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 DECEMBER 31, 1999
{ } 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)
1662 NORTH HWY 395, SUITE 203, MINDEN NV 89423
-----------------------------------------
(Former address, if changed since last report)
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: 6,552,285 shares of common
stock, $.001 par value, outstanding as of February 3, 2000.
<PAGE>
WEBQUEST INTERNATIONAL, INCORPORATED
TABLE OF CONTENTS AND INFORMATION REQUIRED IN REPORT
Form 10-QSB for the quarter ended December 31, 1999
PART I FINANCIAL INFORMATION
Item 1 Financial Statements: Page
------
Accountant's Review Report 3
Condensed Balance Sheets as of
December 31, 1999 and September 30, 1999 4
Condensed Statements of Operations
for the quarters ended December 31, 1999 and 1998 6
Condensed Statements of Comprehensive
Income for the quarters ended December 31, 1999 and 1998 7
Statement of Stockholders' Equity
from the Date of Inception on November 5, 1996
Through December 31, 1999 8
Condensed Statements of Cash Flows for
the quarters ended December 31, 1999 and 1998 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 20
Item 1 Legal Proceedings 20
Item 2 Changes in Securities and Use of Proceeds 20
Item 3 Defaults upon Senior Securities 20
Item 4 Submission of Matters to a Vote of Security Holders 20
Item 5 Other Information 21
Item 6 Exhibits and Reports on Form 8-K 21
SIGNATURES 22
<PAGE>
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACCOUNTANT'S REVIEW REPORT
Board of Directors
WEBQUEST INTERNATIONAL, INC.
Minden, Nevada
We have reviewed the accompanying condensed balance sheet of WebQuest
International, Inc. as of December 31, 1999, and the related condensed
statements of operations, comprehensive income, and cash flows for the three
months ended December 31, 1999 and the related statement of stockholders'
equity for the period from inception on November 5, 1996 through December 31,
1999. All information included in these financial statements is the
representation of the management of WebQuest International, Inc.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of Company personnel responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted 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 referred to above for
them to be in conformity with generally accepted accounting principles.
/s/ Pritchett, Siler & Hardy, P.C.
PRITCHETT, SILER & HARDY, P.C.
February 1, 2000
Salt Lake City, Utah
3
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
CONDENSED BALANCE SHEETS
(Unaudited - See Accountant's Review Report)
ASSETS
December 31, September 30,
1999 1999
___________ ___________
CURRENT ASSETS:
Cash $ 562,327 $ 2,386
Prepaids expenses 300,000 -
Accounts receivable 2,380 3,980
Employee advances - 258
___________ ___________
Total Current Assets 864,707 7,037
___________ ___________
PROPERTY AND EQUIPMENT, net 55,348 53,846
___________ ___________
OTHER ASSETS
Refundable deposits 3,201 3,201
___________ ___________
Total Other Assets 3,201 3,201
___________ ___________
$ 923,256 $ 64,084
___________ ___________
[Continued]
4
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
CONDENSED BALANCE SHEETS
(Unaudited - See Accountant's Review Report)
[Continued]
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, September 30,
1999 1999
___________ ___________
CURRENT LIABILITIES:
Accounts payable $ 60,979 $ 204,530
Notes payable - shareholders 212,500 342,909
Other accrued liabilities 24,314 139,601
Accrued dividends payable 58,770 58,770
Current portion - capital lease
obligation 3,360 3,360
___________ ___________
Total Current Liabilities 359,923 749,170
___________ ___________
CAPITAL LEASE OBLIGATION, less
current portion 3,778 3,778
___________ ___________
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 5,000,000
shares authorized of which 500,000 shares
have been authorized and designated as
12% Series A convertible preferred stock,
no shares outstanding as all are considered
to be converted to common stock - -
Common stock, $.001 par value, 20,000,000
shares authorized 6,215,218 and 4,870,618
shares issued and outstanding 6,215 4,871
Capital in excess of par value 4,567,814 2,909,909
Deficit accumulated during the
development stage (4,005,360) (3,567,530)
___________ ___________
568,669 (652,750)
Less: Stock subscription receivable (9,114) (36,114)
___________ ___________
Total Stockholders' Equity 559,555 (688,864)
___________ ___________
$ 923,256 $ 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 unaudited condensed
financial statements.
5
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited - See Accountant's Review Report)
For the
Three Months From Inception
Ended on November 5,
December 31, 1996 Through
_______________________ December 31,
1999 1998 1999
___________ ___________ _____________
REVENUE $ 3,225 $ - $ 24,748
___________ ___________ _____________
EXPENSES:
Selling expense 43,453 10,087 532,611
General and administrative 195,410 249,965 2,916,107
Compensation expense recorded
in accordance with APB 25 for
stock options issued below
market value - - 295,423
___________ ___________ _____________
Total Expenses 238,863 260,052 3,744,141
___________ ___________ _____________
LOSS FROM OPERATIONS (235,638) (260,052) (3,719,393)
___________ ___________ _____________
OTHER INCOME (EXPENSE):
Gain on sale of marketable
securities - 21,957 25,106
Interest income - 12 21
Interest (expense) (9,492) (2,291) (59,624)
License termination cost (192,700) - (192,700)
___________ ___________ _____________
Total Other Income
(Expense) (202,192) 19,678 (227,197)
___________ ___________ _____________
LOSS BEFORE INCOME TAXES (437,830) (240,374) (3,946,590)
CURRENT TAX EXPENSE - - -
DEFERRED TAX EXPENSE - - -
___________ ___________ _____________
NET LOSS $(437,830) $(240,374) $(3,946,590)
LESS: PREFERRED DIVIDEND
REQUIREMENTS - (9,774) (58,770)
___________ ___________ _____________
NET LOSS APPLICABLE TO
COMMON STOCKHOLDERS $(437,830) $(250,148) $(4,005,360)
___________ ___________ ___________
LOSS PER COMMON SHARE $ (.07) $ (.06) $ (1.09)
___________ ___________ ____________
The accompanying notes are an integral part of these unaudited condensed
financial statements.
