SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2000
Commission File Number 000-24355
WebQuest International, Inc.
(Exact name of small business issuer in its charter)
Nevada 86-0894019
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2248 Meridian Blvd., Suite A, Minden, NV 89423-8601
(Address of principal executive offices, including Zip Code)
775-782-0350
(Registrant's telephone number,)
Securities registered pursuant to Section 12(g) of the
Exchange Act:
Common Stock, $.001 par value
Check whether the issuer (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 [ ]
Check if there is no disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B contained in this form, and no
disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or any amendment to this Form 10-
KSB. ( )
State issuer's revenues for its most recent fiscal year:
$22,127.00
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the
stock was sold, or the average bid and asked price of such stock,
as of a specified date within the past 60 days.
Based on the closing price of the common stock quoted on the
OTC Bulletin Board as reported on December 22, 2000 ($.56 per
Share), the aggregate market value of the 6,572,462 shares of the
common stock held by persons other than officers, directors and
parties known to the registrant to be the beneficial owner (as
that term is defined under the rules of the Securities and
Exchange Commission) of more than five per cent of the Common
Stock on that date was $3,685,059. By the foregoing statement,
the Registrant does not intend to imply that any of these
officers, directors or beneficial owners are affiliates of the
Registrant or that the aggregate market value, as computed
pursuant to rules of the Securities and Exchange Commission, is
in any way indicative of the amount which could be obtained for
such shares of common stock of the Registrant.
As of December 22, 2000 there were 9,610,283 shares of the
issuer's Common Stock, $.001 par value, outstanding.
<PAGE>
WEBQUEST INTERNATIONAL, INC.
INDEX
Table of Contents
Part I
Item 1. Description of Business .................................. 3
Item 2. Description of Property ...................................5
Item 3. Legal Proceedings .........................................5
Item 4. Submission of Matters to a Vote of Security Holders .....5
Part II
Item 5. Market for Common Equity and Related Stockholder Matters .5
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations .....................9
Item 7. Financial Statements .....................................12
Item 8. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure ....................41
Part III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange
Act ....................................................42
Item 10. Executive Compensation ...................................44
Item 11. Security Ownership of Certain Beneficial Owners and
Management..............................................47
Item 12. Certain Relationships and Related Transactions ...........49
Item 13. Exhibits and Reports on Form 8-K .........................49
FORWARD LOOKING STATEMENTS
WebQuest International, Inc. (the "Company", "we" or
"us") cautions readers that certain important factors may affect
our actual results and could cause such results to differ
materially from any forward-looking statements that may have been
made in this Form 10-KSB or that are otherwise made by or on
behalf of us. For this purpose, any statements contained in the
Form 10-KSB that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the
generality of the foregoing, words such as "may," "expect,"
"believe," "anticipate," "intend," "could," "estimate," "plan" or
"continue" or the negative other variations thereof or comparable
terminology are intended to identify forward-looking statements.
Factors that may affect our results include, but are not limited
to, our limited history of non-profitability, our dependence on a
limited number of customers and key personnel, the need for
additional financing and our dependence on certain industries. We
also subject to other risks detailed herein or detailed from time
to time in our filings with the Securities and Exchange
Commission.
<PAGE>
PART-I
ITEM 1. DESCRIPTION OF BUSINESS
Background
WebQuest International, Inc., was originally incorporated in
Nevada on November 6, 1996 as iPONG International, Inc., and is
the successor by merger with WebQuest International, Inc., a Utah
corporation formerly known as Phaser Enterprises, Inc., in April
1997. Prior to April 1997, Phaser had no operations for several
years. The purpose of these mergers was to merge WebQuest, a
privately held corporation, with Phaser, a publicly held
corporation and have WebQuest become the surviving entity.
There have been no bankruptcies, receiverships, similar
proceedings or purchase or sale of a significant amount of assets
not in the ordinary course of our business.
Our present business is the development and marketing of
several games on the Internet. We currently derive nominal
amounts of revenue from the sale of advertising on our
www.ipong.comTM, www.freehoroscopes.com, www.winbridge.comTM and
www.chessed.com Internet sites. We plan to start generating user
fees on our www.winbridge.com bridge site and on our
www.chessed.com site starting in early 2001. We also plan to
start up an on-line poker site, www.horseshoepoker.comTM in early
2001 and started leasing our MillionDollarPullTM software in
November 2000. We are also test marketing for-pay tournaments on
our www.ipong.com site.
Competition
We will encounter intense competition in all aspects of our
existing and proposed business and will compete directly with
other companies, a significant number that have greater capital
and other resources and longer operating histories than us. Our
current direct competitors include the Internet sites
[email protected], pogo.com, gamesville.com, uproar.com,
bignetwork.com and itsyourturn.com.
[email protected] is affiliated with Yahoo!, Inc., a well-
financed and profitable Internet Portal Company. Their focus
appears to be with board games (chess, checkers, backgammon),
crossword puzzles, card games (blackjack, bridge, canasta,
cribbage, hearts, pinochle, poker, spades, etc.) and sports games
like baseball, football, basketball, golf, hockey and soccer. We
believe [email protected] is a formidable competitor.
We believe that pogo.com was initially financed by Kleiner,
Perkins, Caufield and Byers in 1995 and that they continue to
receive financing from firms that include Goldman Sachs and
Robertson, Stephens & Company. Their Internet site includes
board games (backgammon, checkers and chess), word games
(crossword puzzles, jumbler, sports crossword and word search),
Keno, various arcade games, trivia games, bingo and card games
(bridge, hearts, solitaire and spades). We believe pogo.com is a
formidable competitor.
Gamesville.com, uproar.com, bignetwork.com and
itsyourturn.com appear to have Internet games similar to
[email protected] and pogo.com. Competition in the Internet-based
games business is highly competitive and we anticipate it to
become more competitive in the future.
<PAGE>
License To Use Name
We entered into a non-exclusive License Agreement on July 3,
1997, with Atari-JTS Corp ("Atari"), a Delaware Corporation that
owns the software, programs, trade names, trademarks, promotional
material, and intellectual property for PONGc's use on the
Internet. Hasbro, Inc. subsequently purchased Atari and is now
the licensor. The agreement has a five year term, which is
renewable for an additional five year period, if minimum royalty
fees are at least $400,000.00 over the initial five year period,
and allows us to license and use the game (Pong) in connection
with our www.ipong.com website on a non-exclusive basis. As
consideration for this agreement we paid a $5,000 non-refundable
execution of agreement fee. We also agreed to pay a quarterly
1/10 of one-cent ($.001) royalty fee for each player who accesses
Pong; with a base amount of $5,000 per quarter to the Company if
the number of Pong players fails to exceed 5,000,000 in each
quarter. To date, we have been paying the $5,000 minimum each
three months.
Government Regulation
We hold no registered patents, trademarks, franchises or
concessions nor are we subject to any labor contracts. We have
filed for U.S. service mark protection for our winbridge, ipong,
horseshoepoker and MillionDollarPull products and anticipate
these service marks to become effective in 2001.
We are not currently subject to direct regulation by the
Federal Communications Commission or any other agency, other than
regulations applicable to businesses generally. We are subject
to rules and regulations concerning games and sweepstakes, and we
have consulted with the appropriate attorneys to insure we are in
compliance with such rules and regulations.
It is possible that some aspects of our for-pay tournaments
could be illegal in certain states. We have blocked out people
in nine states from playing our ipong for-pay tournaments, as we
believe these tournaments are probably not legal in these nine
states. Blockage consists of informing people, prior to
registering for our tournaments, that it is probably illegal for
them to play in certain states and that no prizes will be awarded
to residents of these nine states.
We plan to block residents of the U.S. and Canada from
gambling at our online poker site when it opens.
Changes in the regulatory environment relating to the
Internet advertising or rights of privacy, could have an adverse
effect on our business. We cannot predict the impact, if any,
that future regulation or regulatory changes may have on our
business.
The last three fiscal years have been dedicated primarily to
product research and development. We plan to launch several
revenue-generating games on the Internet during fiscal 2001.
We have not incurred any expense associated with
environmental law compliance and do not expect to do so.
We currently employ 23 people, all of whom are full-time.
From time to time we also utilize independent contractors.
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
We currently lease approximately 3,200 square feet of office
space in Minden, Nevada from a non-affiliated party for $3,665.00
per month for our corporate headquarters. The lease is signed
for three years. The utilized premises are in excellent physical
condition.
ITEM 3. LEGAL PROCEEDINGS
We are not involved in any legal proceedings as of this
date.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote by Security Holders
during the last quarter of this fiscal year.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our Common Stock began trading on the NASD's Over The
Counter Bulletin Board market in February 1999 under the trading
symbol "WEBQ". The following table sets out the high and low
trade prices of our stock for the periods indicated.
High Price Low Price
First Quarter ended 12/31/99 $5.25 $1.00
Second Quarter ended 3/31/00 $4.06 $2.00
Third Quarter ended 6/30/00 $3.25 $.63
Fourth Quarter ended 9/30/00 $1.03 $.44
There were approximately 400 shareholders of Company Stock
on December 22, 2000 that owned the 9,610,283 shares of common
stock that were issued and outstanding. Our transfer agent is
American Registrar & Transfer Co., 342 East 900 South, Salt Lake
City, Utah 84111.
We have never paid dividends on our common stock and we do
not expect to pay dividends in the future, but rather plan to
retain any earnings for expanding our business.
Recent Sales of Unregistered Securities
We issued 85,000 shares of common stock during the year
for a 504 offering recorded and accounted for in the prior year.
These shares of common stock were issued to investors pursuant to
the exemptions from
<PAGE>
registration requirements of the Securities Act provided by
Section 4(2) thereof.
We issued 3,431,300 shares of common stock during the year
for gross proceeds of $4,289,125. These share sales were made
under our $5,000,000 private equity offering to accredited
investors at $1.25 per share. These shares of common stock were
issued to investors pursuant to the exemptions from registration
requirements of the Securities Act provided by Section 4(2)
thereof.
We issued a stock warrant to a consultant to purchase 500
shares of common stock at $1.00 per share during October 1999.
This stock warrant was issued pursuant to the exemptions from
registration requirements of the Securities Act provided by
Section 4(2) thereof.
We issued a stock warrant, during November 1999, to purchase
100,000 shares of common stock at $2.00 per share to Frank Howard
as partial compensation for Director services. This stock
warrant was issued to Mr. Howard pursuant to the exemptions from
registration requirements of the Securities Act provided by
Section 4(2) thereof.
We issued 95,500 shares of common stock, valued at $1.00 per
share, during the year as payments to several consultants for
services rendered. These shares of common stock were issued to
various consultants pursuant to the exemptions from registration
requirements of the Securities Act provided by Section 4(2)
thereof.
We issued 400,000 shares of common stock to HomeSeekers.com,
Inc. as consideration to cancel a 7% licensing royalty on future
revenues generated from our iPong technology, payment in full of
a note payable and accrued interest, and payment in full of our
accounts payable to HomeSeekers.com, Inc. for programming
services through September 30, 1999. These shares of common stock
were issued to HomeSeekers.com, Inc. pursuant to the exemption
from registration requirements of the Securities Act provided by
Section 4(2) thereof.
We issued 58,600 shares of common stock as partial payment
for promotional materials. These shares of common stock were
issued to J. Thomas Markham Company pursuant to the exemption
from registration requirements of the Securities Act provided by
Section 4(2) thereof.
We issued stock warrants to a lender during the three months
ending December 31, 1999 to purchase 30,000 shares of common
stock at $1.00 per share, as partial consideration to lend us
money during 1999. This lender exercised 15,000 of these
warrants during March 2000 and purchased 15,000 shares. We also
issued this lender 30,000 shares of common stock during the year
for shares owed on two warrants exercised at $1.00 per share in
July 1999. These stock warrants and shares of common stock were
issued to this lender pursuant to the exemption from registration
requirements of the Securities Act provided by Section 4(2)
thereof.
