WORLDQUEST NETWORKS INC, SB-2/A, 2000-02-01

WORLDQUEST NETWORKS INC
SB-2/A, 2000-02-01
BUSINESS SERVICES, NEC

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<PAGE>

As filed with the Securities and Exchange Commission on February 1, 2000
Registration No. 333-93019

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

----------------

Amendment No. 2
To
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
WORLDQUEST NETWORKS, INC.
(Name of Small Business Issuer in its Charter)

Delaware 4813 75-2838415
(State or jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification Number)
incorporation or
organization)

16990 Dallas Parkway, Suite 220
Dallas, Texas 75248
(972) 818-0460
(Address and telephone number
of principal executive offices and principal place of business)

B. Michael Adler
Chairman of the Board
16990 Dallas Parkway, Suite 220
Dallas, Texas 75248
(972) 818-0460
(Name, address and telephone number
of agent for service)

Copies to:

Michael D. Parsons, Esq. Thomas J. Poletti, Esq.
Michael A. Watson, Esq. Susan B. Kalman, Esq.
Glast Phillips & Murray, P.C. Ted Weitzman, Esq.
13355 Noel Road, Suite 2200
Dallas, Texas 75240 Kirkpatrick & Lockhart LLP
9100 Wilshire Boulevard, 8th Floor East
Telephone (972) 419-8300 Beverly Hills, California 90212
Facsimile (972) 419-8329 Telephone (310) 273-1870
Facsimile (310) 274-8357

Approximate Date of Commencement of Proposed Sale to the Public: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

----------------

The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

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<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. We may not sell these securities until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+preliminary prospectus is not an offer to sell these securities and it is not +
+soliciting an offer to buy these securities in any state where the offer or +
+sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

Subject to Completion, Dated February 1, 2000

2,500,000 Shares

[Logo of WorldQuest Networks appears here]

Common Stock

This is our initial public offering. No public market currently exists for
our shares. We estimate that the public offering price for the common stock
will range between $10.00 and $12.00 per share.

Your investment in our common stock involves a high degree of risk. Before
making an investment decision, you should carefully consider the risks
described under "Risk Factors" beginning on page 5.

<TABLE>
<CAPTION>
Per
The Offering Share Total
-------------------------------------- ----- -----
<S> <C> <C>
Public offering price $ $
Underwriting discounts and commissions $ $
Proceeds to us $ $
</TABLE>

We are also offering the underwriters a 45-day option to purchase up to
375,000 shares solely to cover any over-allotments on these same terms.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

Kaufman Bros., L.P.

John G. Kinnard and Company Incorporated

WestPark Capital, Inc.

Prospectus dated , 2000
<PAGE>

[The inside front cover contains the following:]

[1. The following text appears at the top of the page:]

WorldQuest Networks [with logo]

[2. A picture of three globes appear in the middle of the page. A yellow star
indicates locations included in WorldQuest's present Internet phone
network. A white star indicates countries included in WorldQuest's Internet
phone network leased from another provider.]

[3. The following text appears below the globes:]

Using the Internet to build a global phone network

WorldQuest Gateway Network [with a key referring to the yellow star]

Partner Gateway Network [with a key referring to the white star]

2
<PAGE>

PROSPECTUS SUMMARY

You should read the following summary together with the more detailed
information regarding us and the consolidated financial statements and notes
appearing elsewhere in this prospectus. Our fiscal year ends on December 31 of
each year.

WorldQuest Networks, Inc.

Our Business

We are an international Internet telephony company. We sell virtual prepaid
calling cards through our interactive and easy to use Web site and transmit
international long distance calls at discounted rates over our own enhanced
services platform through one of two methods:

. We transmit calls over our own Internet network, which involves
transmission through our Internet gateways.

. We transmit calls over our network of leased traditional long
distance telephone lines.

Our Company

We were incorporated in October 1996 as a Texas corporation. We
reincorporated in Delaware in October 1999. Our executive offices are located
at 16990 Dallas Parkway, Suite 220, Dallas, Texas 75248. Our telephone number
is (972) 818-0460 and our Web site can be found at www.wqn.com. The information
on our Web site is not part of this prospectus.

The Offering

Shares offered by WorldQuest 2,500,000 shares
Networks........................

Shares to be outstanding after 5,696,699 shares
the offering....................

Use of proceeds................. To expand our sales and marketing efforts; to
repay indebtedness; to fund equipment
purchases including certain additional back-
up systems; to fund software development; to
increase deposits with credit card processing
companies; and for working capital and other
general corporate purposes.

We have applied to have our shares approved for quotation on the Nasdaq
National Market under the symbol "WQNI."

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Summary Financial Data

The summary financial data below has been derived from our audited and
unaudited consolidated financial statements included in this prospectus
beginning on page F-1. You should not assume that the summary financial data is
indicative of our future performance.

<TABLE>
<CAPTION>
Nine months ended
Year ended December 31, September 30,
------------------------ ----------------------
1997 1998 1998 1999
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Statement of Operations
Data:
Total revenue............... $ 51,963 $ 1,841,439 $ 784,931 $4,009,236
Gross margin (deficit)...... (175,048) (164,192) (113,845) 660,643
Operating expenses:
Selling, general and
administrative .......... 1,277,383 1,290,131 979,986 1,463,929
Research and development.. 438,860 186,638 135,627 158,469
Net loss.................... (1,764,556) (1,753,427) (1,307,684) (1,135,095)
Weighted-average common
shares outstanding - basic
and diluted (1)............ 3,000,000 3,000,000 3,000,000 3,108,638
Net loss per share - basic
and diluted (1)............ $ (.59) $ (.58) $ (.44) $ (.37)
</TABLE>

<TABLE>
<CAPTION>
At September 30, 1999
--------------------------------------
At December 31, Pro Pro forma
1998 Actual forma(2) as adjusted(3)
--------------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $ 18,833 $ 59,419 $1,687,419 $22,568,528
Working capital
(deficit).............. (2,266,669) (2,669,890) (1,041,890) 22,971,483
Total assets............ 1,246,774 1,382,250 3,282,250 23,891,359
Long-term debt and
capital lease
obligations............ 1,129,004 1,154,186 1,154,186 1,154,186
Stockholders' equity
(deficit).............. (2,514,790) (2,819,322) (1,356,132) 20,922,051
</TABLE>
- --------
(1) See note 2 of notes to consolidated financial statements for a description
of the computation of net loss per share and the number of shares used in
the per share calculation.
(2) Reflects a private placement in December 1999 of $1.9 million of promissory
notes and common stock purchase warrants.
(3) Reflects our sale of 2,500,000 shares of common stock at an assumed public
offering price of $11.00 per share and our application of the estimated net
proceeds.

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RISK FACTORS

You should carefully consider the risks and uncertainties described below
and the other information in this prospectus before deciding whether to invest
in shares of our common stock. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair our business,
financial condition and operating results.

We have a limited operating history with which to judge our performance.

We were incorporated in October 1996. We began selling prepaid virtual
calling cards on our Web site in May 1998. We began routing calls over our
enhanced services platform in August 1998. Accordingly, we have a limited
operating history. Before you decide to purchase our common stock, you should
consider the risks and difficulties frequently encountered by early stage
companies in new and rapidly evolving markets. We cannot assure you that our
business strategy will be successful or that we will successfully address these
risks. Our failure to do so could materially adversely affect our business,
financial condition and operating results.

We have a history of losses and we anticipate future losses and negative cash
flow.

Since inception, we have incurred operating losses, and as of September 30,
1999, we had an accumulated deficit of $(4.9) million. We incurred net losses
of $(1.8) million for the fiscal year ended December 31, 1998 and $(1,135,095)
for the nine months ended September 30, 1999.

We expect operating losses and negative cash flow to continue through at
least the second quarter of 2000. However, there can be no assurance that we
will be profitable beginning in the third quarter of 2000, because we expect to
incur additional costs and expenses related to:

. marketing and advertising related to traffic generation and brand
development;

. purchases of equipment for our operations and network infrastructure;

. the expansion of our telecommunications network into other countries;

. the continued development of our Web site transaction processing and
network infrastructure;

. development and improvement of additional products and services; and

. the hiring of additional personnel.

Our future profitability depends on our ability to generate and sustain
substantially higher net sales while maintaining reasonable expense levels. If
we do achieve profitability, we cannot assure you that we will be able to
sustain it or improve upon it on a quarterly or annual basis for future
periods.

Our quarterly operating results are subject to significant fluctuations and our
future operating results are unpredictable.

Our operating results are unpredictable and have fluctuated significantly on
a quarterly basis. We expect to continue to experience significant fluctuations
in our quarterly results of operations due to a variety of factors, many of
which are outside of our control. As a result, period-to-period comparisons of
our results of operations are not necessarily meaningful and should not be
relied upon as indications of future performance.

Because of our limited operating history, we cannot accurately forecast our
net sales. We rely upon limited historical financial data to predict our future
operating results. Sales and operating results are difficult to forecast
because they generally depend on the volume of traffic on our network and the
volume and timing of sales of our virtual calling cards. Because of these
factors, we may be unable to adjust our spending in a timely manner to adjust
for any unexpected revenue shortfall.

It would cause a disruption of our services if Internet service providers fail
to provide Internet access.

We depend on Internet service providers to provide Internet access to us and
our customers. We have two Internet service providers in Dallas. Our local
terminating parties in foreign countries also rely on local Internet service
providers for access to the Internet in their countries. If we lost our
connection with both of our Dallas Internet service providers, we could not
sell our virtual calling cards through our Web site, and Web initiated calls
could

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not be made by our customers, until the connection was reestablished. If a
local terminating party in a foreign country loses its Internet connection, we
could not route calls over the Internet to that destination until the
connection was reestablished. These failures could cause us to lose customers
and our ability to sell virtual calling cards and telephone services would be
affected.

Our customers also rely on Internet service providers for access to the
Internet. If our customers cannot access the Internet, they cannot access our
Web site to purchase virtual calling cards or make Web initiated calls.

Our operations will be negatively affected if our enhanced services platform
fails to operate properly.

All our calls are routed through our enhanced services platform. Our success
is dependent on our platform working properly. If our platform fails for any
reason, we could not route calls until the failure is corrected. From time to
time, we have experienced short term failures or malfunctions in our platform.
We cannot assure you that future failures will not occur.

If we do not increase the number of Web sites and portals upon which we
advertise our anticipated expansion could be adversely affected.

We market our virtual calling cards and services on third-party Web sites
and portals using banner ads. The banner ads connect directly to our Web site
when "clicked" by the customer. If we cannot continue to cost effectively
market our virtual calling cards and services, our ability to expand our
customer base would be adversely affected.

The telecommunications and Internet telephony markets are highly competitive
and our failure to compete effectively could adversely affect us.

With respect to prepaid calling cards, we compete with the largest
telecommunications providers in the United States, as well as smaller, emerging
carriers. We may also compete with large operators in other countries. An
increasing number of large, well-capitalized companies are entering the market
for Internet telephony products and services. These competitors include a
number of companies that have introduced services that make Internet telephony
solutions available to businesses and consumers, and that permit voice
communications over the Internet. Many of our competitors are substantially
larger and have greater financial, technical, engineering, personnel and
marketing resources, longer operating histories, greater name recognition and
larger customer bases than we do. Competition from existing or new competitors
could reduce our revenues from the sale of our virtual prepaid calling cards
and other services. A general decrease in telecommunication rates charged by
international long distance carriers could also have a negative effect on our
operations. Our ability to compete also depends on our ability to anticipate
and adapt to rapid technological and other changes occurring in the
telecommunications industry.

We may be vulnerable to technical malfunctions which could adversely affect our
operations.

We depend upon our software systems, communications hardware and enhanced
services platform to conduct our virtual calling card sales and telephone
routing, manage our network, track virtual calling card balances and perform
other vital functions. Our systems, communications hardware and platform are
vulnerable to damage or interruption from:

. natural disasters;

. power loss;

. telecommunication failures;

. loss of Internet access;

. physical and electronic break-ins;

. hardware defects;

. computer viruses; and

. intentional acts of vandalism and similar events.

If we experience substantial technical difficulties with our hardware or
software, we may not succeed in routing traffic effectively, or in tracking
virtual calling card balances accurately, which could adversely affect our
operations. We have experienced periodic system interruptions, which we believe
will continue to occur from time-to-time. Since our operations depend on our
ability to successfully expand our network and to integrate new technologies
and equipment into our network, there is an increased risk of system failure as
well as a natural strain on the system.

6
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Our systems may not accommodate significant growth in the number of users which
could have a negative effect on our operations.

Our success depends on our ability to handle a large number of simultaneous
calls. We expect that the volume of simultaneous calls will increase
significantly as we expand our operations. If this occurs, additional stress
will be placed upon the network hardware and software that manages our traffic.
We cannot assure you of our ability to efficiently manage a large number of
simultaneous calls. If we are not able to maintain an appropriate level of
operating performance, or if our service is disrupted, then we may develop a
negative reputation and our business, results of operations and financial
condition would be materially adversely affected.

If the Internet telephony and prepaid calling card markets do not gain market
acceptance by potential customers our business will be adversely affected.

We cannot be certain that Internet telephone service will gain market
acceptance or prove to be a viable alternative to traditional telephone
service. If the Internet telephony market fails to develop or develops more
slowly than we expect, then our future revenues would be adversely affected.

The market for prepaid calling cards is an emerging business with a large
number of market entrants. Therefore, it is difficult to accurately determine
what the demand will be for our products and services in this area. Substantial
markets may not continue to develop for prepaid calling cards, and we may not
be able to sustain or increase our sales of these products and services.

If the e-commerce market does not continue to develop and gain market
acceptance our revenues may be negatively affected.

We anticipate that e-commerce will continue to account for substantially all
of our future revenues. Our business will suffer if e-commerce does not grow or
grows more slowly than expected. A number of factors could prevent acceptance
of e-commerce, including:

. e-commerce is at an early stage and buyers may be unwilling to shift
their purchasing from traditional vendors to online vendors;

. increased government regulation or taxation may limit the growth of
e-commerce; and

. adverse publicity and consumer concern about the security of e-commerce
transactions may discourage its acceptance and growth.

These factors could impair our ability to generate revenues from our online
sales of virtual calling cards, online transmission of telephone calls and
other e-commerce activities.

If the Internet and Internet infrastructure do not continue to develop as
anticipated our operations will be negatively affected.

For the Internet to be commercially viable in the long-term, the size of the
network infrastructure, enabling technologies, necessary performance
improvements and user security will need to be continually addressed. To the
extent that the Internet continues to experience an increased number of users,
frequency of use or increased bandwidth requirements, we cannot assure you that
the performance or reliability of the Internet will not be adversely affected.
Furthermore, the Internet has experienced a variety of outages and other delays
as a result of damage to portions of its infrastructure, and could face such
outages and delays in the future. These outages and delays could adversely
affect the level of Internet usage and affect the level of traffic, the
processing of orders and the transmission of calls on our Web site.

We cannot assure you that the infrastructure or complementary products or
services necessary to make the Internet a viable commercial marketplace for the
long term will be developed. Even if these products and services are developed,
we cannot assure you that the Internet will become a viable commercial
marketplace for our virtual calling cards and services. If not, our business,
financial condition and operating results will be materially adversely
affected. Also, we may be required to incur substantial expenditures in order
to adapt our products and services to changing Internet technologies, which
could have a material adverse effect on our business, financial condition and
operating results.

7
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The failure to manage our growth in operations and hire additional qualified
employees could have a material adverse effect on us.

The expected growth of our operations place a significant strain on our
current management resources. To manage this expected growth, we will need to
improve our:

. transaction processing methods;

. operations and financial systems;

. procedures and controls; and

. training and management of our employees.

A portion of the proceeds from this offering will be used to hire additional
key personnel. Competition for personnel is intense, and we cannot assure you
that we will be able to successfully attract, integrate or retain sufficiently
qualified personnel. Our failure to attract and retain the necessary personnel
or to effectively manage our employee and operations growth could have a
material adverse effect on our business, financial condition and operating
results.

Our potential customers may have concerns about Internet commerce security
which could inhibit our growth and we may incur losses resulting from credit
card fraud.

Consumer concerns over the security of transactions conducted on the
Internet or the privacy of users may inhibit the growth of the Internet and
online commerce. To securely transmit confidential information, such as
customer credit card numbers, we rely on encryption and authentication
technology that we license from third parties. We cannot predict whether events
or developments will compromise or breach the technology that protects our
customer transaction data. If our security measures do not prevent security
breaches, this could have a material adverse effect on our business, financial
condition and operating results.

To date, we have suffered minimal losses as a result of orders placed with
fraudulent credit card data even though the associated financial institution
approved payment of the orders. Under current credit card practices, a merchant
is liable for fraudulent credit card transactions where the merchant does not
obtain a cardholder's signature. We do not obtain the signature of the
cardholder when we process orders. Although we have implemented mechanisms to
try to detect credit card fraud, we cannot assure you that our efforts will be
successful. Our inability to adequately detect credit card fraud could
materially adversely affect our business, financial condition and operating
results.

To the extent that our activities involve the storage and transmission of
proprietary information, such as credit card numbers, security breaches could
expose us to a risk of loss or litigation and possible liability. We do not
presently carry insurance policies to reimburse us for losses caused by
security breaches. We cannot assure you that our security measures will prevent
security breaches. Our failure to prevent security breaches could have a
material adverse effect on our business, financial condition and operating
results.

The market price for your common stock may be volatile, which could cause you
to lose substantial portions of your investment.

The market prices of the securities of Internet-related and online commerce
companies have been especially volatile. The trading prices of many Internet
companies' stocks are at or near historical highs and reflect valuations
substantially above historical levels. We cannot assure you that these trading
prices and valuations will be sustained. Broad market and industry factors may
materially and adversely affect the market price of your common stock,
regardless of our operating performance.

Our business may be adversely affected if we are not able to protect our
intellectual property and other proprietary rights from infringement.

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This application was challenged by Qwest Communications, who filed a notice of
opposition currently pending before the Patent and Trademark Office. If we do
not prevail, we will not be able to obtain a registered trademark for
"WorldQuest Networks" and we could be required to stop using the name or pay a
fee to Qwest for permission to use it. Any trademark may be challenged for a
period of six years after its registration date. Thus, we could also face a
cancellation proceeding with the Patent and Trademark Office relating to our
trademark for "WorldQuest." Effective trademark, service mark, copyright and
trade secret protection may not be available in every country in which our
services are made available online. Therefore, the steps that we take may be
inadequate to protect our rights.

The Internet industry may become subject to increased government regulation
which could have a negative effect on our operations.

Various actions have been taken by the United States Congress and the
Federal courts that, in some cases impose some forms of regulation on the
Internet, and in other cases protect the Internet from regulation. Domestic and
international authorities regularly consider proposed legislation that could
result in new regulations on the Internet. It is impossible to say at this time
whether and to what extent the Internet may ultimately be regulated
domestically or internationally. Increased regulation of the Internet may
decrease its growth, which may negatively impact the cost of doing business via
the Internet or otherwise materially adversely affect our business, results of
operations and financial condition.

In addition, because our services are accessible worldwide, and we
facilitate the sale of goods to users worldwide, other jurisdictions may claim
that we are required to comply with their laws. We are qualified to do business
in Delaware and Texas only, and failure by us to qualify as a foreign
corporation in a jurisdiction where we are required to do so could subject us
to taxes and penalties for the failure to qualify.

Sales tax collection by states may adversely affect our growth.

We do not currently collect sales or other similar taxes for calling cards
or services sold through our Web site, other than for calling cards sold to
Texas residents. However, one or more states may seek to impose sales tax or
similar collection obligations on out-of-state companies, such as ours, which
engage in Internet commerce. A successful assertion by one or more states or
any other country that we should collect sales or other taxes on the sale of
cards or services on our system could have a material adverse effect on our
operations.

The loss of key personnel could adversely affect our business.

We believe that our success will depend on the continued services of our
senior management team, especially B. Michael Adler and Michael R. Lanham. We
do not have employment agreements with any of our key personnel. We carry $2.0
million of key person life insurance on the lives of each of B. Michael Adler
and Michael R. Lanham. The loss of the services of any of our senior management
team or other key employees could adversely affect our business, financial
condition and operating results.

We face risks that our computer systems and those of our business partners may
not be year 2000 compliant.

Many existing computer programs use only two digits to identify a year.
These programs were designed without addressing the impact of the upcoming
change in the century. If not corrected, many computer software applications
could fail or create erroneous results.

We conducted an assessment of the Y2K readiness of our systems and those of
our third-party vendors and suppliers. This Y2K review was completed during the
fourth quarter of 1999. Based upon our assessment, we believe that our
internally developed proprietary software and that provided by third parties is
Y2K compliant. We made the transition through the year end change to 2000
without apparent service interruption to our customers and with no apparent
effects from the Y2K change. We will continue to monitor our systems and those
of our vendors and suppliers to attempt to identify latent problems and to
correct them before they interrupt service to our customers. At this time, the
expenses associated with identifying and correcting latent problems cannot be
determined. We cannot assure you that latent Y2K problems of ours or third
parties with which we do

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business will not have a material adverse effect on our business, financial
condition and operating results.

We also depend on the Y2K compliance of the computer systems and financial
services used by our customers. A significant disruption in the ability of
customers to reliably access the Internet or portions of it or to use their
credit cards would have an adverse effect on demand for our virtual calling
cards and services and would have a material adverse effect on our business,
results of operations and financial condition.

We may not be able to raise needed additional capital in the future.

We require substantial working capital to fund our business. Our working
capital requirements and cash flow provided by operating activities can vary
from quarter to quarter depending on revenues, operating expenses, capital
expenditures and other factors. We anticipate that the net proceeds of this
offering will be sufficient to meet our anticipated needs through at least the
next 18 months. Thereafter, we may need to raise additional funds. We may also
need to raise additional funds sooner than anticipated to:

. fund more rapid expansion;

. develop new or enhanced services or products; and

. respond to competitive pressures.

If additional funds are raised through the issuance of equity or convertible
debt securities your rights and ownership in our company may be reduced.

We cannot assure you that additional financing will be available on terms
favorable to us or at all. If adequate funds are not available, or are not
available on acceptable terms, we may not be able to fund planned expansion,
take advantage of available opportunities, develop or enhance services or
products or respond to competitive pressures. Such inabilities could have a
material adverse effect on our business, financial condition and operating
results.

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FORWARD LOOKING STATEMENTS

This prospectus contains certain forward-looking statements that involve
risks and uncertainties. These statements refer to our future plans,
objectives, expectations and intentions. These statements can be identified by
the use of words such as "expects," "anticipates," "intends," "plans" and
similar expressions. Our actual results could differ materially from those
anticipated in such forward-looking statements. Factors that could contribute
to these differences include, but are not limited to, those discussed above in
"Risk Factors" and elsewhere in this prospectus.

USE OF PROCEEDS

The net proceeds to us from the sale of 2,500,000 shares of common stock
offered by us at an assumed initial public offering price of $11.00 per share
(after deducting estimated underwriting discounts, the underwriters' non-
accountable expense allowance and other estimated offering expenses payable by
us), are estimated to be $24.0 million (and an additional $3.7 million from the
sale of shares if the underwriters' over-allotment option is exercised in
full).

The net proceeds of the offering will be used for the following purposes:

. expansion of our sales and marketing efforts, including increased
advertising on other Web sites and print media and direct advertising
campaigns (approximately $3.6 million);

. repayment of indebtedness (approximately $3.0 million);

. equipment purchases including certain additional back-up systems
(approximately $2.5 million);

. software development (approximately $850,000);

. increasing deposits with credit card processing companies (approximately
$150,000); and

. general corporate purposes, including working capital for payment of
outstanding payables, development of relationships with other long
distance carriers and local terminating parties, expansion of the
countries in which we have gateways, and research and development of new
products (approximately $13.9 million).

Part of the indebtedness to be repaid is a portion of a $2.5 million credit
facility with Eagle Venture Capital, LLC, formerly known as WorldQuest
Networks, LLC, our controlling stockholder. B. Michael Adler, our Chairman of
the Board, owns a controlling interest in Eagle Venture. At September 30, 1999,
$1.9 million was outstanding under the credit facility. The facility consists
of a $1.1 million term loan and a revolving line of credit of up to $1.4
million. The facility bears interest at 8% per year and the $1.1 million term
loan and accrued interest thereon is payable May 5, 2002. Any balance
outstanding under the $1.4 million revolving line of credit is payable on May
5, 2002, unless demand is made by Eagle Venture for earlier payment, and
accrued interest on the line of credit portion is payable on February 18, 2000
and thereafter is payable monthly. Demand for payment of $780,000 of the
principal balance of the line of credit portion (with accrued interest thereon)
has been made effective upon closing of this offering. The proceeds of this
credit facility were used to provide us with working capital.

The remainder of the indebtedness to be repaid is $1.9 million of principal
owed under 33 promissory notes payable to 33 persons and entities. These notes
bear interest at 8% per year and are payable on the earlier of the closing of
this offering or December 31, 2000. These notes were sold by us in a private
placement of units consisting of notes and common stock purchase warrants that
closed in December 1999. The proceeds from these notes were used to provide us
with working capital. The fair value of the stock purchase warrants of $1.5
million will be recognized as additional interest expense over the term of the
promissory notes.

Prior to their eventual use, the net proceeds will be invested in high
quality, short-term investment instruments such as short-term corporate
investment grade or United States Government interest-bearing securities.

11
<PAGE>

CAPITALIZATION

The following table sets forth, as of September 30, 1999, our (A) actual
short-term debt and capitalization at September 30, 1999, (B) pro forma to
reflect the sale of $1.9 million of promissory notes by us in December 1999 and
(C) pro forma as adjusted to reflect the sale by us of 2,500,000 shares of
common stock offered by us at an assumed initial public offering price of
$11.00 per share and the application of the net proceeds therefrom (after
deducting estimated underwriting discounts, the underwriters' non-accountable
expense allowance and other estimated offering expenses payable by us). The
information in the table should be read in conjunction with the more detailed
consolidated financial statements and notes beginning on page F-1.

<TABLE>
<CAPTION>
As of September 30, 1999
--------------------------------------
Pro forma
Actual Pro forma as adjusted
----------- ------------ -----------
<S> <C> <C> <C>
Short-term debt..................... $ 1,232,264 $1,669,074 $ --
=========== ============ ===========
Long-term debt and capital lease
obligations........................ $ 1,154,186 $1,154,186 $ 1,154,186
----------- ------------ -----------
Stockholders' equity (deficit):
Preferred stock, $.01 par value;
10,000,000 shares authorized;
none issued and
outstanding actual and as
adjusted........................ -- -- --
Common stock, $.01 par value:
50,000,000 shares authorized;
3,196,699 issued and outstanding
actual; 5,696,699 shares issued
and outstanding as adjusted
(1)............................. 31,967 31,967 56,967
Additional capital................ 2,093,849 3,557,039 27,545,412
Accumulated deficit............... (4,945,138) (4,945,138) (6,680,328)(2)
----------- ------------ -----------
Total stockholders' equity
(deficit).................... (2,819,322) (1,356,132) 20,922,051
----------- ------------ -----------
Total capitalization.......... $(1,665,136) $ (201,946) $22,076,237
=========== ============ ===========
</TABLE>
- --------
(1) As part of the private placement of $1.9 million of notes in December 1999,
we granted five-year warrants to the noteholders to purchase 323,000 shares
of common stock at an exercise price of $6.00 per share. The table above
does not reflect the effect of any future exercise of these warrants.

(2) The pro forma as adjusted accumulated deficit also reflects additional
interest expense of $1.5 million representing the fair value of the common
stock purchase warrants sold as a unit with the $1.9 million of notes.

DIVIDEND POLICY

We have never paid any dividends on our common stock, and we currently
intend to retain any future earnings to fund the development and growth of our
business. Any future determination to pay dividends will depend on our results
of operations, future earnings, financial condition and capital requirements,
applicable restrictions under any credit facilities or other debt arrangements
and such other factors deemed relevant by our Board of Directors.

12
<PAGE>

DILUTION

Our net tangible book value (deficiency) at September 30, 1999 was $(2.8)
million or $(0.88) per share. Net tangible book value (deficiency) per share
represents the amount of our total tangible assets less total liabilities,
divided by the number of shares of common stock outstanding. After giving
effect to the receipt by us of the net proceeds from a private placement of
$1.9 million of notes and common stock purchase warrants in December 1999 and
from the sale of shares of common stock offered hereby at the assumed initial
public offering price of $11.00 per share and the application of the net
proceeds therefrom (after deducting the estimated underwriting discounts, the
underwriters' non-accountable expense allowance and other estimated offering
expenses payable by us), our as adjusted net tangible book value at September
30, 1999 would have been $20.9 million or $3.67 per share. This represents an
immediate increase in net tangible book value of $4.55 per share to the
existing stockholders and an immediate substantial dilution of $7.33 per share
to new investors purchasing shares in this offering. The following table
illustrates this per share dilution:

<TABLE>
<CAPTION>
Assumed initial public offering price per share................... $11.00
<S> <C> <C>
Net tangible book value (deficiency) per share before this
offering....................................................... $(0.88)
Increase per share attributable to new investors ............... 4.55
------
Net tangible book value per share after this offering............. 3.67
-----
Dilution per share to new investors............................... $7.33
=====
</TABLE>

The following table summarizes as of September 30, 1999 the differences
between existing stockholders and new investors (before deducting the estimated
underwriting discounts, the underwriters' non-accountable expense allowance and
other estimated offering expenses payable by us) with respect to the number of
shares of common stock purchased from us, the total consideration paid and the
average price per share.

<TABLE>
<CAPTION>
Shares owned
after
the offering Total consideration
----------------- ------------------- Average price
Number Percent Amount Percent per share
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 3,196,699 56.1% $ 1,156,000 4.0% $ 0.36
New investors............... 2,500,000 43.9 27,500,000 96.0 $11.00
--------- ----- ----------- -----
Total..................... 5,696,699 100.0% 28,656,000 100.0%
========= ===== =========== =====
</TABLE>

Eagle Venture owns 2,666,478 shares of our common stock. Eagle Venture paid
an average of $0.24 per share for these shares. B. Michael Adler, our Chairman
of the Board, owns a controlling interest in Eagle Venture. Each of Mr. Adler
and one of our other directors, Hugh E. Humphrey, Jr., have options to acquire
5,000 shares of our common stock for an exercise price of $1.00 per share.
Michael R. Lanham, our President and a director, has an option to purchase
167,867 shares at an exercise price of $3.33 per share.

13
<PAGE>

SELECTED FINANCIAL DATA

You should read the selected financial and operating data set forth below in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and the
notes included elsewhere in this prospectus. The statement of operations data
set forth below for the fiscal years ended December 31, 1997 and 1998 and for
the nine months ended September 30, 1999, and the selected balance sheet data
as of December 31, 1998 and September 30, 1999 have been derived from our
audited consolidated financial statements appearing elsewhere in this
prospectus. The statement of operations data for the nine months ended
September 30, 1998 has been derived from our unaudited consolidated financial
statements. Our unaudited consolidated financial statements include all
adjustments which we consider necessary for a fair presentation of the results
of operations for these periods. The historical results are not necessarily
indicative of results to be expected for any future period.

<TABLE>
<CAPTION>
Year ended December 31, Nine months ended September 30,
------------------------ --------------------------------
1997 1998 1998 1999
----------- ----------- --------------- ---------------
<S> <C> <C> <C> <C>
Statement of Operations
Data:
Retail prepaid calling
card revenue........... $ -- $ 1,466,322 $ 618,882 $ 3,646,099
Wholesale traffic and
other.................. 51,963 375,117 166,049 363,137
----------- ----------- --------------- ---------------
Total revenue......... 51,963 1,841,439 784,931 4,009,236
Cost of sales........... 227,011 2,005,631 898,776 3,348,593
----------- ----------- --------------- ---------------
Gross margin (deficit).. (175,048) (164,192) (113,845) 660,643
Selling, general and
administrative......... 1,277,383 1,290,131 979,986 1,463,929
Research and development
costs.................. 438,860 186,638 135,627 158,469
----------- ----------- --------------- ---------------
Operating loss.......... (1,891,291) (1,640,961) (1,229,458) (961,755)
Interest expense........ (28,265) (162,466) (128,226) (173,340)
Other income............ 155,000 50,000 50,000 --
----------- ----------- --------------- ---------------
Loss before income
taxes.................. (1,764,556) (1,753,427) (1,307,684) (1,135,095)
Income tax benefit...... -- -- -- --
----------- ----------- --------------- ---------------
Net loss................ $(1,764,556) $(1,753,427) $ (1,307,684) $ (1,135,095)
=========== =========== =============== ===============
Weighted-average common
shares
outstanding - basic and
diluted................ 3,000,000 3,000,000 3,000,000 3,108,638
=========== =========== =============== ===============
Net loss per share -
basic and diluted...... $ (0.59) $ (0.58) $ (0.44) $ (0.37)
=========== =========== =============== ===============
</TABLE>

<TABLE>
<CAPTION>
At December 31, 1998 At September 30, 1999
-------------------- ---------------------
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.......... $ 18,833 $ 59,419
Working capital (deficit).......... (2,266,669) (2,669,890)
Total assets....................... 1,246,774 1,382,250
Long-term debt and capital lease
obligations....................... 1,129,004 1,154,186
Stockholders' equity (deficit)..... (2,514,790) (2,819,322)
</TABLE>

14
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Except for historical information, the discussion in this prospectus
contains forward-looking statements that involve risks and uncertainties. These
statements refer to our future plans, objectives, expectations and intentions.
These statements may be identified by the use of words such as "expects,"
"anticipates," "intends," "plans" and similar expressions. Our actual results
could differ materially from those anticipated in such forward-looking
statements. Factors that could contribute to these differences include, but are
not limited to, the risks discussed in the section titled "risk factors" in
this prospectus.

Overview

General. We are an international Internet telephony company. We sell virtual
prepaid calling cards through our interactive and easy to use Web site and
transmit long distance calls at discounted rates through our Internet and
traditional networks. We advertise, sell and deliver our virtual calling cards
worldwide exclusively through the Internet.

We were incorporated in October 1996 and began offering services for sale in
December of that year. We were formed when the principal shareholder of Eagle
Venture decided to pursue Internet telephony opportunities. In conjunction with
our formation, Eagle Venture contributed cash and other assets valued at
approximately $185,000 (the estimated fair value) in exchange for 100% of our
then outstanding common stock. During 1997, Eagle Venture contributed an
additional $316,000 to further capitalize us, but received no additional shares
of common stock.

We started our company to develop an international fax business. In May
1998, we changed our business model to focus on providing Internet based
telephone services. We began selling prepaid virtual calling cards on our Web
site in May 1998. We began routing calls over our enhanced services platform in
August 1998.

Revenues. We receive revenue from two sources, the sale of virtual calling
cards and the sale of excess line capacity to other long distance carriers. Our
virtual calling cards are sold to our customers worldwide over the Internet
through our Web site primarily through credit card purchases. Our wholesale
traffic and other revenues are derived from the sale of excess line capacity to
other long distance carriers pursuant to short-term contracts and the
transmission of facsimile traffic. Excess line capacity is the remaining
capacity on our telephone lines not used by us to terminate our calls during
any given month. Revenues from the sale of prepaid virtual calling cards is
deferred and recognized as calling services are used. Wholesale traffic revenue
is recognized as calls are processed.

All sales of our virtual calling cards are made over the Internet primarily
through credit card purchases. We use credit card processing companies to
verify credit cards. Until May 1999, our former credit card processing company
restricted the amount of credit card purchases that could be made from us per
month. That company also would not allow purchases with non United States
issued credit cards. These restrictions prevented us from increasing our sales
as rapidly as desired. In May 1999, we began processing with another credit
card processing company which sets no limit on our monthly credit card sales
and agreed to accept purchases with non United States issued credit cards. We
believe these developments may have a positive effect on sales in the near
term.

Accounts receivable consists of amounts owed by credit card processing
companies relating to prepaid virtual calling card sales, and amounts owed by
telephone companies for processed call traffic. At September 30, 1999, no
telephone company accounted for more than 10% of total accounts receivable, but
a telephone company accounted for 59% of total accounts receivable at December
31, 1998. At September 30, 1999, a credit card processing company accounted for
22% of total accounts receivable. This company had no accounts receivable at
December 31, 1998, but another credit card processing company accounted for 26%
of total accounts receivable at December 31, 1998. No individual customer
accounted for more than 10% of total

15
<PAGE>

sales either for the first nine months of 1999 or for 1998. Customers purchase
our virtual prepaid calling cards primarily using major credit cards which are
reimbursed by credit card processing companies. Accordingly, we do not
routinely perform on-going credit evaluations of our customers, but do perform
evaluations of our credit card processors. Additionally, we do not require
collateral.

Certain Assumptions. Unless otherwise indicated, all information in this
prospectus gives effect to: our reincorporation in Delaware in October 1999;
gives effect to a 290-for-1 stock dividend in January 1997; assumes no exercise
of the underwriters' over-allotment option or exercise of the representatives'
warrant; assumes no exercise of outstanding warrants and stock options to
purchase 865,031 shares of common stock; assumes no exercise of stock options
to purchase 10,000 shares of common stock to be granted at the effective date
of this offering at an exercise price equal to the initial public offering
price; assumes no issuance of options for 196,836 shares of common stock
available at the effective date of this offering for future issuance under our
stock option plan; and assumes no exercise of options for up to 250,000 shares
of common stock that may be granted at an exercise price of $6.00 per share
pursuant to an existing consulting agreement. If options are granted pursuant
to this consulting agreement, the fair value of the options will be recognized
as additional expense over the length of the estimated service period.

