SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1999
Commission File Number 000-24355
WebQuest International, Incorporated
(Exact name of small business issuer in its charter)
Nevada 86-0894019
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
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: $21,523.00
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 31, 1999 ($2.50), the aggregate market value of
the 2,113,021 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
$5,282,553. By the foregoing statement, the Registrant does not intend to
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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 31, 1999 there were 6,180,218 shares of the issuer's Common
Stock, $.001 par value, outstanding.
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 or Plan of Operation .....6
Item 7. Financial Statements..........................................17
Item 8. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure .....................................17
Part III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act ...17
Item 10. Executive Compensation ........................................19
Item 11. Security Ownership of Certain Beneficial Owners and
Management ....................................................22
Item 12. Certain Relationships and Related Transactions ................24
Item 13. Exhibits and Reports on Form 8-K ..............................24
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
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time to time in our filings with the Securities and Exchange Commission.
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, into 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 an interactive
game arcade, known as the iPONG Game Arcade on the Internet. iPong players
use their eye/hand coordination and trivia knowledge to win cash and/or
prizes. We currently derive revenue from the sale of advertising and we plan
to start for-pay iPong tournaments during 2000 that will generate revenues
from user fees and monthly subscription fees.
The iPONG Game Arcade is offered solely online over the Internet. We
currently inform potential players about the site through a variety of online
marketing methods. Players currently play iPong for free. We plan to
initiate iPong tournaments during 2000, where players will be charged a fee to
compete with other players to win cash and/or prizes. For-pay player interest
and acceptance of these business concepts is unknown at this time and there
can be no assurance that we will be successful with this business strategy.
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 of which 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. We are not aware of any Internet sites
offering entry fee game tournaments. However, there may be competitive
tournaments in the planning phase that could come out in the near future and
dilute our potential player base. Additionally, Internet game players could
choose not to play in our iPong tournaments at sufficient levels to generate
profits from this business.
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[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.
Suppliers
We are dependent on HomeSeekers.com, Inc. for most of our programming and
hosting services. Subject to funding and office space issues, we plan to
bring most of these support services in-house during 2000.
We entered into a non-exclusive License Agreement on July 3, 1997, with a
Delaware corporation, Atari-JTS Corp. that owns the software, programs, trade
names, trademarks, promotional material, and intellectual property for PONGc's
use on the Internet. 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 five year period, and allows us to license and use the
game (Pong) in connection with our 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 Delaware corporation if the number of Pong players fails to
exceed 5,000,000 in each quarter.
We hold no registered patents, trademarks, franchises or concessions nor
are we subject to any labor contracts.
We are not currently subject to direct regulation by the Federal
Communications Commission or any other agency, other than regulations
applicable to businesses generally, nor do we believe that we are subject to
any rules or regulations concerning games or sweepstakes. However, it is
possible that some of the aspects of our for-pay tournaments could be
interpreted as gambling by certain states, thus restricted in certain states
and regulated in other states. We are currently in the process of reviewing
the applicability of various states' regulations to our proposed tournaments
prior to offering tournaments to such states' residents.
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.
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The last two fiscal years have been dedicated primarily to research and
development. We did not launch our iPONG Game Arcade to the public until late
in 1998.
We have not incurred any expense associated with environmental law
compliance and does not expect to do so.
We currently employ 11 people, 8 of whom are full-time. From time to
time we also utilize independent contractors.
ITEM 2. DESCRIPTION OF PROPERTY
We currently lease approximately 1,400 square feet of office space in
Minden, Nevada from a non-affiliated party for $1,900.00 per month for our
corporate headquarters. We cancelled a lease in Del Mar, California in April
1999. 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
Second Quarter ended 3/31/99 $2.00 $1.00
Third Quarter ended 6/30/99 $3.00 $0.50
Fourth Quarter ended 9/30/99 $1.50 $0.375
There were approximately 220 shareholders of Company Stock on September
30, 1999 of the 4,855,618 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.
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Recent Sales of Unregistered Securities
During October 1998 we issued 10,000 shares of restricted common stock
as partial consideration for acquisition of the Internet site
scavengernet.com. The recipients of these shares had access to or otherwise
were provided with information, including financial, concerning our Company,
and the shares issued to them contained a legend restricting transferability
absent registration under the Securities Act. Accordingly, this transaction
was exempt from the registration requirements of the Securities Act by reason
of the exemption set forth in Section 4(2) of the Securities Act and the rules
and regulations thereunder.
We issued a $200,000 Convertible Subordinated Promissory note and 20,000
shares of restricted common stock to an accredited investment entity during
April 1999 in return for $200,000. The note is due on June 1, 2000, accrues
interest at 12% per annum and is convertible into our restricted common stock
at a conversion rate of $1.25 per share. The recipients of these shares had
access to or otherwise were provided with information, including financial,
concerning our Company, and the shares issued to them contained a legend
restricting transferability absent registration under the Securities Act.
Accordingly, this transaction was exempt from the registration requirements of
the Securities Act by reason of the exemption set forth in Section 4(2) of the
Securities Act and the rules and regulations thereunder.
During April 1999 we issued 20,000 shares of restricted common stock to
a consultant as a finders fee for the $200,000 in debt placed in this same
month, as described in the previous paragraph. This consultant had access
to relevant information concerning us. In addition, the shares issued to this
consultant contained a legend restricting transferability absent registration
under the Securities Act. Accordingly, this transaction was exempt from the
registration requirements of the Securities Act by reason of the exemption
from registration set forth in Section 4(2) thereof and the rules and
regulations thereunder.
During April 1999 we issued 10,000 shares of restricted common
stock as partial consideration for acquisition of the Internet site
Bannerclicks.com. The recipients of these shares had access to or otherwise
were provided with information, including financial, concerning our Company,
and the shares issued to them contained a legend restricting transferability
absent registration under the Securities Act. Accordingly, this transaction
was exempt from the registration requirements of the Securities Act by reason
of the exemption set forth in Section 4(2) of the Securities Act and the rules
and regulations thereunder.
During May 1999 we issued 6,000 shares of restricted common stock as
partial consideration for acquisition of the Internet sites nancyskitchen.com.
and freehoroscopes.net. The recipients of these shares had access to or
otherwise were provided with information, including financial, concerning our
Company, and the shares issued to them contained a legend restricting
transferability absent registration under the Securities Act. Accordingly,
this transaction was exempt from the registration requirements of the
Securities Act by reason of the exemption set forth in Section 4(2) of the
Securities Act and the rules and regulations thereunder.
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During May 1999 we issued 100,000 shares of restricted common stock to
HomeSeekers.com, a shareholder that owns beneficially more than 5% of our
Company and a significant supplier of programming services to us, for purchase
of the iPONG technology that we had previously been licensing from them.
These shares were valued at $1.75 per share, bringing the total consideration
to $175,000. HomeSeekers.com, Inc. had access to relevant information
concerning us, had a pre-existing business relationship with us and the shares
issued to them contained a legend restricting transferability absent
registration under the Securities Act. Accordingly, this transaction was
exempt from the registration requirements of the Securities Act by reason of
the exemption set forth in Section 4(2) thereof and the rules and regulations
thereunder.
During July and August 1999, two warrant holders exercised warrants to
purchase 50,000 shares of restricted common stock at $1.00 per share. These
accredited investors had access to relevant information concerning us and had
a pre-existing business relationship with us. Accordingly, these transactions
were exempt from the registration requirements of the Securities Act by reason
of the exemption set forth in Section 4(2) thereof and the rules and
regulations thereunder.
During the year ending September 30, 1999 holders of all 396,000
outstanding shares of our Series B Convertible Preferred Stock converted their
preferred stock into a total of 396,000 shares of common stock. These
investors had access to relevant information concerning us and had a pre-
existing business relationship with us. Accordingly, these transactions were
exempt from the registration requirements of the Securities Act by reason of
the exemption set forth in Section 4(2) thereof and the rules and regulations
thereunder.
During the year ending September 30, 1999, we issued warrants to
purchase 1,200,000 shares of common at prices from $.50 to $1.00 per share to
various vendors and investors. These vendors and investors had access to or
otherwise were provided with information, including financial, concerning our
Company, and the warrants issued to them contained language explaining that
the shares to be issued under the warrants will have a legend restricting
transferability absent registration under the Securities Act. Accordingly,
these transactions were exempt from the registration requirements of the
Securities Act by reason of the exemption set forth in Section 4(2) thereof
and the rules and regulations thereunder.
During the year ending September 30, 1999, we granted options to
purchase 218,064 shares of common at $1.00 per share to employees and a
Director. Our employees and Director had access to relevant information
concerning us and had a pre-existing business relationship with us and the
options issued to them contained language explaining that the shares to be
issued under the options will have a legend restricting transferability absent
registration under the Securities Act. Accordingly, these transactions were
exempt from the registration requirements of the Securities Act by reason of
Section 4(2) thereof and the rules and regulations thereunder.
Subsequent to September 30, 1999
On November 10, 1999 we commenced a private offering of 4,000,000 shares
to accredited investors at an offering price of $1.25 per share. The shares
are being offered without registration under the Securities Act of 1933, as
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amended, in reliance upon the exemption from registration afforded by section
4 (2) of the act and regulation D promulgated there under. Estimated
placement expenses of $100,000 are anticipated and the shares are being
offered on a "best efforts basis". As of December 31, 1999, 893,000 of such
shares had been sold generating gross proceeds of $1,116,250.
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.
Results Of Operations
Revenue
1999 %CHANGE 1998 %CHANGE 1997
---- -------- ---- -------- ----
Revenue $21,523 100% -0- -0- -0-
We started generating revenues during 1999. Revenues generated in 1999
were derived from the sale of web site advertising.
Operating Expenses
1999 %CHANGE 1998 %Change 1997
---- ------- ---- ------- ----
Operating Expenses $1,976,716 85% $1,068,967 134% $456,595
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Operating expenses increased from $1,068,967 in 1998 to $1,976,716 in
1999. This represents an increase of $907,749 or approximately 85%. This
increase was primarily due to amortization of $825,000 in software license
fees in May 1999 as the result of the purchase of this software from
HomeSeekers.com, Inc. Other operating expenses experienced increases and
decreases but not of a material nature.
Operating expenses increased by $612,372, or 134% from $456,595 in 1997
to $1,068,967 in 1998. Compensation expense from issuing stock options to
officers below market value accounted for $265,467 of this increase. Total
payroll paid in the form of cash increased by $226,789, from $50,445 in 1997
to $277,234 in 1998. This increase was the result of hiring additional
executive and administrative employees during 1998.
Other Income (Expense)
1999 %CHANGE 1998 %CHANGE 1997
---- ------- ---- ------ ----
Other Income (Expense) $(35,628) N/A $10,029 N/A $(2,406)
Other income and expense consists of gains on the sale of marketable
securities, interest income and interest expense. Gains on the sale of
securities were similar in the two years. The gain in 1998 totaled $13,363
while 1999 was slightly higher at $14,743. However, net interest expense
totaled $50,371 in 1999 versus $3,334 in 1998 as a result of a substantial
increase in borrowing during 1999.
Net Loss
1999 %CHANGE 1998 %CHANGE 1997
---- ------- ---- ------- ----
Net Loss $2,018,812 85% $1,089,717 137% $459,001
Our net loss increased from $1,089,717 in 1998 to $2,018,812 in 1999
primarily due to the $825,000 amortization of software license fees in May
1999 as the result of the purchase of this software from HomeSeekers.com, Inc.
The increase in our net loss of $630,716 from 1997 to 1998 was primarily
from the increase in costs associated with developing, and beginning to
market, our iPong.com Internet site.
Liquidity And Capital Resources
At September 30, 1999 our cash balance was $2,386 compared to $4,682 at
September 30, 1998. We have experienced negative cash flow from operations
since inception. Total assets decreased by approximately $900,000 during the
last year as a result of the sale of marketable securities combined with the
write-off of software licensing rights, upon the purchase of this software.
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Total liabilities increased approximately $516,000 during the fiscal year
ended September 30, 1999. These increases were primarily in accounts payable,
accrued expenses plus borrowing from related parties. Operations during
fiscal 1999 were funded through the above-described activities plus the
issuance of $200,000 of convertible debt and the sale of $50,000 of restricted
common stock.
Funds are currently being raised in a maximum $5,000,000 private offering
to accredited investors. $1,116,250 has been raised to date. Product
research, development and strategic acquisitions over the next year are
projected to be significant. There are no plans to purchase or sell any
physical plant or significant equipment. The number of employees may increase
by 100% or more during the next year. In order to continue operations, it may
be necessary to raise additional capital by borrowing or selling additional
equity in our Company.
Plan of Operation
Our plan, over the next twelve months, is to start generating revenue
from our game and leisure services Internet Sites through for-pay tournaments,
user subscriptions and advertising. We plan to fund the start-up of these
operations through cash receipts from additional equity placements until our
operations start generating positive net cash flows. Based on our current
financial projections, we plan to become profitable during our fiscal year
ending September 30, 2001.
Need for Additional Capital
Our business is capital intensive, particularly with respect to product
development costs associated with the design and creation of interactive
Internet sites, and our plan to grow through acquisitions and strategic
alliances. 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 perform the
functions for which they are designed, that they will meet applicable price or
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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.
We are dependent on the continued development of the Internet infrastructure.
Our industry is new and rapidly evolving. Our business would be harmed if
Internet usage does not continue to grow. Internet usage may be inhibited for
a number of reasons, including:
* inadequate Internet infrastructure;
* inconsistent quality of service; and
* unavailability of cost-effective, high-speed service.
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If Internet usage grows, the Internet infrastructure may not be able to
support the demands placed on it by this growth, or its performance and
reliability may decline. In addition, web sites, including ours, have
experienced interruptions in their service as a result of outages and other
delays occurring throughout the Internet network infrastructure. We anticipate
that these outages or delays will occur from time to time in the future and,
if they occur frequently or for extended periods of time, Internet usage,
including usage of our web site, could grow more slowly or decline.