6
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited - See Accountant's Review Report)
For the
Three Months From Inception
Ended on November 5,
December 31, 1996 Through
_______________________ December 31,
1999 1998 1999
___________ ___________ _____________
NET LOSS $(437,830) $(240,374) $(4,005,360)
OTHER COMPREHENSIVE INCOME:
Unrealized holding gains
(losses)on marketable
securities available
for sale - 75,457 -
___________ ___________ _____________
COMPREHENSIVE INCOME (LOSS) $(437,830) $(164,917) $(4,005,360)
___________ ___________ _____________
The accompanying notes are an integral part of these unaudited condensed
financial statements.
7
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
STATEMENT OF STOCKHOLDERS' EQUITY
FROM THE DATE OF INCEPTION ON NOVEMBER 5, 1996
THROUGH DECEMBER 31, 1999
(Unaudited - See Accountant's Review Report)
Preferred Deficit
Stock Common Stock Accumulated
______________ ________________ 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 251,00 251 251,000 251 501,498 -
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]
8
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
STATEMENT OF STOCKHOLDERS' EQUITY
FROM THE DATE OF INCEPTION ON NOVEMBER 5, 1996
THROUGH DECEMBER 31, 1999
(Unaudited - See Accountant's Review Report)
[Continued]
Preferred Deficit
Stock Common Stock Accumulated
______________ ________________ 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 18,057 181 8,057 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 - -
[Continued]
9
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
STATEMENT OF STOCKHOLDERS' EQUITY
FROM THE DATE OF INCEPTION ON NOVEMBER 5, 1996
THROUGH DECEMBER 31, 1999
(Unaudited - See Accountant's Review Report)
[Continued]
Preferred Deficit
Stock Common Stock Accumulated
______________ ________________ 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
APB 25 - - - - 22,110 -
[Continued]
10
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
STATEMENT OF STOCKHOLDERS' EQUITY
FROM THE DATE OF INCEPTION ON NOVEMBER 5, 1996
THROUGH DECEMBER 31, 1999
(Unaudited - See Accountant's Review Report)
[Continued]
Preferred Deficit
Stock Common Stock Accumulated
______________ ________________ 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
APB 25 - - - - 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 1,026,950 -
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 agreement,
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 $2.56 per share - - 58,600 58 149,941 -
Net loss for the
three months ended
December 31, 1999 - - - - - (437,830)
_______ ______ _________ ______ ___________ ____________
BALANCE, December 31,
1999 - $ - 6,215,218 $6,215 $ 4,479,407 $(4,005,360)
_______ ______ _________ ______ ___________ ____________
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 Accountant's Review Report)
Net Increase (Decrease) In Cash
For The
Three Months From Inception
Ended on November 5,
December 31, 1996 Through
_____________________ December 31,
1999 1998 1999
__________ __________ _____________
Cash Flows from Operating Activities:
Net loss applicable to common
stockholders $(437,830) $(250,148) $(4,005,360)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 7,500 26,739 1,127,553
Stock issued for goods and services - 63,103 432,978
APB 25 compensation recorded for stock
options issued below market value - - 301,923
Changes in assets and liabilities:
(Increase) decrease in employee
advances 671 (300) -
Increase (decrease) in accounts
payable (143,552) (6,018) 60,979
(Decrease) in advances - related
parties - (5,941) -
Increase (decrease) in accrued
liabilities (115,086) 56,863 24,514
(Increase) decrease in accounts
receivable 1,600 - (2,380)
(Increase) in prepaids expenses (300,000) - (300,000)
__________ __________ _____________
Net Cash (Used) by Operating
Activities (986,697) (115,702) (2,359,793)
__________ __________ _____________
Cash Flows from Investing Activities:
(Increase) in refundable deposits - - (3,201)
Purchase of equipment (9,001) (4,442) (42,900)
Purchase of software licensing rights - - (300,000)
Proceeds from marketable securities sales - 142,789 262,249
__________ __________ _____________
Net Cash Provided (Used) by
Investing Activities (9,001) 138,347 (83,852)
__________ __________ _____________
Cash Flows from Financing Activities:
Proceeds from notes payable - 40,000 499,827
Payments on notes payable (130,610) - (290,142)
Payments on capital lease obligation - (532) (2,751)
Proceeds from preferred stock issuance - - 344,750
Proceeds from common stock issuance 1,686,249 - 2,395,518
Increase in accrued dividends payable - 9,774 58,770
__________ __________ _____________
Net Cash Provided by Financing
Activities 1,555,639 49,242 3,005,972
__________ __________ _____________
Net Increase in Cash 559,941 71,887 562,327
Cash at Beginning of Period 2,386 4,682 -
__________ __________ _____________
Cash at End of Period $ 562,327 $ 76,569 $ 562,327
__________ __________ _____________
[Continued]
12
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited - See Accountant's Review Report)
Net Increase (Decrease) In Cash
[Continued]
For The
Three Months From Inception
Ended on November 5,
December 31, 1996 Through
_____________________ December 31,
1999 1998 1999
__________ __________ _____________
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the year and from
inception for:
Interest $ 9,492 $ 780 $ 12,382
Income taxes $ - $ - $ -
Supplemental Schedule of Non-cash Investing and Financing Activities:
For the three months ended December 31, 1999 (Unaudited):
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 loan, $153,500 to outstanding payables for programming
services and $194,700 to termination of the previous programming contract,
that included a 7% royalty on gross revenues.