Expenses. Due to our changing business model from fax services to Internet
telephony services, we have substantially expanded our infrastructure and
increased our capital expenditures and capital lease obligations relating to
property and equipment. During the first nine months of 1999, our capital
expenditures and payments on capital leases totaled $262,000. These capital
expenditures and payments were $202,000 during 1998. As we continue to grow, we
expect to expand our infrastructure by increasing our capital expenditures and
leases. We expect these expenditures will represent a smaller percentage of
sales as our sales volume grows.

Research and development costs are expensed as incurred and consist
primarily of salaries, supplies and contract services.

Since inception, we have incurred significant losses and, as of September
30, 1999, had an accumulated deficit of $(4.9) million. We expect operating
losses and negative cash flow to continue through at least the second quarter
of 2000. We expect to incur additional costs and expenses related to:

. marketing and advertising related to traffic generation and brand
development;

. purchases of equipment for our operations and network infrastructure;

. the expansion of our telecommunications network into other countries;

. the continued development of our Web site transaction processing and
network infrastructure;

. development and improvement of additional products and services;

. the hiring of additional personnel; and

. the payment of commissions to various Internet portals and Internet
service providers for marketing our address book/calendar product to
their customers.

We have a limited operating history on which to base an evaluation of our
business and prospects. In addition, due to the change in our model from fax
services to Internet telephony services in May 1998, 1998 operations only
include a period of eight months of revenues from Internet telephony services.
Therefore, it is not very meaningful to compare 1998 to 1997 because of the
different models pursued in each year. You must also consider our prospects in
light of the risks, expenses and difficulties frequently encountered by
companies in their early stage of development, particularly companies in new
and rapidly evolving markets such as e-commerce. Such risks for us include, but
are not limited to, an evolving and unpredictable business model and management
of growth. To address these risks, we must, among other things, maintain and
expand our customer base, implement and successfully execute our business and
marketing strategy, continue to develop and upgrade our technology and systems
that we use to process customers' orders and payments, improve our Web site,
provide superior customer service, respond to competitive developments and
attract, retain and

16
<PAGE>

motivate qualified personnel. We cannot assure you that we will be successful
in addressing such risks, and our failure to do so could have a material
adverse effect on our business, prospects, financial condition and results of
operations.

Results of Operations

The following table sets forth statement of operations data as a percentage
of revenues for the periods indicated:

<TABLE>
<CAPTION>
Nine months
ended
Year ended September
December 31, 1998 30,
----------------- --------------
1998 1999
------ -----
<S> <C> <C> <C>
Retail prepaid calling card revenue.......... 79.6% 78.8% 90.9%
Wholesale traffic and other(1)............... 20.4 21.2 9.1
----- ------ -----
Total revenue.............................. 100.0 100.0 100.0
Cost of sales................................ 108.9 114.5 83.5
----- ------ -----
Gross margin (deficit)....................... (8.9) (14.5) 16.5
Selling, general and administrative.......... 70.1 124.8 36.5
Research and development..................... 10.1 17.3 3.9
----- ------ -----
Operating loss............................... (89.1) (156.6) (23.9)
Interest expense............................. (8.8) (16.3) (4.3)
Other income................................. 2.7 6.3 --
----- ------ -----
Net loss..................................... (95.2)% (166.6)% (28.2)%
===== ====== =====
</TABLE>
- --------
(1) Wholesale traffic represents the sale of excess line capacity and other
revenue represents facsimile transmission revenues in 1998.

Nine Months Ended September 30, 1999 Compared to Nine Months Ended September
30, 1998

Revenue

Revenue increased to $4.0 million for the nine months ended September 30,
1999 from $785,000 for the comparable period in 1998 as a result of the change
in our business model, significant growth of our customer base and an increase
in repeat purchases from our existing customers. Of the $4.0 million revenue
for the nine months ended September 30, 1999, $3.6 million represents prepaid
virtual calling card revenue and the remainder represents wholesale traffic of
$328,000 and other revenue of $35,000, all of which other revenue was derived
from a subsidiary which ceased operations in June 1999.

Cost of Sales

Cost of sales consists primarily of the costs of termination of long
distance traffic over our networks. Cost of sales increased to $3.3 million for
the nine months ended September 30, 1999 from $899,000 for the comparable
period in 1998. This $2.4 million increase was primarily attributable to our
increased sales volume. We expect cost of sales to increase in future periods
to the extent that our sales volume increases.

Operating Expenses

Selling, General and Administrative. Selling, general and administrative
expenses consist of advertising and promotional expenditures, payroll and
related expenses for executive and administrative personnel, facilities
expenses, professional services expenses, travel and other general corporate
expenses. Selling, general and administrative expenses increased to $1.5
million for the nine months ended September 30, 1999 from $980,000 for the
comparable period in 1998, but decreased significantly as a percentage of
revenue. Such expenses are expected to continue to decrease as a percentage of
revenue during 1999 because our sales of calling cards are based on e-commerce
which allows increases in calling card purchases without having to
incrementally add overhead. We expect selling, general and administrative
expenses to increase in absolute

17
<PAGE>

dollars as we continue to pursue advertising and marketing efforts, expand our
network termination locations worldwide, expand our staff and incur additional
costs related to the growth of our business and being a public company.

Research and Development Costs. Research and development costs consist
primarily of payroll and related expenses for evaluating and integrating new
hardware and software, Web site development and information technology
personnel, Internet access and hosting charges and Web content and design
expenses. Research and development costs increased to $158,000 for the nine
months ended September 30, 1999 from $136,000 for the comparable period in
1998. While we will continue to incur expenses for research and development to
increase our product line and enhance our services, we expect these
expenditures will continue to decrease as a percentage of revenue as our sales
volume increases.

Interest Expense

Interest expense consists of interest charges attributable to capital leases
for equipment and to borrowings under a credit facility with our principal
stockholder. The increase to $173,000 for the nine months ended September 30,
1999 from $128,000 for the comparable period in 1998 is attributable to
increased borrowings under the credit facility and new equipment leases entered
into after the end of the 1998 period.

Other Income

Other income consists of license fees received from our previous fax
services business model. Other income was zero for the nine months ended
September 30, 1999 as compared to $50,000 for the comparable period in 1998.

Net Loss

We incurred a net loss of $(1,135,095) for the nine months ended September
30, 1999 as compared to $(1.3) million for the comparable period in 1998. Net
loss for the nine months ended September 30, 1999 was affected by the write off
of $140,000 of goodwill during the first quarter of 1999 in connection with the
termination of our Costa Rican operations in June 1999.

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

Revenue

Revenue increased to $1.8 million for 1998 from $52,000 for 1997 as a result
of the change in our business model, significant growth of our customer base
and an increase in repeat purchases from our existing customers. Of the $1.8
million, $1.5 million represents prepaid virtual calling card revenue and the
remainder represents wholesale traffic of $153,000 and other revenue of
$222,000, all of which other revenue was derived from a subsidiary which ceased
operations in June 1999.

Cost of Sales

Cost of sales increased to $2.0 million for 1998 from $227,000 for 1997.
This $1.8 million increase was primarily attributable to increased sales
volume.

Operating Expenses

Selling, General and Administrative. Selling, general and administrative
expenses remained constant at $1.3 million between 1998 and 1997. Selling,
general and administrative expenses decreased significantly as a percentage of
revenue due to the low revenue level in 1997.

18
<PAGE>

Research and Development Costs. Research and development costs decreased to
$187,000 in 1998 from $439,000 in 1997. This $252,000 decrease was primarily
attributable to a change from a hardware and downloadable software based
Internet fax model to a Web page driven prepaid virtual calling card model.
Research and development is not as significant under our Internet telephony
model as under our facsimile transmission model.

Interest Expense

Interest expense increased to $162,000 in 1998 from $28,000 in 1997 as a
result of increased borrowings under a credit facility with our principal
stockholder and new equipment leases entered into during 1998.

Other Income

Other income was $50,000 for 1998 as compared to $155,000 for 1997.

Net Loss

We incurred a net loss of $(1.8) million in each of 1998 and 1997 as we
changed our business model from a fax services to Internet telephony services
company and developed an infrastructure for future growth.

Income Taxes

As of December 31, 1998, we had approximately $2.9 million of net operating
loss carryforwards for federal income tax purposes, which expire beginning in
2011. We have provided a full valuation allowance on the deferred tax asset,
consisting primarily of net operating loss carryforwards, because of
uncertainty regarding its future realizability. Limitations on the utilization
of these carryforwards may result if we experience a change of control, as
defined in the Internal Revenue Code of 1986, as amended, as a result of
changes in the ownership or our common stock.

Recent Developments

In December 1999, the Company raised $1.9 million through the private
placement of units consisting of promissory notes with a face value of $1.9
million and common stock purchase warrants. The notes bear interest at 8% per
annum and mature and become immediately due and payable upon the earlier of an
initial public offering or December 31, 2000. The fair value of the stock
purchase warrants of $1.5 million will be recognized as additional interest
expense over the term of the promissory notes.

In the fourth quarter of 1999, the Company will expense approximately
$300,000 of deferred costs associated with a previous public offering
registration statement which was withdrawn.

We are currently negotiating a strategic arrangement with a major
international Internet services provider for the co-marketing and co-
distribution of certain of our products and services. This strategic partner
will also provide certain Internet connectivity and access to local telephone
networks. We may also direct up to 10% of the shares offered by this prospectus
to the strategic partner at the initial public offering price. There can be no
assurance that a formal arrangement or agreement will be reached or that the
strategic partner will purchase any of the shares offered by this prospectus.

Liquidity and Capital Resources

Since inception, we have financed our operations primarily through a $2.5
million credit facility with our principal stockholder, private sales of equity
and debt and cash generated from operations. As of September 30, 1999, we had
approximately $59,000 of cash and cash equivalents. As of that date, our
principal commitments consisted of obligations outstanding under capital leases
for equipment, obligations under leases and contracts for long distance
transmissions and our credit facility with our principal stockholder. In
December 1999, we

19
<PAGE>

raised $1.9 million through the private placement of units consisting of
promissory notes and common stock purchase warrants. The $1.9 million owed
pursuant to these notes will be repaid from the proceeds of this offering.

Outstanding amounts owed to our principal stockholder as of September 30,
1999 were $1.9 million and as of December 31, 1998 were $1.7 million. In May
1999, we amended our credit facility with our principal stockholder to convert
$1.1 million to a term loan bearing interest at 8% per annum with interest and
principal payable May 5, 2002. Our principal stockholder also agreed at such
time to convert $200,000 of the loan into 60,061 shares of our common stock, at
a conversion price of $3.33 per share. We also continue to have a line of
credit with our principal stockholder. The amount we are able to borrow under
this line of credit was increased to $1.4 million by an amendment to our credit
facility in August 1999, $468,000 of which was drawn and outstanding as of the
date of the amendment. Demand for payment of $780,000 of the outstanding
principal balance of the line of credit portion has been made effective upon
the closing of this offering, and we intend to repay such amount from the
proceeds of this offering.

Net cash used in operating activities was $498,000 for the nine months ended
September 30, 1999, $661,000 in 1998 and $1.0 million in 1997. Net cash used in
operating activities for 1998 and 1997 primarily consisted of net operating
losses as well as increases in accounts receivable and other assets, partially
offset by increases in accounts payable and accrued expenses.

Net cash used in investing activities consists of additions to property and
equipment, including computer equipment and Internet gateways for voice over
the Internet transmission. Net cash used in investing activities was $125,000
for the nine months ended September 30, 1999, $148,000 in 1998 and $111,000 in
1997. During 1999, we expect to spend approximately $330,000 in capital
expenditures, of which $160,000 will be for gateway servers, $20,000 for a data
base server, $100,000 for software and $50,000 in miscellaneous other
equipment. Through September 30, 1999, $135,000 of such amount had been spent.

Net cash provided by financing activities was $664,000 for the nine months
ended September 30, 1999, $841,000 for 1998 and $1.1 million for 1997. Net cash
provided by financing activities for 1998 and 1997 was affected by higher
levels of borrowings under our credit facility with our principal stockholder
and for 1997 was affected by a capital contribution of $316,000 from our
principal stockholder. During 1999, we expect to spend approximately $150,000
under capital leases for a switching platform. Through September 30, 1999,
payments on capital leases totaled $126,000.

We currently anticipate that the net proceeds of this offering, together
with our available funds, will be sufficient to meet our anticipated needs for
working capital and capital expenditures through at least the next 18 months.
We may need to raise additional funds prior to the expiration of such period
if, for example, we pursue business or technology acquisitions or experience
operating losses that exceed our current expectations. If we raise additional
funds through the issuance of equity, equity-related or debt securities, such
securities may have rights, preferences or privileges senior to those of the
rights of our common stock and our stockholders may experience additional
dilution. We cannot be certain that additional financing will be available to
us on favorable terms when required, or at all.

Recent Accounting Pronouncements

In June 1997, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income," which
requires disclosure of total comprehensive income in interim and annual
financial statements. We adopted this standard during 1998. There were no items
of other comprehensive income for the nine months ended September 30, 1999 or
for 1998 and 1997.

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information," which requires disclosure by public
companies of information related to a company's operating segments, as defined.
We have adopted this standard for 1998.

20
<PAGE>

In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." This statement provides guidance on
accounting for the costs of computer software developed or obtained for
internal use. This statement identifies the characteristics of internal use
software and provides guidance on new cost recognition principles. This
statement is effective for fiscal years beginning after December 15, 1998. This
statement is not expected to have a material impact on our results of
operations, financial position or cash flows.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, which provides guidance on revenue recognition and
certain lease arrangements. This statement is effective for fiscal years 2000
and is not anticipated to have a material effect on our results of operations,
financial position or cash flows.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivatives and Similar
Financial Instruments and for Hedging Activities," which provides a
comprehensive and consistent standard for the recognition and measurement of
derivative and hedging activities. We will be required to adopt this standard
at the beginning of fiscal 2001. We have not yet assessed the impact this
standard will have on our results of operation, financial position or cash
flows. However, we currently have no derivatives or financial instruments that
would be impacted by this standard.

Year 2000

Many existing computer programs use only two digits to identify a year.
These programs were designed and developed without addressing the impact of the
recent change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the year
2000. We use software, computer technology and other services internally
developed and provided by third-party vendors that may fail due to the year
2000 phenomenon. For example, we are dependent on the financial institutions
involved in processing our customers' credit card payments for Internet
services and third parties that provide our Internet access. We are also
dependent on telecommunications and Internet vendors to maintain our network.

We have reviewed the year 2000 compliance of our internally developed
proprietary software. This review has included testing to determine how our
systems will function at and beyond the year 2000. Since inception, we have
internally developed substantially all of the systems for the operation of our
Web site. These systems include the software used to provide our Web site's
search, customer interaction, and transaction-processing and delivery
functions, as well as monitoring and back-up capabilities. Based upon our
review, we believe that our internally developed proprietary software is year
2000 compliant.

We have assessed the year 2000 readiness of our third-party supplied
software, computer technology and other services, which include software used
in accounting, database and security systems. The failure of such software or
systems to be year 2000 compliant could have a material negative impact on our
corporate accounting functions and the operation of our Web site. As part of
the assessment of the year 2000 compliance of these systems, we have sought
assurances from these vendors that their software, computer technology and
other services are year 2000 compliant. We have expensed amounts incurred in
connection with year 2000 assessment since our formation through September 30,
1999. Such amounts have not been material. We completed this assessment process
during the fourth quarter of 1999. Based upon the results of this assessment,
we determined that a remediation plan with respect to third-party software,
third-party vendors and computer technology was not necessary. We completed any
required remediation during the fourth quarter of 1999. In spite of our review
and assessments, it is possible that something was omitted or missed during our
evaluation. The failure of our software and computer systems and of our third-
party suppliers to be year 2000 complaint would have a material adverse effect
on us.

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We also contacted all of our credit card processing companies, Internet
service providers, local terminating parties and long distance carriers to
determine their year 2000 compliance. We requested evidence from each of these
companies regarding the level of their year 2000 readiness and compliance, and
we conducted selected tests to confirm their year 2000 readiness.

The year 2000 readiness of the general infrastructure necessary to support
our operations is difficult to assess. For instance, we depend on the integrity
and stability of the Internet to provide our services. We also depend on the
year 2000 compliance of the computer systems and financial services used by
consumers. Thus, the infrastructure necessary to support our operations
consists of a network of computers and telecommunications systems located
throughout the world and operated by numerous unrelated entities and
individuals, none of which has the ability to control or manage the potential
year 2000 issues that may impact the entire infrastructure. Our ability to
assess the reliability of this infrastructure is limited and relies solely on
generally available news reports, surveys and comparable industry data. Based
on these sources, we believe most entities and individuals that rely
significantly on the Internet carefully reviewed and attempted to remediate
issues relating to year 2000 compliance, but it is not possible to predict
whether these efforts will be successful in reducing or eliminating the
potential negative impact of year 2000 issues. A significant disruption in the
ability of consumers to reliably access the Internet or portions of it or to
use their credit cards would have an adverse effect on demand for our services
and would have a material adverse effect on us.

We made the transition through the change to the year 2000 without apparent
service interruption to our customers and with no apparent effects from the
year 2000 change. We will continue to monitor our systems and those of our
vendors and suppliers to attempt to identify latent problems and to correct
them before they interrupt service to our customers. Based upon our analysis to
date, we do not believe it is necessary to develop and write a formal
contingency plan to address situations that may result if our vendors or we are
unable to maintain year 2000 compliance because we currently do not believe
that such a plan is necessary. The cost of developing and implementing such a
plan, if necessary, could be material. Any failure of our material systems, our
vendors' material systems or the Internet to be year 2000 compliant could have
material adverse consequences for us. Such consequences could include
difficulties in operating our Web site effectively, taking product orders,
making product deliveries or conducting other fundamental parts of our
business.

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BUSINESS

We are an international Internet telephony company. We sell virtual prepaid
calling cards through our interactive and easy to use Web site and transmit
long distance calls at discounted rates through our Internet and traditional
networks. We advertise, sell and deliver our virtual calling cards worldwide
exclusively through the Internet.

All of our calls are made from phone-to-phone over our networks. The voice
quality of our Internet carried calls is virtually the same as an international
telephone call carried over a traditional telephone line. We believe consumers
are more familiar and comfortable using telephones to make calls, as opposed to
computers which have historically been used for Internet telephony.

We focus on the international long distance market, with particular emphasis
on the calling patterns between the United States and various countries. Our
virtual calling cards may be used to call from the United States to other
countries, to call from other countries to the United States, or to call
between countries outside the United States.

We also buy, at a discount, virtual calling cards processed through other
companies' platforms and sell them to our customers.

We incorporated in Texas in October 1996. We reincorporated in Delaware in
October 1999.

Industry Overview

The Internet is an increasingly significant interactive global medium for
communication, information and commerce. International Data Corporation, a
market research firm, estimates that the number of users who make purchases
over the Internet worldwide will grow from 31 million in 1998 to more than
183 million in 2003.

Emergence of Internet Telephony. TeleGeography, a market research firm,
estimates that revenues from international long distance traffic will grow from
$65.9 billion in 1997 to $77.5 billion in 2001, with consumers and businesses
making an estimated 128.7 billion minutes of international long distance calls
in 2001. However, traditional international long distance calls routed over
domestic and foreign public switched telephone networks are still relatively
expensive for the consumer.

Internet telephony has emerged as a low cost alternative to traditional long
distance telephony. Internet telephone calls are less expensive than
traditional international long distance calls primarily because these calls are
routed over the Internet. The use of the Internet bypasses a significant
portion of international long distance networks and the relevant tariffs. Also,
routing calls over the Internet is more cost-effective than routing calls over
traditional circuit-switched networks, because the packet-switching technology
that enables Internet telephony is more efficient than traditional circuit-
switched voice technology. Packet-based networks, unlike circuit-based
networks, do not require a fixed amount of bandwidth to be reserved for each
call. This allows voice and data calls to be pooled, which means that packet
networks can carry more calls with the same amount of bandwidth. This greater
efficiency creates network cost savings that can be passed on to the consumer
in the form of lower long distance rates.

Problems of Existing Internet Telephony. The growth of Internet telephony
has been limited to date due to poor sound quality attributable to
technological issues such as delays in packet transmission and bandwidth
limitations related to Internet network capacity and local access constraints.
However, recent improvements in packet-switching and compression technology,
new software algorithms and improved hardware have substantially reduced delays
in packet transmissions. In addition, the use of private networks to transmit
calls as an alternative to the public Internet is helping to alleviate capacity
constraints.

Several large long distance carriers, including AT&T and Sprint, have
announced Internet telephony service offerings. However, many of these service
offerings have not been deployed on a large scale. Many also require users to
purchase other telecommunications services or allow only domestic calling.
Smaller Internet

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telephony service providers also offer low-cost Internet telephony services
from personal computers to telephones and from telephones to telephones. We
also believe that existing Internet telephony service providers rely upon
technologies and systems that lack large-scale billing, network management and
monitoring systems, and customer service capabilities required for the
integration of voice communication into the Web.

In addition, many other companies currently provide Internet telephony
software and services that allow Internet telephone calls to be made between
personal computers. However, most of these companies require both the initiator
and the recipient of the call to have the same software installed on their
personal computers and to be online at the same time.

Prepaid Calling Card Industry. According to The PELORUS Group, a market
research firm, the market for prepaid calling cards has grown from an estimated
$300.0 million in 1993 to an estimated $2.8 billion in 1998. PELORUS predicts
that this market will rise to $10.9 billion in 2003. According to PELORUS,
there were 30 million prepaid calling cards sold in the United States in 1993
and 400 million sold in 1998. PELORUS predicts there will be 652 million cards
sold in the United States in 2003. This growth is attributed to three trends
according to industry sources. First, the larger telecommunications companies
have come to understand the strategic and financial benefits of prepaid calling
cards. Second, consumers are becoming more aware of various advantages of
prepaid cards. Third, businesses are beginning to purchase prepaids as a means
of controlling telephony costs and simplifying record keeping. We believe that
the affordable pricing, convenience and enhanced features of prepaid calling
cards has attracted price sensitive customers, business travelers,
international callers and other users of long distance service. Also, while
prepaid calling cards are relatively new in the United States, they have been a
widely used and accepted method of making telephone calls in Europe and Asia
since the 1970s.

Problems with Traditional Prepaid Calling Card Industry. Manufacturers of
traditional prepaid long distance calling cards face numerous issues and costs.
These include costs associated with physical production of the actual cards,
security issues and costs to prevent theft during storage and transport, and
inventory costs to maintain cards at potentially numerous physical locations.
Manufacturers must also establish and maintain a retail distribution network.
Traditional prepaid long distance calling cards are typically sold through
multiple retail outlets familiar to consumers. These outlets include grocery
stores, convenience stores, discount retail stores, gas stations and stores
targeting resident nationals from other countries. The typical arrangement to
induce a retailer to carry prepaid cards in stores or in dispensing machines
involves providing the retailer with an inventory on consignment and allowing
the retailer a substantial commission on the sale of each card, thus adding
additional costs for the manufacturer.

We also believe that manufacturers using traditional store-based retailers
face a number of challenges in providing a satisfying combination of products
to its customers, including:

. the number of prepaid cards and the variety available is constrained by
the limited shelf space available in the retail outlet, thereby limiting
selection for consumers;

. security issues for this type of inventory are a disincentive to many
traditional store-based retailers;

. due to the cost of carrying inventory in multiple store locations,
traditional store-based retailers focus their product selection on the
most popular products that produce the highest inventory turns, thereby
further limiting consumer selection; and

. the ability to make sales is limited to the hours the traditional store-
based retailers are open for business.

In addition, we believe that many consumers find the shopping experience to
be time-consuming, inconvenient and unpleasant due to factors such as location,
store layout, product selection, level of customer service and the
inconvenience of having to leave home to purchase something that can be sold
and delivered another way.

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WorldQuest Networks Solution

Internet Telephony. We believe we provide a superior international telephony
service. All of our calls are made from phone-to-phone over our network of
leased dedicated international and local long distance lines or over our
Internet network using Internet gateways. There is virtually no difference
between the voice quality of our Internet carried calls and international
telephone calls carried over traditional telephone lines and our customers do
not experience transmission delays experienced with earlier Internet telephony.
We believe consumers are more familiar and comfortable with telephones to make
calls, as opposed to computers. Also, it is not necessary to have special
hardware or software on a personal computer to make calls using our network.
Once we have electronically issued a virtual calling card and a toll free
access number to a customer, it is not necessary to have a personal computer to
make a call from the United States to other countries. For calls from other
countries to the United States or another country, a standard personal computer
with access to the Internet is used to communicate with our Web site to
initiate a call and then the call is completed by our calling platform phone-
to-phone. We are focusing our marketing efforts on developing countries that
have high international long distance rates and significant calling traffic to
the United States or other countries.

Prepaid Virtual Calling Cards. We believe our e-commerce solution provides
consumers with a wide range of product choice and a superior shopping
experience. We market, sell and deliver our prepaid virtual calling cards
worldwide exclusively over the Internet within seconds of the customer's
decision to buy. We deliver virtual cards to our customers electronically
through our Web site once the electronic purchase has been completed. This
allows our customers to use them immediately to place long distance calls. It
allows us to avoid the cost of physically printing, storing, safeguarding and
delivering actual calling cards. We also avoid the necessity of negotiating
with and maintaining a retail distributor network to sell and distribute our
cards.

Our virtual calling cards give us the flexibility of promptly changing the
rates and features to respond to changing consumer demand, rather than having
an inventory of physical cards with set features that cannot be changed until
all are recalled or used. This also allows us to offer and test several
different types of virtual calling cards with varying pricing features, thus
providing a greater selection to our customers.

Our Web site is accessible 24 hours per day, seven days a week, so we are
not constrained by the hours that a retail store would be open for business.
Our Web site may also be reached from the customer's home or office. The
customer is not required to physically travel to another location to make a
purchase and receive delivery. Our online purchasing and delivery also allows
us to deliver a broad selection of products to customers worldwide in rural or
other locations that do not have convenient access to physical stores.

Business Strategy

Our goal is to be a leading worldwide Internet telephony company. Our
objective is to increase our revenues through increasing our customer base and
the number of countries we access through our Internet network. The strategy to
achieve our goal and take advantage of market opportunities includes:

Identify Target Countries and Customer Groups. Our strategy is to provide
international long distance service to and from countries which have high
numbers of international long distance calls. We also target countries that
have high international long distance rates, which normally means full
deregulation has not yet occurred. We determine these countries through
research of publicly available international long distance calling patterns and
other sources.

Advertise on Web Sites and Portals Frequented by Target Groups. Once we have
identified a desired country and customer group, we research Web sites and
portals frequently visited by this customer group in the United States and
abroad. When a desirable Web site or portal has been found, we negotiate our
advertising arrangement and place a banner ad on the Web site which connects
directly to our Web site (www.wqn.com) when "clicked" by the customer. By
advertising in this way, we do not need physical retail sites to store and
display calling cards. The use of banner advertising on Internet Web sites and
portals allows us great flexibility in marketing. Banners can be changed easily
and quickly to feature new rates, seasonal specials, new art work and new
destinations. We placed our first banner ad on another Web site in April 1998
and as of December 1, 1999 had banner ads on 17 Web sites.

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Increase Our Name Recognition. We believe that brand name recognition is an
important component of customer loyalty. Our goal is for our Web site to be a
preferred Internet destination of choice for international long distance
telephone customers. We plan to increase our name and product recognition
through increased advertising on other Web sites and portals, direct e-mail
marketing to e-mail lists of our Internet service providers and other select
mailing lists, e-mail communications with our customer base and other
promotional activities.

Place Internet Gateways in Countries Currently Served and in Additional
Countries. Our future profitability is based in large part on our ability to
transmit our customers' international long distance telephone calls on a cost
effective basis over the Internet. We intend to place additional Internet
gateways in certain countries currently served and in additional countries. By
extending our Internet network, we expect to be able to lower our transmission
costs for international long distance calls.

Continue to Offer Enhanced Services and Products. We offer a selection of
virtual cards targeted with special rates for various international markets. We
intend to develop and offer additional products and services that complement
our existing products and services. We will evaluate and test these new
products and services and introduce them when we believe they will be accepted
by customers.

Promote Repeat Purchases. We are focused on promoting customer loyalty,
building repeat purchase relationships with our customers, leveraging our
customer acquisition costs and maximizing the lifetime value of our customer
relationships. As our customer base grows, we continue to collect significant
data about our customers' buying preferences and habits in an effort to
increase repeat purchases by existing customers. We intend to maximize the
value of this information by delivering meaningful information and special
offers to our customers via e-mail and other means. From inception through
September 30, 1999, we had sold virtual calling cards purchased with
approximately 47,430 separately identifiable credit cards. Of these separately
identifiable credit cards, 20,768 had made more than two repeat purchases,
5,075 had made more than 10, 1,209 had made more than 25, and 250 had made more
than 50 repeat purchases.

Focus on Convenience. We believe the most successful Internet Web sites are
those which allow a customer to complete the purchase transaction while
connected to the Web site. Our "buy it now, use it now" approach to our product
marketing permits the customer to make a purchase and begin using the product
within two to three minutes depending on the speed of the customer's Internet
connection.

Our Telephone Service Products

We sell virtual prepaid calling cards over the Internet. They are virtual
because we do not issue a physical card. Rather, we electronically issue a
personal identification number, or PIN, to the customer when the electronic
purchase transaction is completed. Once sold, the virtual calling card can be
used immediately to make international and domestic long distance calls. During
the nine months ended September 30, 1999, on average, 53.7% of the minutes
purchased on our virtual calling cards were used within three days of purchase,
85.5% within 13 days and 94.9% within 31 days. We believe this rapid use and
the convenience of our Web site and our "buy it now, use it now" capability
fosters repeat purchases and repeat customers.

Our system functions as follows. A potential customer accesses our Web site
follows the prompts to enter the credit card information to purchase the
virtual calling card, we verify the credit card within seconds and the
confidential PIN and a toll free number is displayed for the customer to
record, and the virtual calling card can be used immediately to place a call.
The customer information becomes part of our data base for future reference.

U.S. Access. Our U.S. Access virtual calling cards provide access to our
network for calls from the United States to more than 241 countries and
territories. When using the U.S. Access virtual calling card for a call from
the United States to another country, the customer uses a touch tone telephone
to dial a toll free number and enters the PIN and the telephone number the
customer seeks to reach. Our enhanced services platform determines the virtual
calling card is valid and the number of call minutes remaining on it, based on
the rate for the country being called. The platform then completes the call and
reduces the available credit balance on the virtual calling card at the
conclusion of the call.

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World Access. When using the World Access virtual calling card for a call
from another country to the United States or from country to country outside
the United States, the customer initiates the call through the Internet by
accessing our Web site and going to the world access page. On this page, a
virtual card is displayed and the customer enters the telephone number where he
or she is, the telephone number he or she wants to call and his or her PIN and
then "clicks" on the call button. This information is transmitted over the
Internet to our platform. The platform determines the virtual calling card is
valid and has a sufficient balance and then routes a call to the customer at
the number where he or she is. When the customer answers, the platform
completes the call by connecting to the number the customer wanted to call.
This feature allows customers to make calls from anywhere in the world at our
international United States long distance rates using the virtual calling card
and Internet access to our Web site and platform.

In certain countries where we have an Internet gateway, we can e-mail to
customers a local telephone number to dial. This number connects to our
platform the same as if the toll free number in the United States had been
dialed and the process is the same from that point. This feature allows a
customer to place a call from that country to the United States or another
country with a touch tone telephone and without the need for Internet access to
our Web site and platform. These calls are also at our international United
States long distance rates.

Phone Collect. Another service we have recently launched and intend to make
available in the second quarter of 2000 is our Phone Collect service. While on
our Web site and after going to the Phone Collect page, a customer will be able
to enter his or her name and address and we will issue a Phone Collect PIN
without charge. The customer will then be able to enter his or her PIN and the
telephone number where he or she is and "click" on the call button. This
information will be transmitted over the Internet to our platform. Our platform
will dial a United States operator service company and route a call to the
customer at the number where he or she is. When the customer answers, he or she
will have a connection to a United States operator and can place a collect or
operator assisted call. We will be paid by the United States operator service
company for the call.

Intelligent Address Book and Calendar. Another new service we have developed
and made available on our Web site in the fourth quarter of 1999 is our
Intelligent Address Book and Calendar. The Intelligent Address Book and
Calendar is an electronic address book with names, telephone numbers and
scheduled events which is maintained by us on our secure Web site. This service
is a membership club and is interactive so the customer can add and delete
names, numbers and events. The Intelligent Address Book and Calendar enables an
approved customer to make an international long distance call or PC generated
facsimile transmission from any country to any other country at our
international United States long distance rates, by simply accessing our Web
site and following the prompts to the page for the Intelligent Address Book and
Calendar for such customer, selecting the number where the customer is located
and then "clicking" the name and number of the person to be called or to whom
the facsimile transmission is to be sent. We recently signed strategic alliance
agreements with three Internet portals, Mosaic Communications, a Phillipine
portal (www.mozcom.com), and India World (www.samachar.com) and Probity
Research & Services Pvt Ltd (www.indiainfoline.com), both Indian portals. These
agreements call for these portals to promote our Intelligent Address Book and
Calendar to their customers and for us to provide the long distance service and
the software. We pay a commission to the portals for the business they
generate.

Resale of Virtual Calling Cards. We also buy virtual calling cards processed
through other companies' platforms. We buy them at a discount and sell them to
our customers on our Web site as our virtual calling cards. We sell these
virtual calling cards for calls from the United States to other countries where
we have not established our own Internet network and where our negotiated rates
with our international long distance carriers are not as favorable. We estimate
that approximately 70% of our revenues for the nine months ended September 30,
1999 were generated from these virtual calling cards processed through other
companies' platforms. As we increase our infrastructure and negotiate better
rates with international carriers, it is expected that the resale of these
virtual calling cards will become a less significant part of our total
business.

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Our International Networks

Our Enhanced Services Platform. Our enhanced services platform is a
specialized telephone switch. It is connected to our Web site and data base and
to our network of outgoing and incoming telephone lines and Internet lines. It
sets up all customer account and PIN information when a virtual calling card is
purchased and immediately activates the virtual calling card so it can be used
at the time of purchase. The platform also accepts and evaluates all calls from
virtual calling card holders over the toll free number and over the Internet
and confirms the validity of the virtual calling card and remaining balance. We
have also programmed into the platform a lowest cost routing matrix. This
matrix automatically routes each call over the route most economical to us.
This means it will select our international carrier with the lowest rate or the
Internet if we have a gateway in the call destination country. We believe our
platform can currently support approximately 288 simultaneous calls and over 4
million minutes of traffic per month. Our platform is expandable to carry more
traffic by adding additional telephone trunks and line cards. Focusing on the
international market, the use of our platform is spread throughout the day as a
result of the different world time zones. Many of our calls are routed during
night time in Dallas.

We plan to develop and offer new products and services which may require
modifications and enhancements to our platform. For any modification or
enhancement, we will either contract with the manufacturer to develop new
software or we may develop the software, or a combination of both. In the past,
we have experienced delays when we have tried to upgrade our platform. If the
software cannot be developed cost effectively, or there will be significant
delays, we may elect to abandon a potential product or service in favor of one
that can be timely developed on a cost effective basis. There can be no
assurance that we can successfully develop the software to enable us to offer
new products or services.

Our Internet Gateway Network. We presently have international gateways
operational in Mexico, Indonesia and Sri Lanka, and expect to have gateways
operational in India in January. We also have domestic gateways operational at
our offices in Dallas and at 60 Hudson Street in New York City. We intend to
place Internet gateways in various other countries. Before we place a gateway
in another country, we enter into contractual relationships with local persons
or entities to operate them. We typically own or lease the gateway or have the
right to purchase it and the local person or entity is responsible for
procuring local Internet provider connection and local telephone lines and
complying with local law. Our contracts with the local person or entity are
generally for a one year term and are renewable unless either party declines to
renew. We pay the local person or entity a negotiated rate per minute for
terminating or originating calls through the gateway. We have also entered into
an agreement with another Internet telephony company that will enable us to use
their existing Internet gateway network in certain countries until we can place
our own gateways in those countries. This agreement allows us additional
Internet gateway terminations in 28 countries and traditional leased line
terminations in 205 countries.

Our gateways allow for voice quality transmission through the Internet. The
historical poor sound quality of Internet voice transmission is due to the
Internet not being created for simultaneous voice traffic. Unlike conventional
voice communication circuits, in which the entire circuit is reserved for a
call, Internet telephony uses packet switching technology, in which voice data
is divided into discrete packets that are transmitted over the Internet. These
packets must travel through several routers in order to reach their
destination, which may cause misrouting, and delays in transmission and
reception. The software in our gateways connect the packet switched data
transmitted over the Internet to circuit switched public telephone networks in
such a manner that virtually eliminates the delay in transmission normally
involved in Internet voice transmission and the resulting pause and echo
effect. We also select Internet service providers with Internet connections
that permit us to limit the delay between their Internet connections and ours
to less than 200 to 400 milliseconds. This also improves the voice quality of
our transmissions over the Internet.

