U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2000
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES
EXCHANGE ACT OF 1934 For the transition period from
____________________to________________
Commission File Number: 000-24355
WEBQUEST INTERNATIONAL, INC.
-----------------------------
(Exact name of small business issuer as specified in its charter)
NEVADA 86-0894019
------ ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2248 MERIDIAN BLVD., SUITE A, MINDEN, NV 89423-8601
----------------------------------------------------
(Address of principal executive offices)
(775) 782-0350
--------------
(Issuer's telephone number)
Check whether the issuer: (1) filed all reports required to be
filed by Section 13 or 15 (d) of the Exchange Act during the past 12
months(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES [X] NO_____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 9,182,949
shares of common stock, $.001 par value, outstanding as of April 30, 2000.
<PAGE>
WEBQUEST INTERNATIONAL, INCORPORATED
TABLE OF CONTENTS AND INFORMATION REQUIRED IN REPORT
Form 10-QSB for the quarter ended March 31, 2000
PART I FINANCIAL INFORMATION
Item 1 Financial Statements: Page
Accountant's Review Report 3
Condensed Balance Sheets as of
March 31, 2000 and September 30, 1999 4
Condensed Statements of Operations
for the quarters ended March 31, 2000 and 1999 6
Statement of Stockholders' Equity
from the Date of Inception on
November 5, 1996 Through March 31, 2000 7
Condensed Statements of Cash Flows for
the quarters ended March 31, 2000 and 1999 12
Notes to the Condensed Financial Statements 14
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 18
PART II OTHER INFORMATION 25
Item 1 Legal Proceedings 25
Item 2 Changes in Securities and Use of Proceeds 25
Item 3 Defaults upon Senior Securities 25
Item 4 Submission of Matters to a Vote of
Security Holders 25
Item 5 Other Information 25
Item 6 Exhibits and Reports on Form 8-K 26
SIGNATURES 26
2
<PAGE>
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACCOUNTANTS' REVIEW REPORT
Board of Directors
WEBQUEST INTERNATIONAL, INC.
Minden, Nevada
We have reviewed the accompanying condensed balance sheet of
WebQuest International, Inc. [a development stage company] as of
March 31, 2000 and the related condensed statements of operations
for the three and six months ended March 31, 2000, the related
condensed statements of cash flows for the six months ended March 31,
2000 and the condensed statements of stockholders' equity for the
period from inception on November 5, 1996 through March 31, 2000.
All information included in these financial statements is the
representation of management of WebQuest International, Inc..
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review
consists principally of inquiries of Company personnel and
analytical procedures applied to financial data. It is
substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the condensed financial statements reviewed
by us, in order for them to be in conformity with generally
accepted accounting principles.
/S/ Pritchett, Siler & Hardy, P.C.
PRITCHETT, SILER & HARDY, P.C.
May 3, 2000
Salt Lake City, Utah
3
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
CONDENSED BALANCE SHEETS
[Unaudited - See Accountants' Review Report]
ASSETS
March 31, September 30,
2000 1999
___________ ___________
CURRENT ASSETS:
Cash $3,131,197 $ 2,386
Employee advances 20,500 671
Accounts receivable 2,316 3,980
Prepaid expenses 243,000 -
___________ ___________
Total Current Assets 3,397,013 7,037
___________ ___________
PROPERTY AND EQUIPMENT, net 334,939 53,846
___________ ___________
OTHER ASSETS:
Refundable deposits 3,665 3,201
___________ ___________
Total Other Assets 3,665 3,201
___________ ___________
$3,735,617 $ 64,084
___________ ___________
[Continued]
4
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
CONDENSED BALANCE SHEETS
[Unaudited - See Accountants' Review Report]
[Continued]
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, September 30,
2000 1999
___________ ___________
CURRENT LIABILITIES:
Accounts payable $ 5,972 $ 204,530
Notes payable - related parties 1,025,000 342,909
Other accrued liabilities 45,264 139,601
Accrued dividends payable - 58,770
Current portion - capital lease
obligation 3,360 3,360
___________ ___________
Total Current Liabilities 1,079,596 749,170
___________ ___________
CAPITAL LEASE OBLIGATION,
less current portion 3,778 3,778
___________ ___________
Total Liabilities 1,083,374 752,948
___________ ___________
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value,
5,000,000 shares authorized,
no shares outstanding - -
Common stock, $.001 par value,
45,000,000 shares authorized
8,610,155 and 4,870,618
shares issued and outstanding 8,610 4,871
Capital in excess of par value 7,395,714 2,909,909
Deficit accumulated during the
development stage (4,742,967) (3,567,530)
___________ ___________
2,661,357 (652,750)
Less: Receivable stock subscription (9,114) (36,114)
___________ ___________
Total Stockholders' Equity 2,652,243 (688,864)
___________ ___________
$3,735,617 $ 64,084
___________ ___________
NOTE: The balance sheet at September 30, 1999 was taken from the
audited financial statements at that date and condensed.
