database captures the product description, the
commission structure (e.g. number of levels and percentage on which commissions
are paid) and the product campaign E-mail, which has been created to sell the
product.
A campaign opportunity package, which includes details about the product, the
commission structure and the product campaign E-mail attachment, will then be
e-mailed to the MegaChain Network of Agents. Agents will also be able to search
MegaChain's inventory of advertiser campaigns by category. This will give the
Agent the ability to target a specific portion of his eChain.
If Agents are interested in participating in the product campaign, they will
only need to download and forward the E-mail attachment to their eChain. Each
product campaign that Agents E-mail is uniquely coded ensuring they will be
credited with all resulting commissions earned from their eChain.
When an individual from an Agent's eChain clicks on the product campaign E-mail
and visits the advertiser's web site they are registered as a qualified
referral. The commission from this qualified referral is credited to the
appropriate Agent's account.
Agents will have access to their account information using a reporting module
accessed by a user ID and password. This module will allow them to view their
entire eChain, the various campaigns promoted and all commissions earned to
date.
Commissions
MegaChain retains a minimum of 50% of all amounts earned from either certified
referrals or, in the case of product sales campaigns, the gross commission paid
Vendors, in the case of 4 levels of Agents, distributes the remainder as Agent
commissions. For example: Agent 1 receives 25% of the Fee for each of his eChain
members who respond to an advertiser's promotional E-mail. If one of Agent 1's
eChain members becomes an Agent, "Agent 2", and forwards the promotional E-mail
to a friend who, in turn, visits the advertiser's web site, Agent 2 would
receive 25% of the Fee while Agent 1 receives 12%. To illustrate the complete
cycle, Agent 2 then signs up Agent 3 who signs up Agent 4. Assuming one of Agent
4's eChain members responds to a promotional E-mail, 25% of the Fee goes to
Agent 4, 12% to Agent 3, 6% to Agent 2 and 3% to Agent 1. Agents 1, 2 and 3 have
earned commissions from Agent 4's efforts. In the event that none of Agent 1's
eChain members opt to become Agents, MegaChain will
<PAGE> 8
retain 75% of the Fee while Agent 1 earns 25%. The MegaChain system will record
all certified referrals, calculate all commissions and provide each agent with a
record of commissions earned.
Timely and accurate payment of commissions is vital. The payment module will
facilitate payment of commissions by either: (i) sending a check, (ii) crediting
the Agent's bank account, or (iii) paying in E-cash. To make option (iii)
viable, the Company is currently considering strategic relationships with
several E-cash companies.
Intellectual Property and Proprietary Rights
The Company regards portions of the MegaChain software suite and other designs
including its web site design as proprietary and will attempt to protect them
with a combination of trade secret laws, employee and third-party nondisclosure
agreements, built-in software protections, and similar means. Once the software
suite has been completed, Management will retain a US patent attorney to ensure
that the Company's copyright in the software is protected.
Although the Company believes that its current technology and designs have
been independently developed, there can be no assurance that the technology does
not or will not infringe on the rights of others. The Company has no
patents, trademarks or copyrights pertaining to its products, and it may be
possible for unauthorized third parties to copy certain portions of the
Company's products or to "reverse engineer" or otherwise obtain and use, to the
Company's detriment, information that the Company regards as proprietary.
Moreover, the laws of some countries do not offer the same protection to the
Company's proprietary rights, as do those of the United States and Canada. There
can be no assurance that legal protections relied upon by the Company to protect
its proprietary position will be adequate or that the Company's competitors will
not independently develop technologies that are substantially equivalent or
superior to those utilized by the Company. It is the intention of the company to
apply for patent protection of its internet multi-level marketing "business
method". Management believes that the MegaChain.com internet multi-level
marketing business method is novel as well as non-obvious, and meets the other
requirements of clarity and support required to be patentable.
Government Regulation
BASED UPON ITS EXPERIENCE AND KNOWLEDGE OF THE INDUSTRY, MANAGEMENT
BELIEVES THAT ITS PRODUCTS WILL COMPLY WITH APPLICABLE REGULATIONS IN THE
MARKETS WHICH THE COMPANY HAS TARGETED FOR SALES, HOWEVER, THERE CAN BE NO
ASSURANCES THAT FUTURE REGULATIONS OR LAWS WILL NOT BE ADOPTED. MANAGEMENT
FURTHER BELIEVES THAT THERE ARE NO FEDERAL OR STATE REGULATIONS WHICH MAY
<PAGE> 9
ADVERSELY AFFECT THE COMPANY'S "RELATIONSHIP MARKETING SYSTEM". THE COMPANY
CANNOT PREDICT THE EXTENT OR IMPACT OF FUTURE LEGISLATION OR REGULATION BY
FEDERAL, STATE OR LOCAL AUTHORITIES IN THE UNITED STATES OR FOREIGN COUNTRIES.
SALES OF THE COMPANY'S PRODUCTS IN FOREIGN JURISDICTIONS MAY REQUIRE THE
APPROVAL OF DOMESTIC AND FOREIGN REGULATORY AGENCIES WHICH MAY IMPEDE OR
PRECLUDE THE COMPANY'S EFFORTS TO PENETRATE SUCH MARKETS.
ITEM 2. Management's Discussion and Analysis or Plan of Operation
(a) Plan of Operation
On April 6, 1999, in connection with a Rule 504 offering, the Company issued
2,000,000 shares of common stock in exchange for net proceeds of $ 958,000.
RESEARCH AND DEVELOPMENT ACTIVITIES COMMENCED DURING APRIL OF 1999. THE ONLY
EXPENDITURES RELATING TO RESEARCH AND DEVELOPMENT OCCURRED IN FISCAL 1999 AND
TOTALED $48,250 AS REPORTED IN THE CONSOLIDATED STATEMENT OF OPERATIONS. FUTURE
RESEARCH AND DEVELOPMENT EXPENSES WILL NOT BE BORNE, EITHER DIRECTLY OR
INDIRECTLY, BY CUSTOMERS.
The Company is devoting substantially all of its present efforts to establishing
its business, and, although certain planned operations have commenced, there
have been no significant revenues derived there from.
Efforts towards the next phase, Sales and Marketing, have already begun.
MEGACHAIN'S PLAN OF OPERATIONS FOR THE NEXT 12 MONTHS INCLUDES THE FOLLOWING
ELEMENTS.
a] INCREASING TRAFFIC TO THE MEGACHAIN WEB SITE.
IN ORDER TO PROLIFERATE PUBLIC AWARENESS OF THE MEGACHAIN WEBSITE, OUR WEB
MASTER HAS CREATED A TEMPLATE OF 'KEY WORDS' THAT ARE RECOGNIZED BY ALL MAJOR
SEARCH ENGINES. THESE 'KEY WORDS' ARE SPECIFIC TO THE TYPE OF INDIVIDUAL WE FEEL
WILL BE MOST INTERESTED IN CAPITALIZING ON THE MEGACHAIN AGENT
<PAGE> 10
OPPORTUNITY, INCLUDING BUT NOT LIMITED TO THOSE WHO HAVE ALREADY ENROLLED IN
SIMILAR TYPES OF PAYMENT FOR WEB ADVERTISING AND MULTI-TIERED COMMISSION
REFERRAL BUSINESSES.
b] INCREASING AGENT SIGN-UP.
MEGACHAIN'S SUCCESS AS AN ADVERTISING SERVICE BUREAU RESTS ON ITS ABILITY TO
CREATE A LARGE ENOUGH BASE OF PERSONALIZED EMAILS THAT IT WILL ATTRACT
SIGNIFICANT WEB VENDORS. TO THIS END OUR SALES FORCE HAS BEEN CONTACTING
INTERNET SERVICE PROVIDERS, DIRECT EMAIL MARKETERS AND OTHER PARTIES WITH
SIGNIFICANT EMAIL LISTS TO ACT AS AGENTS THEMSELVES TO RECRUIT MEGACHAIN AGENTS.
c] INCREASING AFFILIATE VENDORS.
TO THIS END, MEGACHAIN'S SALES FORCE HAS BEEN CONTACTING WEB VENDORS OF GOODS
AND SERVICES TO OFFER THEM THE OPPORTUNITY OF CREATING MEGACHAIN EMAIL
INCENTIVES. THE RESPONSE HAS BEEN POSITIVE BECAUSE THE MEGACHAIN SYSTEM, BEING
PREDICATED ON THE 'PAY ONLY UPON RESULTS' PRINCIPLE, HOLDS NO RISK.
d] CREATING STRATEGIC ALLIES.
SINCE THERE IS NO COST TO BECOMING A MEGACHAIN AGENT AND BECAUSE THE VENDOR ONLY
PAYS UPON RESULT THERE ARE FEW HURDLES TO BECOMING A MEGACHAIN STRATEGIC ALLY.
IN ACTUALITY, ANYONE WITH AN EMAIL ADDRESS AND AN INTERNET ACCOUNT CAN
IMMEDIATELY PARTICIPATE AS AN AGENT AND ANY BUSINESS WITH A WEB SITE IS A
POTENTIAL CLIENT. ADDITIONALLY, ANY ENTITY WITH AN EMAIL LIST HAS THE POTENTIAL
TO CREATE AN ADDITIONAL REVENUE STREAM FOR THEIR EXISTING BUSINESS BY BECOMING
AN AGENT.
e] ACQUISITION OF STRATEGIC FINANCIAL PARTNERS.
THE COMPANY INTENDS TO CONTINUE TO SEEK OUT OTHER BUSINESS ENTITIES ENGAGED IN
SIMILAR BUSINESS ACTIVITIES, E.G. DIRECT, TARGETED, PERMISSION BASED, EMAIL
MARKETING, WHO MAY HAVE INTEREST IN THE MEGACHAIN SYSTEM, IN ORDER TO
INVESTIGATE THE POSSIBILITIES OF ACQUISITION OF THE MEGACHAIN TECHNOLOGY OR THE
FORMATION OF A JOINT VENTURE. TO DATE THERE ARE NO AGREEMENTS, UNDERSTANDINGS OR
OTHER ARRANGEMENTS FOR STRATEGIC PARTNERSHIPS.
f] THE HIRING OF ADDITIONAL STAFF.
THE COMPANY INTENDS TO INCREASE ITS CUSTOMER SERVICE PERSONNEL AS DICTATED BY
THE DEMANDS OF INCREASED SYSTEM USAGE. AS BUDGET PERMITS, THE COMPANY DESIRES TO
HIRE ADDITIONAL PERSONNEL ON THE SALES SIDE TO CONTACT AND INTERFACE WITH
ADDITIONAL VENDORS.
g] THE RAISING OF ADDITIONAL CAPITAL.
THE COMPANY INTENDS TO SEEK ADDITIONAL FINANCING OF $1,000,000 OVER THE NEXT SIX
MONTHS IN ORDER TO FINANCE AN EXPANSION OF THE SALES AND MARKETING EFFORTS AND
TO CONTINUE TO FUND RESEARCH AND DEVELOPMENT OF THE SOFTWARE.
On June 30, 1999 the Company had $713,874 cash and $17,123 of liabilities. At
present the Company is expending approximately $35,000 per month in the further
development of its operations. At present the Company is expending
<PAGE> 11
approximately $35,000 per month in the further development of its operations.
THE COMPANY HAS AGREEMENTS WITH BLUE WAVE PRODUCTIONS LTD., A COMPANY WHOSE
SHAREHOLDERS CONSIST OF MESSRS LAVIN, TO PROVIDE MANAGEMENT AND OTHER SERVICES
INCLUDING THE PROVISION OF THREE FULL TIME SUPPORT CONTRACTORS.
The Company's cash reserve is sufficient to finance the operating expenses
throughout the next fiscal year including approximately $100,000 to complete the
development of the entire software suite, $60,000 relating to web, database and
mail server software acquisition and set up costs, and $24,000 for operating
leases pertaining to web site related computer hardware.
In early 2000, the Company will be seeking second tier financing of
approximately $5,000,000 to launch a national marketing campaign and to expand
its operations. On July 28, 1999, the Company entered into an Option Agreement
whereby it granted the option to Greenchip Plc. (a public company listed on the
London UK OFEX Exchange) to receive an exclusive licence for the United Kingdom
to use and distribute all products and technology developed by the Company. The
Company also granted to Greenchip Plc. the option to receive the exclusive
licence for the European Economic Community to use and distribute all products
and technology developed by the Company. Both options expired on October 31,
1999, however, The Company is in negotiations with Greenchip Plc. to conclude
final licence agreements as anticipated in the two options.
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements appearing elsewhere in this report.
Years ended June 30, 1999, 1998 and 1997 and six months ended June 30, 1996
Revenue:
There was no revenue during the fiscal year ended June 30, 1999 since the
Company is in a development stage. The revenue for fiscal 1998 was mainly
residual consulting income from the winding up of Northern NY operations.
Revenue of $1,417,501 for fiscal 1997 represented a full year of its planned
operations consisting of consulting and training, as compared to revenue of
$434,130 for the six months ended June 30, 1996.
Cost of Revenue:
Cost of Revenue as a percentage of sales was 98%, 149% and 152% for fiscal
1998, 1997 and six months ended June 30, 1996. The major component of Cost of
Revenue is payroll and payroll related expenses and travel expenses. The cost
of revenue as a percentage of sales in fiscal 1997 and six months ended June
30, 1996 of 149% and 152% was a result of hiring additional personnel to
establish a consulting staff for their planned operations.
Payroll and payroll related expenses for fiscal 1998, 1997 and the six months
ended June 30, 1996 were approximately $155,000 or 76% of total cost of revenue;
$1,608,000 or 76% of total cost; and $273,000 or 63% of total cost.
Travel expenses for fiscal 1998, 1997 and the six months ended June 30, 1996
were approximately $14,000 or 7% of total cost of revenue; $247,000 or 12% of
total cost; and $101,000 or 23% of total cost.
Software Development Expenses:
During fiscal 1999 the Company incurred software development costs associated
with the operations of the B.C. subsidiary.
Selling and Marketing Expenses:
Selling and Marketing expenses for fiscal 1999 consisted of promotional
expenses. The expense for fiscal 1998 was due to a bad debt write-off. Selling
and Marketing expenses for fiscal 1997 and the six months ended June 30, 1996
consisted of advertising expenditures.
General Administrative Expenses:
General and administrative expenses for fiscal 1999 were approximately $195,000
compared to $94,000 in fiscal 1998, and increase of $101,000. The increase is
mainly due to management fees of approximately $104,000 incurred by the B.C.
subsidiary. The management fee is paid to Blue Wave Productions, Ltd., a
corporation whose principal stockholders are also stockholders of the Company.
In fiscal 1999, the Company also incurred approximately $22,000 of costs
associated with the amortization of technology in fiscal 1999.
General and administrative costs decreased by approximately $161,000 between
fiscal 1998 and fiscal 1997. This decrease was mostly due to a decrease in
professional fees by approximately $50,000, a decrease in telephone expenses of
approximately $35,000, a decrease in office expenses of approximately $22,000,
a decrease in rent expense of approximately $22,000 and a decrease in equipment
rental of approximately $9,000. These decreases were due to the ceasing of
Northern NY operations.
General and administrative expenses increased by approximately $179,000 between
fiscal 1997 and the six months ended June 30, 1996. Approximately $76,000 of
this decrease is due to the existence of six more months of operations for
fiscal 1997. The remaining difference is mostly due to an increase in rent
expense of approximately $36,000 and an increase in telephone expense of
approximately $49,000 for fiscal 1997.
<PAGE> 13
YEAR 2000 DISCLOSURE
TO DATE, THE COMPANY HAS REVIEWED ITS FINANCIAL ACCOUNTING SOFTWARE AND SYSTEM
AND HAS DETERMINED IT IS FULLY YEAR 2000 COMPLAINT. THE COMPANY HAS BEEN
INFORMED BY ITS SUPPLIERS OF MAJOR PIECES OF OFFICE AND ELECTRONIC DATA
PROCESSING EQUIPMENT THAT SUCH EQUIPMENT IS FULLY YEAR 2000 COMPLAINT.
THE COMPANY INITIATED A REVIEW OF ITS RELATIONSHIPS WITH SUPPLIERS AND SERVICE
PROVIDERS TO DETERMINE IF THERE WOULD BE AN IMPACT TO THE COMPANY'S OPERATIONS
DUE TO A YEAR 2000 ISSUE. KEY SUPPLIERS AND PROVIDERS WERE REQUIRED TO PROVIDE A
STATEMENT REGARDING THE STATUS OF THEIR YEAR 2000 PREPAREDNESS INCLUDING A
DESCRIPTION OF THEIR YEAR 2000 CONTINGENCY PLANS. THE COMPANY IS SATISFIED THAT
ALL THIRD PARTIES WITH WHOM IT HAS A MATERIAL RELATIONSHIP HAVE ADEQUATELY
ADDRESSED THE ISSUE OF YEAR 2000 PREPAREDNESS.