Our Internet gateways enable us to route voice quality calls through our
enhanced server platform to and from the country via the public Internet or
private intranet networks such as a frame relay network. The cost of these
calls is based on the local telephone rates for the country where the gateway
is located. They are not based on international or local long distance rates.

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Our Leased Lines Network. We also lease international telephone lines to
transmit calls. Our lease agreements obligate the carriers to terminate calls
routed by us to them at different rates for different countries and
territories. With these agreements, we have access to more than 241 countries
and territories. Leased capacity is typically obtained on a per-minute basis or
point-to-point fiscal cost basis. Our agreements are typically one year
agreements with 30-day cancellation rights by either party. Rates are adjusted
approximately every 30 days, are based on volume and our rates generally
decline as volume increases. We are dependent on these carriers to terminate
our calls, and the loss of one or more of them as a source for terminating
calls could have a material adverse affect on us. However, we believe there are
numerous international long distance carriers that transport calls to the
countries we desire to target and we believe we could replace any of the
carriers we lost. If the rates of any replacement carrier are higher, or our
existing carriers raise their rates, our profit margins would decrease. We also
sell to other long distance carriers any excess line capacity we have. Excess
line capacity is the remaining capacity on our telephone lines not used by us
to terminate our own calls during any given month.

Our Third Party Contracts. Our success depends, in part, on our ability to
continue to lease long distance telephone capacity from third parties at
economic rates to serve the foreign countries we target. It also depends, in
part, on our ability to maintain our contractual relationships with local
terminating parties in those countries where we have Internet gateways. If we
lose our leases or contracts or if these parties are unable to provide these
services, we believe we could replace them. However, it would cause a
disruption of our business until they are replaced. Also, any replacement
leases or contracts may not be at rates or on terms as favorable to us.

Credit Card Processing Arrangements

All sales of our virtual calling cards are made over the Internet through
credit card purchases. We use credit card processing companies to verify credit
cards. These companies are connected to our platform and data base and
verification or denial is usually accomplished within seconds. We pay these
processing companies a percentage of sales as their fee. Until May 1999, our
former credit card processing company restricted the amount of credit card
purchases that could be made from us per month. That company also would not
allow purchases with non United States issued credit cards. These restrictions
prevented us from increasing our sales as rapidly as desired. In May 1999, we
began processing with a new processing company which sets no limit on our
monthly credit card sales and agreed to accept purchases with non United States
issued credit cards. These changes will allow us to aggressively seek to
increase our sales, and will open our market for non United States purchased
virtual calling cards. We plan to use a portion of the proceeds of this
offering to further increase our allowed base for credit card sales by
increasing the deposits we maintain with our processing companies. We believe
these developments may have a positive effect on sales in the near-term.

Sales and Marketing

We have developed a marketing strategy based on increasing customer traffic
to our Web site and strengthening our brand name.

Internet Advertising. We have taken a selective approach in our advertising
strategy. We attempt to maximize the return from promotional expenditures by
choosing advertising media based on the cost relative to the likely audience
and ability to generate increased traffic for our Web site. We identify a
country and customer group to whom we desire to market our virtual calling
cards.

We place advertisements on various Web sites frequently visited by this
customer group in the United States and abroad. These advertisements usually
take the form of banner ads that encourage readers to click through directly to
our Web site.

We also advertise on Internet portals, and have recently entered into
strategic alliances with three Internet portals. An Internet portal is a super
Web site with search engines and multiple services available to site

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visitors. We believe that placing banner advertising on these and other portals
may significantly increase our targeted exposure to prospective customers and
increase our name identity.

Customer Electronic Mail Broadcasts. We actively market to our base of
customers through e-mail broadcasts. All new virtual calling card purchasers
are automatically added to our electronic mailing list, which consists of over
52,730 prior purchasers and Internet customers of our local Internet service
providers in other countries. We currently send more than 25,000 e-mail
messages each month announcing new rates, new countries, new products and new
features.

Electronic Mail to Select Mailing Lists. We also plan to deliver e-mail
broadcasts to certain select mailing lists from time to time announcing
pertinent information, including the addition of a new country, new products
and rates.

Other Methods. We will continually review other potential cost-effective
methods of advertising and marketing our products and services through the
Internet. Such methods may include the use of an affiliate program, chat rooms,
video e-mail and other methods.

Customer Support and Service

We believe that our ability to establish and maintain long-term
relationships with our customers and encourage repeat purchases is dependent,
in part, on the strength of our customer support and service operations and
staff. Our customer support and service personnel are available from 9:00 a.m.
to 5:00 p.m. Central Time, five days a week to provide assistance via e-mail or
telephone. They are responsible for handling all customer inquiries.

We provide pre- and post-sales support via both e-mail and telephone service
during business hours. If a customer has encountered a problem in ordering or
using our products, our customer service department will take the call, or the
e-mail, and respond immediately. If the virtual calling card is from our own
inventory and operates on our enhanced services platform, problems can be
resolved immediately and usually within one business day. For virtual calling
cards that we sell as a reseller, directing traffic through someone else's
switch, we are able to respond to the customer immediately but resolution of
the matter may take two or more business days.

Our Web site has been designed around industry standard architectures to
reduce downtime in the event of outages or catastrophic occurrences. Our Web
site provides 24 hour a day, seven day a week availability. Our Web site
operations staff consists of systems administrators who manage, monitor and
operate our Web site. The continued uninterrupted operation of our Web site is
essential to our business, and it is the job of the site operations staff to
ensure, to the greatest extent possible, the reliability of our Web site. We
provide our own connection to the Internet through MCI Worldcom/UUNET's
backbone and through SAVVIS's backbone. We believe that these
telecommunications and Internet service facilities are essential to our
operation and we anticipate upgrading these facilities as volume and demand for
our services grow.

Technology

We use a combination of our own proprietary software applications and
commercially available licensed technology to conduct our Internet and
telephone routing operations.

Proprietary Technology. We have developed proprietary customer software
which permits a customer to purchase a virtual calling card on our Web site
using a credit card and to have the virtual calling card delivered while on our
Web site. We have also developed proprietary customer software to allow our
world access virtual calling cards and phone collect PINs to initiate calls
through regular telephone lines using our Web site and enhanced services
platform, and we have developed various proprietary credit and fraud management
applications which aid us in checking credit and limiting fraudulent
transactions.

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Our engineering staff consists of three software development engineers and
consultants. We historically have developed and expect to continue to develop
proprietary software internally. Our engineering strategy focuses on the
development of our Web site, which includes the enhancement of features and
functionality of our existing software components, the development of
additional new software components, and the integration of off-the-shelf
components into our systems.

Commercially Available Licensed Technology. Our strategy has also been to
license commercially available technology whenever possible rather than seek a
custom-made or internally-developed solution. We believe that this strategy
enables us to reduce our operating costs and to respond to changing demands due
to growth and technological shifts. This strategy also allows us to focus our
development efforts on creating and enhancing the specialized, proprietary
software applications that are unique to our business. Listed below are some of
our key architectural components:

. High speed links to the Internet through MCI Worldcom/UUNET's and
SAVVIS's backbones;

. Dell 2300 and 4300 Servers for Web and data base application running
Windows NT and Oracle;

. Microsoft Internet Information Server 4.0 has been chosen for its
ability to secure sensitive customer information through SSL encryption;
and

. Oracle 8i and Microsoft SQL Server 7.0 are the relational database
providers. All customer names and addresses, PINs, number of purchases
and call records are stored within these data bases.

Government Regulation

Regulation of the Internet. The United States Congress and the Federal
courts have taken actions that, in some cases impose some forms of regulation
on the Internet, and in other cases protect the Internet from regulation. For
example, Congress has recently adopted legislation that regulates certain
aspects of the Internet. This includes restrictions on some forms of content.
These regulations have had mixed success in the Federal courts. The Supreme
Court has struck down some restrictions on indecent content, but has upheld
other restrictions on harassing Internet messages. Conversely, Congress last
year passed legislation that imposes a moratorium on the imposition of new
taxes on internet transactions for three years. At the same time, numerous new
bills have been proposed that would further regulate various aspects of
Internet commerce, and ensure the continued deregulation of others. It is
impossible to say at this time whether and to what extent the Internet may
ultimately be regulated by the United States government.

The European Union has also enacted several directives relating to the
Internet, one of which addresses online commerce. As with the United States
Congress, the European Union, and the governments of individual foreign
countries, are actively considering proposed legislation that could result in
new regulations on the Internet. Increased regulation of the Internet may
decrease its growth, which may negatively impact the cost of doing business via
the Internet or otherwise materially adversely affect our business, results of
operations and financial condition. In addition, applicability to the Internet
of existing laws governing issues such as property ownership, copyrights and
other intellectual property issues, taxation, libel, obscenity and personal
privacy is uncertain. The vast majority of such laws were adopted prior to the
advent of the Internet and related technologies. As a result, these laws do not
contemplate or address the unique issues of the Internet and related
technologies.

Potential Regulation of Internet Telephony. To our knowledge, there are
currently no domestic and few international laws or regulations that prohibit
the transmission of voice communications over the Internet. If Congress, the
FCC, state regulatory agencies or governments of other countries impose
substantial regulations relating to Internet telephony, the growth of our
business could be adversely affected. In the United States, several efforts
have been made to enact federal legislation that would either regulate or
exempt from regulation telecommunication services provided over the Internet.
State public utility commissions may also attempt to regulate the provision of
intrastate Internet telephony services. In late 1998 and early 1999, however,
the FCC issued two decisions that suggest that all transmissions over the
Internet may be jurisdictionally interstate, and

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<PAGE>

these decisions may restrict the ability of state public utility commissions to
regulate Internet telephony. Internationally, a number of countries that
currently prohibit competition in the provision of voice telephony have also
prohibited Internet telephony. Other countries permit but regulate Internet
telephony.

On April 10, 1998, the FCC issued a Report to Congress concerning its
implementation of the universal service provisions of the Telecommunications
Act. In the Report, the FCC indicated that it would examine the question of
whether any forms of "phone-to-phone" Internet Protocol telephony are
information services, which are unregulated, or telecommunications services,
which are fully regulated. The Report noted that the FCC did not have, as of
the date of the Report, an adequate record on which to make any definitive
pronouncements. The FCC did, however, note that the record before it suggested
that some forms of phone-to-phone Internet telephony appear to have the same
functionality as non-Internet Protocol telecommunications services.

While the FCC found that it needed a more complete record to establish new
rules, it tentatively concluded that providers of phone-to-phone Internet
telephony services should be treated like other providers of telephone service.
This means that they should be required to make payments into Federal universal
service subsidy programs. To date, the FCC has taken no further action, and has
not imposed this obligation on Internet telephony providers. It may do so at
some time in the future, however, and such a decision could have a material
adverse effect on our business, increasing our costs, and the price at which we
can offer our Internet telephony services.

Regulation of Leased Lines and Carriers. When we lease long distance
telephone capacity from third-party carriers, we rely on them to comply with
local laws and regulations. We have no control over the manner in which these
companies operate in these countries. Foreign regulatory, judicial, legislative
or political entities may raise issues regarding the compliance of these
companies with local laws or regulations, or limit their ability to carry our
calls.

State Laws. Several states have also proposed legislation that would limit
the uses of personal user information gathered online or require online
services to establish privacy policies. Changes to existing laws or the passage
of new laws intended to address these issues could reduce demand for our
services or increase the cost of doing business. In addition, because our
services are accessible worldwide, and we facilitate the sale of goods to users
worldwide, other jurisdictions may claim that we are required to comply with
their laws. We are qualified to do business in Delaware and Texas only, and
failure by us to qualify as a foreign corporation in a jurisdiction where we
are required to do so could subject us to taxes and penalties for the failure
to qualify and could result in our inability to enforce contracts in such
jurisdictions. Any such new legislation or regulation, or the application of
laws or regulations from jurisdictions whose laws do not currently apply to our
business, could have a material adverse effect on our business, financial
condition and operating results.

Sales Taxes. We do not currently collect sales or other similar taxes for
virtual calling cards or other services sold through our Web site, other than
for virtual calling cards sold to Texas residents. However, one or more states
may seek to impose sales tax or similar collection obligations on out-of-state
companies, such as ours, which engage in Internet commerce. A number of
proposals have been made at the state and local level that would impose
additional taxes on the sale of goods and services through the Internet. Such
proposals, if adopted, could substantially impair the growth of online
commerce, and could adversely affect our opportunity to derive financial
benefit from such activities. Moreover, a successful assertion by one or more
states or any foreign country that we should collect sales or other taxes on
the sale of virtual calling cards or services on our system could have a
material adverse effect on our operations.

Legislation imposing a moratorium on the ability of states to impose taxes
on Internet-based transactions was passed by the United States Congress last
year. The tax moratorium will be in effect only for three years. The same
legislation that imposed the moratorium also established an Advisory Commission
to consider methods by which states could impose sales taxes on Internet
transactions. If the moratorium expires at the end of its three-year term,
there can be no assurance that the moratorium will be renewed at the end of
such period.

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Failure to renew the moratorium could allow various states to impose taxes on
Internet-based commerce. The imposition of such taxes could have a material
adverse effect on our business, financial condition and operating results.

Competition

With respect to prepaid calling cards, we compete with many of the largest
telecommunications providers, including AT&T, MCI WorldCom, Cable & Wireless
and Sprint. These companies are substantially larger and have greater
financial, technical, engineering, personnel and marketing resources, longer
operating histories, greater name recognition and larger customer bases than we
do. We also compete with smaller, emerging carriers in the prepaid calling card
market, including Destia Communications, Inc., RSL Communications, IDT Corp.,
Pacific Gateway Exchange, Inc., FaciliCom International, LLC and PRIMUS
Telecommunications Group, Incorporated. We may also compete with large
operators in other countries. These companies may have larger, more established
customer bases and other competitive advantages. Deregulation in other
countries could also result in significant rate reductions. We believe that
additional competitors will be attracted to the prepaid card market. These
competitors include Internet-based service providers and other
telecommunications companies. Competition from existing or new competitors
could substantially reduce our revenues from the sale of these cards. A general
decrease in telecommunication rates charged by international long distance
carriers could also have a negative effect on our operations.

An increasing number of large, well-capitalized companies are entering the
market for Internet telephony products and services. As a result, we may not be
able to compete effectively with our competitors in this market, or to increase
our customer base. Various major long distance providers, including AT&T, Bell
Atlantic Corporation and Deutsche Telekom AG, as well as other major companies,
including Motorola, Inc., Intel Corporation and Netscape Communications
Corporation, have all entered or plan to enter the Internet telephony market,
in some cases by investing in companies engaged in the development of Internet
telephony products. Our competitors also include a number of companies that
have introduced services that make Internet telephony solutions available to
businesses and consumers. Net2Phone, Delta Three, ITXC Corp., iBasis, Inc. and
OzEmail Limited, which was recently acquired by MCI WorldCom, provide a range
of Internet telephony services to consumers and businesses that are similar to
the ones we offer. Several companies, including industry leaders, including
AT&T, Sprint and Qwest Communications, have announced their intention to offer
these services on a wider basis in both the United States and internationally.

In addition, we compete in the market for Internet telephony services with
companies that produce software and other computer equipment that may be
installed on a user's computer to permit voice communications over the
Internet. Current Internet telephony products include VocalTec Communications,
Ltd.'s Internet Phone, QuarterDeck Corporation's WebPhone and Microsoft's
NetMeeting. Also, a number of large companies, including Cisco Systems, Inc.,
Lucent Technologies, Inc., Northern Telecom Limited, Nuera Communications and
Dialogic Corp. offer or plan to offer server-based Internet telephony products.
These products are expected to allow communications over the Internet between
parties using a multimedia PC and a telephone and between two parties using
telephones.

We believe that the principal competitive factors affecting our market in no
particular order are:

. price and rates;

. quality of transmission;

. product accessability and ease of use;

. customer service;

. brand recognition;

. Web site convenience and accessibility;

. targeted marketing directly to probable users of the services;

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<PAGE>

. quality of search tools; and

. system reliability.

Increased competition may result in reduced operating margins, loss of
market share and diminished value in our brand. We cannot assure you that we
will be able to compete successfully against current and future competitors. As
a strategic response to changes in the competitive environment, we may, from
time to time, make certain pricing, service or marketing decisions that could
have a material adverse effect on our business, financial condition and
operating results.

New technologies and the expansion of existing technologies may increase
competitive pressures by enabling our competitors to offer lower-cost services.
Certain Web-based applications that direct Internet traffic to other Web sites
may channel users to services that compete with us. In addition, companies that
control access to transactions through network access or Web browsers could
promote our competitors or charge us substantial fees for inclusion. The
occurrence of any of these events could have a material adverse effect on our
business, financial condition and operating results.

Intellectual Property and Other Proprietary Rights

Our success depends in part upon our ability to protect our proprietary
technology and other intellectual property rights. We rely on a combination of
copyright, trademark, service mark and trade secret laws and contractual
restrictions to establish and protect our proprietary rights in our products
and services. We protect our proprietary software through United States
copyright laws, and the source code for our proprietary software is protected
under trade secret laws. In December 1996, we applied to the United States
Patent and Trademark Office to register the trademarks: "WorldQuest" and
"WorldQuest Networks." In April 1999, the Patent and Trademark Office granted
us a notice of allowance for "WorldQuest" for communication services, both
voice and facsimile transmissions. All that is required for us to receive a
registered trademark for "WorldQuest" is to file an affidavit of use with the
Patent and Trademark Office, which was filed in September 1999. In October
1997, the Patent and Trademark Office issued a notice of publication regarding
our application to register "WorldQuest Networks" as a trademark. In response
to that notice, Qwest Communications filed a notice of opposition in September
1998, which is currently pending before the Patent and Trademark Office, and
currently scheduled for submission and determination of a ruling in September
2000. If we do not prevail, we will not be able to obtain a registered
trademark for "WorldQuest Networks" and we could be required to stop using the
name or pay a fee to Qwest for permission to use it. Any trademark may be
challenged for a period of six years after its registration date. Thus, we
could also face a cancellation proceeding with the Patent and Trademark Office
relating to our trademark for "WorldQuest." Effective trademark, service mark,
copyright and trade secret protection may not be available in every country in
which our services are made available online, and thus, the steps that we take
may be inadequate to protect our rights. We cannot assure you that we will be
issued any of these trademarks and may find that such marks are unavailable.

We currently hold various Internet domain names relating to our operations,
including "wqn.com," "creditcardphone.com" and "phonecollect.com." Governmental
agencies and their designees are responsible for regulating the acquisition and
maintenance of domain names. For example, the National Science Foundation has
appointed Network Solutions, Inc. as the current exclusive registrar for the
".com," ".net" and ".org" generic top-level domains in the United States. The
regulation of domain names in the United States and other countries may change
in the near future. Such changes in the United States are expected to include a
transition from the current system to a system that is controlled by a non-
profit corporation and the creation of additional top-level domains. Governing
bodies may establish additional top-level domain name registrars or modify the
requirements for holding domain names. As a result, we may be unable to acquire
or maintain relevant domain names in countries in which we conduct business.
Furthermore, the relationship between regulations governing domain names and
laws protecting trademarks and similar proprietary rights is unclear.
Therefore, we may be unable to prevent third parties from acquiring domain
names that are similar to, infringe upon or otherwise decrease the value of our
trademarks and other proprietary rights.

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<PAGE>

We have entered into confidentiality and assignment agreements with our
employees and contractors, and nondisclosure agreements with parties with whom
we conduct business. We do this in order to limit access to and disclosure of
our proprietary information. These agreements are designed to make it clear
that we own any technology developed by our employees and contractors during
their engagement by us and to protect us against unauthorized disclosure of our
proprietary information. We cannot assure you that these contractual
arrangements or the other steps taken by us to protect our intellectual
property will prove sufficient. To date, we have not actively policed
unauthorized use of our technology. This is because the global nature of the
Internet makes it difficult to control the ultimate destination or security of
software or other data transmitted.

In the future, we may license certain of our proprietary rights to third
parties. While we will attempt to ensure that the quality of the WorldQuest
Networks' brand is maintained by such licensees, we cannot assure you that such
licensees will not take actions that might materially adversely affect the
value of our proprietary rights or reputation, and have a material adverse
effect on our business, financial condition and operating results. We also rely
on certain technologies that we license from third parties. These may include
suppliers of key database technology, enhanced services platforms, gateway
server platforms, operating systems and specific hardware components for our
service. We cannot assure you that these third-party technology licenses will
continue to be available to us on commercially reasonable terms. The loss of
such technology could require us to obtain substitute technology of lower
quality or performance standards or at greater cost, which could materially
adversely affect our business, financial condition and operating results.

On July 9, 1999, we filed a patent application with the United States Patent
and Trademark office for the architecture of certain of our software
applications. These applications allow customers to Web initiate calls using
our world access virtual calling cards and to Web initiate collect calls using
our phone collect product.

Employees

As of October 31, 1999, we had 16 full-time employees. None of our employees
are represented by a labor union. We have not experienced any work stoppages
and consider our employee relations to be good.

Our future performance depends in significant part upon the continued
service of our key technical and senior management personnel, none of whom are
bound by an employee agreement requiring service for any defined period of
time. The loss of services of one or more of our key employees could have a
material adverse effect on our business, financial condition and operating
results. Our future success also depends in part upon our continued ability to
attract, hire, train and retain highly qualified technical and managerial
personnel. Competition for such personnel is intense and there can be no
assurance that we can retain our key personnel in the future.

Facilities

Our executive offices are presently located in Dallas, Texas, where we lease
approximately 3,300 square feet under a lease at a monthly rental of
approximately $5,300. The lease expires January 31, 2002. We believe our space
is adequate for our current needs. As we expand, we expect that suitable
additional space will be available on commercially reasonable terms, although
no assurance can be made in this regard. We also believe our property is
adequately covered by insurance.

Legal Proceedings

We occasionally become involved in litigation arising out of the normal
course of business. There are no material pending legal proceedings against us.

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MANAGEMENT

Directors and Executive Officers

The following table sets forth the name, age as of December 15, 1999, and
position of all of our directors and executive officers:

<TABLE>
<CAPTION>
Directors and Executive
Officers Age Position
- ----------------------- --- --------
<S> <C> <C>
B. Michael Adler........ 52 Chairman of the Board and Chief Executive Officer
Michael R. Lanham....... 46 Director, President, Chief Operating Officer and Secretary
E. Denton Jones......... 48 Director
Hugh E. Humphrey, Jr. .. 74 Director
Nabil N. El-Hage........ 41 Director
Mark C. Levy............ 46 Chief Financial Officer and Treasurer
</TABLE>

B. Michael Adler is the founder of WorldQuest Networks and has been our
Chairman of the Board and Chief Executive Officer since our inception in 1996.
Mr. Adler is a director of Intellicall, Inc., a publicly traded manufacturer of
pay phones and call processing equipment (American Stock Exchange symbol
"ICL"). Mr. Adler founded Intellicall in 1984 and served as Chairman or Vice
Chairman of the Board from its inception until November 1993. For approximately
the last five years until July 1999, Mr. Adler was the Chairman of the Board of
The Payphone Company Limited, a company that installed and owns a wireless pay
phone network in Sri Lanka. For approximately the last four years, he has been
the Chief Executive Officer of Eagle Venture Capital, LLC, a Delaware limited
liability company, formerly known as WorldQuest Networks, LLC.

Michael R. Lanham joined WorldQuest Networks in December 1998 as a director
and the President and Chief Operating Officer. Mr. Lanham was the acting Chief
Financial Officer from December 1998 until July 19, 1999. From June 1997 to
December 1998, he provided management consulting services to Stratton Voice and
Data, a telephone and data integration company. Mr. Lanham was a member of the
founding group of MultiTechnology Services Corporation, a competitive local
exchange carrier, and served as Chief Executive Officer from May 1991 until
June 1997.

E. Denton Jones has been Chairman of the Board and Chief Executive Officer
of New York City Telecommunications Company, Inc., a privately held
telecommunications company, since he co-founded it in June 1993. Mr. Jones has
been involved in the telecommunications industry since 1984 and owned or
operated several privately held telecommunications companies during that time
prior to co-founding New York City Telecommunications. These companies were
Altus Communications, Inc., MSC Services, Inc., MSC National, Inc. and NYLT,
Inc. (which was formerly known as New York Local Telephone, Inc.). He has been
a director of WorldQuest Networks since July 1999.

Hugh E. Humphrey, Jr. has been President, Chief Executive Officer and
Chairman of the Board of Algiers Bancorp, Inc., a publicly traded savings and
loan holding company based in New Orleans, Louisiana (trading symbol "ALGC"),
since 1996 and has been President since 1996 and Chief Executive Officer since
1984 of Algiers Homestead Association, the subsidiary of Algiers Bancorp, Inc.
He has been a director of WorldQuest Networks since 1996.

Nabil N. El-Hage has been Chairman of the Board, President and Chief
Executive Officer of Jeepers! Inc., an owner and operator of 29 family-oriented
indoor amusement facilities throughout the United States, since January 1995.
From December 1993 to December 1994, Mr. El-Hage was associated with Advent
International Corporation, a private equity investment firm in Boston,
Massachusetts. He has been a director of WorldQuest Networks since December
1999.

Mark C. Levy joined WorldQuest Networks in July 1999 as the Chief Financial
Officer and Treasurer. For the past five years before joining us, he was
engaged in financial management consulting services from

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<PAGE>

September 1998 until July 1999 for his own firm, Levy & Associates, was Vice
President and Controller from August 1996 until August 1998 of Darling
International, Inc., a recycling company, Vice President and Controller from
April 1995 until August 1996 of Staffing Resources, Inc., a staffing services
and consulting company, and Vice President Financial Services from March 1993
until April 1995 of MBNA Information Services, Inc., a credit card processing
company.

Board of Directors

Our Board of Directors currently has five members. Directors are elected
annually to serve until the next annual meeting of stockholders and until their
successors are elected and qualified, unless the Board is divided into classes.
Our Bylaws provide that the Board of Directors may be divided into three
classes, as nearly equal in number as possible, if approved by a majority of
the Board. If divided into classes, Class I Directors would serve until the
next annual meeting of stockholders and thereafter for terms of three years
until their successors have been elected and qualified; Class II Directors
would serve until the second succeeding annual meeting of stockholders and
thereafter for terms of three years until their successors have been elected
and qualified; and Class III Directors would serve until the third succeeding
annual meeting of stockholders and thereafter for terms of three years until
their successors have been elected and qualified.

Our Bylaws also provide that Directors may only be removed from office for
cause and only by the affirmative vote of holders of 67% or more of the voting
stock. Cause is defined exclusively to mean conviction of a felony, proof
beyond a reasonable doubt of the gross negligence or willful misconduct of a
director which is materially detrimental to the company or proof beyond a
reasonable doubt of a breach of fiduciary duty by a director which is
materially detrimental to the company.

Board of Directors Compensation

We intend to pay our non-employee directors annual compensation of $20,000
for their services. In addition, non-employee directors will receive a fee of
$1,000 for each meeting attended. Non-employee directors attending any
committee meeting will receive an additional fee of $1,000 for each committee
meeting attended, unless the committee meeting is held on the day of a meeting
of the Board of Directors, in which case they will receive no additional
compensation for attending the committee meeting. Non-employee directors will
also be reimbursed for reasonable costs and expenses incurred for attending any
director or committee meetings. Our officers who are directors will not be paid
any directors fees. Prior to commencement of this offering, we granted options
to purchase shares of common stock under our Stock Option Plan to four of our
directors, and the fifth director will be granted options to purchase shares of
common stock under the Stock Option Plan concurrently with this offering.

Board of Directors Committees

Our Board of Directors has an Audit Committee and a Compensation Committee.
The Audit Committee is comprised of Hugh E. Humphrey, Jr., Nabil N. El-Hage and
E. Denton Jones and is responsible for making recommendations concerning the
engagement of independent certified public accountants, approving professional
services provided by the independent certified public accountants and reviewing
the adequacy of our internal accounting controls. The Compensation Committee is
comprised of B. Michael Adler, Nabil N. El-Hage and E. Denton Jones and is
responsible for recommending to the Board of Directors all officer salaries,
management incentive programs and bonus payments.

Limitations on Directors' Liabilities and Indemnification

Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to eliminate or limit the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that such provision shall not eliminate or limit
the liability of a director (1) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (2) for acts or

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omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (3) under Section 174 of the Delaware statutes
relating to unlawful dividends, stock purchases or redemptions or (4) for any
transaction from which the director derived an improper personal benefit.
Section 102(b)(7) of the Delaware statutes is designed, among other things, to
encourage qualified individuals to serve as directors of Delaware corporations.
Our Certificate of Incorporation provides that, except to the extent prohibited
by Delaware law, our directors shall not be personally liable to the Company or
its stockholders for monetary damages for any breach of fiduciary duty by our
directors. We believe this provision will assist us in securing the services of
qualified directors who are not our employees. Under Delaware law, the
directors have fiduciary duties to us that are not eliminated by this provision
of the Certificate of Incorporation and, in appropriate circumstances,
equitable remedies such as injunctive or other forms of non-monetary relief
will remain available. In addition, each director will continue to be subject
to liability under Delaware law for breach of the director's duty of loyalty to
us for acts or omissions that are found by a court of competent jurisdiction to
be not in good faith or involving intentional misconduct, for knowing
violations of law, for actions leading to improper personal benefit to the
director and for payment of dividends or approval of stock repurchases or
redemptions that are prohibited by Delaware law. This provision also does not
affect the director's responsibilities under any other laws, such as the
federal securities law or state or federal environmental laws. In addition, we
intend to maintain liability insurance for, and will enter into indemnification
agreements with, our officers and directors. If equitable remedies are found
not to be available to stockholders in any particular case, stockholders may
not have any effective remedy against actions taken by directors that
constitute negligence or gross negligence.

Section 145 of the Delaware statutes permits us to, and the Certificate of
Incorporation provides that we shall, indemnify each person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he or she is or was, or has agreed
to become, our director or officer, or is or was serving, or has agreed to
serve, at our request, as a director, officer or trustee of, or in a similar
capacity with, another corporation, partnership, joint venture, trust or other
enterprise (including any employee benefit plan), or by reason of any action
alleged to have been taken or omitted in such capacity, against all expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her on his or her behalf in
connection with such action, suit or proceeding and any appeal therefrom. Such
right of indemnification shall inure to such individuals whether or not the
claim asserted is based on matters that antedate the adoption of the
Certificate of Incorporation. Such right of indemnification shall continue as
to a person who has ceased to be a director or officer and shall inure to the
benefit of the heirs and personal representatives of such a person. The
indemnification provided by the Certificate of Incorporation shall not be
deemed exclusive of any other rights that may be provided now or in the future
under any provision currently in effect or hereafter adopted by the Certificate
of Incorporation, by any agreement, by vote of stockholders, by resolution of
directors, by provision of law or otherwise.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors pursuant to the foregoing provision, or
otherwise, we have been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.

38
<PAGE>

Executive Compensation

Summary Compensation Table

The following table sets forth information concerning the annual and long-
term compensation earned by our Chief Executive Officer and each executive
officer who had an annual salary and bonus during fiscal 1999 exceeding
$100,000. We refer to these individuals collectively as the Named Executive
Officers.

<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
------------------------- ------------
Securities
Other annual Underlying
Name and principal position Salary($) compensation($) Options
--------------------------- --------- --------------- ------------
<S> <C> <C> <C>
B. Michael Adler, Chairman of the Board
and Chief Executive Officer........... $35,166 $-- 5,000
Michael R. Lanham, President, Chief
Operating Officer and Secretary....... 125,430 -- 10,000
</TABLE>

Commencing November 1999 and continuing through December 2000, B. Michael
Adler will receive an annual salary of $175,000. Michael R. Lanham will receive
an annual salary of $125,000 through January 2000 and Mark C. Levy will receive
an annual salary of $120,000 through October 2000. We do not have employment
agreements with any of these officers relating to the payment of their salaries
or any other matter. Their salaries will be reviewed by the Compensation
Committee annually, who will make recommendations to the Board of Directors for
any adjustments. Adjustments will be based on our performance and condition,
the officer's performance and such other criteria deemed pertinent by the
Compensation Committee. We do not intend to pay these salaries from the
proceeds of this offering.

Option Grants

The following table provides certain summary information concerning shares
of common stock represented by stock options granted to each of the Named
Executive Officers during fiscal year 1999.

<TABLE>
<CAPTION>
Percentage of Total
Number of Securities Options Granted to Exercise Expiration
Underlying Options Employees in Fiscal Year Price Date
-------------------- ------------------------ -------- ----------
<S> <C> <C> <C> <C>
B. Michael Adler........ 5,000 3.3 (1) 10/28/06
Michael R. Lanham....... 10,000 6.6 (1) 10/28/06
</TABLE>
- --------
(1) The exercise price is equal to the initial public offering price.

Fiscal Year-End Option Values

The following table provides information concerning the shares of stock
represented by outstanding stock options held by each of the Named Executive
Officers on December 31, 1999.

<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at in-the-Money Options at
December 31, 1999 December 31, 1999
------------------------- -------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
B. Michael Adler............ 5,000 5,000 $ 50,000 $--
Michael R. Lanham........... 167,867 10,000 1,287,540 --
</TABLE>

Options for 167,867 shares of common stock granted to Michael R. Lanham vest
on the closing of this offering.

39
<PAGE>

There was no public market for the common stock at December 31, 1999.
Accordingly, the values of unexercised in-the-money options have been
calculated by determining the difference between an assumed initial public
offering price of $11.00 per share and the per share exercise price of the
options.

No options were exercised by the Named Executive Officers during fiscal year
1999.

Stock Options

1997 Stock Option Plan

In January 1997, our Board of Directors and stockholders adopted our 1997
Stock Option Plan, which provides for the grant of non-qualified stock options
under the Internal Revenue Code. The Plan is administered by our Board of
Directors. Options may be granted to our officers, directors and key employees
or any future subsidiaries. The exercise price for any option granted under the
Plan may not be less than the fair market value of the shares of common stock
at the time the option is granted as determined by the Board of Directors in
the exercise of their sole and exclusive judgement. The purpose of the Plan is
to provide a means of performance-based compensation in order to attract and
retain qualified personnel and to provide an incentive to those whose job
performance affects us.

The Plan authorizes the grant of options to purchase an aggregate of up to
500,000 shares of our unissued voting common stock. The number of shares
reserved for issuance under the Plan is subject to anti-dilution provisions for
stock splits, stock dividends and similar events. If an option granted under
the Plan expires or terminates, for any reason, the shares subject to any
unexercised portion of such option will again become available for the issuance
of further options under the Plan. Unless the Plan is terminated earlier, it
terminates 10 years from its effective date. Such termination will have no
effect on options previously granted.

Under the Plan, we may make loans available to stock option holders, subject
to our Board's approval, in connection with the exercise of stock options
granted under the Plan. If shares of common stock are pledged as collateral for
such indebtedness, such shares may be returned to us in satisfaction of such
indebtedness.

The term of each option shall be determined by the Board, but shall not be
for more than 10 years from the date the option is granted.

Options granted under the Plan will become exercisable according to the
terms of the grant made by the Board. The Board has discretionary authority to
select participants from among eligible persons and to determine at the time an
option is granted, the number of shares granted, form of payment, the terms and
provisions of the option and when and in what increments shares covered by the
option may be purchased. Options may be exercisable either in whole or in part,
but not less than 100 shares may be purchased at any one time unless the number
purchased is the total number of shares granted by the option.

The exercise price of any option granted under the Plan is payable in full
in cash or in such other consideration as the Board deems appropriate,
including shares of common stock of our company valued at fair market value as
of the date of exercise of the option. No option may be exercised during the
optionee's lifetime unless the optionee is then an employee or consultant of
our company or a subsidiary corporation; provided that, in the event the
optionee's employment terminates for reasons other than death or disability,
the option may be exercised during the three month period following the
termination of employment. Thereafter, the option terminates. In the case of
disability or death, the Board may extend the option for up to one year.
Notwithstanding the foregoing, options granted to directors may be exercisable
for a period of up to seven years following the date such director ceases to be
one of our directors.

Options granted under the Plan are not transferable, except in the event of
death of the employee. In that event, the option may be exercised at any time
within one year after death by the personal representative of the estate.

40
<PAGE>

The Board may from time to time revise or amend the Plan, and may suspend or
discontinue it at any time. However, no such revision or amendment may be made
without stockholder approval where there is any increase in the number of
shares subject to the Plan (with the exception of adjustments resulting from
changes in capitalization), any changes in the designation of the class of
participants eligible to receive options under the Plan or any material
increase in the benefits accruing to participants under the Plan.

In the event shares of common stock are changed into or exchanged for stock
in another unrelated corporation or are converted to cash pursuant to a plan of
merger, liquidation or dissolution as defined in the Plan, all options issued
shall be exercisable with respect to all the shares covered thereby.

Options to acquire 148,164 shares are outstanding under the Plan at an
average exercise price per share of $2.88 and additional options to acquire
145,000 shares are outstanding at an exercise price equal to the initial public
offering price. Of these amounts, options to acquire 140,000 shares are held by
executive officers and directors. Options to acquire 167,867 shares have been
granted outside the Plan to our President at an exercise price of $3.33 per
share, all of which vest on the closing of this offering. On the effective date
of this offering, we intend to grant to Nabil N. El-Hage, one of our directors,
options to acquire 10,000 shares of common stock at a per share exercise price
equal to the initial public offering price, vesting 100% on the first
anniversary of the date of grant.