Our long-term success depends on the development of the electronic commerce
market, which is uncertain.
Our future revenues substantially depend upon the widespread acceptance and
use of the Internet as an effective medium of commerce by consumers. Demand
for recently introduced products and services over the Internet is subject to
a high level of uncertainty. Although independent market research firms
forecast that the number of Internet users worldwide will grow substantially
in the next few years, we cannot be certain that this growth will occur or
that our sales will grow at the same rate. The development of the Internet as
a viable consumer marketplace is subject to a number of risks including:
* potential customers may be unwilling to shift their purchasing from
traditional sources to online sources;
* insufficient availability of, or changes in, telecommunications services
could result in slower response times, which could delay the acceptance of
the Internet as an effective commerce medium;
. continued growth in the number of Internet users;
. concerns about transaction security;
. continued development of the necessary technological infrastructure;
. development of enabling technologies; and
. uncertain and increasing government regulations.
Rapid technological change could render our web sites and systems obsolete and
require significant capital expenditures.
The Internet and the electronic commerce industry are characterized by
rapid technological change, sudden changes in customer requirements and
preferences, frequent new product and service introductions incorporating new
technologies and the emergence of new industry standards and practices that
could render our existing web sites and transaction processing systems
obsolete. The emerging nature of these products and services and their rapid
evolution will require that we continually improve the performance, features
and reliability of our online services, particularly in response to
competitive game and possibly, tournament offerings. Our success will depend,
in part, on our ability:
* to enhance our existing games and services; and
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* to respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis.
The development of web sites and other proprietary technology entails
significant technical and business risks and requires substantial expenditures
and lead time. We may be unable to use new technologies effectively or adapt
our web sites, proprietary technology and transaction-processing systems to
customer requirements or emerging industry standards that could harm our
business. Updating our technology internally and licensing new technology from
third parties may require significant additional capital expenditures and
could affect our results of operations.
We will be exposed to risks associated with electronic commerce security and
credit card fraud, which may reduce collections and discourage online
transactions.
Consumer concerns about privacy or the security of transactions conducted
on the Internet may inhibit the growth of the Internet and electronic
commerce. To securely transmit confidential information, such as customer
credit card numbers, we will rely on encryption and authentication technology
that we will license from third parties. We cannot predict whether the
algorithms we will use to protect customer transaction data will be
compromised. Furthermore, our servers may be vulnerable to computer viruses,
physical or electronic break-ins and similar disruptions. We may need to
expend significant additional capital and other resources to protect against a
security breach or to alleviate problems caused by any security breaches. The
measures we take to protect against security breaches may not be successful.
Our failure to prevent security breaches could harm our business.
Under current credit card practices, a merchant is liable for fraudulent
credit card transactions where, as will be the case with the transactions we
will process, that merchant does not obtain a cardholder's signature. A
failure to adequately control fraudulent credit card transactions could affect
our revenues and harm our business.
We could face liability for information displayed on and communications
through our web site.
We may be subject to claims for defamation, negligence, copyright or
trademark infringement or other claims relating to the information we publish
on our web sites. These types of claims have been brought, sometimes
successfully, against Internet companies as well as print publications in the
past. We also utilize email as a marketing medium, which may subject us to
potential risks, such as:
* liabilities or claims resulting from unsolicited email;
* lost or misdirected messages; or
* illegal or fraudulent use of email.
These claims could result in substantial costs and a diversion of our
management's attention and resources, which could harm our business.
Efforts to regulate or eliminate the use of mechanisms that automatically
collect information on visitors to our web site may interfere with our ability
to target our marketing efforts.
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Web sites typically place a small tracking program on a user's hard drive
without the user's knowledge or consent. These programs automatically collect
data about any visits that a user makes to various web sites. Web site
operators use these mechanisms for a variety of purposes, including the
collection of data derived from users' Internet activity. Most currently
available Internet browsers allow users to elect to remove these tracking
programs at any time or to prevent this information from being stored on their
hard drive. In addition, some commentators, privacy advocates and governmental
bodies have suggested limiting or eliminating the use of these tracking
mechanisms. Any reduction or limitation in the use of this software could
limit the effectiveness of our sales and marketing efforts.
We could face additional burdens associated with government regulation of and
legal uncertainties surrounding the Internet.
New Internet legislation or regulation or the application of existing laws
and regulations to the Internet and electronic commerce could harm our
business, financial condition and results of operations. We are subject to
regulations applicable to businesses generally and laws or regulations
directly applicable to communications over the Internet and access to
electronic commerce. Although there are currently few laws and regulations
directly applicable to electronic commerce, it is possible that a number of
laws and regulations may be adopted with respect to the Internet covering
issues such as user privacy, pricing, content, copyrights, distribution,
antitrust, taxation and characteristics and quality of products and services.
For example, the United States Congress recently enacted Internet laws
regarding children's privacy, copyrights and transmission of sexually explicit
material. In addition, the European Union recently enacted its own Internet
privacy regulations. Furthermore, the growth and development of the market for
electronic commerce may prompt calls for more stringent consumer protection
laws that may impose additional burdens on those companies conducting business
online. The adoption of any additional laws or regulations regarding the
Internet may decrease the growth of the Internet or electronic commerce, which
could, in turn, decrease the demand for our games and services and increase
our cost of doing business. In addition, if we were alleged to have violated
federal, state or foreign civil or criminal law, we could be subject to
liability, and even if we could successfully defend such claims, they may
involve significant legal compliance and litigation costs.
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Uncertainty of Emerging Technology and Business
The Internet based games and leisure activities industry is an emerging
business characterized by an increasing number of market entrants who have
introduced or are developing an array of new products and services. As is
typically the case in an emerging industry, demand and market acceptance for
newly introduced products and services is subject to a high level of
uncertainty. In light of the evolving nature of this industry, there can be no
assurance as to the ultimate level of demand or market acceptance for our
products and services. In addition, there can be no assurance that we will
successfully implement our business strategies, expand our capacity, maintain
the cost and technological competitiveness of our products and services, meet
our current marketing objectives or succeed in positioning us as the preferred
Internet games and entertainment services provider. There can also be no
assurance that the present trends in growth of Internet use and users will
continue or that capacity of the Internet in general will be sufficient to
meet anticipated demands or that the present pricing structure for Internet
access will be maintained in the future.
Dependence on and Uncertain Acceptance of the Internet as a Medium for
Commerce or Advertising
Use of the Internet by consumers is at an early stage of development, and
market acceptance of the Internet as a medium for commerce is subject to a
high degree of uncertainty. Our future success will depend on its ability to
significantly increase revenues, which will require the further development
and widespread acceptance of the Internet as a medium for commerce and
advertising. There is no assurance that the Internet will become a successful
retailing channel. The Internet may not prove to be a viable commercial
marketplace because of inadequate development of the necessary infrastructure,
such as reliable network backbones or complementary services, such as high-
speed modems and security procedures for financial transactions. The viability
of the Internet may prove uncertain due to delays in the development and
adoption of new standards and protocols (for example, the next generation
Internet Protocol) to handle increased levels of Internet activity or due to
increased government regulations. If use of the Internet does not continue to
grow, or if the necessary Internet infrastructure or complementary services
are not developed to effectively support growth that may occur, our business,
results of operations and financial condition could be materially adversely
affected. Further, there is no assurance that advertisers and advertising
agencies will accept the Internet as an advertising medium. If Internet
advertising is not widely accepted by, or if we are not successful in
generating significant advertising revenues from, advertisers, our business,
results of operations and financial condition could be materially and
adversely affected.
Uncertain Acceptance of Our Internet Content
There can be no assurance that our content will be attractive to a
sufficient number of users to generate significant revenues. There can also be
no assurance that we will be able to anticipate, monitor and successfully
respond to rapidly changing consumer needs and preferences to attract a
sufficient number of users to our Web sites. If we are unable to develop
Internet content that allows us to attract, retain and expand a loyal user
base, our business, results of operations and financial condition will be
materially and adversely affected.
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Security Risks
Despite the implementation of network security measures by us, our
infrastructure is potentially vulnerable to computer break-ins and similar
disruptive problems caused by our customers or others. Consumer concern over
Internet security has been, and could continue to be, a barrier to commercial
activities requiring consumers to send their credit card information over the
Internet. Computer viruses, break-ins or other security problems could lead to
misappropriation of proprietary information and interruptions, delays or
cessation in service to our customers. Further, until more comprehensive
security technologies are developed, the security and privacy concerns of
existing and potential customers may inhibit the growth of the Internet as a
merchandising medium.
Government Regulation and Legal Uncertainties
We are subject, both directly and indirectly, to various laws and
governmental regulations relating to its business. We believe that we are
currently in compliance with such laws and that they do not have a material
impact on our operations. Moreover, there are currently few laws or
regulations directly applicable to access to, or commerce on the Internet.
However, due to increasing popularity and use of the Internet, it is possible
that a number of laws and regulations may be adopted with respect to the
Internet. Such laws and regulations may cover issues such as user privacy,
pricing and characteristics and quality of products and services. The
enactment of any such laws or regulations in the future may slow the growth of
the Internet, which could in turn decrease the demand for our services and
increase our cost of doing business or otherwise have an adverse effect on our
business, results of operations and financial condition. In addition, the
applicability to the Internet of existing laws governing issues such as
property ownership, libel and personal privacy is uncertain and could expose
us to substantial liability for which we might not be indemnified by content
providers. We believe that our use of material on our Web sites is protected
under current provisions of copyright law. However, legal rights to certain
aspects of Internet content and commerce are not clearly settled. There is no
assurance that we will be able to continue to maintain rights to information.
The failure to be able to offer such information would have a material adverse
effect on our business, results of operations and financial condition.
Legality of our iPong Game and providing tournaments on the Internet
We believe that our iPong game is a game of skill, and when included in an
entry fee tournament format, it does not fall under the category of gambling
on the Internet for Federal and most state's within the U.S. We believe there
are a minority of states that may consider this entry fee tournament format
gambling on the Internet. We plan to obtain written approval, or non-approval
to operate our tournaments in all 50 states from the appropriate state
agencies. However, should a state or Federal agency determine otherwise, we
could incur significant legal expenses fighting this issue, or could find that
certain states will not allow this type of pay-for-play tournaments within
their state. Should we find that certain states do not allow our tournaments,
we have the ability to "lock out" participants from those states based on
their zip code. We believe at a minimum, the states of Nevada, Nebraska and
Texas will not allow this form of tournament to operate on the Internet.
16
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There is no assurance that we will be able to continue to operate our
iPong game on the Internet. The failure to be able to offer this game would
have a material adverse effect on our business, results of operations and
financial condition.
Liability for Information Retrieved from the Internet
Since material may be downloaded from Web sites and may be subsequently
distributed to others, there is a potential that claims will be made against
us for defamation, negligence, copyright or trademark infringement or other
theories based on the nature and content of such material. Such claims have
been brought, and sometimes successfully pressed, against on-line services in
the past. In addition, we could be exposed to liability with respect to the
material that may be accessible through our branded products and Web sites.
Although we carry general liability insurance, our insurance may not cover
potential claims of this type or may not be adequate to cover all costs
incurred in defense of potential claims or to indemnify us for all liability
that may be imposed. Any costs or imposition of liability that is not covered
by insurance or in excess of insurance coverage could have a material adverse
effect on our business, results of operations and financial condition. We are
currently not aware of any such claims.
Dependence on Executive Officers and Key Employees
Our success will depend upon the services of our directors, executive
officers and certain key employees. There can be no assurance that we will be
successful in attracting and retaining such personnel, and our inability to
attract such personnel could have a material adverse effect on us. We intend
to enter into agreements with all of our executive officers containing non-
disclosure and non-competition provisions, however, no such agreements have
yet been executed except with Mr. Kirk Johnson, our CEO. There can be no
assurance that our directors, executive officers, or key employees will remain
associated with us in any particular capacity or that they will not compete,
directly or indirectly, with us.
ITEM. 7 FINANCIAL STATEMENTS
Comparative Financial Statements appear in this report after the
signature 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.
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.
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Name Age Position
Kirk Johnson 43 Chief Executive Officer,
Secretary/Treasurer
and Chairman of the Board
Frank Howard 51 President, Chief Operating
Officer and Director
Scott Berry 41 Chief Financial Officer
David Gallagher 45 Vice President of Marketing
KIRK JOHNSON has served as our Chief Executive Officer, President,
Secretary and Treasurer since January 1999, has served as our Chairman of
the Board since January 2000, served as our President from January 1999
until January 2000, served as our Vice President from October 1997 to
December 1998, and has been a Director since October 1997. 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 the capitalization of,
and development of startup companies.
FRANK HOWARD has served as our President and Chief Operating Officer
since January 19, 2000, served as our Chairman of the Board from January 1999
until January 2000 and has been a Director since December 1997. Prior to
joining us as a full-time officer in January 2000, Mr. Howard founded Sales
Technology, Inc. ("STI") in March 1989, a manufacturer and manufacturer's
representative of industrial electronic products. Mr. Howard served as
President and CEO of STI from March 1989 to January 2000. 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.
SCOTT BERRY has served as our Chief Financial Officer since October 1999
and is responsible for investor relations, accounting, 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 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.
DAVID GALLAGHER has served as our Vice President of Marketing since
February 22, 2000. Mr. Gallagher served as Vice President of Sales &
18
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Marketing of Sales Technology, Inc. ("STI"), from August 1993 until February
2000, a manufacturer and manufacturer's representative of industrial
electronic products.
Late Filings of Form 3's and Form 4's
Mr. Kirk Johnson, Mr. Frank Howard and certain shareholders known to
beneficially own more than 10% of our common stock have not filed their Form
3's and in some cases, Form 4's with the Securities and Exchange Commission
(SEC). Our Chief Financial Officer is in the process of notifying these
people of their Section 16 filing requirements with the SEC.