COSTS TO DATE AND FUTURE COSTS OF YEAR 2000 COMPLIANCE HAVE NOT BEEN, AND ARE
NOT ANTICIPATED TO BE MATERIAL. FURTHERMORE, THE COMPANY BELIEVES THAT ALL
SERVICES COULD BE OBTAINED FROM ALTERNATIVE SOURCES IF A PREFERRED SUPPLIER WAS
NOT ABLE TO MEET THE COMPANY'S NEEDS.
A 'WORST CASE' MEGACHAIN Y2K SCENARIO WOULD PRIMARILY REVOLVE AROUND A 'DATES'
ISSUE. IF A VENDOR, AGENT OR SHOPPER EMAIL SYSTEM SORTED INCOMING EMAILS BY
DATE, AND THEY WERE NOT FULLY Y2K COMPLIANT, THEY COULD RECEIVE MEGACHAIN
MESSAGES IN THE WRONG ORDER. THIS, IN ITSELF WOULD NOT POSE A GREAT THREAT
EITHER TO MEGACHAIN OR THEIR CLIENTS EXCEPT THAT SOME TIME SENSITIVE
ADVERTISEMENTS MIGHT HAVE EXPIRED. ADDITIONALLY, VENDORS WHO ARE NOT Y2K
COMPLIANT COULD HAVE DIFFICULTY PROCESSING MEGACHAIN INVOICES AUTOMATICALLY.
AGAIN, THE IMPACT IS MINIMAL IN THAT INVOICES COULD BE GENERATED AND RESPONDED
TO MANUALLY. IN THE UNLIKELY EVENT THAT AGENT COMMISSIONS WERE PROCESSED ON THE
WRONG DATE, THE EFFECT WOULD BE MINIMAL IN THAT THE COMMISSIONS THEMSELVES WOULD
NOT DISAPPEAR FROM THE SYSTEM AND COULD BE RECALCULATED AND ADJUSTED WITHOUT
GREAT DIFFICULTY. MANAGEMENT BELIEVES THAT THE POSSIBILITY OF THE ABOVEMENTIONED
WORST CASE SCENARIO OCCURRING IS REMOTE.
ITEM 3. Description of Property
The Company presently maintains its principal place of business at 34 West
<PAGE> 14
8th Avenue, Vancouver, British Columbia, Canada V5Y 1M7. THE PREMISE IS LEASED
ON A MONTH-TO-MONTH BASIS, AT A FAIR MARKET VALUE PRICE OF $1,000 FROM BLUE WAVE
PRODUCTIONS LTD. MEGACHAIN'S OFFICES OCCUPY APPROXIMATELY 50 PERCENT OF THE
FACILITY.
ITEM 4. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of August 27, 1999, the number and
percentage of the outstanding shares of common stock which, according to the
information supplied to the Company, were beneficially owned by (i) each person
who is currently a director of the Company, (ii) each executive officer, (iii)
all current directors and executive officers of the Company as a group and (iv)
each person who, to the knowledge of the Company, is the beneficial owner of
more than 5% of the outstanding common stock. The only beneficial owners of more
than 5% of the outstanding common stock of which MegaChain is aware are also
directors or officers. Except as otherwise indicated, the persons named in the
table have sole voting and dispositive power with respect to all shares
beneficially owned, subject to community property laws where applicable.
<TABLE>
<CAPTION>
Common Options Percent of
Shares (1) Class(2)
Name and Address
<S> <C> <C> <C>
Tom Lavin 3,000,000 100,000 21.4
34 West 8th Avenue
Vancouver, BC, Canada
V5Y 1M7
Bill Lavin 3,000,000 100,000 21.4
Half Moon Bay Villas, #4
P.O. Box 1386
Basseterre, St. Kitts
Tom Johnson -0- 75,000 0.5
12478 San Bruno Cove
San Diego, California
92130, USA
Donald Steele 10,000 100,000 0.8
6471 Madrona Crescent
West Vancouver, BC, Canada
V7W 2J7
</TABLE>
<PAGE> 15
<TABLE>
<S> <C> <C> <C>
ALL EXECUTIVE OFFICERS AND 6,010,000 375,000 43.6
DIRECTORS AS A GROUP
(4 PERSONS)
</TABLE>
(1) These figures represent options that are vested or will vest within 60 days
from the date as of which information is presented in the table.
(2) These figures represent the percentage of ownership of the named individuals
assuming each of them alone has exercised his or her options, and percentage
ownership of all officers and directors of a group assuming all such purchase
rights held by such individuals are exercised.
There are no agreements between or among any of the shareholders, which would
restrict the issuance of shares in a manner that would cause any change of
control of the Company. There are no voting trusts, pooling arrangements or
similar agreements in place between or among any of the shareholders, nor do the
shareholders anticipate the implementation of such an agreement in the near
term.
ITEM 5. Directors, Executive Officers, Promoters and Control Persons
(a) Directors and Executive Officers
<TABLE>
<CAPTION>
Name Age Position
--------- ----- -----------------------
<S> <C> <C>
Tom Lavin 49 President/CEO/Director
Bill Lavin 48 VP/Director/Secretary
Tom Johnson 48 VP
Donald Steele 48 Director
</TABLE>
Tom Lavin has been involved with electronics technology, telecommunications and
the advertising industry for over 20 years. He has been President of Blue Wave
Productions Ltd., one of Western Canada's largest and most successful audio
production facilities since 1980 and a Partner in Teddy Bear Productions, a
company that designs and produces national television and radio advertising for
such clients as McDonald's, B.C. Tel, Ford, Toyota, Jeep, Kawasaki and Future
Shop since 1985.
In the early 1990's Tom LAVIN headed the New England Digital File Transfer
Project for the WAT Group of Companies, then founded and took AXION
COMMUNICATIONS INCORPORATED public in 1994 VIA AN INITIAL PUBLIC OFFERING ON
THE VANCOUVER STOCK EXCHANGE. He acted as CEO for Axion Communications,
<PAGE> 16
managing over 40 employees and a client base of nearly 15,000 until May, 1997.
Prior to his involvement with MegaChain, he consulted independently on a number
of high tech and telecom projects.
Bill Lavin has been involved in technical development, management and sales and
marketing for over 20 years. He has provided management and consulting to
companies such as American Express, Chevron, Kaiser Permanente and Pacific Bell.
With American Express, he spearheaded the launch of several products including
Platinum and Gold Year End Summary, Optima MIS and a World Wide Marketing
System.
Mr. Lavin has many years of experience in directing the successful
implementation of projects using leading edge technologies and has a thorough
understanding of data processing, management, MIS and marketing applications.
Prior to his involvement in MegaChain, his most recent endeavors included acting
as Vice President of Sales and FOR TIER CORPORATION OF WALNUT CREEK CALIFORNIA,
A CONSULTING FIRM WITH OVER 150 EMPLOYEES AND OVER $US 40 MILLION IN SALES, AND
FROM 1996 TO 1998, AS PRESIDENT OF INTERNET GAMING NETWORK INCORPORATED, A
COMPANY WHOSE SECURITIES ARE TRADED ON THE VANCOUVER STOCK EXCHANGE.
Thomas Johnson is owner and President. SINCE 1986 OF TAK SALES INC., A SALES AND
MARKETING COMPANY LOCATED IN SAN DIEGO. HE HAS BEEN AT THE FOREFRONT OF SALES
AND MARKETING TRENDS FOR OVER 25 YEARS AND HAS EXTENSIVE EXPERIENCE IN PROMOTING
MULTILEVEL MARKETING PLANS INCLUDING AMWAY, HERBALIFE AND EXCEL. DURING THE LAST
TWO YEARS HE HAS BEEN ACTIVELY INVOLVED IN THE DEVELOPMENT OF CREATIVE
STRATEGIES AND MARKETING MATERIALS EXCLUSIVELY FOR INTERNET COMPANIES. HIS
EFFORTS HAVE BEEN INSTRUMENTAL IN DEVELOPING THE SALES AND MARKETING PLANS OF
BOTH WINSTREAK, AN ON-LINE INTERNET GAMING SITE AND SHARC, A WEB SITE THAT
SPECIALIZES IN INTERNET ON-LINE SPORTS CONTESTS. ADDITIONALLY HE HAS CONSULTED
FOR DANKEN, AN INTERNET EMAIL SERVICE COMPANY. MEGACHAIN HAS ENGAGED MR. JOHNSON
DIRECTLY AS A CONSULTANT AND HAS NO CONTRACT WITH HIS COMPANY, TAK SALES. MR.
JOHNSON SPENDS APPROXIMATELY 35 HOURS PER WEEK NEGOTIATING WITH WEB VENDORS ON
MEGACHAIN'S BEHALF.
Don Steele is a marketing and corporate development specialist with a background
in a variety of industries. DURING THE PAST FIVE YEARS MR. STEELE HAS BEEN
INVOLVED IN A NUMBER OF ENTREPRENEURIAL VENTURES. SINCE 1985 HE HAS ACTED AS
PRESIDENT OF DON STEELE LTD. DOING BUSINESS AS MOTION PICTURE AND TELEVISION
MARINE SERVICES, A COMPANY THAT CONTRACTS WITH FILM PRODUCTION HOUSES FOR LABOR
AND EQUIPMENT FOR THE FILMING OF MARINE SEQUENCES. DURING 1998 AND 1999 HE
ESTABLISHED A PEAT PROCESSING OPERATION IN NORTHERN ALBERTA AND CURRENTLY
<PAGE> 17
MAINTAINS CONTACT WITH SOFTWARE CONSULTANTS AND DEVELOPERS IN THE UNITED KINGDOM
ON MEGACHAIN'S BEHALF.
MARK WESTON, CHARTERED ACCOUNTANT, RESIGNED AS CHIEF FINANCIAL OFFICER AND
DIRECTOR EFFECTIVE DECEMBER 1, 1999.
No new chief financial officer has been appointed.
There are no significant employees who are not described as executives above,
and there are no family relationships among directors or executive officers
EXCEPT THAT BILL LAVIN IS TOM LAVIN'S FATHER'S HALF BROTHER.
EACH DIRECTOR WAS APPOINTED TO FILL APPOSITION ON THE BOARD OF DIRECTORS UNTIL
THE NEXT ENSUING ANNUAL GENERAL MEETING. MESSRS LAVIN AND STEELE WERE APPOINTED
MARCH 15, 1999.
ITEM 6. Executive Compensation
<TABLE>
<CAPTION>
Name and Title Year Salary
<S> <C> <C>
Tom Lavin, 1999 $45,000
President & CEO
Bill Lavin, 1999 45,000
Vice President, Operations
Tom Johnson 1999 0
Vice President,
Sales and Marketing
</TABLE>
Mr. Johnson provides the Company with invoices that the Company pay in ordinary
course. The Company does not have any contract with Mr. Johnson.
Stock Options
On August 12, 1999, the Board of Directors approved various "Non Qualified"
stock option agreements. The purpose of granting the stock options is to attract
and retain the best available executive personnel, other key employees, contract
consultants and others to be responsible for the management, growth and success
of the business, and to provide an incentive for such individuals to exert their
best efforts on behalf of the Company and its shareholders. Optionees under the
agreements are those Directors, officers, key employees, consultants and others
selected by the Board of Directors who hold positions of responsibility and
whose participation in such agreements the Board and management determines to be
in the best interests of the Company.
The exercise price of the option is $ 0.75 USD per share. Options awarded under
the plan shall be exercisable at such time and shall be subject to
<PAGE> 18
such restrictions and conditions, including the performance of a minimum period
of service after the grant, as the Board may impose, which need not be uniform
for all participants; provided, however, that no Option shall be exercisable for
more than 5 years after the date on which it is granted.
<TABLE>
<CAPTION>
Name and Title Number of Options Date Granted Exercise Price
<S> <C> <C> <C>
Tom Lavin,
President & CEO,
Director 100,000 August 12, 1999 $.75
Bill Lavin,
Vice President,
Director 100,000 August 12, 1999 $.75
Tom Johnson
Vice President 75,000 August 12, 1999 $.75
Donald Steele
Director 100,000 August 12, 1999 $.75
</TABLE>
In addition to the above named individuals, an additional 350,000 options in
aggregate, exercisable at $0.75 were granted to various consultants on August
12, 1999. These options expire at the earliest of 5 years after the date on
which they are granted or 120 days after the optionee's service with the Company
ceases for any reason.
MARK A. WESTON, CA, FORMER CHIEF FINANCIAL OFFICER AND DIRECTOR, WAS GRANTED AN
OPTION TO PURCHASE 100,000 SHARES EXERCISABLE AT $ 0.75 USD PER SHARE AND
EXPIRING ON AUGUST 12, 2004.
ITEM 7. Certain Relationships and Related Transactions
573795 BC LTD. WAS INCORPORATED IN OCTOBER OF 1998. MESSRS LAVIN EACH
TRANSFERRED INTELLECTUAL PROPERTY REPRESENTED BY THE INITIAL BUSINESS PLAN OF
MEGACHAIN.COM INTO THE COMPANY IN EXCHANGE FOR 100 COMMON SHARES EACH. THE
INTELLECTUAL PROPERTY WAS NOMINALLY VALUED AT $200.
The Company presently maintains its principal place of business at 34 West 8th
Avenue, Vancouver, British Columbia, Canada V5Y 1M7. The premise is leased on a
month-to-month basis, at a fair market value price of $1,000 from BLUE WAVE
PRODUCTIONS LTD., A COMPANY OWNED BY MESSRS LAVIN.
Management fees totaling $15,000 per month are paid to BLUE WAVE PRODUCTIONS
LTD., A CORPORATION OWNED BY MESSRS LAVIN, both directors and controlling
shareholders of the Company. The management fee covers the cost of employees and
other resources committed by these corporations to the business of the Company.
The Company has no employees. Blue Wave Productions Ltd. has three full-time
employees dedicated solely to the business of the Company.
<PAGE> 19
The Company presently maintains its principal place of business at 34 West 8th
Avenue, Vancouver, British Columbia, Canada V5Y 1M7. The premise is leased on a
month-to-month basis, at a fair market value price of $1,000 from the Company's
President and CEO, Mr. Tom Lavin.
Management fees totalling $15,000 per month are paid to Blue Wave Productions
Ltd., a company incorporated pursuant to the laws of British Columbia and owned
by Messrs Lavin, both directors and controlling shareholders of MegaChain. An
additional $2,000 per month is paid to Blue Wave for the use of its premises and
other resources committed by the corporation to the business of the Company
including a multi-line telephone answering system and other office equipment.
ITEM 8. Legal Proceedings
To the best knowledge of the Officers and Directors of the Company, neither the
Company nor any of its Officers or Directors is a party to any material legal
proceeding or litigation and such persons know of no other material legal
proceeding or litigation contemplated or threatened. There are no judgments
against the Company or its Officers or Directors. None of the Officers or
Directors has been convicted of a felony or misdemeanor relating to securities
or performance in corporate office.
ITEM 9. Market for Common Equity and Related Stockholder Matters
THE FOLLOWING TABLE SETS FORTH THE HIGH AND LOW BID PRICES OF THE COMMON STOCK
OF THE COMPANY REPORTED ON THE OTC BULLETIN BOARD ("MGCNE") SINCE THE QUARTER
ENDING SEPTEMBER 30, 1997. THE QUOTATIONS REFLECT INTER-DEALER PRICES, WITHOUT
RETAIL MARK-UP, MARK-DOWN, OR COMMISSIONS AND MAY NOT NECESSARILY REPRESENT
ACTUAL TRANSACTIONS. THERE IS AN ABSENCE OF AN ESTABLISHED TRADING MARKET FOR
THE COMPANY'S COMMON STOCK, AS THE MARKET IS LIMITED, SPORADIC AND HIGHLY
VOLATILE THE ABSENCE OF AN ACTIVE MARKET MAY HAVE AN EFFECT UPON THE HIGH AND
LOW PRICES AS REPORTED.
High / Low Bid
Quarter High Low
Ending Bid Bid
6/30/99 2.2188 .7500
3/31/99 1.9063 .0625
12/31/98 .1250 .0625
9/30/98 .1250 .1250
6/30/98 .1250 .1250
3/31/98 .1250 .1250
12/31/97 .1250 .1250
9/30/97 .1250 .1250
As of August 25, 1999 there were a total of 30 shareholders of record.