The accompanying notes are an integral part of these financial
statements.
5
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
CONDENSED STATEMENTS OF OPERATIONS
[Unaudited - See Accountants' Review Report]
For the Three For the Six From Inception
Months Ended Months Ended on November 5,
March 31, March 31, 1996 Through
__________________ __________________ March 31,
2000 1999 2000 1999 2000
_________ ________ _________ ________ ___________
REVENUE $ 300 $ 1,000 $ 3,525 $ 1,000 $ 25,048
_________ ________ _________ ________ ___________
EXPENSES:
Selling 44,575 27,921 88,028 38,008 577,186
Administrative &
Marketing 595,918 222,083 791,328 472,049 3,512,025
Compensation expense
recorded in accordance
with APB 25 for stock
options issued below
market value - - - - 295,423
_________ ________ _________ ________ ___________
Total Expenses 640,493 250,004 879,356 510,057 4,384,634
_________ ________ _________ ________ ___________
LOSS FROM OPERATIONS (640,193)(249,004) (875,831) (509,057) (4,359,586)
_________ ________ _________ ________ ___________
OTHER INCOME (EXPENSE):
Gain (loss) on sale of
marketable securities - (7,241) - 14,743 25,106
Interest income 17,476 9 17,476 21 17,497
Interest (expense) (114,890) (2,620) (124,382) (4,911) (174,514)
License termination cost - - (192,700) - (192,700)
_________ ________ _________ ________ ___________
Total Other Income
(Expense) (97,414) (9,852) (299,606) 9,853 (324,611)
_________ ________ _________ ________ ___________
LOSS BEFORE INCOME TAXES (737,607) (258,856) (1,175,437) (499,204) (4,684,197)
CURRENT TAX EXPENSE - - - - -
DEFERRED TAX EXPENSE - - - - -
_________ ________ _________ ________ ___________
NET LOSS $(737,607)$(258,856)$(1,175,437) $(499,204)$(4,684,197)
LESS: PREFERRED DIVIDEND
REQUIREMENTS - (8,623) - (18,397) (58,770)
_________ ________ _________ ________ ___________
NET LOSS APPLICABLE TO
COMMON STOCKHOLDERS $(737,607)$(267,479)$(1,175,437) $(517,601)$(4,742,967)
_________ ________ _________ ________ ___________
LOSS PER COMMON SHARE $ (.09) $ (.06) $ (.17) $ (.12) $ (1.18)
_________ ________ _________ ________ ___________
The accompanying notes are an integral part of these unaudited
condensed financial statements.
6
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
FROM THE DATE OF INCEPTION ON NOVEMBER 5, 1996
THROUGH MARCH 31, 2000
[Unaudited - See Accountants' Review Report]
Deficit
Accumulated
Preferred Stock Common Stock Capital in During the
_______________ ______________ Excess of Development
Shares Amount Shares Amount Par Value Stage
_______ _______ _______ _______ __________ __________
BALANCE, November 5,
1996 - $ - - $ - $ - $ -
Issuance of 2,438,333
shares common stock
for cash, January
1997, at $.123 per
share - - 2,438,333 2,438 297,562 -
Issuance of 116,667
shares common stock
for services, January
1997, at $.116 per
share - - 116,667 117 13,417 -
Recapitalization of
Phaser, issuance of
200,201 shares of
common stock for
Phaser stock, May
1997 - - 200,201 200 (2,282) -
Issuance of 93,750
shares preferred
and common stock
for cash, March
through September
1997, at $1.00
per share 93,750 94 93,750 94 187,312 -
Issuance of 30,000
shares common stock
for services, August
1997, at $1.00 per
share - - 30,000 30 29,970 -
Issuance of 700,000
shares common stock
for licensing
agreement, at $1.00
per share, September
1997 - - 700,000 700 699,300 -
Granting of options
to acquire 400,000
shares of common
stock at below
market value.