For the three months ended December 31, 1998 (Unaudited):
None
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 the Statement of
Financial Accounting Standards (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.
Condensed Financial Statements - Although these statements have been reviewed
by our independent auditors, they are unaudited. 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 December 31, 1999 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. It is suggested 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 periods ended
December 31, 1999 and 1998 are not necessarily indicative of the operating
results for the full year.
NOTE 2 - RELATED PARTY TRANSACTIONS
Employment Agreements - An individual who formerly served as the Company's
vice president, secretary, and treasurer was elected 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
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.
During the quarter ended December 31, 1999, the Company hired a Chief
Financial Officer and entered into an employment agreement. 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 common stock. The agreement has a six month
life.
14
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 3 - NOTES PAYABLE - RELATED PARTIES
Notes payable consist of the following:
December 31, September 30,
1999 1998
____________ _____________
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 212,500 200,000
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
____________ _____________
$212,500 $342,909
____________ _____________
NOTE 4 - 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 December 31, 1999, the total of all deferred
tax assets was approximately $1,360,000. 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 $1,360,000 as of December 31, 1999, which has been offset
against the deferred tax assets. The net change in the valuation allowance
during the period ended December 31, 1999 amounted to approximately $148,000.
15
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 5 - 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, $153,500 for outstanding accounts payable for
programming services and $194,700 for termination of the previous programming
contract, that included a 7% royalty on gross revenues.
Confidential Private Placement - During the period ended December 31, 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 December 31, 1999 the Company had successfully raised
$1,027,843 by issuing 893,000 shares.
Receipt of Stock Subscription - During October 1999, the Company received
$12,114 for payment of subscription receivables.
Services Rendered - During the quarter ended December 31, 1999 the Company
issued 8,000 shares of common stock for services rendered at $1.00 per share.
The Company also issued 58,600 shares for services rendered at $2.56 per
share.
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 December 31, 1999 and
1998 and from inception on November 5, 1996 through December 31, 1999:
For the
Three Months From Inception
Ended on November 5,
December 31, 1996 Through
_______________________ December 31,
1999 1998 1999
___________ ___________ _____________
Income (loss) from continuing
operations applicable to
common stock $(437,830) $(240,347) $(3,946,590)
Less: preferred dividends - (9,774) (58,770)
___________ ___________ _____________
Income (loss) available to
common stockholders used in
earnings (loss) per share
(Numerator) $(437,830) $(250,148) $(4,005,360)
___________ ___________ _____________
Weighted average number of
common shares outstanding
used in earnings (loss) per
share during the period
(Denominator) 5,966,657 4,331,477 3,663,729
___________ ___________ _____________
Dilutive earnings (loss) per share was not presented, as its effect is anti-
dilutive.
16
<PAGE>
WEBQUEST INTERNATIONAL, INC.
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 7 - SUBSEQUENT EVENTS
Confidential Private Placement - During the period ended December 31, 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. Subsequent to December 31, 1999 the Company has
successfully raised an additional $111,000.
Acquisition - On January 13, 2000, the Company acquired an Internet site
called chessed.com from an individual. The total purchase price of the
transaction was $192,500. The Company issued 40,785 shares of its common stock
at an agreed upon value of $3.31 per share (or $135,000) and paid cash of
$57,500.
Employment Agreement - On January 19, 2000 the Company hired a new President
and Chief Operating Officer. The individual had previously served as chairman
of the Board of Directors. The underlying employment agreement provides for a
salary of $130,000 per year for five years. The agreement also provided for
incentive stock options to purchase 1,100,000 shares of common stock at $2.81
per share. The options vest at the rate of 100,000 on January 19, 2000 with
the balance vesting 50,000 per quarter beginning on April 19, 2000.
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. On January 19, 2000, a total of 2,500,000 options have been
issued under the plan.
17
<PAGE>
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 December 31, 1999 were minimal, totaling only
$3,225, compared to $0 for the quarter ended December 31, 1998. This
revenue was generated by providing advertising services through our Internet
sites.
Selling Expense
Selling expenses increased to $ 43,453 for the quarter ending December 31,
1999, an increase of $ 33,366 from the quarter ended December 31, 1998.
Selling expenses were greater than revenues generated in 1999 and 1998 as a
result of significant expenditures on programming costs, licensing fees and
prize expenses.
General and Administrative Expenses
General and administrative expenses totaled $ 195,410 for the quarter ending
December 31, 1999, a decrease of $54,555, or 21% from the corresponding
quarter in 1998. Expenses that decreased in 1999 include software
amortization, salary expense and deferred compensation expense. Increases
in expenses included advertising, professional fees and telephone service.
Other Income and Expense
Interest expense increased to $9,492 for the quarter ending December 31,
1999, or an increase of $7,201 from the three months ended December 31,
1998. Additionally, $192,700 was expended in 1999, paid in the form of
common stock, as a cost of terminating a 7% future royalty obligation on
sales generated from our iPong technology with HomeSeekers.com, Inc., a
shareholder.