<PAGE> 20
Dividend Policy
To date, the Company has not paid cash or other dividends on the common stock.
Holders of common stock are entitled to receive such dividends as may be
declared and paid from time to time by the Board of Directors out of funds
legally available therefore. The Company intends to retain any earnings, if any,
for the operation of its business and does not anticipate paying cash dividends
on the common stock in the foreseeable future.
ITEM 10. Recent Sales of Unregistered Securities
IN JANUARY OF 1997 THE COMPANY SOLD 1,754,000 COMMON SHARES TO SEVEN ACCREDITED
INVESTORS UNDER REGULATION 505. THERE WERE NO UNDERWRITERS INVOLVED NOR WERE ANY
COMMISSIONS PAID.
The seven accredited investors to whom such securities were sold and the
consideration received are as follows:
Nancy Murphy 500,000 shares @ $.25 per share;
Ken Kooke 100,000 shares @ $.25 per share;
Providence Trust Ltd. 400,000 shares @ $.25 per share;
ACP Investments International 200,000 shares @ $.25 per share;
Claudio Scutto 200,000 shares @ $.25 per share;
Alphonse Scutto 200,000 shares @ $.25 per share;
John Formicola 154,000 shares @ $.25 per share.
In February, 1999, the Company acquired all of the issued and outstanding
voting shares of the capital stock of 573795 BC Ltd. ("573795")in exchange for
6,000,000 shares of the Company's common stock for the purpose of effecting
the acquisition of 573795. No underwriter or broker was involved in the
offering, and no commissions were paid on the sale of the shares. The shares
were offered and sold in reliance on the exemption set forth in Section 4(2) of
the Securities Act of 1933.
In order to provide the Company with additional working capital to implement its
business plan, the Company completed on April 5, 1999, a placement of 2,000,000
shares common stock at a price of $0.50 per share in reliance on Rule 504 of
Regulation D promulgated under the Securities Act of 1933. No underwriter or
broker was involved in the offering, and no commissions were paid on the sale of
the shares. The officers and directors of the Company sold the shares to
approximately 20 investors.
ITEM 11. Description of Securities
General
The authorized capitalization of MegaChain consists of 30,000,000 shares of
common stock, par value $0.0001, and 5,000,000 shares of preferred stock, par
value $0.0001. There are 16,154,000 common shares outstanding and no shares of
preferred stock outstanding.
Common Stock
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of shareholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of all common stock
outstanding entitled to vote in any election of directors may elect all of the
directors standing for election. Holders of common stock are entitled to receive
ratably such dividends, if any, as may be declared by the board of directors out
of funds legally available therefore. Upon the liquidation, dissolution or
winding up of the Company, the holders of all shares of common stock are
entitled to receive ratably the net assets of the Company available after the
payment of all debts and other liabilities. Holders of common stock have no
preemptive, subscription, redemption or conversion rights.
<PAGE> 21
Preferred Stock
The Board of Directors is authorized to classify any shares of its authorized
but unissued preferred stock as preferred stock in one or more series. With
respect to each series, the Board of Directors shall determine the number of
shares which shall constitute such series; the rate of dividend, if any, payable
on shares of such series; whether the shares of such series shall be cumulative,
non-cumulative or partially cumulative as to dividends, and the dates from which
any cumulative dividends are to accumulate; whether the shares of such series
may be redeemed, and, if so, the price or prices at which and the terms and
conditions on which shares of such series may be redeemed; the amount payable
upon shares of such series in the event of the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of MegaChain; the sinking
fund provisions, if any, for the redemption of shares of such series; the voting
rights, if any, of the shares of such series; the terms and conditions, if any,
on which shares of such series may be converted into shares of capital stock of
MegaChain of any other class or series; whether the shares of such series are to
be preferred over shares of capital stock of MegaChain of any other class or
series as to dividends, or upon the voluntary or involuntary dissolution,
liquidation, or winding up of the affairs of MegaChain, or otherwise; and any
other characteristics, preferences, limitations, rights, privileges, immunities
or terms not inconsistent with the provisions of the Certificate of
Incorporation. The availability of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of discouraging takeover proposals, and the
issuance of preferred stock could have the effect of delaying or preventing a
change in control of MegaChain not approved by the Board of Directors.
ITEM 12. Indemnification of Officers and Directors
MegaChain's Certificate of Incorporation provides that, to the fullest extent
that limitations on the liability of directors and officers are permitted by the
Delaware General Corporation Law (the "DGCL"), no director or officer of the
Company shall have any liability to MegaChain or its stockholders for monetary
damages. The DGCL provides that a corporation's charter may include a provision
which restricts or limits the liability of its directors or officers to the
corporation or its stockholders for money damages except: (1) to the extent that
it is provided that the person actually received an improper benefit or profit
in money, property or services, for the amount of the benefit or profit in
money, property or services actually received, or (2) to the extent that a
judgment or other final adjudication adverse to the person is entered in a
proceeding based on a finding in the proceeding that the person's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. MegaChain's
Certificate of Incorporation and Bylaws provide that it shall indemnify and
advance expenses to its currently acting and its former directors to the fullest
extent permitted by the DGCL and that MegaChain shall indemnify and advance
expenses to its officers to the same extent as its directors and to such further
extent as is consistent with law.
The Certificate of Incorporation and Bylaws provide that MegaChain will
indemnify its directors and officers and may indemnify employees or agents to
the fullest extent permitted by law against liabilities and expenses incurred
<PAGE> 22
in connection with litigation in which they may be involved because of their
offices with MegaChain. However, nothing in the Certificate of Incorporation or
Bylaws of MegaChain protects or indemnifies a director, officer, employee or
agent against any liability to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. To the extent that a director has
been successful in defense of any proceeding, the DGCL provides that he shall be
indemnified against reasonable expenses incurred in connection therewith.
ITEM 13. Financial Statements
For the information required by this Item, refer to the Index of the Financial
Statements appearing on page F-1 of this registration.
ITEM 14. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
None
ITEM 15. Financial Statements and Exhibits
For the information required by this Item, refer to the Index to Financial
Statements appearing on page F-1 of the registration statement.
Exhibits
Copies of the following documents are included as exhibits to this report
pursuant to Item 601 of Regulation S-B.
<TABLE>
<CAPTION>
Exhibit SEC Ref. Title of Document Page
No. No.
<S> <C> <C> <C>
1 (3)(i),(4) Certificate of Incorporation, as amended E-1
2 (3)(ii) By-Laws E-8
3 (10) Form of Options granted to Executive
Officers E-10
4 (10) Form of Options granted to Consultants E-15
5 (21) Subsidiaries E-21
6 (27) Financial Data Schedules *
7 (10) Management Agreement **
8 (10) Option Agreement **
9 (10) Option Agreement for EEC **
</TABLE>
* The Financial Data Schedule is presented only in the electronic filing with
the Securities and Exchange Commission.
** Filed Herewith.
PART II FINANCIAL INFORMATION
<PAGE> 23
MEGACHAIN.COM. LTD. AND SUBSIDIARIES
(FORMERLY FORMQUEST INTERNATIONAL, LTD;
FORMERLY NORTHERN LIGHTS SOFTWARE, LTD.)
CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INDEPENDENT AUDITORS' REPORT F-1
CONSOLIDATED BALANCE SHEETS F-2
CONSOLIDATED STATEMENTS OF OPERATIONS F-3
CONSOLIDATED STATEMENT OF STOCKHOLDERS'
EQUITY (DEFICIT) F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7 - F13
</TABLE>
<PAGE> 24
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
MegaChain.Com Ltd.
(formerly Formquest International, Ltd.;
formerly Northern Lights Software, Ltd.)
Vancouver, British Columbia, Canada
We have audited the accompanying consolidated balance sheets of MegaChain.Com,
Ltd. (formerly Formquest International, Ltd.; formerly Northern Lights Software,
Ltd.) and Subsidiaries as of June 30, 1999, 1998, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the years ended June 30, 1999, 1998 and 1997 and the six months ended
June 30, 1996. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
MegaChain.Com, Ltd. (formerly Formquest International, Ltd.; formerly Northern
Lights Software, Ltd.) and Subsidiaries as of June 30, 1999, 1998, 1997 and
1996, and the results of their consolidated operations and cash flows for the
years ended June 30, 1999, 1998 and 1997 and the six months ended June 30, 1996,
in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company is currently
developing technology and software and has not received any revenue from
operations. These factors raise substantial doubt about the entity's ability to
continue as a going concern. Management's plans in regard to these matters are
described in Note 3. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
COGEN SKLAR LLP
August 12, 1999, except for Note 12,
as to which the date is August 19, 1999
Bala Cynwyd, Pennsylvania
F-1
<PAGE> 25
MEGACHAIN.COM. LTD. AND SUBSIDIARIES
(FORMERLY FORMQUEST INTERNATIONAL, LTD;
FORMERLY NORTHERN LIGHTS SOFTWARE, LTD.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
------------------------------------------------------
1999 1998 1997 1996
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 713,874 $ - $ 41,591 $ 40,259
Accounts receivable - - 207,708 75,009
Miscellaneous receivables 7,970 - - -
Employee advances - - - 1,100
Prepaid expenses 18,100 - - 33,798
----------- ----------- ----------- ---------
739,944 - 249,299 150,166
PROPERTY AND EQUIPMENT - Net 11,512 14,455 20,124 6,184
INTANGIBLE ASSETS, NET 277,500 - 609 -
----------- ----------- ----------- ---------
TOTAL ASSETS $ 1,028,956 $ 14,455 $ 270,032 $ 156,350
=========== =========== =========== =========
LIABILITIES AND STOCKHOLDERS
EQUITY(DEFICIT)
CURRENT LIABILITIES
Demand notes payable $ - $ - $ 175,274 $ 371,980
Account payable and
accrued expenses 18,123 34,867 78,012 65,328
Payroll taxes payable - 437,038 342,087 35,568
----------- ----------- ----------- ---------
TOTAL CURRENT LIABILITIES 18,123 471,905 595,373 472,876
----------- ----------- ----------- ---------
STOCKHOLDERS' EQUITY (DEFICIT)
PREFERRED STOCK; $0.0001 par value,
5,000,000 shares authorized; and
no shares issued and outstanding - - - -
COMMON STOCK; $0.001 par value;
15,000,000 shares authorized;
7,000,000 shares issued and
outstanding at June 30, 1996 - - - 7,000
COMMON STOCK; $0.0001 par value;
30,000,000 shares authorized;
ISSUED OUTSTANDING
June 30, 1997 11,654,000 8,154,000
June 30, 1998 11,654,000 8,154,000
June 30, 1999 19,654,000 16,154,000 1,615 815 815 -
ADDITIONAL PAID-IN CAPITAL 2,663,186 942,197 942,197 -
ACCUMULATED DEFICIT (1,653,968) (1,400,462) (1,268,353) (323,526)
LESS: TREASURY STOCK -
3,500,000 shares at cost - - - -
----------- ----------- ----------- ---------
TOTAL STOCKHOLDERS' EQUITY
(DEFICIT) 1,010,833 (457,450) (325,341) (316,526)
----------- ----------- ----------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
(DEFICIT) $ 1,028,956 $ 14,455 $ 270,032 $ 156,350
=========== =========== =========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE> 26
MEGACHAIN.COM. LTD. AND SUBSIDIARIES
(FORMERLY FORMQUEST INTERNATIONAL, LTD;
FORMERLY NORTHERN LIGHTS SOFTWARE, LTD.)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six
Years Ended June 30, Months
---------------------------------------- Ended
1999 1998 1997 June 30, 1996
----------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
REVENUE $ - $ 207,723 $ 1,417,501 $ 285,130
----------- ---------- ----------- ----------
OPERATING EXPENSES
Cost of revenue - 203,751 2,113,684 434,253
Software development 48,250 - - -
Selling and marketing 9,878 41,907 14,113 21,665
General and administrative 195,378 94,476 255,370 76,360
----------- ---------- ----------- ----------
253,506 340,134 2,383,167 532,278
----------- ---------- ----------- ----------
LOSS FROM OPERATIONS (253,506) (132,411) (965,666) (247,148)
INTEREST INCOME - 302 20,839 -
----------- ---------- ----------- ----------
NET LOSS $ (253,506) $ (132,109) $ (944,827) $ (247,148)
=========== ========== =========== ==========
BASIC AND DILUTED
LOSS PER SHARE OF
COMMON STOCK $ (0.02) $ (0.02) $ (0.09) $ (0.03)
=========== ========== =========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING OF COMMON STOCK 11,154,000 8,154,000 10,460,333 8,000,000
=========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 27
MEGACHAIN.COM. LTD. AND SUBSIDIARIES
(FORMERLY FORMQUEST INTERNATIONAL, LTD;
FORMERLY NORTHERN LIGHTS SOFTWARE, LTD.)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock Additional
------------------------- Paid-In Accumulated Treasury
Shares Amount Capital Equity (Deficit) Stock
---------- ------ ---------- ---------------- --------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 7,000,000 $7,000 $ - $ (76,378) $ -
Net loss for the six months ended June 30, 1996 - - - (247,148) -
---------- ------ ---------- ----------- -------
BALANCE AT JUNE 30, 1996 7,000,000 7,000 - (323,526) --
Recapitalization upon reverse acquisition
Northern NY (7,000,000) (7,000) - - -
Northern NY 8,000,000 800 6,200 - -
EC 800,000 80 720 - -
Blank check offering, net of offering
costs of $78,073 1,100,000 110 471,817 - -
Issuance of common stock 1,754,000 175 438,325 - -
Conversion of stockholder debt - - 24,785 - -
Escrowed shares returned to treasury (3,500,000) (350) 350 - -
Net loss for the year ended June 30, 1997 - - (944,827) -
---------- ------ ---------- ----------- -------
BALANCE AT JUNE 30, 1997 8,154,000 815 942,197 (1,268,353) -
Net loss for the year ended June 30, 1998 - - (132,109) -
---------- ------ ---------- ----------- -------
BALANCE AT JUNE 30, 1998 8,154,000 815 942,197 (1,400,462) -
Issuance of common stock for purchase of BC 6,000,000 600 299,400 - -
Disposal of the assets of subsidiary
to an entity controlled by a principal stockholder
for the assumption of liabilities - - 463,593 - -
Issuance of common stock, net of offering
costs of $41,804 2,000,000 200 957,996 - -
Net loss for the year ended June 30, 1999 - - - (253,506) -
---------- ------ ---------- ----------- -------
BALANCE AT JUNE 30, 1999 16,154,000 $1,615 $2,663,186 $(1,653,968) $ -
========== ====== ========== =========== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 28
MEGACHAIN.COM. LTD. AND SUBSIDIARIES
(FORMERLY FORMQUEST INTERNATIONAL, LTD;
FORMERLY NORTHERN LIGHTS SOFTWARE, LTD.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended June 30, Six Months
------------------------------------------- Ended
1999 1998 1997 1996
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income loss $(253,506) $(132,109) $(944,827) $(247,148)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation and amortization 22,500 609 2,619 1,005
Loss on disposition of property and equipment - 5,670 - -
(Increase) decrease in assets, net of effects
from purchase and disposition of subsidiaries
Accounts receivable - 207,708 (132,699) 34,438
Miscellaneous receivables (7,970) - - -
Prepaid expenses (18,100) - 33,798 (33,798)
Royalties receivable - - - 3,452
Employee advances - - 1,100 (1,100)
Increase (decrease) in liabilities, net of effects
from disposition of subsidiaries
Accounts payable and accrued expenses 12,266 (43,146) 12,684 (72,025)
Payroll taxes payable 12,000 94,951 306,519 35,568
Unearned royalty income - - - (10,172)
--------- --------- --------- ---------
Net cash provided by (used in) operating activities (232,810) 133,683 (720,806)
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Organizational costs - - (1,218) -
Capital Expenditures (11,512) - (15,950) -
--------- --------- --------- ---------
Net cash used in investing activities (11,512) - (17,168) -
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from (repayments of) demand
note payable - (175,274) (171,921) 331,980
Proceeds released from escrow related to
blind pool offering - - 472,727 -
Net proceeds from issuance of common stock 958,196 - 438,500 -
Bank overdrafts - - - (1,941)
--------- --------- --------- ---------
Net cash provided by (used in) financing activities 958,196 (175,274) 739,306 330,039
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH 713,874 (41,591) 1,332 40,259
CASH - BEGINNING OF YEAR - 41,591 40,259 -
--------- --------- --------- ---------
CASH - END OF YEAR $ 713,874 $ - $ 41,591 $ 40,259
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 29
MEGACHAIN.COM. LTD. AND SUBSIDIARIES
(FORMERLY FORMQUEST INTERNATIONAL, LTD;
FORMERLY NORTHERN LIGHTS SOFTWARE, LTD.)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
Years Ended June 30, Six Months
------------------------------------------- Ended
1999 1998 1997 1996
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
The company disposed of the assets of its subsidiary
Northern NY, to a principal stockholder for the
assumption of liabilities. The net liabilities assumed
were as follows:
Property and equipment, net $ 14,455 $ - $ - $ -
Accounts payable and accrued expenses (29,010) - - -
Payroll taxes payable (449,037) - - -
--------- --------- --------- ---------
Net liabilities $(463,592) - - -
========= ========= ========= =========
Issuance of common stock for purchase of
subsidiary (BC) $ 300,000 $ - $ - $ -
========= ========= ========= =========
Conversion of stockholder's debt to additional
paid in capital $ - $ - $ 24,785 $ -
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 30
MEGACHAIN.COM. LTD. AND SUBSIDIARIES
(FORMERLY FORMQUEST INTERNATIONAL, LTD;
FORMERLY NORTHERN LIGHTS SOFTWARE, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS
EC Capital, Ltd. ("EC") was organized under the laws of the state of Delaware on
September 10, 1993, and adopted a fiscal year ending June 30. From inception
through September 12, 1996, EC's activities had been limited to preliminary
organizational activities and seeking business combinations. In October 1995, EC
completed a public offering of 1,100,000 shares of common stock and received net
proceeds of approximately $472,000. On September 12, 1996, EC issued 8,000,000
shares of its common stock in exchange for 7,000,000 issued and outstanding
shares of Northern Lights Software, Ltd. ("Northern NY"), split its outstanding
shares on a two-for-one basis and changed its name from EC Capital, Ltd. to
Northern Lights Software, Ltd. ("Northern DE"). Northern NY was formed in
January 1994 to provide training services to organizations implementing and
developing utility software for organizations implementing sybase databases.