ITEM.10 EXECUTIVE COMPENSATION
The following table shows, for the three year period ended September
30, 1999, 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 Other
Principal Year Annual Restricted Underlying LTIP Compen-
Position Compen- Stock Options Payouts sation
sation Awards (SARS)#
Robert
Horn(1)
CEO,
Chairman 1999 45,000 - - - - - -
and 1998 120,000 - - - - - -
President 1997 - - - - 100,000 - -
Kirk
Johnson(2)
Vice
President
Secretary/ 1999 136,917 - - - 200,000 - -
Treasurer, 1998 104,000 - - - - - -
CEO, 1997 - - - - 180,000 - -
(1) Mr. Horn was Chairman of The Board, Chief Executive Officer and President
from September 1997 until January 1999, when he resigned.
(2) Mr. Johnson was Vice President, Secretary/Treasurer and Director from
October 1997 until Mr. Horns' resignation in January 1999, when he accepted
the additional responsibilities of President and CEO.
Employment Agreements
Subsequent To Year End
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Kirk Johnson CEO, President, Secretary/Treasurer and Director- 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. 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
$200.00 monthly vehicle allowance.
Option Grants in Last Fiscal Year
The following table sets forth information with respect to the grant of
options to purchase shares of common stock during the fiscal year ended
September 30, 1999 to each person listed in the above Executive Officer
Summary Compensation Table.
Number of % Of Total Price Expiration
Name Securities Options ($/Shares) Date
Underlying Granted to
Options Employees
Granted (#) In Fiscal Year
Kirk 200,000 92% $1.00 DEC 2001
Johnson
As of September 30, 1999, there were options outstanding to purchase an
aggregate of 464,730 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, 1999 to each person named in the Summary Compensation Table and
the unexercised options held at the end of the fiscal year.
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Aggregated Option/SAR Exercises in Last Fiscal Year
And Fiscal Year-End Option/SAR Values
Number Securities Value Of
of Underlying Unexercised
Shares Unexercised In-The-Money
Acquired Options/SARS Options/SARS
on FY End # At Year End $
Exercise Value Exercisable/ Exerciseable/
Name Realized # Realized Unexercisable Unexercisable
Kirk Johnson 0 $0 380,000/0(1) $159,120 / $0 )
(1) Does not include a stock option to purchase 300,000 shares at $1.00 per
share granted to Mr. Johnson on October 1, 1999. This option vests 100,000
shares on October 1, 1999, 100,000 shares on October 1, 2000 and 100,000
shares on October 1, 2001.
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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 December 31, 1999 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 December 31, 1999 there
were 6,180,218 shares of Common Stock outstanding. Except as specifically set
forth in the notes below, the table does not give effect to 1,674,125 shares
of Common Stock in the event of exercise of outstanding warrants, and up to
864,730 shares of Common Stock in the event of exercise of outstanding
options.
Name and Address of Amount and Percentage
Beneficial Owner (1) Nature of Of
Beneficial Class
Ownership
(2)
Bridget Becker (3) 3,126 0.1%
Scott Berry (4) 8,088 0.1%
Frank Howard (5) 22,500 .4%
Kirk Johnson (6) 675,221 10.1%
All directors and
officers 708,935 10.6%
As a group (four
people)
HomeSeekers.com, Inc. (7) 800,000 12.9%
Greg & Jeanie Johnson (8) 925,499 14.0%
Ruth Kelly (9) 847,138 13.7%
Darin Murphy (11) 678,693 11.0%
Octagon Worldwide 385,058 6.0%
Limited (12)
Douglas Swanson (13) 450,000 6.8%
William Tomerlin (14) 525,000 8.5%
Huck Huckabay (15) 400,000 6.5%
(1) Unless otherwise indicated, the address of each of the listed
beneficial owners identified is 1662 North Highway 395, Suite 203, Minden,
22
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Nevada 89423-4328. 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, options or
convertible securities 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)Ms. Becker was our Vice President of Marketing through January 6, 2000.
Includes options to purchase 3,126 shares of Common Stock.
(4)Mr. Berry is our Chief Financial Officer.
(5)Mr. Howard is Chairman of our Board of Directors. Includes warrants to
purchase 10,000 Shares. Mr. Howard's address is 2911 South Shore Blvd., Suite
170, League, Texas 77573.
(6)Mr. Johnson is Chief Executive Officer, President, Secretary, Treasurer and
a Director of our Company. Includes options to purchase 480,000 Shares.
(7)We purchased our iPong technology from HomeSeekers and continue to purchase
programming services from HomeSeekers. HomeSeekers' address is 6490 South
McCarran Blvd., Suite D-28, Reno, NV 89509.
(8)Includes warrants to purchase 451,250 Shares. Mr. Greg Johnson and Mrs.
Jeannie Johnson are the brother, and sister-in-law, respectively, of Mr. Kirk
Johnson. Mr. Greg Johnson is the Chief Technology Officer and a Director of
HomeSeekers.com, Inc., ("HomeSeekers") and is a principal shareholder of
HomeSeekers. HomeSeekers is also a principal shareholder of our Company.
The Johnson's address is c/o HomeSeekers.com, Inc. 2241 Park Place, Suite E,
Minden, NV 89423.
(9) Mrs. Kelly's address is 7230 Sierra Vista Way, Reno, NV 89511.
(10)Mr. McCalla's address is 1874 Milkweed Court, Gardnerville, NV 89410.
(11)Includes warrants to purchase 1,250 Shares. Mr. Murphy's address is 4465
Juniper Trail, Reno, NV 89509.
(12)Includes warrants to purchase 250,000 Shares. Octagon Worldwide
Limited's address is P. O. Box 146, Road Town, Tortola, British Virgin
Islands.
(13)Mr. Swanson is Vice Chairman of the Board of Directors and Executive Vice
President of HomeSeekers and is a principal shareholder of HomeSeekers.
HomeSeekers is also a principal shareholder of our Company. Consists of
options to purchase 450,000 Shares. Does not include 678,693 shares
beneficially owned by Darin Murphy, the son-in-law of Mr. Swanson, as to
which shares Mr. Swanson disclaims beneficial ownership. Mr. Swanson's
address is c/o HomeSeekers.com, Inc. 6490 South McCarran Blvd., Suite D-28,
Reno, NV 89509.
(14)Includes warrants to purchase 5,000 Shares.
(15)Mr. Huckabay's address is 2531 Lake Ridge Shores Circle, Reno, NV 89509.
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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During October 1998 a shareholder loaned us $40,000 during October
1998 and another $40,000 during September 1999. Interest was at 12% per
annum, the notes were unsecured and warrants to purchase a total of 195,000
shares of common stock at $1.00 per share with a three-year life were issued
as additional consideration to Mr. McCalla. $20,000 was repaid during April
1999, $20,000 was repaid during May 1999 and the $40,000 balance plus accrued
interest was repaid to the shareholder during December 1999.
During March 1999 we borrowed $50,000 from HomeSeekers.com, Inc., a
shareholder with over 5% beneficial ownership in our Company, and a
significant provider of programming and web site hosting services to us.
Interest was at 12% per annum and the note was unsecured. During October 1999
we paid off this note and all accrued interest in the form of 53,800 shares of
our restricted common stock, valued at $1.00 per share.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
A) Index to Exhibits
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 Ann Rogers dated May 30, 1999(3)
10.7 Employment Agreement between Kirk Johnson and us dated October 1,
1999 (3)
24.1 Power of Attorney (3)
27 Financial Data Schedule (3)
(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.
(2)Incorporated by reference to Exhibits with corresponding numbers from the
Company's Form 10-KSB for year ended September 30, 1998.
(3)Included with this document.
B) Reports on Form 8-K.
None.
24
<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: April 24, 2000 By: /s/ Scott Berry
Scott Berry
Chief Financial Officer
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the
capacities and on the date indicated.
Date: April 24, 2000
By: /s/ Kirk Johnson By: /s/ Frank Howard
Kirk Johnson Frank Howard
Chief Executive Officer President, Chief Operating Officer
Treasurer, Secretary and Chairman and Director
of the Board Formerly Chairman of the Board
Formerly President
By: /s/ Scott Berry
Scott Berry
Attorney-in-fact
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 and 1998
PRITCHETT, SILER & HARDY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
CONTENTS
PAGE
- Independent Auditor's Report 1
- Balance Sheets, September 30, 1999 and 1998 2 - 3
- Statements of Operations, for the years ended
September 30, 1999 and 1998 and from inception
on November 5, 1996 through September 30,
1999 4
- Statement of Stockholders' Equity, from inception
on November 5, 1996 through September 30, 1999 5 - 8
- Statements of Cash Flows, for the years ended
September 30, 1999 and 1998 and from inception
on November 5, 1996 through September 30,
1999 9 - 10
- Notes to Financial Statements 11 - 25
<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, 1999 and 1998, and the
related statements of operations, stockholders' equity and cash flows for the
years ended September 30, 1999 and 1998 for the period from inception on
November 5, 1996 through September 30, 1999. 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, 1999 and 1998, and the results of its operations and its
cash flows for the years ended September 30, 1999 and1998 and for the period
from inception through September 30, 1999, in conformity with generally
accepted accounting principles.
/s/ Pritchett, Siler & Hardy, P.C.
PRITCHETT, SILER & HARDY, P.C.
December 22, 1999
Salt Lake City, Utah
1
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
BALANCE SHEETS
ASSETS
September 30,
________________________
1999 1998
___________ ___________
CURRENT ASSETS:
Cash $ 2,386 $ 4,682
Marketable Securities, available-
for-sale - 107,451
Employee advances 671 258
Accounts receivable 3,980 -
___________ ___________
Total Current Assets 7,037 112,391
___________ ___________
PROPERTY AND EQUIPMENT, net 53,846 21,875
___________ ___________
OTHER ASSETS:
Software licensing rights, net - 825,000
Refundable deposits 3,201 3,751
___________ ___________
Total Other Assets 3,201 828,751
___________ ___________
$ 64,084 $ 963,017
___________ ___________
[Continued]
2
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
BALANCE SHEETS
[Continued]
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
September 30,
________________________
1999 1998
___________ ___________
CURRENT LIABILITIES:
Accounts payable $ 204,530 $ 71,114
Advances - related parties - 6,500
Notes payable - related parties 342,909 17,582
Other accrued liabilities 139,601 100,989
Accrued dividends payable 58,770 30,779
Current portion - capital lease obligation 3,360 2,420
___________ ___________
Total Current Liabilities 749,170 229,384
___________ ___________
CAPITAL LEASE OBLIGATION, less current portion 3,778 7,137
___________ ___________
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.001 par value, 5,000,000
shares authorized, 0 and 396,000
shares of 12% Series B convertible preferred
stock issued and outstanding for which
500,000 shares have been authorized - 396
Common stock, $.001 par value, 20,000,000
shares authorized, 4,870,618 and 4,258,618
shares issued and outstanding 4,871 4,259
Capital in excess of par value 2,909,909 2,630,515
Deficit accumulated during the
development stage (3,567,530) (1,548,718)
___________ ___________
(652,750) 1,086,452
Less: Receivable stock subscription (36,114) (36,114)
Deferred compensation expense
in accordance with APB 25 - (239,407)
Unrealized (loss) - marketable
securities - (84,435)
___________ ___________
Total Stockholders' Equity Deficit (688,864) 726,496
___________ ___________
$ 64,084 $ 963,017
___________ ___________
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
Year Ended on November 5,
September 30, 1996 Through
___________________________ September 30,
1999 1998 1999
_____________ _____________ ______________
REVENUE $ 21,523 $ - $ 21,523
_____________ _____________ ______________
EXPENSES:
Selling expense 151,962 137,906 489,158
General and administrative 1,802,644 661,671 2,720,697
Compensation expense recorded
in accordance with APB 25 for
stock options issued below
market value 22,110 269,390 295,423
_____________ _____________ ______________
Total Expenses 1,976,716 1,068,967 3,505,278
_____________ _____________ ______________
LOSS FROM OPERATIONS (1,955,193) (1,068,967) (3,483,755)
_____________ _____________ ______________
OTHER INCOME (EXPENSE):
Gain on sale of marketable
securities 14,743 13,363 25,106
Interest expense (50,392) (3,334) (56,132)
Interest income 21 - 21
_____________ _____________ ______________
Total Other Income
(Expense) (35,628) 10,029 (25,005)
_____________ _____________ ______________
LOSS BEFORE INCOME TAXES (1,990,821) (1,058,938) (3,508,760)
CURRENT TAX EXPENSE - - -
DEFERRED TAX EXPENSE - - -
_____________ _____________ ______________
NET LOSS $(1,990,821) $(1,058,938) $(3,508,760)
LESS: PREFERRED DIVIDEND
REQUIREMENTS (27,991) (30,779) (58,770)
_____________ _____________ ______________
NET LOSS APPLICABLE TO
COMMON STOCKHOLDERS $(2,018,812) $(1,089,717) $(3,567,530)
_____________ _____________ ______________
LOSS PER COMMON SHARE $ (.45) $ (.28) $ (1.00)
_____________ _____________ ______________
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
<TABLE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
STATEMENT OF STOCKHOLDERS' EQUITY
FROM THE DATE OF INCEPTION ON NOVEMBER 5, 1996
THROUGH SEPTEMBER 30, 1999
<CAPTION> Deficit
Accumulated
Preferred Stock Common Stock Capital in During the
__________________ ____________________ Excess of Development
Shares Amount Shares Amount Par Value Stage
_________ ________ __________ _________ __________ ___________
<S> <C> <C> <C> <C> <C> <C>
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, 1998 at $1.00 per share 126,943 127 126,943 127 253,632 -
[Continued]
5
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
STATEMENT OF STOCKHOLDERS' EQUITY
FROM THE DATE OF INCEPTION ON NOVEMBER 5, 1996
THROUGH SEPTEMBER 30, 1999
[Continued]
Deficit
Accumulated
Preferred Stock Common Stock Capital in During the
__________________ ____________________ Excess of 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, - - - - 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 - -
[Continued]
6
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
STATEMENT OF STOCKHOLDERS' EQUITY
FROM THE DATE OF INCEPTION ON NOVEMBER 5, 1996
THROUGH SEPTEMBER 30, 1999
[Continued]
Deficit
Accumulated
Preferred Stock Common Stock Capital in During the
__________________ ____________________ Excess of 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 -
[Continued]
7
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
STATEMENT OF STOCKHOLDERS' EQUITY
FROM THE DATE OF INCEPTION ON NOVEMBER 5, 1996
THROUGH SEPTEMBER 30, 1999
[Continued]
Deficit
Accumulated
Preferred Stock Common Stock Capital in During the
__________________ ____________________ Excess of 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)
_________ ________ __________ _________ __________ ___________
</TABLE>
The accompanying notes are an integral part of this financial statement.