Compensation expense
calculated in
accordance with
APB 25. - - - - 353,600 -
Net loss for the
period ended September
30, 1997 - - - - - (459,001)
_______ _______ _______ _______ __________ __________
BALANCE, September 30,
1997 93,750 $ 94 3,578,951 $ 3,579 $1,578,879 $(459,001)
Issuance of 251,000
shares preferred
and common stock for
cash, October,1997
through September,
1998 at $1.00 per
share 251,000 251 251,000 251 501,498 -
Issuance of 126,943
shares preferred
and common stock for
non-cash consideration,
July, 1998 at $1.00
per share 126,943 127 126,943 127 253,632 -
7
<PAGE>
[Continued]
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
FROM THE DATE OF INCEPTION ON NOVEMBER 5, 1996
THROUGH MARCH 31, 2000
[Unaudited - See Accountants' Review Report]
[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,
October 1997 - - - - 26,520 -
Issuance of 50,000
shares common stock
upon exercise of
options by an
officer, February
1998, at $.116
per share - - 50,000 50 5,750 -
Issuance of 50,000
shares common stock
upon exercise of
options by an
officer, July 1998,
at $.116 per share - - 50,000 50 5,750 -
Issuance of 5,000
shares common stock
to an officer for
cash at $1.00 per
share, July, 1998 - - 5,000 5 4,995 -
Issuance of 62,000
shares common stock
for consulting
services at $1.00
per share, May, 1998 - - 62,000 62 61,938 -
Issuance of 22,898
shares of common
stock for
consultation,
programming and
other services
rendered at $1.00
per share, to
employees, officers
and directors of
the Company - - 22,898 23 22,875 -
Assumed mandatory
conversion of
Series B preferred
stock during
the period ended
September 30, 1998 (93,750) (94) 93,750 94 - -
_______ _______ _______ _______ __________ __________
8
<PAGE>
[Continued]
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
FROM THE DATE OF INCEPTION ON NOVEMBER 5, 1996
THROUGH MARCH 31, 2000
[Unaudited - See Accountants' Review Report]
[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 -
9
<PAGE>
[Continued]
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
FROM THE DATE OF INCEPTION ON NOVEMBER 5, 1996
THROUGH MARCH 31, 2000
[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)
Issuance of 893,000
shares of common
stock for cash at
$1.25 per share - - 893,000 893 1,115,357 -
Issuance of 8,000
shares of common
stock for services
valued at $1.00 per
share - - 8,000 8 7,992 -
Cancellation of 15,000
shares as a result
of non-payment - - (15,000) (15) (14,985) -
Issuance of 400,000
shares of common stock
for cancellation of
license agreements,
payment of accounts
payables and notes
payable at $1.00
per share - - 400,000 400 399,600 -
Issuance of 58,600
shares of common stock
for services at $2.65
per share - - 58,600 58 149,941 -
Issuance of 2,153,800
shares of common
stock at $1.25 per
share. Net of stock
offering costs
of $328,625 - - 2,153,800 2,153 2,464,597 -
Issuance of 7,482
shares of common
stock for services
rendered from $1.00
to $3.00 per share - - 7,482 7 19,018 -
Issuance of 37,500
shares of common
stock upon exercise
of warrants, at $.87
per share - - 37,500 38 32,587 -
10
<PAGE>
[Continued]
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
FROM THE DATE OF INCEPTION ON NOVEMBER 5, 1996
THROUGH MARCH 31, 2000
[Unaudited - See Accountants' Review Report]
[Continued]
Deficit
Accumulated
Preferred Stock Common Stock Capital in During the
_______________ ______________ Excess of Development
Shares Amount Shares Amount Par Value Stage
_______ _______ _______ _______ __________ __________
Issuance of 82,500
shares as loan
incentives valued
at $1.25 per share - - 82,500 83 103,042 -
Issuance of 15,000
shares of common
stock upon exercise
of warrants, at
$1.00 per share - - 15,000 15 14,985 -
Issuance of 40,785
shares of common stock
for the acquisition
of a web site,
(chessed.com) at
$3.31 per share - - 40,785 41 134,959 -
Issuance of 57,870
shares of common stock
to pay accrued
dividends on
preferred stock - - 57,870 58 57,812 -
Cancellation of
accrued dividends
as a result of
N.S.F check - - - - 900 -
Net loss for the
six months ended
March 31, 2000 - - - - -(1,175,437)
_______ _______ _______ _______ __________ __________
BALANCE, March 31,
2000 - $ - 8,610,155 $ 8,610 $7,395,714$(4,742,967)
_______ _______ _______ _______ __________ __________
The accompanying notes are an integral part of these unaudited
condensed financial statements.