The acquisition of Northern NY is considered to be a capital transaction in
substance, rather than a business combination. That is, the acquisition is
equivalent to the issuance of stock by Northern NY for the net monetary assets
of EC, accompanied by a recapitalization, and is accounted for as a change in
capital structure. Accordingly, the accounting for the acquisition is identical
to that resulting from a reverse acquisition, except that no goodwill is
recorded. Under reverse takeover accounting, the post reverse-acquisition
comparative historical financial statements of the legal acquirer, EC, are those
of the accounting acquirer, Northern NY.
In the first half of 1997, Northern NY ceased operations due to significant
losses from operations. Northern DE remained inactive until 1999. On September
3, 1997, Northern DE changed its name to Formquest International, Ltd.
("Formquest"). In February 1999, Formquest disposed of the assets of its
subsidiary, Northern NY, with a stockholders' deficit to an entity controlled by
a principal stockholder for the assumption of liabilities. On February 15, 1999,
Formquest purchased all of the issued and outstanding shares of 573795 BC Ltd.
("BC"), a corporation organized on October 26, 1998 under the laws of the
Province of British Columbia, Canada for 6,000,000 shares of common stock. BC is
a development stage company which owns proprietary software for the enhancement
of sales on the internet. BC has no prior operations and minimal assets except
the technology and software that it will further develop. The acquisition will
be accounted for under the purchase method of accounting. The purchase price of
$300,000 was allocated to technology and is being amortized on a straight-line
basis over five years.
Formquest completed an offering under Regulation D on April 5, 1999 for
2,000,000 shares of common stock for net proceeds of approximately $958,000.
On April 14, 1999 Formquest changed its name to MegaChain.Com, Ltd. ("the
Company').
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany transactions have
been eliminated in consolidation.
F-7
<PAGE> 31
MEGACHAIN.COM. LTD. AND SUBSIDIARIES
(FORMERLY FORMQUEST INTERNATIONAL, LTD;
FORMERLY NORTHERN LIGHTS SOFTWARE, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The consolidated statement of operations includes the operations of Northern NY
for the years ended June 30, 1998 and 1997 and six months ended June 30, 1996
and the operations of BC for the period February 15, 1999 (date of acquisition
to June 30, 1999.
Concentration of Credit Risk Involving Cash
The Company maintains its cash balances in a bank located in Canada. These
balances are not insured.
Cash Equivalents
The Company considers all highly liquid instruments with a maturity of three
months or less to be cash equivalents.
Fair Value of Financial Instruments
Financial instruments consist of cash, receivables, notes payable and accounts
payable. The carrying amount approximates fair value because of the short
maturity of these instruments.
Accounts Receivable and Bad Debts
The Company considers accounts receivable to be fully collectible; accordingly,
no allowance for doubtful accounts is required. If amounts become uncollectible,
they will be charged to operations when that determination is made. Bad debts
during the years ended June 30, 1999, 1998, 1997 and the six months ended June
30, 1996 amounted to $ -0-, $-0-, $21,962 and $34,310.
Depreciation
The cost of property and equipment is depreciated over the estimated useful
lives of the related assets. Depreciation is computed using the straight line
and accelerated methods.
Cost of Computer Software
The Company accounts for costs of computer software under the American Institute
of Certified Public Accountants Statement of Position 98-1, "Accounting for
Costs of Computer Software Developed or Obtained for Internal Use," which
requires that costs incurred in the preliminary project stage should be expensed
as incurred. Costs incurred in the application development stage are
capitalized. Post-implementation/operation stage costs such as training and
maintenance are expensed as incurred. The impairment of capitalized software
costs will be recognized in accordance with SFAS No. 121 if the software is not
expected to provide any service potential or when it is no longer probable that
the software being developed will be completed and placed in service and the
undiscounted cash flow estimated to be generated is less than the carrying
amount of the software. The Company's evaluation considers changes in the
operating environment and business strategy, competitive information, market
trends and operating performance.
Research and Development Costs
Research and Development costs are expensed as incurred.
Intangibles
Technology costs are recorded at cost and are amortized using the straight-line
method over 5 years.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates based on management's
knowledge and experience. Accordingly, actual results could differ from those
estimates.
F-8
<PAGE> 32
MEGACHAIN.COM. LTD. AND SUBSIDIARIES
(FORMERLY FORMQUEST INTERNATIONAL, LTD;
FORMERLY NORTHERN LIGHTS SOFTWARE, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
The Company accounts for its income taxes under Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," which
requires an asset and liability approach to financial accounting and reporting
for income taxes. Deferred income tax assets and liabilities are computed
annually for temporary differences between the financial statement and tax bases
of assets and liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense is the tax payable or
refundable for the period plus or minus the change during the period in deferred
tax assets and liabilities.
Earnings (Loss) Per Share
The Company has adopted SFAS No. 128, "Earnings Per Share" (EPS). This statement
establishes standards for computing and presenting EPS, replacing the
presentation of currently required primary EPS with a presentation of Basic EPS.
For entities with complex capital structures, the statement requires the dual
presentation of both basic EPS and Diluted EPS on the face of the statement of
operations. Under this new standard, Basic EPS is computed based on weighted
average shares outstanding and excludes any potential dilution; Diluted EPS
reflects potential dilution from the exercise or conversion of securities into
common stock or from other contracts to issue common stock and is similar to the
currently required fully diluted EPS.
Basic earnings (loss) per share include the weighted average number of shares
outstanding during the year. Diluted earnings (loss) per share include the
weighted average number of shares outstanding and dilutive potential common
shares, such as warrants. Assumed conversion of the warrants would be
antidilutive, therefore, basic and diluted earnings (loss) per share are the
same.
Comprehensive Income
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income," beginning July 1, 1998. Comprehensive income
is a more inclusive financial reporting methodology that includes disclosure of
certain financial information that historically has not been recognized in the
calculation of net income. Since the Company has no items of other comprehensive
income, no separate statement of comprehensive income has been presented.
Recently Issued Accounting Pronouncements
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, Reporting on the Costs of Start-Up Activities ("SOP
98-5") which provides guidance on the financial reporting of start-up costs and
organization cost. Its requires costs of start-up activities and organization
costs to be expensed as incurred. SOP 98-5 is effective for all fiscal years
beginning after December 15, 1998 with initial adoption reported as a cumulative
effect of a change in accounting principle. The Company will adopt SOP 98-5
effective July 1, 1999. The adoption of SOP 98-5 will not result in any
cumulative effect of a change in accounting principle.
NOTE 3 - MANAGEMENT PLANS
The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the satisfaction of
liabilities and commitments in the normal course of increases. As discussed in
Note 1, the company has developed software for the enhancement of sales on the
internet and has not received any revenues from operations. These factors raise
substantial doubt about the ability of the company to continue as a going
concern.
F-9
<PAGE> 33
MEGACHAIN.COM. LTD. AND SUBSIDIARIES
(FORMERLY FORMQUEST INTERNATIONAL, LTD;
FORMERLY NORTHERN LIGHTS SOFTWARE, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - MANAGEMENT PLANS (Continued)
The Company is devoting substantially all of its present efforts to establishing
its business, and although certain planned operations have commenced there have
been no significant revenues derived there from. The Company can provide any
company having an internet presence, a powerful, cost effective means of
advertising and selling their products through an innovative Internet Multi
Level Marketing system which combines multi-level marketing techniques and the
use of personalized, permission based email. The Company will receive a referral
fee for each individual who registers on the advertisers' web page.
Aggressive sales and marketing efforts have begun. Key elements of the strategy
are to: (1) Alert the media of the MegaChain system rollout via direct contact
and press releases, (2) Promote MegaChain on search engines and banner
advertising and in specific newsgroups, (3) Identify and capture those companies
most likely to benefit from a MLM sales force and a direct email campaign, and
(4) Establish strategic alliances with Internet Service Providers.
At present the Company is expending approximately $34,000 per month in the
further development of its operations. The Company currently contracts 6
individuals on a full time basis. The company's cash reserve is sufficient to
cover the operating expenses of the Company throughout the next fiscal year
including approximately $100,000 to complete the development of its entire
software suite, $60,000 relating to web, database and mail server software
acquisition and start up costs, and $24,000 for operating leases pertaining to
web site related computer hardware.
The balance sheet does not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classifications of liabilities that might be necessary in the event the Company
cannot continue in existence.
NOTE 4 - ACQUISITIONS AND DISPOSITION
Northern NY
On September 12, 1996, the Company completed the acquisition of Northern NY by
issuing 8,000,000 shares of its common stock in exchange for 7,000,000 issued
and outstanding shares of Northern NY. For accounting purposes, the acquisition
was recorded as a recapitalization of Northern NY with Northern NY as the
accounting acquiror. The agreement also provides that the shareholders of
Northern NY will place 3,500,000 shares in escrow to be released to said
shareholders only if certain earnings levels are achieved. 1,750,000 of the
shares in escrow will be released to such shareholders only if in the two year
period ending December 31, 1997 Northern achieves cumulative pre-tax income of
$500,000. The remaining 1,750,000 shares will be released to such shareholders
if Northern achieves cumulative pre-tax income of $1,500,000 over the four year
period ending December 31, 1999.
Since the earnings levels were not achieved and management decided to cease
operations in the first half of 1997, the 3,500,000 shares have been reflected
as treasury shares as of June 30, 1997.
In February 1999, the Company disposed of the assets of its subsidiary, Northern
NY to an entity controlled by a principal stockholder for the assumption of
liabilities in the amount of $463,593. Since the disposition involved a
principal stockholder the assumed net liabilities is reflected as an increase to
additional paid-in capital. A condensed balance sheet at date of disposal was as
follows;
<TABLE>
<S> <C>
Assets $ 14,455
Liabilities (478,048)
---------
Net liabilities $(463,593)
=========
</TABLE>
F-10
<PAGE> 34
MEGACHAIN.COM. LTD. AND SUBSIDIARIES
(FORMERLY FORMQUEST INTERNATIONAL, LTD;
FORMERLY NORTHERN LIGHTS SOFTWARE, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - ACQUISITIONS AND DISPOSITION (Continued)
573795 BC Ltd.
On February 15, 1999, the Company purchased all of the issued and outstanding
shares of BC for 6,000,000 shares of common stock. BC is a development stage
company which owns proprietary software and technology for the enhancement of
sales on the internet. BC has no prior operations and minimal assets except the
technology and software that it will further develop. The acquisition will be
accounted for under the purchase method of accounting. The purchase price of
$300,000, determined based on the fair value of the common shares issued, was
allocated to technology and is being amortized on a straight-line basis over
five years.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
June 30,
----------------------------------------------------
1999 1998 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Machinery and equipment $11,512 $17,734 $19,579 $10,049
Furniture and fixtures - 2,596 6,420 -
------- ------- ------- -------
11,512 20,330 25,999 10,049
Less: accumulated depreciation - 5,875 5,875 3,865
------- ------- ------- -------
$11,512 $14,455 $20,124 $ 6,184
======= ======= ======= =======
</TABLE>
NOTE 6 - INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
June 30,
-----------------------------------------------------
1999 1998 1997 1996
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Technology $300,000 $ - $ - $ -
Incorporation costs - 1,218 1,218 -
-------- ------- ------- -------
300,000 1,218 1,218 -
Less: accumulated amortization 22,500 1,218 609 -
-------- ------- ------- -------
$277,500 $ - $ 609 $ -
======== ======= ======= =======
</TABLE>
NOTE 7 - DEMAND NOTES PAYABLE
The demand notes payable were due to an entity whose principal stockholder was a
former principal stockholder of the Company. There were no specific repayment
terms.
F-11
<PAGE> 35
MEGACHAIN.COM. LTD. AND SUBSIDIARIES
(FORMERLY FORMQUEST INTERNATIONAL, LTD;
FORMERLY NORTHERN LIGHTS SOFTWARE, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - PAYROLL TAXES PAYABLE
The payroll taxes payable were liabilities of the Company's subsidiary (Northern
NY). These liabilities were assumed by a stockholder as part of the disposition
of the assets of this subsidiary in February 1999.
NOTE 9 - STOCKHOLDERS' EQUITY
Common Stock
On September 12, 1996, the Board of Directors increased the authorized shares
from 2,500,000 to 20,000,000.
In October 1995, the Company completed a blank check offering of 1,100,000
shares of common stock and received net proceeds of approximately $472,000 which
was placed in escrow until the Northern NY acquisition was consummated. Upon
confirmation by the original purchasers the funds were released from escrow in
September 1996.
In January 1997, the Company completed an offering under Regulation D for
1,754,000 shares of common stock for $.25 per above and received approximately
$438,500.
On April 5, 1999, the Company completed an offering under Regulation D for
2,000,000 shares of common stock for $.50 per share and received net proceeds of
approximately $958,000.
Warrants
In conjunction with the blank check offering in October 1995, the Company issued
110,000 warrants to the underwriter at a price of $.001 per warrant. Each
warrant entitles the holder to purchase one share of common stock at a price of
$.60 per share for a four year period commencing one year from the effective
date of the offering.
NOTE 10 - INCOME TAXES
There is no income tax expense (benefit) for the years ended June 30, 1999,
1998, 1997 and six months ended June 30, 1996 due to the following:
Current Tax Expense (Benefit)
For years in which losses were incurred, the operating losses cannot be carried
back to earlier years. For the year ended June 30, 1999 taxable income,
resulting from the gain on disposition of the assets of a subsidiary (Northern
NY), was offset by utilizing carryforward losses.
Deferred Tax Expense (Benefit)
The deferred tax assets, consisting mainly of net operating loss carryforwards,
were offset by a valuation allowance. Management believes that a valuation
allowance is considered necessary since it is more likely than not that the
deferred tax asset will not be realized through future taxable income.
The use of net operating loss carryforwards is limited when there has been a
substantial change in ownership (as defined) during a three year period. Because
of the recent and contemplated changes in common stock, options and warrants,
such a change may occur in the future. In this event, the use of net operating
losses each year would be restricted to the value of the Company on the date of
such change multiplied by the federal long term rate ("annual limitation");
unused annual limitations may then be carried forward without this limitation.
Also, in the event the business enterprise of the loss corporation is not
continued for the two year period commencing on the change date, the net
operating loss carryforwards may no longer be available.
F-12
<PAGE> 36
MEGACHAIN.COM. LTD. AND SUBSIDIARIES
(FORMERLY FORMQUEST INTERNATIONAL, LTD;
FORMERLY NORTHERN LIGHTS SOFTWARE, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - INCOME TAXES (Continued)
At June 30, 1999, the Company had net operating loss carryforwards of
approximately $772,000 for U. S. income tax purposes, which if not used will
expire during the years 2012 and 2014. At June 30, 1999, the Company had net
operating loss carryforwards of approximately $150,000 for Canadian income tax
purposes, which if not used will expire in 2006.