8
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
For the Year From Inception
Ended on November 5,
___________________________ 1996 Through
September 30, September 30, September 30,
1999 1998 1999
_____________ _____________ ______________
Cash Flows from Operating Activities:
Net loss applicable to common
stockholders $(2,018,812) $(1,089,717) $(3,567,530)
Adjustments to reconcile net loss to
net cash used by operating
activities:
Depreciation and amortization 941,515 103,167 1,120,053
Stock issued for services and goods 300,407 89,038 432,978
APB 25 compensation recorded for
stock options issued below market
value 28,610 269,390 301,923
Changes in assets and liabilities:
(Decrease) in employee advances (413) (258) (671)
Increase (Decrease) in accounts
payable 133,416 (69,782) 204,530
(Increase) Decrease in advances
- related parties (6,500) 6,200 -
Increase in accrued liabilities 38,612 88,642 139,601
(Decrease) in accounts receivable (3,980) - (3,980)
_____________ _____________ ______________
Net Cash (Used) by Operating
Activities (587,145) (603,320) (1,373,096)
_____________ _____________ ______________
Cash Flows from Investing Activities:
(Increase) Decrease in refundable
deposits 550 (3,751) (3,201)
Purchase of equipment (8,486) (19,326) (33,899)
Purchase of software licensing rights - - (300,000)
Proceeds from marketable securities
sales 191,886 70,363 262,249
_____________ _____________ ______________
Net Cash Provided (Used) by
Investing Activities 183,950 47,286 (74,851)
_____________ _____________ ______________
Cash Flows from Financing Activities:
Proceeds from notes payable 371,327 18,500 499,827
Payments on notes payable (46,000) (16,152) (159,532)
Payments on capital lease obligation (2,419) (332) (2,751)
Proceeds from preferred stock issuance - 251,000 344,750
Proceeds from common stock issuance 50,000 267,600 709,269
Increase in accrued dividends payable 27,991 30,779 58,770
_____________ _____________ ______________
Net Cash Provided by
Financing Activities 400,899 551,395 1,450,333
_____________ _____________ ______________
Net Increase (Decrease) in Cash (2,296) (4,639) 2,386
Cash at Beginning of Period 4,682 9,321 -
_____________ _____________ ______________
Cash at End of Period $ 2,386 $ 4,682 $ 2,386
_____________ _____________ ______________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year and from inception for:
Interest $ 2,175 $ 541 $ 2,890
Income taxes $ - $ - $ -
[Continued]
9
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
STATEMENTS OF CASH FLOWS [Continued]
Increase (Decrease) in Cash
[Continued]
Supplemental Schedule of Non-Cash Investing and Financing Activities:
For the period 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.
For the year ended September 30, 1998:
The Company has accounted for 93,750 shares of common stock due to the
mandatory conversion of 93,750 preferred shares.
The Company has issued a total of 22,898 shares of common stock to
employees, officers and directors for consultation, programming, or other
services rendered, valued at $22,898.
The Company issued 2,500 shares of common and 2,500 shares of preferred
stock in payment of legal fees.
The Company issued 124,443 shares of common and 124,443 shares of preferred
stock for non-cash consideration consisting of marketable securities valued
at $248,886.
The Company issued a total of 18,057 shares of common and 18,057 shares of
preferred stock valued at $36,114 and recorded a subscription receivable of
$36,114.
The Company issued 62,000 shares of common stock valued at $62,000 along
with warrants to purchase 100,000 shares of common stock to another company
for consulting services.
The Company issued stock options to purchase 180,000 shares of common stock
to an officer of the Company at below market value prices. Additional paid
in capital of $159,120 was recorded, $92,638 in current compensation
expense was recorded and $66,482 of deferred compensation expense (a
reduction to stockholders' equity) was recorded.
Amortization of deferred compensation on stock options granted prior to
October 1, 1997, amounted to $176,752.
The accompanying notes are an integral part of these financial statements.
10
<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
is engaging in the business of developing and marketing an interactive game
arcade, known as the iPONG Game Arcade on the Internet. The Company derives
its revenue from tournament fees, annual subscriptions, and the sale of
advertising. The Company may also pursue other Internet related businesses.
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 has 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 - Effective for the year ended September 30, 1998,
the Company adopted 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. There was no effect on the financial statements for the change in
accounting principle [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.
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.
11
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
Recently Enacted Accounting Standards - Statement of Financial Accounting
Standards (SFAS) No. 132, "Employer's Disclosure about Pensions and Other
Postretirement Benefits", SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities", SFAS No. 134, "Accounting for Mortgage-Backed
Securities." and SFAS No. 135, "Rescission of FASB Statement No. 75 and
Technical Corrections" were recently issued. SFAS No. 132, 133, 134 and 135
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. During the year ended September 30, 1998, the
Company sold 12,000 shares of the marketable securities for $70,363 and
realized a gain of $13,363. As of September 30, 1998 the remaining marketable
securities had a value of $107,451 and the Company recorded an unrealized loss
on such securities of $84,435, which was subtracted from stockholders' equity.
As of September 30, 1999, the Company has sold all marketable securities. A
gain of $14,743 was realized during 1999.
12
<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, 1998. 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, 1998), 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 Company
will continue its business relationship with HomeSeekers.com for such things
as consultation, programming services and Website hosting.
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 $21,667 and $23,333 for the years ended
September 30, 1999 and 1998, respectively.
13
<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, 1999 and 1998:
1999 1998
_________ _________
Office equipment $15,577 $13,299
Computer equipment 18,322 12,114
Software 65,000 -
_________ _________
98,899 25,413
Less: accumulated depreciation (45,053) (3,538)
_________ _________
$53,846 $21,875
_________ _________
Depreciation expense for the year and period ended September 30, 1999 and 1998
amounted to $41,515 and $3,167, respectively.
NOTE 6 - NOTES PAYABLE - RELATED PARTIES
Notes payable consist of the following at September 30:
1999 1998
_________ _________
Notes payable to a shareholder of the Company,
annual compounding interest at 12%, due upon
demand, unsecured $ 17,062 $ 15,234
Notes payable to a shareholder of the Company,
interest at 10% and 12%, due upon demand,
unsecured 4,294 294
Note payable to a shareholder of the Company,
interest at 12%, due upon demand, unsecured 4,313 54
Note payable to an entity related to a shareholder
of the Company, annual compounding interest
at 12%, due upon demand, unsecured 2,240 2,000
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 -
_________ _________
$342,909 $ 17,582
_________ _________
14
<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.
Series B Convertible Preferred Stock - The Company 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, 1998. 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 has accrued preferred
dividends of $58,770. During the year ended September 30, 1999, 212,250
shares of preferred stock have been accounted for as converted to 212,250
shares of common stock due to the automatic conversion of preferred to common
at one year from date of issuance. At September 30, 1999, all previously
issued shares of preferred stock were considered converted to common stock.
Common Stock - During the year ended September 30, 1999, the Company made
various issuances of common stock. A total of 40,000 shares were issued for
services and interest.
During the year ended September 30, 1998, the Company made various issuances
of common stock. A total of 22,898 shares were issued to employees, officers
and directors for consultation, programming, or other services rendered. The
stock was valued at $1.00 per share. The Company also issued 62,000 shares of
common stock valued at $1.00 per share and 100,000 warrants to purchase common
stock at $2.00 per share to an entity pursuant to a consultation agreement.
During the year ended September 30, 1998, an officer exercised options to
purchase a total of 100,000 shares of common stock [See Note 8]. The same
officer also paid $5,000 cash to acquire 5,000 shares of common stock.
During January 1997, the Company issued 2,438,333 shares of its previously
authorized, but unissued common stock to its initial shareholders. Total
proceeds from the sale of stock amounted to $300,000 (or $.123 per share).
During September 1997, the Company issued 700,000 shares of common stock to an
affiliated company for software licensing rights, which were valued at
$700,000 (or $1.00 per share). During January 1997, the Company issued
116,667 shares of common stock for services rendered which were valued at
$13,534 (or $.116 per share). Also, during August 1997, the Company issued
30,000 shares of common stock for services rendered which were valued at
$30,000 (or $1.00 per share).
15
<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 1998 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.
16
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - CAPITAL STOCK [Continued]
Stock Subscriptions - During the year ended September 30, 1998 the Company
issued a total of 18,057 shares of common stock and 18,057 shares of preferred
stock, pursuant to its public offering (see above), where the stock was issued
but the consideration has not yet been received. Management believes the
consideration will be received in full and has recorded an account receivable
for the consideration amounting to $36,114. The subscription receivable has
been reflected in the financial statements as a reduction to stockholders'
equity. Subsequent to the date of this audit, $12,114 was received in October
1999. [See Note 13]
Warrants - At September 30, 1998, the Company had 244,875 warrants to purchase
common stock outstanding that were issued in conjunction with the public stock
offering (see above). The warrants are exercisable at $7.50 per share and are
subject to redemption by the Company at $.01 per share under the conditions
explained above (See Public Offering). As of September 30, 1999 and 1998,
none of the warrants have been exercised.
Also at September 30, 1999, the Company had an additional 1,491,125 warrants
outstanding to purchase common stock at prices ranging from $.87 to $7.50 per
share and expiring through June 1, 2001 that were issued in conjunction with
the Company obtaining financing and for consulting services.
NOTE 8 - STOCK OPTIONS
During September 1997, the Company granted options to an officer of the
Company to purchase 400,000 shares of common stock at $.116, which was below
the current market value of $1.00 per share. Total compensation expense (in
accordance with APB 25) of $353,600 has been calculated with $3,923 being
recorded as a compensation expense through September 30, 1997 and $176,752 for
the year ended September 30, 1998. $239,407 was recorded to expense during
1999. The deferred portion of $172,925 as of September 30, 1998, is recorded
as a reduction to stockholders' equity. During February 1998, the officer
exercised 50,000 options for $5,800 or $.116 per share. During July 1998, the
officer exercised an additional 50,000 shares for $5,800 or $.116 per share.
During the year ended September 30,1999 no options were exercised by officers.
As of September 30, 1999 all deferred compensation was expensed.
During October 1997, the Company granted options to the Vice-President of the
Company to purchase 150,000 shares of common stock at $.116, which was below
the current market value of $1.00 per share. Total compensation expense (in
accordance with APB 25) of $132,600 has been calculated with $66,118 being
recorded as compensation expense for the year ended September 30, 1998. The
deferred portion of $66,482 as of September 30, 1998, is recorded as a
reduction to stockholders' equity. As of September 30, 1999 all deferred
compensation was expensed.
During November 1997, the Company granted options to the Vice-President of the
Company to purchase 30,000 shares of common stock at $.116, which was below
the current market value of $1.00 per share. The options were issued in lieu
of salary for services rendered during October and November 1997. Total
compensation expense (in accordance with APB 25) of $26,520 has been recorded
as of November 1997.
17
<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 agreements at September
30, 1999 and 1998, and changes during the year and period then ended are
presented in the table below:
1999 1998
__________________________ __________________________
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
_________ ________________ _________ ________________
Outstanding at beginning
of period 482,500 $ .112 400,000 $ .116
Granted 615,564 1.00 382,500 .479
Exercised - - (100,000) .116
Forfeited - - (200,000) .80
Canceled (633,334) .116 - -
_________ ________________ _________ ________________
Outstanding at end of
period 464,730 $ .73 482,500 $ .12
_________ ________________ _________ ________________
Exercisable at end of
period 464,730 $ .73 130,313 $ .117
_________ ________________ _________ ________________
Weighted average fair
value of options
granted 615,564 $ .06 382,500 $ .52
_________ ________________ _________ ________________
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,
1999 and 1998: risk-free interest rate of 5.2% and 5.6%, expected dividend
yield of zero, expected lives of 4 and 5 years and expected volatility of 130%
and 167%.
A summary of the status of the options outstanding under agreements at
September 30, 1999 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 3 years $ .116 180,000 $ .116
$ 1.00 218,064 3 years $ 1.00 218,064 $ 1.00
$ 1.50 66,666 5 years $ 1.50 66,666 $ 1.50
18
<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
Year Ended From Inception
September 30, Through
___________________________ September 30,
1999 1998 1999
_____________ _____________ ______________
Net Loss applicable
to common stockholders
As reported $(2,018,812) $(1,089,717) $(3,567,530)
Proforma $(2,028,837) $(1,089,717) $(3,577,555)
Earnings per Share
As reported $ (.45) $ (.28) $ (1.00)
Proforma $ (.45) $ (.28) $ (1.00)
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, 1999 and 1998, the total of all
deferred tax assets was $1,054,719 and $460,396 and the total of the deferred
tax liabilities was $0 and $80,378. 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 $1,054,719 and
$380,018 as of September 30, 1999 and 1998, which has been offset against the
net deferred tax assets. The net change in the valuation allowance during the
years ended September 30, 1999 and 1998 amounted to approximately $674,701 and
$334,610.