11
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
CONDENSED STATEMENTS OF CASH FLOWS
[Unaudited - See Accountants' Review Report]
Net Increase (Decrease) In Cash
For the Six From Inception
Months Ended on November 5,
March 31, 1996 Through
__________ _________ March 31,
2000 1999 2000
__________ _________ ___________
Cash Flows from Operating Activities:
Net loss applicable to common
stockholders $(1,175,437) $(517,601) $(4,742,967)
Adjustments to reconcile net
loss to net cash used by
operating activities:
Depreciation and amortization 15,367 53,435 1,135,420
Non-cash expense - 9,046 432,978
APB 25 compensation recorded
for stock options issued below
market value - 121,217 301,923
Stock issued for goods and services 313,337 - 313,337
Stock issued for interest expense 103,125 - 103,125
Changes in assets and liabilities:
(Increase) in employee advances (19,829) - (20,501)
Increase (decrease) in accounts
payable (198,560) 18,090 5,970
(Decrease) in advances -
related parties - (5,941) -
Increase (decrease) in accrued
liabilities (94,337) 56,242 45,264
Increase (decrease) in accounts
receivable 28,664 - (2,316)
Decrease in prepaid expenses (243,000) - (243,000)
__________ _________ ___________
Net Cash (Used) by
Operating Activities (1,270,670) (265,512) (2,670,766)
__________ _________ ___________
Cash Flows from Investing Activities:
(Increase) in refundable deposits (464) - (3,665)
Purchase of equipment (120,001) (4,731) (136,110)
Purchase of software licensing rights - - (300,000)
Proceeds from marketable
securities sales - 184,668 262,249
__________ _________ ___________
Net Cash Provided (Used) by
Investing Activities (120,465) 179,937 (177,526)
__________ _________ ___________
Cash Flows from Financing Activities:
Proceeds from notes payable 820,502 90,000 1,237,327
Payments on notes payable (213,411) - (287,327)
Payments on capital lease obligation - (913) 7,138
Proceeds from preferred stock issuance - - 344,750
Proceeds from common stock issuance 4,046,625 - 4,677,601
Increase (decrease) in accrued
dividends payable (58,770) 18,397 -
__________ _________ ___________
Net Cash Provided by
Financing Activities 4,519,946 107,484 5,979,489
__________ _________ ___________
12
<PAGE>
[Continued]
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
CONDENSED STATEMENTS OF CASH FLOWS
[Unaudited - See Accountants' Review Report]
Net Increase (Decrease) In Cash
[Continued]
For the Six From Inception
Months Ended on November 5,
March 31, 1996 Through
__________ _________ March 31,
2000 1999 2000
__________ _________ ___________
Net Increase (Decrease) in Cash 3,128,811 21,909 3,131,197
Cash at Beginning of Period 2,386 4,682 -
__________ _________ ___________
Cash at End of Period $3,131,197 $ 26,591 $ 3,131,197
__________ _________ ___________
Supplemental Disclosures of
Cash Flow Information:
Cash paid during the year and
from inception for:
Interest $ 21,256 $ 7,202 $ 33,638
Income taxes $ - $ - $ -
Supplemental schedule of Non-cash Investing and Financing Activities:
For the six month period ended March 31, 2000 (Unaudited):
The Company issued 8,000 shares of common stock for services
rendered valued at $8,000 (or $1.00 per share).
The Company issued 400,000 shares of common stock for
cancellation of a license agreement, payment of accounts payable
and a note payable totaling $400,000 (or $1.00 per share).
The Company issued 58,600 shares of common stock for services
rendered valued at $155,290 (or $2.65 per share).
The Company issued 7,482 shares of common stock for services
rendered valued at $19,025 (or $2.54 per share).
The Company issued 40,785 shares of common stock to acquire a
web site, www.chessed.com valued at $135,000 (or $3.31 per
shares).
The Company issued 57,870 shares of common stock to pay for
accrued dividends.
The Company issued 82,500 shares as loan incentives, accounted
for as interest expense.
For the six month period ended March 31, 1999 (Unaudited):
The Company issued 123,500 shares of common stock in the
conversion of 123,500 preferred shares.
Amortization of deferred compensation on stock options amounted
to $121,217.
The accompanying notes are an integral part of these unaudited
condensed financial statements.
13
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED 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 games on the Internet. The Company plans on deriving
its revenue from tournament fees, monthly and annual subscriptions,
and from the sale of advertising. The Company may also pursue
other Internet related businesses.
Condensed Financial Statements - The accompanying financial
statements have been prepared by the Company without audit. In the
opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows at March 31, 2000
and for all the periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. We suggest
that these condensed financial statements be read in conjunction
with the financial statements and notes thereto included in the
Company's September 30, 1999 audited financial statements. The
results of operations for the period ended March 31, 2000 is not
necessarily indicative of the operating results for the full year.
NOTE 2 - RELATED PARTY TRANSACTIONS
Employment Agreements - Kirk Johnson formerly served as our vice
president, secretary, and treasurer. Mr. Johnson was elected by
our Board of Directors to be the Chief Executive Officer of the
Company. On October 1, 1999 the Company entered into an
employment agreement with the Chief Executive Officer that
provides for a base salary of $130,000 per year for five years.
The agreement also provides 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 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, as amended. The term of the employment agreement
shall end October 1, 2004. Mr. Johnson was also granted incentive
stock options to purchase 1,100,000 shares of common stock at
$2.81 per share on January 19, 2000. The options vest at the rate
of 100,000 shares on January 19, 2000 with the balance vesting
50,000 shares per quarter beginning on April 19, 2000.