Net Loss
Our net loss increased from $240,374 in the quarter ended December 31, 1998
to $437,830 in the quarter ending December 31, 1999. This increase was
primarily due to our buy-out of the iPong royalty obligation, as described
above, from HomeSeekers.com, Inc.
18
<PAGE>
Liquidity and Capital Resources
At December 31, 1999 our cash balance was $562,327, an increase of $559,941
from September 30, 1999. This increase is the result of the $1,078,750
collected during the quarter from our private placement offering to
accredited investors that began in November 1999. Additional proceeds were
received from this offering subsequent to December 31, 1999 and the offering
remains open. 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.
Our current liabilities decreased by approximately $400,000 from September
30, 1999 to December 31, 1999 as a result of our payment of certain debt,
accounts payable and payroll tax obligations.
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 its
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.
19
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
We issued 893,000 shares of common stock during the quarter for gross
proceeds of $1,116,250. 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 8,000 shares of common stock during the quarter as payments to
several programming consultants for services rendered. These shares of
common stock were issued to various consultants pursuant to the exemptions
from registration requirements of the Securities Act provided by Section
4(2) thereof.
We issued 400,000 shares of common stock to HomeSeekers.com, Inc. as
consideration to cancel a 7% licensing royalty on future revenues generated
from our iPong technology, payment in full of a note payable and accrued
interest, and payment in full of our accounts payable to HomeSeekers.com,
Inc. for programming services through September 30, 1999. These shares of
common stock were issued to HomeSeekers.com, Inc. pursuant to the exemption
from registration requirements of the Securities Act provided by Section
4(2) thereof.
We issued 58,600 shares of common stock as partial payment for promotional
materials that will be used by us over the six months ending June 30, 2000.
These shares of common stock were issued to J. Thomas Markham Company
pursuant to the exemption from registration requirements of the Securities
Act provided by Section 4(2) thereof.
Item 3. Defaults upon Senior Securities
We have accrued a liability for our cumulative dividends of $58,770 due on
our preferred stock in our financial statements. We plan to pay these
cumulative dividends, in the form of common stock, during the quarter ending
March 31, 2000. All preferred stock has converted into common stock.
Item 4. Submission of matters to a vote of Security Holders
None.
20
<PAGE>
Item 5. Other Information
We entered into an Employment Agreement with our Chief Executive Officer,
Kirk Johnson, on October 1, 1999. The significant elements of the contract
are that it is for five years; at an annual salary of $130,000.00; stock
options to purchase 300,000 shares of our common stock at $1.00 per share
that vests 100,000 shares on October 1, 1999, 100,000 shares on October 1,
2000 and the 100,000 share balance on October 1, 2001; a monthly auto
allowance of $200 and reimbursement of reasonable business expenses. Mr.
Johnson is also the Chairman of our Board of Directors.
On January 13, 2000 we purchased an Internet web site called
www.chessed.com for $192,500, paid $57,500 in cash and 40,785 shares of our
common stock at an agreed upon price of $3.31 per share. The amount of
consideration was determined based on an arms-length negotiation. We plan
to commercialize this chess game web site and generate an income stream from
the web site.
On January 19, 2000 we hired Frank Howard as our President and Chief
Operating Officer. Mr. Howard previously served as the Chairman of our
Board. Mr. Howard relinquished the Chairman position to Mr. Kirk Johnson
and Mr. Howard remains a director. Mr. Howard's compensation will be
$130,000 per year, the contract is for five years and he received a stock
option to purchase 1,100,000 shares of common stock at $2.81 per share. The
options vest 50,000 on January 19, 2000, and the balance vest 50,000 per
quarter starting on April 19, 2000. Mr. Howard also receives a monthly auto
allowance of $200 and reimbursement of reasonable business expenses.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
- ----------- -----------
1 WebQuest International, Inc. 2000 Stock Option Plan
dated January 19, 2000
2 Employment Agreement with Frank Howard dated
January 19, 2000
(b) Reports on Form 8-K
None.
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, Incorporated
(Registrant)
/s/ Scott Berry
- -------------------------
Scott Berry
Chief Financial Officer
Dated: February 11, 2000
21
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
financial statements for the three months ended December 31, 1999
and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 562,327
<SECURITIES> 0
<RECEIVABLES> 2,380
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 864,707
<PP&E> 107,900
<DEPRECIATION> 52,552
<TOTAL-ASSETS> 923,256
<CURRENT-LIABILITIES> 359,923
<BONDS> 0
0
0
<COMMON> 6,215
<OTHER-SE> 562,454
<TOTAL-LIABILITY-AND-EQUITY> 923,256
<SALES> 3,225
<TOTAL-REVENUES> 3,225
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 238,863
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,492
<INCOME-PRETAX> (437,830)
<INCOME-TAX> 0
<INCOME-CONTINUING> (437,830)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (437,830)
<EPS-BASIC> (.07)
<EPS-DILUTED> (.07)
</TABLE>
WEBQUEST INTERNATIONAL, INCORPORATED
2000 STOCK OPTION PLAN
1. Grant of Options; Generally. In accordance with the provisions
hereinafter set forth in this stock option plan, the name of which is the
WEBQUEST INTERNATIONAL, INCORPORATED 2000 STOCK OPTION PLAN (the "Plan"), the
Board of Directors (the "Board") or, the Compensation Committee (the "Stock
Option Committee") of WEBQUEST INTERNATIONAL, INCORPORATED, a Nevada
Corporation (the "Corporation") is hereby authorized to issue from time to
time on the Corporation's behalf to any one or more Eligible Persons, as
hereinafter defined, options to acquire shares of the Corporation's $.001 par
value common stock (the "Stock").
