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SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N.W.
Washington, D. C. 20549
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FORM 10-SB
Amendment No. 1
General Form for Registration of Securities
Pursuant to Section 12(b) or (g) of
The Securities Exchange Act of 1934
WARPRADIO.COM, INC.
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(Exact name of registrant as specific in its charter)
Nevada 87-0538158
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(State of Incorporation) (I.R.S. Employer I.D. No.)
6535 South Dayton Street, Suite 3000
Greenwood Village, CO 80111
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(Address of principal executive offices, including zip code)
(303) 799-9118
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(Registrant's telephone number, including area code)
Copies to:
Gary A. Agron, Esq.
5445 D.T.C. Parkway, Suite 520
Englewood, CO 80111
(303) 770-7257
Securities to be registered pursuant to Section 12(b) of the Act:
None
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(Title of Class)
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value per share
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(Title of Class)
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
(a) Business Development.
WarpRadio.com, Inc. (the "Company") was organized under the laws of the
State of Nevada, on March 23, 1995, under the name HomeQuest, Inc. for the
purpose of acquiring the assets and operations of New Horizon Education, Inc.
("NHE"). The Company marketed educational and nutritional products through a
network marketing plan. In June 1995, the Company assumed the operations of NHE
and in August 1995, the Company purchased NHE. In March 1998, the Company (i)
sold its operations, inventory, related fixed assets and other intangible assets
and (ii) issued 638,889 shares to an investor in exchange for cash and debt
assumption of $313,000. Pursuant to an Agreement and Plan of Reorganization (the
"Agreement and Reorganization") between the Company and Web Audio & Radio
Portal, Inc., a Colorado corporation ("WARP"), which was completed on September
30, 1999, the Company (i) reverse split its stock on the basis of one share for
each 7.2 shares outstanding, (ii) purchased all of the stock of WARP and (iii)
changed its name to "WarpRadio.com, Inc." All share information in this
Registration Statement reflects the reverse stock split.
(b) The Company's Business.
(i) Overview.
The Company owns and operates an Internet portal that broadcasts
"streaming" radio station programming 24 hours a day, seven days a week through
the World Wide Web (the "Web"). Visitors to the Company's Web site use their
computers to listen to live, uninterrupted radio programming from more than 84
radio stations across the United States free of charge. The Company's audience
benefits from the ability to receive local radio programming online (without the
use of a traditional radio) and outside the listener's geographic area, allowing
users to select from dozens of stations and formats. While listening to the
Company's radio programming, users can continue to perform other tasks on their
computers.
Radio stations that join the Company's Web site deliver continuous, live
audio feeds to the Company's servers through the use of a dedicated computer, a
dedicated Internet connection and a soundboard connection. The Company has
developed a unique barter arrangement with the radio stations available on its
Web site. In exchange for continuously streaming the station's programming live
over the Internet and providing each station with its own informational site on
the Company's Web site, the Company receives two minutes of prime time
advertising time per day. In addition, the Company has entered into licensing
agreements with Broadcast Music, Inc. ("BMI") and the American Society of
Composers, Authors and Publishers ("ASCAP"), whereby the Company has agreed to
assume all Internet license and royalty fees traditionally paid by radio
stations for each song they broadcast. Instead, the Company assumes
responsibility for the license and royalty fees based upon a percentage of the
Company's gross revenues, in the case of the BMI agreement, and a flat license
fee, in the case of the ASCAP agreement. The Company believes that this is the
only such arrangement of its kind and that it affords the Company a distinct
advantage over its competitors who must pass along additional licensing and
royalty fees to radio stations. The Company earns revenue by reselling the
advertising time it receives from the radio stations on its Web site and by
selling banner and other promotional advertisements on its Web site.
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(ii) Industry Background.
The Internet has grown rapidly in recent years, spurred by developments
such as easy-to-use Web browsers, the availability of multimedia personal
computers ("PCS") and the emergence of compelling Web-based content and commerce
applications. The broad acceptance of the Internet Protocol standard has also
led to the emergence of intranets and the development of a wide range of non-PC
devices that allow users to access the Internet and intranets. International
Data Corporation ("IDC"), an independent Internet market research firm, expects
the number of Internet users to grow 29% per year from approximately 142 million
worldwide in 1998 to exceed 500 million by the end of 2003. In 1998,
approximately 150 million devices were used to access the Internet. By the year
2002, IDC estimates that the number of Internet devices is expected to increase
to more than 720 million, a compound annual growth rate of 37%. A number of
factors are expected to fuel the growth of the Internet, including: (a) the
increasing number of computers installed in homes and offices, (b) the
decreasing cost of computers, (c) lower cost and more efficient Internet access,
(d) improving network infrastructure, (e) expanding Internet content, and (f)
increasing familiarity with and acceptance of the Internet as a resource for
consumers and businesses.
The Internet has quickly evolved from a relatively simple mechanism for the
delivery of text-based Web pages and electronic mail to a multimedia platform,
providing an interactive world of information, entertainment and commerce. The
resulting convergence of every day computer applications with communication,
entertainment and commerce platforms permits the Internet to deliver content in
such areas as music, sports, games, hobbies and shopping opportunities. The
development of streaming audio media, a new technology that permits the
simultaneous transmission and playback of digitized audio streams, allows the
Internet to broadcast music, information, advertising and other content to
hundreds of thousands of simultaneous listeners worldwide. Streaming audio
combines the Internet's interactivity with traditional, more passive radio
listening. According to a study performed in January 1999 by The Arbitron
Company, 27% of Internet users have listened to Internet radio. The development
of the Internet as a broadcast medium suggests a comparison to traditional
radio.
Broadcasting audio content over the Internet offers certain opportunities
that are not generally available from traditional media. Currently available
analog technology and government regulations limit the ability of radio stations
to broadcast beyond certain geographic areas. Radios are not widely used in
office buildings and other workplaces, where Internet access has become
commonplace. Through the Internet, audio programming can be delivered to a large
number of computer users who can listen to music from the broadcaster's Internet
site while working on other applications. Moreover, Internet users can interact
with the broadcast content by responding to advertising, voting in polls and
obtaining additional information.
In addition, atmospheric conditions and physical barriers can interfere
with traditional radio transmissions. By contrast, Internet broadcasters
transmit music and information using audio streaming technology, which has
inherent advantages over traditional radio broadcasts, such as permitting the
continuous transmission of music to a virtually unlimited geographic region.
Because audio streams are transmitted in digitized form over telephone lines,
they are unaffected by atmospheric or structural barriers. They may, however, be
limited by Internet congestion and other factors unique to Internet traffic,
such as a user's or broadcaster's computer hardware or software. At times when
bandwidth is not available, Internet audio quality may not be as clear as
traditional broadcast radio. However, as bandwidth increases, Internet audio
quality is expected to improve and become comparable to, or even better than,
the quality of traditional broadcast radio.