19
<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, 1999 and 1998 consist of the following:
1999 1998
__________ __________
Current income tax expense:
Federal $ - $ -
State - -
__________ __________
Net tax expense - -
__________ __________
Deferred tax expense (benefit) arising from:
Excess of tax over financial
accounting depreciation $(324,016) $ (10,706)
Excess of tax over financial
accounting compensation 10,512 (10,512)
Carryforwards of excess contributions - (156)
Deferred compensation - stock options (80,378) (38,513)
Net operating loss carryforward (280,819) (274,723)
Valuation allowance 674,701 334,610
__________ __________
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:
1999 1998
__________ __________
Computed tax at the expected
statutory rate 34.00% 34.00%
__________ __________
State and local income taxes, net of
federal benefit - -
Other (.11) (.22)
Deferred compensation - stock options - (2.18)
Valuation allowance (33.89) (31.60)
__________ __________
Income tax expense - -
__________ __________
As of September 30, 1999 and 1998 the Company has net tax operating loss (NOL)
carryforwards available to offset its future income tax liability of
approximately $2,092,891 and $1,266,953 that expire in various years through
2019.
20
<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, 1999 and 1998:
1999 1998
___________ ___________
Excess of tax over book accounting
depreciation $ 342,980 $ 18,964
Excess of tax over book accounting
compensation - 10,512
Contribution carryover 156 156
Deferred compensation - stock options - (80,378)
Net operating loss carryover 711,583 430,764
As of September 30, 1999 and 1998 the deferred tax asset (liability) consisted
of the following:
1999 1998
___________ ___________
Current deferred tax assets $1,054,719 $ 460,396
Deferred tax assets (liabilities) - (80,378)
___________ ___________
$1,054,719 $ 380,018
___________ ___________
NOTE 10 - RELATED PARTY TRANSACTIONS
Notes Payable - During the years ended September 30,1999 and 1998, the Company
entered into several notes payable with shareholders. [See Note 6].
During February 1998 through September 1998, a shareholder advanced the
Company a total of $17,700. The advances were non-interest bearing and are
due upon demand.
Employment Agreements - During the years ended September 30, 1998 and 1997,
the Company entered into four employment agreements with officers and
employees of the Company.
21
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 10 - RELATED PARTY TRANSACTIONS [Continued]
The employment agreement for the position, which includes Vice-President,
Secretary and Treasurer, was effective as of October 1, 1997 and has a term of
two years. The agreement provides for a base salary of $2,000 per week
($104,000 per year) commencing December 1, 1997. For the period from October
1, 1997 through November 30, 1997 the employee received stock options as
follows: 10,000 upon signing and 2,500 per week. The options vest on a
monthly basis. At November 30, 1997, all 30,000 options received were fully
vested. Beginning December 1, 1997, the employee can elect to receive options
in lieu of cash salary at the rate of 2,500 options per week. The options
will vest on a monthly basis. The employee may terminate the agreement on 30
days notice. No such election was made. The agreement also provided for
stock options to be immediately granted to purchase 150,000 shares of
registered common stock of the Company. Options to purchase 75,000 shares of
common stock vest on October 1, 1998 while the remainder of the options
(75,000 shares) vest on October 1, 1999. 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. Once vested the options are exercisable
for a three-year period from the date of vesting whether or not the employee is
still employed by the Company. However, the employee must be employed by the
Company on the date of vesting or the options for that date will not vest.
The options are exercisable at $.116 per share which is less than the current
market value of the stock on the date the agreement took effect and the
options were granted [See Note 8].
Subsequent to September 30, 1999 the vice president, secretary and treasurer
was elected to be the chief executive officer. On the October 1, 1999 the
Company entered into an employment agreement that calls for a base salary of
$130,000 per year. The agreement also calls for 300,000 stock options at
$1.00 per share to purchase employer common stock. The options vest as
follows: 100,000 shares on October 1, 1999, 100,000 shares on October 1, 2000,
100,000 shares on October 1, 2001. The agreement also calls for a monthly
auto allowance in the amount of $200.00 per month. There are no
restrictions on any of the underlying common stock except for those imposed
under Rule 144 of the Securities Act of 1933. The term of the employment
agreement shall end October 1, 2004 [See Note 13].
NOTE 11 - LEASE OBLIGATIONS
Operating Leases - During May 1998 and effective June 1998, the Company
entered into a one-year lease agreement for office space in Minden, Nevada.
The lease agreement calls for monthly rents of $815 and is for one year. The
Company amended their lease agreement in Minden, Nevada, which calls for
monthly rents of $1,204 and is for one year, which automatically renews for
another year with an increase of .75% or $1,213. Rent expense amounted to
$19,716 and $13,060 for the periods ended 1999 and 1998, respectively.
Capital Lease - The Company is 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 $1,057 for
the assets under the capital lease as of September 30, 1999 and 1998 and the
amortization expense has been included in depreciation expense for the years
ended September 30, 1999 and 1998.
22
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - LEASE OBLIGATIONS [Continued]
Equipment at September 30, 1999 and 1998 under capital lease obligations is as
follows:
1999 1998
_________ _________
Office equipment $ 9,889 $ 9,889
Less: accumulated amortization (4,353) (1,057)
_________ _________
$ 5,536 $ 8,832
_________ _________
Total future minimum lease payments, executory costs and current portion of
capital lease obligations are as follows:
Future minimum lease payments for the year ended September 30:
Lease Payments
______________
2000 $ 5,620
2001 4,684
2002 -
2003 -
______________
Total future minimum lease payments $ 10,304
Less: amounts representing interest
and executory costs (3,166)
______________
Present value of the future minimum
lease payments 7,138
Less: lease current portion (3,360)
______________
Capital lease obligations - long term $ 3,778
______________
23
<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, 1999 and
1998 and from inception on November 5, 1996 through September 30, 1999:
For the
Year Ended From Inception
September 30, Through
___________________________ September 30,
1999 1998 1999
_____________ _____________ ______________
Income (loss) from continuing
operations applicable to
common stock $(1,990,821) $(1,058,938) $(3,508,760)
Less: preferred dividends (27,991) (30,779) (58,770)
_____________ _____________ ______________
Income (loss) available to
common stockholders used in
earnings (loss) per share $(2,018,812) $(1,089,717) $(3,567,530)
_____________ _____________ ______________
Weighted average number of
common shares outstanding
used in earnings (loss) per
share during the period 4,473,733 3,852,383 3,537,806
_____________ _____________ ______________
Dilutive earnings (loss) per share was not presented, as its effect is anti-
dilutive. The Company had at September 30, 1999, options and warrants to
purchase 1,955,855 shares of common stock, at prices ranging from $.116 to
$7.50 per share, that were not included in the computation of diluted earnings
(loss) per share because their effect was anti-dilutive.
NOTE 13 - SUBSEQUENT EVENTS
Acquisition - On January 13, 2000, the Company closed a purchase agreement
with an individual to purchase the internet site chessed.com. 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.
Employment Agreement - Subsequent to September 30, 1999, the Company hired a
Chief Financial Officer. The Employment agreement calls for a salary of
$85,000 a year, one half to be paid in cash and the other half to be paid in
stock. The agreement has a six month life.
Subsequent to September 30, 1999, the Company entered into a new employment
agreement with a new Chief Executive Officer. The agreement life is for five
years and calls for a salary of $130,000 per year plus 300,000 stock options
[See Note 10].
Settlement Agreement - On October 27, 1999, the Company issued 400,000 shares
of its common stock to HomeSeekers.com for payment of a $50,000 note payable,
$3,800 to accrued interest on the loan, $153,500 to outstanding payables for
programming services and $192,700 to termination of the previous programming
contract, that included a 7% royalty on gross revenues.
24
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 13 - SUBSEQUENT EVENTS [Continued]
Confidential Private Placement - Subsequent to September 30, 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 the date of this audit the Company had successfully raised
$1,091,250.
Receipt of Stock Subscription - During October 1999 the Company received
$12,114 for payment of subscription receivables.
25
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains financial information extracted from financial
statements as of September 30, 1999 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,386
<SECURITIES> 0
<RECEIVABLES> 3,980
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,037
<PP&E> 98,899
<DEPRECIATION> 45,053
<TOTAL-ASSETS> 64,084
<CURRENT-LIABILITIES> 749,170
<BONDS> 0
0
0
<COMMON> 4,871
<OTHER-SE> (693,735)
<TOTAL-LIABILITY-AND-EQUITY> 64,084
<SALES> 21,523
<TOTAL-REVENUES> 21,523
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,976,716
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50,392
<INCOME-PRETAX> (1,990,821)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,990,821)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,990,821)
<EPS-BASIC> (.45)
<EPS-DILUTED> (.45)
</TABLE>
Exhibit 10.6
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered
into this 3oth day of May, 1999, by and between WEBQUEST INTERNATIONAL, INC.,
a Nevada corporation and its assignee(s) or nominee(s) (collectively,
"Purchaser") and NANCY ANN ROGERS individual residing in Amarillo TX
("Seller").
R E C I T A L S:
A. Seller is engaged in the Internet business, specifically the
development and marketing of Internet sites, freehoroscopes.net, Siggy's
Place (the "Business").
B. Seller desires to sell and Purchaser desires to purchase certain
assets of Seller on the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the mutual covenants, promises and
agreements hereinafter set forth and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties agree
as follows:
1. PURCHASE. On the Closing Date (defined below), Seller shall sell
and Purchaser shall purchase the assets described in Section 2 below on the
terms and conditions set forth in this Agreement.
2. PURCHASED ASSETS. The assets ("Assets") which are the subject of
this Agreement and which Seller has agreed to sell and Purchaser has agreed to
purchase are those described on Exhibit "A" attached hereto and incorporated
herein by this reference. The parties mutually agree and acknowledge that
Purchaser has agreed to purchase only the Assets described on Exhibit A. The
Seller is retaining those assets described in Exhibit "A-2" and those assets
are not part of sale. Any pages not purchased will be redirected to the new
URL for a period of ten weeks.
3. PURCHASE PRICE. The purchase price ("Purchase Price") to be paid
to Seller by Purchaser for the Assets shall be TWENTY FIVE THOUSAND AND
NO/100THS DOLLARS ($25,000.00), payable as follows:
(a) Purchaser shall pay Seller the sum of NINETEEN THOUSAND AND
NO/100THS DOLLARS ($19,000.00) on the Closing Date by means of cashier's check
or wired funds and $6,000.00 worth of WebQuest common stock restricted under
rule 144 valued at $1.00 per share (6,000 shares) .
(b) Purchaser shall pay Seller the sum of NINETEEN THOUSAND AND
NO/100THS DOLLARS ($19,000.00), on Closing Date (or the next business day if
such date falls on a holiday or weekend) by means of cashier's check or wired
funds.
4. ASSUMED LIABILITIES. Purchaser shall assume and agree to pay,
discharge, and perform only those liabilities described on Exhibit "B"
attached hereto and incorporated herein by this reference (the "Assumed
Liabilities"), and Seller shall indemnify and hold Purchaser harmless for any
other claims, liabilities or obligations of Seller or related to the Assets.
5. CONVEYANCE. Title to the Assets shall be conveyed to Purchaser
by Seller by means of the Bill of Sale, Assignment & Assumption attached
hereto as Exhibit "C" and any other documents Purchaser shall reasonably
require, including, without limitation, any necessary consents for the
transfer of the Assets.
6. CLOSING DATE. The closing of the transactions contemplated by
this Agreement shall be held on or before May 30, 1999, or a later date
mutually agreed to by the parties (the "Closing Date"). The closing shall be
held at a mutually convenient location or shall be conducted by overnight
courier, mail, facsimile and other means mutually agreed upon by the parties
hereto. On the Closing Date, the conveyance documents shall be properly
executed and delivered to Purchaser, and Seller shall deliver possession of
the Assets and all books, records, and correspondence appurtenant thereto to
Purchaser.
<PAGE>
7. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby
represents and warrants to and covenants with Purchaser as follows:
(a) On the Closing Date, the Assets will be free and clear of all
debts, liens, claims, mortgages, and encumbrances whatsoever;
(b) Seller has provided Purchaser with true and correct copies of
all contracts, leases, agreements, licenses, and permits included in or
related to the Assets, and all such contracts, leases, agreements, licenses,
and permits are fully transferable to Purchaser, are legally binding and in
good standing, are not in default, and remain in full force and effect;
(c) There are no pending or, to the best of Seller's knowledge,
threatened suits or administrative actions relating to or affecting any of the
Assets;
(d) Seller has received no notices from any governmental
authority that Seller or any of the Assets are in violation of any applicable
rule, law, ordinance or regulation, or requiring the removal, modification, or
relocation of any of the Assets;
(e) All of the Assets are in good condition and will comply with
their intended use by Purchaser;
(f) Seller has all licenses and permits necessary to operate and
own the Business and the licenses and permits are fully transferable, in good
standing, and in full force and effect;
(g) To the best of Seller's knowledge the execution, delivery,
and performance of this Agreement, the consummation of the transactions
contemplated hereby, and the fulfillment of the terms hereof will not violate
any law, order, judgment, rule, regulation, decree, or ordinance to which
Seller is subject or by which Seller is bound;
(h) All ad Val Orem, personal property and other taxes or
assessments on or relating to the Assets have been paid;
(i) All tax returns required to be filed prior to the date
hereof by Seller have been timely filed, and all such tax returns have been
prepared in compliance with all applicable laws and regulations. All taxes
due and payable by or with respect to Seller or the Assets have been paid
prior to the Closing Date;
(j) To the best of Seller's knowledge up to and including
the Closing Date, Seller shall conduct its business in accordance with all
applicable laws and regulations in the same manner as it has in the past, will
not incur any additional liabilities relating to the Assets, and will take no
action that will or may result in a lien, claim, mortgage, or encumbrance
against the Assets;
(k) Seller has the power and authority to enter into and perform
its obligations under this Agreement;
(l) All sales and transfer taxes required to be paid in
connection with any of the Assets and all sales taxes required to be collected
by Seller and paid to the appropriate taxing authority, have been paid,
collected and remitted, or will be paid, collected, and remitted prior to the
Closing Date;
(m) To the best of Seller's knowledge there is no action, suit,
or other legal proceeding or governmental investigation pending or, to the
best of Seller's knowledge, threatened, anticipated or contemplated against
Seller or relating to the Assets, or questioning the validity or enforce
ability of this Agreement. To the best of Seller's knowledge there is no
known or prospective infringement of any lease, contract, or agreements
included in or relating to the Assets;
<PAGE>
8. DUE DILIGENCE. Prior to the Closing Date, Seller shall permit
Purchaser and Purchaser's authorized representatives to have reasonable
access to the Assets and to Seller's books and records.