CERTAIN TRANSACTIONS

Effective at our formation in October 1996, Eagle Venture contributed $1,000
and various tangible and intangible assets to us in exchange for 100% of our
outstanding common stock. The assets had a book value of approximately
$184,000, which was determined to be the fair value of the assets by B. Michael
Adler, our Chairman of the Board, who was also our only director at the time.
Mr. Adler also owns 94% of Eagle Venture. The contributed assets had an initial
cost to Eagle Venture of approximately $230,000. We also assumed an existing
real estate lease from which premises we initially conducted operations. This
lease expired in April 1997 and provided for monthly rental payments of
approximately $4,000. During the first quarter of 1997, Eagle Venture
contributed an additional $316,000 in cash to us as additional equity without
requiring any additional shares of common stock to be issued to it.

We have a credit facility with Eagle Venture to provide loans to us of up to
$2.5 million at an annual interest rate of 8%. The outstanding amount owed to
Eagle Venture by us at September 30, 1999 was $1.9 million and at December 31,
1998 was $1.7 million. In May 1999, we amended this credit facility to convert
$1.1 million to a term loan with interest and principal payable in May 2002.
Eagle Venture also agreed at such time to convert $200,000 of the loan into
60,061 shares of our common stock, at a conversion price of $3.33 per share. We
also continue to have a $1.4 million line of credit with Eagle Venture, which
is payable on demand. If no demand is made, accrued interest on the outstanding
line of credit accrues until February 18, 2000, at which time it is payable.
Thereafter, accrued interest on the outstanding line of credit is payable
monthly until May 2002, when the entire loan is due. Demand for payment of
$780,000 of the principal balance of the line of credit has been made effective
upon the closing of this offering, and we intend to repay such amount from the
proceeds of this offering.

In December 1998, we entered into a written agreement with WorldQuest
Communications, Inc. and Eagle Venture which formalized an earlier oral
agreement relating, among other things, to the grant of a license to us and
Eagle Venture by WorldQuest Communications of the name "WorldQuest." Pursuant
to this agreement, Eagle Venture also acknowledged its prior oral agreement to
transfer, and caused the transfer of, 300,000 shares of our common stock owned
by it to WorldQuest Communications in consideration of WorldQuest
Communications canceling approximately $100,000 owed by Eagle Venture to
WorldQuest Communications. As part of this transaction, E. Denton Jones also
cancelled $150,000 owed to him by Eagle Venture, which Eagle Venture also had
funded to us as equity or as a loan. Mr. Jones, one of our directors,
beneficially owns 99% of WorldQuest Communications. Eagle Ventures also
contributed to us at our inception the right to use the name "WorldQuest".

41
<PAGE>

We entered into a Joint Venture Agreement with BDC, LLC, a Nevada limited
liability company owned by E. Denton Jones, in April 1999 to fund the
installation of one Internet gateway in each of Sri Lanka, Mexico and India.
BDC contributed $50,000 to the joint venture and we agreed to be responsible
for obtaining the Internet gateways and for installing and operating them. We
are entitled to 60% of the profits and losses from the operation of these three
gateways and BDC is entitled to 40%. As of September 30, 1999, no payments have
accrued to the benefit of, or been paid to, BDC.

During January 1999 and during 1998 and 1997, Robert M. Adler, Jr., B.
Michael Adler's brother, performed sales and marketing consulting services to
us relating to our facsimile transmission services. We paid him $5,500 for the
nine months ended September 30, 1999, $61,500 during 1998 and $44,000 during
1997 for these consulting services.

42
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of our common stock as of December 15, 1999, and as adjusted to
reflect the sale of the 2,500,000 shares of common stock offered hereby, by:
(1) each of our directors; (2) each of our executive officers; (3) each person
known to us to be beneficial owner of more than 5% of the common stock; and (4)
all of our directors and executive officers as a group.

Eagle Venture Capital, LLC is the record and beneficial owner of 2,666,478
of the shares shown in the table below. B. Michael Adler owns a controlling
interest in Eagle Venture and is also deemed to beneficially own these shares.
The share ownership for Mr. Adler also includes a vested option and an unvested
option to purchase 5,000 shares under each option. WorldQuest Communications,
Inc. is the record and beneficial owner of the shares reflected below, but
E. Denton Jones beneficially owns 99% of the outstanding capital stock of
WorldQuest Communications, Inc. and is also deemed to beneficially own these
shares. The ownership for Mr. Jones also reflects an unvested option to
purchase 10,000 shares. Michael R. Lanham beneficially owns options to purchase
167,867 shares, which vest on the closing of this offering, and an unvested
option to purchase 10,000 shares. Mark C. Levy beneficially owns options to
purchase 100,000 shares granted effective July 19, 1999, which vest 20%, 30%
and 50% on the first, second and third anniversaries of the date of grant. Hugh
E. Humphrey, Jr. owns a vested option and an unvested option to purchase 5,000
shares under each option.

<TABLE>
<CAPTION>
Percentage of shares owned
-------------------------------
Name and address of Shares beneficially Before the After the
beneficial owner owned offering offering
- ------------------- ------------------- ------------- -------------
<S> <C> <C> <C>
B. Michael Adler........ 2,676,478 83.5% 46.9%
16990 Dallas Parkway,
Suite 220
Dallas, Texas 75248
E. Denton Jones......... 370,000 11.5 6.5
The Claridge, Suite 18D
3510 Turtle Creek Blvd.
Dallas, Texas 75219
Michael R. Lanham....... 177,867 5.3 3.0
16990 Dallas Parkway,
Suite 220
Dallas, Texas 75248
Mark C. Levy............ 100,000 3.0 1.7
16990 Dallas Parkway,
Suite 220
Dallas, Texas 75248
Hugh E. Humphrey, Jr. .. 10,000 * *
No. 1 Westbank
Expressway
New Orleans, Louisiana
70174
Nabil N. El-Hage........ -- -- --
60 Hickory Drive
Waltham, Massachusetts
02451
All directors and
executive officers
as a group (6
persons)............... 3,334,345 95.1 55.5
</TABLE>
- --------
*Less than 1%

43
<PAGE>

DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 50 million shares of common stock
and 10 million of preferred stock. After giving effect to this offering, there
will be 5,596,699 shares of common stock outstanding and no shares of preferred
stock outstanding. The following description of our capital stock does not
purport to be complete and is subject to and qualified in its entirety by our
Certificate of Incorporation and Bylaws, which are included as exhibits to the
registration statement of which this prospectus forms a part, and by the
provisions of applicable Delaware law.

Common Stock

Holders of common stock are entitled to one vote per share on matters to be
voted upon by the stockholders. There are no cumulative voting rights. Holders
of common stock are entitled to receive ratable dividends when, as and if
declared by the Board of Directors out of funds legally available therefor.
Upon our liquidation, dissolution or winding up, holders of common stock share
ratably in our assets available for distribution to our stockholders, subject
to the preferential rights of any then-outstanding shares of preferred stock.
No shares of preferred stock will be outstanding immediately following the
consummation of this offering. Holders of common stock have no preemptive,
subscription, redemption, conversion rights or any right of first refusal. All
shares of common stock outstanding upon the effective date of this prospectus,
and the shares offered hereby will, upon issuance and sale, be fully paid and
nonassessable.

Preferred Stock

The Board of Directors has the authority, without further action by the
stockholders, to issue up to 10 million shares of preferred stock in one or
more series, and to fix the designations, rights, preferences, privileges,
qualifications and restrictions thereof including dividend rights, conversion
rights, voting rights, rights and terms of redemption, liquidation preferences
and sinking fund terms, any or all of which may be superior to the rights of
the common stock. The Board of Directors, without stockholder approval, can
issue preferred stock with voting, conversion and other rights which could
adversely affect the voting power and other rights of the holders of common
stock. Preferred stock could thus be issued quickly with terms calculated to
delay or prevent a change in control or to make removal of management more
difficult. In certain circumstances, such issuance could have the effect of
decreasing the market price of the common stock. The issuance of preferred
stock may have the effect of delaying, deterring or preventing a change in
control without any further action by the stockholders including, but not
limited to, a tender offer to purchase common stock at a premium over then
current market prices. We have no present plan to issue any additional shares
of preferred stock.

Convertible Notes, Warrants and Options

In December 1999, we raised $1.9 million through the private placement of
units consisting of promissory notes and common stock purchase warrants. The
$1.9 million in notes are unsecured subordinated convertible promissory notes.
The notes will mature and become immediately due and payable upon the earlier
to occur of the closing of this offering or December 31, 2000. In the event
that the principal under the notes is not paid in full within five days of the
maturity date, an interest rate on the outstanding principal will be imposed
equivalent to the lesser of 15% or the maximum amount permitted by law. The
notes otherwise bear interest at a rate of 8% per annum. In the event that the
principal and accrued but unpaid interest are not repaid in full by June 30,
2001, the holder may exchange each $4.50 of principal and accrued but unpaid
interest outstanding under the notes at the date of conversion for one share of
common stock. At the date of such exchange, the notes will be canceled.

At November 30, 1999, we had outstanding warrants and options to purchase up
to 317,031 shares of common stock at an average weighted exercise price of
$3.12 per share and outstanding options to purchase 225,000 shares at an
exercise price equal to the initial public offering price. All of such options
and warrants

44
<PAGE>

are subject to 180 day lock-up agreements with the underwriters. All of such
warrants and options expire between 2003 and July 2006. During December 1999,
we granted warrants to purchase up to 323,000 shares of common stock, at an
exercise price of $6.00 per share, as part of the units which included the
notes referenced above; and we entered into a consulting agreement relating to
the development of strategic relationships with Internet portals pursuant to
which we agreed to grant an option to purchase 50,000 shares of common stock,
at an exercise price of $6.00 per share, for each relationship established, up
to a maximum of 250,000 shares. All of these warrants, and any such options
granted, expire five years from the date of grant. The 323,000 shares issuable
upon exercise of these warrants are subject to a one year lock-up agreement
with the underwriters. The fair value of the warrants of $1.5 million will be
recognized as additional interest expense over the term of the promissory
notes.

We will also grant the representatives of the underwriters a warrant to
purchase 250,000 shares of common stock for an exercise price per share equal
to 155% of the initial public offering price at any time during the five years
following closing of this offering commencing one year after the closing of
this offering.

Registration Rights

We have entered into a registration rights agreement with the purchasers of
units in the private placement closed in December 1999 granting to them,
effective following the closing of this offering and subject to a one year
lock-up agreement, unlimited rights to register shares of common stock held by
them in the event that we register any additional shares of our common stock,
subject to certain limitations and exceptions. This registration rights
agreement also provides that purchasers holding in excess of 50% of the shares
of common stock underlying the warrants issued in the private placement have
the right to demand registration twice at any time after the 12th calendar
month following the closing of this offering, subject to certain limitations
and exceptions. We have agreed to pay the registration expenses (except for
underwriting discounts and commissions) of any of these registrations, except
the second demand registration. None of the shares held by these purchasers are
being sold pursuant to this prospectus. In addition, we will endeavor to
register, or file a post-effective amendment to this registration statement to
register shares of common stock underlying a warrant granted to the
representatives of the underwriters in connection with this offering. See
"Underwriting" for a more complete description of the representatives' warrant.

Following the closing of this offering and subject to a 180 day lock-up
agreement, we have also agreed to allow a consultant to include up to 250,000
shares in any registered offering of our common stock, subject to certain
limitations and exceptions. No shares held by this consultant are being sold
pursuant to this prospectus.

Anti-takeover Effects of Provisions of the Company's Charter and Bylaws

Our Bylaws provide that the Board of Directors may be divided into three
classes. If the Board is divided into classes, Class I Directors would serve
until the next annual meeting of stockholders and thereafter for terms of three
years and until their successors have been duly elected and qualified; Class II
Directors would serve until the second succeeding annual meeting of
stockholders and thereafter for terms of three years and until their successors
have been elected and qualified; and Class III Directors would serve until the
third succeeding annual meeting of stockholders and thereafter for terms of
three years and until their successors have been elected and qualified.
Stockholders have no cumulative voting rights and stockholders representing a
majority of the shares of common stock outstanding are able to elect all of the
directors. The Bylaws provide that a special meeting of the stockholders may
only be called by the Board of Directors, the Chairman of the Board, the Chief
Executive Officer, the President or stockholders owning not less than 67% of
our voting stock. Our Bylaws provide that Directors may be removed from office
only for cause and only by the affirmative vote of stockholders owning 67% of
our outstanding voting stock. Cause is exclusively defined to mean conviction
of a felony, proof beyond a reasonable doubt of the gross negligence or willful
misconduct of a director which is materially detrimental to the company or
proof beyond a reasonable doubt of a breach of fiduciary duty by a director
which is materially detrimental to the company.

The classification of the Board of Directors, lack of cumulative voting and
restrictions on stockholders' abilities to call special meetings and remove
directors makes it more difficult for existing stockholders to

45
<PAGE>

replace the Board of Directors as well as for any other party to obtain
control of us by replacing the Board of Directors. Since the Board of
Directors has the power to retain and discharge our officers, these provisions
could make it more difficult for existing stockholders or another party to
effect a change in management.

These and other provisions may have the effect of deterring hostile
takeovers or delaying changes in control of management. They are intended to
enhance the likelihood of continued stability in the composition of the Board
of Directors and in the policies furnished by the Board of Directors and to
discourage certain types of actions that may involve an actual or threatened
change of control. These provisions are designed to reduce our vulnerability
to an unsolicited acquisition proposal and are also intended to discourage
certain tactics that may be used in proxy fights. However, such provisions
could have the effect of discouraging others from making tender offers for
your shares, which may inhibit fluctuations in the market price of your shares
that could result from actual or rumored takeover attempts.

Section 203 of the Delaware General Corporation Law

Generally, Section 203 of the Delaware General Corporation Law prohibits a
publicly held Delaware corporation from engaging in a broad range of "business
combinations" with an "interested stockholder" (defined generally as a person
owning 15% of more of a corporation's outstanding voting stock) for three
years following the date such person became an interested stockholder unless
(1) before the person becomes an interested stockholder, the transaction
resulting in such person becoming an interested stockholder or the business
combination is approved by the board of directors of the corporation, (2) upon
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owns at least 85% of the
outstanding voting stock of the corporation (excluding shares owned by
directors who are also officers of the corporation or shares held by employee
stock plans that do not provide employees with the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender offer or exchange offer), or (3) on or after such date on which such
person became an interested stockholder the business combination is approved
by the board of directors and authorized at an annual or special meeting, and
not by written consent, by the affirmative vote of at least 66 2/3% of the
outstanding voting stock excluding shares owned by the interested
stockholders. The restrictions of Section 203 do not apply, among other
reasons, if a corporation, by action of its stockholders, adopts an amendment
to its certificate of incorporation or bylaws expressly electing not to be
governed by Section 203, provided that, in addition to any other vote required
by law, such amendment to the certificate of incorporation or bylaws must be
approved by the affirmative vote of a majority of the shares entitled to vote.
Moreover, an amendment so adopted is not effective until 12 months after its
adoption and does not apply to any business combination between the
corporation and any person who became an interested stockholder of such
corporation on or prior to such adoption. Our Certificate of Incorporation and
Bylaws do not currently contain any provisions electing not to be governed by
Section 203 of the Delaware statutes.

Section 203 of the Delaware statutes may discourage persons from making a
tender offer for or acquisitions of substantial amounts of common stock. This
could have the effect of inhibiting changes in management and may also prevent
temporary fluctuations in the market price of your common stock that often
result from takeover attempts.

Stockholder Proposals for Consideration at Annual Meeting

Our Bylaws provide that no matter may be brought before the annual meeting
of stockholders unless it is contained in our proxy statement delivered to
stockholders with regard to such annual meeting. Any stockholder who desires
to include a proposal for consideration at any annual meeting must submit such
proposal to the Board of Directors in writing, by delivering such notice to
the attention of the President at our executive offices, no earlier than
January 1 of the year in which such annual meeting will be held and not later
than February 15 of the year in which such annual meeting will be held.

Transfer Agent and Registrar

The Transfer Agent and Registrar for our common stock is American Stock
Transfer & Trust Company.

46
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Shares Outstanding and Freely Tradeable Immediately Following this Offering

Prior to this offering, there has been no public market for our common
stock. No prediction can be made as to the effect, if any, that market sales of
shares or the availability of shares for sale will have on the market price
prevailing from time to time. Sales of substantial amounts of common stock in
the public market could adversely effect prevailing market prices.

After this offering, we will have outstanding 5,696,699 shares of common
stock. Of the outstanding shares, the 2,500,000 shares to be sold in this
offering will be freely tradeable without restriction or further registration
under the Securities Act unless purchased by "affiliates" as that term is
defined in Rule 144 under the Securities Act, which shares, if purchased by an
affiliate, will be subject to certain of the resale limitations imposed by Rule
144.

Immediately after this offering, we intend to register 667,867 shares of
common stock subject to outstanding options and reserved for issuance under our
1997 Stock Option Plan and the option granted to our President.

Shares Subject to Rule 144

The remaining 3,196,699 shares of common stock outstanding upon completion
of this offering are "restricted securities" as that term is defined in Rule
144, 2,606,417 of which will be eligible for sale under Rule 144 upon
completion of this offering, subject to the lock-up described below. As
described below, Rule 144 permits resales of restricted securities subject to
certain restrictions.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least one
year, including any person who may be deemed an "affiliate," would be entitled
to sell within any three-month period a number of such shares that does not
exceed the greater of 1% of the shares of our common stock then outstanding
(56,967 shares immediately after this offering) or the average weekly trading
volume in our common stock during the four calendar weeks preceding the date on
which notice of the sale is filed with the Commission. A person who is not
deemed to have been an "affiliate" at any time during the three months
immediately preceding a sale and who has beneficially owned shares for at least
two years would be entitled to sell such shares under Rule 144 without regard
to the volume limitation described above.

Lock-Up Agreements

Each of our company and our executive officers, directors and the holders of
an aggregate of 3,196,699 outstanding shares and 865,031 shares covered by
outstanding options and warrants have agreed that they will not, without the
prior written consent of Kaufman Bros., L.P., on behalf of the underwriters,
(which consent may be withheld in its sole discretion) and subject to certain
limited exceptions, offer, pledge, sell, contract to sell, sell any option or
contract to purchase, sell short, purchase any option or contract to sell,
grant any option, right or warrant to purchase, lend or otherwise transfer or
dispose of, directly or indirectly, any shares of common stock or any
securities convertible into or exercisable or exchangeable for common stock, or
enter into any swap or similar agreement that transfers, in whole or in part,
any of the economic consequences of ownership of the common stock, for a period
commencing on the date of this prospectus and continuing to a date 180 days
after such date, except that holders of warrants exercisable for 323,000 shares
of common stock have agreed that this period shall be for one year after such
date; provided, however, that such restrictions do not apply to shares of
common stock sold or purchased in this offering or to shares of common stock
purchased in the open market following this offering. Kaufman Bros., L.P., on
behalf of the underwriters, may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to these lock-up
agreements. In addition, we have agreed that, for a period of 180 days after
the date of this prospectus, we will not, without the consent of Kaufman Bros.,
L.P., make any offering, purchase, sale, or other disposition of any

47
<PAGE>

shares of common stock or other securities convertible into or exchangeable or
exercisable for shares of common stock (or agreement for such) except for the
grant of options to purchase shares of common stock pursuant to the 1997 Stock
Option Plan.

Resale of Shares Underlying Stock Options and Warrants

In general, under Rule 701 under the Securities Act, any of our employees,
directors, consultants or advisors who purchase shares from us in connection
with a compensatory stock or option plan or other written compensatory
agreement is entitled to resell such shares without having to comply with the
public information, holding period, volume limitation or notice provisions of
Rule 144, and are eligible to resell such shares 90 days after the effective
date of this offering in reliance on Rule 144, subject to the provisions of the
one year lock-up arrangements discussed above.

The 1997 Stock Option Plan authorizes the grant of options to purchase, and
awards of, an aggregate of up to 500,000 shares of the Company's common stock.
Options to purchase 293,164 shares are outstanding under the Stock Option Plan,
and an additional option for 167,867 shares outside of the Stock Option Plan
has been granted to our President. Of these options, 316,031 options have an
average weighted option price of $3.12 per share and 145,000 options have an
exercise price equal to the initial public offering price. After the expiration
of the 180 day lock-up period and subject to certain vesting restrictions, all
of the shares issued pursuant to the exercise of these stock options may be
resold pursuant to Rule 701. In addition, we intend to grant options to
purchase 10,000 shares at the initial public offering price to Nabil N. El-
Hage, one of our directors, on the effective date of this offering. We intend
to file a registration statement on Form S-8 covering the shares that have been
reserved for issuance under the 1997 Stock Option Plan, permitting the resale
of such shares in the public market.

We have issued additional options and warrants to purchase an aggregate of
80,000 shares of common stock with an exercise price equal to the initial
public offering price and 1,000 shares with an exercise price of $3.33 per
share. The shares of common stock that are issued pursuant to these options and
warrants generally must be held for a minimum of one year from the date of
exercise prior to their resale.

In the private placement of $1.9 million of notes and common stock purchase
warrants closed in December 1999, we granted warrants to purchase up to 323,000
shares of common stock. After expiration of the one year lock-up period, and
assuming that the underwriters do not release the holder from the lock-up
agreement, the holder will be permitted to sell, within any three month period,
a number of shares of common stock that does not exceed the greater of one
percent of the number of shares of our common stock then outstanding or the
average weekly trading volume in our common stock during the four calendar
weeks preceding the date on which notice of the sale is filed with the
Commission, pursuant to Rule 144.

If options to purchase up to 250,000 shares of common stock are granted to
the consultant we have retained to assist us in establishing strategic
relationships with Internet portals, after expiration of the 180 day lock-up
agreement, and assuming that the underwriters do not release the consultant
from the lock-up agreement, the consultant will be permitted to sell, within
any three month period, a number of shares of common stock that does not exceed
the greater of one percent of the number of shares of our common stock then
outstanding or the average weekly trading volume in our common stock during the
four calendar weeks preceding the date in which notice of the sale is filed
with the Commission, pursuant to Rule 144.

Registration Rights

48
<PAGE>

stock underlying the warrants issued in the private placement have the right to
demand registration twice at any time after the 12th calendar month following
the closing of this offering, subject to certain limitations and exceptions. We
have agreed to pay the registration expenses (except for underwriting discounts
and commissions) of any of these registrations, except the second demand
registration. None of the shares held by these purchasers are being sold
pursuant to this prospectus. In addition, we will endeavor to register, or file
a post-effective amendment to this registration statement to register shares of
common stock underlying a warrant to be granted to the representatives of the
underwriters in connection with this offering.

Effect of Substantial Sales on Market Price of Common Stock

We are unable to estimate the number of shares that may be sold in the
future by existing security holders, or the effect, if any, that such sales
will have on the market price of the common stock prevailing from time to time.
Sales of substantial amounts of common stock, or the prospect of such sales,
could adversely affect the market price of our common stock.

49
<PAGE>

UNDERWRITING

Subject to the terms and conditions contained in the underwriting agreement,
the underwriters named below, for which Kaufman Bros., L.P., John G. Kinnard
and Company Incorporated and WestPark Capital, Inc. are acting as
representatives, have agreed to purchase from our company the respective number
of shares of common stock set forth opposite each underwriter's name.

<TABLE>
<CAPTION>
Underwriter Number of Shares
- ----------- ----------------
<S> <C>
Kaufman Bros., L.P. ..........................................
John G. Kinnard and Company Incorporated.......................
WestPark Capital, Inc. ........................................
----
Total......................................................
====
</TABLE>

The underwriting agreement provides that the obligations of the several
underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in WorldQuest Networks' business and the receipt
of certain certificates, opinions and letters from WorldQuest Networks, its
counsel and independent auditors. The nature of the underwriters' obligations
is that they are obligated to purchase and pay for all the shares of common
stock offered hereby, if any shares are purchased.

The underwriters propose initially to offer stock directly to the public at
the public offering price set forth on the cover page of this prospectus and to
certain dealers at such price less a concession not in excess of $ per share.
After the initial public offering of the shares, the offering price and other
selling terms may be changed by the representatives of the underwriters. The
representatives have advised WorldQuest Networks that the underwriters do not
expect sales to accounts for which any of the underwriters will exercise
discretion as to such sale to exceed five percent of the total number of shares
offered hereby.

Each of WorldQuest Networks, its executive officers, directors and other
security holders have agreed that they will not, without the prior written
consent of Kaufman Bros., L.P. (which consent may be withheld in its sole
discretion) dispose of or hedge any of their common stock or securities
convertible into or exchangeable for shares of common stock during the period
from the date of this prospectus continuing to a date 180 days after such date.

WorldQuest Networks has granted to the representatives an option, expiring
at the close of business on the 45th day after the date of this prospectus, to
purchase up to 375,000 additional shares at the initial public offering price,
less the underwriting discounts, all as set forth on the cover page of this
prospectus. The representatives may exercise such option only to cover over-
allotments made in connection with the sale of common stock in this offering.

The offering of the shares is made for delivery when, as and if accepted by
the underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.

Upon completion of this offering, WorldQuest Networks will sell to the
representatives for $1 a warrant to purchase 250,000 shares of common stock.
The representatives' warrant will become exercisable one year after the
effective date of this offering at a per share exercise price equal to 155% of
the initial public offering price and will expire five years from the effective
date of this offering. The representatives' warrant and underlying shares of
common stock will be restricted from sale, transfer, assignment or
hypothecation for a period of one year from the date of this prospectus, except
to the representatives, underwriters, selling group members and

50
<PAGE>

their officers or partners. During the exercise period, holders of the
representatives' warrants are entitled to certain demand and incidental rights
with respect to the shares of common stock issuable upon exercise of the
representatives' warrant. The common stock issuable on exercise of the
representatives' warrant is subject to adjustment in certain events to prevent
dilution.

WorldQuest Networks will pay the representatives a nonaccountable expense
allowance of 2% of the gross proceeds of the offering, which will include
proceeds from the over-allotment option, if exercised. In addition, the company
will pay up to $130,000 of the fees of legal counsel to the underwriters. The
representatives' expenses in excess of these legal fees and the nonaccountable
expense allowance will be borne by the representatives.

WorldQuest Networks has agreed to indemnify the underwriters against certain
liabilities, including civil liabilities under the Securities Act, and to
contribute to payments which the underwriters may be required to make regarding
these liabilities.

The underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Exchange Act. Over-allotment involves syndicate sales in excess of
the offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the securities in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the representatives to reclaim a selling concession from a
syndicate member when the securities originally sold by such syndicate member
are purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.

Neither WorldQuest Networks nor the underwriters can predict the effect that
the transactions described above may have on the price of the common stock. In
addition, neither WorldQuest Networks nor the underwriters represent that the
underwriters will engage in such transactions. If commenced, such transactions
may be discontinued at any time without notice. It is anticipated that certain
of the underwriters will make a market in the common stock on completion of
this offering, as permitted by applicable law. The underwriters are not
obligated to make a market in the common stock and if they do so may
discontinue making a market at any time. There is no assurance an active
trading market will ever develop for the common stock.

Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiations
between WorldQuest Networks and the representatives. The principal factors
considered in determining the initial public offering price will include:

. the information set forth in this prospectus and otherwise available;

. the history and the prospects for the industry in which WorldQuest
Networks will compete;

. the ability of WorldQuest Networks' management;

. the prospects for future earnings of WorldQuest Networks;

. the present state of WorldQuest Networks development and its current
financial condition;

. the general condition of the securities markets at the time of this
offering; and

. the recent market prices of, and the demand for, publicly traded stock
of generally comparable companies.

51
<PAGE>

LEGAL MATTERS

Certain matters relating to this offering are being passed upon for us by
Glast, Phillips & Murray, a professional corporation, Dallas, Texas. Certain
legal matters will be passed upon for the underwriters by Kirkpatrick &
Lockhart LLP, Beverly Hills, California. Two members of Glast, Phillips &
Murray have options to acquire an aggregate of 10,000 shares of common stock at
an exercise price equal to the initial public offering price.

INDEPENDENT AUDITORS

Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 31, 1998 and September 30, 1999 and for each
of the two years in the period ended December 31, 1998 and for the nine months
ended September 30, 1999, as set forth in their report. We have included our
financial statements in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority
as experts in accounting and auditing.

WHERE YOU CAN GET MORE INFORMATION

At your request, we will provide you, without charge, with a copy of any
exhibits to our registration statement incorporated by reference in this
prospectus. If you want more information, write or call us at:

WorldQuest Networks, Inc.
16990 Dallas Parkway, Suite 220
Dallas, Texas 75248
Telephone: (972) 818-0460
Fax: (972) 818-0978

Our fiscal year ends on December 31. We intend to furnish our stockholders
with annual reports containing audited financial statements and other
appropriate reports. In addition, we intend to become a reporting company and
file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements or
other information we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington D.C. 20549, and at the SEC's regional offices located
at Seven World Trade Center, 13th Floor, New York, New York 10048, and the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Please call the SEC at 1-800-SEC-0330 for further information
on the operation of the public reference rooms. You can also request copies of
these documents, upon payment of a duplicating fee, by writing the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549. Our SEC filings are also available
to the public on the SEC Internet site at http:\\www.sec.gov.

52
<PAGE>

WorldQuest Networks, Inc.

Index to Consolidated Financial Statements

Contents

<TABLE>
<S> <C>
Report of Independent Auditors............................................ F-2
Consolidated Balance Sheets as of December 31, 1998 and September 30,
1999..................................................................... F-3
Consolidated Statements of Operations for the years ended December 31,
1997 and 1998 and the nine month periods ended September 30, 1998
(unaudited) and 1999..................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for
the years ended December 31, 1997 and 1998 and the nine month period
ended September 30, 1999................................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1997 and 1998 and the nine month periods ended September 30, 1998
(unaudited) and 1999..................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>

F-1
<PAGE>

Report of Independent Auditors

Board of Directors
WorldQuest Networks, Inc.

We have audited the accompanying consolidated balance sheets of WorldQuest
Networks, Inc., as of December 31, 1998 and September 30, 1999 and the related
consolidated statements of operations, consolidated changes in stockholders'
equity (deficit), and cash flows for the two years in the period ended December
31, 1998 and the nine months ended September 30, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of WorldQuest
Networks, Inc., at December 31, 1998 and September 30, 1999, and the
consolidated results of their operations and their cash flows for the two years
in the period ended December 31, 1998 and the nine months ended
September 30, 1999 in conformity with generally accepted accounting principles.

/s/ Ernst & Young LLP

December 22, 1999, except for the last paragraph in footnote 1 as to

which the date is February 1, 2000
Dallas, Texas

F-2
<PAGE>

WORLDQUEST NETWORKS, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 18,833 $ 59,419
Accounts receivable............................... 235,244 140,685
----------- ----------
Total current assets................................ 254,077 200,104
Property and equipment, net......................... 252,485 591,592
Other assets........................................ 740,212 590,554
----------- ----------
Total assets........................................ $ 1,246,774 $1,382,250
=========== ==========
LIABILITIES
Current liabilities:
Accounts payable.................................. $ 1,234,726 $1,164,266
Accrued expenses.................................. 344,231 355,116
Deferred revenue.................................. 95,965 118,348
Note payable...................................... 100,000 294,814
Line of credit from principal stockholder......... 638,096 798,226
Current portion of capital lease obligation....... 107,728 139,224
----------- ----------
Total current liabilities........................... 2,520,746 2,869,994
Term loan........................................... 1,100,000 1,100,000
Accrued interest.................................... 111,814 177,392
Capital lease obligation............................ 29,004 54,186
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, par value $0.01 per share:
Authorized shares--10,000,000; none issued and
outstanding at December 31, 1998 and
September 30, 1999............................... -- --
Common stock, par value $.01 per share:
Authorized shares--50,000,000; issued and
outstanding shares--3,000,000 at December 31,
1998 and 3,196,699 at
September 30, 1999............................... 30,000 31,967
Additional capital................................ 1,265,253 2,093,849
Accumulated deficit............................... (3,810,043) (4,945,138)
----------- ----------
Total stockholders' equity (deficit)................ (2,514,790) (2,819,322)
----------- ----------
Total liabilities and stockholders' equity
(deficit).......................................... $ 1,246,774 $1,382,250
=========== ==========
</TABLE>

See accompanying notes.

F-3
<PAGE>

WORLDQUEST NETWORKS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1997 and 1998 and the nine months ended
September 30, 1998 (unaudited) and 1999

<TABLE>
<CAPTION>
December 31, September 30,
------------------------ ------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Retail prepaid calling
card revenue............. $ -- $ 1,466,322 $ 618,882 $ 3,646,099
Wholesale traffic and
other.................... 51,963 375,117 166,049 363,137
----------- ----------- ----------- -----------
Total revenue........... 51,963 1,841,439 784,931 4,009,236
Cost of sales............. 227,011 2,005,631 898,776 3,348,593
----------- ----------- ----------- -----------
Gross margin (deficit).... (175,048) (164,192) (113,845) 660,643
Selling, general and
administrative........... 1,277,383 1,290,131 979,986 1,463,929
Research and development
costs.................... 438,860 186,638 135,627 158,469
----------- ----------- ----------- -----------
Operating loss............ (1,891,291) (1,640,961) (1,229,458) (961,755)
Interest expense.......... (28,265) (162,466) (128,226) (173,340)
Other income.............. 155,000 50,000 50,000 --
----------- ----------- ----------- -----------
Loss before income taxes.. (1,764,556) (1,753,427) (1,307,684) (1,135,095)
Income tax benefit........ -- -- -- --
----------- ----------- ----------- -----------
Net loss.................. $(1,764,556) $(1,753,427) $(1,307,684) $(1,135,095)
=========== =========== =========== ===========
Weighted-average common
shares outstanding--basic
and diluted.............. 3,000,000 3,000,000 3,000,000 3,108,638
=========== =========== =========== ===========
Net loss per share--basic
and diluted.............. $ (0.59) $ (0.58) $ (0.44) $ (0.37)
=========== =========== =========== ===========
</TABLE>

See accompanying notes.

F-4
<PAGE>

WORLDQUEST NETWORKS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the years ended December 31, 1997 and 1998 and the nine months ended
September 30, 1999

<TABLE>
<CAPTION>
Common Common
Stock Stock Additional Accumulated Stockholders'
Shares Amount Capital Deficit Equity (Deficit)
--------- -------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... 10,000 $ 100 $ 220,692 $ (292,060) $ (71,268)
Additional capital
contribution......... -- -- 316,208 -- 316,208
Stock dividend........ 2,990,000 29,900 (29,900) -- --
Fair value of services
provided by
shareholder.......... -- -- 175,000 -- 175,000
Net loss.............. -- -- -- (1,764,556) (1,764,556)
--------- -------- ----------- ------------ ------------
Balance at December 31,
1997................... 3,000,000 30,000 682,000 (2,056,616) (1,344,616)
Issuance of stock
purchase warrants...... -- -- 408,253 -- 408,253
Fair value of services
provided by
shareholder............ -- -- 175,000 -- 175,000
Net loss................ -- -- -- (1,753,427) (1,753,427)
--------- -------- ----------- ------------ ------------
Balance at December 31,
1998................... 3,000,000 30,000 1,265,253 (3,810,043) (2,514,790)
Fair value of services
provided by
shareholder.......... -- -- 131,250 -- 131,250
Compensation and other
expense on stock
options.............. -- -- 56,310 -- 56,310
Conversion of line of
credit from
shareholder.......... 60,061 601 199,399 -- 200,000
Sale of common stock.. 136,638 1,366 453,634 -- 455,000
Fair value of warrants
issued in connection
with capital lease
and note payable..... -- -- 396,256 -- 396,256
Cancellation of stock
purchase warrants.... -- -- (408,253) -- (408,253)
Net loss.............. -- -- -- (1,135,095) (1,135,095)
--------- -------- ----------- ------------ ------------
Balance at September 30,
1999 .................. 3,196,699 $ 31,967 $ 2,093,849 $ (4,945,138) $ (2,819,322)
========= ======== =========== ============ ============
</TABLE>

See accompanying notes.