In addition, traditional broadcasters are limited in their ability to
measure or identify in real time the listeners of a program because they
typically rely upon reports from companies, such as The Arbitron Company, that
use statistical sampling methods to determine the size and demographic profile
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of the station's audience. As a result, traditional radio broadcasts generally
must appeal to a broad spectrum of listeners to capture the widest possible
market for their advertising. These companies periodically capture information
regarding listening habits from a cross section of the market and then estimate
the popularity of competing radio stations in the market. Web site audience
traffic measurements, by contrast, are not limited to statistical sampling and
can provide a more reliable measurement of listener traffic. Web sites or
servers communicate and respond to incoming requests from Internet users. These
servers can record listener and audience information on server log files and
provide current and exact measurements of the number of listeners and the length
of time listeners spend on a Web site. Internet broadcasters can provide highly
specific information about a program's audience to content providers and
advertisers. By using the Internet, targeted streaming audio content can be
broadcast to a geographically dispersed audience of customers, suppliers,
employees and stockholders at relatively low costs.
In short, the convergence of the Internet's capabilities and attributes has
accelerated the demand for live audio programming, leading to rapidly growing
economic opportunities in Web-based broadcasting.
(iii) The Company's Competition.
Competition among Web sites that broadcast streaming audio content is
intense and is expected to increase significantly in the future. The Company
competes with Internet Service Providers ("ISPs"), radio stations and networks
that aggregate audio content as well as originate their own Internet broadcasts.
The Company expects competition to intensify and the number of competitors to
increase significantly in the future. Because the operations and strategic plans
of existing and future competitors are undergoing rapid change, it is extremely
difficult for the Company to anticipate which companies are likely to offer
competitive services in the future. The Company also competes with online
services, other Web site operators and advertising networks, as well as
traditional media such as television, radio and print for a share of
advertisers' total advertising budgets. The Company believes that the principal
competitive factors for attracting advertisers include the number of users
accessing the Company's Web site, the demographics of the Company's users, the
Company's ability to deliver focused advertising and interactivity through its
Web site and the overall cost-effectiveness and value of the advertising offered
by the Company.
(iv) The Company's Strategy.
The Company believes that in order to achieve success as an Internet audio
broadcaster it must cost-effectively aggregate diverse and compelling content,
implement a network capable of streaming audio programming to large audiences 24
hours a day, seven days a week, enhance brand awareness and develop an
attractive, heavily trafficked advertising platform. The Company believes that
it is able to rapidly and cost-effectively identify and secure licensing
opportunities by entering into barter relationships with radio stations. By
providing broadcasters with royalty-free, continuous audio streaming to hundreds
of thousands of Internet listeners in exchange for two minutes of prime time
advertising per day, the Company is able to eliminate many of the barriers the
Company believes prevent most radio stations from broadcasting on the Internet.
Continuously streaming audio over the Internet is extremely capital- and
time-intensive and thus an unattractive and infeasible option for most radio
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stations. Indeed, broadcasting audio on the Internet requires that radio
stations design, develop, integrate and maintain complex network elements,
including extensive bandwidth, streaming licenses, equipment and technical
expertise. The Company's licensing program, however, allows broadcasters and
their advertisers to reach a vast and diverse audience without expending any
capital or labor whatsoever.
The Company has developed and implemented an extensive streaming audio
aggregation and distribution network designed to ensure the broadcast quality of
the content received from broadcasters and distributed to users. The Company is
capable of simultaneously receiving audio content from hundreds of broadcasters
through Internet network connections to the Company's servers. The audio streams
are constantly monitored for quality through buffering software contained on the
Company's servers and encoded prior to distribution. The Company employs
multicasting technology to transmit streaming audio to the Internet where
listeners access the broadcast through their own network connections. This
network is designed to efficiently and securely broadcast live audio programming
to a virtually unlimited audience.
In order to augment the number of radio stations available on its Web site
and expand its broadcast audience, the Company currently utilizes a majority of
the advertising it receives under licensing agreements with radio stations to
promote the Company's brand name. The Company believes that this is a
cost-effective means by which to enhance brand awareness, increase demand for
the Company's service and attract advertisers. By demonstrating to broadcasters
and advertisers the Company's broad-based distribution and the ability to
deliver associated traffic, the Company believes that its Web site provides an
attractive platform for broadcasters and advertisers seeking to target specific
users with rich, compelling content and advertising solutions.
(v) Employees.
As of the date hereof, the Company has thirteen full-time employees and one
part-time employee.
(c) Reports to Security Holders.
As a result of its filing of this Form 10-SB, the Company will become
subject to reporting obligations under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). These obligations include an annual report under
cover of Form 10-KSB, with audited financial statements, unaudited quarterly
reports and the requisite proxy statements with regard to annual shareholder
meetings. The public may read and copy any materials the Company files with the
Securities and Exchange Commission (the "Commission") at the Commission's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may
obtain information of the operation of the Public Reference Room by calling the
Commission at 1-800- SEC-0030. The Commission maintains an Internet site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the
Commission.
RISK FACTORS
In addition to the other information contained in this Registration
Statement, the following risk factors should be considered carefully before
investing in the Company. This Registration Statement contains forward-looking
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statements that involve risks and uncertainties. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth below.
Limited Operating History; History of Losses; Negative Net Worth and
Anticipation of Future Losses. The Company commenced its operations in March
1999 and expects a net loss for the foreseeable future. As of August 31, 1999,
the Company had an accumulated deficit of $352,438 and a negative net worth of
$348,446. Accordingly, the Company has a limited operating history on which to
base an evaluation of its business and prospects. The Company and its prospects
must be considered in light of the risks, difficulties and uncertainties
frequently encountered by companies in an early stage of development,
particularly companies in new and rapidly evolving markets such as the market
for Internet broadcasting, business services and advertising. To achieve and
sustain profitability, the Company believes it must, among other things, (i)
provide compelling and unique content to Internet users, (ii) effectively
develop new and maintain existing relationships with advertisers and
broadcasters, (iii) continue to develop and upgrade its technology and network
infrastructure, (iv) respond to competitive developments, (v) successfully
introduce enhancements to its existing products and services to address new
technologies and standards, (vi) effectively sell its inventory of radio ad
spots and (vii) attract, retain and motivate qualified personnel. There can be
no assurance that the Company will be successful in addressing these risks, and
failure to do so could have a material adverse effect on the Company's business,
results of operations and financial condition. Additionally, the limited
operating history of the Company makes the prediction of future operating
results difficult or impossible. The Company expects to continue to incur
significant losses on a quarterly and annual basis for the foreseeable future.