2. Type of Options. The Board or the Stock Option Committee is
authorized to issue options that meet the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended, and the regulations promulgated
thereunder (the "Code"), which options are hereinafter referred to
collectively as ISOs, or singularly as an ISO. The Board or the Stock Option
Committee is also, in its discretion, authorized to issue options that are not
ISOs, which options are hereinafter referred to collectively as NSOs, or
singularly as an NSO. The Board or the Stock Option Committee is also
authorized, but not obligated, to issue "Reload Options" in accordance with
Paragraph 8 herein, which options are hereinafter referred to collectively as
Reload Options, or singularly as a Reload Option. The term "Option" or
"Options" means ISOs, NSOs and Reload Options.
3. Amount of Stock. The maximum aggregate number of shares of Stock
that may be optioned and sold pursuant to the exercise of Options shall be
5,000,000 shares. Of this amount, the Board or the Stock Option Committee
shall have the power and authority to designate whether any Options so issued
shall be ISOs or NSOs, subject to the restrictions on ISOs contained elsewhere
herein. If an Option expires or ceases to be exercisable, in whole or in part,
the shares of Stock underlying such Option shall continue to be available
under this Plan unless the Plan has terminated. Further, if shares of Stock
are delivered to the Corporation as payment for shares of Stock purchased by
the exercise of an Option granted under this Plan, such shares of Stock shall
also be available under this Plan. If there is any change in the number of
shares of Stock on account of the declaration of stock dividends,
recapitalization resulting in stock split-ups, or combinations or exchanges of
shares of Stock, or otherwise, the number of shares of Stock (as well as the
price per share) available for purchase upon the exercise of Options, the
shares of Stock subject to any Option and the exercise price of any
outstanding Option shall be appropriately adjusted by the Board or the Stock
Option Committee, subject to any required action by the stockholders of the
corporation. The Board or the Stock Option Committee shall give notice of any
adjustments to each Eligible Person granted an Option under this Plan, and
such adjustments shall be effective and binding on all Eligible Persons. Such
adjustments shall generally be considered effected without receipt of
consideration by the Corporation; provided, however, that conversion of any
convertible securities of the Corporation shall not be deemed to have been
"effected without receipt of consideration". If because of one or more
recapitalizations, reorganizations or other corporate events, the holders of
outstanding Stock receive something other than shares of Stock then, upon
exercise of an Option, the Eligible Person will receive what the holder would
have owned if the holder had exercised the Option immediately before the first
such corporate event and not disposed of anything the holder received as a
result of the corporate event.
<PAGE>
4. Eligible Persons.
(a) With respect to ISOs, an Eligible Person means any individual
who is employed by the Corporation or by any parent or subsidiary of the
Corporation.
(b) With respect to NSOs, an Eligible Person means (i) any
individual who is employed by the Corporation or by any parent or subsidiary
of the Corporation, or (ii) any director of the Corporation or any parent or
subsidiary of the Corporation.
5. Grant of Options. The Board or the Stock Option Committee has the
right to issue the Options established by this Plan to Eligible Persons. The
Board or the Stock Option Committee shall follow the procedures prescribed for
it elsewhere in this Plan. A grant of Options shall be set forth in a writing
signed on behalf of the Corporation or by a majority of the members of the
Stock Option Committee. The writing shall identify whether the Option being
granted is an ISO or an NSO and shall set forth the terms that govern the
Option. The terms shall be determined by the Board or the Stock Option
Committee, and may include, among other terms, the number of shares of Stock
that may be acquired pursuant to the exercise of the Options, when the Options
may be exercised, the period for which the Option is granted and including the
expiration date, the effect on the Options if the Eligible Person terminates
employment and whether the Eligible Person may deliver shares of Stock to pay
for the shares of Stock to be purchased by the exercise of the Option. In the
event that a term or condition set forth in writing is inconsistent with any
of the terms of this Plan, the terms of this Plan shall govern. The terms of
an Option granted to an Eligible Person may differ from the terms of an Option
granted to another Eligible Person, and may differ from the terms of an
earlier Option granted to the same Eligible Person.
6. Option Price. The Option price per share shall be determined by the
Board or the Stock Option Committee at the time any Option is granted, and
shall be not less than (i) in the case of an ISO, the fair market value on the
date of grant, (ii) in the case of an ISO granted to a ten percent or greater
stockholder, 110% of the fair market value on the date of grant, or (iii) in
the case of an NSO, not less than 75% of the fair market value (but in no
event less than the par value) of one share of Stock on the date the Option is
granted, as determined by the Board or the Stock Option Committee. In the case
of a NSO intended to qualify as "performance-based compensation" within the
meaning of Section 162 (m) of the Code, the Option price per share shall not
be less than 100% of the fair market value on the date of grant. If any
Option granted hereunder is so qualified, the Plan shall be administered by a
committee of two or more "outside directors" within the meaning of Section 162
(m) of the Code. Fair market value as used herein shall be:
(a) If shares of Stock shall be traded on an exchange or
over-the-counter market, the closing price or the closing bid price of such
Stock on such exchange or over-the-counter market on which such shares shall
be traded on that date, or if such exchange or over-the-counter market is
closed or if no shares shall have traded on such date, on the last preceding
date on which such shares shall have traded.