F-5
<PAGE>

WORLDQUEST NETWORKS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997 and 1998 and the nine months ended
September 30, 1998 (unaudited) and 1999

<TABLE>
<CAPTION>
December 31, September 30,
-------------------------- --------------------------
1997 1998 1998 1999
------------ ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C>
Operating Activities
Net loss................ $ (1,764,556) $ (1,753,427) $ (1,307,684) $ (1,135,095)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities:
Depreciation.......... 155,133 141,833 96,888 130,546
Amortization.......... -- 121,222 53,923 114,336
Goodwill write-off.... -- -- -- 139,747
Fair value of
shareholder
services............. 175,000 175,000 131,250 131,250
Compensation and other
expense on stock
options.............. -- -- -- 56,310
Changes in operating
assets and
liabilities:
Accounts
receivable......... (41,715) (193,529) (9,421) 94,559
Accrued interest.... 27,387 84,427 77,176 65,578
Accounts payable and
accrued expenses... 437,921 747,384 318,902 386,673
Deferred revenue.... -- 95,965 -- 22,383
Other assets........ (5,433) (79,594) (29,923) (504,589)
------------ ------------ ------------ ------------
Net cash used in
operating activities... (1,016,263) (660,719) (668,889) (498,302)
Investing Activities
Additions to property
and equipment.......... (111,056) (148,047) (82,947) (135,181)
Proceeds from sale of
equipment.............. -- -- -- 10,347
------------ ------------ ------------ ------------
Net cash used in
investing activities... (111,056) (148,047) (82,947) (124,834)
Financing Activities
Proceeds from line of
credit, net............ 788,137 919,294 823,389 360,130
Payments on capital
leases................. -- (53,519) (28,537) (126,408)
Payment on notes
payable................ -- (25,000) (25,000) (25,000)
Capital contribution.... 316,208 -- -- --
Sale of common stock.... -- -- -- 455,000
------------ ------------ ------------ ------------
Net cash provided by
financing activities... 1,104,345 840,775 769,852 663,722
Increase (decrease) in
cash and cash
equivalents............ (22,974) 32,009 18,016 40,586
Cash and cash
equivalents at
beginning of period.... 9,798 (13,176) (13,176) 18,833
------------ ------------ ------------ ------------
Cash and cash
equivalents at end of
period................. $ (13,176) $ 18,833 $ 4,840 $ 59,419
============ ============ ============ ============
Supplemental Disclosure
of Cash Flow
Information
Interest paid........... $ 878 $ 54,075 $ 9,815 $ 10,311
============ ============ ============ ============
</TABLE>

See accompanying notes.

F-6
<PAGE>

WORLDQUEST NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1997 and 1998 and the nine months ended September 30,
1998 (unaudited) and 1999

1. Organization and Description of Business

WorldQuest Networks, Inc. (WorldQuest or the Company) was incorporated as a
Texas corporation effective October 14, 1996. The majority of the common stock
of the Company is owned by Eagle Venture Capital, LLC (Eagle) (formerly
WorldQuest Networks, LLC), a limited liability company. WorldQuest was formed
when the principal stockholder of Eagle decided to pursue Internet telephony
opportunities. In conjunction with the formation, Eagle contributed cash and
other assets valued at approximately $185,000 (the estimated fair value) in
exchange for 100% of the then outstanding common stock. During 1997, Eagle
contributed an additional $316,000 to further capitalize the Company but
received no additional shares of common stock. Effective October 28, 1999, the
Company reincorporated as a Delaware corporation. See Note 10.

WorldQuest is an international Internet telephony company that sells virtual
prepaid calling cards through its Internet website and transmits long distance
calls over its own enhanced server platform using its own network or leased
capacity from other long distance carriers. In late 1998, the Company began to
sell its excess capacity to other long distance carriers. The Company was
considered a development stage enterprise until 1998 when substantial revenues
from the sale of prepaid calling cards began.

In 1998 and the nine months ended September 30, 1998 (unaudited) and 1999
wholesale traffic and other revenues include approximately $221,000, $166,000
and $35,000, respectively relating to the Company's Costa Rican subsidiary in
which WorldQuest has a 90% interest. See Note 5.

As of December 31, 1998 and September 30, 1999 tangible assets located in
foreign locations totaled 7% and 11%, respectively of total consolidated
assets.

WorldQuest is headquartered in Dallas, Texas.

On February 1, 2000, the Company determined it had not properly accrued fees
payable to a telecommunications service provider for the nine-month period
ended September 30, 1999. The Company estimates the underaccrual at $227,000.
The financial statements as of and for the nine-months ended September 30,
1999, as originally issued, did not reflect this accrual and have, therefore
been restated to reflect the increased cost of sales and accrued expenses.

2. Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances and transactions
have been eliminated.

Interim Financial Statements

The consolidated unaudited financial statements for the nine months ended
September 30, 1998 reflect all adjustments (consisting only of normal recurring
adjustments except as described in Note 5) necessary for a presentation of the
financial position and results of operations for such periods.

Cash Equivalents

Cash equivalents include money market mutual funds and other highly liquid
investments purchased with maturities of three months or less.

F-7
<PAGE>

WORLDQUEST NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

2. Significant Accounting Policies (continued)

Property and Equipment

Property and equipment are recorded at cost. Depreciation is computed
principally using the double declining balance method over the estimated useful
lives of the assets. Amortization of capital leases and leasehold improvements
is provided on a double declining basis over the lives of the related assets or
the life of the lease, whichever is shorter, and is included with depreciation
expense.

Impairment of Long-lived Assets

The Company evaluates long-lived assets, including goodwill for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable and the undiscounted cash flows to be
generated by these assets are less than the carrying amounts of these assets.

Deferred Income Taxes

Deferred income taxes are determined using the liability method, which gives
consideration to the future tax consequences associated with differences
between the financial accounting and tax basis of assets and liabilities. This
method also gives immediate effect to changes in income tax laws.

Revenue Recognition

Retail prepaid phone card revenue is deferred when the cards are purchased
by the customer and recognized as calling services are used. Wholesale traffic
revenue is recognized as calls are processed.

Research and Development Costs

Research and development costs are expensed as incurred and consist
primarily of salaries, supplies and contract services.

Advertising Costs

The Company expenses the cost of advertising as incurred. Advertising
expense for the years ended December 31, 1997 and 1998 and the nine months
ended September 30, 1998 (unaudited) and 1999, was $3,745, $46,528, $28,983 and
$99,905, respectively.

Stock-Based Compensation

The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," in the primary financial
statements and has provided supplemental disclosures required by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (see Note 10).

Net Loss per Share

Basic and diluted net loss per share is computed using the Company's net
loss for each period presented divided by the average common shares
outstanding. Stock options and warrants convertible into 80,000, 455,841,
80,000 and 497,031 shares of the Company's common stock for the years ended
December 31, 1997 and 1998 and the nine months ended September 30, 1998
(unaudited) and 1999, respectively, were not considered in the calculation of
average common shares outstanding as the effect would be anti-dilutive due to
the Company's net loss for all periods presented.

Concentration of Credit Risks

Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash equivalents and accounts receivable.
Accounts receivable consist of amounts owed by credit
card processing companies relating to prepaid phone card sales, and amounts
owed by telephone companies for

F-8
<PAGE>

WORLDQUEST NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

2. Significant Accounting Policies (continued)

processed call traffic. A telephone company accounted for 0% and 59% of
accounts receivable as of September 30, 1999 and December 31, 1998,
respectively. At September 30, 1999 and December 31, 1998 a credit card
processing company accounted for 22% and 0% of total accounts receivable,
respectively. Another credit card processing company accounted for 0% and 26%
of total accounts receivable at the same dates. Customers purchase the
Company's prepaid calling cards primarily using major credit cards which are
reimbursed by credit card processing companies. Accordingly, the Company does
not routinely perform on-going credit evaluations of its customers but does
perform evaluations of its credit card processors. Additionally, the Company
does not require collateral.

Significant Customers

For fiscal 1997 and 1998 and the nine months ended September 30, 1998
(unaudited) and 1999, no one customer accounted for more than 10% of total
sales.

Fair Value of Financial Instruments

The Company's financial instruments consist primarily of cash equivalents,
accounts receivable, accounts payable and short term debt. The carrying amount
of financial instruments are representative of their fair values due to their
short maturities. The Company's line of credit with Eagle bears interest at
market rates and thus management believes their carrying amounts approximate
fair value.

New Accounting Pronouncements

In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1 provides guidance
on accounting for the costs of computer software developed or obtained for
internal use. This pronouncement identifies the characteristics of internal use
software and provides guidance on new cost recognition principles. SOP 98-1 is
effective for fiscal years beginning after December 15, 1998. The Company
adopted SOP 98-1 in 1999.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivatives and Similar
Financial Instruments and for Hedging Activities" (SFAS 133), which provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. The Company will be required to adopt SFAS
133 at the beginning of fiscal 2000. The Company has not assessed the impact
this standard will have on its results of operations, financial position or
cash flows. However, the Company does not currently have any derivatives or
financial instruments that would be impacted by SFAS 133.

F-9
<PAGE>

WORLDQUEST NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

2. Significant Accounting Policies (continued)

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.

3. Property and Equipment

Property and Equipment consists of the following as of:

<TABLE>
<CAPTION>
Estimated
Useful
Lives December 31, September 30,
(Years) 1998 1999
--------- ------------ -------------
<S> <C> <C> <C>
Leasehold improvements.............. 5 $ 14,297 $ 17,442
Switch and other network equipment.. 2 to 3 596,902 1,046,009
Furniture and fixtures.............. 5 37,010 37,721
Capitalized software................ 5 22,915 125,524
--------- ---------
Total............................... 671,124 1,226,696
Less: accumulated depreciation and
amortization..................... (418,639) (635,104)
--------- ---------
$ 252,485 $ 591,592
========= =========
</TABLE>

Included in the above net totals for property and equipment in 1998 and 1999 is
approximately $84,556 and $429,077, respectively relating to capital leases.

4. Other Assets

Other Assets consists of the following as of:

<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Lease options (see Note 11)................... $ 514,500 $ --
Capitalized initial public offering costs..... -- 408,182
Goodwill (see Note 5)......................... 139,747 --
Deposits...................................... 84,933 122,202
Other......................................... 1,032 60,170
--------- ---------
$ 740,212 $ 590,554
========= =========
</TABLE>

In the fourth quarter of 1999, the Company will expense approximately
$300,000 of capitalized initial public offering costs associated with a
previous registration statement which was withdrawn.

5. Costa Rican Operation

In January 1997, the Company and a Costa Rican national formed a Costa Rican
corporation, owned 50% by each party, to provide facsimile termination service.
In January 1998, the Company purchased 40% of such

F-10
<PAGE>

WORLDQUEST NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

5. Costa Rican Operation (continued)

interest from the other party for $125,000 resulting in 90% ownership. The
purchase consideration was in the form of a note payable to the other party, of
which $25,000 was paid in January 1998.

During the first quarter 1999, this operation ceased terminating traffic due
to the loss of available circuits resulting in the effective shutdown of its
operations. Management determined that the outlook for this operation was not
favorable and ceased efforts to reinstate service. Accordingly, the Company
wrote-off its remaining goodwill in the first quarter of 1999. Other remaining
assets are carried at their net realizable value or will be used in other
Company operations.

6. Accrued Expenses

Accrued Expenses consist of the following as of :

<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Deposits received.............................. $182,463 $117,723
Other.......................................... 161,768 237,393
-------- --------
$344,231 $355,116
======== ========
</TABLE>

7. Credit Facility from Parent and Notes Payable to Vendors

In December 1996, the Company entered into a $2,000,000 line of credit
agreement with Eagle. The outstanding amount as of December 31, 1998 and
September 30, 1999 totals $1,738,096 and $1,898,226, respectively. The loan
from Eagle bears interest at 8% per year and is payable on December 18, 2001,
unless demand is made by Eagle for earlier payment. The proceeds of this loan
were used to provide working capital.

In May 1999, Eagle and the Company amended its credit facility whereby
$1,100,000 was converted into a term loan with interest and principal due May
5, 2002 and the line of credit agreement was reduced to $900,000 of which
$261,904 and $101,774 is available for future borrowings as of December 31,
1998 and September 30, 1999, respectively. Accordingly this amount has been
treated as long-term debt in the accompanying financial statements. Eagle also
agreed at such time to convert $200,000 of the line of credit into 60,061
shares of common stock, at a conversion price of $ 3.33 per share. In August
1999, Eagle and the Company amended its credit facility by increasing the total
available under the line of credit to $1.4 million.

In March 1999, the Company converted vendor accounts payable totaling
$252,000 into an interest bearing promissory note. Principal and accrued
interest on the note is due, as amended, in November 1999. Telecommunication
equipment with an approximate carrying value of $141,000 as of
September 30, 1999, was pledged as collateral against the note. In December
1999, the Company further extended the note maturity date to February 15, 2000
by agreeing to pay the vendor approximately $60,000 on the outstanding note. In
conjunction with the amended promissory note, on September 16, 1999 the Company
granted the vendor a warrant to acquire 30,000 shares of its common stock,
which expires on December 31, 2000. The warrant vests immediately and is
exercisable at the initial public offering price. The fair value of the warrant
will be recognized as additional interest expense on the promissory note. The
Company paid an additional $25,000 on the note in September 1999.

In September 1999, the Company converted vendor accounts payable of $88,000
into an interest bearing promissory note due in December 1999. The outstanding
principal and accrued interest on the note was fully paid in December 1999.

F-11
<PAGE>

WORLDQUEST NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

8. Related Party Transactions

General

The Company's founder and Chief Executive Officer (CEO) holds a controlling
interest in Eagle, which in turn holds approximately 2.6 million and 2.7
million outstanding shares of the common stock of the Company
as of December 31, 1998, and September 30, 1999, respectively. The founder and
CEO has also agreed to provide necessary funding to the Company in the event
that the Company's current capital raising efforts are unsuccessful.

Additionally the founder and CEO had elected to forego a cash salary until
November 1999, at which time he began receiving an annual salary of $175,000.
Management believes that this amount approximates the fair value, on an annual
basis, of the services rendered to the Company by the founder and CEO, and
accordingly has recognized this expense in the financial statements since
inception.

On December 7, 1998, the Company entered into a written agreement with
WorldQuest Communications, Inc. and Eagle which formalized an earlier oral
agreement relating, among other things, to the grant of a license to Eagle and
the Company by WorldQuest Communications of the name "WorldQuest." Pursuant to
this agreement, Eagle also acknowledged its prior oral agreement to transfer,
and caused the transfer of 300,000 shares of WorldQuest common stock owned by
it to WorldQuest Communications in consideration of WorldQuest Communications
canceling approximately $100,000 owed by Eagle to WorldQuest Communications. As
part of this transaction, the primary shareholder of WorldQuest Communications
( a director of the Company) also cancelled $150,000 owed to him by Eagle,
which Eagle also had funded to the Company as equity or as a loan. Effective
with the formation of the Company, Eagle transferred its exclusive rights to
the name "WorldQuest" as part of the initial capitalization of the Company.

Consulting Fees

In 1997 and 1998 and for the nine months ended September 30, 1998
(unaudited) and September 30, 1999 a relative of the CEO was paid $44,000,
$61,500, $50,500 and $5,500, respectively, for providing consulting services to
the Company.

9. Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of deferred tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
December September 30,
31, 1998 1999
----------- -------------
<S> <C> <C>
Deferred tax assets:
Deferred revenue............................. $ 32,628 $ 40,238
Depreciation and amortization................ 70,937 79,566
Other........................................ 52,754 98,156
Net operating loss carryforwards............. 993,360 1,149,888
----------- ----------
Total deferred tax assets.................. 1,149,679 1,367,848
Valuation allowance............................ (1,149,679) (1,367,848)
----------- ----------
Net deferred tax assets........................ $ -- $ --
=========== ==========
</TABLE>

F-12
<PAGE>

WORLDQUEST NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

9. Income Taxes (continued)

The Company has U.S. net operating loss carryforwards of approximately $2.9
million and $3.5 million as of December 31, 1998 and September 30, 1999,
respectively, which expire beginning in 2011. The Company's total deferred tax
assets have been fully reserved due to the uncertainty of future realization.
Accordingly, no tax benefit has been recognized in the accompanying financial
statements. No other significant reconciling items exist between the actual
effective tax rate and the expected effective tax rate.

10. Stockholders' Equity (Deficit)

Common and Preferred Stock

On October 14, 1996, the Company was incorporated with authorized share
capital consisting of 10,000,000 shares of common stock with par value of $0.10
per share, and 5,000,000 shares of preferred stock with par value of $0.10 per
share. As of the incorporation date, 10,000 shares of Common Stock, with $.10
par value were issued and outstanding.

On October 28, 1999 the Company reincorporated as a Delaware corporation,
with authorized share capital consisting of 50,000,000 shares of common stock
with par value of $0.01 per share, and 10,000,000 shares of preferred stock
with par value of $0.01 per share. The impact of the Company's reincorporation
has been retroactively reflected in the financial statements for all periods
presented.

On January 6, 1997 the Company declared a stock dividend of 299 shares for
each share of common stock issued and outstanding as of this date. 2,990,000
shares of common stock were distributed at par value, and an amount of $29,900
was recorded as common stock.

During May 1999, the Company sold 136,638 shares of its common stock for
$3.33 per share. In addition, as discussed in Note 7, $200,000 owed to Eagle
under the line of credit was converted into 60,061 shares of common stock, at a
conversion price of $3.33 per share.

Warrants

In 1998, the Company issued warrants to a third party in connection with an
equipment lease entered into by the Company and the third party (see Note 11).
The warrants' entitle the third party to purchase 159,474 shares of common
stock at $3.33 per share. The warrants are fully vested, are immediately
exercisable and have a five-year term. The warrants also carry anti-dilution
provisions that are triggered if equity instruments are issued by the Company
for prices below the then existing exercise price of the warrant. The fair
value of these warrants of approximately $408,000 is being amortized as
additional lease expense. As more fully discussed in Note 11, these warrants
were canceled on August 31, 1999.

Stock Options

The Company has a stock option plan (Option Plan) under which the Company
may grant Directors and key employees options to purchase up to 500,000 shares
of the Company's common stock at an amount at least equal to the fair value of
the Company's common stock on the date of grant. All options have a seven year
term.

On January 7, 1997, the Company granted options to Directors (the Directors
Options) to purchase 20,000 shares of common stock at $1 per share, vesting
immediately. On January 7, 1997, the Company granted options to Key Employees
(the Key Employees Options) to purchase 60,000 shares of common stock at $1 per
share. Ten percent of the Key Employees Options' vest immediately and the
remaining vest ratably over a three-year period.

F-13
<PAGE>

WORLDQUEST NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

10. Stockholders' Equity (Deficit) (continued)

On December 8, 1998, the Company granted options to employees to purchase
98,500 shares of common stock at $3.33 per share. 42,950 of the options vest
immediately, 45,550 vest 18 months from the date of grant, and 10,000 vest
ratably over a three-year period. The options are exercisable when vested.

In February 1999, the Company granted options to an employee under the
Option Plan, to purchase 21,164 shares of common stock at an exercise price of
$3.33, these shares vest ratably over a three year period.

In July 1999, the Company issued options under the Option Plan to its Chief
Financial Officer to purchase 100,000 shares with an exercise price equal to
its planned initial public offering price. Otherwise the grant price reverts to
the fair value on the date of grant.

The weighted average exercise price included in the table below only
includes the February 1999 grants noted above.

Employee stock option transactions under the Option Plan for the years ended
December 31, 1998 and 1997, and the nine months ended September 30, 1999 are
summarized below:

<TABLE>
<CAPTION>
Weighted
Shares Weighted Average
Under Average Remaining
Option Exercise Contractual
Plan Price Life
------- -------- -----------
<S> <C> <C> <C>
Beginning Balance................................. -- -- --
Granted........................................... 80,000 $1.00 5 years
Exercised......................................... -- -- --
Canceled.......................................... -- -- --
-------
Outstanding at December 31, 1997.................. 80,000 1.00 5 years
Granted........................................... 98,500 3.33 7 years
Exercised......................................... -- -- --
Canceled.......................................... (50,000) 1.00 --
-------
Outstanding at December 31, 1998.................. 128,500 2.79 6.5 years
Granted........................................... 121,164 3.33 7 years
Exercised......................................... -- -- --
Canceled.......................................... (1,500) 1.0 --
-------
Outstanding at September 30, 1999................. 248,164 $3.06 6.8 years
=======
Available for granting in future periods.......... 251,836
=======
</TABLE>

At December 31, 1997 and 1998, and September 30, 1999 26,000, 66,950 and
68,900 options were exercisable under the Option Plan.

In December 1998, the Company issued options outside of the Option Plan to
purchase 167,867 shares of its common stock to its Chief Operating Officer (the
COO) at an exercise price of $3.33. These options have a seven-year term and
vest 20% on the first anniversary date, 30% on the second anniversary date and
50% on the third anniversary date. These options vest immediately upon the
closing of an initial public offering by the Company, certain changes of
control, a merger or liquidation or a sale of substantially all of the assets
of the Company.

As permitted under SFAS No. 123, the Company has not recognized compensation
expense for the theoretical value of its options at the grant date (in excess
of the recognition of the intrinsic value). Had

F-14
<PAGE>

WORLDQUEST NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

10. Stockholders' Equity (Deficit) (continued)

compensation expense for the Option Plan been based on the fair value of
options at the grant date amortized over the vesting period, the Company's pro
forma net loss and net loss per share would have been as follows:

<TABLE>
<CAPTION>
December 31, September 30,
------------------------ ------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Net loss:
As reported............ $(1,764,556) $(1,753,427) $(1,307,684) $(1,135,095)
Pro forma.............. (1,767,763) (1,754,955) (1,308,071) (1,165,710)
Net loss per share:
As reported -- basic
and diluted........... $ (0.59) $ (0.58) $ (0.44) $ (0.37)
Pro forma -- basic and
diluted............... $ (0.59) $ (0.58) $ (0.44) $ (0.37)
</TABLE>

In determining the fair value of options granted for purposes of the
preceding pro forma disclosures, the Company used the minimum value option-
pricing model with the following weighted-average assumptions for 1999, 1998
and 1997, respectively: risk-free interest rate of 5%, dividend yield of zero;
and an expected option life of 4 years. The options granted during 1997 and
1998 and the nine months ended September 30, 1999 had a weighted average fair
value of $.18, $.60, and $.60 per share, respectively.

Reserved Capital Shares

The Company has reserved the following shares of common stock as of
September 30, 1999 (unaudited):

<TABLE>
<S> <C>
Stock Option Plan................................................. 500,000
Stock Purchase Warrants........................................... 60,000
Options issued outside of Stock Option Plan....................... 188,867
-------
Total............................................................. 748,867
=======
</TABLE>

11. Commitments

The Company has capital leases for internet gateway telecommunications
equipment and operating leases relating principally to office facilities. The
capital leases contain a bargain purchase option at the end of the lease term.
Future minimum lease commitments at December 31, 1998, for leases with initial
or remaining terms of more than one year are summarized by fiscal year as
follows:

<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------- ---------
<S> <C> <C>
1999................................................. $118,339 $ 62,662
2000................................................. 29,585 63,486
2001................................................. -- 63,486
2002................................................. -- 5,291
2003................................................. -- --
Thereafter........................................... -- --
-------- --------
147,924 $194,925
========
Less amount representing interest.................... 11,192
--------
Present value of minimum lease payments.............. 136,732
Less current portion................................. 107,728
--------
Long-term portion of obligations under capital
leases.............................................. $ 29,004
========
</TABLE>

F-15
<PAGE>

WORLDQUEST NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

11. Commitments (continued)

Rental expense under operating leases was approximately $111,316, $75,185,
$58,965 and $44,791 for fiscal years 1997 and 1998, and the nine months ended
September 30, 1998 (unaudited) and 1999, respectively.

The Company entered into a leasing agreement with a third party to lease
equipment to be used in the Company's prepaid calling card business. In
connection with this lease agreement, the Company's issued the warrants
described in Note 10 and received options to purchase 100,000 shares of the
lessor's common stock at an exercise price equal to the fair value of the
common stock on the date of grant. The fair value of the options was estimated
at approximately $514,500 on the grant date using the Black-Scholes option-
pricing model. This asset is included in other assets (see Note 4) and is being
treated as a reduction of future lease expense.

The monthly lease payments for the above equipment is equal to the greater
of a set per minute charge based on usage or 10% of the revenues generated by
the Company using the leased equipment. Contingent rent expense under this
lease was approximately $0, $10,000, $0 and $7,000 for 1997 and 1998 and the
nine months ended September 30, 1998 (unaudited) and 1999, respectively.

Effective August 31, 1999, the parties reached an agreement whereby the
lease was terminated and the warrants described in Note 10 and the options
noted above were canceled. The transaction was recorded in the third quarter of
1999 and effectively reversed the amounts previously recognized.

In June 1999, the Company leased internet gateway telecommunications
equipment from a third party. Future minimum lease payments amount to $38,497
and $70,577 in 1999 and 2000, respectively. The capital lease has a 18 month
lease term and contains a bargain purchase option at the end of the lease term.

In July 1999, the Company entered into a revolving leasing agreement with a
third party. This agreement, which has a term of 36 months, provides the
Company with a $300,000 leasing facility to acquire Internet and Internet
related equipment. As of September 30, 1999, the Company had utilized $296,750
of this facility. At the end of the lease term the equipment may be purchased
at the fair market value, or the lease can be renewed on an annual basis.

In conjunction with this agreement, the Company agreed to issue warrants to
purchase 30,000 shares of its common stock. These warrants have a five year
term and are exercisable at the initial public offering price, or $3.33 per
share if a public offering is not concluded prior to expiration of the
warrants. The Company will grant the warrants proportionate with the funding
under the $300,000 leasing facility. The fair value of the warrants will be
recognized as additional interest expense on the lease line of credit. At
September 30, 1999, warrants to purchase 29,675 shares of common stock had been
issued.

12. Joint Venture

In April 1999, the Company formed a joint venture with BDC, LLC, a Nevada
limited liability company owned by a director of the Company. The joint venture
was formed for the purpose of installing Internet gateway's in foreign
locations. The Company owns 60% of the joint venture. As a result, the accounts
of the joint venture have been consolidated since inception. Activity in this
joint venture has been minimal since formation and the Company has no funding
obligations to the joint venture.

13. Contingencies

In October 1997, the Patent and Trademark Office issued a notice of
publication regarding our application to register "WorldQuest Networks" as a
trademark. In response to that notice, Qwest Communications (Qwest) filed a
notice of opposition in September 1998, which is currently pending before the
Patent and Trademark Office. If the Company does not prevail, it will not be
able to obtain a registered trademark for "WorldQuest

F-16
<PAGE>

WORLDQUEST NETWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

13. Contingencies (continued)

Networks" and could be required to stop using the name or pay a fee to Qwest
for permission to use it. Any trademark may be challenged for a period of six
years after it has been granted. Thus the Company could also face a
cancellation proceeding with the Patent and Trademark Office relating to the
trademark for "WorldQuest."

The Company is a defendant from time to time in lawsuits incidental to their
business. The Company believes that resolution of all known contingencies, is
uncertain, and there can be no assurance that future costs related to such
litigation would not be material to the Company's financial position or results
of operations.

14. Subsequent Events (unaudited)

In December 1999, the Company raised $1.9 million before offering costs
through the private placement of units consisting of 8% unsecured subordinated
convertible promissory notes and common stock purchase warrants. The notes
mature and become immediately due and payable upon the earlier of an initial
public offering or December 31, 2000. The fair value of the stock purchase
warrants of $1.5 million will be recognized as additional interest expense over
the term of the subordinated convertible promissory notes. If the notes are
retired early as a result of an initial public offering, the remaining
unamortized amount of the fair value of the warrants will be recognized
immediately.

F-17
<PAGE>

[The back inside cover page contains a diagram composed of the following:]

[1. The background of the diagram consists of a picture of the globe with
clouds around it.]

[2. A sample of a page from WorldQuest's web site appears in the upper left
corner of the diagram showing sample virtual calling cards and rates for
calls from the U.S. to India and from the U.S. to Taiwan.]

[3. A sample of virtual calling cards and rates for calls from the U.S. to
India, the U.S. to China, the U.S. to U.S., the U.S. to Mexico and the U.S.
to Jamaica cascade from left to right down the center of the diagram.]

[4. A sample of a page from WorldQuest's web site depicting WorldQuest's Free
Internet Address Book appears in the lower left corner of the diagram.]
<PAGE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

Please read this prospectus carefully. It describes our business, our
products and services and our financial condition and results of operations.
We have prepared this prospectus so that you will have the information
necessary to make an informed investment decision.

You should only rely on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. The information contained in this prospectus is
accurate only as of the date of the prospectus, regardless of the time the
prospectus is delivered or the common stock is sold.

----------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 5
Forward Looking Statements............................................... 11
Use of Proceeds.......................................................... 11
Capitalization........................................................... 12
Dividend Policy.......................................................... 12
Dilution................................................................. 13
Selected Financial Data.................................................. 14
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 15
Business................................................................. 23
Management............................................................... 36
Certain Transactions..................................................... 41
Principal Stockholders................................................... 43
Description of Capital Stock............................................. 44
Shares Eligible for Future Sale.......................................... 47
Underwriting............................................................. 50
Legal Matters............................................................ 52
Independent Auditors..................................................... 52
Where You Can Get More Information....................................... 52
Index to Consolidated Financial Statements............................... F-1
</TABLE>

----------------

Until , 2000 (25 days after the date of this prospectus), all dealers
effecting transactions in the common stock may be required to deliver a
prospectus, even if they do not participate in this offering. This is in
addition to the obligations of dealers to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

[Logo of WorldQuest Networks appears here]

2,500,000 Shares
Common Stock

----------------
PROSPECTUS
, 2000
----------------

Kaufman Bros., L.P.

John G. Kinnard and Company Incorporated

WestPark Capital, Inc.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. Indemnification of Directors and Officers

Section 145 of the Delaware General Corporation Law permits the Registrant
to indemnify directors and officers. Article X, Section 10.2, of the
Certificate of Incorporation, and Article VIII, Section 8.06, of the Bylaws,
provide that the Registrant shall indemnify each person who was or is a party,
or is threatened to be made a party, to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or she is or was, or has agreed to
become, a director or officer of the Registrant or is or was serving, or has
agreed to serve, at the request of the Registrant, as a director, officer or
trustee of, or in a similar capacity with, another corporation, partnership,
joint venture, trust or other enterprise (including any employee benefit plan),
or by reason of any action alleged to have been taken or omitted in such
capacity, against all expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him or her
or on his or her behalf in connection with such action, suit or proceeding and
any appeal therefrom. Such right of indemnification shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.

ITEM 25. Other Expenses of Issuance and Distribution

The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimates,
except the SEC, NASD and Nasdaq fees.

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................ $ 10,337
NASD filing fee.................................................... 4,415
Nasdaq National Market listing fee................................. 66,875
Underwriters' nonaccountable expense allowance..................... 550,000
Printing and engraving expenses.................................... 100,000
Accounting fees and expenses....................................... 290,000
Legal fees and expenses............................................ 195,000
Fees and expenses (including legal fees) for qualifications under
state securities laws............................................. 10,000
Transfer agent and registrar's fees and expenses................... 10,000
Miscellaneous expenses............................................. 50,000
----------
Total.......................................................... $1,286,627
==========
</TABLE>

ITEM 26. Recent Sales of Unregistered Securities

Set forth in the table below are the dates, the number of securities sold
and the total offering price of such securities sold by the Registrant within
the past three years. Unless otherwise indicated, all securities were sold to
the purchasers directly by the Registrant, and therefore, no underwriting
discounts or commissions were involved.

<TABLE>
<CAPTION>
Total
Date of Number of offering
Title of securities sold purchase shares price($)
------------------------ ------------- -------------- ----------
<S> <C> <C> <C>
Common Stock.......................... October 1996 10,000(/1/) $ 501,000
Promissory Note....................... December 1996 (/2/) 2,500,000
Common Stock (stock dividend)......... January 1997 2,900,000(/1/)
Common Stock Purchase Warrant......... June 1998 159,474(/3/)
Common Stock.......................... May 1999 136,138(/4/) 455,000
Common Stock.......................... May 1999 60,061(/2/) 200,000
Common Stock Warrant.................. August 1999 30,000(/5/)
Common Stock Option................... August 1999 30,000(/5/)
Convertible Promissory Notes, with
Warrants............................. December 1999 (/6/) 1,900,000
</TABLE>

II-1
<PAGE>

- --------
(1) This common stock and the dividend was issued to Eagle Venture Capital,
LLC, our founding stockholder.

(2) This note is a credit facility payable to our founding stockholder. On May
5, 1999, $200,000 of the facility was converted into 60,061 shares of
common stock.

(3) Represents a right to purchase 159,474 shares of common stock granted in
connection with a lease of equipment from the warrant holder. This Common
Stock Purchase Warrant was cancelled in August 1999 by mutual agreement
with the warrant holder in connection with a mutually agreed upon
termination of the equipment lease.

(4) These shares of common stock were sold to ten private accredited investors
during May 1999.

(5) The warrant was granted to the lessor under an equipment lease and the
option was granted to a telephone carrier as part of the modification of an
agreement for telephone call transmission and termination.

(6) During December 1999 we sold $1,900,000 of promissory notes, with common
stock purchase warrants attached, to 33 accredited investors. The warrants
entitle the holders to purchase an aggregate of 323,000 shares of common
stock at any time prior to December 2004 for an exercise price of $6.00
per share. The notes are convertible, at the election of the holder, on
June 30, 2001 at a conversion price of $4.50 per share if the notes are
not paid in full prior to this date.
All of the above securities were sold by the Registrant in reliance on
Section 4(2) of the Securities Act of 1933, as amended.

ITEM 27. Exhibits and Financial Statement Schedules

(a) Exhibits

<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1** Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant, filed as Exhibit 3.1
to Registrant's Form SB-2 Registration Statement, File No. 333-82721
(the "Prior Registration Statement"), and incorporated herein by this
reference.
3.2 Bylaws of the Registrant, filed as Exhibit 3.2 to the Prior
Registration Statement, and incorporated herein by this reference.
4.1 Specimen common stock certificate, filed as Exhibit 4.1 to the Prior
Registration Statement, and incorporated herein by this reference.
4.2 Amended and Restated Note dated May 5, 1999 payable to WorldQuest
Networks, LLC (now known as Eagle Venture Capital, LLC), filed as
Exhibit 4.2 to the Prior Registration Statement, and incorporated
herein by this reference.
4.3** Form of Warrant Agreement between the Registrant and the
representatives of the underwriters, including form of
Representative's Warrant.
4.4 Amended and Restated Note dated August 15, 1999 payable to Eagle
Capital Venture, LLC, which replaces the Amended and Restated Note
filed as Exhibit 4.2, filed as Exhibit 4.4 to the Prior Registration
Statement, and incorporated herein by this reference.
4.5* Form of Unsecured Subordinated Convertible Promissory Note issued in
the private placement closed in December 1999 (the "Private
Placement").
4.6* Form of Warrant issued in the Private Placement.
5.1* Opinion of Glast, Phillips & Murray, a Professional Corporation.
10.1 Joint Venture Agreement dated April 9, 1999 between the Registrant and
BDC, LLC, filed as Exhibit 10.1 to the Prior Registration Statement,
and incorporated herein by this reference.
10.2 Amended 1997 Stock Option Plan, filed as Exhibit 10.2 to the Prior
Registration Statement, and incorporated herein by this reference.
10.3 Stock Option Agreement dated December 7, 1998 granted to Michael R.
Lanham by the Registrant, filed as Exhibit 10.3 to the Prior
Registration Statement, and incorporated herein by this reference.
10.4 Stock Transfer Agreement dated December 7, 1998 between WorldQuest
Communications, Inc., WorldQuest Networks, LLC and the Registrant,
filed as Exhibit 10.4 to the Prior Registration Statement, and
incorporated herein by this reference.
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.5 Amendment and Clarification Agreement dated September 27, 1999 between
WorldQuest Communications, Inc., WorldQuest Networks, Inc. and Eagle
Venture Capital, LLC amending and clarifying the Stock Transfer
Agreement filed as Exhibit 10.4, filed as Exhibit 10.7 to the Prior
Registration Statement, and incorporated herein by this reference.
10.6* Form of Registration Rights Agreement to be executed in connection
with the Private Placement.
21.1 List of Subsidiaries, filed as Exhibit 21.1 to the Prior Registration
Statement, and incorporated herein by this reference.
23.1** Consent of Ernst & Young LLP.
23.2 Consent of Glast, Phillips & Murray, P.C. (contained in Exhibit 5.1).
24.1 Power of Attorney (included on signature page of registration
statement).
27.1** Financial Data Schedule.
</TABLE>
- --------
* Previously filed.
** Filed herewith.

II-3
<PAGE>

ITEM 28. Undertakings

The undersigned Registrant hereby undertakes:

(1) to file, during any period in which offers or sales are being made, a post-
effective amendment to this registration statement:

(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;

(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually, or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total dollar
value of the securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in this registration
statement; and

(iii) to include any additional or changed material information with
respect to the plan of distribution;

(2) that, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof;

(3) to remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
this offering.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.

The undersigned Registrant hereby undertakes to provide the underwriters at
the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b) (1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.

For the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.

II-4
<PAGE>

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this Amendment
No.2 to the registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas
on February 1, 2000.

WORLDQUEST NETWORKS, INC.

/s/ B. Michael Adler
By: _________________________________
B. Michael Adler, Chairman of
the
Board and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the capacity
indicated on January 6, 2000.

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<S> <C> <C>
/s/ B. Michael Adler Director and Chief Executive February 1, 2000
____________________________________ Officer (Principal
B. Michael Adler Executive Officer)

/s/ Michael R. Lanham Director and President February 1, 2000
____________________________________
Michael R. Lanham

/s/ Hugh E. Humphrey, Jr.* Director February 1, 2000
____________________________________
Hugh E. Humphrey, Jr.

/s/ E. Denton Jones* Director February 1, 2000
____________________________________
E. Denton Jones

/s/ Nabil N. El-Hage* Director February 1, 2000
____________________________________
Nabil N. El-Hage

/s/ Mark C. Levy Chief Financial Officer February 1, 2000
____________________________________ (Principal Financial and
Mark C. Levy Accounting Officer)
</TABLE>

/s/ Michael R. Lanham
*By: __________________________
Michael R. Lanham
Attorney-In-Fact

II-5
<PAGE>

INDEX TO EXHIBITS

<PAGE>

EXHIBIT 1.1
UNDERWRITING AGREEMENT

2,500,000 Shares of Common Stock
of
WORLDQUEST NETWORKS, INC.