For these and other reasons, there can be no assurance that the Company will
ever achieve profitability or, if profitability is achieved, that it can be
sustained. See "Financial Statements" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Unpredictability of Future Revenues; Increase in Operating Expenses;
Potential Fluctuations in Quarterly Operating Results. Because of the Company's
limited operating history and the emerging nature of the markets in which it
competes, the Company is unable to forecast accurately its revenues. The market
for the Company's services and the long-term acceptance of Web-based advertising
are uncertain. The Company currently intends to increase substantially its
operating expenses in order to, among other things, (i) expand its distribution
network capacity, (ii) fund increased sales and marketing activities, (iii)
acquire additional content, (iv) develop and upgrade technology and (v) purchase
equipment for its operations. The Company's expense levels are based, in part,
on its expectations with regard to future revenues, and to a large extent such
expenses are fixed, particularly in the short term. To the extent the Company is
unsuccessful in increasing its revenues, the Company may be unable to
appropriately adjust spending in a timely manner to compensate for any
unexpected revenue shortfall or will have to reduce its operating expenses,
causing it to forego potential revenue generating activities, either of which
could cause a material adverse effect in the Company's business, results of
operations and financial condition. The Company's quarterly operating results
may fluctuate significantly in the future as a result of a variety of factors,
many of which are outside the Company's control. Factors that may affect the
Company's quarterly operating results include (i) the cost of acquiring and the
availability of content, (ii) demand for Internet advertising, (iii) seasonal
trends in Internet and advertising placements, (iv) the advertising cycles for,
or the addition or loss of, individual advertisers, (v) the level of traffic on
the Company's Web site, (vi) the amount and timing of capital expenditures and
other costs relating to the expansion of the Company's operations, (vii) price
competition or pricing changes in Internet broadcasting services and in Internet
advertising, (viii) the level of and seasonal trends in the use of the Internet,
(ix) technical difficulties or system downtime, (x) the cost to acquire
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sufficient bandwidth or to integrate efficient broadcast technologies, such as
multicasting, to meet the Company's needs, (xi) the introduction of new products
or services by the Company or its competitors and (xii) general economic
conditions and economic conditions specific to the Internet, such as electronic
commerce and online audio. Any one of these factors could cause the Company's
revenues and operating results to vary significantly in the future. In addition,
as a strategic response to changes in the competitive environment, the Company
may from time to time make certain pricing, service or marketing decisions or
acquisitions that could cause significant declines in the Company's quarterly
operating results.
The Company believes that advertising sales in traditional media, such as
radio, generally are lower in the first and third calendar quarters of each
year, and that advertising expenditures fluctuate significantly with economic
cycles. Depending on the extent to which the Internet is accepted as an
advertising medium, seasonality and cyclicality in the level of Internet
advertising expenditures could become more pronounced than it is currently. As a
result, the Company believes that its revenues from Web advertising sales have
been affected by these cyclical factors and the Company expects its Web
advertising sales generally to follow the quarterly trends of traditional media
advertising. The foregoing factors could have a material adverse effect on the
Company's business, results of operations and financial condition.
Due to all of the foregoing factors, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
Furthermore, it is possible that the Company's operating results in one or more
quarters will fail to meet the expectations of securities analysts or investors.
In such event, the price of the Common Stock could be materially adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Reliance on Barter Arrangements; Possible Inability to Recognize Revenue.
The Company intends to barter its streaming services to radio stations in
exchange for advertising time on the radio stations. Thereafter, the Company
intends to sell the advertising time to third party advertisers. There can be no
assurance that the Company will be able to sell the bartered advertising time,
in which event the Company's cash flow, revenue and earnings, if any, will be
negatively effected.
Dependence on Radio Stations and Performance Rights Societies for Content;
NonExclusive Rights. The Company's future success depends in large part upon its
ability to aggregate and deliver streaming audio broadcast from radio stations
over the Internet. Accordingly, the Company relies on radio stations to provide
its content. The Company's ability to maintain its existing relationships with
radio stations and to build new relationships with radio stations is critical to
the success of its business. Although many of the Company's agreements with
radio stations are for initial terms of more than one year, the radio stations
may choose not to renew such agreements or may terminate such agreements prior
to the expiration of their terms if the Company fails to fulfill its contractual
obligations. The Company's inability to secure licenses from radio stations or
performance rights societies, such as BMI or ASCAP, or the termination of a
significant number of radio station agreements would decrease the availability
of content that the Company can offer users. This may result in decreased
traffic on the Company's Web site and, as a result, decreased advertising
revenue, which could have a material adverse effect on the Company's business,
results of operations and financial condition.
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The Company's agreements with certain of its radio stations are
nonexclusive, allowing many of the Company's competitors the ability to offer
the same content now offered by the Company from such nonexclusive radio
stations. Such direct competition could have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Competition."
License fees payable to radio stations, performance rights societies and
other licensing agencies may increase in the future. There can be no assurance
that the radio stations, performance rights societies and other licensing
agencies will enter into agreements with the Company on terms acceptable to it.
If the Company is required to pay increased licensing fees, such increased
payments could have a material adverse effect on the Company's business, results
of operations and financial condition. See "Government Regulation and Legal
Uncertainty."
Uncertain Acceptance of Streaming Audio Technology. The Company's success
depends on the market acceptance of streaming audio technology provided by
companies such as Microsoft Corporation ("Microsoft"). Prior to the advent of
streaming technology, Internet users could not initiate the playback of audio
clips until such content was downloaded in its entirety, resulting in
significant waiting times. As a result, live broadcasts of audio content over
the Internet or intranets were not possible. Early streaming audio technology
suffered from poor audio quality. In addition, congestion over the Internet and
packet loss may interrupt audio streams, resulting in unsatisfying user
experiences. In order to receive streamed audio adequately, users generally must
have multimedia PCS with certain microprocessor requirements and at least 28.8
kbps Internet access and streaming audio software. Users typically
electronically download such software and install it on their PCS. Such
installation may require technical expertise that some users do not possess. In
addition, older versions of certain Web browsers may need to be reconfigured in
order to receive streaming audio from the Company's Web site. Furthermore, in
order for users to receive streaming media over corporate intranets, information
systems managers may need to reconfigure such intranets. Because of bandwidth
constraints on corporate intranets, some information systems managers may block
reception of streamed audio. Widespread adoption of streaming audio technology
depends on overcoming these obstacles, improving audio quality and educating
customers and users in the use of streaming audio technology. If streaming audio
technology fails to achieve broad commercial acceptance or such acceptance is
delayed, the Company's business, results of operations and financial condition
could be materially adversely affected. See "Competition."