We issued a stock warrant to a consultant during December
1999 to purchase 100,000 shares of common stock at $2.31 per
share. This stock warrant was issued to this consultant pursuant
to the exemption from registration requirements of the Securities
Act provided by Section 4(2) thereof.
<PAGE>
We issued a stock warrant to a lender to purchase 27,500
shares of common stock at $.87 per share during December 1999 as
partial consideration to lend us money during 1999. This lender
exercised these warrants, along with 10,000 other warrants at
$.87 per share, and purchased 37,500 shares during February 2000.
This stock warrant and the shares of common stock were issued to
this lender pursuant to the exemption from registration
requirements of the Securities Act provided by Section 4(2)
thereof.
We issued 82,500 shares of common stock during the year as
loan incentives pursuant to our $1.5 million convertible debt
offering to accredited debt holders. We also issued notes to
these holders totaling $1,025,000. $62,500 of the notes, along
with their accrued interest, were converted into 52,104 shares of
common stock at $1.25 per share. The $962,500 balance of the
notes, along with accrued interest, were paid off in cash. These
shares of common stock and notes were issued pursuant to the
exemptions from registration requirements of the Securities Act
provided by Section 4(2) thereof.
We issued a stock warrant to a consultant during January
2000 for services rendered to purchase 500 shares of common stock
at $3.00 per share. This stock warrant was issued to this
consultant pursuant to the exemptions from registration
requirements of the Securities Act provided by Section 4(2)
thereof.
We issued stock warrants to a marketing services vendor and
his agent, for services to be rendered, to purchase 147,000
shares of common stock at $2.44 per share. We also issued 11,200
shares of common stock to these two consultants for marketing
services to be performed. These stock warrants and shares were
issued to these consultants pursuant to the exemptions from
registration requirements of the Securities Act provided by
Section 4(2) thereof.
During February 2000 we issued a stock warrant to a
consultant to purchase 2,250 shares of common stock at $2.50 per
share. This stock warrant was issued to this individual pursuant
to the exemptions from registration requirements of the
Securities Act provided by Section 4(2) thereof.
We issued 40,785 shares of common stock during the year,
valued at $3.31 per share, as partial consideration to an
individual, for the assets of the www.chessed.com Internet site.
These shares of common stock were issued to this individual
pursuant to the exemptions from registration requirements of the
Securities Act provided by Section 4(2) thereof.
We issued 10,000 shares of common stock during July 2000,
valued at $1.00 per share, as partial consideration to an
individual, for the assets of the www.bridgepassion.com Internet
site. These shares of common stock were issued to this
individual pursuant to the exemptions from registration
requirements of the Securities Act provided by Section 4(2)
thereof.
We issued 36,588 shares of common stock during the year as
partial payment for services rendered to our Chief Financial
Officer and our Controller. An additional 9,088 shares of common
stock were issued to these employees for partial compensation
subsequent to year-end. These shares of common stock were issued
to these two individuals pursuant to the exemptions from
registration requirements of the Securities Act provided by
Section 4(2) thereof.
<PAGE>
We issued 57,870 shares of common stock as payment for
$57,870 of preferred stock accrued dividends. These shares were
issued to investors pursuant to the exemption from registration
requirements of the Securities Act provided by Section 4(2)
thereof.
We issued stock options during the year to employees to
purchase 6,106,938 shares of common stock at market prices
ranging from $.44 per share to $9.00 per share. 2,721,668 of
these options were cancelled during the year. The options vest
over three years and have lives of three years after vesting.
These stock options were issued to employees pursuant to the
exemption from registration requirements of the Securities Act
provided by Section 4(2) thereof.
We issued 200,000 shares of common stock during the year,
negotiated at $3.00 per share, and recorded on our books at the
market price, on April 13, 2000, of $2.25 per share, as partial
consideration to an individual, for the www.winbridge.com
Internet site. We also issued stock warrants to this person, as
partial consideration for the www.winbridge.com Internet site, to
purchase 50,000 shares of common stock at prices between $3.00
and $4.00 per share. These stock warrants vest immediately and
have a three-year life. These shares and stock warrants of
common stock were issued to this individual pursuant to the
exemptions from registration requirements of the Securities Act
provided by Section 4(2) thereof.
We issued stock warrants to our two outside directors,
during April 2000, to purchase 400,000 shares of common stock at
$2.25 per share. These stock warrants vest 50% immediately and
50% on April 12, 2001, and all have a three-year life. These
stock warrants were issued pursuant to the exemption from
registration requirements of the Securities Act provided by
Section 4(2) thereof.
We issued warrants to purchase 600,000 shares of common
stock at prices between $2.50 and $5.50 per share, as partial
consideration to individuals who assisted us in raising
$2,485,625 under our $5 million equity offering. These stock
warrants vest immediately and have a three-year life. These
stock warrants were issued pursuant to the exemption from
registration requirements of the Securities Act provided by
Section 4(2) thereof.
During August 2000 we issued 3,572 shares of common stock at
$1.12 per share to a consultant for development services on our
www.winbridge.com site. These shares of common stock were issued
to this consultant pursuant to the exemptions from registration
requirements of the Securities Act provided by Section 4(2)
thereof.
We issued 75,000 shares of common stock in September 2000 to
a financial public relations firm as partial payment for services
to be rendered. These shares of common stock were issued to this
consultant pursuant to the exemptions from registration
requirements of the Securities Act provided by Section 4(2)
thereof.
Subsequent to September 30, 2000
We issued 22,561 shares of common stock to a consultant for
services rendered on our www.chessed.com site during October and
November 2000. These
<PAGE>
shares of common stock were issued pursuant to the exemptions
from registration requirements of the Securities Act provided
by Section 4(2) thereof.
We issued 5,000 shares of common stock during October 2000
to our previous Vice President of Sales and Marketing as part of
his severance package upon employment termination. These shares
of common stock were issued to this previous employee pursuant to
the exemptions from registration requirements of the Securities
Act provided by Section 4(2) thereof.
We issued warrants to a financial public relations firm, in
October 2000, to purchase 200,000 shares of common stock at $1.25
per share. These shares of common stock were issued to this
consultant pursuant to the exemptions from registration
requirements of the Securities Act provided by Section 4(2)
thereof.
During November 2000 we issued 80,497 shares of common stock
at $.81 per share to a software development consulting firm that
developed our ilovecasinogames.com and biddles.com software as
partial payment for these software products. These shares of
common stock were issued to this consultant pursuant to the
exemptions from registration requirements of the Securities Act
provided by Section 4(2) thereof.
ITEM. 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement Regarding Forward-Looking Statements
Certain statements contained in this Section and elsewhere
in this Form 10-KSB regarding matters that are not historical
facts are forward-looking statements (as such term is defined in
the Private Securities Litigation Reform Act of 1995). Because
such forward-looking statements include risks and uncertainties,
actual results may differ materially from those expressed or
implied by such forward-looking statements. All statements that
address operating performance, events or developments that
management expects or anticipates to incur in the future,
including statements relating to sales and earnings growth or
statements expressing general optimism about future operating
results, are forward-looking statements. The forward-looking
statements are based on management's current views and
assumptions regarding future events and operating performance.
Many factors could cause actual results to differ materially from
estimates contained in management's forward-looking statements.
The differences may be caused by a variety of factors, including
but not limited to adverse economic conditions, competitive
pressures, inadequate capital, unexpected costs, lower revenues,
net income and forecasts, the possibility of fluctuation and
volatility of our operating results and financial condition,
inability to carry out marketing and sales plans and loss of key
executives, among other things.
<PAGE>
Results Of Operations
Revenue
2000 %CHANGE 1999
---- ------- ----
Revenue $22,127 3% 21,523
Revenues generated in 2000 and 1999 were derived from the
sale of advertising on our web sites.
Operating Expenses
2000 %CHANGE 1999
---- ------- ----
Operating Expenses $2,704,032 37% $1,976,716
Operating expenses increased from $1,976,716 in 1999 to
$2,704,032 in 2000. This represents an increase of $727,316 or
37%. This increase was primarily due to additional programming,
management and marketing personnel hired during fiscal 2000 to
develop and market our web sites. Other operating expenses
experienced increases and decreases, but not of a material
nature.
Other (Income) Expense
2000 %CHANGE 1999
---- ------- ----
Other Expense $69,889 96% $35,628
Net other expense for 2000 consisted of $149,907 of interest
expense on our convertible debt and $80,018 of interest income
from the cash we raised in our convertible debt and common stock
offerings to private accredited lenders and investors. Net other
expense for 1999 consisted primarily of a gain on the sale of
marketable securities of $14,743 and interest expense of $50,392.
Net Loss
2000 %CHANGE 1999
---- ------- ----
Net Loss $2,751,794 38% $1,990,821
<PAGE>
Our net loss increased from $1,990,821 in 1999 to $2,751,794
in 2000 primarily due to an increase in employees hired during
2000 to develop and market our web sites.
Liquidity and Capital Resources
We have experienced negative cash flow from operations since
inception. We used $2,145,798 to fund our operations during
fiscal 2000. This deficit was funded from $3,943,800 of net
proceeds from the sale of restricted common stock under our
$5,000,000 private equity offering to accredited investors at
$1.25 per share.
We spent $151,052 for the purchase of fixed assets during the
year. We spent $265,000 to acquire the www.chessed.com, the
www.winbridge.com, and the www.bridgepassion.com Internet sites.
We spent $115,000 to develop the www.ilovecasinogames.com and the
www.biddles.com Internet sites and our game member module.
We received $825,000 during the year from our convertible debt
offering and then paid back $1,031,475 of our convertible debt.
The balance of our convertible debt was converted into common
stock during the year.
Funds are currently being raised in a maximum $2,250,000
private offering to accredited investors. Product development
and marketing expenses are projected to be significant over the
next year. There are no plans to purchase or sell any physical
plant or significant equipment. In order to continue operations,
we may need to raise additional capital by borrowing or selling
additional equity in our Company.
Need for Additional Capital
Our business is capital intensive, particularly with respect
to product development costs associated with the creation and
start-up marketing of interactive Internet sites. Accordingly,
we will require additional capital to support and expand our
operations. To the extent that revenues from operations are
insufficient and additional funding is required, public or
private financing may not be available when needed or may not be
available on terms favorable or acceptable to us, if at all.
Failure to secure additional financing, if and when needed, may
have a material adverse affect on our ability to implement our
proposed business strategy.
Uncertainty of Product and Technology Development; Technological
Factors
We have not completed development and testing of certain of
our proposed products and proposed enhancements to our products,
some of which are still in the planning stage or in relatively
early stages of development. Our success will depend in part
upon the ability of our proposed products to meet targeted
performance and cost objectives, and will also depend upon their
timely introduction into the marketplace. We will be required to
commit considerable time, effort and resources to finalize
development of our proposed products and product enhancements.
Although we anticipate that the development of our products and
technology will be successfully concluded, our product
development efforts are subject to all of the risks inherent in
the development of new products and technology (including
unanticipated delay, expenses and difficulties, as well as the
possible insufficiency of funding to complete development).
There can be no assurance as to when, or whether, such product
development efforts will be successfully completed. In addition,
there can be no assurance that our products will satisfactorily
<PAGE>
perform the functions for which they are designed, that they will
meet applicable price or performance objectives or that
unanticipated technical or other problems will not occur which
would result in increased costs or material delay in their
development. There can be no assurance that, despite testing by
us and by current and potential end users, problems will not be
found in new products after the commencement of customer use,
resulting in loss of, or delay in, market acceptance.
Challenges of Growth
We anticipate a period of rapid growth that is expected to
place a strain on our administrative, financial and operational
resources. Our ability to manage any staff and facilities growth
effectively will require us to continue to improve our
operational, financial and management controls, reporting systems
and procedures, to install new management information and control
systems and to train, motivate and manage our employees.