(b) If shares of Stock shall not be traded on an exchange or
over-the-counter market, the value as determined by the Board of Directors or
the Stock Option Committee of the Corporation.
<PAGE>
(c) Notwithstanding the generality of the foregoing, Options may
be granted with an exercise price less than 100% of the fair market value
per share on the date of grant pursuant to a merger or other corporate
transaction.
7. Purchase of Shares. An Option shall be exercised by the tender to
the Corporation of the full purchase price of the Stock with respect to which
the Option is exercised and written notice of the exercise. The purchase price
of the Stock shall be in United States dollars, payable in cash or by check,
or Corporation stock, if so permitted by the Board or the Stock Option
Committee in accordance with the discretion granted in Paragraph 5 hereof,
having a value equal to such purchase price. The Corporation shall not be
required to issue or deliver any certificates for shares of Stock purchased
upon the exercise of an Option prior to (i) if requested by the Corporation,
the filing with the Corporation by the Eligible Person of a representation in
writing that it is the Eligible Person's then present intention to acquire the
Stock being purchased for investment and not for resale, and/or (ii) the
completion of any registration or other qualification of such shares under any
government regulatory body, which the Corporation shall determine to be
necessary or advisable.
8. Grant of Reload Options. In granting an Option under this Plan, the
Board or the Stock Option Committee may, but shall not be obligated to
include, a Reload Option provision therein, subject to the provisions set
forth in Paragraphs 20 and 21 herein. A Reload Option provision provides that
if the Eligible Person pays the exercise price of shares of Stock to be
purchased by the exercise of an ISO, NSO or another Reload Option (the
"Original Option") by delivering to the Corporation shares of Stock already
owned by the Eligible Person (the "Tendered Shares"), the Eligible Person
shall receive a Reload Option which shall be a new Option to purchase shares
of Stock equal in number to the tendered shares. The terms of any Reload
Option shall be determined by the Board or the Stock Option Committee
consistent with the provisions of this Plan.
9. Stock Option Committee. The Stock Option Committee may be appointed
from time to time by the Corporation's Board of Directors. The Board may from
time to time remove members from or add members to the Stock Option Committee.
The Stock Option Committee shall be constituted so as to permit the Plan to
comply in all respects with the provisions set forth in Paragraph 20 herein.
The members of the Stock Option Committee may elect one of its members as its
chairman. The Stock Option Committee shall hold its meetings at such times and
places as its chairman shall determine. A majority of the Stock Option
Committee's members present in person shall constitute a quorum for the
transaction of business. All determinations of the Stock Option Committee will
be made by the majority vote of the members constituting the quorum. The
members may participate in a meeting of the Stock Option Committee by
conference telephone or similar communications equipment by means of which all
members participating in the meeting can hear each other. Participation in a
meeting in that manner will constitute presence in person at the meeting. Any
decision or determination reduced to writing and signed by all members of the
Stock Option Committee will be effective as if it had been made by a majority
vote of all members of the Stock Option Committee at a meeting that is duly
called and held.
10. Administration of Plan. In addition to granting Options and to
exercising the authority granted to it elsewhere in this Plan, the Board or
the Stock Option Committee is granted the full right and authority to
interpret and construe the provisions of this Plan, promulgate, amend and
rescind rules and procedures relating to the implementation of the Plan and to
<PAGE>
make all other determinations necessary or advisable for the administration of
the Plan, consistent, however, with the intent of the Corporation that Options
granted or awarded pursuant to the Plan comply with the provisions of
Paragraph 20 and 21 herein. All determinations made by the Board or the Stock
Option Committee shall be final, binding and conclusive on all persons
including the Eligible Persons, the Corporation and its stockholders,
employees, officers and directors and consultants.
11. Provisions Applicable to ISOs. The following provisions shall apply
to all ISOs granted by the Board or the Stock Option Committee and are
incorporated by reference into any writing granting an ISO:
(a) An ISO may only be granted within ten (10) years from January
19, 2000
, the date that this Plan was originally adopted by the
Corporation's Board of Directors.
(b) An ISO may not be exercised after the expiration of ten (10)
years from the date the ISO is granted.
(c) The option price may not be less than the fair market value of
the Stock at the time the ISO is granted.
(d) An ISO is not transferable by the Eligible Person to whom it is
granted except by will, or the laws of descent and distribution, and is
exercisable during his or her lifetime only by the Eligible Person.
(e) If the Eligible Person receiving the ISO, owns at the time of
the grant, stock possessing more than ten (10%) percent of the total combined
voting power of all classes of stock of the employer corporation or of its
parent or subsidiary corporation (as those terms are defined in the Code),
then the option price shall be at least 110% of the fair market value of the
Stock, and the ISO shall not be exercisable after the expiration of five (5)
years from the date the ISO is granted or such shorter term as may be
specified in writing to the eligible person.
(f) The aggregate fair market value (determined at the time the ISO
is granted) of the Stock with respect to which the ISO is first exercisable by
the Eligible Person during any calendar year (under this Plan and any other
incentive stock option plan of the Corporation) shall not exceed $100,000.
(g) Even if the shares of Stock that are issued upon exercise of an
ISO are sold within one year following the exercise of such ISO so that the
sale constitutes a disqualifying disposition for ISO treatment under the Code,
no provision of this Plan shall be construed as prohibiting such a sale.