Uncertain Acceptance of the Internet as an Advertising Medium. The market
for Internet advertising has only recently begun to develop, is rapidly evolving
and is characterized by an increasing number of market entrants. As is typical
in the case of a new and rapidly evolving industry, demand and market acceptance
for recently introduced products and services are subject to a high level of
uncertainty. The Company's ability to generate advertising revenue will depend
on, among other factors, (i) the development of the Internet as an advertising
medium, (ii) pricing of advertising on other Web sites, (iii) the amount of
traffic on the Company's Web site, (iv) the Company's ability to achieve and
demonstrate user and member demographic characteristics that are attractive to
advertisers, (v) the development and expansion of the Company's advertising
sales force and (vi) the establishment and maintenance of desirable advertising
sales agency relationships. Most potential advertisers and their advertising
agencies have only limited experience with the Internet as an advertising medium
and have not devoted a significant portion of their advertising expenditures to
Web-based advertising. There can be no assurance that advertisers or advertising
agencies will be persuaded to allocate or continue to allocate portions of their
budgets to Web-based advertising or, if so persuaded, that they will find such
advertising to be effective for promoting their products and services relative
to traditional print and broadcast media. No standards have yet been widely
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accepted for the measurement of the effectiveness of Web-based advertising, and
there can be no assurance that such standards will develop sufficiently to
enable Web-based advertising to become a significant advertising medium.
Acceptance of the Internet among advertisers and advertising agencies will also
depend, to a large extent, on the level of use of the Internet by consumers and
upon growth in the commercial use of the Internet. If widespread commercial use
of the Internet does not develop, or if the Internet does not develop as an
effective and measurable medium for advertising, the Company's business, results
of operations and financial condition could be materially adversely affected.
Management of Growth. The Company has rapidly and significantly expanded
its operations and anticipates that significant expansion of its operations will
continue to be required in order to address potential market opportunities. The
Company expanded from two employees in March 1999, to thirteen employees by
September 1999, and the Company expects to increase its personnel significantly
in the near future. The Company's recent growth has placed, and is expected to
continue to place, a significant strain on its managerial, operational and
financial resources and systems. To manage its growth, the Company must
implement, improve and effectively utilize its operational, management,
marketing and financial systems and train and manage its employees. Many of the
Company's senior management have only recently joined the Company. These
individuals have not previously worked together and are in the process of
integrating as a management team. There can be no assurance that the Company
will be able to effectively manage the expansion of its operations or that the
Company's current personnel, systems, procedures and controls will be adequate
to support the Company's operations. Any failure of management to manage
effectively the Company's growth could have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Dependence on Key Personnel; Need for Additional Personnel."
Risk of System Failure, Delays and Inadequacy; Single Site. The
performance, reliability and availability of the Company's Web site and network
infrastructure are critical to its reputation and ability to attract and retain
users, advertisers and content providers. All of the Company's network
infrastructure is located at a single, leased facility in Greenwood Village,
Colorado. The Company's systems and operations are vulnerable to damage or
interruption from fire, flood, power loss, telecommunications failure, Internet
breakdowns, break-ins, tornadoes and similar events. The Company does not
presently have redundant facilities or systems or a formal disaster recovery
plan and does not carry sufficient business interruption insurance to compensate
it for losses that may occur. Services based on sophisticated software and
computer systems often encounter development delays and the underlying software
may contain undetected errors that could cause system failures when introduced.
Any system error or failure that causes interruption in availability of content
or an increase in response time could result in a loss of potential or existing
business services customers, users, advertisers or content providers and, if
sustained or repeated, could reduce the attractiveness of the Company's Web site
to such entities or individuals. In addition, because the Company's Web
advertising revenues are directly related to the number of advertisements
delivered by the Company to users, system interruptions that result in the
unavailability of the Company's Web site or slower response times for users
would reduce the number of advertisements delivered and reduce revenues.
A sudden and significant increase in traffic on the Company's Web site
could strain the capacity of the software, hardware and telecommunications
systems deployed or utilized by the Company, which could lead to slower response
times or system failures. The Company's operations also are dependent upon
receipt of timely feeds from its content providers, and any failure or delay in
the transmission or receipt of such feeds, whether due to system failure of the
Company, its content providers or otherwise, could disrupt the Company's
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operations. The Company is also dependent upon Web browsers, ISPs and online
service providers ("OSPs") to provide Internet users access to the Company's Web
site. Users may experience difficulties accessing or using the Company's Web
site due to system failures or delays unrelated to the Company's systems. These
difficulties may negatively affect audio quality or result in intermittent
interruption in programming. In addition, the Company relies on third party ISPs
to provide hosting services with respect to some of the Company's content
providers. Any sustained failure or delay could reduce the attractiveness of the
Company's Web site to users, advertisers and content providers. The occurrence
of any of the foregoing events could have a material adverse effect on the
Company's business, results of operations and financial condition.
Security Risks. Despite the implementation of security measures, the
Company's networks may be vulnerable to unauthorized access, computer viruses
and other disruptive problems. A party who is able to circumvent security
measures could misappropriate proprietary information or cause interruptions in
the Company's Internet operations. ISPs and OSPs have in the past experienced,
and may in the future experience, interruptions in service as a result of the
accidental or intentional actions of Internet users, current and former
employees or others. The Company may be required to expend significant capital
or other resources to protect against the threat of security breaches or to
alleviate problems caused by such breaches. Although the Company intends to
continue to implement and utilize security measures, there can be no assurance
that measures implemented by the Company will not be circumvented in the future.
Eliminating computer viruses and alleviating other security problems may require
interruptions, delays or cessation of service to users accessing the Company's
Web site, which could have a material adverse effect on the Company's business,
results of operations and financial condition.
Competition. The market for Internet broadcasting and services is highly
competitive and the Company expects that competition will continue to intensify.
The Company competes with (i) other Web sites, Internet portals and Internet
broadcasters to acquire and broadcast streaming audio and to attract users and
(ii) online services, other Web site operators and advertising networks, as well
as traditional media such as television, radio and print, for a share of
advertisers' total advertising budgets. There can be no assurance that the
Company will be able to compete successfully or that the competitive pressures
faced by the Company, including those described below, will not have a material
adverse effect on the Company's business, results of operations and financial
condition. Most competitors have larger and more established sales organizations
than the Company, greater name recognition and more established relationships
with advertisers and advertising agencies than the Company. Such competitors may
be able to undertake more extensive marketing campaigns, obtain a more
attractive inventory of ad spots, adopt more aggressive pricing policies and
devote substantially more resources to selling advertising inventory. The
Company believes that the number of companies selling Web-based advertising and
the available inventory of advertising space have recently increased
substantially. Accordingly, the Company may face increased pricing pressure for
the sale of advertisements. Reduction in the Company's Web advertising revenues
would have a material adverse effect on the Company's business, results of
operations and financial condition.