However, there can be no assurance that we will install such
management information and control systems in an efficient and
timely manner or that the new systems will be adequate to support
our future operations. If we are unable to hire, train and
retain qualified systems engineers and consultants to implement
these services or are unable to manage the post-sales process
effectively, our ability to attract repeat sales could be
materially adversely affected, thereby limiting our growth
opportunities. If our management is unable to manage growth
effectively, such as if our sales and marketing efforts exceed
our capacity to install, maintain and service our products or if
new employees are unable to achieve adequate performance levels,
our business, operating results and financial condition could be
materially adversely affected.
Penny Stocks
The Securities and Exchange Commission has adopted
regulations that generally define a "penny stock" to be any
equity security that has a market price (as defined) of less that
$5.00 per share, subject to certain exceptions. Our common stock
may be deemed to be a "penny stock" and thus may become subject
to rules that impose additional sales practice requirements on
broker/dealers who sell such securities to persons other than
established customers and accredited investors, unless the common
stock is listed on the NASDAQ Small Cap Market. Consequently,
the "penny stock" rules may restrict the ability of
broker/dealers to sell our securities, and may adversely affect
the ability of holders of the common stock to resell their shares
in the secondary market.
ITEM. 7 FINANCIAL STATEMENTS
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 and 1999
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
CONTENTS
PAGE
Independent Auditor's Report 1
Balance Sheets, September 30, 2000 and 1999 2 - 3
Statements of Operations, for the years ended
September 30, 2000 and 1999 and from inception
on November 5, 1996 through September 30,
2000 4
Statement of Stockholders' Equity, from the date
of inception on November 5, 1996 through
September 30, 2000 5 - 9
Statements of Cash Flows, for the years ended
September 30, 2000 and 1999 and from inception
on November 5, 1996 through September 30,
2000 10 - 12
Notes to Financial Statements 13 - 27
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
WEBQUEST INTERNATIONAL, INC.
Minden, Nevada
We have audited the accompanying balance sheets of Webquest
International, Inc. [a development stage company] as of September
30, 2000 and 1999, and the related statements of operations,
stockholders' equity and cash flows for the years ended September
30, 2000 and 1999 for the period from inception on November 5,
1996 through September 30, 2000. 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 financial statements referred to above
present fairly, in all material respects, the financial position
of Webquest International, Inc. as of September 30, 2000 and
1999, and the results of its operations and its cash flows for
the years ended September 30, 2000 and1999 and for the period
from inception through September 30, 2000, in conformity with
generally accepted accounting principles.
The accompanying condensed financial statements have been prepared
assuming the Company will continue as a going concern. As
discussed in Note 13 to the financial statements, the company has
incurred substantial losses since its inception and has not yet
been successful in establishing profitable operations. Further,
the Company may not have adequate working capital to complete its
business plans. These factors raise substantial doubt about the
ability of the Company to continue as a going concern. Management's
plans in regards to these matters are also described in Note 13.
The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
/s/ Pritchett, Siler & Hardy, P.C.
PRITCHETT, SILER & HARDY, P.C.
October 17, 2000
Salt Lake City, Utah
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
BALANCE SHEETS
ASSETS
September 30,
________________________
2000 1999
___________ ___________
CURRENT ASSETS:
Cash $1,081,286 $ 2,386
Employee advances 18,330 671
Accounts receivable 13,479 3,980
Interest receivable 6,882 -
Prepaid expenses 128,903 -
___________ ___________
Total Current Assets 1,248,880 7,037
___________ ___________
PROPERTY AND EQUIPMENT, net 944,315 53,846
___________ ___________
OTHER ASSETS:
Refundable deposits 6,362 3,201
___________ ___________
Total Other Assets 6,362 3,201
___________ ___________
$2,199,557 $ 64,084
___________ ___________
2
<PAGE>
[Continued]
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
BALANCE SHEETS
[Continued]
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
September 30,
________________________
2000 1999
___________ ___________
CURRENT LIABILITIES:
Accounts payable $ 77,823 $ 204,530
Notes payable - related parties 21,618 342,909
Other accrued liabilities 36,808 139,601
Accrued dividends payable - 58,770
Current portion - capital lease
obligation - 3,360
___________ ___________
Total Current Liabilities 136,249 749,170
___________ ___________
CAPITAL LEASE OBLIGATION, less
current portion - 3,778
___________ ___________
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.001 par value,
5,000,000 shares authorized, no
shares issued and outstanding - -
Common stock, $.001 par value,
45,000,000 shares authorized,
9,493,137 and 4,870,618
shares issued and outstanding 9,493 4,871
Capital in excess of par value 8,372,239 2,909,909
Deficit accumulated during the
development stage (6,318,424) (3,567,530)
___________ ___________
2,063,308 (652,750)
Less: Receivable stock
subscription - (36,114)
___________ ___________
Total Stockholders' Equity
(Deficit) 2,063,308 (688,864)
___________ ___________
$ 2,199,557 $ 64,084
___________ ___________
The accompanying notes are an integral part of these financial
statements.
3
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
STATEMENTS OF OPERATIONS
For the From Inception
Years Ended on November 5,
September 30, 1996 Through
_________________________ September 30,
2000 1999 2000
____________ ____________ ____________
REVENUE $ 22,127 $ 21,523 $ 43,650
____________ ____________ ____________
EXPENSES:
Development,
Administrative,
and Marketing 2,704,032 1,954,606 5,913,887
Compensation expense
recorded in accordance
with APB 25 for stock
options issued below
market value - 22,110 295,423
____________ ____________ ____________
Total Expenses 2,704,032 1,976,716 6,209,310
___________ ____________ ____________
LOSS FROM OPERATIONS (2,681,905) (1,955,193) (6,165,660)
____________ ____________ ____________
OTHER INCOME (EXPENSE):
Gain on sale of
marketable securities - 14,743 25,106
Interest expense (149,907) (50,392) (206,039)
Interest income 80,018 21 80,039
____________ ____________ ____________
Total Other Income
(Expense) (69,889) (35,628) (94,894)
____________ ____________ ____________
LOSS BEFORE INCOME TAXES (2,751,794) (1,990,821) (6,260,554)
CURRENT TAX EXPENSE - - -
DEFERRED TAX EXPENSE - - -
____________ ____________ ____________
NET LOSS $ (2,751,794)$ (1,990,821) $ (6,260,554)
LESS: PREFERRED DIVIDEND
REQUIREMENTS 900 (27,991) (57,870)
____________ ____________ ____________
NET LOSS APPLICABLE TO
COMMON STOCKHOLDERS $ (2,750,894)$ (2,018,812) $ (6,318,424)
____________ ____________ ____________
LOSS PER COMMON SHARE $ (.36)$ (.45) $ (1.38)
____________ ____________ ____________
The accompanying notes are an integral part of these financial
statements.
4
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
STATEMENT OF STOCKHOLDERS' EQUITY
FROM THE DATE OF INCEPTION ON NOVEMBER 5, 1996
THROUGH SEPTEMBER 30, 2000
Deficit
Accumulated
Preferred Stock Common Stock Capital During the
_______________ _____________ in Excess Development
Shares Amount Shares Amount Par Value Stage
_______ _______ _______ _______ _________ ___________
BALANCE,
November 5,
1996 - $ - - $ - $ - $ -
Issuance of
2,438,333
shares common
stock for cash,
January 1997,
at $.123 per
share - - 2,438,333 2,438 297,562 -
Issuance of
116,667 shares
common stock
for services,
January 1997,
at $.116 per
share - - 116,667 117 13,417 -
Recapitalization
of Phaser,
issuance of
200,201 shares
of common stock
for Phaser
stock, May 1997 - - 200,201 200 (2,282) -
Issuance of
93,750 shares
preferred and
common stock
for cash, March
through
September 1997,
at $1.00 per
share 93,750 94 93,750 94 187,312 -
Issuance of
30,000 shares
common stock
for services,
August 1997,
at $1.00 per
share - - 30,000 30 29,970 -
Issuance of
700,000 shares
common stock
for licensing
agreement, at
$1.00 per share,
September 1997 - - 700,000 700 699,300 -
Granting of
options to
acquire 400,000
shares of
common stock
at below
market value.
Compensation
expense
calculated
in accordance
with APB 25. - - - - 353,600 -
Net loss for the
period ended
September 30,
1997 - - - - - (459,001)
_______ _______ _______ _______ _________ ___________
BALANCE,
September 30,
1997 93,750 $ 94 3,578,951 $ 3,579 $1,578,879 $ (459,001)
Issuance of
251,000 shares
preferred and
common stock
for cash,
October, 1997
through
September, 1998
at $1.00 per
share 251,000 251 251,000 251 501,498 -
Issuance of
126,943 shares
preferred and
common stock
for non-cash
consideration,
July, 1999 at
$1.00 per
share 126,943 127 126,943 127 253,632 -
5
<PAGE>
[Continued]
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
STATEMENT OF STOCKHOLDERS' EQUITY
FROM THE DATE OF INCEPTION ON NOVEMBER 5, 1996
THROUGH SEPTEMBER 30, 2000
[Continued]
Deficit
Accumulated
Preferred Stock Common Stock Capital During the
_______________ _____________ in Excess Development
Shares Amount Shares Amount Par Value Stage
_______ _______ _______ _______ _________ ___________
Issuance of 18,057
shares preferred
and common stock
at $1.00 per
share, accounted
for as a
subscription
receivable,
July to September,
1998 18,057 18 18,057 18 36,078 -
Granting of options
to an officer to
acquire 150,000
shares of common
stock at below
market value.
Compensation
expense calculated
in accordance with
APB 25, October 1997 - - - - 132,600 -
Granting of options
to an officer to
acquire 30,000 shares
of common stock at
below market value.
Compensation expense
calculated in accordance
with APB 25,
October 1997 - - - - 26,520 -
Issuance of 50,000
shares common stock
upon exercise of
options by an officer,
February 1998, at
$.116 per share - - 50,000 50 5,750 -
Issuance of 50,000
shares common stock
upon exercise of
options by an officer,
July 1998 at $.116
per share - - 50,000 50 5,750 -
Issuance of 5,000
shares common stock to
an officer for cash
at $1.00 per share,
July, 1998 - - 5,000 5 4,995 -
Issuance of 62,000
shares common stock
for consulting services
at $1.00 per share,
May, 1998 - - 62,000 62 61,938 -
Issuance of 22,898
shares of common stock
for consultation,
programming and other
services rendered at
$1.00 per share, to
employees, officers
and directors of the
Company - - 22,898 23 22,875 -
Assumed mandatory
conversion of Series
B preferred stock
during the period
ended September 30,
1998 (93,750) (94) 93,750 94 - -
6
<PAGE>
[Continued]
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
STATEMENT OF STOCKHOLDERS' EQUITY
FROM THE DATE OF INCEPTION ON NOVEMBER 5, 1996
THROUGH SEPTEMBER 30, 2000
[Continued]
Deficit
Accumulated
Preferred Stock Common Stock Capital During the
_______________ _____________ in Excess Development
Shares Amount Shares Amount Par Value Stage
_______ _______ _______ _______ _________ ___________
Accrued preferred
dividends for
period ending
September 30,
1998 - - - - - (30,779)
Shares issued due
to rounding - - 19 - - -
Net loss for the
year ended September
30, 1998 - - - - - (1,058,938)
_______ _______ _______ _______ _________ ___________
BALANCE, September
30, 1998 396,000 $ 396 4,258,618 $ 4,259 $2,630,515 $(1,548,718)
Issuance of 50,000
shares of common
stock upon exercise
of warrants at
$1.00 per share - - 50,000 50 49,950 -
Stock offering cost - - - - (40,000) -
Issuance of 20,000
shares of common stock
for interest valued
at $1.00 per share - - 20,000 20 19,980 -
Issuance of 20,000
shares of common stock
for services valued
at $1.00 per share - - 20,000 20 19,980 -
Issuance of 26,000
shares of common
stock for purchase
of software at
$1.00 per share - - 26,000 26 25,974 -
Issuance of 100,000
shares of common
stock for purchase
of software at $1.75
per share, May 1999 - - 100,000 100 174,900 -
Assumed mandatory
conversion of Series
B preferred stock
during the period
ended September 30,
1999 (396,000) (396) 396,000 396 - -
Accrued preferred
dividends for period
ending September 30,
1999 - - - - - (27,991)
Granting of options
and warrants to acquire
common stock at below
market value.