February __, 2000

Kaufman Bros., L.P.
John G. Kinnard and Company Incorporated
WestPark Capital, Inc.
As Representatives of the
several Underwriters named
in Schedule I attached hereto
800 Third Avenue - 25th Floor
New York, New York 10022

Dear Sirs:

The undersigned, WorldQuest Networks, Inc., a Delaware corporation
(the "Company"), hereby confirms its agreement with the several underwriters
named in Schedule I hereto (collectively, the "Underwriters") for whom you have
been authorized to act as Representatives (in such capacity, the
"Representatives"), as set forth below.

1. Introduction. The Company proposes to issue and sell to the
-------------
Underwriters 2,500,000 shares (the "Stock") of the common stock, par value $.01
per share, of the Company (the "Common Stock"). In addition, solely for the
purpose of covering over-allotments, the Company proposes to grant the
Underwriters the option to purchase from it, on a pro rata basis, within 45 days
from the date of the initial public offering of the Common Stock, up to 375,000
shares of Common Stock to be initially purchased from the Company (the
"Additional Stock") at a purchase price equal to the initial public offering
price for the Common Stock. The Common Stock is more fully described in the
Prospectus (as hereinafter defined).

2. Representations and Warranties of the Company. The Company
----------------------------------------------
represents and warrants to, and agrees with, each of the several Underwriters
that:

(a) The Company has filed with the Securities and Exchange Commission
(the "Commission") under the Securities Act of 1933, as amended (the
"Act"), a registration
<PAGE>

statement, and may have filed one or more amendments thereto, on Form SB-2
(File No. 333-93019) (the "Original Registration Statement"), including in
such registration statement and each such amendment a related Preliminary
Prospectus (as hereinafter defined), for the registration of (i) the Stock,
(ii) the Additional Stock, (iii) the common stock purchase warrants
referred to in Section 5(r) hereof (the "Representatives' Warrants"), and
the (iv) the shares of Common Stock underlying the Representatives'
Warrants (the "Warrant Stock") (the Stock, the Additional Stock, the
Representatives' Warrants and the Warrant Stock are collectively referred
to as the "Securities"). After the execution of this Agreement: (i) if the
Original Registration Statement, as it may have been amended, has been
declared by the Commission to be effective under the Act, then the Company
will file with the Commission (A) if the Company relies on Rule 434 of the
Act, a Term Sheet (as hereinafter defined) relating to the Securities, that
shall identify the Preliminary Prospectus that it supplements containing
such information as is required or permitted by Rules 434, 430A and 424(b)
under the Act, or (B) if the Company does not rely on Rule 434 under the
Act, a prospectus in the form most recently included in an amendment to the
Original Registration Statement (or, if no such amendment shall have been
filed, in the Original Registration Statement), with such changes or
insertions as are required by Rule 430A under the Act or permitted by Rule
424(b) under the Act, and, in the case of either clause (i)(A) or (i)(B) of
this sentence, as shall have been provided to and approved by the
Representatives prior to the execution of this Agreement, or (ii) if the
Original Registration Statement, as it may have been amended, has not been
declared by the Commission to be effective under the Act, then the Company
will file with the Commission an amendment to the Original Registration
Statement, including a form of prospectus, a copy of which amendment shall
have been furnished to and approved by the Representatives prior to the
execution of this Agreement, which approval shall not be unreasonably
withheld. The Company, with the prior consent of the Representatives, may
have also filed a related registration statement with the Commission
pursuant to Rule 462(b) under the Act for the purpose of registering a
portion of the Securities (a "Rule 462(b) Registration Statement"), which
shall become effective upon filing. As used in this Agreement, the term
"Registration Statement" means collectively, (i) the Original Registration
Statement, as amended at the time when it was or is declared effective,
including all financial schedules and exhibits thereto and including any
information omitted therefrom pursuant to Rule 430A under the Act and
included in the Prospectus, and if any post-effective amendment thereto
becomes effective prior to the Closing Date (as defined in Section 3
hereof), such registration statement as so amended, and (ii) any related
Rule 462(b) Registration Statement which may have been filed with the
Commission pursuant to the Rule 462(b) under the Act (including the
Original Registration Statement and any Preliminary Prospectus or
Prospectus incorporated therein at the time such Rule 462(b) Registration
Statement becomes effective); the term "Preliminary Prospectus" means each
prospectus subject to completion filed with the Commission with such
registration statement or any amendment thereto (including the prospectus
subject to completion, if any, included in the Registration Statement or
any amendment thereto at the time it was or is declared effective); the
term "Prospectus" means:

-2-
<PAGE>

(A) if the Company relies on Rule 434 under the Act, the Term Sheet
relating to the Securities that is first filed with the Commission pursuant
to Rule 424(b)(7) under the Act, together with the Preliminary Prospectus
identified therein that such Term Sheet supplements;

(B) if the Company does not rely on Rule 434 under the Act, the
prospectus first filed with the Commission pursuant to Rule 424(b) under
the Act; or

(C) if the Company does not rely on Rule 434 under the Act and if no
prospectus is required to be filed pursuant to Rule 424(b) under the Act,
the prospectus included in the Registration Statement;

and the term "Term Sheet" means any term sheet that satisfies the
requirements of Rule 434 under the Act. Any reference herein to the
"date" of a Prospectus that includes a Term Sheet shall mean the date
of such Term Sheet.

(b) When any Preliminary Prospectus was filed with the Commission it
(i) contained all statements required to be stated therein in accordance
with, and complied in all material respects with the requirements of, the
Act and the rules and regulations of the Commission thereunder, and (ii)
did not include any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
When the Registration Statement or any amendment thereto was or is declared
effective, as the case may be, it (i) contained or will contain all
statements required to be stated therein in accordance with, and complied
or will comply in all material respects with the requirements of, the Act
and the rules and regulations of the Commission thereunder, and (ii) did
not or will not include any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading. When the Prospectus or any Term Sheet that is a part thereof
or any amendment or supplement to the Prospectus is filed with the
Commission pursuant to Rule 424(b) (or, if the Prospectus or any part
thereof or such amendment or supplement is not required to be so filed,
when the Registration Statement or the amendment thereto containing such
amendment or supplement to the Prospectus was or is declared effective) and
on the Closing Date and any Additional Closing Date (both as hereinafter
defined in Section 3), the Prospectus, as amended or supplemented at any
such time, (i) contained or will contain all statements required to be
stated therein in accordance with, and complied or will comply in all
material respects with the requirements of, the Act and the rules and
regulations of the Commission thereunder, and (ii) did not or will not
include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. The
foregoing provisions of this paragraph (b) do not apply to statements or
omissions made in any Preliminary Prospectus, the Registration Statement or
any

-3-
<PAGE>

amendment thereto or the Prospectus or any amendment or supplement thereto
in reliance upon and in conformity with written information furnished to
the Company as stated in Section 8(b) with respect to any Underwriter
through the Representatives specifically for use therein.

(c) If the Company has elected to rely on Rule 462(b), then (i) the
Company has filed a Rule 462(b) Registration Statement in compliance with
and that is effective upon filing with the Commission pursuant to Rule
462(b) and has received confirmation of its receipt, and (ii) the Company
has given irrevocable instructions for transmission of the applicable
filing fee in connection with the filing of the Rule 462(b) Registration
Statement in compliance with Rule 111 promulgated under the Act or the
Commission has received payment of such filing fee.

(d) Neither the Commission nor the "blue sky" or securities authority
of any jurisdiction has issued an order (a "Stop Order") suspending the
effectiveness of the Registration Statement, preventing or suspending the
use of any Preliminary Prospectus, the Prospectus, the Registration
Statement, or any amendment or supplement thereto, refusing to permit the
effectiveness of the Registration Statement, or suspending the registration
or qualification of any of the Securities, nor has any of such authorities
instituted or threatened to institute any proceedings with respect to a
Stop Order.

(e) Any contract, agreement, instrument, lease, or license required to
be described in the Registration Statement and the Prospectus (or if the
Prospectus is not in existence, the most recent Preliminary Prospectus) has
been properly described therein. Any contract, agreement, instrument,
lease, or license required to be filed as an exhibit to the Registration
Statement has been filed with the Commission as an exhibit to or has been
incorporated as an exhibit by reference into the Registration Statement.

(f) The Company has no subsidiaries (as defined in the general rules
and regulations promulgated under the Act (the "Regulations")) other than
Red de Busqueda Mundial, S.A., an inactive Costa Rican corporation and a
joint venture with BDC, LLC, dated April 9, 1999 (together, the
"Subsidiaries"). The Company is a corporation duly organized, validly
existing, and in good standing under the laws of its jurisdiction of
incorporation, with full power and authority, and all necessary consents,
authorizations, approvals, orders, licenses, certificates, and permits of
and from, and declarations and filings with, all federal, state, local, and
other governmental authorities and all courts and other tribunals, to own,
lease, license, and use its properties and assets and to carry on the
business in the manner described in the Registration Statement and
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). Each of the Subsidiaries has been duly
incorporated or organized, as applicable, and is validly existing as a
corporation or joint venture, as applicable, in good standing
under the laws of the jurisdiction of its incorporation or organization,
with full corporate or joint venture power and authority to
own, lease and operate its properties and conduct its business as described
in the Prospectus. As of the Effective Date, the outstanding capital

-4-
<PAGE>

stock of each of the Subsidiaries, as set forth in the Prospectus, is owned
by the Company, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest; and no preemptive right, co-sale
right, registration right, right of first refusal or other similar right of
stockholders exists with respect to any shares of any of the Subsidiaries.
The Company and each of the Subsidiaries is duly qualified to do business
and is in good standing in every jurisdiction in which its ownership,
leasing, licensing, or use of property and assets or the conduct of its
business makes such qualification necessary. Except as otherwise disclosed
in the Registration Statement, the Company does not own, and at the Closing
Date and any Additional Closing Date will not own, directly or indirectly,
any shares of stock or any other equity or long-term debt securities of any
corporation or have any equity interest in any firm, partnership, joint
venture, association or other entity.

(g) The authorized capital stock of the Company consists of (i)
50,000,000 shares of Common Stock, of which 3,196,699 shares are
outstanding, and (ii) 10,000,000 shares of preferred stock, par value $.01
per share (the "Preferred Stock"), of which no shares are outstanding.
Each outstanding share of the Company's capital stock has been validly
authorized, issued, fully paid, and nonassessable, without any personal
liability attaching to the ownership thereof, has not been issued and is
not owned or held in violation of any preemptive rights of stockholders.
There is no commitment, plan, or arrangement to issue, and no outstanding
option, warrant, or other right calling for the issuance of, any share of
capital stock of the Company or any security or other instrument which by
its terms is convertible into, exercisable for, or exchangeable for capital
stock of the Company, except as may be set forth in the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary
Prospectus). Except as set forth in the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus), there is
outstanding no security or other instrument which by its terms is
convertible into or exchangeable for capital stock of the Company.

(h) All the issued and outstanding capital stock of each of the
Subsidiaries has been duly authorized and validly issued and is fully paid
and nonassessable, and was not issued in violation of or subject to any
preemptive right, or other rights to subscribe for or purchase any
securities or obligations convertible into, or any contracts or commitments
to issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations, and is owned of record and
beneficially, as of the date hereof, and will be owned of record and
beneficially at or prior to the Closing Date, by the Company free and clear
of any pledge, lien, security interest, encumbrance, claim or equitable
interest; and no preemptive right, co-sale right, registration right, right
of first refusal or other similar right of stockholders exists with respect
to any shares of the Subsidiaries. There are no outstanding rights,
warrants or options to acquire, or instruments convertible into or
exchangeable for, any shares of capital stock or other equity interest in
any of the Subsidiaries. Except as described in the Registration Statement
and the Prospectus or as may be restricted by the terms and provisions of
any credit or loan facility to which the Company or any of the Subsidiaries
is a party and which is described in the Registration Statement and the
Prospectus, or by relevant state law with respect to the need for
sufficient

-5-
<PAGE>

surplus, none of the Subsidiaries is currently prohibited, directly or
indirectly, from paying any dividends to the Company, from making any other
distribution on its capital stock, or from transferring any of the property
or assets of any such Subsidiary to the Company.

(i) The consolidated financial statements of the Company included in
the Registration Statement and the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus) fairly present the
financial position, the results of operations, and the other information
purported to be shown therein at the respective dates and for the
respective periods to which they apply. Such financial statements have
been prepared in accordance with generally accepted accounting principles
(except to the extent that certain footnote disclosures regarding any stub
period may have been omitted in accordance with the applicable rules of the
Commission under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) consistently applied throughout the periods involved, are
correct and complete, and are in accordance with the books and records of
the Company and the Subsidiaries. The accountants whose report on the
audited financial statements is filed with the Commission as a part of the
Registration Statement are, and during the periods covered by their
report(s) included in the Registration Statement and the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus)
were, independent certified public accountants within the meaning of the
Act and the Regulations. No other financial statements are required by Form
SB-2 or otherwise to be included in the Registration Statement or the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). There has at no time been a material adverse
change in the financial condition, results of operations, business,
properties, assets, liabilities, or future prospects of the Company or the
Subsidiaries from the latest information set forth in the Registration
Statement or the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus), except as may be properly described in
the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). None of the Company or any of the Subsidiaries is
currently planning any probable acquisition for which pro forma financial
information would be required by the Act.

(j) There is no litigation, arbitration, claim, governmental or other
proceeding (formal or informal), or investigation pending, or, to the best
of the Company's knowledge, threatened, or in prospect (or any basis
therefor) with respect to the Company, the Subsidiaries or any of their
respective operations, business, properties, or assets except as may be
properly described in the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) or such as individually
or in the aggregate do not now have and will not in the future have a
material adverse effect upon the operations, business, properties, or
assets of the Company. Neither the Company nor the Subsidiaries is in
violation of, or in default with respect to, any law, rule, regulation,
order, judgment, or decree except as may be properly described in the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) or such as in the aggregate do not now have and
will not in the future have a material adverse effect upon the operations,
business, properties, or assets of the Company or the Subsidiaries; nor is
either the Company or the Subsidiaries required to take any action in order
to avoid any such violation or default.

-6-
<PAGE>

(k) Each of the Company and the Subsidiaries has good and marketable
title in fee simple absolute to all real properties and good title to all
other properties and assets which the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus) indicates are
owned by it, free and clear of all liens, security interests, pledges,
charges, encumbrances, and mortgages (except as may be properly described
in the Prospectus, or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus) or such as do not materially affect the
value of such property and do not interfere with the use made of such
property by the Company and the Subsidiaries. No real property owned,
leased, licensed, or used by the Company or the Subsidiaries lies in an
area which is, or to the knowledge of the Company or the Subsidiaries will
be, subject to zoning, use, or building code restrictions which would
prohibit, and no state of facts relating to the actions or inaction of
another person or entity or his or its ownership, leasing, licensing, or
use of any real or personal property exists or will exist which would
prevent, the continued effective ownership, leasing, licensing, or use of
such real property in the business of the Company or the Subsidiaries as
presently conducted or as the Prospectus indicates it contemplates
conducting (except as may be properly described in the Prospectus, or if
the Prospectus is not in existence, the most recent Preliminary
Prospectus).

(l) Neither the Company nor the Subsidiaries, nor to the knowledge of
the Company, any other party, is now or is expected by the Company to be in
violation or breach of, or in default with respect to, complying with any
material provision of any contract, agreement, instrument, lease, license,
arrangement, or understanding which is material to the Company or the
Subsidiaries, and each such contract, agreement, instrument, lease,
license, arrangement, and understanding is in full force and is the legal,
valid, and binding obligation of the parties thereto and is enforceable as
to them in accordance with its terms (subject to applicable bankruptcy,
insolvency and other laws affecting the enforceability of creditors' rights
generally). Each of the Company and the Subsidiaries enjoys peaceful and
undisturbed possession under all leases and licenses under which it
operates. Except as may be properly described in the Prospectus (or if the
Prospectus is not in existence, the most recent Preliminary Prospectus),
neither the Company nor the Subsidiaries is a party to or bound by any
contract, agreement, instrument, lease, license, arrangement, or
understanding, or subject to any charter or other restriction, which has
had or may in the future have a material adverse effect on the financial
condition, results of operations, business, properties, assets,
liabilities, or future prospects of the Company or the Subsidiaries. The
Company is not in violation or breach of, or in default with respect to,
any term of its certificate of incorporation (or other charter document) or
by-laws. The Subsidiaries are not in violation or breach of, or in default
with respect to, any term of its charter documents, operating agreement or
by-laws, as applicable.

(m) All patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, franchises, and other
intangible properties and assets (all of the foregoing being herein called
"Intangibles") that the Company and the Subsidiaries own or have pending,
or under which they are licensed, are in good standing and

-7-
<PAGE>

uncontested. There is no right under any Intangible necessary to the
business of the Company or the Subsidiaries as presently conducted or as
the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) indicates it contemplates conducting (except as may
be so designated in the Prospectus, or, if the Prospectus if not in
existence, the most recent Preliminary Prospectus). Except as disclosed in
the Prospectus, neither the Company nor the Subsidiaries has infringed, is
infringing, and has received notice of infringement with respect to,
asserted Intangibles of others. To the knowledge of the Company, there is
no infringement by others of Intangibles of the Company or the
Subsidiaries. To the knowledge of the Company, there is no Intangible of
others which has had or may in the future have a materially adverse effect
on the financial condition, results of operations, business, properties,
assets, liabilities, or future prospects of the Company.

(n) None of the Company, the Subsidiaries, nor any director, officer,
agent, employee, or other person associated with or acting on behalf of the
Company or the Subsidiaries has, directly or indirectly (i) used any
corporate funds for unlawful contributions, gifts, entertainment, or other
unlawful expenses relating to political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to
foreign or domestic political parties or campaigns from Company funds,
(iii) violated any provision of the Foreign Corrupt Practices Act of 1977,
as amended, or (iv) made any bribe, rebate, payoff, influence payment,
kickback, or other unlawful payment.

(o) The Company has all requisite power and authority to execute
deliver, and perform both this Agreement and the certificate evidencing the
Representatives' Warrants (the "Representatives' Warrant Agreement" and
together with this Agreement, the "Company Documents"). All necessary
corporate proceedings of the Company have been duly taken to authorize the
execution, delivery, and performance of each of the Company Documents by
the Company. This Agreement has been duly authorized, executed, and
delivered by the Company, is the legal, valid, and binding obligation of
the Company, and is enforceable as to the Company in accordance with its
terms (subject to applicable bankruptcy, insolvency and other laws
affecting the enforceability of creditors' rights generally). The
Representatives' Warrant Agreement has been duly authorized by the Company
and when executed and delivered by the Company, will be the legal, valid,
and binding obligation of the Company, enforceable against the Company in
accordance with its terms (subject to applicable bankruptcy, insolvency and
other laws affecting the enforceability of creditors' rights generally).
No consent, authorization, approval, order, license, certificate, or permit
of or from, or declaration or filing with, any federal, state, local, or
other governmental authority or any court or other tribunal is required by
the Company for the execution, delivery, or performance by the Company of
any of the Company Documents (except filings under the Act which have been
or will be made before the Closing Date and such consents consisting only
of consents under "blue sky" or securities laws which have been obtained at
or prior to the date of this Agreement). No consent of any party to any
contract, agreement, instrument, lease, license, arrangement, or

-8-
<PAGE>

understanding to which either the Company or the Subsidiaries is a party,
or to which any of its respective properties or assets are subject, is
required for the execution, delivery, or performance of the Company
Documents; and the execution, delivery, and performance of any of the
Company Documents will not violate, result in a breach of, conflict with,
or (with or without the giving of notice or the passage of time or both)
entitle any party to terminate or call a default under any such contract,
agreement, instrument, lease, license, arrangement, or understanding, or
violate or result in a breach of any term of the certificate of
incorporation (or other charter document) or by-laws of the Company or the
Subsidiaries or violate, result in a breach of, or conflict with any law,
rule, regulation, order, judgment, or decree binding on the Company or the
Subsidiaries or to which any of their respective operations, businesses,
properties, or assets are subject.

(p) The Stock and the Additional Stock are validly authorized and,
when issued and delivered in accordance with this Agreement, will be
validly issued, fully paid, and nonassessable, without any personal
liability attaching to the ownership thereof, and will not be issued in
violation of any preemptive rights of stockholders. The Underwriters will
receive good title to the Stock and Additional Stock purchased by them,
respectively, free and clear of all liens, security interests, pledges,
charges, encumbrances, stockholders' agreements, and voting trusts.

(q) The Warrant Stock is validly authorized and reserved for issuance
and, when issued and delivered upon exercise of the Representatives'
Warrants in accordance with the Representatives' Warrant Agreement, will be
validly issued, fully paid and non-assessable, without any personal
liability attaching to the ownership thereof, and will not be issued in
violation of any preemptive rights of stockholders; and the holders of the
Representatives' Warrants will receive good title to the securities
purchased by them, respectively, free and clear of all liens, security
interests, pledges, charges, encumbrances, stockholders' agreements, and
voting trusts.

(r) The Common Stock, the Securities, and the Representatives' Warrant
Agreement conform in all material respects with all statements relating
thereto contained in the Registration Statement and the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary
Prospectus).

(s) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus) and
except as may otherwise be properly described in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus),
neither the Company nor the Subsidiaries has (i) issued any securities or
incurred any liability or obligation, primary or contingent, for borrowed
money, (ii) entered into any transaction not in the ordinary course of
business, or (iii) declared or paid any dividend on its capital stock.

-9-
<PAGE>

(t) None of the Company, the Subsidiaries, nor any of their respective
officers, directors, or affiliates (as defined in the Regulations), has
taken or will take, directly or indirectly, prior to the termination of the
underwriting syndicate contemplated by this Agreement, any action designed
to stabilize or manipulate the price of any security of the Company, or
which has caused or resulted in, or which might in the future reasonably be
expected to cause or result in, stabilization or manipulation of the price
of any security of the Company, to facilitate the sale or resale of any of
the Stock or the Additional Stock.

(u) The Company has obtained from each of its directors, officers,
affiliates (as defined in the Regulations) and each other person requested
by the Representatives who beneficially owns any share of Common Stock or
other securities of the Company, such director's, officer's, affiliates's
or other person's enforceable written agreement, in form and substance
satisfactory to counsel for the Underwriters, that for a period of 180 days
from the effective date of the Registration Statement such individual will
not, without the prior written consent of the Representatives, offer,
pledge, sell, contract to sell, grant any option for the sale of, or
otherwise dispose of, directly or indirectly, any shares of Common Stock or
any security or other instrument which by its terms is convertible into,
exercisable for, or exchangeable for shares of Common Stock or other
securities of the Company, including, without limitation, any shares of
Common Stock issuable under any outstanding stock options or warrants.

(v) No person or entity has the right to require registration of
shares of Common Stock or other securities of the Company because of the
filing or effectiveness of the Registration Statement.

(w) Except as may be set forth in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus),
the Company has not incurred any liability for a fee, commission, or other
compensation on account of the employment of a broker or finder in
connection with the transactions contemplated by this Agreement.

(x) The Company is not, and does not intend to conduct its business in
a manner in which it would become, an "investment company" as defined in
Section 3(a) of the Investment Company Act of 1940, as amended (the

"Investment Company Act").
-----------------------

(y) No officer, director, or, to the knowledge of the Company, any
beneficial owner of the Company's securities has any direct or indirect
affiliation or association with the National Association of Securities
Dealers, Inc. (the "NASD") or any member thereof except as disclosed in
----
questionnaires completed, executed and returned to counsel for the
Underwriters.

(z) the Common Stock has been approved for quotation on the Nasdaq
National Market, subject to official notice of issuance;

(aa) The Company has appointed at least two independent directors to
the Company's Board of Directors, as required by the Nasdaq Stock Market
Marketplace Rules,

-10-
<PAGE>

which independent directors constitute at least half of the members of the
Company's Compensation Committee and Audit Committee. The Company has
provided to the Representatives the charter of the Audit Committee or
resolutions establishing such committee, which provides, among other
things, for the Audit Committee to approve in advance transactions between
the Company and any of its affiliates.

(bb) To the Company's knowledge, there are no affiliations or
associations between any member of the National Association of Securities
Dealers, Inc. ("NASD") and any of the Company's officers, directors or 5%
or greater securityholders, except as set forth in the Registration
Statement.

(cc) To the extent necessary to comply with the regulation of Internet
telecommunications services providers and telecommunications carriers, the
Company has all necessary material consents, authorizations, approvals,
orders, certificates and permits of and from, and have made all
declarations and filings with, all United States federal and state and
foreign authorities (the "Authorizations") to own, lease, license and use
their properties and assets and to conduct their business in the manner
described in the Prospectus, except as described in the Prospectus, and all
material agreements or arrangements of the Company comply with all
applicable United States federal and state and foreign laws. The Company
is not aware of any breach, violation or default with respect to such
Authorizations.

(dd) Solely with respect to matters specifically relating to the
regulation of Internet telecommunications services providers and
telecommunications carriers administered by United States federal or state
or foreign governmental authorities, including, but not limited to, the
Federal Communications Commission (the "FCC") and state public utility
commissions or similar state authorities (collectively, "PUCs" and,
individually, a "PUC"), the execution and delivery by the Company of, and
the performance by the Company of its obligations under, this Agreement
will not contravene any provision of applicable law or any judgment, order
or decree of any governmental body, agency, or court having jurisdiction
over the Company or any subsidiary, and no consent, approval, authorization
or order of, or qualification with, any governmental body or agency is
required for the performance by the Company of its obligations under this
Agreement.

3. Purchase, Sale, and Delivery of the Stock and the Additional Stock.
-------------------------------------------------------------------
On the basis of the representations, warranties, covenants, and agreements of
the Company, but subject to the terms and conditions herein set forth, the
Company agrees to sell to the several Underwriters, and the Underwriters,
severally and not jointly, agree to purchase from the Company, the numbers of
shares of Stock set opposite the respective names of the Underwriters in
Schedule I attached hereto.

The purchase price of the Stock to be paid by the several Underwriters
shall be $_____________. The public offering price per share of the Stock shall
be $____.

-11-
<PAGE>

Payment for the Stock by the Underwriters shall be made by certified or
official bank check or checks drawn upon or by a New York Clearing House bank,
or by wire transfer, and payable in next-day funds to the order of the Company
at the offices of Kaufman Bros., L.P., 800 Third Avenue - 25th Floor, New York,
New York, or at such other place in the New York City metropolitan area as you
shall determine and advise the Company by at least two full days' notice in
writing, upon delivery of the Stock to you for the respective accounts of the
Underwriters. Such delivery and payment shall be made at 10:00 a.m., New York
City time, on February __, 2000 (unless such time and date is postponed in
accordance with the provisions of Section 9(c) hereof), or at such other time as
shall be agreed upon between you and the Company. The time and date of such
delivery and payment are herein called the "Closing Date."

Certificates for the Stock shall be registered in such name or names and in
such authorized denominations as you may request in writing at least two full
business days' prior to the Closing Date. The Company shall permit you to
examine and package such certificates for delivery at least one full business
day prior to the Closing Date.

In addition, the Company hereby grants to the several Underwriters the
option to purchase all or a portion of the Additional Stock as may be necessary
to cover over-allotments, at the same purchase price per share to be paid by the
several Underwriters to the Company for the Stock as provided for in this
Section 3. The Additional Stock shall be purchased by the several Underwriters
from the Company as provided herein, pro rata in accordance with the ratio which
the number of shares of Stock set forth opposite such Underwriter's name on
Schedule I bears to the total number of shares of Stock, subject to adjustment
to avoid fractional shares. This option may be exercised only to cover over-
allotments in the sale of shares by the several Underwriters. This option may
be exercised by you on the basis of the representations, warranties, covenants,
and agreements of the Company herein contained, but subject to the terms and
conditions herein set forth, at any time and from time to time on or before the
forty-fifth day following the effective date of the Registration Statement, by
written notice by you to the Company. Such notice shall set forth the aggregate
number of shares of Additional Stock as to which the option is being exercised
and the time and date, as determined by you, when such Additional Stock is to be
delivered (such time and date are herein called an "Additional Closing Date");

provided, however, that no Additional Closing Date shall be earlier than the
- -------- -------
Closing Date nor earlier than the second business day after the date on which
the notice of the exercise of the option shall have been given nor later than
the third business day after the date on which such notice shall have been
given.

Payment for the shares of Additional Stock by the Underwriters shall be
made by certified or official bank check or checks drawn upon or by a New York
Clearing House bank, or by wire transfer, and payable in next-day funds to the
order of the Company at the offices of Kaufman Bros., L.P., 800 Third Avenue,
New York, New York, or at such other place in the New York City Metropolitan
Area as you shall determine and advise the Company by at least two full days'
notice in writing, upon delivery of the shares of Additional Stock to you for
the respective accounts of the Underwriters.

-12-
<PAGE>

Certificates for the Additional Stock shall be registered in such name or
names and in such authorized denominations as you may request in writing at
least two full business days' prior to the Additional Closing Date with respect
thereto. The Company shall permit you to examine and package such certificates
for delivery at least one full business day prior to the Additional Closing Date
with respect thereto.

4. Offering. The Underwriters are to make a public offering of the Stock
---------
as soon, on or after the effective date of the Registration Statement, as you
deem it advisable so to do. The Stock is to be initially offered to the public
at the initial public offering price as provided for in Section 3 hereof (such
price being herein called the "public offering price") and upon the terms and
subject to the conditions set forth in the Prospectus. After the public
offering, you may from time to time increase or decrease the public offering
price, in your sole discretion, by reason of changes in general market
conditions or otherwise.

5. Covenants of the Company. The Company covenants that it will:
-------------------------

(a) Use its best efforts to cause the Registration Statement, if not
effective at the time of execution of this Agreement, and any amendments
thereto, to become effective as promptly as possible. If required, the
Company will file the Prospectus or any Term Sheet that constitutes a part
thereof and any amendments or supplements thereto with the Commission in
the manner and within the time period required by Rules 434 and 424(b)
under the Act. During any time when a prospectus relating to the Stock
and the Additional Stock is required to be delivered under the Act, the
Company (i) will comply with all requirements imposed upon it by the Act
and the Regulations to the extent necessary to permit the continuance of
sales of or dealings in the Stock and the Additional Stock, in accordance
with the provisions hereof and of the Prospectus, as then amended or
supplemented, and (ii) will not file with the Commission the Prospectus,
Term Sheet or the amendment referred to in the second sentence of Section
2(a) hereof, any amendment or supplement to such Prospectus or Term Sheet,
or any amendment to the Registration Statement of which the Representatives
shall not have given its reasonable consent. The Company will prepare and
file with the Commission, in accordance with the Regulations, promptly upon
request by the Representatives or counsel for the Underwriters, any
amendments to the Registration Statement or amendments or supplements to
the Prospectus that may be necessary or advisable in connection with the
distribution of the Stock and Additional Stock by the several Underwriters,
and will use its best efforts to cause any such amendment to the
Registration Statement to be declared effective by the Commission as
promptly as possible.

(b) Notify you immediately, and confirm such notice in writing, (i)
when the Registration Statement and any post-effective amendment thereto
becomes effective, (ii) of the receipt of any comments from the Commission
or the "blue sky" or securities authority of any jurisdiction regarding the
Registration Statement, any post-effective amendment thereto, the
Preliminary Prospectus, the Prospectus, or any amendment or

-13-
<PAGE>

supplement thereto, and (iii) of the receipt of any notification with
respect to a Stop Order or the initiation or threatening of any proceeding
with respect to a Stop Order. The Company will use its best efforts to
prevent the issuance of any Stop Order and, if any Stop Order is issued, to
obtain the lifting thereof as promptly as possible.

(c) If, at any time prior to the later of (i) the final date when a
prospectus relating to the Stock or the Additional Stock is required to be
delivered under the Act or the Regulations, or (ii) the Additional Closing
Date, any event occurs as a result of which the Prospectus, as then amended
or supplemented, would include any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or if for any other reason it is necessary at any time to amend
or supplement the Prospectus to comply with the Act or the Regulations, the
Company will promptly notify the Representatives thereof and, subject to
Section 5(a) hereof, will prepare and file with the Commission, at the
Company's expense, an amendment to the Registration Statement or an
amendment or supplement to the Prospectus that corrects such statement or
omission or effects such compliance and in case any Underwriter is required
to deliver a prospectus relating to the Stock or the Additional Stock nine
(9) months or more after the effective date of the Registration Statement,
the Company upon the request of the Representatives and at the expense of
such Underwriter will prepare promptly such prospectus or prospectuses as
may be necessary to permit compliance with the requirements of Section
10(a)(3) of the Securities Act; provided, however, that the expense of the
preparation and delivery of any prospectus required for use nine (9) months
or more after the effective date of the Registration Statement shall be
borne by the Underwriters required to deliver such prospectus.

(d) The Company will, without charge, provide (i) to the
Representatives and to counsel for the Underwriters a signed copy of the
Original Registration Statement filed with the Commission with respect to
the Securities and each amendment thereto (in each case including exhibits
thereto) or any Rule 462(b) Registration Statement, (ii) to each other
Underwriter, a conformed copy of the Original Registration Statement, any
Rule 462(b) Registration Statement, and each amendment thereto (in each
case without exhibits thereto), and (iii) so long as a prospectus relating
to the Stock and Additional Stock is required to be delivered under the Act
and the Regulations, as many copies of each Preliminary Prospectus or the
Prospectus, or any amendment or supplement thereto, as the Representatives
may reasonably request; without limiting the application of clause (iii) of
this sentence, the Company, no later than (A) 6:00 p.m., New York City
time, on the date of determination of the public offering price, if such
determination occurred at or prior to 12:00 Noon, New York City time, on
such date, or (B) 6:00 p.m., New York City time, on the business day
following the date of determination of the public offering price, if such
determination occurred after 12:00 Noon, New York City time, on such date,
will deliver to the Representatives, without charge, as many copies of the
Prospectus, and any amendment or supplement thereto, as the Representatives
may reasonably request for purposes of confirming orders that are expected
to settle on the Closing Date.

-14-
<PAGE>

(e) Endeavor in good faith, in cooperation with you, at or prior to
the time the Registration Statement becomes effective, to qualify the Stock
and the Additional Stock for offering and sale under the "blue sky" or
securities laws of such jurisdictions as you may designate; provided,
however, that no such qualification shall be required in any jurisdiction
where, as a result thereof, the Company would be subject to taxation as a
foreign corporation doing business in such jurisdiction to which it is not
then subject. In each jurisdiction where such qualification shall be
effected, the Company will, unless you agree in writing that such action is
not at the time necessary or advisable, file and make such statements or
reports at such times as are or may be required by the laws of such
jurisdiction. The Company will advise the Representatives promptly after
the Company becomes aware of the suspension of the qualifications or
registration of (or any such exception relating to) the Common Stock of the
Company for offering, sale or trading in any jurisdiction or of any
initiation or threat of any proceeding for any such purpose, and in the
event of the issuance of any orders suspending such qualifications,
registration or exception, the Company will, with the cooperation of the
Representatives use its best efforts to obtain the withdrawal thereof.

(f) Make generally available (within the meaning of Section 11(a) of
the Act and the Regulations) to its security holders as soon as
practicable, but not later than ______________, 2001, an earnings statement
(which need not be certified by independent certified public accountants
unless required by the Act or the Regulations, but which shall satisfy the
provisions of Section 11(a) of the Act and the Regulations) covering a
period of at least twelve months beginning after the effective date of the
Registration Statement.

(g) For a period of six months from the effective date of the
Registration Statement, not, without the prior written consent of the
Representatives, offer, issue, sell, contract to sell, grant any option for
the sale of, or otherwise dispose of, directly or indirectly, any shares of
Common Stock or other securities of the Company (or any security or other
instrument which by its terms is convertible into, exercisable for, or
exchangeable for shares of Common Stock or other securities of the Company)
except for the issuance of (i) the Securities; (ii) stock options which
may be granted pursuant to the Company's 1999 Stock Option Plan (as such
terms are defined in the Prospectus) and the Common Stock issuable upon the
exercise thereof, as set forth in the Prospectus; and (iii) shares of
Common Stock pursuant to the exercise of outstanding warrants and options
or the conversion of convertible notes set forth in the Prospectus.

(h) For a period of five years after the effective date of the
Registration Statement, furnish to the Representatives, without charge, the
following:

(i) within 90 days after the end of each fiscal year, three
copies of financial statements certified by independent certified
public accountants, including a balance sheet, statement of income,
and statement of cash flows of the Company and its then existing
subsidiaries, with supporting schedules, prepared in accordance with
generally accepted accounting principles, as at the end of such fiscal
year and for the 12 months then ended, which may be on a consolidated
basis; separate financial statements shall be furnished for all
subsidiaries whose accounts are not

-15-
<PAGE>

consolidated but which at the time are significant subsidiaries as
defined in the rules and regulations under the Act;

(ii) as soon as practicable after they have been sent to
stockholders of the Company or filed with the Commission, three copies
of each annual and interim financial and other report or communication
sent by the Company to its stockholders or filed with the Commission;

(iii) as soon as practicable, two copies of every press release
and every material news item and article in respect of the Company or
its affairs which was released by the Company; and

(iv) such additional documents and information with respect to
the Company and its affairs and the affairs of any of its subsidiaries
as you may from time to time reasonably request.