NOTE 11 - RELATED PARTY TRANSACTIONS
During 1999, the Company paid a management fee of $103,700 to a corporation
whose principal stockholders are also stockholders of the company. The fee is
included in general and administrative expenses.
During 1999, the Company also leased its office space and office equipment from
this corporation for approximately $2,000 per month.
NOTE 12 - CONTINGENCY
At the time of the disposition of Northern NY, there were unpaid payroll taxes
including interest and penalties amounting to approximately $445,000 which were
assumed by an entity controlled by a principal stockholder and the Company was
indemnified against this obligation. Although the Company does not believe it is
liable for this obligation, there can be no assurance that a claim could not be
brought against the Company. If a claim is asserted, the Company intends to
defend itself vigorously against the claim.
NOTE 13 - SUBSEQUENT EVENTS
On August 19, 1999, the Board of Directors of the Company approved a resolution
that increased the authorized shares of common stock to 30,000,000 shares and
changed the par value from $0.001 to $0.0001 per share. Additionally, the
company is authorized to issue 5,000,000 shares of preferred stock with a par
value of $0.0001 per share.
All references to number of shares and per share amounts in the consolidated
statements and notes have been adjusted to give retroactive effect to the change
in par value and number of authorized shares.
In August 1999, the Board of Directors approved the establishment of a stock
option plan and 825,000 options were granted, expiring in five years, to
purchase 825,000 shares of common stock at an exercise price of $.75, which
represents the fair value of the common stock at date of grant. As permitted
under SFAS No. 123, the Company accounts for stock options granted to officers,
employees and non-employee members of the Board of Directors as prescribed under
Accounting Principles Board Opinion No. 25, which recognizes compensation cost
based upon the intrinsic value of the equity award. Accordingly, no compensation
expense will be recognized for such equity awards.
However, in accordance with SFAS No. 123, compensation cost associated with
stock options granted to non-employees will be accounted for based on the fair
value at the date of grant. Such fair value will be estimated using the
Block-Scholes model.
F-13
<PAGE> 37
MEGACHAIN.COM. LTD. AND SUBSIDIARIES
(FORMERLY FORMQUEST INTERNATIONAL, LTD;
FORMERLY NORTHERN LIGHTS SOFTWARE, LTD.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,1999 June 30,1999
(Unaudited) (Audited)
----------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 564,252 $ 713,874
Miscellaneous receivables 11,374 7,970
Prepaid expenses - 18,100
------------ -----------
575,626 739,944
PROPERTY AND EQUIPMENT - Net 13,692 11,512
INTANGIBLE ASSETS, NET 262,500 277,500
------------ -----------
TOTAL ASSETS $ 851,818 $ 1,028,956
============ ===========
LIABILITIES AND STOCKHOLDERS EQUITY(DEFICIT)
CURRENT LIABILITIES
Account payable and accrued expenses $ 29,658 $ 18,123
------------ -----------
TOTAL CURRENT LIABILITIES 29,658 18,123
------------ -----------
STOCKHOLDERS' EQUITY (DEFICIT)
PREFERRED STOCK; $.0001 par value; 5,000,000 shares
authorized; and no shares issued and outstanding - -
COMMON STOCK; $.0001 par value; 30,000,000 shares
authorized;
ISSUED OUTSTANDING
June 30, 1997 11,654,000 8,154,000
June 30, 1998 11,654,000 8,154,000
June 30, 1999 19,654,000 16,154,000 1,615 1,615
ADDITIONAL PAID-IN CAPITAL 2,761,186 2,663,186
ACCUMULATED DEFICIT (1,941,236) (1,653,968)
ACCUMULATED OTHER COMPREHENSIVE INCOME 595 -
LESS: TREASURY STOCK - 3,500,000 shares at cost - -
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 822,160 1,010,833
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 851,818 $ 1,028,956
============ ===========
</TABLE>
See the accompanying notes.
F-14
<PAGE> 38
MEGACHAIN.COM. LTD. AND SUBSIDIARIES
(FORMERLY FORMQUEST INTERNATIONAL, LTD;
FORMERLY NORTHERN LIGHTS SOFTWARE, LTD.)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
September 30, 1999
--------------------------------
1999 1998
------------ -----------
(Unaudited) (Unaudited)
<S> <C> <C>
EXPENSES
Software development $ 36,633 $ -
Selling and marketing 34,740 -
General and administrative expenses 222,225 -
------------ -----------
293,598 -
------------ -----------
LOSS FROM OPERATIONS (293,598) -
INTEREST INCOME 6,330 -
------------ -----------
NET LOSS $ (287,268) $ -
============ ===========
BASIC AND DILUTED LOSS PER SHARE OF COMMON STOCK $ (0.02) $ -
============ ===========
WEIGHTED AVERAGE SHARES OUTSTANDING
OF COMMON STOCK 16,154,000 8,154,000
============ ===========
</TABLE>
See accompanying notes.
F-15
<PAGE> 39
MEGACHAIN.COM. LTD. AND SUBSIDIARIES
(FORMERLY FORMQUEST INTERNATIONAL, LTD;
FORMERLY NORTHERN LIGHTS SOFTWARE, LTD.)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other
---------------------- Paid-In Accumulated Comprehensive Treasury Comprehensive
Shares Amount Capital Deficit Income Stock Loss
---------- ------ ---------- ----------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1999 16,154,000 $1,615 $2,663,186 $(1,653,968) $ - $ - $ -
Common stock options issued for
consulting expense - - 98,000 - - - -
Net loss for the three months ended
September 30, 1999 - - - (287,268) - - (287,268)
Foreign currency translation adjustments - - - - 595 - 595
COMPREHENSIVE LOSS - - - - - - $ (286,673)
---------- ------ ---------- ----------- ----- ---- ==========
BALANCE AT SEPTEMBER 30, 1999
(UNAUDITED) 16,154,000 $1,615 $2,761,186 $(1,941,236) $ 595 $ -
========== ====== ========== ============ ===== ====
</TABLE>
See accompanying notes.
F-16
<PAGE> 40
MEGACHAIN.COM. LTD. AND SUBSIDIARIES
(FORMERLY FORMQUEST INTERNATIONAL, LTD;
FORMERLY NORTHERN LIGHTS SOFTWARE, LTD.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
September 30, 1999
---------------------
1999 1998
--------- -----
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(287,268) $ -
Adjustments to reconcile net loss to net cash
used in operating activities
Issuance of common stock options for consulting expense 98,000 -
Depreciation and amortization 15,721 -
Changes in assets and liabilities
(Increase) decrease in
Miscellaneous receivables (3,289) -
Prepaid expenses 18,148 -
Increase in
Accounts payable and accrued expenses 11,628 -
--------- -----
Net cash used in operating activities (147,060) -
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (3,577) -
EFFECTS OF EXCHANGE RATES ON CASH 1,015 -
--------- -----
NET DECREASE IN CASH (149,622) -
CASH - BEGINNING OF PERIOD 713,874 -
--------- -----
CASH - END OF PERIOD $ 564,252 $ -
========= =====
</TABLE>
See accompanying notes.
F-17
<PAGE> 41
MEGACHAIN.COM. LTD. AND SUBSIDIARIES
(FORMERLY FORMQUEST INTERNATIONAL, LTD;
FORMERLY NORTHERN LIGHTS SOFTWARE, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
NOTE 1 - INTERIM PERIODS
The unaudited information has been prepared on the same basis as the annual
financial statements and, in the opinion of the Company's management, reflects
normal recurring adjustments necessary for a fair presentation of the
information for the period presented.
Certain information and footnote disclosures, normally included in financial
statements prepared in accordance with generally accepted accounting principles,
have been omitted. These financial statements should be read in conjunction with
the financial statements and notes for the year ended June 30, 1999, included in
the Form 10-SB.
The results of operations for the three month periods ended September 30, 1999
and 1998 are not necessarily indicative of operating results for the full year.
NOTE 2 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Megachain.Com (the
"Company") and its Subsidiaries. All material intercompany balances and
intercompany transactions have been eliminated.
NOTE 3 - COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income", beginning July 1, 1998. Comprehensive income
is a more inclusive financial reporting methodology that includes disclosure of
certain financial information that historically has not been recognized in the
calculation of net income. The component of comprehensive income consists of
foreign currency translation adjustments of $595 and $-0- for the three months
ended September 30, 1999 and 1998.
NOTE 4 - STOCK OPTIONS
In August 1999, the Board of Directors approved the establishment of a stock
option plan and 825,000 options were granted, expiring in five years, to
purchase 825,000 shares of common stock at an exercise price of $.75., which
represents the fair value of the common stock at date of grant. 350,000 options
were granted to non-employees and 475,000 options were granted to officers and
non-employee members of the Board of Directors. As permitted under SFAS No. 123,
the Company accounts for stock options granted to officers, employees and
non-employee members of the Board of Directors as prescribed under Accounting
Principles Board Opinion No. 25 which recognizes compensation cost based upon
the intrinsic value of the equity award. Accordingly, no compensation expense
will be recognized for such equity awards.
However, in accordance with SFAS No. 123, compensation cost associated with the
350,000 stock options granted to non-employees was accounted for based on the
fair value at the date of grant estimated using the Black-Scholes model with the
following assumptions: no dividend yield, expected volatility of 60%, and a
risk-free interest rate of 5.5%. The Black-Scholes model valued these options at
a total of $98,000, which was changed to operations for the three months ended
September 30, 1999.
F-18
<PAGE> 42
PART III EXHIBITS
<TABLE>
<CAPTION>
Exhibit SEC Ref. Title of Document Page
No. No.
<S> <C> <C> <C>
1 (3)(i),(4) Certificate of Incorporation, as amended E-1
2 (3)(ii) By-Laws E-8
3 (10) Form of Options granted to Executive
Officers E-10
4 (10) Form of Options granted to Consultants E-15
5 (21) Subsidiaries E-21
</TABLE>
PAGE 13
<PAGE> 43
Signatures
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned thereunto duly authorized.
MEGACHAIN.COM, LTD.
Date: August ____, 1999 By:
--------------------
Tom Lavin, President
In accordance with the Exchange Act, this registration statement has been signed
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
MEGACHAIN.COM LTP
Dated: August ___, 1999
-------------------------------------
Tom Lavin, Chief Executive Officer
PAGE 14
<PAGE> 1
EXHIBIT 1
State of Delaware
PAGE 1
<PAGE> 2
Office of the Secretary of State
---------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "EC CAPITAL, LTD.", CHANGING ITS NAME FROM "EC CAPITAL, LTD." TO
"NORTHERN LIGHTS SOFTWARE, LTD.", FILED IN THIS OFFICE ON THE TWELTH DAY OF
SEPTEMBER, A.D. 1996, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT
COUNTY RECORDER OF DEEDS FOR RECORDING.
/S/ Edward J. Freel
----------------------------------
Edward J. Freel, Secretary of State
2350527 8100 AUTHENTICATION: 8102807
960264720 DATE: 09-13-96
PAGE E-2
<PAGE> 3
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 09/12/1996
960264720 - 2360527
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
EC CAPITAL, LTD.
The undersigned corporation, in order to amend its Certificate of
incorporation, hereby certifies as follows:
FIRST: The name of the Corporation is:
EC CAPITAL, LTD.
SECOND: The corporation hereby amends its Certificate of
incorporation as follows:
A. Article First of the Certificate of Incorporation, relating to the name of
the corporation, is hereby amended to read as follows by adding the new Article
First.
"FIRST: The name of the Corporation is:
NORTHERN LIGHTS SOFTWARE, LTD."
B. Article Fourth of the Certificate of Incorporation, as amended,
relating to the shares of the Corporation, is hereby amended to read as follows
by adding the following new Article Fourth.
"FOURTH: The total number of shares of stock which the
corporation is authorized to issue is 20,000,000 and the
par value of each of such shares is $.001.
The corporation hereby reclassifies its Common Shares
pursuant to Section 242 of the General Corporation Law of the
State of Delaware in order to effect a two (2) for one (1) split
of its Common Shares, $.001 par value, so that one (1) of the
outstanding Common Shares are equal to two (2) of the new Common
Share of $.001 par value."
PAGE E-3
<PAGE> 4
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 09/03/1997
971293841 - 2350527
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
NORTHERN LIGHTS SOFTWARE, LTD.
The undersigned corporation, in order to amend its Certificate of
Incorporation, hereby certifies as follows:
FIRST: The name of the Corporation is:
NORTHERN LIGHTS SOFTWARE, LTD.
SECOND: The corporation hereby amends its Certificate of
Incorporation as follows:
A. Article First of the Certificate in incorporation, relating to
the name of the corporation, is hereby amended to read as follows by adding the
new Article First.
"FIRST: The name of the Corporation is:
FORMQUEST INTERNATIONAL, LTD.
THIRD: The amendment effected herein was authorized by the
consent in writing, setting forth the action so taken, signed by the holders of
more than a majority the outstanding shares entitled to vote thereon pursuant to
Section 228 and 242 of the General Corporation Law of the State of Delaware and
written notice has been given to all shareholders who have not consented in
writing to the action.
IN WHITNESS WHEREOF, we hereunto sign our names and affirm that the
statements made herein are true under penalties of perjury this 29th day of
August, 1997.
/s/ John Formicola
----------------------------
John Formicola, Chairman
ATTEST:
/S/ Gerald A. Kaufman
- -----------------------------
Gerald A. Kaufman, Secretary
PAGE E-4
<PAGE> 5
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
FORMQUEST INTERNATIONAL, LTD.
The undersigned corporation, in order to amend Its Certificate of
Incorporation, hereby certifies as follows:
FIRST: The name of the Corporation is:
FORMQUEST INTERNATIONAL, LTD.
SECOND: The corporation hereby amends its Certificate of
Incorporation as follows:
A. Article First of the Certificate of Incorporation, relating to
the name of the corporation, is hereby amended to read as follows by adding
the new Article First.
"FIRST: The name of the Corporation is:
MEGACHAIN.COM, LTD.
THIRD: The amendment affected herein was authorized by
the Consent in writing, setting forth the action so taken, signed by the holders
of more than a majority the outstanding shares entitled to vote thereon pursuant
to Sections 228 and 242 of the General Corporation Law of the State of Delaware
and that written notice has been given to all shareholders who have not
consented in writing to the action.
IN WITNESS WHEREOF, we hereunto sign our names and affirm that the
statements made herein are true under penalties of perjury this 8th day of
April, 1999.
/s/ Tom Lavin
---------------------------
Tom Lavin, Chairman
ATTEST:
/s/ Bill Lavin
- ------------------------
Bill Lavin, Secretary
PAGE E-5
<PAGE> 6
CERTIFICATE OF AMENDMENT OF THE
CERTIFICATE OF INCORPORATION OF
MEGACHAIN.COM, LTD.
MEGACHAIN.COM, LTD., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation") does
hereby certify that:
The amendment to the Corporation's Certificate of Incorporation set forth
Below was duly adopted by resolutions approved by the Corporation's Board of
Directors and stockholders in accordance with the provisions of Section 242 of
the General Corporation Law of the State of Delaware:
Amendment. The Certificate of Incorporation of the corporation is amended
by striking Article FOURTH in its entirety and replacing therefor:
FOURTH: The authorized capital of the corporation is as follows:
1. Shares, Classes and Series Authorized.
The total number of shares of all classes of capital stock that the
Corporation shall have authority to issue is 35,000,000 shares. stockholders
shall not have any preemptive rights, nor shall stockholders have the right
to cumulative voting in the election of directors or for any other purpose.
The classes and the aggregate number of shares of stock of each class that
the Corporation shall have authority to issue are as follows:
(a) 30,000,000 shares of Common Stock, $0.0001 par value
("Common Stock")
(b) 5,000,000 shares of Preferred Stock, $0.0001 par value
("Preferred Stock").