Compensation expense
calculated in accordance
with APB25 - - - - 22,110 -
7
<PAGE>
[Continued]
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
STATEMENT OF STOCKHOLDERS' EQUITY
FROM THE DATE OF INCEPTION ON NOVEMBER 5, 1996
THROUGH SEPTEMBER 30, 2000
[Continued]
Deficit
Accumulated
Preferred Stock Common Stock Capital During the
_______________ _____________ in Excess Development
Shares Amount Shares Amount Par Value Stage
_______ _______ _______ _______ _________ ___________
Granting of warrants
to acquire common
stock at below
market value in
relations to note
payable. Interest
expense calculated
in accordance with
APB25 - - - - 6,500 -
Net loss for the
year ended September
30, 1999 - - - - - (1,990,821)
_______ _______ _______ _______ _________ ___________
BALANCE, September
30, 1999 - - 4,870,618 4,871 2,909,909 (3,567,530)
Shares issued in
private placement
for cash at $1.25
per share net of
$345,325 stock
offering cost. - - 3,431,300 3,431 3,940,369 -
Shares cancelled
for non-payment
of subscription
receivable - - (15,000) (15) (14,985) -
Shares issued for
cancellation of
license agreements,
payment of accounts
payables and notes
payable at $1.00 per
share - - 400,000 400 399,600 -
Shares issued upon
exercise of warrants,
at $.87 to $1.00
per share - - 52,500 52 47,572 -
Shares issued for
warrants exercised
in previous year at
$1.00 per share - - 30,000 30 29,970 -
Shares issued for
the acquisition of a
website, (chessed.com)
at $3.31 per share - - 40,785 41 134,959 -
Shares issued to pay
accrued dividends
on preferred stock - - 57,870 58 57,812 -
Shares issued for the
acquisition of a
web-site,
(winbridge.com) at
$2.25 per share - - 200,000 200 449,800 -
Shares issued for
conversion of debt
at $1.25 per share - - 52,104 52 65,078 -
8
<PAGE>
[Continued]
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
STATEMENT OF STOCKHOLDERS' EQUITY
FROM THE DATE OF INCEPTION ON NOVEMBER 5, 1996
THROUGH SEPTEMBER 30, 2000
[Continued]
Deficit
Accumulated
Preferred Stock Common Stock Capital During the
_______________ _____________ in Excess Development
Shares Amount Shares Amount Par Value Stage
_______ _______ _______ _______ _________ ___________
Shares issued for
loan incentives
valued at $103,125
or $1.25 per share - - 82,500 83 103,042 -
Shares issued for
non-cash consideration
including services
valued at $248,517.
Prices range from
$.812 to $3.00 per
share. - - 280,460 280 248,237 -
Shares issued in
connections with the
acquisition of a
website,
(bridgepassion.com)
at $1.00 per share,
July 2000 - - 10,000 10 9,990 -
Stock subscription
receivable cancelled - - - - (9,114) -
Cancellation of
preferred dividends
for period ending
September 30, 2000 - - - - - 900
Net loss for the
year ended September
30, 2000 - - - - - (2,751,794)
_______ _______ _______ _______ _________ ___________
BALANCE, September
30, 2000 - $ - 9,493,137 $ 9,493 $8,372,239$(6,318,424)
_______ _______ _______ _______ _________ ___________
The accompanying notes are an integral part of this financial
statement.
9
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
STATEMENTS OF CASH FLOWS
Increase [Decrease] in Cash and Cash Equivalents
For the Years From Inception
Ended on November 5,
______________________________ 1996 Through
September 30, September 30, September 30,
2000 1999 2000
_______________ ________________ _______________
Cash Flows from Operating
Activities:
Net loss applicable to
common stockholders $ (2,750,894) $ (2,018,812) $ (6,318,424)
Adjustments to reconcile
net loss to net cash
used by operating
activities:
Depreciation and
amortization 235,583 941,515 1,355,636
Gain on sale of Market
Securities - (14,743) (28,106)
Stock issued for services
and goods 248,517 300,407 498,509
Loan incentive expense 103,125 - 103,125
Loss on Contract Settlement 192,700 - 192,700
APB 25 compensation recorded
for stock options issued below
market value - 28,610 416,159
Changes in assets and
liabilities:
(Increase) in employee
advances (17,659) (413) (18,330)
(Increase) in accounts
receivable (9,499) (3,980) (13,479)
(Increase) in prepaid
expenses (128,902) - (74,885)
(Increase) in interest
receivable (6,883) - (6,883)
Increase(Decrease) in accounts
payable (126,707) 133,416 77,823
(Increase) in
advances - related parties - (6,500) -
Increase in accrued
liabilities 54,821 38,612 212,340
_______________ ________________ _______________
Net Cash (Used) by
Operating Activities (2,145,798) (601,888) (3,597,832)
_______________ ________________ _______________
Cash Flows from Investing
Activities:
(Increase) Decrease in
refundable deposits (3,161) 550 (6,362)
Purchase of equipment (151,052) (8,486) (114,062)
Purchase of websites (380,000) - (380,000)
Purchase of software
licensing rights - - (300,000)
Proceeds from marketable
securities sales - 206,629 276,992
_______________ ________________ _______________
Net Cash Provided
(Used) by Investing
Activities (534,213) 183,950 (523,432)
_______________ ________________ _______________
Cash Flows from Financing
Activities:
Proceeds from notes payable 825,000 371,327 1,324,827
Payments on notes payable (1,031,475) (46,000) (1,188,393)
Payments on capital lease
obligation (7,138) (2,419) (9,889)
Proceeds from preferred stock
issuance - - 344,750
Proceeds from common stock
issuance 4,033,424 50,000 4,733,385
Dividends declared (cancelled) (900) - 57,870
_______________ ________________ _______________
Net Cash Provided by
Financing Activities 3,818,911 400,899 5,262,550
_______________ ________________ _______________
Net Increase (Decrease) in
Cash 1,078,900 (2,296) 1,081,286
Cash at Beginning of Period 2,386 4,682 -
_______________ ________________ _______________
Cash at End of Period $ 1,081,286 $ 2,386 $ 1,081,286
_______________ ________________ _______________
10
<PAGE>
[Continued]
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
STATEMENTS OF CASH FLOWS
[Continued]
For the Years From Inception
Ended on November 5,
______________________________ 1996 Through
September 30, September 30, September 30,
2000 1999 2000
_______________ ________________ _______________
Supplemental Disclosures
of Cash Flow Information:
Cash paid during the year
and from inception for:
Interest $ 52,296 $ 2,175 $ 55,186
Income taxes $ - $ - $ -
Interest capitalized $ 2,316 $ - $ 2,316
Supplemental Schedule of Non-Cash Investing and Financing
Activities:
For the year ended September 30, 2000:
The Company cancelled 15,000 shares of common stock due to non-
payment of subscription receivable. The shares were issued at
$1.00 per share.
The Company issued 400,000 shares of common stock for
cancellation of a license agreement, payment of accounts
payable and a note payable totaling $400,000 (or $1.00 per
share).
The Company issued 40,785 shares of common stock to acquire a
web-site, chessed.com valued at $135,000 (or $3.31 per share).
The Company issued 57,870 shares of common stock to pay for
accrued dividends valued at $57,870 or $1.00 per share.
The Company issued 200,000 shares of common stock valued at
$450,000 for the purchase of the web-site winbridge.com.
The Company issued 52,104 shares of common stock for
conversion of debt valued at $65,130 (or $1.25 per share).
The Company issued 82,500 shares for loan incentives valued at
$103,125. These shares were issued at $1.25 and accounted for
as interest expense.
The Company issued 280,460 shares of common stock for non-cash
consideration including services rendered valued at $248,517
with prices ranging from $.812 to $3.00 per share.
The Company issued 10,000 shares of common stock as part of a
stock and cash purchase agreement for the purchase of
bridgepassion.com. The shares were issued at $1.00 per share
The Company cancelled $900 of dividends payable due to non-
payment for shares previously issued.
11
<PAGE>
[Continued]
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
STATEMENTS OF CASH FLOWS
[Continued]
Supplemental Schedule of Non-Cash Investing and Financing
Activities:
For the year ended September 30, 1999:
The Company has accounted for 396,000 shares of common stock
due to the mandatory conversion of 396,000 preferred shares.
The Company issued 26,000 shares of common stock valued at
$26,000 to purchase software.
The Company issued 100,000 shares of common stock valued at
$175,000 to purchase software.
The Company issued 20,000 shares of common stock valued at
$20,000 as payment for additional interest on interest bearing
debt.
The Company issued 20,000 shares of common stock to an
individual for services rendered valued at $20,000.
The accompanying notes are an integral part of these financial
statements.
12
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - WebQuest International, Inc. (the Company) was
organized under the laws of the State of Nevada on November 5,
1996 as IPONG International, Inc., but subsequently reorganized
with WebQuest International, Inc. (which was formed to serve as a
vehicle for a reorganization of the Company). During April 1997,
the Company entered into a plan and agreement of merger with
Phaser Enterprises, Inc. ["Phaser"], a publicly held Utah
corporation wherein the operations of the Company is the
surviving entity. The Company is considered a development stage
company as defined in SFAS No. 7. The Company's present
business is the development and marketing of several
games on the Internet. The Company currently derives nominal
amounts of revenue from the sale of advertising on our
www.ipong.comTM, www.freehoroscopes.com, www.winbridge.comTM and
www.chessed.com Internet sites. We plan to start generating user
fees on our www.winbridge.com bridge site and our
www.chessed.com chess site in early 2001. We also plan to
start up an on-line poker site, www.horseshoepoker.comTM
in early 2001 and have started leasing our MillionDollarPullTM
promotion software in November 2000.
Property and Equipment - Property and equipment are stated at
cost. Expenditures for major renewals and betterments that
extend the useful lives of property and equipment are
capitalized, upon being placed in service. Expenditures for
maintenance and repairs are charged to expense as incurred.
Depreciation is computed for financial statement purposes on a
straight-line basis over the estimated useful lives of the
assets, which ranges from three to seven years.
Income Taxes - The Company accounts for income taxes in
accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes." This statement requires an
asset and liability approach for accounting for income taxes.
Dividend Policy - The Company has not paid any dividends on
common stock to date and does not anticipate paying dividends on
common stock in the foreseeable future. The Company previously
had a dividend requirement with respect to its preferred stock
[See Note 7].
Revenue Recognition - Revenue is recognized at the time of the
sale.
Earnings (Loss) Per Share - The Company calculates earnings
(loss) per share in accordance with Statement of Financial
Accounting Standards (SFAS) No. 128 "Earnings Per Share", which
requires the Company to present basic earnings (loss) per share
and dilutive earnings (loss) per share when the effect is
dilutive. [See Note 12].
Cash and Cash Equivalents - For purposes of the statement of cash
flows, the Company considers all highly liquid debt investments
purchased with a maturity of three months or less to be cash
equivalents. The Company had $981,286 and $0 in excess of
federal insured amounts in its bank accounts at September 30,
2000 and 1999, respectively.
13
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
Stock Based Compensation - The Company accounts for its stock
based compensation in accordance with Statement of Financial
Accounting Standard 123 "Accounting for Stock-Based
Compensation". This statement establishes an accounting method
based on the fair value of equity instruments awarded to
employees as compensation. However, companies are permitted to
continue applying previous accounting standards in the
determination of net income with disclosure in the notes to the
financial statements of the differences between previous
accounting measurements and those formulated by the new
accounting standard. The Company has adopted the disclosure only
provisions of SFAS No. 123, accordingly, the Company has elected
to determine net income using previous accounting standards.
