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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 September 30, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to ______
Commission File Number [ ]
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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 September 30, 2000
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Common Stock, $0.0001 Par Value $20,404,000
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MEGACHAIN.COM, LTD. AND SUBSIDIARIES
(FORMERLY FORMQUEST INTERNATIONAL, LTD; FORMERLY
NORTHERN LIGHTS SOFTWARE, LTD.)
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -- 3
September 30, 2000 (unaudited) and June 30, 2000
Condensed Consolidated Statements of Operations (unaudited) -- 4
Three and Six Months Ended September 30, 2000 and 1999
Condensed Consolidated Statements of Shareholders' Equity -- 5
September 30, 1999 (unaudited) and June 30, 2000
Condensed Consolidated Statements of Cash Flows (unaudited) -- 6
Six Months Ended September 30, 2000 and 1999
Notes to Condensed Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
Part II. Other Information 9
Item 1. Legal Proceedings 9
Item 2. Changes in Securities and Use of Proceeds 10
Part III. Financial Data Schedule
</TABLE>
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MEGACHAIN.COM, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 2000 June 30, 2000
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(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 119,492 $ 155,106
Miscellaneous receivables 3,824 4,382
Prepaid expenses - 1,011
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123,316 160,499
PROPERTY AND EQUIPMENT - Net 39,251 41,997
INTANGIBLE ASSETS, NET 202,500 217,500
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TOTAL ASSETS $ 365,067 $ 419,996
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Account payable and
accrued expenses $ 72,437 $ 10,893
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TOTAL CURRENT LIABILITIES 72,437 10,893
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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;
20,404,000 shares issued as of September 30, 2000 and 16,154,000
shares issued as of June 30, 2000 2,040 1,615
ADDITIONAL PAID-IN CAPITAL 3,185,761 2,761,186
ACCUMULATED DEFICIT (2,689,063) (2,357,117)
ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS) (6,098) 3,419
LESS: TREASURY STOCK -
3,500,000 shares at cost - -
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492,640 409,103
LESS: DEFERRED CONSULTING FEES 200,010 -
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TOTAL STOCKHOLDERS' EQUITY 292,630 409,103
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 365,067 $ 419,996
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</TABLE>
See accompanying notes.
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MEGACHAIN.COM,LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
September 30,
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2000 1999
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(Unaudited) (Unaudited)
<S> <C> <C>
EXPENSES
Professional fees $ 21,410 $ 59,157
Selling and marketing 33,258 34,740
Software development 217,929 36,633
Management fee 22,329 22,887
General and administrative expenses 38,700 139,586
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333,626 293,003
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LOSS FROM OPERATIONS (333,626) (293,003)
INTEREST INCOME 1,680 6,330
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NET LOSS $ (331,946) $ (286,673)
============ ============
BASIC AND DILUTED LOSS PER SHARE OF COMMON STOCK $ (0.02) $ (0.02)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING
OF COMMON STOCK 18,987,333 16,154,000
============ ============
</TABLE>
See accompanying notes.
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MEGACHAIN.COM, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other
-------------------- Paid-In Accumulated Comprehensive Treasury Comprehensive
Shares Amount Capital Deficit Income (Loss) Stock Loss
---------- ------ ---------- ----------- ------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 2000 16,154,000 $1,615 $2,761,186 $(2,357,117) $3,419 $ - $ -
Issuance of common stock for software
development costs 4,250,000 425 424,575 - - - -
Net loss for the three months ended
September 30, 2000 - - - (331,946) - - (331,946)
Foreign currency translation adjustment - - - - (9,517) - (9,517)
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COMPREHENSIVE LOSS - - - - - - $(341,463)
---------- ------ ---------- ----------- ------- ------ =========
BALANCE AT SEPTEMBER 30, 2000 20,404,000 $2,040 $3,185,761 $(2,689,063) $(6,098) $ -
========== ====== ========== =========== ======= ======
</TABLE>
See accompanying notes.
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MEGACHAIN.COM, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
September 30,
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2000 1999
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(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(331,946) $(286,673)
Adjustments to reconcile net loss to net cash
used in operating activities
Issuance of common stock options for consulting expense - 98,000
Issuance of common stock for software development costs 217,929 -
Depreciation and amortization 17,311 15,721
Decrease (increase) in
Miscellaneous receivables 514 (3,404)
Prepaid expenses 1,006 18,100
Increase in
Accounts payable and accrued expenses 61,635 11,535
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Net cash used in operating activities (33,551) (146,721)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures - (2,901)
EFFECTS OF EXCHANGE RATES ON CASH (2,063) -
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NET DECREASE IN CASH (35,614) (149,622)
CASH - BEGINNING OF PERIOD 155,106 713,874
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CASH - END OF PERIOD $ 119,492 $ 564,252
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SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Issuance of common stock for deferred consulting fees $ 200,010 $ -
========= =========
</TABLE>
See accompanying notes.