2. Powers and Rights of the Preferred Stock.
The Preferred Stock may be issued from time to time in one or more
series, with such distinctive serial designations as may be stated or
expressed in the resolution or resolutions providing for the issue of such
stock adopted from time to time by the Board of Directors, and in such
resolution or resolutions providing for the issuance of shares of each
particular series, the Board of Directors is also expressly authorized to
fix the right to vote, if any, the consideration for which the shares of
such series are to be issued, the number of shares constituting such
series, which number may be increased (except as otherwise fixed by the
Board of Directors) or decreased (but not below the number of shares
thereof then outstanding) from time to time by action of the Board of
Directors, the rate of dividends upon which and the times at which
dividends on shares of such series shall be payable and the preference, if
any, which such dividends shall have relative to dividends on shares of any
other class or classes or any other series of stock of the Corporation,
whether such dividends shall be cumulative or non cumulative, and if
cumulative, the date or dates from which dividends on shares of such series
shall be cumulative, the rights, if any, which the holders of shares of
such series shall have in the event of any voluntary or involuntary
liquidation, merger, consolidation, distribution or sale of assets,
dissolution or winding up of the affairs of the Corporation, the rights, if
any, which the holders of shares of such series shall have to convert such
shares into or exchange such shares for shares of any other class or
classes or any other series of stock of the Corporation or for any debt
securities of the Corporation and the terms and conditions including price
and rate of exchange, of such conversion or exchange, whether shares of
such series shall be subject to redemption, and the redemption price or
prices and other terms of redemption, if any, for shares of such series
including, without limitation, a redemption price or prices payable in
shares of Common Stock, the terms and amounts of any sinking fund for the
purchase or redemption of shares of such series, and any and all other
designations, preferences, and relative, participating, optional or other
special rights, qualifications, limitations or restrictions thereof
pertaining to shares of such series' permitted by law.
PAGE E-6
<PAGE> 7
3. Issuance of the Common Stock and the Preferred Stock.
The Board of Directors of the Corporation may from time to time
authorize by resolution the issuance of any or all shares of the Common
Stock and the Preferred Stock herein authorized in accordance with the
terms and conditions set forth in this Certificate of Incorporation for
such purposes, in such amounts, to such persons, corporations or entities,
for such consideration, and in the case of the Preferred Stock, in one or
more series, all as the Board of Directors in its discretion may determine
and without any vote or other action by the stockholders, except as
otherwise required by law. The capital stock, after the amount of the
subscription price or par value has been paid in, shall not be subject to
assessment to pay the debts of the Corporation.
IN WITNESS WHEREOF, MEGACHAIN.COM, LTD., has caused this Certificate to be
signed by its duly authorized officer this 19th day of August, 1999.
MEGACHAIN.COM, LTD.
By /s/ Tom Lavin
---------------------
Tom Lavin, President
Signatures
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned thereunto duly authorized.
MEGACHAIN.COM, LTD.
Date: August ____, 1999 By:
--------------------
Tom Lavin, President
PAGE E-7
<PAGE> 1
EXHIBIT 2
BY LAWS
MEGACHAIN.COM, LTD.
ARTICLE I - OFFICES
The principal office of the Corporation shall be located in the City, County and
State so provided in the Certificate of Incorporation. The Corporation may also
maintain offices at such other places within or without the State of Delaware as
the Board of Directors may, from time to time, determine and the business may
require.
ARTICLE II - SHAREHOLDERS
1. Place of Meetings.
Meetings of shareholders shall be held at the principal office of the
Corporation, or at such other places within or without the State of Delaware as
the Board shall authorize.
2. Annual Meetings.
The annual meeting of the shareholders of the Corporation shall be held at 2:00
PM on the last Tuesday of the third month in each year after the close of the
fiscal year of the Corporation, if such date is not a legal holiday and if a
legal holiday, then on the next business day following at the same hour, at
which time the shareholders shall elect a Board of Directors, and transact such
other business as may properly come before the meeting.
3. Special Meetings.
Special meetings of the shareholders may be called at any time by the Board or
by the President, and shall be called by the President or the Secretary at the
written request of the holders of ten (10) per cent of the outstanding shares
entitled to vote thereat, or as otherwise required by law.
4. Notice of Meetings.
Written notice of each meeting of shareholders, whether annual or special,
stating the time when and place where it is to be held, shall be served either
personally or by mail. Such notice shall be served not less than ten (10) nor
more than sixty (60) days before the meeting, upon each shareholder of record
entitled to vote at such meeting, and to any other shareholder to whom the
giving of notice may be required by law. Notice of a special meeting shall also
state the purpose or purposes for which the meeting is called, and shall
indicate that it is being issued by the person calling the meeting. If at any
meeting, action is proposed to be taken that would, if taken, entitle
shareholders to receive payment for their shares, the notice of such meeting
shall include a statement of that purpose and to that effect. If mailed, such B.
notice shall be directed to each such shareholder at his address, as it appears
on the records of the shareholders of the Corporation, unless he shall have
previously filed with the Secretary of the Corporation a written request that
notices intended for him be mailed to some other address, in which event, it
shall be mailed to the address designated in such request.
5. Waiver.
Notice of any meeting need not be given to any shareholder who submits a signed
waiver of notice either before or after a meeting. The attendance of any
shareholder at a meeting, in person or by proxy, shall constitute a waiver of
notice by such shareholder.
PAGE E-8
<PAGE> 2
6. Fixing Record Date.
For the purpose of determining the shareholders entitled to notice of or to vote
at any meeting of shareholders or any adjournment thereof, or to express consent
to or dissent from any proposal without a meeting, or for the purpose of
determining shareholders entitled to receive payment of any dividend or the
allotment of any rights, or for the purpose of any other action, the Board shall
fix, in advance, a date as the record date for any such determination of
shareholders. Such date shall not be more than sixty (60) nor less than ten (10)
days before the date of such meeting, nor more than sixty (60) days prior to any
other action. If no record date is fixed, it shall be determined in accordance
with the provisions of law.
7. QUORUM
(a) Except as otherwise provided by the Certificate of Incorporation, at all
meetings of shareholders of the Corporation, the presence at the commencement of
such meetings, in person or by proxy, of shareholders holding a majority of the
total number of shares of the Corporation then issued and outstanding on the
records of the Corporation and entitled to vote, shall be necessary and
sufficient to constitute a quorum for the transaction of any business. If a
specified item of business is required to be voted on by a class or classes, the
holder of a majority of the shares of such class or classes shall constitute a
quorum for the transaction of such specified item of business. The withdrawal of
any shareholder after the commencement of a meeting shall have no effect on the
existence of a quorum, after a quorum has been established at such meeting.
(b) Despite the absence of a quorum at any annual or special meeting of
shareholders, the shareholders, by a majority of the votes cast by the holders
of shares entitled to vote thereon, may adjourn the meeting.
8. Voting.
(a) Except as otherwise provided by statute or by the Certificate of
Incorporation,
(1) directors shall be elected by a plurality of the votes
cast; and
(2) all other corporate action to be taken by vote of the shareholders,
shall be authorized by a majority of votes cast;
at a meeting of shareholders by the holders of shares entitled to vote thereon.
(b) Except as otherwise provided by statute or by the Certificate of
Incorporation, at each meeting of shareholders, each holder of record of shares
of the Corporation entitled to vote, shall be entitled to one vote for each
share of stock registered in his name on the books of the Corporation.
(c) Each shareholder entitled to vote or to express consent or dissent without a
meeting, may do so by proxy; provided, however, that the instrument authorizing
such proxy to act shall have been executed in writing by the shareholder
himself, or by his attorney-in-fact duly authorized in writing. No proxy shall
be voted or acted upon after three(3) years, unless the proxy shall specify the
length of time it is to continue in force. The proxy shall be delivered to the
Secretary at the meeting and shall be filed with the records of the Corporation.
Every proxy shall be revocable at the pleasure of the shareholder executing it,
unless the proxy states that it is irrevocable, except as otherwise provided by
law.
PAGE E-9
<PAGE> 1
EXHIBIT 3
MEGACHAIN.COM, LTD.
Option for the Purchase of __________
Shares of Common Stock
Par Value $0.0001
STOCK OPTION AGREEMENT
THE HOLDER OF THIS OPTION, BY ACCEPTANCE HEREOF, BOTH WITH RESPECT TO THE OPTION
AND COMMON STOCK ISSUABLE UPON EXERCISE OF THE OPTION, AGREES AND ACKNOWLEDGES
THAT THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER
THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE TRANSFERRED OR SOLD IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT OR OTHER COMPLIANCE UNDER THE SECURITIES ACT OR THE LAWS
OF THE APPLICABLE STATE OR A "NO ACTION" OR INTERPRETIVE LETTER FROM THE
SECURITIES AND EXCHANGE COMMISSION OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE ISSUER, AND ITS COUNSEL, TO THE EFFECT THAT THE SALE OR
TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND SUCH STATE
STATUTES.
This is to certify that, for value received,_______________________ (the
"Optionee") is entitled to purchase from MEGACHAIN.COM, LTD. (the "Company"), on
the terms and conditions hereinafter set forth, all or any part of ____________
shares ("Option Shares") of the Company's common stock, par value $0.0001 (the
"Common Stock"), at the purchase price of $0.75 per share ("Option Price"). Upon
exercise of this option in whole or in part, a certificate for the Option Shares
so purchased shall be issued and delivered to the Optionee. If less than the
total option is exercised, a new option of similar tenor shall be issued for the
unexercised portion of the options represented by this Agreement.
This option is granted subject to the following further terms and
conditions:
1. This option shall vest and be exercisable immediately, and shall expire
at 5:00 p.m. Pacific time on August 12, 2004. In order to exercise this option
with respect to all or any part of the Option Shares for which this option is at
the time exercisable, Optionee (or in the case of exercise after Optionee's
death, Optionee's executor, administrator, heir or legatee, as the case may be)
must take the following actions:
(a) Deliver to the Corporate Secretary of the Company an executed
notice of exercise in substantially the form of attached to this Agreement (the
"Exercise Notice") in which there is specified the number of Option Shares which
are to be purchased under the exercised option.
(b) Pay the aggregate Option Price for the purchased shares through
one or more of the following alternatives:
(i) full payment in cash or by check made payable to the
Company's order;
(ii) full payment in shares of Common Stock held for the
requisite period necessary to avoid a charge to the
Company's earnings for financial reporting purposes and
valued at Fair Market Value on the Exercise Date (as such
term is defined below);
(iii) full payment through a combination of shares of Common
Stock held for the requisite period necessary to avoid a
charge to the Company's earnings for financial reporting
purposes and valued at Fair Market Value on the Exercise
Date and cash or check payable to the Company's order;
PAGE E-10
<PAGE> 2
(iv) full payment effected through a broker-dealer sale and
remittance procedure pursuant to which Optionee shall
provide concurrent irrevocable written instructions (i)
purchased shares and remit to the Company, out of the
sale proceeds available on the settlement date,
sufficient funds to cover the aggregate Option Price
payable for the purchased shares plus all applicable
Federal, state and in connection with such purchase and
(ii) to the Company to deliver the certificates for the
purchased shares directly to such brokerage firm in
order to complete the sale transaction; or
(v) full payment through conversion of the option to purchase
Option Shares into the number of fully paid and
nonassessable Option Shares calculated pursuant to the
following formula:
X = Y (A-B)
-------
A
where: X = the number of Option Shares to be issued
to the Optionee;
the conversion right is being exercised;
A = the Fair Market Value per share as of
the date of exercise of such conversion
right; and
B = the Option Price with respect to such
Option Shares.
(c) Furnish to the Company appropriate documentation that the person
or persons exercising the option (if other than Optionee) have the right to
exercise this option.
(d) For purposes of this Agreement, the Exercise Date shall be the
date on which the executed Exercise Notice shall have been delivered to the
company. Except to the extent the sale and remittance procedure specified
above is utilized in connection with the option exercise, payment of the
Option Price for the purchased shares must accompany such Exercise Notice.
(e) For all valuation purposes under this Agreement, the Fair Market
Value per share of Common Stock on any relevant date shall be determined in
accordance with the following provisions:
(i) If the Common Stock is not at the time listed or admitted to
trading on any national securities exchange but is traded on
the Nasdaq National Market, the Fair Market Value shall be
the mean between the highest "bid" and lowest "offered"
quotations of a share of Common Stock on such date (or if
none, on the most recent date on which there were bid and
offered quotations of a share of Common Stock), as reported
by the Nasdaq National Market or any successor system.
(ii) If the Common Stock is at the time listed or admitted to
trading on any national securities exchange, then the Fair
Market Value shall be the closing selling price per Share on
the date in question on the securities exchange, as such
price is officially quoted in the composite tape of
transactions on such exchange. If there is no reported sale
of Common Stock on such exchange on the date in question,
then the Fair Market Value shall be the closing selling price
on the exchange on the last preceding date for which such
quotation exists.
PAGE E-11
<PAGE> 3
(iii) If the Common Stock is not listed on such date on any
national securities exchange nor included in the Nasdaq
National Market, but is traded in the over-the-counter
market, the highest "bid" quotation of a share of Common
Stock on such date (or if none, on the most recent Date on
which there were bid quotations of a share of Common Stock),
as reported on the Nasdaq Smallcap Market or the NASD OTC
Bulletin Board, as applicable.
(f) Upon such exercise, the Company shall issue and cause to be delivered
with all reasonable dispatch (and in any event within three business days of
such exercise) to or upon the written order of the Optionee at its address,
and in the name of the Optionee, a certificate or certificates for the number
of full Option Shares issuable upon the exercise together with such other
property (including cash) and securities as may then be deliverable upon such
exercise. Such certificate or certificates shall be deemed to have been
issued and the Optionee shall be deemed to have become a holder of record of
such Option Shares as of the Exercise Date.
2. The Optionee acknowledges that the shares subject to this option have not
and will not be registered as of the date of exercise of this option under the
Securities Act or the securities laws of any state. The Optionee acknowledges
that this option and the shares issuable on exercise of the option, when and if
issued, are and will be "restricted securities" as defined in Rule 144
promulgated by the Securities and Exchange Commission and must be held
indefinitely unless subsequently registered under the Securities Act and any
other applicable state registration requirements. The Company is under no
obligation to register the securities under the Securities Act or under
applicable state statutes. In the absence of such a registration or an available
exemption from registration, sale of the Option Shares may be practicably
impossible. The Optionee shall confirm to the Company the representations set
forth above in connection with the exercise of all or any portion of this
option.
3. The Company, during the term of this Agreement, will obtain from the
appropriate regulatory agencies any requisite authorization in order to issue
and sell such number of shares of its Common Stock as shall be sufficient to
satisfy the requirements of the Agreement.
4. The number of Option Shares purchasable upon the exercise of this option
and the Option Price per share shall be subject to adjustment from time to time
subject to the following terms. If the outstanding shares of Common Stock of the
Company are increased, decreased, changed into or exchanged for a different
number or kind of shares of the Company through reorganization,
recapitalization, reclassification, stock dividend, stock split or reverse stock
split, the Company or its successors and assigns shall make an appropriate and
proportionate adjustment in the number or kind of shares, and the per-share
Option Price thereof, which may be issued to the Optionee under this Agreement
upon exercise of the options granted under this Agreement. The purchase rights
represented by this option shall not be exercisable with respect to a fraction
of a share of Common Stock. Any fractional shares of Common Stock arising from
the dilution or other adjustment in the number of shares subject to this option
shall rounded up to the nearest whole share.
5. The Company covenants and agrees that all Option Shares which may be
delivered upon the exercise of this option will, upon delivery, be free from all
taxes, liens, and charges with respect to the purchase thereof; provided, that
the Company shall have no obligation with respect to any income tax liability of
the Optionee and the Company may, in its discretion, withhold such amount or
require the Optionee to make such provision of funds or other consideration as
the Company deems necessary to satisfy any income tax withholding obligation
under applicable law.
PAGE E-12
<PAGE> 4
6. The Company agrees at all times to reserve or hold available a sufficient
number of shares of Common Stock to cover the number of Option Shares issuable
upon the exercise of this and all other options of like tenor then outstanding.
7. This option shall not entitle the holder hereof to any voting rights or
other rights as a shareholder of the Company, or to any other rights whatsoever,
except the rights herein expressed, and no dividends shall be payable or accrue
in respect of this option or the interest represented hereby or the Option
Shares purchasable hereunder until or unless, and except to the extent that,
this option shall be exercised.
8. The Company may deem and treat the registered owner of this option as the
absolute owner hereof for all purposes and shall not be affected by any notice
to the contrary.
9. In the event that any provision of this Agreement is found to be invalid
or otherwise unenforceable under any applicable law, such invalidity or
unenforceability shall not be construed as rendering any other provisions
contained herein invalid or unenforceable, and all such other provisions shall
be given full force and effect to the same extent as though the invalid or
unenforceable provision were not contained herein.
10. This Agreement shall be governed by and construed in accordance with the
internal laws of the state of Delaware, without regard to the principles of
conflicts of law thereof.