Recently Enacted Accounting Standards - Statement of Financial
Accounting Standards (SFAS) No. 136, "Transfers of Assets to a
not for profit organization or charitable trust that raises or
holds contributions for others", SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - deferral of the
effective date of FASB Statement No. 133 (an amendment of FASB
Statement No. 133.),", SFAS No. 138 "Accounting for Certain
Derivative Instruments and Certain Hedging Activities - and
Amendment of SFAS No. 133", SFAS No. 139, "Recission of SFAS No.
53 and Amendment to SFAS No 63, 89 and 21", and SFAS No. 140,
"Accounting to Transfer and Servicing of Financial Assets and
Extinguishment of Liabilities", were recently issued SFAS No.
136, 137, 138, 139 and 140 have no current applicability to the
Company or their effect on the financial statements would not
have been significant.
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that effect the
reported amounts of assets and liabilities, the disclosures of
contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimated by management.
NOTE 2 - RECAPITALIZATION
The Company was organized on November 5, 1996 as IPONG
International, Inc. and subsequently reorganized with Webquest
International, Inc. (which was formed to serve as a vehicle for a
reorganization of the Company). During April 1997, the Company
entered into a plan and agreement of merger with Phaser
Enterprises, Inc., a public corporation, wherein Webquest
International, Inc. was the surviving entity. The transaction
has been accounted for as a recapitalization of the Company. The
operations of Phaser are included only from the date of
recapitalization. Accordingly, the previous operations and
retained deficits of Phaser prior to the date of reorganization
have been eliminated. In anticipation of the reorganization,
Phaser effected a reverse stock split on the basis of 1 share
issued for each 27 shares previously outstanding. The former
shareholders of Phaser held approximately 200,201 shares of
common stock immediately after the reorganization.
NOTE 3 - MARKETABLE SECURITIES
During the year ended September 30, 1998, the Company accepted
53,924 shares of marketable securities valued at $248,886 in an
entity, which is a shareholder of the Company, for the purchase
of 124,443 shares of common and preferred stock of the Company.
As of September 30, 1999, the Company had sold all marketable
securities. A gain of $14,743 was realized during the year
ended September 30, 1999.
14
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - SOFTWARE LICENSE RIGHTS
Licensing and Marketing Agreement - During December 1996, the
Company paid $300,000 for an option to acquire licensing rights
to an interactive advertising game for use on the Internet. On
January 5, 1997, the Company exercised its option and entered
into a licensing and marketing agreement (with technical support)
with a Nevada corporation, HomeSeekers.com, Inc. (formerly, NDS
Software, Inc.), that owns the software rights. The license
agreement has a ten-year term, which automatically renews for an
additional ten-year term, and allows the Company to develop, use,
and market the product on an exclusive basis. Licensing rights
are capitalized and amortized on a ten-year basis (the original
life of the agreement). Database management costs (including
programming costs) are expensed as incurred and amounted to
$102,462 for the year ended September 30, 1999. As consideration
for this agreement the Company agreed: i) to pay $58,333 per
month for a year, commencing January 5, 1997. During September
1997, the Company issued 700,000 shares of restricted common
stock at an agreed upon value of $700,000 (or $1.00 per share)
for full consideration of the one year, $58,333 per month
payment. ii) to pay 7% of gross revenues for the first year
after the live date (April 1, 1999), 10% of gross revenues for
the second year after the live date, and 15% thereafter. iii) to
pay $20,000 per month commencing at the live date for "website"
fees to the Nevada corporation. During July 1998, the payment of
$20,000 per month was amended to a pro-rata charge for services.
and iv) to pay $125 per hour for Webpage development, website
changes or customization, and management consulting, plus $0.50
per question for question development to the Nevada corporation
for technical support. Upon merger with IPONG International,
Inc. on April 18, 1997, Webquest assumed the rights and
obligations to this agreement. HomeSeekers.com, Inc. is
considered to be a related entity because it is a major
shareholder.
During May 1999, the license agreement was canceled and the
Company fully expensed the licensing rights. Amortization
expense for the year ended September 30, 1999 amounted to
$825,000. Also during May 1999, the Company entered into a new
agreement with HomeSeekers.com wherein the new agreement provided
for the transfer of ownership to the Company of the technology
rights, software and source code that was previously licensed.
As consideration, the Company agreed to pay a royalty of 7% of
gross revenues for a period of five years and to issue 100,000
shares of common stock to HomeSeekers.com valued at $175,000. As
the technology was purchased from a related party, the Company
recorded the purchase at the carry over-basis of the technology
of $0, resulting in the $175,000 being expensed. The 7% royalty
obligation was paid off in the form of 192,700 shares of common
stock in October 1999.
Non-exclusive License Agreement - On July 3, 1997, the Company
entered into a non-exclusive licensing agreement with a Delaware
corporation, Atari-JTS Corp. that owns the software, programs,
trade names, trademarks, promotional material, and intellectual
property for use on the Internet. The agreement with the Company
has a five year term, which is renewable for an additional five
years if minimum royalty fees received are at least $400,000 over
the five year period, and allows the Company to license and use
the game (Pong) in connection with its "website" on a non-
exclusive basis. As consideration for this agreement the Company
paid a $5,000 non-refundable execution of agreement fee. The
Company also agreed to pay a quarterly 1/10 of one cent ($.001)
royalty fee for each player who accesses Pong; with a base amount
of $5,000 per quarter to the Delaware corporation if the number
of Pong players fails to exceed 5,000,000 in each quarter.
Royalty fees are expensed as incurred. Royalty expense amounted
to $20,000 and $21,667 for the years ended September 30, 2000 and
1999, respectively.
15
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment - at cost,
less accumulated depreciation as of September 30, 2000 and 1999:
2000 1999
_________ _________
Office equipment $72,687 $15,577
Computer equipment 102,910 18,322
Software 74,354 65,000
Websites 975,000 -
_________ _________
1,224,951 98,899
Less: accumulated
depreciation (280,636) (45,053)
_________ _________
$944,315 $53,846
__________ __________
Depreciation expense for the years ended September 30, 2000 and
1999 amounted to $235,583 and $41,515, respectively.
NOTE 6 - NOTES PAYABLE - RELATED PARTIES
Notes payable consist of the following at September 30:
2000 1999
_________ _________
Notes payable to a shareholder of
the Company, annual compounding
interest at 12%, due upon
demand, unsecured $ 19,109 $ 17,062
Notes payable to a shareholder
of the Company, interest at
10% and 12%, due upon demand,
unsecured - 4,294
Note payable to a shareholder
of the Company, interest at 12%,
due upon demand, unsecured - 4,313
Note payable to an entity related
to a shareholder of the Company,
annual compounding interest
at 12%, due upon demand, unsecured 2,509 2,240
12% unsecured demand notes payable
to a shareholder of the Company - 40,000
12% unsecured convertible notes
payable to a shareholder of the
Company - 200,000
12% unsecured demand note payable to a
shareholder of the Company - 15,000
12% unsecured demand note payable to a
shareholder of the Company - 10,000
12% unsecured demand note payable to
a related entity, which is a
shareholder of the Company - 50,000
_________ _________
$21,618 $342,909
__________ __________
16
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - CAPITAL STOCK
Preferred Stock - The Company authorized 5,000,000 shares of
preferred stock, $.001 par value with such rights, preferences
and designations and to be issued in such series as determined by
the Board of Directors. At September 30, 2000, no shares of
preferred stock were issued and outstanding.
Series B Convertible Preferred Stock - The Company previously
authorized 500,000 shares of preferred stock to be designated as
Series B Convertible Preferred Stock. The Series B Convertible
Preferred Stock pays dividends at the rate of 12% and is fully
cumulative. The Series B Convertible Preferred Stock shall be
entitled to receive dividends, commencing December 1, 1998, at an
annual rate of 12% per share out of the funds legally available
and to the extent declared by the Board of Directors. The
dividends shall be payable in semi-annual installments on
December 1 and June 1 commencing December 1, 1999. The dividends
may be paid either in cash, in common stock of the corporation or
a combination thereof. The Series B Convertible Preferred Stock
will be automatically converted to one (1) share common stock one
year from the date of issuance. The holders of Series B
Convertible Preferred Stock shall be entitled to one (1) vote for
each share of Series B Convertible Preferred Stock held. As of
September 30, 1999, the Company had accrued preferred dividends
of $58,770. At September 30, 1999, all previously issued shares
of preferred stock were considered converted to common stock due
to the automatic conversion of preferred stock to common stock at
one year from the date of issuance. During the year, Company
converted $57,870 of this balance into common stock at $1.00 per
share. Also during the year, the Company cancelled $900 of
previously declared dividends due to non-payment of previously
issued stock.
Common Stock- The Company authorized 45,000,000 shares of common
stock, $.001 par value, and at September 30, 2000 and 1999,
9,493,137 and 4,870,618 were outstanding respectively.
Settlement Agreement - On October 27, 1999, the Company issued
400,000 shares of its common stock to HomeSeekers.com, Inc. for
payment of a $50,000 note payable, $3,800 of accrued interest on
the note, $153,500 to outstanding payables for programming
services and $192,700 for termination of the previous programming
contract, that included a 7% royalty on gross revenues.
Private Placement of Securities - During December 1999 the
Company started offering for sale to persons who are "accredited
investors", no minimum and a maximum of 4,000,000 shares of its
previously authorized but unissued common stock for $1.25 per
share for gross proceeds of up to $5,000,000. As of September
30, 2000 the Company had successfully sold 3,431,300 shares of
stock for gross proceeds of $4,289,125, less stock offering costs
of $345,325.
Receipt of Stock Subscription - During the year ended September
30, 2000, the Company received $12,000 for payment of a
subscription receivable and cancelled 15,000 shares of common
stock valued at $15,000 or $1.00 per share due to non-payment.
Chessed.com Acquisition - On January 13, 2000, the Company closed
a purchase agreement with an individual to purchase the
chessed.com web-site. The total purchase price of the
transaction was $192,500, $57,500 was paid with cash and the
Company issued 40,785 shares of its common stock at an agreed
upon value of $3.31 per share, or $135,000.
17
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - CAPITAL STOCK [Continued]
Winbridge.com Acquisition - On March 14, 2000, the Company
entered into a purchase agreement to purchase the winbridge.com
website. The total purchase price was $800,000 to be paid with
$200,000 cash and 200,000 shares of common stock for the purchase
of the winbridge.com web-site, which were valued at $3.00 per
share. At the actual date of issuance of the stock, the price
had fallen to $2.25 per share, which is the value used to compute
the carrying cost of the acquisition. In addition, the Company
issued two warrants, one for 25,000 shares at $3.00 per share and
one for 25,000 shares at $4.00 per share.
Bridgepassion.com Acquisition - On July 18, 2000, the Company
agreed to purchase the website bridgepassion.com for $17,500 to
be paid in $7,500 in cash and 10,000 shares of common stock
valued at $1.00 per share.
Stock issuances - other
The Company issued 400,000 shares of common stock as part of a
settlement agreement with a related-party. The agreement stated
that a previous license agreement be cancelled along with
payment of accounts and notes payables. The shares were issued
at $1.00 per share for a total of $400,000 in consideration.
The Company issued 52,500 shares of common stock for the exercise
of warrants ranging from $.87 to $1.00 per share. The total
consideration was $47,624.
The Company issued 30,000 shares of common stock for the exercise
of warrants from the previous year at $1.00 per share. The total
consideration was $30,000.
The Company issued 57,870 shares of common stock to pay for
accrued dividends valued at $57,870 or $1.00 per share.
The Company issued 52,104 shares of common stock for conversion
of $65,130 in debt or $1.25 per share.
The Company issued 280,460 shares of common stock for non-cash
consideration including services rendered valued at $248,517 with
prices ranging from $.812 to $3.00 per share.
