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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form 10-QSB
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(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 000-30264
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MEGACHAIN.COM, LTD.
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(Exact name of registrant as specified in its charter)
Delaware 11-3177042
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
34 West 8th Avenue
Vancouver, BC, CANADA V5Y 1M7
(Address of principal executive offices including zip code)
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Registrant's telephone number, including area code:
(604) 873-3847
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of January 31, 2000.
Class Outstanding at January 31, 2000
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Common Stock, $0.001 Par Value 16,154,000
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MEGACHAIN.COM, LTD. AND SUBSIDIARIES
(FORMERLY FORMQUEST INTERNATIONAL, LTD; FORMERLY
NORTHERN LIGHTS SOFTWARE, LTD.)
INDEX
<TABLE>
<CAPTION>
Number Page
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<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -- 3
December 31, 1999 (unaudited) and June 30, 1999
Condensed Consolidated Statements of Operations (unaudited) -- 4
Three and Six Months Ended December 31, 1999 and 1998
Condensed Consolidated Statements of Shareholders' Equity -- 5
December 31, 1999 (unaudited) and June 30, 1999
Condensed Consolidated Statements of Cash Flows (unaudited) -- 6
Six Months Ended December 31, 1999 and 1998
Notes to Condensed Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
Part II. Other Information 8
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MEGACHAIN.COM, LTD. AND SUBSIDIAIRES
(FORMERLY FORMQUEST INTERNATIONAL, LTD.;
FORMERLY NORTHERN LIGHTS SOFTWARE, LTD.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,1999 June 30,1999
(Unaudited) (Audited)
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<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 388,990 $ 713,874
Miscellaneous receivables 17,429 7,970
Prepaid expenses - 18,100
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406,419 739,944
PROPERTY AND EQUIPMENT - Net 13,907 11,512
INTANGIBLE ASSETS, NET 247,500 277,500
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TOTAL ASSETS $ 667,826 $ 1,028,956
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LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Account payable and accrued expenses $ 11,544 $ 18,123
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TOTAL CURRENT LIABILITIES 11,544 18,123
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STOCKHOLDERS' EQUITY
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 (2,097,580) (1,653,968)
ACCUMULATED OTHER COMPREHENSIVE INCOME (8,939) -
LESS: TREASURY STOCK - 3,500,000 shares at cost - -
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TOTAL STOCKHOLDERS' EQUITY 656,282 1,010,833
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 667,826 $ 1,028,956
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</TABLE>
See the accompanying notes.
3
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MEGACHAIN.COM, LTD. AND SUBSIDIARIES
(FORMERLY FORMQUEST INTERNATIONAL, LTD;
FORMERLY NORTHERN LIGHTS SOFTWARE, LTD.)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
December 31, December 31,
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1999 1998 1999 1998
------------ --------- ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
EXPENSES
Software development $ 57,375 $ - $ 20,742 $ -
Selling and marketing 70,705 - 35,965 -
General and administrative expenses 325,300 - 103,075 -
------------ --------- ------------ ------------
LOSS FROM OPERATIONS 453,380 - 159,782 -
INTEREST INCOME 9,768 - 3,438 -
------------ --------- ------------ ------------
NET LOSS $ 443,612 $ - $ 156,344 $ -
============ ========= ============ ============
BASIC AND DILUTED LOSS PER
SHARE OF COMMON STOCK $ (0.03) $ - (0.01) $ -
============ ========= ============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING OF COMMON
STOCK 16,154,000 8,154,000 16,154,000 8,154,000
============ ========= ============ ============
</TABLE>
See accompanying notes.
4
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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
Shares Amount Capital Deficit Income Stock
---------- ---------- ----------- ----------- ----------- ---------
<S> <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 six months
ended December 31, 1999 - - - (443,612) - -
Foreign currency translation
adjustments - - - - (8,939) -
COMPREHENSIVE LOSS - - - - - -
BALANCE AT DECEMBER 31, 1999
1999 (UNAUDITED) 16,154,000 $ 1,965 $ 2,761,186 $(2,097,580) $ (8,939) $ -
========== =========== =========== =========== =========== ========
<CAPTION>
Comprehensive
Loss
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<C> <C>
BALANCE AT JUNE 30, 1999 $ -
Common stock options issued for
consulting expense -
Net loss for the six months
ended December 31, 1999 (443,612)
Foreign currency translation
adjustments (8,939)
COMPREHENSIVE LOSS $ (452,551)
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BALANCE AT DECEMBER 31, 1999
1999 (UNAUDITED)
</TABLE>
See accompanying notes.
5
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MEGACHAIN.COM, LTD. AND SUBSIDIARIES
(FORMERLY FORMQUEST INTERNATIONAL, LTD;
FORMERLY NORTHERN LIGHTS SOFTWARE, LTD.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
December 31
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1999 1998
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(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(456,137) $ -
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 31,442 -
Changes in assets and liabilities
(Increase) decrease in
Miscellaneous receivables (9,259) -
Prepaid expenses 18,244 -
Increase in
Accounts payable and accrued expenses (6,721) -
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Net cash used in operating activities (324,431) -
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (3,625) -
EFFECTS OF EXCHANGE RATES ON CASH (3,172) -
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NET DECREASE IN CASH (324,884) -
CASH - BEGINNING OF PERIOD 713,874 -
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CASH - END OF PERIOD $ 388,990 $
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</TABLE>
See accompanying notes.
6
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MEGACHAIN.COM, LTD. AND SUBSIDIARIES
(FORMERLY FORMQUEST INTERNATIONAL, LTD;
FORMERLY NORTHERN LIGHTS SOFTWARE, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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 six and three month periods ended December 31,
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 $3,586 and $-0- for the six months
ended December 31, 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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS 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.
Approximately $48,000 has been spent to date on designing the web site and
developing the functionality of the software suite. 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. Key elements of the sales and marketing plan
are to: (i) Alert the media of the product rollout via direct contact and press
releases, (ii) Promote MegaChain on search engines and banner advertising and in
specific newsgroups, (iii) Identify and capture those companies most likely to
benefit from a Multi Level Marketing sales force and a direct E-mail campaign,
and (iv) Establish strategic alliances with Internet Service Providers. 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. The Company currently subcontracts 6 individuals
on a full time basis. 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.
PART II - OTHER INFORMATION
Item 1. 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.
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
None
8
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Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
9
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SIGNATURES
In accordance with the requirements of the Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEGACHAIN.COM, LTD.
/s/ Tom Lavin
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Date: March 16, 2000 Tom Lavin, President
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