Risks Associated with Traditional Media Advertising Sales. The Company is
dependent, in part, on its ability to sell its inventory of radio ad spots
obtained from stations in exchange for the Company's Internet broadcast of their
programming. Selling radio advertising is highly competitive. The Company
depends on WinStar Global Media, Inc. ("WinStar") to sell a majority of its
radio ad spots. The Company's traditional media advertising sales efforts are
focused on selling ads to traditional national advertisers in order to avoid
competing with advertising sales efforts of its local radio station content
providers. Sales of ad spots to national advertisers are typically sold at a
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lower cost per thousand ("CPM") than local advertising. The Company competes for
traditional audio advertising sales with national radio stations. National radio
networks typically have larger and more established sales organizations as
compared to those of the Company. There can be no assurance that WinStar will
continue to sell effectively the Company's inventory of ad spots or that
competitive pressures with respect to traditional media advertising sales will
not have a material adverse effect on the Company's business, results of
operations and financial condition.
Dependence on Providers of Streaming Audio Products. The Company relies on
providers of streaming audio products, such as Microsoft, to provide a broad
base of users with streaming audio software. The Company currently licenses
software products that enable the broadcast of streaming audio from such
companies and others. The Company may need to acquire additional licenses from
such streaming audio companies to meet its future needs. Users are currently
able to download electronically copies of the Microsoft's Media Player and Real
Networks' RealPlayer software free of charge. If providers of streaming audio
products substantially increase license fees charged to the Company for the use
of their products, refuse to license such products to the Company or begin
charging users for copies of their player software, such actions could have a
material adverse effect on the Company's business, results of operations and
financial condition.
Dependence on Continued Growth in Use of the Internet and Streaming Audio
Content on the Internet. Rapid growth in use of and interest in the Internet is
a recent phenomenon and there can be no assurance that acceptance and use of the
Internet will continue to develop or that a sufficient base of users will emerge
to support the Company's business. Future revenues of the Company will depend
largely on the widespread acceptance and use of the Internet as a source of
multimedia information and entertainment and as a vehicle for commerce in goods
and services. The Internet may not be accepted as a viable commercial medium for
broadcasting audio content, if at all, for a number of reasons, including (i)
potentially inadequate development of the necessary infrastructure, (ii)
inadequate development of enabling technologies, (iii) lack of acceptance of the
Internet as a medium for distributing streaming media content and (iv)
inadequate commercial support for Web-based advertising. To the extent that the
Internet continues to experience an increase in users, an increase in frequency
of use or an increase in the bandwidth requirements of users, there can be no
assurance that the Internet infrastructure will be able to support the demands
placed upon it. Furthermore, user experiences on the Internet are affected by
access speed.
Risk of Technological Change. The market for Internet broadcast services is
characterized by rapid technological developments, frequent new product
introductions and evolving industry standards. The emerging character of these
products and services and their rapid evolution will require the Company to
effectively use leading technologies, continue to develop its technological
expertise, enhance its current services and continue to improve the performance,
features and reliability of its network infrastructure. Changes in network
infrastructure, transmission and content delivery methods and underlying
software platforms and the emergence of new broadband technologies, such as xDSL
and cable modems, could dramatically change the structure and competitive
dynamic of the market for streaming media solutions. In particular,
technological developments or strategic partnerships that accelerate the
adoption of broadband access technologies or advancements in streaming and
compression technologies may require the Company to expend resources to address
these developments. There can be no assurance that the Company will be
successful in responding quickly, cost effectively and sufficiently to these or
other such developments. In addition, the widespread adoption of new Internet
technologies or standards could require substantial expenditures by the Company
to modify or adapt its Web site and services. A failure by the Company to
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<PAGE>
rapidly respond to technological developments could have a material adverse
effect on the Company's business, results of operations and financial condition.
Dependence on Key Personnel; Need for Additional Personnel. The Company's
performance and development is substantially dependent on the continued services
of certain members of senior management, including Denise A. Sutton, Chief
Executive Officer, and Gregory J. Liptak, President, as well as on the Company's
ability to retain and motivate its other officers and key employees. The Company
does not have "key person" life insurance policies on any of its officers or
other employees. The Company's future success also depends on its continuing
ability to attract and retain highly qualified technical personnel and
management. Competition for such personnel is intense and there can be no
assurance that the Company will be able to retain its key management and
technical employees or that it will be able to attract or retain additional
qualified technical personnel and management in the future. The inability to
attract and retain the necessary technical personnel and management could have a
material adverse effect upon the Company's business, result of operations and
financial condition.
Government Regulation and Legal Uncertainty. Although there are currently
few laws and regulations directly applicable to the Internet, it is likely that
new laws and regulations will be adopted in the United States and elsewhere
covering issues such as music licensing, broadcast license fees, copyrights,
privacy, pricing, sales taxes and characteristics and quality of Internet
services. The adoption of restrictive laws or regulations could slow Internet
growth or expose the Company to significant liabilities associated with content
available on its Web site. The application of existing laws and regulations
governing Internet issues such as property ownership, libel and personal privacy
is also subject to substantial uncertainty. There can be no assurance that
current or new government laws and regulations, or the application of existing
laws and regulations (including laws and regulations governing issues such as
property ownership, content, taxation, defamation and personal injury), will not
expose the Company to significant liabilities, significantly slow Internet
growth or otherwise cause a material adverse effect on the Company's business,
results of operations or financial condition.
In November 1995, the Digital Performance Right in Sound Recordings Act of
1995 (the "Sound Recordings Act") was enacted. The Sound Recordings Act provides
that the owners of sound recordings have certain exclusive performance rights in
such recordings, and, if applicable to the Company, could require the Company to
pay additional licensing fees for its broadcasts. The Company believes, however,
that its broadcasts are exempt from such fees under the Sound Recordings Act. No
assurance, however, can be given that the Company's belief is correct,
particularly because the Sound Recordings Act has not yet been sufficiently
interpreted. An interpretation of the Sound Recordings Act on this or other
provisions of the Act that is adverse to the Company, could have a material
adverse effect on the Company's business, results of operations and financial
condition.
The Company currently does not collect sales or other taxes with respect to
the sale of services or products in states and countries where the Company
believes it is not required to do so. One or more states or countries have
sought to impose sales or other tax obligations on companies that engage in
online commerce within their jurisdictions. A successful assertion by one or
more states or countries that the Company should collect sales or other taxes on
products and services, or remit payment of sales or other taxes for prior
periods, could have a material adverse effect on the Company's business, results
of operations and financial condition.
The Communications Decency Act of 1996 (the "CDA") was enacted in 1996.
Although those sections of the CDA that, among other things, proposed to impose
criminal penalties on anyone distributing "indecent" material to minors over the
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<PAGE>
Internet were held to be unconstitutional by the U.S. Supreme Court, there can
be no assurance that similar laws will not be proposed and adopted. Although the
Company does not currently distribute the types of materials that the CDA may
have deemed illegal, the nature of such similar legislation and the manner in
which it may be interpreted and enforced cannot be fully determined, and
legislation similar to the CDA could subject the Company to potential liability,
which in turn could have an adverse effect on the Company's business, financial
condition and results of operations. Such laws could also damage the growth of
the Internet generally and decrease the demand for the Company's products and
services, which could adversely affect the Company's business, results of
operations and financial condition.