The Company issued 82,500 shares of common stock as loan
incentives that have been accounted for as interest expense in
the amount of $103,125 or $1.25 per share.
18
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - CAPITAL STOCK [Continued]
Public Offering - During the period from March through September
1997, the Company sold 93,750 shares of common stock and 93,750
shares of series B preferred stock pursuant to a public offering.
From October 1997 through September 1998, the Company sold an
additional 396,000 shares of common and preferred stock. This
offering was made in reliance on Rule 504 of Regulation D under
the Securities Act of 1933. An offering price of $10,000 per
unit was arbitrarily determined by the Company and the sales
agent. Each unit sold consisted of 5,000 shares of common stock,
2,500 warrants to purchase common stock and 5,000 shares of
Series B 12% convertible preferred stock. Total proceeds from
the stock sold through September 30, 1997 amounted to $187,500.
Proceeds from the subsequent sales through September 1999
amounted to $792,000. The warrants are exercisable at $7.50 per
share commencing July 11, 1999 and continuing until July 11,
2000. The warrants are subject to redemption by the Company at
$.01 per warrant provided the common stock of the Company has
traded at a price of more than $10.00 for 10 consecutive days
concluding within any 20 consecutive day period immediately prior
to the date the Company has provided notice of such redemption.
Included in the above sales are 2,500 shares of common and
preferred stock, which were issued for legal fees and 124,443
shares of common and preferred stock, which were issued in return
for marketable securities [See Note 3].
Confidential Offering Memorandum - During April 1999, the Company
issued 20,000 shares of its common stock as an incentive to
acquire $200,000 in convertible promissory notes. Also during
April 1999, the Company issued 20,000 shares of its common stock
as a finder's fee in acquiring the $200,000 in convertible
promissory notes [See Note 6].
SCAVENGERnet - During October 1998, the Company entered into a
purchase agreement with two individuals to purchase a game (with
all rights, software, programs, source codes, copyrights, trade
secrets, patent rights, and other applicable rights for use on
the Internet) called SCAVENGERnet. As consideration for this
purchase agreement the Company gave $5,000 down, $5,000 due on
January 9, 1999, and 10,000 shares of its common stock valued at
$10,000 or $1.00 per share. During January 1999, the Company
paid the remaining $5,000.
BannerClicks - During April 1999, the Company entered into a
purchase agreement with an individual to purchase a banner
exchange program (with all rights, software, programs, customer
lists, licenses, and other applicable rights for use on the
Internet). As consideration for this purchase agreement the
Company paid $10,000 cash and issued 10,000 shares of its common
stock valued at $10,000 or $1.00 per share.
iPONG - During May 1999, the Company issued 100,000 shares of
common stock for the purchase of the previously licensed Internet
software called iPONG valued at $175,000 or $1.75 per share.
Nancy's Kitchen - During May 1999, the Company entered into a
purchase agreement with an individual to purchase a website (with
all right, software, programs, source codes, copyrights, trade
secrets, patent rights, and other applicable rights for use on
the Internet) called Nancy's Kitchen. As consideration for this
purchase agreement the Company paid $19,000 cash during May and
June 1999 and issued 6,000 shares of its common stock valued at
$6,000 or $1.00 per share. Subsequent to September 30, 2000 the
Company intends to transfer ownership of the website to a former
officer as part of a settlement agreement.
19
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - CAPITAL STOCK [Continued]
Stock Warrants - At September 30, 2000, the Company had
2,861,750 warrants outstanding to purchase common stock at
prices ranging from $.50 to $5.50 per share and expiring
through June 26, 2005 that were issued in conjunction with
the Company obtaining financing and for consulting services.
244,875 previously outstanding warrants related to the public
stock offering expired during 2000.
NOTE 8 - STOCK OPTIONS
During September through November of 1997, the Company
issued a total of 580,000 options to officers and employees
of the Company at $.116 per share, which was below the
current market value of the Company's common stock of $1.00.
In accordance with APB 25, the Company has recorded total
compensation expense of $295,423 for the period from
inception through September 30, 2000. During 1998 an
officer exercised 100,000 options for $11,600. During
January 1999, an officer terminated his employment and
forfeited his remaining 200,000 options. As of September 30,
2000, 180,000 of the options remain outstanding.
During the year ended September 30, 1997 the Company granted
200,000 options to purchase the Company's common stock at
$1.50 per share, expiring May 1, 2002. During August 1997
133,334 of the options were cancelled. As of September 30,
2000, 66,666 of the options remain outstanding.
During the year ended September 30, 1999 the Company granted
218,064 options to purchase the Company's common stock at
$1.00 per share, expiring through July 28, 2002. As of
September 30, 2000, all 218,064 options remain
outstanding.
Stock Option Plan - On January 19, 2000, the Board of Directors
of the Company adopted the 2000 Stock Option Plan which was
approved by the Company's shareholders on June 16, 2000. The
plan provides for the granting of awards of up to 5,000,000
shares of common stock to officers, directors, and employees.
Awards under the plan will be granted as determined by the board
of directors. As of September 30, 2000, a total of 3,232,832
options are outstanding under the plan.
During the year ended September 30, 2000, prior to establishing
the 2000 Stock Option Plan, the Company granted 302,438 options
to purchase the Company's common stock at $1.00 per share,
expiring in October, 2002. As of September 30, 2000,
302,048 of the options remain outstanding.
20
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - STOCK OPTIONS [Continued]
A summary of the status of the options granted under the 2000
stock option plan and other agreements at September 30, 2000
and 1999, and changes during the year and period then ended are
presented in the table below:
2000 1999
________________________ ________________________
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
_________ ______________ _________ ______________
Outstanding
at beginning
of period 464,730 $ .73 482,500 $ .112
Granted 6,106,938 3.27 615,564 1.10
Exercised - - - .116
Forfeited (2,571,668) 2.77 (633,334) .62
Expired - - - -
_________ ______________ _________ ______________
Outstanding
at end of
period 4,000,000 $ 3.29 464,730 $ .73
_________ ______________ _________ ______________
Exercisable
at end of
period 1,265,622 $ 1.11 464,730 $ .73
_________ ______________ _________ ______________
Weighted
average fair
value of
options
granted 6,106,938 $ .07 615,564 $ .06
_________ ______________ _________ ______________
The fair value of each option granted is estimated on the date
granted using the Black-Scholes option pricing model, with the
following weighted-average assumptions used for grants during the
year ended September 30, 2000 and 1999: risk-free interest rate
of 6.4% and 5.2%, expected dividend yield of zero, expected lives
of 5 years and expected volatility of 136% and 130%.
A summary of the status of the options outstanding under
agreements at September 30, 2000 is presented below:
Options Outstanding Options Exercisable
________________________________ ____________________
Weighted-
Average Weighted- Weighted-
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
____________ ___________ ___________ ________ ___________ ________
$ .116 180,000 1 Month $ .116 180,000 $ .116
$ .44 - .63 81,000 3 years $ .540 - $ -
$ .75 - 1.13 685,210 2 years $ 1.00 440,710 $ 1.00
$1.25 - 1.75 984,166 3 years $ 1.31 581,874 $ 1.31
$2.00 - 3.00 794,624 3 years $ 2.90 63,038 $ 2.88
$5.00 - 7.00 875,000 7 years $ 5.91 - $ -
$ 9.00 400,000 8 years $ 9.00 - $ -
21
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - STOCK OPTIONS [Continued]
The Company accounts for options agreements under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations. Had compensation cost
for these options been determined, based on the fair value at the
grant dates for awards under these agreements, consistent with
the method prescribed by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation", the
Company's net loss would have been the proforma amounts as
indicated below:
For the From Inception
Years Ended on November 5,
September 30, 1996 Through
___________________________ September 30,
2000 1999 2000
_____________ _____________ _____________
Net Loss
applicable
to common
stockholders As reported $ (2,750,894)$ (2,018,812)$ (6,318,424)
Proforma $ (2,772,805)$ (2,028,837)$ (6,350,360)
Earnings per
Share As reported $ (.36)$ (.45)$ (1.38)
Proforma $ (.36)$ (.45)$ (1.38)
NOTE 9 - INCOME TAXES
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109
Accounting for Income taxes. SFAS 109 requires the Company to
provide a net deferred tax asset or liability equal to the
expected future tax benefit or expense of temporary reporting
differences between book and tax accounting and any available
operating loss or tax credit carryforwards. At September 30,
2000 and 1999, the total of all deferred tax assets was
$1,988,205 and $1,054,719 and the total of the deferred tax
liabilities was $0 and $0. The amount of and ultimate realization
of the benefits from the deferred tax assets for income tax
purposes is dependent, in part, upon the tax laws in effect, the
Company's future earnings, and other future events, the effects
of which cannot be determined. Because of the uncertainty
surrounding the realization of the deferred tax assets, the
Company has established a valuation allowance of $1,988,205 and
$1,054,719 as of September 30, 2000 and 1999, which has been
offset against the net deferred tax assets. The net change in
the valuation allowance during the years ended September 30, 2000
and 1999 amounted to approximately $933,486 and $674,701.
22
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES [Continued]
The components of income tax expense from continuing operations
for the years ended September 30, 2000 and 1999 consist of the
following:
2000 1999
___________ ___________
Current income tax expense:
Federal $ - $ -
State - -
___________ ___________
Net tax expense - -
___________ ___________
Deferred tax expense (benefit)
arising from:
Excess of tax over financial
accounting depreciation $ (21,051)$ (324,016)
Excess of tax over financial
accounting compensation - 10,512
Carryforwards of excess
contributions - -
Deferred compensation - stock
options - (80,378)
Net operating loss
carryforward (912,435) (280,819)
Valuation allowance 933,486 674,701
___________ ___________
Net deferred tax expense $ - $ -
___________ ___________
Deferred income tax expense results primarily from the reversal
of temporary timing differences between tax and financial
statement income.
A reconciliation of income tax expense at the federal statutory
rate to income tax expense at the Company's effective rate is as
follows:
2000 1999
___________ ___________
Computed tax at the expected
statutory rate 34.00% 34.00%
___________ ___________
State and local income taxes, net of
federal benefit - -
Other (.08) (.11)
Deferred compensation - stock options - -
Valuation allowance (33.92) (33.89)
___________ ___________
Income tax expense - -
___________ ___________
As of September 30, 2000 and 1999 the Company has net tax
operating loss (NOL) carryforwards available to offset its future
income tax liability of approximately $4,776,524 and $2,092,891
that expire in various years through 2020.
23
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES [Continued]
The temporary differences and carryforwards gave rise to the
following deferred tax asset (liability) at September 30, 2000
and 1999:
2000 1999
___________ ___________
Excess of tax over book accounting
depreciation $ 364,030 $ 342,980
Excess of tax over book accounting
compensation - -
Contribution carryover 156 156
Deferred compensation - stock options - -
Net operating loss carryover 1,624,018 711,583
NOTE 10 - RELATED PARTY TRANSACTIONS
Notes Payable - During the years ended September 30, 2000 and
1999, the Company entered into several notes payable with
shareholders. [See Note 6].
Employment Agreements - At September 30, 2000, the Company had
entered into three employment agreements with officers and
employees of the Company as follows:
Chief Executive Officer - October 1999, Five year term, $200 a
month automobile allowance, 300,000 stock options vesting 100,000
immediately, 100,000 one year from date of agreement, and 100,000
two years from date of agreement. Should termination of
employment occur, an amount equal to the balance of the agreement
shall be due and payable to the employee. The officer also
received 1,100,000 incentive stock options during January 2000
which vest at the rate of 50,000 per quarter and are exercisable
at rates from $1.25 to $9.00 per share.
Chief Financial Officer - April 2000 through September 2002,
300,000 stock options for common stock at $1.25 to $5.00 per
share vesting 25,000 on January 19, 2000 and 25,000 shares
vesting quarterly starting on March 31,2000. The agreement also
states that one-half of the compensation shall be paid in stock
issued quarterly. Should termination of employment occur, an
amount equal to the balance of the agreement shall be due and
payable to the employee.