12. Determination of Fair Market Value. In granting ISOs under this
Plan, the Board or the Stock Option Committee shall make a good faith
determination as to the fair market value of the Stock at the time of granting
the ISO.
13. Restrictions on Issuance of Stock. The Corporation shall not be
obligated to sell or issue any shares of Stock pursuant to the exercise of an
Option unless the Stock with respect to which the Option is being exercised is
at that time effectively registered or exempt from registration under the
<PAGE>
Securities Act of 1933, as amended, and any other applicable laws, rules and
regulations. The Corporation may condition the exercise of an Option granted
in accordance herewith upon receipt from the Eligible Person, or any other
purchaser thereof, of a written representation that at the time of such
exercise it is his or her then present intention to acquire the shares of
Stock for investment and not with a view to, or for sale in connection with,
any distribution thereof; except that, in the case of a legal representative
of an Eligible Person, "distribution" shall be defined to exclude distribution
by will or under the laws of descent and distribution. Prior to issuing any
shares of Stock pursuant to the exercise of an Option, the Corporation shall
take such steps as it deems necessary to satisfy any withholding tax
obligations imposed upon it by any level of government.
14. Exercise in the Event of Death or Termination of Employment.
(a) If an optionee shall die (i) while an employee of the
Corporation or a Parent or Subsidiary or (ii) within three (3) months after
termination of his employment with the Corporation or a Parent or Subsidiary,
the Options may be exercised, to the extent that the optionee shall have been
entitled to do so on the date of his or her death or such termination of
employment, by the person or persons to whom the optionee's right under the
Options pass by will or applicable law, or if no such person has such right,
by his executors or administrators, at any time, or from time to time. In the
event an optionee is an employee of the Corporation or a Parent or Subsidiary
at the time of his or her death, the Options may be exercised not later than
the expiration date specified in Paragraph 5 or one (1) year after the
optionee's death, whichever date is earlier.
(b) Notwithstanding Section 14(a) above, if an optionee's
employment with the Corporation or a Parent or Subsidiary terminates because
of his or her disability, he or she may exercise the Options, to the extent
that he or she shall have been entitled to do so at the date of the
termination of employment, at any time, or from time to time, but not later
than the expiration date specified in Paragraph 5 hereof or one (1) year after
termination of employment, whichever date is earlier.
(c) If an optionee's employment shall terminate for any reason
other than death or disability, optionee may exercise the Options to the same
extent that the Options was exercisable on the date of termination, for up to
three (3) months following such termination, or on or before the expiration
date of the Options, whichever occurs first. In the event that the optionee
was not entitled to exercise the Options at the date of termination or if the
optionee does not exercise such Options (which he or she was entitled to
exercise) within the time specified herein, the Options shall terminate.
15. Corporate Events. In the event of the proposed dissolution or
liquidation of the Corporation, a proposed sale of all or substantially all of
the assets of the Corporation or a merger or tender for the Corporation's
shares of Common Stock, the Board of Directors shall declare that each Option
granted under this Plan shall terminate as of a date to be fixed by the Board
of Directors; provided that not less than thirty (30) days written notice of
the date so fixed shall be given to each Eligible Person holding an Option,
and each such Eligible Person shall have the right, during the period of
thirty (30) days preceding such termination, to exercise his Option as to all
or any part of the shares of Stock covered thereby, including shares of Stock
as to which such Option would not otherwise be exercisable. Nothing set forth
herein shall extend the term set for purchasing the shares of Stock set forth
in the Option.
16. No Guarantee of Employment. Nothing in this Plan or in any writing
granting an Option will confer upon any Eligible Person the right to continue
<PAGE>
in the employ of the Eligible Person's employer, or will interfere with or
restrict in any way the right of the Eligible Person's employer to discharge
such Eligible Person at any time for any reason whatsoever, with or without
cause.
17. Non-transferability. No Option granted under the Plan shall be
transferable other than by will or by the laws of descent and distribution.
During the lifetime of the optionee, an Option shall be exercisable only by
him.
18. No Rights as Stockholder. No optionee shall have any rights as a
stockholder with respect to any shares subject to his Option prior to the date
of issuance to him of a certificate or certificates for such shares.
19. Amendment and Discontinuance of Plan. The Corporation's Board of
Directors may amend, suspend or discontinue this Plan at any time. However, no
such action may prejudice the rights of any Eligible Person who has prior
thereto been granted Options under this Plan. Further, no amendment to this
Plan which has the effect of (a) increasing the aggregate number of shares of
Stock subject to this Plan (except for adjustments pursuant to Paragraph 3
herein), or (b) changing the definition of Eligible Person under this Plan,
may be effective unless and until approval of the stockholders of the
Corporation is obtained in the same manner as approval of this Plan is
required. The Corporation's Board of Directors is authorized to seek the
approval of the Corporation's stockholders for any other changes it proposes
to make to this Plan which require such approval, however, the Board of
Directors may modify the Plan, as necessary, to effectuate the intent of the
Plan as a result of any changes in the tax, accounting or securities laws
treatment of Eligible Persons and the Plan, subject to the provisions set
forth in this Paragraph 19, and Paragraphs 20 and 21.
20. Compliance with Rule 16b-3. This Plan is intended to comply in all
respects with Rule 16b-3 ("Rule 16b-3") promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), with respect to participants who are subject to Section 16 of
the Exchange Act, and any provision(s) herein that is/are contrary to Rule
16b-3 shall be deemed null and void to the extent appropriate by either the
Stock Option Committee or the Corporation's Board of Directors.