9. CONDITIONS PRECEDENT. The following shall be conditions
precedent to the closing of the transactions contemplated by this Agreement.
(a) Seller shall have complied with all of its undertakings and
obligations under this Agreement;
(b) The representations, warranties, and covenants of Seller set
forth in this Agreement shall be true and correct in all respects as of the
Closing Date;
(c) All consents and permits required to be obtained for the
transfer of the Assets hereunder shall have been obtained, including, without
limitation, any such consent or permit needed for Purchaser to have all
rights. Seller will transfer the domain names and any accounts relating to the
assets being transferred.
(d) Seller and Purchaser shall have executed the non-competition
agreement attached hereto as Exhibit "D."
10. AGREEMENT TO INDEMNIFY. Seller agrees to indemnify and hold
Purchaser and its affiliates harmless from and against the aggregate of all
expenses, losses, costs, deficiencies, liabilities and damages (including,
without limitation, related counsel and paralegal fees and expenses) incurred
or suffered by Purchaser (collectively, "Indemnifiable Damages") resulting
from or arising out of (i) any breach of a representation or warranty made by
Seller in or pursuant to this Agreement, (ii) any breach of the covenants or
agreements made by Seller in this Agreement, or (iii) any liabilities other
than the Assumed Liabilities. Each of the representations and warranties made
by Seller in this Agreement or pursuant hereto shall survive the closing of
the transactions contemplated hereby. Notwithstanding any knowledge of facts
determined or determinable by any party by investigation, each party shall
have the right to fully rely on the representations, warranties, covenants and
agreements of the other parties contained in this Agreement or in any other
documents or papers delivered in connection herewith. Each representation,
warranty, covenant and agreement of the parties contained in this Agreement is
independent of each other representation, warranty, covenant and agreement.
11. NOTICES. Any notice required or permitted to be sent by either
party under this Agreement to the other shall be in writing and shall be
deemed to be given (i) in the case of actual delivery when delivered to the
other party at the address set forth below, (ii) in the case of mailing, three
(3) days after said notice has been deposited in the United States mail,
postage prepaid, by certified or registered mail, addressed to the other party
at the address set forth below, and (iii) in other cases when actually
received, with a copy in each case to:
In the case of Seller:
Nancy Ann Rogers
1125 B So. Carolina
Amarillo, TX. 79102
Telephone: (806) 359-8944
In the case of Purchaser:
Webquest International, Inc.
1662 hwy 395 suite 203
Minden, Nevada 89423
Telephone: (775) 782-0350
Facsimile: (775) 782-0397
Attention: Kirk Johnson
<PAGE>
with a required copy to:
David A. Garcia, Esq.
Hale Lane Peek Dennison Howard and Anderson
100 West Liberty Street, Tenth Floor
P. O. Box 3237
Reno, Nevada 89505
Telephone: (775) 327-3000
Facsimile: (775) 786-6179
Each party may change the address to which notice may be sent by so notifying
the other party in writing as provided herein.
12. BROKERS. Seller and Purchaser represent and warrant to each
other that neither of them has employed a broker in regard to this Agreement
for which any commission may be due and payable. Each party agrees to
indemnify and hold the other party harmless against any brokerage commission
resulting from any breach of this representation.
13. LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Nevada.
14. COSTS AND ATTORNEY'S FEES. Should any dispute arise between the
parties over this Agreement, the prevailing party in any action brought to
resolve said dispute shall be entitled to recover its reasonable costs and
attorney's fees, including costs and fees on appeal.
15. THIRD PARTY BENEFICIARIES. It is the intent of Seller and
Purchaser that this Agreement is solely for the benefit of the parties hereto
and, therefore, no person or persons other than Seller and Purchaser shall
have any rights whatsoever under this Agreement, either as third party
beneficiaries or otherwise.
16. COSTS AND EXPENSES. Each party shall pay its own costs and
expenses, including attorney's fees, incurred in the negotiation, preparation
and execution of this Agreement and the closing hereunder.
17. COMPLETE AGREEMENT. This Agreement constitutes the complete
agreement between the parties hereto and it may not be amended, changed or
modified except by a writing signed by the party to be charged by said
amendment, change or modifications. This provision itself may not be changed
or altered orally but only in a writing signed by the parties to this
Agreement.
IN WITNESS WHEREOF, the parties have hereunto executed this Agreement
as of the day and year first above written.
Purchaser: Seller:
WEBQUEST INTERNATIONAL, INC., /s/ Nancy Ann Rogers
a Nevada corporation Nancy Ann Rogers, individual
By: /s/ Kirk Johnson
Its: President
<PAGE>
EXHIBIT "A"
Assets:
1. All existing members and site visitors.
2. All rights in and to the Jade Wise contract for the daily
horoscopes used by Seller in the Business. Per the Astrology,Net and Nancy
Rogers Email Affiliate Agreement dated 12/4/98 item number 9 the agreement
must be reassigned by Astrology.Net.
3. All existing e-mail addresses, mailing accounts, and passwords for news
letters and websites as listed below.
4. All customers and accounts in Seller's banner exchange programs/affiliate
and news letter advertisers.
5. All rights in and to the assets listed below including domain names
FREEHOROSCOPES.NET
www.freehoroscopes.net
www.freehoroscopes.net/default
http://www.freehoroscopes.net/Daily_Online_Horoscope_for_Sunday.htm
http://www.freehoroscopes.net/Daily_Online_Horoscope_for_Monday.htm
http://www.freehoroscopes.net/Daily_Online_Horoscope_for_Tuesday.htm
http://www.freehoroscopes.net/Daily_Online_Horoscope_for_Wednesday.htm
http://www.freehoroscopes.net/Daily_Online_Horoscopes_for_Thursday.htm
http://www.freehoroscopes.net/Daily_Online_Horoscope_for_Friday.htm
http://www.freehoroscopes.net/Daily_Online_Horoscope_for_Saturday.htm
http://www.freehoroscopes.net/Weekly_Online_Horoscope_Forecast.htm
http://www.freehoroscopes.net/horoscope_chat.htm
http://www.freehoroscopes.net/Free_Stuff_Coupons_Sweepstakes.htm
http://www.freehoroscopes.net/Thought_for_the_Day.htm
All sites listed above are listed exactly the same but instead of an
underscore it has a space in it. Example
http://www.freehoroscopes.net/Thought_for_the_Day.htm would be
http://www.freehoroscopes.net/Thought for the Day.htm
FREEHOROSCOPES HYPERMART
http://freehoroscopes.hypermart.net
http://freehoroscopes.hypermart.net/free_horoscopes.htm
http://freehoroscopes.hypermart.net/weekly.htm
http://freehoroscopes.hypermart.net/monthly.htm
http://freehoroscopes.hypermart.net/yearly.htm
http://freehoroscopes.hypermart.net/homepagers.htm
http://freehoroscopes.hypermart.net/today1.htm
http://freehoroscopes.hypermart.net/free_stuff.htm
<PAGE>
MYFREEOFFICE/ASTROSTUFF
http://www.myfreeoffice.com/astrostuff
http://www.myfreeoffice.com/astrostuff/horoscope_chat.htm
http://www.myfreeoffice.com/astrostuff/begin.htm
http://www.myfreeoffice.com/astrostuff/freebies.htm
http://www.myfreeoffice.com/astrostuff/day.htm
http://www.myfreeoffice.com/astrostuff/week.htm
http://www.myfreeoffice.com/astrostuff/month.htm
http://www.myfreeoffice.com/astrostuff/year.htm
SIGGY'S PLACE- Has been online since November 1996
http://members.amaonline.com/nrogers
http://members.amaonline.com/nrogers/freebies.htm
http://members.amaonline.com/nrogers/resources.htm
http://members.amaonline.com/nrogers/people.htm
http://members.amaonline.com/nrogers/jobs.htm
http://members.amaonline.com/nrogers/games.htm
http://members.amaonline.com/nrogers/Kitchen/index.html
http://members.amaonline.com/nrogers/Kitchen/daily_news.htm
http://members.amaonline.com/nrogers/Kitchen/recipes
http://members.amaonline.com/nrogers/Kitchen/Amish_recipes.htm
http://members.amaonline.com/nrogers/Kitchen/foodc1.htm
http://members.amaonline.com/nrogers/Kitchen/bisquick.htm
http://members.amaonline.com/nrogers/Kitchen/casser1.htm
http://members.amaonline.com/nrogers/Kitchen/casser2.htm
http://members.amaonline.com/nrogers/Kitchen/casser3.htm
http://members.amaonline.com/nrogers/Kitchen/Crockpot.htm
http://members.amaonline.com/nrogers/Kitchen/microwave.htm
http://members.amaonline.com/nrogers/Kitchen/salad.htm
http://members.amaonline.com/nrogers/Kitchen/Soup.htmhttp://members.amaonline.
com/nrogers/Kitchen/ambrosia.htm
http://members.amaonline.com/nrogers/Kitchen/rellenos.htm
http://members.amaonline.com/nrogers/Kitchen/chowder.htm
http://members.amaonline.com/nrogers/Kitchen/cabbage.htm
http://members.amaonline.com/nrogers/Kitchen/crockpot.htm
http://members.amaonline.com/nrogers/Kitchen/marylou1.htm
http://members.amaonline.com/nrogers/Kitchen/hamburger.htm
http://members.amaonline.com/nrogers/Kitchen/hashbro.htm
http://members.amaonline.com/nrogers/Kitchen/pumpkin.htm
http://members.amaonline.com/nrogers/Kitchen/jello.htm
http://members.amaonline.com/nrogers/Kitchen/microwave.htm
http://members.amaonline.com/nrogers/Kitchen/peanut.htm
http://members.amaonline.com/nrogers/Kitchen/swpot.htm
http://members.amaonline.com/nrogers/Kitchen/scallop.htm
http://members.amaonline.com/nrogers/Kitchen/scallop.htm
http://members.amaonline.com/nrogers/Kitchen/sochick.htm
http://members.amaonline.com/nrogers/Kitchen/sochick.htm
http://members.amaonline.com/nrogers/Kitchen/biscuits.htm
http://members.amaonline.com/nrogers/Kitchen/sbread.htm
http://members.amaonline.com/nrogers/Kitchen/nknead.htm
http://members.amaonline.com/nrogers/Kitchen/brittle.htm
<PAGE>
LIZ'S WONDERFUL WORLD OF ASTROLOGY
http://members.amaonline.com/liz/
http://members.amaonline.com/liz/daily.htm (3716 average hits a day)
http://members.amaonline.com/liz/horo.htm
http://members.amaonline.com/liz/hand.htm
http://members.amaonline.com/liz/articles.htm
http://members.amaonline.com/liz/iching.htm
http://members.amaonline.com/liz/palms.htm
http://members.amaonline.com/liz/runes.htm
http://members.amaonline.com/liz/Tarot.htm
http://members.amaonline.com/liz/weekly_horoscopes.htm
http://members.amaonline.com/liz/monthly.htm
http://members.amaonline.com/liz/Yearly.htm
http://members.amaonline.com/liz/horo1.htm
http://members.amaonline.com/liz/numer.htm
Newsletters includes access to list bot accounts/passwords and archives
Daily Horoscopes and More (Daily horoscope newsletter 12,200
Nancy's Recipe Exchange (daily) 4,110
Freebies on the Net (occasional newsletter) 622
Thought of the Day (Daily) Just started it a couple of weeks ago 1478
Weekly Horoscope (Lotto and Weekly Horoscope Forecast-
just started it last week. 1564
Teachers exchange
Online Newsletters
Nancy's Kitchen and Recipe Exchange - Daily Online Newsletter
http://members.amaonline.com/nrogers/Kitchen/daily_news.htm
Approximately 200 members log on to each each day but is doubling in
number
accessing it about every 5 -7 days.
Teachers exchange
Today's Online Horoscope
http://members.amaonline.com/liz/todays.htm
http://members.amaonline.com/siggy/todays.htm
http;//freehoroscopes.hypermart.net/today1.htm
http://www.myfreeoffice.com/astrostuff/todays.htm
/s/ Nancy Ann Rogers
Nancy Ann Rogers
WEBQUEST INTERNATIONAL, INC.,
a Nevada corporation
By: /s/ Kirk Johnson
Its: President
<PAGE>
EXHIBIT "A-2"
Assets:
http://members.amaonline.com/liz/email.htm
http://members.amaonline.com/siggy - Siggy's Wonderful World of Cats
retained by Nancy
http://members.amaonline.com/siggy/email.htm
Rogers retained by Nancy Rogers
http://members.amaonline.com/nrogers/nrogers/nrogers.htm retained by
Nancy Rogers
http://members.amaonline.com/nrogers/family.htm retained by Nancy Rogers
http://members.amaonline.com/ntogers/email.htmhttp://members.amaonline.com/nro
gers/disabili.htm
retained by Nancy
Rogers
http://members.amaonline.com/nrogers/Postcards/teachersbooks3.htm
retained by Nancy Rogers
http://members.amaonline.com/nrogers/ada.htm retained by Nancy Rogers
http://members.amaonline.com/nrogers/physical.htm retained by Nancy
Rogers
http://members.amaonline.com/nrogers/cfs.htm retained by Nancy Rogers
http://members.amaonline.com/nrogers/assist.htm retained by Nancy Rogers
http://members.amaonline.com/nrogers/md.htm retained by Nancy Rogers
Disability Newsletter (haven't sent a newsletter to date) retained by
Nancy Rogers
Email Greeting Card Newsletter
Genealogy Newsletter
/s/ Nancy Ann Rogers
Nancy Ann Rogers
WEBQUEST INTERNATIONAL, INC.,
a Nevada corporation
By: Kirk Johnson
Its: President
<PAGE>
EXHIBIT "B"
None.