President and Chief Operating Officer - January 2000, five year
term, $200 a month automobile allowance, 1,100,000 stock options
for common stock at $1.25 to $9.00 per share vesting
100,000 immediately and 50,000 per quarter over a five year
period. Should termination of employment occur, an amount equal
to the balance of the agreement shall be due and payable to the
employee. Subsequent to September 30, 2000, employment was
terminated. As part of the settlement, the employee released
the Company from the balance due under the agreement in exchange
for the website Nancyskitchen.com, computer equipment, and office
furniture.
24
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - LEASE OBLIGATIONS
Operating Leases - During February 2000, the Company entered into
a three-year lease for office space located in Minden, Nevada.
The lease calls for monthly payments of $2,750. In May 2000, the
lease was amended for additional space and increased monthly
payments to $3,665.
Rent expense amounted to $45,797 and $19,716 for the periods
ended 2000 and 1999, respectively.
Total future minimum lease payments for the operating lease
obligations are as follows:
Future minimum lease payments for the years ended September 30:
Lease Payments
______________
2001 $ 43,980
2002 43,980
2003 18,325
2004 -
Thereafter -
______________
Total future minimum
lease payments $ 106,285
______________
Capital Lease - The Company was the lessee of equipment under a
capital lease expiring in 2001. The assets and liabilities under
the capital lease were recorded at the fair value of the assets
at the time of purchase, which was the lower of the present value
of the minimum lease payments or the fair value of the assets at
the time of purchase. The assets are amortized over the related
lease term. Amortization expense amounted to $3,296 and $3,296
for the assets under the capital lease as of September 30, 2000
and 1999 and the amortization expense has been included in
depreciation expense for the years ended September 30, 2000 and
1999. On September 15, 2000, the Company paid the remaining
balance owed on the lease.
Equipment at September 30, 2000 and 1999 under capital lease
obligations is as follows:
2000 1999
___________ ___________
Office equipment $ - $ 9,889
Less: accumulated amortization - (4,353)
___________ ___________
$ - $ 5,536
___________ ___________
25
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 12 - EARNINGS (LOSS) PER SHARE
The following data show the amounts used in computing earnings
(loss) per share and the effect on income and the weighted
average number of shares of dilutive potential common stock for
the years ended September 30, 2000 and 1999 and from inception on
November 5, 1996 through September 30, 2000:
For the From Inception
Years Ended on November 5,
September 30, 1996 Through
___________________________ September 30,
2000 1999 2000
_____________ _____________ _____________
Income (loss) from
continuing operations
applicable to common
stock $ (2,751,794)$ (1,990,821)$ (6,260,554)
Less: preferred dividends 900 (27,991) (57,870)
_____________ _____________ _____________
Income (loss) available to
common stockholders used
in earnings (loss) per
share $ (2,750,894)$ (2,018,812)$ (6,318,424)
_____________ _____________ _____________
Weighted average number of
common shares outstanding
used in earnings (loss)
per share during the
period 7,648,694 4,473,733 4,587,853
_____________ _____________ _____________
Dilutive earnings (loss) per share was not presented, as its
effect is anti-dilutive. The Company had at September 30, 2000,
options and warrants to purchase 6,918,418 shares of common
stock, at prices ranging from $.116 to $5.50 per share, that were
not included in the computation of diluted earnings (loss) per
share because their effect was anti-dilutive.
NOTE 13 - GOING CONCERN
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles which
contemplate continuation of the Company as a going concern.
However, the Company has incurred losses since inception and
has not yet been successful in establishing profitable
operations. Further, the Company may not have adequate working
capital to complete its business plans. These factors raise
substantial doubt about the ability of the Company to continue
as a going concern. In this regard, management is proposing to
raise additional funds through loans or through additional sales
of its common stock. There is no assurance that the Company will
be successful in raising this additional capital.
26
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 14 - SUBSEQUENT EVENTS
Consulting Agreements - On October 20, 2000, the Company entered
into an agreement with an individual to provide consulting
services related to the Company's website "chessed.com." The
Agreement provides for $5,000 worth of common stock to be issued
monthly based on the closing price of the Company's stock at the
last business day of each month. The Company issued 22,561 shares
of common stock to this consultant for services rendered during
October and November 2000.
On October 11, 2000, the Company entered into an agreement with
an individual to provide consulting services related to the
Company's planned horseshoepoker.com website. The agreement
states that $10,000 of compensation is to be paid monthly. The
agreement also states that a warrant be issued for 300,000 shares
of restricted common stock at $.66 per share. The shares vest as
follows: 50,000 shares vest in October 2000, the balance vest
31,250 shares per quarter starting in January 2001.
In October 2000, the Company entered into a capital lease
agreement for thirty six months. The lease states that payments
of $1,348 be made on a monthly basis.
In October 2000, the Company organized a wholly owned subsidiary
for the purpose of operating an Internet poker site.
In October 2000, the Company's wholly owned subsidiary entered
into an agreement with Casino Marketing S.A. to develop and
operate the Company's Internet poker site.
Settlement with former Chief Operating Officer - Subsequent to
September 30, 2000, the employment of the Company's Chief
Operating Officer (COO) was terminated. The Company plans to
transfer the right to the website "Nancyskitchen.com" along with
certain office furniture and computer equipment in settlement of
the employment contract with the former officer.
During October, 2000 the Company issued 9,088 shares of common
stock for services rendered.
The Company issued 5,000 shares of common stock during October
2000 to a former Vice President of Sales and Marketing as part of
his severance package upon termination.
The Company issued warrants to purchase 200,000 shares of common
stock to a financial public relations firm in accordance with
a consulting agreement signed in October 2000.
During November 2000, the Company issued 80,497 shares of common
stock at $.81 per share, to a software development consulting
firm that developed the websites ilovecasinogames.com and
biddles.com as partial payment for these services.
27
<PAGE>
ITEM. 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
There have been no changes in, or disagreements with our
Independent Auditors on accounting or financial disclosure
issues.
<PAGE>
ITEM. 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
The following table sets out the names, positions held and
age of our executive officers and directors. Directors are
elected by the stockholders and serve until their successors are
elected. Officers are appointed by the Board of Directors and
their appointment, except to the extent governed by contract, is
at the discretion of the Board. An individual may serve as both
a Director and Officer of our Company.
Name Age Position
Kirk Johnson 44 Chief Executive Officer,President,
Secretary, Treasurer and Chairman
of the Board of Directors
Tony Marzullo 57 Executive Vice President
Scott Berry 42 Chief Financial Officer
Nolan Bushnell 57 Director
Frank Howard 52 Director
Bradley Rotter 44 Director
KIRK JOHNSON has served as our Chief Executive Officer,
Secretary and Treasurer since January 1999, served as our
President from January 1999 until January 2000 and then from
October 2000 to date, served as our Vice President from October
1997 to December 1998, and has been a Director since October
1997. Mr. Johnson has served as the Chairman of our Board of
Directors since January 19, 2000. Mr. Johnson has been involved
in all phases of management of our Company. Mr. Johnson brings
17 years of investment and corporate management experience as
owner and operator of Nevada-Johnson, Inc., a real estate
development and construction firm, and has knowledge and
experience in capitalizing and developing startup companies.
TONY MARZULLO has served as our Executive Vice President
since September 2000 and served as our Vice President of
Development from March 27, 2000 until September 2000. From June
1998 to December 1999 Mr. Marzullo was a Consulting Engineer
with Silicon Integration Initiative, Inc., a not-for-profit
organization that formulates software initiatives to improve
the electronics industry development process. From May 1997 to
October 1998 Mr. Marzullo was an Applications Engineering Manager
for National Semiconductor, Inc. From March 1967 until April
1997 Mr. Marzullo worked for IBM, where his last position was
Development Engineer Manager. Mr. Marzullo earned his BS in
Electrical Engineering from Syracuse University.
SCOTT BERRY has served as our Chief Financial Officer since
October 1999 and is responsible for investor relations,
accounting, legal, risk management and financial planning and
control. Mr. Berry served as Chief Financial Officer of
HomeSeekers.com, Inc., an Internet Company providing marketing
services and products to real estate professionals, from October
1997 until September 1999. Between 1994 and October 1997, Mr.
Berry served as Controller of several businesses including Dennis
Banks Construction Company from February 1997 to October 1997,
Advanced Plastic Molding, Inc. from April 1996 to January 1997,
and Siller Brothers, Inc. from December 1994
<PAGE>
to February 1996. From July 1993 to August 1994, Mr. Berry served
as Vice President of Finance for Precision Resource Corporation,
a software developer and computer hardware reseller. From
September 1988 through June 1993, Mr. Berry was Chief Financial
Officer of Lansmont Corporation, a developer and manufacturer of
computer-based product and package test equipment. He started his
career as a CPA with Ernst & Whinney, received his accounting
degree from Chico State University and his MBA from Santa
Clara University.
NOLAN BUSHNELL has served as a Director since January 2000.
Mr. Bushnell is the Founder and currently the CEO of uWink.com,
Inc., a provider of Internet-networked games, digital jukeboxes
and e-commerce terminals to retail establishments such as
airports, coffee houses, bars and restaurants. Mr. Bushnell,
considered the "Father of the Video Game Industry", is best known
as the founder of Atari Corporation and Chuck E. Cheese's Pizza
Time Theater. He has founded and successfully operated more than
20 companies over the last 25 years. He sits on the Boards of
Directors of several leading companies, including Wave Systems,
Inc. and Tradius, Inc. He is a regular content contributor to
the "Webbie" nominated Metamarkets.com online "Think Tank"
website. Over the years Mr. Bushnell has received numerous
awards of distinction, including induction into the "Video Game
Hall of Fame" and the Consumer Electronics Association Hall of
Fame. He is the creator and holder of several patents in various
industries. Mr. Bushnell received his B. S. in Electrical
Engineering in 1968 from the University of Utah, where he is a
"Distinguished Fellow", and also attended Stanford University
Graduate School. He frequently lectures at major universities
and corporations throughout the United States, inspiring others
with his views on entrepreneurship and innovation.
FRANK HOWARD has been a Director since December 1997,
served as our President and Chief Operating Officer from January
2000 to October 2000 and served as our Chairman of the Board from
January 1999 until January 2000. Mr. Howard founded Sales
Technology, Inc. ("STI") in March 1989 and is currently its
President and CEO. STI is a manufacturer and manufacturer's
representative of industrial electronic products. From 1976 to
1989 Mr. Howard worked for Bently Nevada Corporation, an
international supplier of high-speed electronic monitoring
devices, where his last position was acting Vice President of
Sales.
BRADLEY ROTTER has served as a Director since April 2000.
Since 1992, Mr. Rotter has served as Chairman of the Board of
Point West Capital Corporation ("Point West"), a specialty
financial services company. Mr. Rotter is also the managing
member of The Echelon Group of Companies, LLC, which provides
investment and financial services. He was the principal
shareholder of The Echelon Group Inc., a financial services
company that was merged into Point West in 1995, and served as
Chairman of the Board of that company from 1988 until the merger
with Point West.
Late Filings of Form 3's and Form 4's
Mr. David Gallagher, our Vice President of Sales and
Marketing, to our knowledge has not filed his final Form 4 upon
termination of employment effective October 3, 2000.
<PAGE>
ITEM.10 EXECUTIVE COMPENSATION
The following table shows, for the three year period ended
September 30, 2000, the cash and other compensation paid to its
Chief Executive Officers and to each of the executive officers
who had annual compensation in excess of $100,000.00 during the
last fiscal year.