On January 19, 2000 our Board of Directors hired Frank Howard as
President and Chief Operating Officer. Mr. Howard had previously
served as Chairman of the Board of Directors. Mr. Howard's
employment agreement provides for a salary of $130,000 per year
for five years. The agreement also provides for incentive stock
options to purchase 1,100,000 shares of common stock at $2.81 per
share. The options vest at the rate of 100,000 shares on January
19, 2000 with the balance vesting 50,000 shares per quarter
beginning on April 19, 2000.
On April 1, 2000 we entered into an employment agreement, to end
on September 30, 2002, with Scott Berry whereby he serves as our
Chief Financial Officer. Mr. Berry is entitled to receive a base
salary of $85,000 annually, payable one-half in cash and one-half
in restricted Common Stock, at $1.00 per share, issued quarterly.
Mr. Berry was also granted an incentive stock option to purchase
300,000 shares of our Common Stock at $2.81 per share on January
19,2000. The options vest as follows: 25,000 shares on January
19, 2000 and 25,000 shares vesting quarterly starting on March 31,
2000. The options have a three-year life after vesting. Mr.
Berry served as our Chief Financial Officer on a part-time basis
from October 4, 1999 until March 31, 2000.
14
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WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 3 - NOTES PAYABLE - RELATED PARTIES
March 31, September 31,
2000 1999
_________ __________
Notes payable to a shareholder
of the Company, annual compounding
interest at 12%, due upon demand,
unsecured $ - $ 17,062
Notes payable to a shareholder of
the Company, interest at 10% and
12%, due upon demand, unsecured - 4,294
Note payable to a shareholder of
the Company, interest at 12%, due
upon demand, unsecured - 4,313
Note payable to an entity related
to a shareholder of the Company,
annual compounding interest
at 12%, due upon demand, unsecured - 2,240
12% unsecured demand notes payable
to a shareholder of the Company - 40,000
12% unsecured convertible notes
payable to minority shareholders
of the Company, due on demand
on or after June 1, 2000 1,025,000 200,000
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
_________ __________
$1,025,000 $ 342,909
_________ __________
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WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 4 - CAPITAL STOCK
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 of accrued interest on the note
$153,500 to outstanding payables for programming services and
$192,700 for termination of the previous programming contract, that
included a 7% royalty on gross revenues.
Private Placement of Securities - During December 1999 the Company
started offering for sale to persons who are "accredited
investors", no minimum and a maximum of 4,000,000 shares of its
previously authorized but unissued common stock at $1.25 per share
for gross proceeds of up to $5,000,000. As of March 31, 2000 the
Company had successfully sold 2,236,300 shares of stock for gross
proceeds of $2,795,375.
Receipt of Stock Subscription - During the six months ended March
31, 2000, the Company received $27,000 for payment of subscription
receivables.
Acquisition - On January 13, 2000, the Company closed a purchase
agreement with an individual to purchase the Internet site
www.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.
Stock Option Plan - On January 19, 2000, the Board of Directors of
the Company adopted the 2000 Stock Option Plan. The plan provides
for the granting of awards of up to 5,000,000 shares of common
stock to officers, directors, and employees. Awards under the plan
will be granted as determined by the board of directors. As of
March 31, 2000, a total of 2,895,000 options had been issued under
the plan.
The Company issued 8,000 shares of common stock for services
rendered valued at $8,000 (or $1.00 per share).
The Company issued 400,000 shares of common stock for cancellation
of a license agreement, payment of accounts payable and a note
payable totaling $400,000 (or $1.00 per share).
The Company issued 58,600 shares of common stock for services
rendered valued at $155,290 (or $2.65 per share).
The Company issued 7,482 shares of common stock for services
rendered valued at $19,025 (or $2.54 per share).
The Company issued 57,870 shares of common stock to pay for accrued
dividends.
The Company issued 82,500 shares of common stock as loan incentives
which has been accounted for as interest expense in the amount of
$103,125.
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WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 5 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement
of Financial Accounting Standards No. 109 Accounting for Income
Taxes [SFAS 109]. 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 March 31, 2000, the total of all deferred tax
assets was approximately 1,400,000. 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 approximately $1,400,000
as of March 31, 2000, which has been offset against the deferred
tax assets. The net change in the deferred tax assets and the
valuation allowance during the six months ended March 31, 2000
amounted to approximately $400,000.
NOTE 6 - 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 periods
ended March 31, 2000 and 1999 and from inception on November 5,
1996 through March 31, 2000:
For the Three For the Six From Inception
Months Ended Months Ended on November 5,
March 31, March 31, 1996 Through
_____________________ ___________________ March 31,
2000 1999 2000 1999 2000
__________ _________ _________ _________ _________
Income (loss)
from continuing
operations
applicable to
common stock $(737,607) $(258,856)$(1,175,437)$(499,204)$(4,684,197)
Less:
preferred
dividends - (8,623) - (18,397) (58,770)
__________ _________ _________ _________ _________
Income (loss)
available to
common stockholders
used in earnings
(loss) per share $(737,607) $(267,479)$(1,175,437)$(517,601)$(4,742,967)
__________ _________ _________ _________ _________
Weighted average
number of common
shares outstanding
used in earnings
(loss) per share
during the period 7,143,825 4,363,174 6,407,287 4,347,151 3,917,613
__________ _________ _________ _________ _________
Dilutive earnings (loss) per share was not presented, as its effect
is anti-dilutive due to our net losses.