<PAGE>
EXHIBIT "C"
BILL OF SALE, ASSIGNMENT & ASSUMPTION
THIS BILL OF SALE, ASSIGNMENT & ASSUMPTION is dated May 30, 1999, and is
made by and between Nancy Ann Rogers (the "Transferor") and WEBQUEST
INTERNATIONAL, INC., a Nevada corporation (the "Transferee").
For valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, each intending to be legally bound
and to bind their respective successors and assigns, hereby covenant and agree
as follows:
1. Transferor does hereby convey, assign, transfer and deliver to
Transferee, its successors and assigns, all of Transferor's right, title and
interest, legal and equitable, in and to all of the assets of Transferor set
forth on Exhibit "A" attached hereto and incorporated herein by this
reference) (the "Assets"), to have and to hold all of the Assets hereby
transferred, assigned, conveyed and delivered unto Transferee, its successors
and assigns, to its and their own use and behalf forever.
2. Transferor for itself and its successors and assigns has covenanted
and by this Bill of Sale, Assignment & Assumption does covenant with
Transferee, its successors and assigns, that Transferor, and its successors
and assigns, will do, execute and deliver, or will cause to be done, executed
and delivered, all such further acts, transfers, assignments, conveyances,
powers of attorney and assurances, for the better assuring, conveying and
confirming unto Transferee, its successors and assigns, all of its right,
title and interest, legal and equitable, in the Assets hereby conveyed,
transferred, assigned and delivered by it as Transferee, its successors and
assigns, shall reasonably require. Nothing herein contained shall be deemed
to limit or restrict the properties, assets and rights conveyed, assigned or
transferred to or acquired by Transferee from Transferor, under or by virtue
of any other conveyance, assignment, or other document respecting the Assets.
3. Transferor hereby constitutes and appoints Transferee, its
successors and assigns as Transferor's true and lawful agent and attorney to
demand and receive any and all Assets, to do and perform any and all acts
necessary to carry out the transfer and assignment of the Assets, Transferor
hereby declaring that the foregoing powers are coupled with an interest and
shall be irrevocable by Transferor or by Transferor's dissolution or in any
manner or for any reason whatsoever.
4. Nothing in this instrument, express or implied, is intended or shall
be construed to confer upon or give to any person, firm or corporation other
than Transferee or Transferor, and their respective successors and assigns,
any remedy or claim under or by reason of this instrument or any term,
covenant or condition hereof, and all the terms, covenants and conditions,
promises and agreements contained in this instrument shall be for the sole and
exclusive benefit of Transferee and Transferor and their respective successors
and assigns.
<PAGE>
5. Transferee hereby accepts said assignment of Transferor's right,
title and interest in and to the Assets and hereby assumes all of the
obligations of Transferor with respect to or associated with such Assets.
6. This Bill of Sale, Assignment & Assumption shall be governed and
enforced in accordance with the laws of the State of Nevada without giving
effect to principles of conflicts of law thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Bill of Sale,
Assignment & Assumption as of the date first above written.
TRANSFEROR:
/s/ Nancy Ann Rogers
Nancy Ann Rogers
TRANSFEREE:
WEBQUEST INTERNATIONAL, INC.,
a Nevada corporation
By: /s/ Kirk Johnson
Its: President
<PAGE>
EXHIBIT "D"
NON-COMPETITION AGREEMENT
This Non-Competition Agreement is made and entered into by and between
Nancy Ann Rogers (the "Seller") and WEBQUEST INTERNATIONAL, INC., a Nevada
corporation (the "Company") effective as of May 30, 1999, such date being
hereafter referred to as the "Effective Date" of this Agreement.
WHEREAS, pursuant to an Asset Purchase Agreement dated May 30, 1999 (the
"Purchase Agreement"), by and among Seller and the Company, the Company has
agreed to purchase certain assets of Seller;
WHEREAS, it is a condition to the Company's purchase of Seller's assets
that Seller agree to be bound by the terms of this Agreement; and
NOW, THEREFORE, in consideration of the mutual agreements and obligations
contained in this Agreement, the parties agree as follows:
1. Non-Competition Covenants of Seller.
(a) Seller shall not, during the period specified in Section 2
below, do any of the following without the prior written consent of the
Company, directly or indirectly (whether as a shareholder, partner, principal,
agent, director, affiliate, consultant or otherwise):
(i) Carry on in any jurisdiction in the United States of
America or any other country in the world (the "Restricted Territory") any
business activity directly competitive with the Competing Business;
(ii) Solicit or influence or attempt to influence any person
employed by the Company to terminate or diminish his or her employment with
the Company or become an employee or consultant of Seller, any affiliate of
Seller, or any competitor of the Company.
(b) It shall not be a violation for the noncompetition
agreement for seller to
continue the operation of any of the assets listed in Exhibit A-2 of the
Contract of Sale. Seller can maintain E-mail. Greeting Card, Freebie and free
Materials page without being in violation of this noncompetition agreement.
(c) For purposes of the foregoing covenants, the following
definitions shall apply:
(i) To "carry on" shall mean to perform or engage in, or to be
employed by or to consult with, or to purchase or invest in, or lend money to,
or lend one's name to, any entity or other business engaged or seeking to
engage in, any subject business activity, whether individually or in
partnership or in conjunction with any person or entity, and whether as a
principal, agent, shareholder, lender, consultant or in any other capacity;
and
<PAGE>
(ii) The "Competing Business" shall mean any business activity
that involves the development or marketing of on-line Horoscope, on-line
recipes on the Internet.
2. Duration. The covenants set forth in Section 1 and Section 5 shall
be effective commencing as of the Effective Date and shall continue until the
third (3rd) anniversary of the Effective Date of this Agreement.
3. Consideration. Two Thousand and 00/100ths Dollars of the purchase
price of the Seller's assets purchased by the Company from the Seller shall be
treated as consideration for the foregoing covenant not to compete and the
parties hereto agree that such consideration shall be sufficient to make all
obligations of Seller herein binding and fully enforceable.
4. Limitations on Non-Competition Covenant. Section 1 of this
Agreement shall not be deemed to apply to any investments Seller may make,
directly or indirectly, in any publicly traded company so long as Seller's
aggregate holdings do not exceed one percent (1%) of the outstanding voting
securities of such company.
5. Confidentiality. In addition to the confidentiality provisions of
any other Agreement among Seller, the Company or any of them, Seller agrees
not to disclose, communicate, use to the detriment of the Company (or its
respective businesses) or for the benefit of any other person, or misuse in
any way, any proprietary or confidential information of the Company such as
information relating to the Company's business, trade secrets, personnel,
processes, techniques, know-how, formulas and other information and technical
data or any intellectual property rights of the Company.
6. Severability. The parties intend that the covenants contained in
this Agreement shall be construed as a series of separate covenants, (a) one
for each country, county, city and state (or comparable political subdivision)
in the Restricted Territory, and, within such territorial divisions, (b) one
for each month to which Seller is bound by such covenants. Except for
geographic coverage, each such separate covenant shall be deemed identical in
terms to the covenant contained in the preceding paragraphs. If, in any
judicial proceeding, a court shall refuse to enforce any of the separate
covenants (or any part thereof) deemed included in such paragraphs, then such
unenforceable covenant (or such part) shall be deemed eliminated from this
Agreement for the purpose of those proceedings to the extent necessary to
permit the remaining separate covenants (or portions thereof) to be enforced
by such court. It is the intent of the parties that the covenants set forth
herein be enforced to the maximum degree permitted by applicable law. In the
event that the provisions of this Agreement should ever be deemed to exceed
the scope, time or geographic limitations of applicable law regarding
covenants not to compete, then such provisions shall be reformed to the
maximum scope, time or geographic limitations, as the case may be, permitted
by applicable laws.
<PAGE>
7. Remedies. The parties hereto acknowledge and agree that the extent
of damages to the Company in the event of a breach of the covenants contained
in this Agreement by Seller would be difficult or impossible to ascertain and
that the remedies available at law to the Company in the event of any such
breach would be inadequate. Consequently, Seller hereby agrees that in the
event of such breach, the Company shall be entitled to enforce any or all of
the covenants contained in this Agreement by injunctive or other equitable
relief.
8. Representations of Seller. Seller represents that: (i) Seller is
familiar with the covenants not to compete and not to solicit set forth in
this Agreement, (ii) Seller is fully aware of his/her obligations hereunder,
including, without limitation, the length of time, scope and geographic
coverage of these covenants, (iii) Seller finds the length of time, scope and
geographic coverage of these covenants to be reasonable, and (iv) execution of
this Agreement and performance of Seller's obligations hereunder, will not
conflict with, or result in a violation or breach of, any other agreement to
which Seller is a party or any judgment, order or decree to which the Seller
is subject.
9. Assignment. All contracts, representations, warranties and
agreements of the parties contained herein shall be binding on and inure to
the benefit of the parties, their respective heirs, personal representatives,
and successors and assigns; provided, however, this Agreement shall not be
assigned by Seller without the express written consent of the Company.
10. Entire Agreement. This Agreement, along with the exhibits thereto,
sets forth the entire Agreement and understanding between the Company and
Seller with respect to the subject matter hereof, and supersedes any other
negotiations, agreements, understandings, representations or past or future
practices, whether written or oral.
11. Notices. Any notice, report or other communication required or
permitted to be given hereunder shall be in writing to each such affected
party and shall be deemed given on the date of delivery, if delivered, or five
days after mailing, if mailed first-class mail, postage prepaid, to the
following addresses:
In the case of Seller:
Nancy Ann Rogers
1125 B So. Carolina
Amarillo, TX. 79102
Telephone: (806) 359-8944
In the case of the Company:
Webquest International, Inc.
1662 hwy 395, Suite 203
Minden, Nevada 89423
Telephone: (775) 782-0350
Facsimile: (775) 782-0397
Attention: Kirk Johnson
<PAGE>
with a required copy to:
David A. Garcia, Esq.
Hale Lane Peek Dennison Howard and Anderson
100 West Liberty Street, Tenth Floor
P. O. Box 3237
Reno, Nevada 89505
Telephone: (775) 327-3000
Facsimile: (775) 786-6179
or to such other address as any party hereto may designate by notice given as
herein provided.
12. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Nevada without giving
effect to principles regarding conflict of laws of any state.
13. Amendments. This Agreement shall not be changed or modified in whole
or in part except by an instrument in writing signed by each party hereto, nor
shall any covenant or provision of this Agreement be considered waived except
by an instrument in writing signed by the party against whom enforcement of
such waiver is sought.
14. Attorneys' Fees. In the event of any legal action or proceeding to
enforce or interpret the provisions hereof, the prevailing party shall be
entitled to reasonable attorneys' fees, whether or not the proceeding results
in a final judgment.
15. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same /agreement.
16. Effect of Headings. The section headings herein are for convenience
only and shall not affect the construction or interpretation of this
Agreement.
17. Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to either party upon any breach or default of the
other party hereto shall impair any such right, power or remedy of such non-
defaulting party, nor shall it be construed to be a waiver of any such breach
or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver, single breach or default
be deemed a waiver of any other breach or default theretofore or thereafter
occurring.
IN WITNESS WHEREOF, the parties hereto have executed this Non-Competition
Agreement as of the Effective Date.
Company: Seller:
WEBQUEST INTERNATIONAL, INC., /s/ Nancy Ann Rogers
a Nevada corporation Nancy Ann Rogers
By: /s/ Kirk Johnson
Its: President
Exhibit 10.7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into effective as of the October 1, 1999,
notwithstanding the later execution hereof, by and between WEBQUEST
INTERNATIONAL, INC., a Nevada corporation ("Employer") and KIRK JOHNSON
("Employee").
WITNESSETH:
In consideration of the mutual promises herein contained, the parties agree as
follows:
1.Employment Agreement. The Employer hereby agrees to employ Employee, and
Employee hereby agrees to serve as such Employee upon the terms and
conditions hereinafter set forth.
2.Term of Employment. Subject to the provisions for termination as
hereinafter provided, the term of the employment shall commence as of the
date of this Agreement and shall end five (5) years from that date on
October 1, 1999. At the end of the term hereof, this Agreement may be
renewed by mutual agreement of the parties.
3.Employee's Position and Duties. Employee agrees as follows:
a. Employee shall assume responsibility, as directed by the Board of
Directors, as Chief Executive Officer of Employer. The Board of
Directors shall be responsible for the management and supervision of
Employer and shall perform any other duties relating to Employer's
operations that may from time to time be assigned by the Board of
Directors and governed by the Bylaws of Employer, for the successful
operation of Employer's business.
b. If is contemplated that Employee shall also be a Board of Directors of
Employer during the term of this Agreement, pursuant to the Articles of
Incorporation and Bylaws of Employer.
c. During the term of this Employment Agreement, Employee shall, in good
faith, devote his best efforts and full time to his employment and
perform diligently and in good faith such duties as are or may be from
time to time required by the Employer, which duties shall be consistent
with his position as set forth above; it being understood and
acknowledged that, the terms "best efforts" and "full time" mean such
effort and time commitment as is necessary to achieve the success of the
business.
d. Employee shall not, without the prior written consent of Employer,
directly or indirectly, during the term of this Agreement, whether for
compensation or otherwise, render services of a business, professional or
commercial nature to any person or firm that is engaged in a business
similar to that of the Employer.
e. The parties agree that during the performance of this Agreement Employees
office shall be located in Minden, Nevada and Employer shall not require
Employee to change his principal place of residence.
4.Compensation and Benefits. During the term of employment hereunder,
Employer shall compensate Employee as follows:
<PAGE>
a.Salary. For all services he may render to Employer during the term of
this Agreement, employee shall receive from Employer a base annual salary
while he is employed hereunder of one hundred and thirty thousand dollars
($130,000.00). Salary is to be paid in accordance with the policy of
Employer regarding payment of salary to its other officers and directors.
b.Stock Options. Employee shall also receive three hundred thousand stock
options to purchase Employer Common Stock. The price payable by Employee
for each share of stock shall be the market closing bid price on the date
of this agreement. This date is also the date of grant for Incentive
Stock Option purposes. These options vest as follows: 100,000 shares on
this Agreement date, 100,000 shares one year thereafter and the remaining
100,000 shares two years thereafter. All stock options will have a life
of three years from vesting date. Upon involuntary termination or change
of control, as defined in this agreement, remaining options will vest
immediately.
e.Director's Compensation. During the time which Employee is a member
of the Board of Directors of Employer, and properly fulfills his duties
therefor, Employer shall provide or reimburse to Employee expenses
comparable to other Directors of Employer.
f.Benefits. Employee shall receive a monthly automobile allowance in the
amount of $200.00 a month.