Although the Company will be subject to regulation under the Securities Act
of 1933 and the Securities Exchange Act of 1934, management believes the Company
will not be subject to regulation under the Investment Company Act of 1940
insofar as the Company will not be engaged in the business of investing or
trading in securities. In the event the Company engages in business combinations
which result in the Company holding passive investment interests in a number of
entities, the Company could be subject to regulation under the Investment
Company Act of 1940. In such event, the Company will be required to register as
an investment company and could be expected to incur significant registration
and compliance costs. The Company has obtained no formal determination from the
Securities and Exchange Commission as to the status of the Company under the
Investment Company Act of 1940, and consequently, any violation of such Act will
subject the Company to material adverse consequences.
Liability for Internet Content. As a distributor of Internet content, the
Company faces potential liability for negligence, copyright, patent, trademark,
defamation, indecency and other claims based on the nature and content of the
materials that it broadcasts. Such claims have been brought, and sometimes
successfully pressed, against Internet content distributors. In addition, the
Company could be exposed to liability with respect to the content or
unauthorized duplication or broadcast of content. The Company is currently in
the process of obtaining general liability insurance. However, when such
insurance is in place it may not cover potential claims of this type or may not
be adequate to indemnify the Company for all liability that may be imposed. In
addition, although the Company generally requires its content providers to
indemnify the Company for such liability, such indemnification may be
inadequate. Any imposition of liability that is not covered by insurance, is in
excess of insurance coverage or is not covered by an indemnification by a
content provider could have a material adverse effect on the Company's business,
results of operations and financial condition. See "Government Regulation and
Legal Uncertainty."
Control by Certain Stockholders. The Company's directors and executive
officers beneficially own approximately 73% of the outstanding Common Stock. As
a result, these stockholders, if they act as a group, will have a significant
influence on all matters requiring stockholder approval, including the election
of directors and approval of significant corporate transactions. Such ownership
may have the effect of delaying or preventing a change in control of the
Company. See "Security Ownership of Certain Beneficial Owners and Management."
Certain Anti-Takeover Provisions. Certain provisions of the Company's
Articles of Incorporation (the "Articles") and Bylaws, as amended (the "Bylaws")
will have the effect of delaying, deferring or preventing a change of control of
the Company. There are no preemptive rights in connection with the Company's
Common Stock. Cumulative voting in the election of directors is not allowed.
Accordingly, the holders of a majority of the shares of Common Stock, present
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<PAGE>
in person or by proxy, will be able to elect all of the Company's Board of
Directors. These provisions provide, among other things, that the Board of
Directors will be divided into three classes to serve staggered three-year terms
following the first annual meeting after a public offering, that stockholders
may not take actions by written consent and that the ability of stockholders to
call special meetings will be restricted. The Company's indemnification
agreements with directors and officers, the Company's Articles and Bylaws
provide that the Company will indemnify officers and directors against losses
that they may incur in investigations and legal proceedings resulting from their
services to the Company, which may be broad enough to include services in
connection with takeover defense measures. Such provisions may have the effect
of preventing changes in the management of the Company.
Year 2000 Compliance. There are issues associated with the programming code
in existing computer systems as the year 2000 approaches. The "year 2000
problem" is pervasive and complex, as virtually every computer operation will be
affected in some way by the rollover of the two digit year value to 00. The
issue is whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. The Company is in the process of working with its software vendors to
assure that the Company is prepared for the year 2000. The Company has not
verified that companies doing business with it are year 2000 compliant. The
Company does not anticipate that it will incur significant operating expenses or
be required to invest heavily in computer systems improvements to be year 2000
compliant. However, significant uncertainty exists concerning the potential
costs and effects associated with any year 2000 compliance. Any year 2000
compliance problem of either the Company or its users, customers or advertisers
could have a material adverse effect on the Company's business, results of
operations and financial condition.
Penny Stock Disclosure. The Commission has adopted rules that define a
"penny stock" as equity securities under $5.00 per share which are not listed
for trading on Nasdaq (unless the issuer (i) has a net worth of $2,000,000 if in
business for more than three years or $5,000,000 if in business for less than
three years or (ii) has had average annual revenues of $6,000,000 for the prior
three years). The Company's securities are characterized as penny stock, and
therefore broker-dealers dealings in the securities are subject to the
disclosure rules of transactions involving penny stock which require the
broker-dealer, among other things, to (i) determine the suitability of
purchasers of the securities and obtain the written consent of purchasers to
purchase such securities and (ii) disclose the best (inside) bid and offer
prices for such securities and the price at which the broker-dealer last
purchased or sold the securities. The additional requirements imposed upon
broker-dealers discourage them from engaging in transactions in penny stocks,
which reduces the liquidity of the Company's securities.
No Dividends Anticipated. At the present time the Company does not
anticipate paying dividends, cash or otherwise, on its Common Stock in the
foreseeable future. Future dividends will depend on earnings, if any, of the
Company, its financial requirements and other factors. Investors who anticipate
the need of an immediate income from their investment in the Company's Common
Stock should refrain from the purchase of the Company's securities.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITIONS.
The following discussion of the Company's financial condition and results
of operations for the period from March 16, 1999 (inception) to August 31, 1999
should be read in conjunction with the Company's financial statements, the notes
related thereto and the other financial data included elsewhere in this
Registration Statement.
14
<PAGE>
Results of Operations
The Company is a development stage company that commenced operations on
March 16, 1999. The Company's operations to date have been limited to organizing
the Company, raising operating capital, hiring initial employees and preparing
the Company's business plan. For this reason, the Company's results of
operations will not have comparable data for previous years.
Since inception on March 16, 1999, the Company hired its current management
and employees, raised working capital for development and operations and
launched the Company's Web site. The Company has no revenue to date, but has
incurred approximately $344,459 of operating losses for the period ended August
31, 1999.
During the period from March 16, 1999 (inception) to August 31, 1999, the
Company's $344,459 operating loss was comprised primarily of the following:
o $36,000 for advertising and marketing expenses, which primarily
included industry publications.
o $199,000 for general and administrative expenses, which primarily
included $144,000 for salaries and related expenses, $22,000 for
professional fees and $33,000 for other office and related expenses.
o $67,000 for product and content development expenses, which primarily
included $45,000 for Internet service costs and the Company's BMI and
ASCAP Internet licenses.