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ITEM 2. 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-QSB 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 difference 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 differing from 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 employees, among other things.
RESULTS OF OPERATIONS
Revenue
Revenue for the quarter ended March 31, 2000 was minimal, totaling
$300, compared to $1,000 for the quarter ended March 31, 1999.
This revenue was generated from advertising services. We
anticipate revenues to increase nominally for the following two
quarters and then to increase significantly in the quarter ending
December 31, 2000 when we plan to roll out our subscription-based
services and fee-based game tournaments in September 2000.
Selling Expense
Selling expenses increased to $45,000 for the quarter ending March
31, 2000, an increase of $17,000, or 60% from the quarter ended
March 31, 1999. This increase was due primarily to increases in
prizes given away to users of our www.ipong.com internet site.
Administrative and Marketing Expenses
Administrative and marketing expenses totaled $596,000 for the
quarter ending March 31, 2000, an increase of $374,000, or 168%
from the $222,000 for the same quarter in 1999. Employee payroll
costs increased from $83,000 to $190,000. Increased payroll costs
resulted from an increase in 14 employees, from 4 employees in
March 1999 to 18 employees in March 2000. Increases in headcount
were needed to ramp-up our Internet game sites from one site in
March 1999 (ipong.com) to six game sites as of March 2000
(iseekwisdom.com, freehoroscopes.com, ipong.com, chessed.com,
winbridge.com and nancyskitchen.com). We are adding employees to
support the infrastructure and modification of these sites in
preparation of revenue generation expected to start in September
2000.
We started producing our Internet "branding" strategy during the
quarter ending March 31, 2000 with a cost of approximately $70,000.
During this quarter we also spent approximately $135,000 to
increase the awareness of our Company to potential customers and
potential investors during the quarter ending March 31, 2000. We
anticipate marketing costs to increase over the next six months as
we roll out the fee-based versions of our Internet game sites.
Other Income and Expense
Interest expense increased to $115,000 for the quarter ending March
31, 2000, from $3,000 for the three months ended March 31, 1999.
This increase was from our convertible debt issued subsequent to
March 31, 1999. Interest expense on this convertible debt included
both interest accruing at 12% per annum plus the one-time expense
of one share of common stock, valued at $1.25 per share, for every
$10.00 of debt issued.
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Interest income was $17,000 for the quarter ending March 31, 2000
from our average cash balance of approximately $1.5 million during
the quarter. We had no interest income during the prior-year
quarter.
Net Loss
Our net loss increased from $259,000 for the quarter ended March
31, 1999 to $738,000 for the quarter ending March 31, 2000. This
increase was primarily due to the increase in payroll, marketing
and interest costs described above.
Liquidity and Capital Resources
At March 31, 2000 our cash balance was $3,131,000, an increase of
$3,129,000 from September 30, 1999. This increase was the result
of cash raised during the quarter from our $5 million stock
offering and our $1.5 million convertible debt offering, both
privately placed to accredited investors. We have historically
funded our cash-flow deficits through borrowing and issuances of
securities and we expect to fund future operating deficits in the
same manner.
Prepaid expenses were -0- as of September 30, 1999 and increased to
$243,000 as of March 31, 2000. This included $200,000 for
undistributed promotional train and airline ticket jackets and
$43,000 for prepaid insurance.
Our Property and Equipment, net of accumulated depreciation and
amortization, increased $281,000 from $54,000 as of September 30,
1999 to $335,000 as of March 31, 2000. This was primarily from our
$192,500 purchase of the www.chessed.com Internet site in January
2000.
Our current liabilities increased by $330,000 from September 30,
1999 to March 31, 2000. The components of this net increase in
current liabilities included the payoff of $144,000 in short-term
debt, an increase of $825,000 in convertible debt, a decrease in
accounts payable and accrued liabilities of $293,000 and payment,
in the form of common stock, of $58,000 in accrued preferred stock
dividends.
Our ability to meet our liquidity requirements is dependent on our
ability to attract capital on terms acceptable to us, if at all.
If we are unable to raise sufficient capital there would be a
material adverse effect on our business and results of operations.
Impact of the Year 2000
We have not experienced any adverse effects on our business as a
result of the Year 2000 dating "bug" nor do we anticipate any
material adverse effects.