5.Termination of Employment.
a.For Cause. The employment of Employee under this Employment Agreement,
and the term hereof, may be terminated by the Employer only upon a
showing of "Cause", upon thirty (30) days' written notice to Employee.
The "effective date of termination" shall be the date thirty (30) days
after written notice of termination is delivered to the Employee.
"Cause" is defined as follows:
i. A material act or omission in the course of Employee's duties that
is dishonest or fraudulent;
ii. A material breach of this Agreement by Employee;
iii. Employee is not performing his duties adequately as Chief Executive
Officer and President.
b.Disability or Death. The employment of Employee under this Employment
Agreement and the term hereof, shall be terminated by the death or
partial or total disability of Employee. For purposes hereof, the term
"disability" is hereby defined to mean any mental or physical disability
which renders Employee unable to perform his duties or assignment as
determined by the Board of Directors of Employer, in the sole judgment
and discretion of said Board as determined by a majority vote of the
members thereof.
c.Resignation. The employment of Employee under this Employment Agreement,
and the term hereof, will be terminated by the voluntary resignation of
Employee.
<PAGE>
6.Salary and Benefits Upon Termination. Except as specifically provided
herein, all salary and other benefits shall terminate as of the effective
date of termination if Employee resigns. If involuntarily terminated
(except following a Change in Control, as provided for below) and in
consideration for the obligations of Employee pursuant to paragraphs 15 and
16 of the Employment Agreement, Employee shall be entitled to a termination
or severance salary equal to Five (5) year of the annual base salary earned
by Employee immediately prior to termination. Employee shall have the
option to accelerate payments of the severance salary and receive the full
amount upon termination, in Employee's sole discretion. Unless precluded
by law, any benefits shall continue for thirty (30) days after termination
or until Employee is re-employed, whichever shall first occur.
7.Termination Following Change in Control. Employer will provide or cause
to be provided to Employee the rights and benefits described in Paragraph 9
below in the event that Employee's employment is terminated at any time
during the term of this Agreement, or any renewal term, following a Change
in Control (as such term is defined in Paragraph 8) under circumstances
stated in (a) or (b) below.
a. The involuntary termination of Employee by Employer for reasons other
than for "Cause" (as such term is defined in Paragraph 5 of this Agreement)
or other than as a consequence of Employee's death, permanent disability
or attainment of the normal retirement date; or
b. The voluntary termination by Employee, which shall not result in a breach
of this Agreement, following the occurrence of any of the following events:
i. the assignment to Employee of any duties or responsibilities that are
inconsistent with Employee's position, duties, responsibilities or status
immediately preceding such Change in Control, or a reduction of
Employee's responsibilities subsequent to the Change in Control;
ii. the reduction of Employee's annual salary (including any deferred
portions) or level of benefits or supplemental compensation;
iii. the material increase in the amount of travel normally required of
Employee in connection with Employee's employment; or
iv. the good faith determination by Employee that due to the Change in
Control (including any changes in circumstances at Employer that
directly or indirectly effect Employee's position, duties,
responsibilities or status immediately preceding such Change in Control)
he is no longer able effectively to discharge Employee's duties and
responsibilities.
8.Definition of Change of Control. For purposes of this Agreement, a "Change
of Control" shall be deemed to have taken place if:
a. a third person, including a "group" as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, becomes the beneficial owner of shares
of the Employer having more than fifty percent (50%) of the total number
of votes that may be cast by holders of capital stock upon any corporate
action proposed to shareholders for approval or adoption; or
<PAGE>
b. as a result of, or in connection with, any cash tender or securities
exchange offer, merger, or other business combination, sale of assets or
contested election, or any combination of the foregoing transactions (a
"Transaction"), the persons who were directors of the Employer before the
Transaction shall cease to constitute a majority of the Board of the
Employer or any successor corporation.
9. Benefits Entitlements. On or before Employee's last day of employment
with the Employer or any of its subsidiaries, the Employer will pay to the
Employee as compensation for services rendered a lump sum cash amount (subject
to any applicable payroll or other taxes required to be withheld) equal to the
sum of,
a.Employees' highest annual salary fixed during the period he was an
employee of the Employer, plus
b.the largest aggregate amount awarded to Employee in a year as cash bonus
(whether or not deferred) under the Corporation's short and long term
cash incentive plans or arrangements providing for performance bonus
payments during the preceding years.
10. Taxes. In the event a tax is imposed pursuant to Section 4999 of the
Internal Revenue Code ("Excise Tax") on any portion of a benefit payment
made to an Employee in accordance with Paragraph 9, Employer shall relieve
the Employee of the Excise Tax burden by paying;
a. the initial Excise Tax and
b. any additional Excise Tax and federal and state income tax which arise as
a result of Employer's payment of the initial Excise Tax on behalf of the
Employee.
11. Payment Obligations Absolute. The Employer's obligation to pay the
Employee the benefits described herein shall be absolute and unconditional
and shall not be affected by any circumstances, including, without
limitation, any set-off, counter-claim, recoupment, defense or other right
which the Employer may have against the Employee or anyone else. All
amounts payable by the Employer shall be paid without notice or demand.
Each and every payment made by the Employer shall be final and the Employer
will not seek to recover all or any part of such payment(s) from the
Employee or from whosoever may be entitled to such payment(s) for any
reason whatsoever. The Employee shall not be obligated to seek other
employment in mitigation of the amounts payable or arrangements made under
any provisions herein, and the obtaining of any such other employment shall
in no event effect any reduction of the Employer's or subsidiary's
obligations to make the payments and arrangements required to be made
hereunder. The Employer may at the discretion of the Board of Directors of
the Employer enter into an irrevocable, third party guarantee or similar
agreement with a bank or other institution with respect to the benefits
payable to an Employee, which would provide for the unconditional payment
of such benefits by such third-party upon presentment by an Employee of a
Certificate (and on such other conditions deemed necessary or desirable by
the Employer) at some specified time after termination of employment. Such
third-party guarantor shall have no liability for improper payment if it
follows the instructions of the Employer as provided in such Certificate
<PAGE>
and other documents required to be presented under the agreement, unless
the Employer, in a written notice, has previously advised such third-party
guarantor of the determination by its Board of Directors of ineligibility
of the Employee
12. Successors. This Agreement shall be binding upon and inure to the
benefit of the Employee and his estate, the Employer and any applicable
subsidiary and any successor of the Employer or applicable subsidiary, but
neither this Amendment nor any rights arising under it may be assigned,
pledged or disposed of in any manner by the Employee or his beneficiary.
13. Other Agreements. Nothing in this paragraph is intended to result in
set-off of pension benefits, supplemental executive retirement benefits,
disability benefits, retiree benefits or any other plan benefits not
directly provided as termination or separation benefits.
14. Reimbursable Expenses. The Employer shall pay directly or reimburse
the Employee for the following expenses:
a.License fees and membership dues in associations or organizations
relative to the business of the Employer,
b.Subscriptions to journals or monthly service publications relative to
the business of the Employer.
c.The Employee's necessary travel, hotel, and entertainment expenses
incurred in connection with the business of the Employer or other
events that contribute to the benefit of the Employer in amounts to
be determined by the Board of Directors.
<PAGE>
15. Noncompetition/Nonsolicitation. Employee, as additional material
consideration hereunder, agrees that during the term hereof and for a
period of two (2) years from termination of this Agreement, he will not
directly or indirectly solicit business from, engage in business with, or
divert business from any of Employer's current or future customers, and
that they will not participate as a shareholder, partner, employee,
consultant, or otherwise in any enterprise engaging in activities that
would violate this provision if engaged in by them directly. This covenant
shall be applicable to the World on the basis that Employer sells its
products nationally or internationally. Employee acknowledges and agrees
that the scope of this covenant is reasonable given the special
relationship of the parties as to the various agreements executed by them.
Employee acknowledges and confirms that this covenant is made to induce
Employer to enter into this Agreement, is considered material to Employer,
and is required by Employer for the purpose of preserving the business and
goodwill of Employer.
16. Confidentiality Provision. Employee agrees that, during the term of
this Agreement or any extensions and for a period of ten (10) years
thereafter, he will keep confidential any information which he obtains from
Employer or any of said entities' subsidiaries, sister corporations or
concerns, now or hereafter existing or created, concerning their
properties, assets, proprietary assets, source codes, copyrights, business
methods, and trade secrets. Upon termination hereof, Employee will return
to Employer all written matter with respect to such businesses obtained by
him in connection with the negotiation, consummation, or performance of
this Agreement. Employee further agrees that any work performed or created
by Employee during the term hereof shall be owned solely by Employer and
shall be subject to the terms of this provision.
17. Modification. No change or modification of this Agreement shall be
valid unless the same is in writing and signed by all the parties hereto.
18. Binding Effect. The contract shall be binding upon the heirs,
executors, administrators, and assigns of the Employee and any successors
in interest of the Employer.
19. Notice. Except as expressly provided to the contrary herein, notices
or other communications required, permitted, or made necessary by the terms
of this Agreement may be given orally to the respective representatives of
the Employer and the Employee designed herein. Written notices shall be
personally delivered to the Employer's representative or the Employee's
representative, as appropriate or sent by the United States registered or
certified mail, postage prepaid, return receipt requested, addressed to the
party as designated below. Notices sent by mail shall be deemed made,
delivered and received on the date of the United States postmark thereon.
Either party may change its address or notice by giving notice of such
change to the other party in the manner specified in this section.
For purposes of notice the addresses of the parties shall be:
If to Employer:
WebQuest International, Inc.
1662 hwy 395 suite 203
Minden, NV 89423
<PAGE>
If to Employee:
Kirk Johnson
630 Mustang
Gardnerville NV 89410
20. No Waiver. No waiver of any breach or default in any of the terms and
provisions of this Agreement shall be deemed to constitute or be construed
as a waiver of the subsequent breach or default of the same, similar or
dissimilar nature.
21. Choice of Law and Invalidity. The validity, construction, performance
and effect of this Agreement shall be governed by the laws of the State of
Nevada and jurisdiction shall vest exclusively in the Ninth Judicial
District Court in and for the State of Nevada, located in Douglas County.
The parties acknowledge and agree that this Agreement is executed and
performance hereof is due in Douglas County, State of Nevada. In case any
one or more of the provisions contained herein shall for any reason be held
to be invalid, illegal, or unenforceable in any respect, such invalidity,
illegality, or unenforceability shall not affect any other provisions of
this Agreement, but this Agreement shall be construed as if such invalid,
illegal, or unenforceable provisions contained herein shall, for any
reason, be held to be excessively broad as to time, duration, geographical
scope, activity or subject, said provision shall be construed by limiting
and reducing it so as to be enforceable to the extent compatible with the
then applicable law, it being the intent of the parties hereto to give the
maximum permitted effect to the restrictions set forth herein.
22. Assignment. This Agreement is one for personal services and the
Employee shall not have a right to assign any part or all of his respective
rights, duties or obligations hereunder.
23. Interpretation. If necessary to give effect to the terms and
provisions hereof, the masculine, feminine, and neuter gender in the
singular and plural number shall each be deemed to include the other
whenever the context so indicates.
24. Headings. Headings in this Agreement are inserted for convenience and
identification only and are in no way intended to describe, interpret,
define or limit the scope, extent or intent of this Agreement or any
provision hereof
25. Counterparts. This Agreement may be executed in any number of
counterparts, any of which may be constituted in the agreement between the
parties hereto.
26. Authority. The Employer warrants and represents that it is a
corporation organized and existing under the laws of the State of Nevada,
that the undersigned is authorized to execute this Agreement on behalf of
the Employer; that the employment of the Employee under the terms of this
Agreement has been duly authorized by the Employer.
27. Inurement. Each covenant and condition in this Agreement shall be
binding on, and shall insure solely to the benefit of the parties to it,
their respective heirs, legal representatives successors and assigns.
28. Entire Agreement. Except as otherwise provided herein, this Agreement
supersedes any and all other agreements, either oral or in writing, between
the parties hereto and contains all of the covenants and agreements between
the parties with respect to this matter. Each party to this Agreement
acknowledges that no representations, inducements, promises, or agreements,
<PAGE>
orally or otherwise, have been made by any party, or anyone acting on
behalf of any party, which are not embodied herein, and that no other
agreement, statement or promise not contained in this Agreement shall be
binding.
IN WITNESS WHEREOF, the parties have executed this Employment Agreement
effective as of the day and year first above written.
EMPLOYEE: EMPLOYER:
Kirk Johnson WebQuest International, Inc.
a Nevada Corporation,
____________ By:______________________
Frank Howard, Chairman
Exhibit 24.1
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registrant has duly
caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized in the Town of Minden, Nevada on this
14th day of January 2000.
WebQuest International, Inc.
By: /s/ KIRK A. JOHNSON
Kirk A. Johnson
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person
whose signature appears below constitutes and appoints Scott
Berry and Kirk Johnson, jointly and severally, his attorneys-in-
fact, each with the power of substitution, for him in any and all
capacities, to sign any amendments to this Report on Form 10-KSB,
and to file the same, with exhibits thereto and other documents
in connection therewith with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange
Act of 1934, this Report has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title Date
/s/ KIRK JOHNSON President, Chief Executive Officer, January 14, 2000
Kirk Johnson Treasurer, Secretary and Director
(Principal Executive Officer)
/s/ SCOTT BERRY Chief Financial Officer January 14, 2000
Scott Berry
/s/ FRANK HOWARD Chairman of the Board January 14, 2000
Frank Howard