11. The holder of this option, by acceptance hereof, acknowledges and agrees
that this option is not transferable by the Optionee except by will or the laws
of descent or distribution. Except as otherwise provided herein, this Agreement
shall be binding on and inure to the benefit of the Company and the person to
whom an option is granted hereunder, and such person's heirs, executors,
administrators, legatees, personal representatives, assignees, and transferees.
IN WITNESS WHEREOF, the Company has caused this option to be executed by the
signature of its duly authorized officer, effective this 18th day of August,
1999.
MEGACHAIN.COM, LTD.
By
------------------------------------
Duly Authorized Officer
The undersigned Optionee hereby acknowledges receipt of a copy of the
foregoing option and acknowledges and agrees to the terms and conditions set
forth in the option.
---------------------------------------
Exercise Notice
(to be signed only upon exercise of Option)
TO: MEGACHAIN.COM, LTD.
The Optionee, holder of the attached option, hereby irrevocable elects to
exercise the purchase rights represented by the option for, and to purchase
thereunder, ____________________ shares of common stock of MEGACHAIN.COM, LTD.,
and herewith makes payment therefor, and requests that the certificate(s) for
such shares be delivered to the Optionee at:
PAGE E-13
<PAGE> 5
--------------------------------------------
--------------------------------------------
--------------------------------------------
If purchase is to be effected by conversion of the option to Common Stock,
the Optionee hereby converts option rights with respect to ________________
Option Shares represented by the option.
If acquired without registration under the Securities Act of 1933, as
amended ("Securities Act"), the Optionee represents that the Common Stock is
being acquired without a view to, or for, resale in connection with any
distribution thereof without registration or other compliance under the
Securities Act and applicable state statutes, and that the Optionee has no
direct or indirect participation in any such undertaking or in the underwriting
of such an undertaking. The Optionee understands that the Common Stock has not
been registered, but is being acquired by reason of a specific exemption under
the Securities Act as well as under certain state statutes for transactions by
an issuer not involving any public offering and that any disposition of the
Common Stock may, under certain circumstances, be inconsistent with these
exemptions. The Optionee acknowledges that the Common Stock must be held and may
not be sold, transferred, or otherwise disposed of for value unless subsequently
registered under the Securities Act or an exemption from such registration is
available. The Company is under no obligation to register the Common Stock under
the Securities Act, except as provided in the Agreement for the option. The
certificates representing the Common Stock will bear a legend restricting
transfer, except in compliance with applicable federal and state securities
statutes.
The Optionee agrees and acknowledges that this purported exercise of the
option is conditioned on, and subject to, any compliance with requirements of
applicable federal and state securities laws deemed necessary by the Company.
DATED this ________ day of ________________________________, __________.
---------------------------------------
Signature
PAGE E-14
<PAGE> 1
EXHIBIT 4
MEGACHAIN.COM, LTD.
Option for the Purchase of __________
Shares of Common Stock
Par Value $0.0001
STOCK OPTION AGREEMENT
THE HOLDER OF THIS OPTION, BY ACCEPTANCE HEREOF, BOTH WITH RESPECT TO THE OPTION
AND COMMON STOCK ISSUABLE UPON EXERCISE OF THE OPTION, AGREES AND ACKNOWLEDGES
THAT THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER
THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE TRANSFERRED OR SOLD IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT OR OTHER COMPLIANCE UNDER THE SECURITIES ACT OR THE LAWS
OF THE APPLICABLE STATE OR A "NO ACTION" OR INTERPRETIVE LETTER FROM THE
SECURITIES AND EXCHANGE COMMISSION OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE ISSUER, AND ITS COUNSEL, TO THE EFFECT THAT THE SALE OR
TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND SUCH STATE
STATUTES.
This is to certify that, for value received, ____________________ (the
"Optionee") is entitled to purchase from MEGACHAIN.COM, LTD. (the "Company"), on
the terms and conditions hereinafter set forth, all or any part of
_________________________ shares ("Option Shares") of the Company's common
stock, par value $0.0001 (the "Common Stock"), at the purchase price of $0.75
per share ("Option Price"). Upon exercise of this option in whole or in part, a
certificate for the Option Shares so purchased shall be issued and delivered to
the Optionee. If less than the total option is exercised, a new option of
similar tenor shall be issued for the unexercised portion of the options
represented by this Agreement.
This option is granted subject to the following further terms and
conditions:
1. This option shall vest and be exercisable immediately, and shall expire
at 5:00 p.m. Pacific time on the first to occur of the date which is 120 days
following the date on which the Optionee's employment with the Company
terminates for any reason, the date which is 120 days following the date of a
Change in Control of the Company (as defined below), or August 12, 2004.
(a) In order to exercise this option with respect to all or any part
of the Option Shares for which this option is at the time exercisable,
Optionee (or in the case of exercise after Optionee's death, Optionee's
executor, administrator, heir or legatee, as the case may be) must take the
following actions:
(i) Deliver to the Corporate Secretary of the Company an executed
notice of exercise in substantially the form of attached to this
Agreement (the "Exercise Notice") in which there is specified the
number of Option Shares which are to be purchased under the exercised
option.
(ii) Pay the aggregate Option Price for the purchased shares
through one or more of the following alternatives:
(A) full payment in cash or by check made payable to the
Company's order;
(B) full payment in shares of Common Stock held for the
requisite period necessary to avoid a charge to the
Company's earnings for financial reporting purposes and
valued at Fair Market Value on the Exercise Date (as such
term is defined below);
PAGE E-15
<PAGE> 2
(C) full payment through a combination of shares of Common
Stock held for the requisite period necessary to avoid a
charge to the Company's earnings for financial reporting
purposes and valued at Fair Market Value on the Exercise
Date and cash or check payable to the Company's order;
(D) full payment effected through a broker-dealer sale and
remittance procedure pursuant to which Optionee shall
provide concurrent irrevocable written instructions (i) to a
brokerage firm to effect the immediate sale of the purchased
shares and remit to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover
the aggregate Option Price payable for the purchased shares
plus all applicable Federal, state and local income and
employment taxes required to be withheld in connection with
such purchase and (ii) to the Company to deliver the
certificates for the purchased shares directly to such
brokerage firm in order to complete the sale transaction; or
(E) full payment through conversion of the option to purchase
Option Shares into the number of fully paid and
nonassessable Option Shares calculated pursuant to the
following formula:
X = Y (A-B)
---------
A
where: X = the number of Option Shares to
be issued to the Optionee;
Y = the number of Option Shares for which
the conversion right is being exercised;
A = the Fair Market Value per share as of
the date of exercise of such conversion
right;
and
B = the Option Price with respect to such
Option Shares.
(iii) Furnish to the Company appropriate documentation that the
person or persons exercising the option (if other than Optionee)
have the right to exercise this option.
(iv) For purposes of this Agreement, the Exercise Date shall be
the date on which the executed Exercise Notice shall have been
delivered to the Company. Except to the extent the sale and
remittance procedure specified above is utilized in connection
with the option exercise, payment of the Option Price for the
purchased shares must accompany such Exercise Notice.
(v) For all valuation purposes under this Agreement, the Fair
Market Value per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
PAGE E-16
<PAGE> 3
(A) If the Common Stock is not at the time listed or
admitted to trading on any national securities exchange but
is traded on the Nasdaq National Market, the Fair Market
Value shall be the mean between the highest "bid" and lowest
"offered" quotations of a share of Common Stock on such date
(or if none, on the most recent date on which there were bid
and offered quotations of a share of Common Stock), as
reported by the Nasdaq National Market or any successor
system.
(B) If the Common Stock is at the time listed or admitted to
trading on any national securities exchange, then the Fair
Market Value shall be the closing selling price per share on
the date in question on the securities exchange, as such
price is officially quoted in the composite tape of
transactions on such exchange. If there is no reported sale
of Common Stock on such exchange on the date in question,
then the Fair Market Value shall be the closing selling
price on the exchange on the last preceding date for which
such quotation exists.
(C) If the Common Stock is not listed on such date on any
national securities exchange nor included in the Nasdaq
National Market, but is traded in the over-the-counter
market, the highest "bid" quotation of a share of Common
Stock on such date (or if none, on the most recent date on
which there were bid quotations of a share of Common Stock),
as reported on the Nasdaq Smallcap Market or the NASD OTC
Bulletin Board, as applicable.
(vi) Upon such exercise, the Company shall issue and cause to be
delivered with all reasonable dispatch (and in any event within three
business days of such exercise) to or upon the written order of the
Optionee at its address, and in the name of the Optionee, a
certificate or certificates for the number of full Option Shares
issuable upon the exercise together with such other property
(including cash) and securities as may then be deliverable upon such
exercise. Such certificate or certificates shall be deemed to have
been issued and the Optionee shall be deemed to have become a holder
of record of such Option Shares as of the Exercise Date.
(b) For purposes of this Agreement, a "Change in Control" means the
occurrence of any one or more of the following:
(i) Any "person", as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), (other than the Company, a majority-owned subsidiary of the
Company, an affiliate of the Company within the meaning of the
Exchange Act, or a Company employee benefit plan, including any
trustee of such plan acting as trustee), is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company (or a successor to the
Company) representing 50% or more of the combined voting power of the
then outstanding securities of the Company or such successor;
PAGE E-17
<PAGE> 4
(ii) At any time that the Company has shares registered under the
Exchange Act at least 50% of the directors of the Company constitute
persons who were not at the time of their first election to the board
of directors of the Company, candidates proposed by a majority of such
board of directors in office prior to the time of such first election;
or
(iii) (A) the dissolution of the Company or liquidation of more
than 50% in value of the Company or a sale of assets involving 50% or
more in value of the assets of the Company, (B) any merger or
reorganization of the Company whether or not another entity is the
survivor, pursuant to which the holders, as a group, of all of the
shares of the Company outstanding prior to the transaction hold, as a
group, less than 50% of the combined voting power of the Company or
any successor company outstanding after the transaction, (C) a
transaction or related set of transactions (including without
limitation a merger or tender offer together with a related purchase
of shares by the tender offeror in the market) pursuant to which the
holders, as a group, of all of the shares of the Company outstanding
prior to the transaction hold, as a group, less than 50% of the
combined voting power of the Company or any successor company
outstanding after the transaction, or (iv) any other event which the
board of directors of the Company determines, in its discretion, would
materially alter the structure of the Company or its ownership.
2. The Optionee acknowledges that the shares subject to this option have
not and will not be registered as of the date of exercise of this option under
the Securities Act or the securities laws of any state. The Optionee
acknowledges that this option and the shares issuable on exercise of the option,
when and if issued, are and will be "restricted securities" as defined in Rule
144 promulgated by the Securities and Exchange Commission and must be held
indefinitely unless subsequently registered under the Securities Act and any
other applicable state registration requirements. The Company is under no
obligation to register the securities under the Securities Act or under
applicable state statutes. In the absence of such a registration or an available
exemption from registration, sale of the Option Shares may be practicably
impossible. The Optionee shall confirm to the Company the representations set
forth above in connection with the Exercise of all or any portion of this
option.
3. The Company, during the term of this Agreement, will obtain from the
appropriate regulatory agencies any requisite authorization in order to issue
and sell such number of shares of its Common Stock as shall be sufficient to
satisfy the requirements of the Agreement.
4. The number of Option Shares purchasable upon the exercise of this option
and the Option Price per share shall be subject to adjustment from time to time
subject to the following terms. If the outstanding shares of Common Stock of the
Company are increased, decreased, changed into or exchanged for a different
number or kind of shares of the Company through reorganization,
recapitalization, reclassification, stock dividend, stock split or reverse stock
split, the Company or its successors and assigns shall make an appropriate and
proportionate adjustment in the number or kind of shares, and the per-share
Option Price thereof, which may be issued to the Optionee under this Agreement
upon exercise of the options granted under this Agreement. The purchase rights
represented by this option shall not be exercisable with respect to a fraction
of a share of Common Stock. Any fractional shares of Common Stock arising from
the dilution or other adjustment in the number of shares subject to this option
shall rounded up to the nearest whole share.
PAGE E-18
<PAGE> 5
5. The Company covenants and agrees that all Option Shares which may be
delivered upon the exercise of this option will, upon delivery, be free from all
taxes, liens, and charges with respect to the purchase thereof; provided, that
the Company shall have no obligation with respect to any income tax liability of
the Optionee and the Company may, in its discretion, withhold such amount or
require the Optionee to make such provision of funds or other consideration as
the Company deems necessary to satisfy any income tax withholding obligation
under applicable law.
6. The Company agrees at all times to reserve or hold available a
sufficient number of shares of Common Stock to cover the number of Option Shares
issuable upon the exercise of this and all other options of like tenor then
outstanding.
7. This option shall not entitle the holder hereof to any voting rights or
other rights as a shareholder of the Company, or to any other rights whatsoever,
except the rights herein expressed, and no dividends shall be payable or accrue
in respect of this option or the interest represented hereby or the Option
Shares purchasable hereunder until or unless, and except to the extent that,
this option shall be exercised.
8. The Company may deem and treat the registered owner of this option as
the absolute owner hereof for all purposes and shall not be affected by any
notice to the contrary.
9. In the event that any provision of this Agreement is found to be
invalid or otherwise unenforceable under any applicable law, such invalidity or
unenforceability shall not be construed as rendering any other provisions
contained herein invalid or unenforceable, and all such other provisions shall
be given full force and effect to the same extent as though the invalid or
unenforceable provision were not contained herein.
10. This Agreement shall be governed by and construed in accordance with
the internal laws of the state of Delaware, without regard to the principles of
conflicts of law thereof.
11. The holder of this option, by acceptance hereof, acknowledges and
agrees that this option is not transferable by the Optionee except by will or
the laws of descent or distribution. Except as otherwise provided herein, this
Agreement shall be binding on and inure to the benefit of the Company and the
person to whom an option is granted hereunder, and such person's heirs,
executors, administrators, legatees, personal representatives, assignees, and
transferees.
IN WITNESS WHEREOF, the Company has caused this option to be executed by
the signature of its duly authorized officer, effective this 18th day of August,
1999.
MEGACHAIN.COM, LTD.
By
------------------------------------
Duly Authorized Officer
PAGE E-19
<PAGE> 6
The undersigned Optionee hereby acknowledges receipt of a copy of the
foregoing option and acknowledges and agrees to the terms and conditions set
forth in the option.
---------------------------------------
Exercise Notice
(to be signed only upon exercise of Option)
TO: MEGACHAIN.COM, LTD.
The Optionee, holder of the attached option, hereby irrevocable elects to
exercise the purchase rights represented by the option for, and to purchase
thereunder, _________________________________ shares of common stock of
MEGACHAIN.COM, LTD., and herewith makes payment therefor, and requests that the
certificate(s) for such shares be delivered to the Optionee at:
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
If purchase is to be effected by conversion of the option to Common Stock,
the Optionee hereby converts option rights with respect to
__________________________________ Option Shares represented by
the option.
If acquired without registration under the Securities Act of 1933, as
amended ("Securities Act"), the Optionee represents that the Common Stock is
being acquired without a view to, or for, resale in connection with any
distribution thereof without registration or other compliance under the
Securities Act and applicable state statutes, and that the Optionee has no
direct or indirect participation in any such undertaking or in the underwriting
of such an undertaking. The Optionee understands that the Common Stock has not
been registered, but is being acquired by reason of a specific exemption under
the Securities Act as well as under certain state statutes for transactions by
an issuer not involving any public offering and that any disposition of the
Common Stock may, under certain circumstances, be inconsistent with these
exemptions. The Optionee acknowledges that the Common Stock must be held and may
not be sold, transferred, or otherwise disposed of for value unless subsequently
registered under the Securities Act or an exemption from such registration is
available. The Company is under no obligation to register the Common Stock under
the Securities Act, except as provided in the Agreement for the option. The
certificates representing the Common Stock will bear a legend restricting
transfer, except in compliance with applicable federal and state securities
statutes.
The Optionee agrees and acknowledges that this purported exercise of the
option is conditioned on, and subject to, any compliance with requirements of
applicable federal and state securities laws deemed necessary by the Company.
DATED this ________ day of _________________, __________.
---------------------------------------
Signature
PAGE E-20
<PAGE> 1
EXHIBIT 5
SUBSIDIARIES
573796 BC., LTD. is a wholly owned subsidiary registered in British
Columbia.
PAGE E-21
<PAGE> 1
1
MANAGEMENT AGREEMENT
THIS AGREEMENT made as of the 15th day of February, 1999.