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MEGACHAIN.COM, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
NOTE 1 - INTERIM FINANCIAL INFORMATION
The financial statements of Megachain.com, Ltd. and Subsidiaries (the "Company")
as of September 30, 2000, and for three months ended September 30, 2000 and 1999
and related footnote information are unaudited. All adjustments (consisting only
of normal recurring adjustments) have been made which, in the opinion of
management, are necessary for a fair presentation. Results of operations for the
three months ended September 30, 2000 and 1999 are not necessarily indicative of
the results that may be expected for any future period. The balance sheet at
June 30, 1999 was derived from audited financial statements.
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, 2000, included in
the Form 10K-SB.
NOTE 2 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
its Subsidiaries. All material intercompany balances and intercompany
transactions have been eliminated.
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 business. 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.
The Company is devoting substantially all of its present efforts on
re-establishing its business based on an industry standard Application Service
Provider model. To date there have been no significant revenues derived from the
existing software. 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 set up and maintenance fee
and a referral fee for each response to the advertisers' web page.
At present the Company is expending approximately $12,000 per month to maintain
its base of operations. CEO, Mr. Tom Lavin, along with associates Mr. Steele,
Mr. W.C. Lavin and Corporate Counsel Mr. Breitman, have chosen to continue to
pursue Company business despite the lack of capital. The Company's current
inability to raise additional financing prompted the Board of Directors to
resolve that all fees charged by the Lavins, Mr. Steele and Mr. Breitman be
deferred as of July 1, 2000. Chief programmer, Mr. Mayzel, stays on as the
Company's sole employee. The Company's cash reserve is sufficient to cover the
operating expenses of the Company throughout the next fiscal year including
approximately $25,000 in external accounting, legal and professional fees.
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.
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MEGACHAIN.COM, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
NOTE 4 - STOCKHOLDERS' EQUITY
Common Stock
In August 2000, the Company issued 4,250,000 shares of restricted common stock
to two consulting firms for ongoing services that commenced in July 2000. These
shares were valued at $425,000 and were reflected as deferred consulting fees at
time of issuance. As of September 30, 2000, approximately $200,000 remained as
deferred consulting fees.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements appearing elsewhere in this report.
Quarter ended September 30, 2000
Revenue:
There was no revenue during the fiscal quarter ended September 30, 2000 since
the Company is in a development stage.
Cost of Revenue:
Software Development Expenses:
During the quarter ended September 30, 2000 the Company incurred $217,929 in
software development costs associated with the operations of the B.C.
subsidiary. This is an increase of $181,000 over fiscal 1999. The increase is
due to the costs incurred to modify the system to support running multiple
clients on one server consistent with the Company's objective to become an ASP.
Most of these increased costs were satisfied through the issuance of stock in
the Company to the developers.
Selling and Marketing Expenses:
Selling and Marketing expenses of $33,258 for the quarter ended September 30,
2000 consisted of marketing consulting, promotional and travel expenses.
General Administrative Expenses:
General and administrative expenses for the quarter ended September 30, 2000
were $38,700 a decrease of $100,000 over fiscal 1999. The decrease was due to
reduced staffing, office costs and consulting.
Description of Property:
The Company presently maintains its principal place of business at 34 West 8th
Avenue, Vancouver, British Columbia, Canada V5Y 1M7. The premises 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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On or about August 4,2000 Management received a letter from an attorney advising
that there is an Order for Entry of Default Judgment in favour of two alleged
former employees of Northern Lights Software, Ltd. dated March 10, 1998 in the
total amount of $74,887.53. The judgment was obtained in the State of Colorado
and was apparently for unpaid wages. Until this time, present management was
unaware of this claim and judgment. A former director of the Company advised
management that he was also unaware of this claim and judgment and believed that
claimants were actually employees of Northern Lights Software (New York) Ltd., a
subsidiary of Northern Lights Software, Ltd. Pursuant to an Agreement and Plan
of Reorganization dated February 15, 1999, that former director personally
warranted that there were no undisclosed liabilities in the Company. The Company
intends to dispute the Judgment or in the alternative seek compensation from the
former director. Management is not able to determine its chance of success in
attempting to set aside the Judgment. In the event the Company is unable to set
aside the Judgment, Management believes it may be possible to obtain
compensation from the former director.
Other than that stated above, 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. Other than that stated above, there are no judgments against the
Company or its Officers or Directors. None of the Officers or Directors
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has been convicted of a felony or misdemeanor relating to securities or
performance in corporate office.
Item 2. Changes in Securities and Use of Proceeds
The Company retained the services of Enterprise Cybersystems, Inc. to provide an
independent evaluation of the MegaChain Software System. As the Company does not
have the capital to pay for this service, it issued 250,000 common shares to
Enterprise Cybersystems on August 17, 2000.
The Company retained the services of Terrific Software Inc., to develop the
Company's next release of viral marketing software. The new software platform
will enable the Company to re-establish its business based upon an industry
standard Application Service Provider model. Development on the new software
platform commenced in July 2000 and Management anticipates that it will be
completed within 180 days of that date. Since the Company does not have the
capital to pay for this software development, on August 17, 2000 it issued
4,000,000 common shares to Terrific Software Inc. for these services.
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports
None
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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: November 9, 2000 Tom Lavin, President
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