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
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products will satisfactorily perform the functions for which they
are designed, that they will meet applicable price or performance
objectives or that unanticipated technical or other problems will
not occur which would result in increased costs or material delay
in their development. There can be no assurance that, despite
testing by us and by current and potential end users, problems will
not be found in new products after the commencement of customer
use, resulting in loss of, or delay in, market acceptance.
Challenges of Growth
We anticipate a period of rapid growth that is expected to
place a strain on our administrative, financial and operational
resources. Our ability to manage any staff and facilities growth
effectively will require us to continue to improve our operational,
financial and management controls, reporting systems and
procedures, to install new management information and control
systems and to train, motivate and manage our employees. However,
there can be no assurance that we will install such management
information and control systems in an efficient and timely manner
or that the new systems will be adequate to support our future
operations. If we are unable to hire, train and retain qualified
systems engineers and consultants to implement these services or
are unable to manage the post-sales process effectively, our
ability to attract repeat sales could be materially adversely
affected, thereby limiting our growth opportunities. If our
management is unable to manage growth effectively, such as if our
sales and marketing efforts exceed our capacity to install,
maintain and service our products or if new employees are unable to
achieve adequate performance levels, our business, operating
results and financial condition could be materially adversely
affected.
Penny Stocks
The Securities and Exchange Commission has adopted regulations
that generally define a "penny stock" to be any equity security
that has a market price (as defined) of less that $5.00 per share,
subject to certain exceptions. Our common stock may be deemed to
be a "penny stock" and thus may become subject to rules that impose
additional sales practice requirements on broker/dealers who sell
such securities to persons other than established customers and
accredited investors, unless the common stock is listed on the
NASDAQ Small Cap Market. Consequently, the "penny stock" rules may
restrict the ability of broker/dealers to sell our securities, and
may adversely affect the ability of holders of the common stock to
resell their shares in the secondary market.
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.
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:
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* 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
* 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
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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.
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.
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.
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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.
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.
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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.
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.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
We issued 2,316,300 shares of common stock during the quarter for
gross proceeds of $2,895,375. These share sales were made under
our $5,000,000 private equity offering to accredited investors at
$1.25 per share. These shares of common stock were issued to
accredited investors pursuant to the exemptions from registration
requirements of the Securities Act provided by Section 4(2)
thereof.
We issued 82,500 shares of common stock during the quarter as loan
incentives pursuant to our $1.5 million convertible debt offering
to accredited debt holders. We also issued notes to these holders
totaling $825,000. The notes are convertible into common stock at
$1.25 per share on or after June 1, 2000. These shares of common
stock and notes were issued pursuant to the exemptions from
registration requirements of the Securities Act provided by Section
4(2) thereof.
We issued 52,500 shares of common stock during the quarter for the
exercise of three stock warrants to two individuals in return for
$47,625. The warrants were converted at $.87 and $1.00 per share.
These shares of common stock were issued to these two individuals
pursuant to the exemptions from registration requirements of the
Securities Act provided by Section 4(2) thereof.
We issued 40,785 shares of common stock during the quarter, valued
at $3.31 per share, as partial consideration to an individual, for
the assets of the chessed.com Internet site. These shares of
common stock were issued to this individual pursuant to the
exemptions from registration requirements of the Securities Act
provided by Section 4(2) thereof.
We issued 7,482 shares of common stock during the quarter as
partial payment for services rendered to our Chief Financial
Officer and our Controller. These shares of common stock were
issued to these two individuals pursuant to the exemptions from
registration requirements of the Securities Act provided by Section
4(2) thereof.
We issued 57,870 shares of common stock as payment for $57,870 of
preferred stock accrued dividends. These shares were issued to
investors pursuant to the exemption from registration requirements
of the Securities Act provided by Section 4(2) thereof.
We issued five stock options to five officers to purchase 2,895,000
shares of common stock at market prices ranging from $1.75 per
share to $3.00 per share. The options vest over three years and
have lives of three years after vesting. These stock options were
issued to officers pursuant to the exemption from registration
requirements of the Securities Act provided by Section 4(2)
thereof.
We issued warrants to three individuals for professional services
to purchase a total of 249,750 shares of common stock at market
prices from $2.44 per share to $3.25 per share. The warrants vest
between January 19, 2000 and January 18, 2001. These stock warrants
were issued to independent contractors pursuant to the exemption
from registration requirements of the Securities Act provided by
Section 4(2) thereof.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of matters to a vote of Security Holders
None.
Item 5. Other Information
On April 1, 2000 we entered into an employment agreement to end on
September 30, 2002 with Scott Berry whereby he serves as our Chief
Financial Officer. Mr. Berry is entitled to receive a base salary
of $85,000.00 annually, payable one-half in cash and one-half in
25
<PAGE>
restricted Common Stock, at $1.00 per share, issued quarterly.