21. Compliance with Code. The aspects of this Plan regarding ISOs are
intended to comply in every respect with Section 422 of the Code and the
regulations promulgated thereunder. In the event any future statute or
regulation shall modify the existing statute, the aspects of this Plan on ISOs
shall be deemed to incorporate by reference such modification. Any stock
option agreement relating to any Option granted pursuant to this Plan
outstanding and unexercised at the time any modifying statute or regulation
becomes effective shall also be deemed to incorporate by reference such
modification and no notice of such modification need be given to optionee.
If any provision of the aspects of this Plan regarding ISOs is
determined to disqualify the shares purchasable pursuant to the Options
granted under this Plan from the special tax treatment provided by Code
Section 422, such provision shall be deemed null and void and to incorporate
by reference the modification required to qualify the shares for said tax
treatment.
22. Compliance With Other Laws and Regulations. The Plan, the grant and
exercise of Options thereunder, and the obligation of the Corporation to sell
and deliver Stock under such options, shall be subject to all applicable
<PAGE>
federal and state laws, rules, and regulations and to such approvals by any
government or regulatory agency as may be required. The Corporation shall not
be required to issue or deliver any certificates for shares of Stock prior to
(a) the listing of such shares on any stock exchange or over-the-counter
market on which the Stock may then be listed and (b) the completion of any
registration or qualification of such shares under any federal or state law,
or any ruling or regulation of any government body which the Corporation
shall, in its sole discretion, determine to be necessary or advisable.
Moreover, no Option may be exercised if its exercise or the receipt of Stock
pursuant thereto would be contrary to applicable laws.
23. Disposition of Shares. In the event any share of Stock acquired by
an exercise of an Option granted under the Plan shall be transferable other
than by will or by the laws of descent and distribution within two years of
the date such Option was granted or within one year after the transfer of such
Stock pursuant to such exercise, the optionee shall give prompt written notice
thereof to the Corporation or the Stock Option Committee.
24. Name. The Plan shall be known as the "WebQuest International,
Incorporated 2000 Stock Option Plan."
25. Notices. Any notice hereunder shall be in writing and sent by
certified mail, return receipt requested or by facsimile transmission (with
electronic or written confirmation of receipt) and when addressed to the
Corporation or Stock Option Committee shall be sent to it at its office, 1662
Highway 395, Suite 203, Minden, Nevada 89423-4328, subject to the right of
either party to designate at any time hereafter in writing some other address,
facsimile number or person to whose attention such notice shall be sent.
26. Headings. The headings preceding the text of Sections and
subparagraphs hereof are inserted solely for convenience of reference, and
shall not constitute a part of this Plan nor shall they affect its meaning,
construction or effect.
27. Inability to Obtain Authority. The inability of the Corporation to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Corporation's counsel to be necessary to the lawful issuance
and sale of any Stock hereunder, shall relieve the Corporation of any
liability in respect of the failure to issue or sell such Stock as to which
such requisite authority shall not have been obtained.
28. Reservation of Shares. The Corporation, during the term of this
Plan, will at all times reserve and keep available such number of shares of
Stock as shall be sufficient to satisfy the requirements of the Plan.
29. Stockholder Approval. The Plan, as amended and restated, shall be
subject to approval by the stockholders of the Corporation within twelve (12)
months after the date such amendments are adopted. Such stockholder approval
shall be obtained in the manner and to the degree required under all
applicable laws.
30. Effective Date. This Plan was adopted by the Board of Directors of
the Corporation on January 19, 2000. The effective date of the Plan shall be
the same date.
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into effective as of the 19th day of
January 2000, notwithstanding the later execution hereof, by and between
WebQuest International, Inc. a Nevada corporation ("Employer") and Frank
Howard("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 January 18,
2005. 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 President and Chief Operating 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. It is contemplated that Employee shall also be a Board of Director 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 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.
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. Employer understands that employee has interests in
and is an officer and director of Sales Technology, Inc, Reliability Direct,
Inc. and Advanced Vibration Systems, Inc.
<PAGE>
e. The parties agree that during the performance of this Agreement
Employees office shall be League City, Texas and 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:
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 Thirty Thousand Dollars
($130,000). 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 be granted a stock option to purchase
one million one hundred thousand shares of WebQuest International. Inc. common
stock at $2.81 per share. These options vest as follows: 100,000 shares today
and 50,000 shares vesting quarterly over the next five (5) years. 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.
c. Director's Compensation. During the time which Employee is a member of
the Board of Directors of Employer, and properly fulfills his duties therefore,
Employer shall provide or reimburse to Employee expenses comparable to other
Directors of Employer.
d. 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.
<PAGE>
iii. Employee is not performing his duties adequately as Chief
Operating Officer and President, as determined by a majority of the Board of
Directors, with employee abstaining from the vote as Chairman.
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.
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 time of 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 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
<PAGE>
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
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,
<PAGE>
a. Employees' highest annual salary fixed during the period he was an
employee of the Employer, plus. 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 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
<PAGE>
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.
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.
<PAGE>
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
If to Employee:
Frank Howard
1302 Marina Bay Drive Suite #170
Clear Lake Shores, Texas 77565
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
<PAGE>
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, 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:
Frank Howard WebQuest International, Inc.
a Nevada Corporation,
/s/ Frank Howard By: /s/ Kirk Johnson
Kirk Johnson, Chairman