Liquidity and Capital Resources
The Company anticipates that in the near term it will incur significant
continuing losses due to ongoing substantial operating expenses offset by
negligible revenue. The Company currently barters an average of two minutes of
advertising inventory per day Monday through Sunday with each contracted radio
station that uses the Company's streaming services. Although the Company entered
into an agreement with WinStar Global Media, Inc. in October 1999 to represent
the Company in reselling its advertising inventory, the Company does not expect
to realize significant revenue in 1999. Rather, the Company has used its earned
advertising inventory to promote its Web site and intends to continue to do so
until it has accumulated enough advertising inventory to be marketable to
national advertisers.
Currently, the Company has commitments under non-cancelable operating
leases for office facilities requiring payments from September 1, 1999 through
October 31, 1999 of $11,342, from November 1, 1999 through October 31, 2000 of
$68,052 and from November 1, 2000 through October 31, 2001 of $69,132.
Since inception, the Company has received $550,000 to fund operations from
the issuance of convertible promissory notes. During the period from March 16,
1999 (inception) to August 31, 1999, the Company incurred interest expense of
$7,979 on these convertible promissory notes.
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<PAGE>
The Company expects to incur significantly higher costs, particularly
marketing and advertising costs, products content and development costs, general
and administrative costs and additional technology and equipment purchase costs
during the remainder of the calendar year in order to expand the Company's
business. The Company expects to expend the largest portion of existing capital
on increasing the Company's technical staff, adding key management level
employees and purchasing additional technology and equipment. The Company
believes that its current capitalization will be sufficient to meet the
Company's working capital and capital expenditure needs for the next six months.
The Company may, however, need additional funds to respond to competitive
pressures or to acquire complementary products, features or technologies.
Year 2000 Issue
The Company depends on the delivery of information over the Internet, a
medium which is susceptible to the "Year 2000 Issue." The "Year 2000 Issue" is
typically the result of limitations of certain software written using two digits
rather than four to define the applicable year. If software with date-sensitive
functions is not Year 2000 compliant, it may recognize a date using "00" as the
year 1900 rather than the year 2000. The Year 2000 Issue could result in system
failure or miscalculations causing significant disruption to the Company's
operations, including, among other things, interruptions in Internet traffic,
accessibility of the Company's Web site, delivery of streaming audio or other
features of the Company's services. It is possible that this disruption will
continue for an extended period of time.
The Company depends on information contained primarily in electronic format
in databases and computer systems maintained by third parties and the Company.
The disruption of third party systems or the Company's systems interacting with
these third party systems could prevent the Company from delivering streaming
audio in a timely matter which could have a material adverse effect on the
Company's business and results of operations.
The Company has assessed its information technology equipment and systems,
which includes its development servers, workstations and production server
monitoring software. The Company also uses multiple software systems for
internal business purposes, including e-mail, office software and word
processing. All of the Company's equipment and software has been purchased in
the last six months. The Company does not believe that its systems contain Year
2000 deficiencies. However, the Company is currently conducting its own tests to
determine to what extent software running on any of the Company's hardware
platforms fails to properly recognize Year 2000 dates.
The Company has identified and assessed non-information technology embedded
systems such as its telephone system and voice mail and the Company believes
that such systems do not present Year 2000 Issues.
ITEM 3. DESCRIPTION OF PROPERTY.
The Company subleases 2,709 square feet of office space from Webster Audio
Products, Inc., an affiliate of the Company, at 6535 South Dayton Street, Suite
3000, Greenwood Village, CO 80111. The Company currently pays $5,671 per month
for the office space on a lease which expires on October 31, 2001. The Company
believes the terms of the lease are fair, reasonable and consistent with terms
offered by non-affiliated companies in the same market area.
The Company owns no property.
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<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the Common Stock ownership of (i) each
person known by the Company to be the beneficial owner of five percent or more
of the Company's Common Stock, (ii) each director individually and (iii) all
officers and directors of the Company as a group as of September 30, 1999. Each
person has sole voting and investment power with respect to the shares of Common
Stock shown, and all ownership is of record and beneficial. The address of each
owner is in care of the Company at 6535 South Dayton Street, Suite 3000,
Greenwood Village, CO 80111.
Name Number of shares Percent of class
- --------------------------------------------------------------------------------
Denise A. Sutton 6,369,500 70.8%
All officers and 6,569,500 73.0%
directors as a
group (3 persons)
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The officers and directors of the Company, their ages and present positions
held in the Company are as follows:
Name Age Position
- ---- --- --------
Denise A. Sutton 41 Chief Executive Officer, Secretary
and Director
Gregory J. Liptak 28 President
Jo Saari Hadley 45 Vice President
The Company's directors serve in such capacity until the next annual
meeting of the Company's shareholders and until their successors have been
elected and qualified. The Company's officers serve at the discretion of the
Company's Board of Directors, until their death, or until they resign or have
been removed from office.
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There are no agreements or understandings for any director or officer to
resign at the request of another person and none of the directors or officers is
acting on behalf of or will act at the direction of any other person. The
activities of each director and officer are material to the operation of the
Company. No other person's activities are material to the operation of the
Company.
Denise A. Sutton - Chief Executive Officer, Secretary and Director
Ms. Sutton has served as the Company's Chief Executive Officer, Secretary
and the sole member of its Board of Directors since March 1999. From October
1995 to February 1999, Ms. Sutton managed Webster Audio Products, Inc., a radio
production company in Greenwood Village, Colorado. Ms. Sutton served as an
internal auditor for Joslins from September 1994 to August 1996 and was a Schwab
500 Representative with Charles Schwab from January 1992 to July 1994.
Gregory J. Liptak - President
Mr. Liptak has served as the Company's President since July 1999. From
March 1998 to July 1999, Mr. Liptak was a Web Consultant for RMI.Net, an
e-commerce and convergent telecommunications company in Denver, Colorado. Mr.
Liptak served as Marketing Director for the ISP Report, a Denver-based monthly
financial newsletter for the Internet service provider market from December 1997
to February 1998. From March 1994 to December 1998, Mr. Liptak was a Regional
Manager for the Sega Channel and from May 1993 to March 1994, Mr. Liptak was an
Account Executive for Telecommunications, Inc. Mr. Liptak holds a B.S. in
Business Administration - Marketing from Colorado State University.
Jo Saari Hadley - Vice President
Ms. Hadley has served as the Company's Vice President since March 1999.
From May 1997 to March 1999, Ms. Hadley was an independent contractor with
Webster Audio Products, Inc. Ms. Hadley founded and operated The Well Wisher, a
gift basket and balloon business in Denver, Colorado from August 1994 to April
1997 and was a Veterinary Technician for Centaurion Animal Hospital from January
1991 to July 1994.
ITEM 6. EXECUTIVE COMPENSATION.