BETWEEN:
FORMQUEST INTERNATIONAL, LTD. A company incorporated under the laws of
the State of Delaware
(herein called the "Company")
OF THE FIRST PART
AND
BLUE WAVE PRODUCTIONS LTD., a company incorporated under the laws of
the Province of British Columbia
(herein called "Blue Wave")
OF THE SECOND PART
WHEREAS the Company and Blue Wave are desirous that the Company retain the
services of Blue Wave and Blue Wave has agreed to such retainer on the terms and
conditions hereinafter set forth.
AND WHEREAS Tom and Bill Lavin are shareholders of Blue Wave.
NOW THEREFORE, in consideration of the mutual promises set forth herein, the
parties hereto agree as follows:
1.0 APPOINTMENT AND DURATION OF SERVICE
1.1 The Company hereby retains Blue Wave to provide certain services to the
Company, and Blue Wave hereby accepts such appointment, on the terms
and conditions herein contained.
1.2 The Blue Wave shall provide management services to the Company as
follows:
(a) Tom Lavin: to act as President of the Company and provide full time
management services towards the daily operations of the Company;
<PAGE> 2
2
(b) Bill Lavin: to act as Vice President of the Company and provide full time
services towards overseeing the development of software and coordinating
technical support.
1.3 The appointment of Blue Wave shall be for a term which shall commence
on the February 15, 1999 and shall continue for a period of 5 years
thereafter. This agreement may be renewed for a new term by the mutual
written consent of the Blue Wave and the Company.
1.4 Blue Wave agrees that Tom and Bill Lavin will act as members on the
Board of Directors of the Company.
2.0 REMUNERATION
2.1 The Company shall pay to Blue Wave, by way of remuneration for the
services performed hereunder for the term of this Agreement, a fee in
the amount of $15,000 United States dollars ("USD") per month.
2.2 The Company shall reimburse Blue Wave for any reasonable expenses it
incurs in performing its duties hereunder.
2.3.1 The Company shall pay Blue Wave for services rendered to 573795 B.C.
Ltd. (a subsidiary of the Company) commencing January 1, 1999 to
February 15, 1999.
3.0 DUTIES
3.1 Blue Wave agrees with the Company that during the continuance of this
Agreement Tom Lavin shall:
(i) oversee the day to day operations of the Business;
(ii) put into practice and follow the Company's business plan;
(iii) declare any conflicts of interest and refrain from taking part
in any decisions where he might be seen to have a conflict of
interest.
3.2.1 Blue Wave agrees with the Company that during the continuance of this
Agreement Bill Lavin shall:
(i) oversee the development of the Company' software;
(ii) oversee the continual support of the Company's software; and
(iii) oversee the development of new products and improvements to the
Company's software;
<PAGE> 3
3
4.0 TERMINATION
4.1 This Agreement shall terminate at the end of the term as set out in
paragraph 1.3 above. In the event that the Company does not intend to
renew this Agreement, it shall give Blue Wave 90 days notice of its
intention to not renew.
4.2 In addition to the above, the Company may terminate the retainer of
Blue Wave for just cause at any time without notice and without any
payment of any remuneration to it whatsoever save and except
remuneration actually earned to the date of such termination. For the
purposes of this paragraph 4.2, "just cause" shall mean that Tom Lavin
and/or Bill Lavin have performed their duties in a grossly negligent
manner.
4.3 Blue Wave may terminate this Agreement upon 90 days written notice to
the Company.
5.0 ARBITRATION
5.1 Any dispute, difference or question which may arise at any time
hereinafter between the parties touching on the true construction of
this Agreement shall, unless otherwise herein expressly provided, be
referred to and settled by binding arbitration under the Commercial
Arbitration Act of British Columbia and in accordance with the rules of
the British Columbia International Commercial Arbitration Centre. The
place of arbitration shall be Vancouver, British Columbia. One
impartial arbitrator shall be appointed under the Commercial
Arbitration Act. The case shall be administered by the British Columbia
International Commercial Arbitration Centre in accordance with its
"Procedures for Cases Under the B.C.I.C.A.C. Rules". Judgement on the
Arbitral award may be entered in any court in the Province of British
Columbia or in any court having jurisdiction. The parties hereby waive
all defences as to personal jurisdiction, venue and sovereign immunity
from attachment, exception and jurisdiction in any proceeding to
confirm or enforce the award. The party who prevails at arbitration
shall be paid his/its full costs and attorney fees by the other party.
The laws of the Province of British Columbia shall govern all issues
during the arbitration. The decision of the Arbitrator shall be final
and finding on the parties herein.
6.0 NOTICE
6.1. All notices, requests, demands and other communications required or
permitted hereunder, or desired to be given with respect to their
rights or interests herein, assigned or reserved, shall be deemed to
have been properly given or delivered, when delivered personally or
sent by registered mail or sent by electronic communication with all
postage or other charges fully prepaid, and addressed to the parties
respectively as follows:
<PAGE> 4
4
(a) To Blue Wave:
Suite 104, 6125 Sussex Avenue
Burnaby, British Columbia V5H 4G1
(b) To the Company:
34 West 8th Avenue,
Vancouver, B.C. V5Y 1M7
or such other address as any Party may specify by notice in
writing to the other.
6.2 Any notice delivered on a business day, or sent by electronic
communication on a business day, will be deemed conclusively to have
been effectively given on the date notice was delivered or transmitted.
6.3 In the event of an interruption in postal service, any notice sent by
prepaid registered mail will be deemed conclusively to have been
effectively given on the third business day after posting; but if at
the time of posting or between the time of posting and the third
business day thereafter there is a service, then the notice will not be
effectively given until actually delivered.
7.0 GENERAL
7.1 This Agreement contains the entire agreement of the parties hereto and
supersedes any prior written or oral agreements between them concerning
the subject matter contained herein. There are no representations,
agreements or understandings, oral or written, between the parties
hereto or with any third parties, relating to the subject matter
contained in this Agreement, which are not fully expressed herein, and
this Agreement, or any part thereof, can only be modified by a written
instrument executed by all of the parties hereto.
7.2 Any provision of this Agreement which is declared unlawful or
unenforceable by a Court of competent jurisdiction shall not affect any
other provision herein.
7.3 A waiver or breach of any provision of this Agreement shall not
constitute a waiver or breach of any other provision and the balance of
the Agreement shall remain in full force and effect.
7.4 This Agreement shall be binding and enure to the benefit of the heirs,
personal representatives, successors and permitted assigns of the
parties hereto.
7.5 This Agreement shall be governed by and be interpreted in accordance
with the laws of the Province of British Columbia.
<PAGE> 5
5
7.6 This Agreement shall not be assigned, amended, changed or modified or
any provision thereof waived or discharged except by the written
consent of all of the parties hereto.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the day
and year first written above.
FORMQUEST INTERNATIONAL, LTD.
Per: /s/ [SIGNATURE]
---------------------------------
BLUE WAVE PRODUCTIONS LTD.
Per: /s/ [SIGNATURE]
---------------------------------
<PAGE> 1
OPTION AGREEMENT
THIS AGREEMENT dated the 28th day of July 1999.
BETWEEN:
MEGACHAIN.COM, LTD, a public company listed on the NASDAQ Bulletin
Board
OF THE FIRST PART
(hereinafter referred to as the "Optionor")
AND
GREENCHIP PLC a public company listed on the London UK stock exchanges
OF THE SECOND PART
(hereinafter referred to as the "Optionee")
WHEREAS:
1. Optionor is the owner and holder of certain technology and proprietary
intellectual property, including, without limitation, copyrights, patents,
trademarks trade secrets, business plans and know how relating to products and
services which combine as a software system. This system gives exposure to
internet websites and their products and services through an automated
multi-tiered system of tracking and marketing whereby agents receive commissions
based on responses created by forwarding vendor email advertisements to friends,
acquaintances and business associates. ("Confidential Information").
2. The Management of Optionee have international experience in financing,
managing, operating and controlling both private and public companies.
3. The Optionors are desirous of granting and the Optionee is desirous of
receiving the option as set out herein.
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of $1.00 (the
receipt and sufficiency whereof as hereby confirmed by the parties), the
premises and the mutual covenants and agreements set forth herein, the parties
hereto covenant and agree as follows:
1. OPTION
1.1 The optionor hereby grants to Optionee the sole and exclusive option
(the "Option") top negotiate
<PAGE> 2
2
and conclude during the Option Period an Agreement whereby the Optionee will be
granted by Optionor the exclusive licence, for the United Kingdom, to use and
distribute all products and technology developed by the Optionor. ("Licence
Agreement).
1.2 The terms and conditions of the Licence Agreement will be those which
are subsequently agreed so between the Optionor and Optionee. There is no
obligation created herein on either party to conclude a Licence Agreement with
the other.
3. EXERCISE OF OPTION
3.1 The Option shall be open for exercise by the Optionee at any time after
the date of this Option Agreement. This Option shall commence on July 28, 1999
ending on October 31, 1999 or such later date as shall be mutually agreed upon
by both parties ("Option Period")
4. RIGHT OF FIRST REFUSAL
4.1 In the event that during the Option Period, a third party wishes to
negotiate with Optionor for licence agreement for the United Kingdom, the
Optionor may enter into such negotiations. If the third party has made an offer
which the Optionor wishes to accept, the Optionor must first secure from such
third party a bona fide offer (the "Offer"), which Optionor is ready and willing
to accept and shall immediately send a copy of such Offer (the "Offering
Notice") to the Optionee. The Optionee shall have Thirty (30) days from the date
the Offering Notice is given to agree by notice to the Optionor that it will
enter into a licence agreement upon terms and conditions agreeable to the
Optionor.
5. CONFIDENTIALITY
5.1 The Optionor has furnished and will continue to furnish the Optionee
with Confidential Information and it is understood and agreed that the
disclosure of such information may be detrimental to the interests of the
Optionor. Optionee will keep any and all Confidential Information completely
confidential and will not disclose same to any person or body corporate or
unincorporated without the Optionor's prior written permission. This obligation
shall survive the termination of this Agreement and Optionee shall within Forty
Eight, (48) hours of the written notice of the Company return all copies of any
written Confidential Information in Optionee's possession. The covenants
contained in this paragraph 5 will not apply to Confidential lnformation which
is in the public domain prior to the time it is disclosed by Optionee or which
is previously known to the third party to which it is being divulged.
6. TIME OF ESSENCE
Time is hereby expressly made of the essence of this Agreement with
respect to the performance by the parties of their respective obligations under
this Agreement.
7. BINDING EFFECT
This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective heirs, executors, administrators, personal
representatives, successors and assigns.
<PAGE> 3
3
8. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and shall supersede all previous
expectations, understandings, communications, representations and agreements
whether verbal or written between the parties with respect to the subject matter
hereof.
9. ASSIGNMENT
The Optionee may assign or transfer any of its respective rights to any
third person without the consent of the Optionor.
10. AMENDMENT
No amendment to this Agreement shall be valid unless it is evidenced by
a written agreement executed by all of the parties hereto.
11. CHOICE OF LAW
This Agreement shall be governed by and be interpreted in accordance
with the laws of the Province of British Columbia.
IN WITNESS WHEREOF the parties hereto have executed this Agreement on
the day and year first above written.
The COMMON SEAL of )
GREENCHIP PLC. )
was hereunto )
affixed in the presence of )
)
/s/ [SIGNATURE] )
- ---------------------------------- ) (C/S)
Authorized Signatory )
The COMMON SEAL of )
MEGACHAIN.COM, LTD. )
was hereunto )
affixed in the presence of )
)
/s/ [SIGNATURE] )
- ---------------------------------- ) (C/S)
Authorized Signatory )
<PAGE> 1
OPTION AGREEMENT FOR EUROPEAN ECONOMIC
COMMUNITY
BETWEEN:
MEGACHAIN.COM, LTD., a public company listed on the NASDAQ Bulletin
Board
OF THE FIRST PART
(hereinafter referred to as the "Optionor")
AND:
GREENCHIP INVESTMENTS PLC, a public company listed on the London UK
OFEX exchange
OF THE SECOND PART
(hereinafter referred to as the "Optionee")
WHEREAS:
1. Optionor is the owner and holder of certain technology and proprietary
intellectual property, including, without limitation, copyrights, patents,
trademarks, trade secrets, business plans and know how relating to products and
services which combine as a software system. This system gives exposure to
internet websites and their products and services through an automated
multi-tiered system of tracking and marketing whereby agents receive commissions
based on responses created by forwarding vendor email advertisements to friends,
acquaintances and business associates. ("Confidential Information").
2. The Management of Optionee has international experience in financing,
managing, operating and controlling both private and public companies.
3. The Optionor is desirous of granting and the Optionee is desirous of
receiving the option as set out herein.
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of $1.00 (the
receipt and sufficiency whereof is hereby confirmed by the parties), the
premises and the mutual covenants and agreements set forth herein, the parties
hereto covenant and agree as follows:
<PAGE> 2
2
1. OPTION
1.1 The Optionor hereby agrees to grant to Optionee the sole and exclusive
option (the "European Economic Community Option") whereby the Optionee will be
granted by Optionor the exclusive licence for the European Economic Community,
to use and distribute all products and technology developed by the Optionor,
subject to the following clauses, 1.2 and 1.3.
1.2 Such European Economic Community Option will be granted immediately
following successful finalization and implementation of the exclusive licence
for the United Kingdom. BETWEEN Optionor and Optionee, to use and distribute all
products and technology developed by the Optionor. ("Licence Agreement").
1.3 The terms and conditions of the European Economic Community Licence
Agreement will be those which are subsequently agreed to between the Optionor
and Optionee. There is no obligation created herein on either party to conclude
a Licence Agreement with the other.
2. EXERCISE OF OPTION
The European Economic Community Option shall be open for exercise by
the Optionee at any time up to six months after the European Economic Community
Option Agreement becomes effective, [by way of clause 1.2], or such later date
as shall be mutually agreed upon by both parties ("European Economic Community
Option Period")
3. RIGHT OF FIRST REFUSAL
In the event that during the European Economic Community Option Period,
a third party wishes to negotiate with Optionor for licence agreement for any or
all territories within the European Economic Community, the Optionor may enter
into such negotiations. If the third party has made an offer which the Optionor
wishes to accept, the Optionor must first secure from such third party a bona
fide offer (the "Offer"), which Optionor is ready and willing to accept and
shall immediately send a copy of such Offer (the "Offering Notice") to the
Optionee. The Optionee shall have thirty (30) days from the date the Offering
Notice is given, to agree by notice to the Optionor that the Optionee will enter
into a licence agreement upon terms and conditions agreeable to the Optionor. If
mutually agreeable terms cannot be reached, the Optionor is free to reach an
agreement with the third party.
<PAGE> 3
3
4. CONFIDENTIALITY
The Optionor has furnished and will continue to furnish the Optionee
with Confidential Information and it is understood and agreed that the
disclosure of such information may be detrimental to the interests of the
Optionor. Optionee will keep any and all Confidential Information completely
confidential and will not disclose same to any person or body corporate or
unincorporated without the Optionor's prior written permission. This obligation
shall survive the termination of this Agreement and Optionee shall within Forty
Eight, (48) hours of the written notice of the Company return all copies of any
written Confidential Information in Optionee's possession. The covenants
contained in this paragraph 4 will not apply to Confidential Information which
is in the public domain prior to the time it is disclosed by Optionee or which
is previously known to the third party to which it is being divulged.
5. BINDING EFFECT
This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective heirs, executors, administrators, personal
representatives, successors and assigns.
6. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and shall supersede all previous
expectations, understandings, communications, representations and agreements
whether verbal or written between the parties with respect to the subject matter
hereof.
7. ASSIGNMENT
The Optionee may assign or transfer any of its respective rights to any third
party controlled by the Optionee without the consent of the Optionor. However,
the Optionee may only assign or transfer any of its respective rights to any
other third party with the consent of the Optionor, which consent shall not be
unreasonably withheld.
8. AMENDMENT
No amendment to this Agreement shall be valid unless it is evidenced by a
written agreement executed by all of the parties hereto.
<PAGE> 4
4
9. CHOICE OF LAW
This Agreement shall be governed by and be interpreted in accordance with
the laws of the Province of British Columbia.
IN WITNESS WHEREOF the parties hereto have executed this Agreement on the
day and year first above written.
GREENCHIP INVESTMENTS PLC.
/s/ IAN BURNE
Ian Burne: Authorized Signatory
MEGACHAIN.COM, LTD.
/s/ TOM LAVIN
Tom Lavin. Authorized Signatory
OCEANIC MANAGEMENT LIMITED has prepared and approved the above Option
Agreement.
/s/ KAARE FOY
Kaare Foy: Authorized Signatory