(i) Apply the net proceeds received by it from the offering in
substantially the manner set forth under "Use of Proceeds" in the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).

(j) Furnish to you as early as practicable prior to the Closing Date
and any Additional Closing Date, as the case may be, but no less than two
full business days prior thereto, a copy of the latest available unaudited
interim consolidated financial statements of the Company and its
consolidated subsidiaries which have been read by the Company's independent
certified public accountants, as stated in their letters to be furnished
pursuant to Section 7(g).

(k) Comply in all material respects with all registration, filing, and
reporting requirements of the Exchange Act which may from time to time be
applicable to the Company.

(l) Comply in all material respects with all provisions of all
undertakings contained in the Registration Statement.

(m) Prior to the Closing Date or any Additional Closing Date, as the
case may be, issue no press release or other communication, directly or
indirectly, and hold no press conference with respect to the Company, the
financial condition, results of operations, business, properties, assets,
liabilities of the Company, or this offering, without your prior written
consent, which consent shall not be unreasonably withheld.

(n) File timely with the Commission an appropriate form to register
the Common Stock pursuant to Section 12(g) under the Exchange Act.

-16-
<PAGE>

(o) File no amendment or supplement to the Registration Statement or
Prospectus at any time, whether before or after the effective date of the
Registration Statement, unless such filing shall comply with the Act and
the Regulations and unless the Representatives shall previously have been
advised of such filing and furnished with a copy thereof, and the
Representatives and counsel for the Underwriters shall have approved such
filing in writing.

(p) If the principal stockholders, officers, or directors of the
Company are required by the "blue sky" or securities authority of any
jurisdiction selected by you pursuant to Section 5(e) hereof to escrow or
agree to restrict the sale of any security of the Company owned by them for
the Company to qualify or register the Common Stock for sale under the
"blue sky" or securities laws of such jurisdiction, cause each such person
to escrow or restrict the sale of such security on the terms and conditions
and in the form specified by the securities administrator of such
jurisdiction.

(q) Make all filings required to obtain approval for the inclusion of
the Shares for quotation on the Nasdaq National Market and will use its
best efforts to effect concurrently with the effectiveness of the
Registration Statement and maintain the aforesaid approval for at least
five years from the date of this Agreement. Within ten days after the
Effective Date, the Company shall cause the Company to be listed in the
Moody's Industrial Manual and cause such listing to be maintained for five
years from the date of this Agreement.

(r) On or prior to the Closing Date, sell to the Representatives (or
its designees), individually and not as Representatives of the
Underwriters, for a consideration of $1.00, the Representatives' Warrants
to purchase 250,000 of the shares of Common Stock (not including the
Additional Stock) offered to the public (the shares of Common Stock
underlying the Representatives' Warrants being herein referred to as the
"Warrant Stock"), which Representatives' Warrants shall be evidenced by the
Representatives' Warrant Agreement in the form set forth as an exhibit to
the Registration Statement.

(s) Until expiration of the Representatives' Warrants, keep reserved
sufficient shares of Common Stock for issuance upon exercise thereof.

(t) The Company will supply you with copies of all correspondence to
and from, and all documents issued to and by the Commission in connection
with the registration of the Stock and Additional Stock under the Act.

(u) Deliver to you, without charge, within a reasonable period after
the last Additional Closing Date or the expiration of the period in which
the Underwriters may exercise the over-allotment option, five bound volumes
of the Registration Statement and all related materials. The Company shall
use its best efforts to deliver such volumes within six months of the
Closing Date.

-17-
<PAGE>

(v) If the Company elects to rely on Rule 462(b), the Company shall
both file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) and pay the applicable fees in accordance with
Rule 111 promulgated under the Act by the earlier of (i) 10:00 p.m. eastern
time on the date of this Agreement, and (ii) the time confirmations are
sent or given, as specified by Rule 462(b)(2).

(w) The Company will not at any time, directly or indirectly, take any
action designed or intended to stabilize or manipulate the price of any
security of the Company, or which caused or resulted in, or which might in
the future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any security of the Company.

6. Payment of Expenses.
--------------------

(a) The Company hereby agrees to pay all expenses and such additional
fees, as provided in Section 6(a)(iii) below) in connection with (i) the
preparation, printing, filing, distribution, and mailing of the
Registration Statement, any Preliminary Prospectus, the Prospectus and the
printing, filing, distribution, and mailing of this Agreement, any
Agreement Among Underwriters, any selected dealers agreement, and all other
documents related to the offering, purchase, sale and delivery of the
Securities, including the cost of all copies thereof and of the Preliminary
Prospectuses and of the Prospectus and any amendments or supplements
thereto supplied to the Underwriters in quantities as herein above stated,
(ii) the issuance, sale, transfer, and delivery of the Stock and the
Additional Stock, including any transfer or other taxes payable thereon,
(iii) the qualification of the Stock and the Additional Stock under state
or foreign "blue sky" or securities laws, including the costs of printing
and mailing the preliminary and final "Blue Sky Survey" and the fees of
counsel for the Underwriters and their disbursements in connection
therewith, (iv) the filing fees payable to the Commission, the NASD, and
the jurisdictions in which such qualification is sought, (v) the quotation
of the Common Stock on the Nasdaq Stock Market's National Market,
respectively, (vi) the fees and expenses of the Company's transfer agent
and registrar, (vii) the fees and expenses of the Company's legal counsel
and accountants, (viii) all travel and lodging expenses incurred in
connection with the Company's initial public offering, and (ix) the costs
of placing a "tombstone" advertisement in such publications as the
Representatives shall determine. In addition, the Company hereby agrees to
pay to the Representatives a non-accountable expense allowance equal to 2%
of the aggregate gross proceeds received by the Company from the sale of
the Stock and the Additional Stock, which amounts (shall be paid to you on
the Closing Date (with respect to Stock sold by the Company on the Closing
Date) and, if applicable, on the Closing Date and any Additional Closing
Date (with respect to Additional Stock sold by the Company on the Closing
Date or such Additional Closing Date).

(b) In addition to its other obligations under Section 8(a) hereof,
the Company agrees that, as an interim measure during the pendency of any
claim, action, investigation, inquiry or other proceeding arising out of or
based upon (i) any statement or omission or

-18-
<PAGE>

any alleged statement or omission or (ii) any breach or inaccuracy in its
representations and warranties, it will reimburse each Underwriter on a
quarterly basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of
a judicial determination as to the propriety and enforceability of the
Company's obligation to reimburse each Underwriter for such expenses and
the possibility that such payments might later be held to have been
improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, each
Underwriter shall promptly return it to the Company together with interest,
determined on the basis of the prime rate (or other commercial lending rate
for borrowers of the highest credit standing) announced from time to time
by Citibank, NA, New York, New York (the "Prime Rate"). Any such interim
reimbursement payments which are not made to an Underwriter in a timely
manner as provided below shall bear interest at the Prime Rate from the due
date for such reimbursement. This expense reimbursement agreement will be
in addition to any other liability which the Company may otherwise have.
The request for reimbursement will be sent to the Company.

(c) In addition to its other obligations under Section 8(b) hereof,
each Underwriter severally agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any statement or omission, or any alleged
statement or omission, described in Section 8(c) hereof which relates to
written information furnished to the Company by the Representatives on
behalf of the Underwriters specifically for inclusion in the Registration
Statement and the Prospectus, it will reimburse the Company (and, to the
extent applicable, each officer, director or controlling person) on a
quarterly basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of
a judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company (and, to the extent
applicable, each officer, director or controlling person) for such expenses
and the possibility that such payments might later be held to have been
improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, the Company
(and, to the extent applicable, each officer, director or controlling
person) shall promptly return it to the Underwriters together with
interest, compounded daily, determined on the basis of the Prime Rate. Any
such interim reimbursement payments which are not made to the Company
within thirty (30) days of a request for reimbursement shall bear interest
at the Prime Rate from the date of such request. This indemnity agreement
will be in addition to any liability which such Underwriter may otherwise
have.

(d) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in paragraph (b) and/or
(c) of this Section 6, including the amounts of any requested reimbursement
payments and the method of determining amounts, shall be settled by
arbitration conducted under the provisions of the Constitution and Rules of
the Board of Governors of the New York Stock Exchange, Inc.

-19-
<PAGE>

or pursuant to the Code of Arbitration Procedure of the NASD. Any such
arbitration must be commenced by service of a written demand for
arbitration or written notice of intention to arbitrate, therein electing
the arbitration tribunal. In the event the party demanding arbitration does
not make such designation of an arbitration tribunal in such demand or
notice, then the party responding to said demand or notice is authorized to
do so. Such an arbitration would be limited to the operation of the interim
reimbursement provisions contained in paragraph (b) and/or (c) of this
Section 6 and would not resolve the ultimate propriety or enforceability of
the obligation to reimburse expenses which is created by the provisions of
Section 8.

7. Conditions of Underwriters' Obligations. The obligations of the
----------------------------------------
several Underwriters to purchase and pay for the Stock and the Additional Stock,
as provided herein, shall be subject, in their discretion, to the continuing
accuracy of the representations and warranties of the Company contained herein
and in each certificate and document contemplated under this Agreement to be
delivered to you, as of the date hereof and as of the Closing Date (or the
Additional Closing Date, as the case may be), to the performance by the Company
of its obligations hereunder, and to the following conditions:

(a) If the Registration Statement or any amendment thereto filed prior
to the Closing Date has not been declared effective as of the time of
execution hereof, the Registration Statement or such amendment shall have
been declared effective not later than 11:00 a.m., New York City time, on
the date on which the amendment to the registration statement originally
filed with respect to the Securities or the Registration Statement, as the
case may be, containing information regarding the public offering price of
the Stock and the Additional Stock has been filed with the Commission, or
such later time and date as shall have been consented to by the
Representatives; if required, the Prospectus or any Term Sheet that
constitutes part thereof, and any amendment or supplement thereto, shall
have been filed with the Commission in the manner and within the time
period required by Rules 434, 462(b)(2) and 424(b) under the Act; no Stop
Order suspending the effectiveness of the Registration Statement or any
amendment thereto shall have been issued, and no proceedings for that
purpose shall have been instituted or threatened or, to the knowledge of
the Company or the Representatives, shall be contemplated by the
Commission; and the Company shall have complied with any request of the
Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise).

(b) At the Closing Date and any Additional Closing Date, as the case
may be, the Representatives shall have received the favorable opinion of
Glast, Phillips & Murray, counsel for the Company, dated the date of
delivery, addressed to the Underwriters, and in form and scope reasonably
satisfactory to counsel for the Underwriters, with reproduced copies or
signed counterparts thereof for each of the Underwriters, to the effect set
forth in Exhibit I hereto.

-20-
<PAGE>

(c) The Representatives shall have received from Howison & Hadley,
LLP special intellectual property counsel for the Company, an opinion dated
each of the Closing Date and the Additional Closing Date, to the effect set
forth in Exhibit II hereto.

(d) The Representatives shall have received from Kelley, Drye &
Warren, LLP special regulatory property counsel for the Company, an
opinion dated each of the Closing Date and the Additional Closing Date, to
the effect set forth in Exhibit III hereto.

(e) On or prior to the Closing Date and any Additional Closing Date,
as the case may be, the Underwriters shall have been furnished such
information, documents, certificates, and opinions as they may reasonably
require for the purpose of enabling them to review the matters referred to
in Section 7(b), (c) and (d) and in order to evidence the accuracy,
completeness, or satisfaction of any of the representations, warranties,
covenants, agreements, or conditions herein contained, or as you may
reasonably request.

(f) At the Closing Date and any Additional Closing Date, as the case
may be, you shall have received a certificate of the chief executive
officer and of the chief financial officer of the Company, dated the
Closing Date or such Additional Closing Date, as the case may be, to the
effect (i) that the conditions set forth in Section 7(a) have been
satisfied, (ii) that as of the date of this Agreement and as of the Closing
Date or such Additional Closing Date, as the case may be, the
representations and warranties of the Company contained herein were and are
accurate, and (iii) that as of the Closing Date or such Additional Closing
Date, as the case may be, the obligations to be performed by the Company
hereunder on or prior thereto have been fully performed.

(g) At the time this Agreement is executed and at the Closing Date and
any Additional Closing Date, as the case may be, you shall have received a
letter from Ernst & Young LLP, certified public accountants, dated the date
of delivery and addressed to the Underwriters, in form and substance
satisfactory to you, with reproduced copies or signed counterparts thereof
for each of the Underwriters.

(h) All proceedings taken in connection with the issuance, sale,
transfer, and delivery of the Stock and the Additional Stock shall be
reasonably satisfactory in form and substance to you and to counsel for the
Underwriters, and the Underwriters shall have received from such counsel
for the Underwriters a favorable opinion, dated as of the Closing Date and
the Additional Closing Date, as the case may be, with respect to the
incorporation of the Company, the validity of the Stock, the Registration
Statement and the Prospectus and with respect to such other related
matters, as you may reasonably request, and the Company shall have
furnished to such counsel such documents as they may reasonably request for
the purpose of enabling them to pass upon such matters. In rendering such
opinion, such counsel may rely as to all matters governed other than by the
law of California or federal laws on the opinion of counsel referred to in
Section 7(b), (c) and (d).

-21-
<PAGE>

(i) The NASD, upon review of the terms of the public offering of the
Stock and the Additional Stock, shall not have objected to the
Underwriters' participation in such offering.

(j) The Nasdaq National Market shall have approved the Common Stock
for quotation, subject to official notice of issuance.

(k) Prior to or on the Closing Date, the Company shall have entered
into the Representatives' Warrant Agreement with the Representatives.

(l) Prior to or on the Closing Date, the Company shall have provided
to you a copy of the agreements referred to in Section 2(t) hereof.

Any certificate or other document signed by any officer of the Company and
delivered to you or to counsel for the Underwriters shall be deemed a
representation and warranty by the Company hereunder to the Underwriters as to
the statements made therein. If any condition to the Underwriters' obligations
hereunder to be fulfilled prior to or at the Closing Date or any Additional
Closing Date, as the case may be, is not so fulfilled, you may on behalf of the
several Underwriters elect to terminate this Agreement or, if you so elect, in
writing waive any such conditions which have not been fulfilled or extend the
time for their fulfillment.

8. Indemnification and Contribution.
---------------------------------

(a) Subject to the conditions set forth below, the Company agrees to
indemnify and hold harmless each Underwriter, its officers, directors,
stockholders, members, managers, partners, employees, agents, and counsel, and
each person, if any, who controls any Underwriter within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against any and all loss,
liability, claim, damage, and expense whatsoever (which shall include, for all
purposes of this Section 8, but not be limited to, reasonable attorneys' fees
and any and all expense whatsoever incurred in investigating, preparing, or
defending against any litigation, commenced or threatened, or any claim
whatsoever and any and all amounts paid in settlement of any claim or
litigation) as and when incurred arising out of, based upon, or in connection
with (i) any untrue statement or alleged untrue statement of a material fact
contained (A) in any Preliminary Prospectus, any Term Sheet, the Registration
Statement or the Prospectus (as from time to time amended and supplemented), or
any amendment or supplement thereto, or (B) in any application or other document
or communication (in this Section 8 collectively called an "application")
executed by or on behalf of the Company or based upon written information
furnished by or on behalf of the Company filed in any jurisdiction in order to
qualify any of the Securities under the "blue sky" or securities laws thereof or
filed with the Commission or any securities exchange; or any omission or alleged
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, unless such statement or omission
was made in reliance upon and in conformity with written information furnished
to the Company as stated in Section 8(b) with respect to any Underwriter by or
on behalf of such Underwriter through the Representatives

-22-
<PAGE>

expressly for inclusion in any Preliminary Prospectus, any Term Sheet, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or in any application, as the case may be, or (ii) any material breach
of any representation, warranty, covenant, or agreement of the Company contained
in this Agreement add provisio that there is no indemnification if statement or
omission cured in final Prospectus and underwriter failed to deliver prior to or
at confirmation of sale. The foregoing agreement to indemnify shall be in
addition to any liability the Company may otherwise have, including liabilities
arising under this Agreement.

If any action is brought against an Underwriter or any of its officers,
directors, stockholders, members, managers, partners, employees, agents, or
counsel, or any controlling persons of an Underwriter (an "indemnified party")
in respect of which indemnity may be sought against the Company pursuant to the
foregoing paragraph, such indemnified party or parties shall promptly noti fy
the Company in writing of the institution of such action (but the failure so to
notify shall not relieve the Company from any liability it may have pursuant to
this Section 8(a) or otherwise) and the Company shall promptly assume the
defense of such action, including the employment of counsel (satisfactory to
such indemnified party or parties) and payment of expenses. Such indemnified
party or parties shall have the right to employ its or their own counsel in any
such case, but the fees and expenses of such counsel shall be at the expense of
such indemnified party or parties unless the employment of such counsel shall
have been authorized in writing by the Company in connection with the defense of
such action or the Company shall not have promptly employed counsel satisfactory
to such indemnified party or parties to have charge of the defense of such
action or such indemnified party or parties shall have reasonably concluded that
there may be one or more legal defenses available to it or them or to other
indemnified parties which are different from or additional to those available to
the Company, in any of which events such fees and expenses shall be borne by the
Company and the Company shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties. Anything in this
paragraph to the contrary notwithstanding, the Company shall not be liable for
any settlement of any such claim or action effected without its written consent,
which shall not be unreasonably withheld. The Company shall not, without the
prior written consent of each indemnified party that is not released as
described in this sentence, settle or compromise any action, or permit a default
or consent to the entry of judgment in or otherwise seek to terminate any
pending or threatened action, in respect of which indemnity may be sought
hereunder (whether or not any indemnified party is a party thereto), unless such
settlement, compromise, consent, or termination includes an unconditional
release of each indemnified party from all liability in respect of such action.
The Company agrees promptly to notify the Underwriters of the commencement of
any litigation or proceedings against the Company or any of its officers or
directors in connection with the sale of the Stock or the Additional Stock, any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or any application.

(b) Each Underwriter severally agrees to indemnify and hold harmless the
Company, each director of the Company, each officer of the Company who shall
have signed the Registration Statement, and each other person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, to the same extent as the foregoing indemnity from
the Company to the several Underwriters, but only with respect to statements or
omissions,

-23-
<PAGE>

if any, made in any Preliminary Prospectus, the Registration Statement, or the
Prospectus (as from time to time amended and supplemented), or any amendment or
supplement thereto, or in any application in reliance upon and in conformity
with written information furnished to the Company as stated in this Section 8(b)
with respect to any Underwriter by or on behalf of such Underwriter through the
Representatives expressly for inclusion in the Registration Statement, or the
Prospectus, or any amendment or supplement thereto, or in any application, as
the case may be; provided, however, that the obligation of each Underwriter to
-------- -------
provide indemnity under the provisions of this Section 8(b) shall be limited to
the amount which represents the product of the number of shares of Stock and
Additional Stock underwritten by such Underwriter hereunder and the public
offering price per share set forth on the cover page of the Prospectus. For all
purposes of this Agreement, the amounts of the selling concession and re-
allowance set forth on the cover page of Prospectus, the material set forth
under the caption "Underwriting" and the identity of counsel under the caption
"Legal Matters" constitute the only information furnished in writing by or on
behalf of any Underwriter expressly for inclusion in any Preliminary Prospectus,
the Registration Statement or the Prospectus (as from time to time amended or
supplemented), or any amendment or supplement thereto, or in any application, as
the case may be. If any action shall be brought against the Company or any other
person so indemnified based on any Preliminary Prospectus, the Registration
Statement, or the Prospectus, or any amendment or supplement thereto, or in any
application, and in respect of which indemnity may be sought against any
Underwriter pursuant to this Section 8(b), such Underwriter shall have the
rights and duties given to the Company, and the Company and each other person so
indemnified shall have the rights and duties given to the indemnified parties,
by the provisions of Section 8(a).

(c) To provide for just and equitable contribution, if (i) an indemnified
party makes a claim for indemnification pursuant to Section 8(a) or 8(b)
(subject to the limitations thereof), but it is found in a final judicial
determination, not subject to further appeal, that such indemnification may not
be enforced in such case, even though this Agreement expressly provides for
indemnification in such case, or (ii) any indemnified or indemnifying party
seeks contribution under the Act, the Exchange Act, or otherwise, then the
Company (including for this purpose any contribution made by or on behalf of any
director of the Company, any officer of the Company who signed the Registration
Statement, and any controlling person of the Company), on the one hand, and the
Underwriters, in the aggregate (including for this purpose any contribution by
or on behalf of an indemnified party), on the other hand, shall contribute to
the losses, liabilities, claims, damages, and expenses whatsoever to which any
of them may be subject, so that the Underwriters are responsible for the
proportion thereof equal to the percentage which the underwriting discount per
share set forth on the cover page of the Prospectus represents of the initial
public offering price per share set forth on the cover page of the Prospectus
and the Company is responsible for the remaining portion; provided, however,
-------- -------
that if applicable law does not permit such allocation, then other relevant
equitable considerations such as the relative fault of the Company and the
Underwriters in the aggregate in connection with the facts which resulted in
such losses, liabilities, claims, damages, and expenses shall also be
considered. The relative fault, in the case of an untrue statement, alleged
untrue statement, omission, or alleged omission, shall be determined by, among
other things, whether such statement, alleged statement, omission, or alleged
omission relates to

-24-
<PAGE>

information supplied by the Company or by the Underwriters, and the parties'
relative intent, knowledge, access to information, and opportunity to correct or
prevent such statement, alleged statement, omission, or alleged omission. The
Company and the Underwriters agree that it would be unjust and inequitable if
the respective obligations of the Company and the Underwriters for contribution
were determined by pro rata or per capita allocation of the aggregate losses,
liabilities, claims, damages, and expenses (even if the Underwriters and the
other indemnified parties were treated as one entity for such purpose) or by any
other method of allocation that does not reflect the equitable considerations
referred to in this Section 8(c). In no case shall any Underwriter be
responsible for a portion of the contribution obligation imposed on all
Underwriters in excess of its pro rata share based on the number of shares of
Stock underwritten by it as compared to the number of shares of Stock
underwritten by all Underwriters who do not default in their obligations under
this Section 8(c). No person guilty of a fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who is not guilty of such fraudulent misrepresentation. For purposes
of this Section 8(c), each person, if any, who controls an Underwriter within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act and
each officer, director, stockholder, member, manager, partner, employee, agent,
and counsel of an Underwriter shall have the same rights to contribution as such
Underwriter and each person, if any, who controls the Company within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act, each officer of
the Company who shall have signed the Registration Statement, and each director
of the Company shall have the same rights to contribution as the Company,
subject in each case to the provisions of this Section 8(c). Anything in this
Section 8(c) to the contrary notwithstanding, no party shall be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This Section 8(c) is intended to supersede any
right to contribution under the Act, the Exchange Act, or otherwise.

9. Default by an Underwriter.
--------------------------

(a) If any Underwriter or Underwriters shall default in its or their
obligation to purchase Stock or Additional Stock hereunder, and if the number of
shares of Stock or Additional Stock to which the defaults of all Underwriters in
the aggregate relate does not exceed 10% of the number of shares of Stock or
Additional Stock, as the case may be, which all Underwriters have agreed to
purchase hereunder, then such shares of Stock or Additional Stock to which such
defaults relate shall be purchased by the non-defaulting Underwriters in
proportion to their respective commitments hereunder.

(b) If such defaults exceed in the aggregate 10% of the number of shares of
Stock or Additional Stock, as the case may be, which all Underwriters have
agreed to purchase hereunder, you may in your discretion arrange for yourself or
for another party or parties to purchase such shares of Stock or Additional
Stock, as the case may be, to which such default relates on the terms contained
herein. If you do not arrange for the purchase of such shares of Stock or
Additional Stock, as the case may be, within one business day after the
occurrence of defaults relating to in excess of 10% of the Stock or the
Additional Stock, as the case may be, then the Company shall be entitled to a
further period of one business day within which to procure another party or
parties

-25-
<PAGE>

satisfactory to you to purchase such shares of Stock or Additional Stock, as the
case may be, on such terms. If you or the Company do not arrange for the
purchase of the Stock or Additional Stock, as the case may be, to which such
defaults relate as provided in this Section 9(b), this Agreement may be
terminated by you or by the Company without liability on the part of the Company
(except that the provisions of Sections 6, 8, 10, and 13 shall survive such
termination) or the several Underwriters, but nothing in this Agreement shall
relieve a defaulting Underwriter of its liability, if any, to the other several
Underwriters and to the Company for any damages occasioned by its default
hereunder.

(c) If the shares of Stock or Additional Stock to which such defaults
relate are to be purchased by the non-defaulting Underwriters, or are to be
purchased by another party or parties as aforesaid, you or the Company shall
have the right to postpone the Closing Date or the Additional Closing Date, as
the case may be, for a reasonable period but not in any event more than seven
days in order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus or in any other documents and
arrangements with respect to the Stock or the Additional Stock, and the Company
agrees to prepare and file promptly any amendment or supplement to the
Registration Statement or the Prospectus which in the opinion of counsel for the
Underwriters may thereby be made necessary. The term "Underwriter" as used in
this Agreement shall include any party substituted under this Section 9 as if
such party had originally been a party to this Agreement and had been allocated
the number of shares of Stock and Additional Stock actually purchased by it as a
result of its original commitment to purchase Stock and Additional Stock and its
purchase of shares of Stock or Additional Stock pursuant to this Section 9.

10. Representations and Agreements to Survive Delivery. All
---------------------------------------------------
representations, warranties, covenants, and agreements contained in this
Agreement shall be deemed to be representations, warranties, covenants, and
agreements at the Closing Date and any Additional Closing Date, and such
representations, warranties, covenants, and agreements of the Underwriters and
the Company, including the indemnity and contribution agreements contained in
Section 8, shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any indemnified person,
or by or on behalf of the Company or any person or entity which is entitled to
be indemnified under Section 8(b), and shall survive termination of this
Agreement or the delivery and the payment of the Stock and the Additional Stock
to the several Underwriters. In addition, the provisions of Sections 6, 8, 10,
11, and 13 shall survive termination of this Agreement, whether such termination
occurs before or after the Closing Date or any Additional Closing Date.

11. Effective Date of This Agreement and Termination Thereof.
---------------------------------------------------------

(a) This Agreement shall become effective at 9:30 a.m., New York City time,
on the first full business day following the day on which the Registration
Statement becomes effective or at the time of the initial public offering by the
Underwriters of the Stock, whichever is earlier. The time of the initial public
offering shall mean the time, after the Registration Statement becomes
effective, of the release by you for publication of the first newspaper
advertisement which is

-26-
<PAGE>

subsequently published relating to the Stock or the time, after the Registration
Statement becomes effective, when the Stock is first released by you for
offering by the Underwriters or dealers by letter or telegram, whichever shall
first occur. The Representatives or the Company may prevent this Agreement from
becoming effective without liability of any party to any other party, except as
noted below in this Section 11, by giving the notice indicated in Section 11(c)
before the time this Agreement becomes effective.

(b) In addition to the right to terminate this Agreement pursuant to
Sections 7 and 9 hereof, you shall have the right to terminate this Agreement at
any time prior to the Closing Date or any Additional Closing Date, as the case
may be, by giving notice to the Company if any domestic or international event,
act, or occurrence has materially disrupted, or in your opinion will in the
immediate future materially disrupt, the securities markets; or if there shall
have been a general suspension of, or a general limitation on prices for,
trading in securities on the New York Stock Exchange, the American Stock
Exchange, the Nasdaq Stock Market's National Market, the Nasdaq Stock Market's
SmallCap Market, or in the over-the-counter market; or if there shall have been
an outbreak of major hostilities or other national or international calamity; or
if a banking moratorium has been declared by a state or federal authority; or if
a moratorium in foreign exchange trading by major international banks or persons
has been declared; or if there shall have been a material interruption in the
mail service or other means of communication within the United States; or if the
Company shall have sustained a material loss by fire, flood, accident,
hurricane, earthquake, theft, sabotage, labor dispute, legal or governmental
proceeding or other calamity or malicious act which, whether or not such loss
shall have been insured, will, in your opinion, make it inadvisable to proceed
with the offering, sale, or delivery of the Stock or the Additional Stock, as
the case may be; or if there shall have been such material adverse change in the
condition of the Company, or such change in the market for securities in general
or in political, financial, or economic conditions as in your judgment makes it
inadvisable to proceed with the offering, sale, and delivery of the Stock or the
Additional Stock, as the case may be, on the terms contemplated by the
Prospectus.

(c) If you elect to prevent this Agreement from becoming effective, as
provided in this Section 11, or to terminate this Agreement pursuant to Section
7, 9, or this Section 11, you shall notify the Company promptly by telephone,
facsimile transmission, telex, or telegram, confirmed by letter. If the Company
elects to prevent this Agreement from becoming effective, as provided in this
Section 11, or if the Company elects to terminate this Agreement pursuant to
Section 9 of this Agreement, the Company shall notify you promptly by telephone,
facsimile transmission, telex, or telegram, confirmed by letter.

(d) Notwithstanding anything in this Agreement to the contrary other than
Section 11(e) hereof, if this Agreement shall not become effective by reason of
an election pursuant to this Section 11 or if this Agreement shall terminate or
shall otherwise not be carried out within the time specified herein by reason of
any failure on the part of the Company to perform any covenant or agreement or
satisfy any condition of the Agreement by it to be performed or satisfied, the
sole liability of the Company to the several Underwriters, in addition to the
obligations the Company

-27-
<PAGE>

assumed pursuant to Section 6, will be to reimburse promptly the Representatives
upon presentation to the Company of a statement of account of all other expenses
incurred by the Representatives with regard to preparation for the initial
public offering or incurred by the Underwriters in connection with the initial
public offering, including, but not be limited to, out-of-pocket expenses,
reasonable fees and disbursements of their counsel and travel costs, up to a
maximum of $150,000, less any amounts previously paid by the Company to the
Underwriters or their counsel pursuant to Section 6.

(e) Notwithstanding any election hereunder or any termination of this
Agreement, and whether or not this Agreement is otherwise carried out, the
provisions of Sections 6, 8, 10, and 13 shall not be in any way affected by such
election or termination or failure to carry out the terms of this Agreement or
any part hereof.

12. Notices. All communications hereunder, except as may be otherwise
--------
specifically provided herein, shall be in writing and, if sent to any
Underwriter, shall be mailed, delivered or transmitted via facsimile
transmission, telex or telegraph and confirmed by letter, to such Underwriter,
to Kaufman Bros., 800 Third Avenue - 25th Floor, New York, New York 10022, Fax
(212) 292-8101, Attention: Corporate Finance Department; and if sent to the
Company, shall be mailed, delivered or transmitted via facsimile transmission,
telex or telegraph and confirmed by letter, WorldQuest Networks, Inc., 16990
Dallas Parkway, Suite 220, Dallas, Texas 75248, Fax (972) 818-0978, Attention:
Chief Executive Officer. All notices hereunder shall be effective upon receipt
by the party to which it is addressed.

13. Parties. You represent that you are authorized to act on behalf of
--------
the several Underwriters named in Schedule I hereto and the Company shall be
entitled to act and rely on any request, notice, consent, waiver, or agreement
purportedly given on behalf of the Underwriters when the same shall have been
given by you on such behalf. This Agreement shall inure solely to the benefit
of, and shall be binding upon, the several Underwriters and the Company and the
persons and entities referred to in Section 8 who are entitled to
indemnification or contribution, and their respective successors, legal
Representatives, and assigns (which shall not include any buyer, as such, of the
Stock or the Additional Stock), and no other person shall have or be construed
to have any legal or equitable right, remedy, or claim under or in respect of or
by virtue of this Agreement or any provision herein contained. Notwithstanding
anything contained in this Agreement to the contrary, all of the obligations of
the Underwriters hereunder are several and not joint.

14. Construction. This Agreement shall be construed in accordance with
-------------
the laws of the State of New York, without giving effect to conflict of laws.
TIME IS OF THE ESSENCE IN THIS AGREEMENT.

15. Consent to Jurisdiction. The Company irrevocably consents to the
------------------------
jurisdiction of the courts of the State of New York and of any federal court
located in such State in connection with any action or proceeding arising out of
or relating to this Agreement, any document or instrument delivered pursuant to,
in connection with or simultaneously with this Agreement, or a

-28-
<PAGE>

breach of this Agreement or any such document or instrument. In any such action
or proceeding, the Company waives personal service or any summons, complaint or
other process and agrees that service thereof may be made in accordance with
Section 12. Within 30 days after such service, or such other time as may be
mutually agreed upon in writing by the attorneys for the parties to such action
or proceeding, the Company shall appear or answer such summons, complaint or
other process. Should the Company fail to appear or answer within such 30 day
period or such extended period, as the case may be, the Company shall be deemed
in default and judgement may be entered against the Company for the amount as
demanded in any summons, complaint or other process so served.

-29-
<PAGE>

If the foregoing correctly sets forth the understanding between you and the
Company, please so indicate in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement between us.

Very truly yours,

WORLDQUEST NETWORKS, INC.

By:___________________________________________
B. Michael Adler,
Chairman of the Board and
Chief Executive Officer

Accepted as of the date first above written.
New York, New York

KAUFMAN BROS., LLP
JOHN G. KINNARD AND COMPANY INCORPORATED
WESTPARK CAPITAL, INC.
Each acting on its own on behalf and as
Representatives of the other several
Underwriters named in Schedule I hereto.

By: KAUFMAN BROS., L.L.P.

By: _____________________________
Name:
Title:

-30-
<PAGE>

SCHEDULE I

Number of Shares of
Stock to be
Purchased
Underwriter from the Company
- ----------- -------------------

KAUFMAN BROS., L.P.

JOHN G. KINNARD AND COMPANY
INCORPORATED

WESTPARK CAPITAL, INC.

TOTAL

-31-
<PAGE>

EXHIBIT I

Matters to be Covered in
------------------------
Opinion of Glast Phillips Murray, P.C., Counsel to the Company/1/
--------------------------------------------------------------

1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.

2. The Company has all corporate power and authority necessary to own,
lease, operate or hold its properties and to conduct its business (including,
without limitation, as conducted through the Subsidiaries) as described in the
Prospectus and to enter into and perform its obligations under the Company
Documents.

3. The Company is duly qualified or licensed to do business and is in
good standing as a foreign corporation in each jurisdiction in which the
ownership or leasing of its properties or the conduct of its business require
such qualification, except where failure to so qualify will not have a material
adverse change in the properties, business, net worth or results of operations
of the Company, individually or in the aggregate (a "Material Adverse Effect"),
each of such jurisdictions as set forth on a Schedule to the opinion; to such
counsel's knowledge, the Company does not own or control, directly or
indirectly, any corporation, association or other entity other than the
Subsidiaries and to such counsel's knowledge none of the Subsidiaries owns or
controls, directly or indirectly, any corporation, association or other entity;

4. All of the authorized, issued and outstanding shares of capital stock
of the Company is as set forth in the Prospectus under the caption
"Capitalization" as of the dates stated therein; all of the shares of the
Company's outstanding stock requiring authorization for issuance by the
Company's Board of Directors have been duly authorized and validly issued, are
fully paid and non-assessable and conform to the description thereof contained
in the Prospectus; have not been issued in violation of or subject to any
statutory pre-emptive right, and, to such counsel's knowledge, have not been
issued in violation of or subject to any contractual preemptive right, co-sale,
right, registration right, right of first refusal or other similar right and,
except as set forth in the Registration Statement, to such counsel's knowledge,
there are no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, any shares of capital stock or other
equity interest in the Company.

- --------------------------
/1/ Capitalized Terms used herein but not defined shall have the meanings
given such terms in the Underwriting Agreement.

I-1
<PAGE>

5. The Common Stock and the Representatives' Warrants conform in all
material respects to the descriptions thereof contained in the Prospectus; the
Stock to be issued as contemplated in the Registration Statement and the
Underwriting Agreement have been duly and validly authorized by the Company for
issuance, and the Company has full corporate power and authority to issue, sell
and deliver the Securities, and, when the Securities are issued and delivered
against payment therefor in accordance with the terms hereof, they will be fully
paid and nonassessable, and will not have been issued in violation of or subject
to any statutory preemptive right, or to such counsel's knowledge, any
contractual preemptive right, co-sale right, registration right, right of first
refusal or other similar right other than those contemplated by the
Representatives' Warrants; and there are no restrictions upon the voting or
transfer of any of the Stock pursuant to the Certificate of Incorporation (as
hereinafter defined) or By-laws, or pursuant to any agreement or other
instrument of the Company known to such counsel.

6. The certificates evidencing the Stock are in valid and proper legal
form; the Representatives' Warrants will be exercisable for shares of Common
Stock of the Company in accordance with the terms of the Representatives'
Warrants and at the price therein provided for; the shares of Common Stock of
the Company issuable upon exercise of the Representatives' Warrants have been
duly authorized and reserved for issuance upon such exercise, and such shares,
when issued upon such exercise in accordance with the terms of the
Representatives' Warrants and when the price is paid shall be fully paid and
non-assessable;

7. To such counsel's knowledge, except as set forth in the Prospectus,
there are no legal or governmental proceedings pending to which the Company is a
party or of which any property or assets of the Company or any is the subject
which, if determined adversely to the Company, could have a Material Adverse
Effect or prevent or adversely affect the transactions contemplated by the
Underwriting Agreement; and, to such counsel's knowledge, no such proceedings
are threatened by governmental authorities or other third parties and there are
no such proceedings which are required to be described or referred to in the
Registration Statement which are not so described or referred to.