Mr. Berry's employment agreement also includes a change of control
provision whereby the lump sum to which Mr. Berry would be entitled
to upon a change of control would be payable one-half in cash and
one-half in restricted Common Stock at $1.00 per share. Mr. Berry
was also granted options to purchase 300,000 shares of our Common
Stock at $2.81 per share on January 19,2000. The options vest as
follows: 25,000 shares on January 19, 2000 and 25,000 shares
vesting quarterly starting on March 31, 2000. The options have a
three-year life after vesting.
On April 13, 2000 we purchased the Internet site www.winbridge.com
for $800,000, $200,000 in cash and $600,000 in common stock from an
individual. Please see our Current report on Form 8-K filed on
April 25, 2000 reporting this asset acquisition.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
- ----------- -----------
10.10 Employment Agreement with Scott Berry dated
April 1, 2000
27 Financial Data Schedule
(b) Reports on Form 8-K
Current report on Form 8-K filed on January 27, 2000 reporting
Item 2 (Acquisition or Disposition of Assets): Asset purchase
Agreement dated January 13, 2000, whereby WebQuest International,
Inc. purchased the Internet web site www.chessed.com from an
individual. No financial statements were required to be filed with
this report.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned as duly authorized.
WebQuest International, Inc.
(Registrant)
/s/ Scott Berry
- -------------------------
Scott Berry
Chief Financial Officer
Dated: May 15, 2000
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into effective as of the 1st
day of April 2000, notwithstanding the later execution hereof, by
and between WebQuest International, Inc. a Nevada corporation
("Employer") and Scott Berry ("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 on
September 30, 2002. 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, Chief Executive Officer or President, as
Chief Financial Officer of Employer.
b. During the term of this Employment Agreement, Employee shall,
in good faith, devote his best efforts 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" mean such effort and time commitment as is necessary to
achieve the success of the business.
c. 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.
d. The parties agree that during the performance of this
Agreement Employee's principal place of residence shall be Reno,
NV 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:
a. Wages. For all services he may render to Employer during
the term of this Agreement, employee shall receive from
Employer an hourly wage of $42.50 ($85,000 per year). Employee
1
<PAGE>
will be paid one-half in cash and one-half in common restricted
stock calculated at $1.00 per share. Stock will be issued
quarterly.
b. Stock Options. Employee has been granted a stock option to
purchase three hundred thousand shares of WebQuest International.
Inc. common stock at $2.81 per share. These options vest as
follows: 25,000 shares on January 19, 2000 and 25,000 shares
vesting quarterly starting on March 31, 2000. All stock options
have a life of three years from vesting date. Upon involuntary
termination or change of control, as defined in this agreement,
the remaining options will vest immediately.
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 Financial Officer, as determined by the Chief
Executive Officer, with input from the 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 that renders Employee unable
to perform his duties or assignment as determined by the Chief
Executive Officer of Employer, in the judgment and discretion of
said CEO, with input from the President. Should the Board hire
a new Chief Executive Officer, to whom the Employee then
reports, the Employee's remaining stock options will vest
immediately.
c. Resignation. The employment of Employee under this
Employment Agreement, and the term hereof, will be terminated by
the voluntary resignation of Employee.
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 the remainder of the contract at the
2
<PAGE>
time of termination. This salary will be paid one-half in cash
and one-half in the form of restricted common stock at $1.00 per
share. 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 medical and dental insurance coverage and 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 statusimmediately 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
3
<PAGE>
votes that may be cast by holders of capital stock upon any
corporate action proposed to shareholders for approval or
adoption; or
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 amount, one-half in cash and one-half in
restricted common stock at $1.00 per share, (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
4
<PAGE>
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 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 CEO, with input from the President.
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
5
<PAGE>
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.
2248 Meridian Blvd., Suite A
Minden, NV 89423-8601
Attn: CEO
6
<PAGE>
If to Employee:
Scott Berry
600 Akard Circle
Reno, NV 89503-3928
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.
7
<PAGE>
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, 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:
WebQuest International, Inc.
a Nevada Corporation,
/s/ Scott Berry By: /s/ Kirk Johnson
Scott Berry
Kirk Johnson, Chairman
8
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
financial statements for the six months ended March 31, 2000 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,131,197
<SECURITIES> 0
<RECEIVABLES> 2,316
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,397,013
<PP&E> 334,939
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,735,617
<CURRENT-LIABILITIES> 1,079,596
<BONDS> 0
0
0
<COMMON> 8,610
<OTHER-SE> 2,643,633
<TOTAL-LIABILITY-AND-EQUITY> 3,735,617
<SALES> 3,525
<TOTAL-REVENUES> 3,525
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 879,356
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 124,382
<INCOME-PRETAX> (1,175,437)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,175,437)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,175,437)
<EPS-BASIC> (.17)
<EPS-DILUTED> (.17)
</TABLE>