SUMMARY COMPENSATION TABLE
Name and Fiscal Salary Bonus Other Awards Securities Payouts All
Principal Year Compen Restrict Underlying LTIP Other
Position sation ed Stock Options Payouts Compen-
Awards (SARS) # sation
(4)
Robert Horn
(1) 2000 - - - - - - -
CEO, 1999 $45,000 - - - - - -
Chairman 1998 $120,000 - - - - - -
and
President
Frank Howard
(2) 2000 $105,408 - - - 1,102,500 - $2,000
President 1999 - - - - - - -
1998 - - - - - - -
Kirk Johnson
(3) 2000 $130,000 - - - 1,400,000 - $3,200
Secretary/ 1999 $136 917 - - - 200,000 - -
Treasurer, 1998 $104,000 - - - - - -
CEO,
President &
Chairman
(1) Mr. Horn was Chairman of The Board, Chief Executive Officer
and President from September 1997 until January 1999, when he
resigned.
(2) Mr. Howard was President from January 2000 until October
2000. He is currently a Director.
(3) Mr. Johnson was Vice President, Secretary/Treasurer and
Director from October 1997 until Mr. Horns' resignation in
January 1999, when he became President and CEO. Mr. Johnson
became Chairman when Frank Howard was hired as President in
January 2000 and upon Mr. Howard's resignation in October 2000,
Mr. Johnson also became President again.
(4) Includes car allowances.
Employment Agreements
Kirk Johnson Chairman, CEO, President, Secretary and
Treasurer - On October 1, 1999 we entered into a five-year
employment agreement with Mr. Johnson whereby he continues to
serve as our CEO and Director. Mr. Johnson is entitled to
receive a base salary of $130,000.00 annually, plus options to
purchase 300,000 shares of our Common Stock at $1.00 per share.
<PAGE>
The options vest as follows; 100,000 on the date of the
agreement, 100,000 one year thereafter and the remaining 100,000
two years thereafter. The options have a three-year life after
vesting. As a director, we will reimburse Mr. Johnson for
expenses comparably to other directors. Mr. Johnson will also
receive a $200.00 monthly vehicle allowance. There are no
restrictions on any of the underlying common stock except for
those imposed under Rule 144 of the Securities Act of 1933, as
amended. The term of the employment agreement shall end October
1, 2004. Mr. Johnson was also granted incentive stock options
to purchase 1,100,000 shares of common stock at $1.25 to $5.00
per share on January 19, 2000. The options vest at the rate of
100,000 shares on January 19, 2000 with the balance vesting
50,000 shares per quarter beginning on April 19, 2000.
On January 19, 2000 our Board of Directors hired Frank Howard
as President and Chief Operating Officer. Mr. Howard had
previously served as Chairman of the Board of Directors. Mr.
Howard's employment agreement provided for a salary of $130,000
per year for five years. The agreement also provided for
incentive stock options to purchase 1,100,000 shares of common
stock at prices from $1.25 to $9.00 per share. The options
vested at the rate of 100,000 shares on January 19, 2000 with
the balance vesting 50,000 shares per quarter beginning on April
19, 2000. Mr. Howard resigned his officer position in October
2000 and is currently a Director of our Company.
On April 1, 2000 we entered into an employment agreement, to
end on September 30, 2002, with Scott Berry whereby he serves as
our Chief Financial Officer. Mr. Berry is entitled to receive a
base salary of $85,000 annually, payable one-half in cash and
one-half in restricted Common Stock, at $1.00 per share, issued
quarterly. Mr. Berry was also granted an incentive stock option
to purchase 300,000 shares of our Common Stock at prices from
$1.25 to $5.00 per share on January 19, 2000. The options vest
as follows: 25,000 shares on January 19, 2000 and 25,000 shares
vesting quarterly starting on March 31, 2000. The options have
a three-year life after vesting. Mr. Berry served as our Chief
Financial Officer on a part-time basis from October 4, 1999
until March 31, 2000.
Option Grants in Last Fiscal Year
The following table sets forth information with respect to
the grant of options to purchase shares of common stock during
the fiscal year ended September 30, 2000 to each person listed in
the above Executive Officer Summary Compensation Table.
Number of % Of Total Price Expiration
Name Securities Options ($/Shares) Date
Underlying Granted to
Options Employees
Granted (#) In Fiscal Year
Frank 1,100,000 28% $1.25 - $9.00 (1)
Howard
Kirk 1,400,000 36% $1.25 - $9.00 (2)
Johnson
1) Expire on various dates between June 21, 2003 and June 21, 2008.
2) Expire on various dates between September 30, 2002 and June 21,
2008.
<PAGE>
As of September 30, 2000, there were options outstanding to
purchase an aggregate of 4,000,000 shares of the Company Common
Stock.
The following table covers information with respect to the
exercise of options to purchase shares of common stock during the
fiscal year ended September 30, 2000 to each person named in the
Summary Compensation Table and the unexercised options held at
the end of the fiscal year.
Aggregated Option/SAR Exercises in Last Fiscal Year
And Fiscal Year-End Option/SAR Values
Securities Value Of
Underlying Unexercised
Number of Unexercised In-The-Money
Shares Options/SARS Options/SARS
Acquired on FY End # At Year End $
Exercised Value Unexercised/ Exercisable/
Name Realized # Realized Unexercisable Unexercisable
Frank Howard -0- $0 212,083/ $0
900,000
Kirk Johnson -0- $0 880,000/ $113,400 / $0
900,000
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information regarding
our Common Stock beneficially owned as of November 30, 2000 for
(i) each stockholder known by us to be the beneficial owner of
five (5%) percent or more of our outstanding Common Stock, (ii)
each of our directors, (iii) each named executive officer (as
defined in Item 402(a)(2) of Regulation SB), and (iv) all
executive officers and directors as a group. At November 30,
2000 there were 9,602,283 shares of Common Stock outstanding.
Except as specifically set forth in the notes below, the table
does not give effect to (a) up to 3,161,750 shares of Common
Stock in the event of exercise of outstanding warrants, and (b)
up to 3,249,125 shares of Common Stock in the event of exercise
of outstanding options.
Name and Address of Amount and Nature of Percentage
Beneficial Owner(1) Beneficial Ownership(2) of Class
___________________ ______________________ ____________
Scott Berry (3) 152,288 1.6%
Nolan Bushnell (4) 100,000 1.0%
Frank Howard (5) 320,808 3.2%
Kirk Johnson (6) 1,075,221 10.3%
Tony Marzullo (7) 90,625 .9%
Brad Rotter (8) 100,000 1.0%
All directors and
officers as a group
(six people) 1,838,942 16.4%
HomeSeekers.com, Inc.(9) 800,000 8.3%
Ruth Kelly (10) 795,194 8.3%
Darin Murphy (11) 674,943 7.0%
William Tomerlin (12) 527,200 5.5%
----------------------
(1) Unless otherwise indicated, the address of each of the listed
beneficial owners identified is 2248 Meridian Boulevard, Suite
A, Minden, NV 89423-8601. Unless otherwise noted, we believe
that all persons named in the table have sole voting and
investment power with respect to all the Shares beneficially
owned by them.
(2) A person is deemed to be the beneficial owner of securities that
can be acquired by such person within 60 days upon the exercise
of warrants or options or the conversion of convertible
securities. Each beneficial owner's percentage ownership is
determined by assuming that warrants or options that are held by
such person (but not those held by any other person) and that
are exercisable within 60 days have been exercised or converted.
(3) Mr. Berry is Chief Financial Officer of our Company.
Includes options to purchase 125,625 Shares.
(4) Mr. Bushnell is a Director of our Company. Consists of warrants
to purchase 100,000 Shares.
(5) Mr. Howard was President and Chief Operating Officer of our
Company from January 2000 until October 2000. Mr. Howard is
currently a Director of our Company. Includes options to
purchase 210,208 Shares and warrants to purchase 100,000 Shares.
<PAGE>
(6) Mr. Johnson is Chief Executive Officer, President, Secretary,
Treasurer and Chairman of the Board of Directors of our Company.
Includes options to purchase 880,000 Shares.
(7) Mr. Marzullo is Executive Vice President of our Company.
Consists of options to purchase 25,208 Shares.
(8) Mr. Rotter is a Director of our Company. Consists of warrants
to purchase 100,000 Shares.
(9) We purchased our iPong technology from HomeSeekers.com, Inc.
HomeSeekers' address is 6490 South McCarran Blvd., Suite D-28,
Reno, NV 89509.
(10) Mrs. Kelly's address is 7230 Sierra Vista Way, Reno, NV 89511.
(11) Mr. Murphy's address is 4465 Juniper Trail, Reno, NV 89509.
(12) Mr. Tomerlin's address is 1625 Main Street, Minden, NV 89423.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 27, 1999 we issued 400,000 shares of common stock
to HomeSeekers.com, Inc. for payment of a $50,000 note payable,
$3,800 of accrued interest, $153,500 for outstanding accounts
payable for programming services and $194,700 for termination of
the previous programming contract, that included a 7% royalty on
gross revenues. We originally borrowed the $50,000 from
HomeSeekers.com, Inc. during March 1999. HomeSeekers.com, Inc.
is a shareholder with over 5% beneficial ownership in our
Company, and was a significant provider of programming and web
site hosting services to us up until June 2000. Interest was at
12% per annum and the note was unsecured.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
A) Index to Exhibits
B) Current report on Form 8-K filed on January 27, 2000
reporting Item 2 (Acquisition or Disposition of Assets):
Asset purchase Agreement dated January 13, 2000, whereby
WebQuest International, Inc. purchased the Internet
web site www.chessed.com from an individual. No financial
statements were required to be filed with this report.
Current report on Form 8-K filed on April 25, 2000 reporting
Item 2 (Acquisition or Disposition of Assets): Asset purchase
Agreement closed on April 13, 2000, whereby WebQuest
International, Inc. purchased the Internet web site
www.winbridge.com from an individual. No financial statements
were required to be filed with this report.
<PAGE>
Exhibits Description of Documents
3.1 Articles Of Incorporation for WebQuest International,Inc.
dated April 17, 1997 (1)
3.2 Articles Of Merger for WebQuest International, Inc. dated
May 12, 1997(1)
3.3 By-laws for WebQuest International, Inc. dated April 18,
1997(1)
10.1 Licensing Agreement between NDS Software, Inc. and WebQuest
International, Inc.(1)
10.2 Bob Horn Employment Agreement dated September 24, 1997(1)
10.3 Kirk Johnson Employment Agreement dated October 1, 1997(1)
10.4 Scavengernet Purchase Agreement dated October 9, 1998(2)
10.5 Atari Contract dated July 3, 1997 (2)
10.6 Asset Purchase Agreement with Nancy Rogers dated May 30,
1999 (3)
10.7 Kirk Johnson Employment Agreement dated October 1, 1999 (3)
10.8 WebQuest International, Inc. 2000 Stock Option Plan (4)
10.9 Frank Howard Employment Agreement date January 19, 2000 (4)
10.10 Scott Berry Employment Agreement dated April 1, 2000 (5)
27 Financial Data Schedule (6)
(1) Incorporated by reference to Exhibits with corresponding
numbers from the Company's Form 10-SB Registration Statement, as
amended, as filed with the Securities and Exchange Commission.
All exhibits were filed with the May 29, 1998 filing.
(2) Incorporated by reference to Exhibits with corresponding numbers
from the Company's Form 10-KSB for year ended September 30, 1998.
(3) Incorporated by reference to Exhibits with corresponding numbers
from the Company's Form 10-KSB for year ended September 30, 1999.
(4) Incorporated by reference to Exhibits with corresponding numbers
from the Company's Form 10-QSB for three months ended December 31,
1999.
(5) Incorporated by reference to Exhibits with corresponding numbers
from the Company's Form 10-QSB for three months ended March 31, 2000.
(6) Included in this document.
B) Reports on Form 8-K.
None.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the Registrant caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
WebQuest International, Incorporated
(Registrant)
Date: December 26, 2000 By: /s/ Kirk Johnson
Kirk Johnson
Chief Executive Officer
President, Treasurer,
Secretary and Chairman