8. The Company Documents have been duly and validly authorized by all
necessary corporate action on the part of the Company and have been duly
executed and delivered by the Company and, assuming due authorization, execution
and delivery of the Underwriting Agreement by you, are valid and binding
agreements of the parties; the Company has full corporate power and authority to
enter into the Company Documents.

9. The execution, delivery and performance of the Company Documents, and
the incurrence of the obligations as therein set forth and the consummation of
the transactions therein contemplated will not result, with or without due
notice or lapse of time or both, in a breach or violation of any of the terms or
provisions of or constitute a default under, or give rise to any right of
termination, cancellation or acceleration under, the Company's Certificate of
Incorporation (the "Certificate of Incorporation"), By-laws or other
organizational documents of the Company, or any material indenture, mortgage,
deed of trust, note agreement or other agreement of instrument known to such
counsel to which the Company is a party or by which it or any of its properties
is or may

I-2
<PAGE>

be bound and will not result in a breach or violation of any law, statute,
order, rule or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its properties or result in the creation
of a lien.

10. To such counsel's knowledge, the Company is not presently (a) in
violation of its Certificate of Incorporation or By-laws, or (b), to such
counsel's knowledge, in breach or default under any lease, instrument, license,
permit or any other agreement to which the Company is bound or to which any
property or assets of the Company is the subject, where the consequences of such
violation, breach or default would have a Material Adverse Effect.

11. No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by the Company of
the transactions contemplated by the Company Documents (except such as may be
required by the NASD or as required by the securities or "Blue Sky" laws or any
jurisdiction as to which such counsel need express no opinion) in connection
with the purchase and distribution of the Stock by the Underwriters or the
issuance of the Representatives' Warrants or the shares of Common Stock
underlying the Representatives' Warrants except such as have been obtained or
made, specifying the same.

12. The Registration Statement has become effective under the Securities
Act and, to such counsel's knowledge, no stop order suspending the effectiveness
of the Registration Statement has been issued and no proceeding for that purpose
is pending or threatened by the Commission.

13. The Registration Statement and the Prospectus and any amendments or
supplements thereto (except for the financial statements and notes thereto and
related schedules and other financial information as to which such counsel need
express no opinion) comply as to form in all material respects with the
requirements of the Securities Act and the Rules and Regulations.

14. There are no contracts, agreements or other documents, known to such
counsel, required to be described in the Registration Statement or Prospectus or
to be filed as an exhibit to the Registration Statement which is not described
or filed therein as required. All descriptions of any such contracts,
agreements or documents contained in the Registration Statement are accurate and
complete descriptions of such documents in all material respects.

15. The statements in the Prospectus under the captions "1997 Stock Option
Plan," "Description of Capital Stock" and "Shares Eligible for Future Sale," to
the extent they constitute a summary of documents referred to therein or matters
of law accurately summarize and fairly present in all material respects the
legal and regulatory matters described therein.

16. Neither the Company nor any of the Subsidiaries is nor will they be
after receipt of payment for the Stock, an "investment company," or an entity
"controlled" by an "investment company" required to be registered under the 1940
Act, as such terms are defined in the 1940 Act.

17. To such counsel's knowledge, except as set forth in the Registration
Statement and the Prospectus, no holder of any securities of the Company or any
other person has the right,

I-3
<PAGE>

contractual or otherwise, to cause the Company to sell or otherwise issue to
such person, or to permit such person to underwrite the sale of, any of the
Stock or the right to have any Common Stock or other securities of the Company
included in the Registration Statement or the right, as a result of the filing
of the Registration Statement, to require registration under the Securities Act
of any shares of Common Stock or other securities of the Company that has not
been waived or lapsed.

18. To such counsel's knowledge, the Company possesses all authorizations,
approvals, orders, licenses, certificates, franchises and permits of and from,
and have made all declarations and filings with, all regulatory or governmental
officials, bodies and tribunals ("Permits") to own, lease or operate its
properties and to conduct its business described in the Registration Statement
and the Prospectus, except where the failure to have obtained or made the same
would not have a Material Adverse Effect and to the knowledge of such counsel
neither the Company nor any of the Subsidiaries has received any notice of
proceedings relating to the revocation or modification of any such Permits;
provided, however, such counsel gives no opinion as to any matters hereunder
covered by legal opinions provided to you by Howison & Handley, LLP and Kelley,
Drye & Warren LLP.

19. To the knowledge of such counsel the Company is in compliance with,
and conducts its business in conformity with, all applicable federal, state,
local and foreign laws, rules and regulations, of each court or governmental
agency or boding having jurisdiction over the Company, except where the failure
to be in compliance would not have a Material Adverse Effect; to the knowledge
of such counsel, otherwise than as set forth in the Registration Statement and
the Prospectus, no prospective change in any of such federal or state laws,
rules or regulations has been adopted which, when made effective, would have a
Material Adverse Effect; provided, however, such counsel gives no opinion as to
any matters hereunder covered by legal opinions provided to you by Howison &
Handley, LLP and Kelley, Drye & Warren LLP.

20. The Stock has been duly approved for quotation on the Nasdaq National
Market, subject to notice of effectiveness.

In addition to the matters set forth above, such opinion shall also include a
statement to the effect that nothing has come to the attention of such counsel
which leads them to believe that (i) the Registration Statement or any amendment
thereto, as of the time it became effective under the Securities Act (but after
giving effect to any modifications incorporated therein pursuant to Rule 430A
under the Securities Act), contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, or (ii) that the
Prospectus, or any supplement thereto, on the date it was filed pursuant to the
Rules and Regulations and as of the Closing Date or the Additional Closing Date,
as the case may be, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading (except that such counsel need express no view as to
financial statements and notes thereto and schedules or other financial or
statistical information therein). With respect to such statement, such counsel
may state that their

I-4
<PAGE>

belief is based upon the procedures set forth therein, but
is without independent check and verification.

I-5
<PAGE>

EXHIBIT II

Matters to be Covered in
------------------------
Opinion of Howison & Handley, LLP, Special Intellectual Counsel for the Company
- -------------------------------------------------------------------------------

1. The Company is listed in the records of the Patent and Trademark
Office as the holder of record of the patent application and the trademark
registration application to register the trademarks "WorldQuest" and "WorldQuest
Networks" listed on Schedule I to the opinion (the "Applications"). Except as
disclosed in the Prospectus, such counsel knows of no claims of third parties to
any ownership interest or lien with respect to the Applications. To such
counsel's knowledge, none of the Applications has been rejected.

2. The statements under the Prospectus captions "Risk Factors -- Our
business may be adversely affected if we are not able to protect our
intellectual property and other proprietary rights from infringement" and
"Business -- Intellectual Property and Other Proprietary Rights" (collectively,
the "Intellectual Property Portion") in the Prospectus insofar as such
statements constitute summaries of the Company's rights to the Applications are
in all material respects accurate summaries and fairly summarize in all material
respects the legal matters, documents and proceedings relating to the
Applications described therein; to the knowledge of such counsel, the Company
owns the rights to two (2) pending Applications.

3. Such counsel is not aware of any facts that would lead such counsel to
conclude that any patent or trademark issued in respect of an Application would
be invalid.

4. Except as disclosed in the Intellectual Property Portion, such counsel
is not aware that any valid patent is infringed by the activities of the Company
described in the Registration Statement or Prospectus or by the manufacture, use
or sale of any product, device, instrument, drug or other material made and used
according to the Applications.

5. Such counsel is not aware of any material defects of form in the
preparation or filing of the Applications on behalf of the Company. The
Applications are being diligently pursued by the Company.

6. Such counsel knows of no pending or threatened action, suit,
proceeding or claim by others that the Company is infringing or otherwise
violating any patents, copyrights or trade secrets.

II-1
<PAGE>

7. Except as disclosed in the Prospectus, such counsel is not aware of
any pending or threatened actions, suits proceedings or claim by others
challenging the validity or scope of the Applications.

8. Such counsel is not aware of any infringement on the part of any third
party of the Applications, trade secrets, know-how or other proprietary rights
of the Company.

9. Nothing has come to the attention of such counsel which causes such
counsel to believe that the information contained in the Intellectual Property
Portion of the Registration Statement, at the time the Registration Statement
became effective, contained an untrue statement of a material fact or omitted or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, or that, at the Closing Date, the information contained in
the Intellectual Property Portion of the Effective Prospectus and Final
Prospectus or any amendment or supplement thereto contained any untrue statement
of a material fact or omitted to state a material fact necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.

II-2
<PAGE>

SCHEDULE I

UNITED STATES PATENTS AND PATENT
AND TRADEMARK APPLICATIONS

United States Patent and Trademark Applications

Docket No. Title Serial No. Filing Date
- ---------- ----- ---------- -----------

II-3
<PAGE>

EXHIBIT III

Matters to be Covered in Opinion
--------------------------------
of Kelley, Drye & Warren LLP, Special Regulatory Counsel for the Company
------------------------------------------------------------------------

1. To the knowledge of such counsel, other than as described in the
Registration Statement, no legal, regulatory or governmental proceedings are
pending to which the Company is a party or to which the assets of the Company
are subject which, individually or in the aggregate, could reasonably be
expected to have a material adverse effect on the condition (financial or
otherwise), business prospects, net worth or properties of the Company, or
which, individually or in the aggregate, would have a material adverse effect on
the power or ability of the Company to perform its obligations under this
Agreement and the Representatives' Warrants or to consummate the transactions
contemplated thereby or by the Registration Statement and no such material
proceedings have been threatened against the Company or with respect to any of
the Company's assets or properties.

2. To the knowledge of such counsel, the Company is not (A) in default
(or, with notice or lapse of time or both, would be in default) in the
performance or observance of any obligation, agreement, covenant or condition
contained in any governmental license, franchise, authorization, permit or
certificate to which it is a party or by which it may be bound, or to which any
of its respective assets or properties is subject, or (B) in violation of any
law, statute, judgment, decree, order, rule or regulation of any domestic or
foreign court with jurisdiction over the Company or the Company's assets or
properties, or other governmental or regulatory authority, agency or other body
other than such defaults or violations which, individually or in the aggregate,
could not reasonably be expected to have or result in, in the case of clause (A)
or (B), a material adverse effect on the condition (financial or otherwise),
business, net worth or properties of the Company.

3. To the knowledge of such counsel, the Company has obtained all
consents, approvals, orders, certificates, licenses, permits, franchises and
other authorizations of and from, and has made all declarations and filings
with, all governmental and regulatory authorities, all self-regulatory
organizations and all courts and other tribunals necessary to own, lease,
license and use its properties and assets and to conduct its business in the
manner described in the Registration Statement, except to the extent that the
failure to so obtain or file, individually or in the aggregate, could not
reasonably be expected to have a material adverse effect on the condition
(financial or otherwise), business, net worth or properties of the Company.

4. The statements set forth in the Registration Statement under the
headings "Risk Factors -- The Internet industry may become subject to increased
government regulation which could have a negative effect on our operations" and
"Business -- Government Regulation,"

III-1
<PAGE>

(collectively, the "Regulatory Portion") insofar as such statements constitute a
summary of statutes, rules, regulations, legal matters, documents or proceedings
referred to therein, provide a fair summary of such statutes, rules,
regulations, legal matters, documents and proceedings and the information with
respect thereto.

5. Nothing has come to the attention of such counsel which causes such
counsel to believe that the information contained in the Regulatory Portion of
the Registration Statement, at the time the Registration Statement became
effective, contained an untrue statement of a material fact or omitted or omits
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or that, at the Closing Date, the information contained in the
Regulatory Portion of the Prospectus or any amendment or supplement thereto
contained any untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.

III-2

<PAGE>

EXHIBIT 4.3
Option to Purchase 250,000
Shares of Common Stock

REPRESENTATIVES' WARRANT
------------------------

Dated: __________, 2000

THIS CERTIFIES THAT KAUFMAN BROS., L.P., JOHN G. KINNARD AND COMPANY,
INCORPORATED AND WESTPARK CAPITAL, INC. (herein sometimes called the "Holders"
or the "Representatives") are entitled to purchase from WORLDQUEST NETWORKS,
INC., a Delaware corporation (the "Company"), at the price and during the period
as hereinafter specified, up to Two Hundred Fifty Thousand (250,000) shares (the
"Shares") of common stock, $.01 par value per share (the "Common Stock") at a
purchase price of $____ per share (155% of the initial public offering price)
subject to adjustment as described below, at any time during the four-year
period commencing one (1) year from the effective date of the Registration
Statement (as defined herein) (the "Effective Date").

This Representatives' Warrant (the "Representatives' Warrant") is issued
pursuant to an Underwriting Agreement between the Company and Kaufman Bros.,
L.P., John G. Kinnard and Company, Incorporated and WestPark Capital, Inc., as
Representatives of the several Underwriters set forth in Schedule I to said
Underwriting Agreement, in connection with a public offering, through the
Representative, of 2,500,000 Shares as therein described (and up to 375,000
additional Shares covered by an over-allotment option granted by the Company to
the Underwriters), and in consideration of $1.00 received by the Company for the
Representatives' Warrant. Except as specifically otherwise provided herein, the
Shares issued pursuant to the Representatives' Warrant shall bear the same terms
and conditions as described under the caption "Description of Capital Stock-
Common Stock" in the Registration Statement on Form SB-2, File No. 333-93019
(the "Registration Statement") except that the Holder shall have registration
rights under the Securities Act of 1933, as amended (the "Act"), for the
Representatives' Warrant and the Shares issuable pursuant thereto as more fully
described in paragraph 6 herein.

1. The rights represented by the Representatives' Warrant shall be
exercised at the price, set forth in the first paragraph hereof subject to
adjustment in accordance with Section 8 hereof (the "Exercise Price"), and
during the periods as follows:

(a) During the period from the Effective Date to and through
__________, 2001 (the "First Anniversary Date"), inclusive, the
Holder shall have no right to purchase any Shares hereunder,
except that in the event of any merger, consolidation or sale of
substantially all the assets of the Company as an entirety prior
to the First Anniversary Date (other than (i) a merger or
consolidation in which the Company is the continuing corporation
and which does not result in any reclassification or
reorganization of any outstanding shares of Common Stock or (ii)
any sale/leaseback, mortgage

1
<PAGE>

or other financing transaction), the Holder shall have the right
to exercise the Representatives' Warrant concurrently with such
event and into the kind and amount of shares of stock and other
securities and property (including cash) receivable by a holder of
the number of Shares into which the Representatives' Warrant were
exercisable immediately prior thereto.

(b) Between _____________, 2001 and 2005, (five (5) years from the
Effective Date, i.e. the "Expiration Date") inclusive, the Holder
shall have the option to purchase Shares hereunder at the Exercise
Price.

2. (a) The rights represented by the Representatives' Warrant may be
exercised at any time within the periods above specified, in whole or in part,
by (i) the surrender of the Representatives' Warrant (with the purchase form at
the end hereof properly executed) at the principal executive office of the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the Holder at the address of the Holder appearing on the
books of the Company); (ii) payment to the Company of the exercise price then in
effect for the number of Shares specified in the above-mentioned purchase form
together with applicable stock transfer taxes, if any; and (iii) delivery to the
Company of a duly executed agreement signed by the person(s) designated in the
purchase form to the effect that such person(s) agree(s) to be bound by the
provisions of paragraph 6 and subparagraphs (b), (c) and (d) of paragraph 7
hereof. The Representatives' Warrant shall be deemed to have been exercised, in
whole or in part to the extent specified, immediately prior to the close of
business on the date the Representatives' Warrant is surrendered and payment is
made in accordance with the foregoing provisions of this paragraph 2, and the
person or persons in whose name or names the certificates for the Shares shall
be issuable upon such exercise shall become the holder or holders of record of
such Shares at that time and date. The Shares and the certificates for the
Shares so purchased shall be delivered to the Holder within a reasonable time,
not exceeding ten (10) business days, after the rights represented by this
Representatives' Warrant shall have been so exercised.

(b) Notwithstanding anything to the contrary contained in paragraph
2(a), the Holder may elect to exercise this Representatives' Warrant in whole or
in part by receiving Shares equal to the value (as determined below) of this
Representatives' Warrant, or any part hereof, upon surrender of the
Representatives' Warrant at the principal office of the Company together with
notice of such election in which event the Company shall issue to the Holder a
number of Shares computed using the following formula:

X = Y(A-B)
------
A

Where X = the number of Shares to be issued to the Holder;

2
<PAGE>

Y = the number of Shares issuable upon exercise of this
Representatives' Warrant;

A = the current fair market value of one share of Common Stock;

B = the Exercise Price of the Representatives' Warrant;

As used herein, current fair market value of Common Stock
shall mean with respect to each share of Common Stock the average
of the closing prices of the Common Stock sold on the principal
national securities exchanges on which the Common Stock is at the
time admitted to trading or listed, or, if there have been no
sales on any such exchange on such day, the average of the
highest bid and lowest ask price on such day as reported by
NASDAQ, or any similar organization if NASDAQ is no longer
reporting such information, either (i) on the date which the form
of election is deemed to have been sent to the Company (the
"Notice Date") or (ii) over a period of five (5) trading days
preceding the Notice Date, whichever of (i) or (ii) is greater.
If on the date for which current fair market value is to be
determined the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter
market, the current fair market value of Common Stock shall be
the highest price per share which the Company could then obtain
from a willing buyer (not a current employee or director) for
shares of Common Stock sold by the Company, from authorized but
unissued shares, as determined in good faith by the Board of
Directors of the Company, unless prior to such date the Company
has become subject to a binding agreement for a merger,
acquisition or other consolidation pursuant to which the Company
is not the surviving party, in which case the current fair market
value of the Common Stock shall be deemed to be the value to be
received by the holders of the Common Stock for each share
thereof pursuant to the Company's acquisition.

3. The Representatives' Warrant shall not be sold, transferred, assigned,
or hypothecated for a period of one year commencing on the Effective Date except
that it may be transferred to successors of the Holder, and may be assigned in
whole or in part to any person who is an officer of the Holder to any members of
the selling group and/or the officers or partners thereof during such period.
This Representatives' Warrant must be executed immediately upon its transfer at
any time after one year from the Effective Date, and if not so executed, shall
lapse. Any such assignment shall be effected by the Holder by (i) executing the
form of assignment at the end hereof and (ii) surrendering the Representatives'
Warrant for cancellation at the office or agency of the Company referred to in
paragraph 2 hereof, accompanied by a certificate (signed by an officer of the
Holder if the Holder is a corporation) stating that each transferee is a
permitted transferee under this paragraph 3; whereupon the

3
<PAGE>

Company shall issue, in the name or names specified by the Holder (including the
Holder), a new Representatives' Warrant or Warrants of like tenor and
representing in the aggregate rights to purchase the same number of Shares as
are purchasable hereunder at such time.

4. The Company covenants and agrees that all Shares which may be
purchased hereunder will, upon issuance and delivery against payment therefor of
the requisite purchase price, be duly and validly issued, fully paid and
nonassessable. The Company further covenants and agrees that, during the
periods within which the Representatives' Warrant may be exercised, the Company
will at all times have authorized and reserved a sufficient number of shares of
its Common Stock to provide for the exercise of the Representatives' Warrant.

5. The Representatives' Warrant shall not entitle the Holder to any
voting rights or other rights, including without limitation notice of meetings
of other actions or receipt of dividends, as a stockholder of the Company.

6. (a) The Company shall advise the Holder or its permitted transferee,
whether the Holder holds the Representatives' Warrant or has exercised the
Representatives' Warrant and holds Shares, by written notice at least four weeks
prior to the filing of any new registration statement thereto under the Act, or
the filing of a notification on Form 1-A under the Act for a public offering of
securities, covering any securities of the Company, for its own account or for
the account of others, except for any registration statement filed on Form S-4
or S-8 (or other comparable form), and will, during the five (5) year period
from the Effective Date, upon the request of the Holder, include in any such new
registration statement (or notification as the case may be) such information as
may be required to permit a public offering of, all or any of the Shares
underlying the Representatives' Warrant (the "Registrable Securities"). For so
long as the Warrants remain outstanding and as long as required by the Act (so
long as the Holder's ability to exercise any Warrant is not adversely affected),
the Company currently intends to file post-effective amendments to the
Registration Statement (or any new registration statement filed by the Company)
setting forth or otherwise incorporating certain information contained in the
then most recent quarterly report on Form 10-Q or annual report on Form 10-K
filed by the Company (each such post-effective amendment, a "Quarterly
Amendment"). The parties hereby agree that if at any time during such five (5)
year period the Company receives written notice from the Holder at least two
weeks prior to the filing of any such Quarterly Amendment indicating such
Holder's intention to offer Registrable Securities in such Quarterly Amendment,
the Company will include in such Quarterly Amendment such information as may be
required to permit a public offering of such Registrable Securities. The
delivery by the Holder of any such notice shall not constitute a demand made
pursuant to Section 6(b). The Company shall supply prospectuses and such other
documents as the Holder may reasonably request in order to facilitate the public
sale or other disposition of the Registrable Securities, use its best efforts to
register and qualify any of the Registrable Securities for sale in such states
(i) as such Holder designates and (ii) with respect to which the Company
obtained a qualification in connection with its initial public offering; and do
any and all other acts and things which may be necessary or desirable to enable
such Holder to consummate the public sale or other disposition of the

4
<PAGE>

Registrable Securities, all at no expense to the Holder or the Representative
(other than sales commissions, underwriting discounts or commissions, or other
expenses of such sale), and furnish indemnification in the manner provided in
paragraph 7 hereof. The Holder shall furnish information and indemnification as
set forth in paragraph 7.

(b) At any time during the four (4) year period beginning one (1) year
after the Effective Date, a 50% Holder (as defined below) may request, on two
occasions, that the Company register under the Act any and all of the
Registrable Securities held by such 50% Holder, once at the Company's expense
and on the second occasion, at the 50% Holder's expense. Upon the receipt of
any such notice, the Company will promptly, but no later than four weeks after
receipt of such notice, file a post-effective amendment to the current
Registration Statement or a new registration statement pursuant to the Act, so
that such designated Registrable Securities may be publicly sold under the Act
as promptly as practicable thereafter and the Company will use reasonable
efforts to cause such registration to become and remain effective (including the
taking of such reasonable steps as are necessary to obtain the removal of any
stop order) within 120 days after the receipt of such notice, provided, that
such Holder shall furnish the Company with appropriate information in connection
therewith as the Company may reasonably request in writing. The 50% Holder may,
at its option, request the registration of any of the Shares underlying the
Representatives' Warrant in a registration statement made by the Company as
contemplated by Section 6(a) or in connection with a request made pursuant to
this Section 6(b) prior to acquisition of the Shares issuable upon exercise of
the Representatives' Warrant. The 50% Holder may, at its option, request such
post-effective amendment or new registration statement during the described
period with respect to the Representatives' Warrant and/or the Shares and such
registration rights may be exercised by the 50% Holder prior to or subsequent to
the exercise of the Representatives' Warrant. Within ten days after receiving
any such notice pursuant to this subsection (b) of paragraph 6, the Company
shall give notice to any other Holders of the Representatives' Warrant, advising
that the Company is proceeding with such post-effective amendment or
registration statement and offering to include therein the Shares underlying
that part of the Representatives' Warrant held by the other Holders, provided
that they shall furnish the Company with such appropriate information (relating
to the intentions of such Holders) in connection therewith as the Company shall
reasonably request in writing. All costs and expenses of the post-effective
amendment or new registration statement shall be borne by the Company, except
that the Holder(s) shall bear the fees of their own counsel and any other
advisors retained by them and any underwriting discounts or commissions
applicable to any of the securities sold by them. The Company will use its best
efforts to maintain such registration statement or post-effective amendment
current under the Act for a period of at least 180 days from the effective date
thereof. The Company shall supply prospectuses, and such other documents as the
Holder(s) may reasonably request in order to facilitate the public sale or other
disposition of the Registrable Securities, use its best efforts to register and
qualify any of the Registrable Securities for sale in such states (i) as such
Holder(s) designate and (ii) with respect to which the Company obtained a
qualification in connection with its initial public offering and furnish
indemnification in the manner provided in paragraph 7 hereof. Notwithstanding
the foregoing set forth in this paragraph 6(b), the Company shall not be
required to include in any

5
<PAGE>

registration statement any Registrable Securities which in the opinion of
counsel to the Company (which opinion is reasonably acceptable to counsel to the
Representative) would be saleable immediately without restriction under Rule 144
(or its successor) if the Representatives' Warrant was exercised pursuant to
paragraph 2(b) herein.

(c) The term "50% Holder" as used in this paragraph 6 shall mean the
Holder(s) of at least 50% of the Representatives' Warrant and/or the Shares
underlying the Representatives' Warrant (considered in the aggregate).

7. (a) Whenever pursuant to paragraph 6 a registration statement
relating to any Shares issued upon exercise of the Representatives' Warrant is
filed under the Act, amended or supplemented, the Company will indemnify and
hold harmless each Holder of the securities covered by such registration
statement, amendment or supplement (such Holder being hereinafter called the
"Distributing Holder"), and each person, if any, who controls (within the
meaning of the Act) the Distributing Holder, and each underwriter (within the
meaning of the Act) of such securities and each person, if any, who controls
(within the meaning of the Act) any such underwriter, against any losses,
claims, damages or liabilities, joint or several, to which the Distributing
Holder, any such controlling person or any such underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities, or actions in respect thereof, arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any such registration statement as declared effective or any final prospectus
constituting a part thereof or any amendment or supplement thereto, or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading and will reimburse the Distributing Holder or such
controlling person or underwriter for any legal or other expense reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company will not
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus or said amendment or
supplement in reliance upon and in conformity with written information furnished
by such Distributing Holder or any other Distributing Holder for use in the
preparation thereof and provided further, that the indemnity agreement provided
in this Section 7(a) with respect to any preliminary prospectus shall not inure
to the benefit of any Distributing Holder, controlling person of such
Distributing Holder, underwriter or controlling person of such underwriter from
whom the person asserting any losses, claims, charges, liabilities or litigation
based upon any untrue statement or alleged untrue statement of a material fact
or omission or alleged omission to state therein a material fact, received such
preliminary prospectus, if a copy of the prospectus in which such untrue
statement or alleged untrue statement or omission or alleged omission was
corrected has not been sent or given to such person within the time required by
the Act and the Rules and Regulations thereunder.

6
<PAGE>

(b) The Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, and each
person, if any, who controls the Company (within the meaning of the Act) against
any losses, claims, damages or liabilities, joint or several, to which the
Company or any such director, officer or controlling person may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities, or actions in respect thereof, arise out of or are based upon any
untrue or alleged untrue statement of any material fact contained in said
registration statement, said preliminary prospectus, said final prospectus, or
said amendment or supplement, or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus or said amendment or
supplement in reliance upon and in conformity with written information furnished
by such Distributing Holder for use in the preparation thereof; and will
reimburse the Company or any such director, officer or controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action.

(c) Promptly after receipt by an indemnified party under this
paragraph 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
paragraph 7.

(d) In case any such action is brought against any indemnified party,
and it notifies an indemnifying party of the commencement hereof, the
indemnifying party will be entitled to participate in and, to the extent that it
may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
paragraph 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.

8. The Exercise Price in effect at the time and the number and kind of
securities purchasable upon the exercise of the Warrant shall be subject to
adjustment from time to time upon the happening of certain events as follows:

(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common Stock
(other than issuance of Common Stock pursuant to antidilution provisions set
forth in the Registration Statement),

7
<PAGE>

(ii) subdivide or reclassify its outstanding shares of Common Stock into a
greater number of shares, (iii) combine or reclassify its outstanding shares of
Common Stock into a smaller number of shares, or (iv) enter into any transaction
whereby the outstanding shares of Common Stock of the Company are at any time
changed into or exchanged for a different number or kind of shares or other
security of the Company or of another corporation through reorganization,
merger, consolidation, liquidation or recapitalization, then appropriate
adjustments in the number of Shares (or other securities for which such Shares
have previously been exchanged or converted) subject to this Representatives'
Warrant shall be made and the Exercise Price in effect at the time of the record
date for such dividend or distribution or of the effective date of such
subdivision, combination, reclassification, reorganization, merger,
consolidation, liquidation or recapitalization shall be proportionately adjusted
so that the Holder of this Representatives' Warrant exercised after such date
shall be entitled to receive the aggregate number and kind of shares of Common
Stock which, if this Representatives' Warrant had been exercised by such Holder
immediately prior to such date, he would have been entitled to receive upon such
dividend, distribution, subdivision, combination, reclassification,
reorganization, merger, consolidation, liquidation or recapitalization. For
example, if the Company declares a 2 for 1 stock distribution and the Exercise
Price hereof immediately prior to such event was $______ per Share and the
number of Shares issuable upon exercise of this Representatives' Warrant was
_________ , the adjusted Exercise Price immediately after such event would be
$_________ per Share and the adjusted number of Shares issuable upon exercise of
this Representatives' Warrant would be ________. Such adjustment shall be made
successively whenever any event listed above shall occur.

(b) In case the Company shall fix a record date for the issuance of
rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (the "Subscription Price") (or having a conversion
price per share) less than the Exercise Price on a per share basis (the "Per
Share Exercise Price") on such record date, the Exercise Price shall be adjusted
so that the same shall equal the price determined by multiplying the number of
Shares by the Per Share Exercise Price in effect immediately prior to the date
of issuance by a fraction, the numerator of which shall be the sum of the number
of shares of Common Stock then outstanding on the record date mentioned below
and the number of additional shares of Common Stock which the aggregate offering
price of the total number of shares of Common Stock so offered (or the aggregate
conversion price of the convertible securities so offered) would purchase at the
Per Share Exercise Price in effect immediately prior to the date of such
issuance, and the denominator of which shall be the sum of the number of shares
of Common Stock outstanding on the record date mentioned below and the number of
additional shares of Common Stock offered for subscription or purchase (or into
which the convertible securities so offered are convertible). Such adjustment
shall be made successively whenever such rights or warrants are issued and shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants; and to the extent that
shares of Common Stock are not delivered (or securities convertible into Common
Stock are not delivered) after the expiration of such rights or warrants the
Exercise Price shall be readjusted to the Exercise Price which would

8
<PAGE>

then be in effect had the adjustments made upon the issuance of such rights or
warrants been made upon the basis of delivery of only the number of shares of
Common Stock (or securities convertible into Common Stock) actually delivered.

(c) In case the Company shall hereafter distribute to all holders of
its Common Stock evidences of its indebtedness or assets (excluding cash
dividends or distributions and dividends or distributions referred to in
Subsection (a) above) or subscription rights or warrants (excluding those
referred to in Subsection (b) above), then in each such case the Exercise Price
in effect thereafter shall be determined by multiplying the number of Shares by
the Per Share Exercise Price in effect immediately prior thereto, multiplied by
a fraction, the numerator of which shall be the total number of shares of Common
Stock then outstanding multiplied by the current market price per share of
Common Stock (as defined in Subsection (e) below), less the fair market value
(as determined by the Company's Board of Directors) of said assets, or evidences
of indebtedness so distributed or of such rights or warrants, and the
denominator of which shall be the total number of shares of Common Stock
outstanding multiplied by such current market price per share of Common Stock.
Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such distribution.

(d) Whenever the Exercise Price payable upon exercise of the
Representatives' Warrant is adjusted pursuant to Subsections (a), (b) or (c)
above, the number of Shares purchasable upon exercise of this Representatives'
Warrant shall simultaneously be adjusted by multiplying the number of Shares
issuable upon exercise of this Representatives' Warrant by the Exercise Price in
effect on the date hereof and dividing the product so obtained by the Exercise
Price, as adjusted.

(e) For the purpose of any computation under Subsection (c) above, the
current market price per share of Common Stock at any date shall be deemed to be
the average of the daily closing prices of the Common Stock for 30 consecutive
business days before such date. The closing price for each day shall be the last
sale price regular way or, in case no such reported sale takes place on such
day, the average of the last reported bid and asked prices regular way, in
either case on the principal national securities exchange on which the Common
Stock is admitted to trading or listed, or, if not listed or admitted to trading
on such exchange, the average of the highest reported bid and lowest reported
asked prices as reported by NASDAQ, or other similar organization if NASDAQ is
no longer reporting such information, or if not so available, the fair market
price as determined by the Board of Directors as set forth in Section 2(b)
herein.

(f) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least five cents ($0.05)
in such price; provided, however, that any adjustments which may by reason of
this Subsection (f) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment required to be made hereunder.
All calculations under this Section 8 shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be. Anything in this
Section 8 to

9
<PAGE>

the contrary notwithstanding, the Company shall be entitled, but shall not be
required, to make such changes in the Exercise Price, in addition to those
required by this Section 8, as it shall determine, in its sole discretion, to be
advisable in order that any dividend or distribution in shares of Common Stock,
or any subdivision, reclassification or combination of Common Stock, hereafter
made by the Company shall not result in any Federal income tax liability to the
holders of the Common Stock or securities convertible into Common Stock.

(g) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly cause a notice setting forth the adjusted Exercise Price
and adjusted number of Shares issuable upon exercise of the Representatives'
Warrant to be mailed to the Holder, at its address set forth herein, and shall
cause a certified copy thereof to be mailed to the Company's transfer agent, if
any. The Company may retain a firm of independent certified public accountants
selected by the Board of Directors (who may be the regular accountants employed
by the Company) to make any computation required by this Section 8, and a
certificate signed by such firm shall be conclusive evidence of the correctness
of such adjustment.

(h) In the event that at any time, as a result of an adjustment made
pursuant to the provisions of this Section 8, the Holder of the Representatives'
Warrant thereafter shall become entitled to receive any shares of the Company
other than Common Stock, thereafter the number of such other shares so
receivable upon exercise of the Representatives' Warrant shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
Subsections (a) to (f), inclusive, above.

9. This Agreement shall be governed by and in accordance with the laws of
the State of New York without regard to conflict of laws provision.

IN WITNESS WHEREOF, WORLDQUEST NETWORKS, INC. has caused this
Representatives' Warrant to be signed by its duly authorized officers under its
corporate seal, and this Representatives' Warrant to be dated ____________,
2000.

WORLDQUEST NETWORKS, INC.

By:________________________________
B. Michael Adler
Chairman and Chief Executive Officer

Attest:

______________________________
Michael R. Lanham
its President, Chief Operating Officer and Secretary

10
<PAGE>

PURCHASE FORM
-------------

(To be signed only upon exercise of Warrant)

The undersigned, the holder of the foregoing Representatives' Warrant,
hereby irrevocably elects to exercise the purchase rights represented by such
Warrant for, and to purchase thereunder, _______________ Shares of Common Stock,
$.01 par value per share (the "Shares") WORLDQUEST NETWORKS, INC., payment of
$_______ therefor, and requests that the certificates for the Shares issued in
the name(s) of, and delivered to ________________________, whose address(es) is
(are):

Dated: _______________, ____

By:________________________________

___________________________________

___________________________________
Address
<PAGE>

TRANSFER FORM
-------------

(To be signed only upon transfer of Representatives' Warrant)

For value received, the undersigned hereby sells, assigns, and transfers
unto ______________________________ the right to purchase Shares represented by
the foregoing Representatives' Warrant to the extent of __________ Shares, and
appoints _________________________ attorney to transfer such rights on the books
of _________________ ____________, with full power of substitution in the
premises. The undersigned believes that each transferee is a permitted
transferee under Section 3 of the Representatives' Warrant.

Dated: _______________, ____

By:________________________________

___________________________________

___________________________________
Address

In the presence of:

<PAGE>

Exhibit 23.1

We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated December 22, 1999 except for the last paragraph in
footnote 1 as to which the date is February 1, 2000, in Amendment No. 2 to the
Registration Statement on Form SB-2 and related Prospectus of WorldQuest
Networks, Inc. filed with the Commission on February 1, 2000.

/s/ Ernst and Young LLP

Dallas, Texas

February 1, 2000

<PAGE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 1998 AND SEPTEMBER 30, 1999 AND THE
CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH FLOWS FOR THE YEAR ENDED DECEMBER
31, 1998 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 SEP-30-1999
<CASH> 18,833 59,419
<SECURITIES> 0 0
<RECEIVABLES> 235,244 140,685
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 254,077 200,104
<PP&E> 671,124 1,226,696
<DEPRECIATION> 418,639 635,104
<TOTAL-ASSETS> 1,246,774 1,382,250
<CURRENT-LIABILITIES> 2,520,746 2,869,994
<BONDS> 1,240,818 1,331,578
0 0
0 0
<COMMON> 30,000 31,967
<OTHER-SE> (2,544,790) (2,851,289)
<TOTAL-LIABILITY-AND-EQUITY> 1,246,774 1,382,250
<SALES> 1,841,439 4,009,236
<TOTAL-REVENUES> 1,841,439 4,009,236
<CGS> 2,005,631 3,348,593
<TOTAL-COSTS> 2,005,631 3,348,593
<OTHER-EXPENSES> 1,476,769 1,622,398
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 162,466 173,340
<INCOME-PRETAX> (1,753,427) (1,135,095)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,753,427) (1,135,095)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,753,427) (1,135,095)
<EPS-BASIC> (0.58) (0.37)
<EPS-DILUTED> (0.58) (0.37)

</TABLE>