The following summary compensation table sets forth information concerning
the compensation paid to the Company's officers and directors during the
calendar years ended December 31, 1996, 1997 and 1998:
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long Term Compensation
------------------- ----------------------
Other Securities All other
Name and annual Restricted underlying compen-
principal position Year Salary Bonus compensation stock awards options sation
- ------------------ ---- ------ ----- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Howard Ruff, 1996 $31,577 0 0 0 0 0
President 1997 $15,000 0 0 0 0 0
1998 $ 0 0 0 0 0 0
</TABLE>
18
<PAGE>
The Company pays Denise A. Sutton, Gregory J. Liptak and Jo Saari Hadley,
the Company's executive officers, $60,000, $80,000 and $30,000, respectively. No
officer or director of the Company has received compensation in excess of
$100,000.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In March 1998, the Company entered into an agreement with Phoenix Ink, LLC,
a company owned by a former officer and shareholder of the Company. Pursuant to
the agreement, the Company issued 4,600,000 shares of Common Stock to Phoenix in
consideration for Phoenix purchasing the assets and assuming the liabilities of
the Company and providing the Company with $50,000 in cash.
In March, 1998, the Company transferred inventory, certain fixed assets,
trademarks and other intangible assets with a book value of $143,395 to a former
consultant of the Company, in payment of $27,340 in accrued wages payable
resulting in a loss of $116,055.
ITEM 8. DESCRIPTION OF SECURITIES.
The Company is authorized to issue 50,000,000 shares of Common Stock, $.001
par value per share, and 7,000,000 shares of Preferred Stock, $.001 par value
per share. As of September 30, 1999, 9,000,000 shares of Common were
outstanding. No Preferred Stock is currently outstanding.
(a) Common Stock.
All shares of Common Stock have equal voting rights and are not assessable.
Voting rights are not cumulative and, therefore, the holders of more than 50% of
the Common Stock could, if they chose to do so, elect all of the directors of
the Company. Upon liquidation, dissolution or winding up of the Company, the
assets of the Company, after the payment of liabilities, will be distributed pro
rata to the holders of the Common Stock. The holders of the Common Stock do not
have preemptive rights to subscribe for any securities of the Company and have
no right to require the Company to redeem or purchase their shares. The shares
of Common Stock currently outstanding are validly issued, fully paid and
non-assessable.
(b) Preferred Stock.
The Preferred Stock may be issued in series from time to time with such
designation, rights, preferences and limitations as the Board of Directors of
the Company may determine be resolution. The rights, preferences and limitations
of separate series of preferred stock may differ with respect to such matters as
may be determined by the Board of Directors, including, without limitation, the
rate of dividends, method and nature of payment of dividends, terms of
redemption, amounts payable on liquidation, sinking fund provisions (if any),
conversion rights (if any) and voting rights.
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<PAGE>
(c) Dividends.
Holders of the Common Stock are entitled to share equally in dividends
when, as and if declared by the Board of Directors of the Company, out of funds
legally available therefore. No dividend has been paid on the Common Stock since
inception, and none is contemplated in the foreseeable future.
(d) Transfer Agent.
Interwest Transfer Company, 1981 E. Murray-Holladay Road, P.O. Box 17136,
Salt Lake City, Utah 84117 is the Company's transfer agent.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS.
(a) Market Information.
The Company's Common Stock currently trades on the over-the-counter
bulletin board market under the symbol WRPR. Prior to the effective date of the
Agreement and Reorganization (September 30, 1999), the Company's Common Stock
traded on the over-the-counter bulletin board market under the symbol HOMQ. The
following table sets forth the high and low bid prices for the Company's Common
Stock within the last two fiscal years and the subsequent interim period. The
prices below also reflect inter-dealer quotations, without retail mark-up,
mark-down or commissions and may not represent actual transactions.
Quarter ended Low bid High bid
- ------------- ------- --------
3/31/97 $ 36.00 $ 86.40
6/30/97 $ 14.40 $ 72.00
9/30/97 $ 14.40 $ 39.60
12/31/97 $ 4.50 $ 21.60
3/31/98 $ 3.60 $ 9.00
6/30/98 $ 3.15 $ 14.40
9/30/98 $ 4.50 $ 11.70
12/31/98 $ .90 $ 4.50
3/31/99 $ 1.35 $ 1.80
6/30/99 $ 1.80 $ 2.70
9/30/99 $ 1.80 $ 2.70
(b) Holders.
As of September 30, 1999, a total of 9,000,000 shares of the Company's
Common Stock were outstanding and there were 45 holders of record of the
Company's Common Stock.
(c) Dividends.
The Company has not paid any dividends since it is inception. The Company
currently intends to retain any earnings for use in its business, and therefore
does not anticipate paying dividends in the foreseeable future.
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<PAGE>
ITEM 2. LEGAL PROCEEDINGS.
The Company is not a party to any litigation and, to its knowledge, no
action, suit or proceedings against it has been threatened against the Company.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
There have been no disagreements on accounting and financial disclosures
nor any change in accountants from the inception of the Company through the date
of this Registration Statement.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
In March 1998, the Company issued 4,600,000 shares of Common Stock to
Phoenix in consideration for Phoenix purchasing the remaining assets and
assuming full responsibly for all the remaining liabilities of the Company and
providing the Company with $50,000 in cash.
Between April 1999 and October 1999, the Company raised $550,000 from the
issuance of promissory notes convertible into the Company's Common Stock at
$1.00 per share.
Pursuant to the Agreement and Reorganization, the Company reverse split its
outstanding securities in September 1999 on the basis of 1:7.2 and issued
7,500,000 post-split shares of Common Stock to the stockholders of WARP to
purchase all of the stock of WARP.
All of the issued and outstanding shares of the Company's Common Stock were
issued in accordance with the exemption from registration afforded by Section
4(2) of the Securities Act of 1933, as amended and/or Regulation D promulgated
thereunder.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation and Bylaws provide for
indemnification of the Company's officers, directors and controlling persons.
The Articles of Incorporation provide that no director or officer shall be
personally liable to the Company or its stockholders for monetary damages for
any breach of fiduciary duty by such person as a director or officer.
Notwithstanding the foregoing sentence, a director or officer shall be liable to
the extent provided by Nevada law, (i) for acts or omissions which involve
intentional misconduct, fraud or a knowing violation of law, or (ii) for the
payment of dividends in violation of Section 78.300 of the Nevada Revised
Statutes.
The Company's Bylaws provide that any person made a party to or involved in
any civil, criminal or administrative action, suit or proceeding by reason of
the fact that such person or such person's testator or intestate is or was a
director, officer, or employee of the Company, or of any corporation which such
person, the testator, or intestate served as such at the request of the Company,
shall be indemnified by the Company against expenses reasonably incurred by such
person or imposed on such person in connection with or resulting from the
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defense of such action, suit, or proceeding and in connection with or resulting
from any appeal thereon, except with respect to matters as to which it is
adjudged in such action, suit or proceeding that such officer, director, or
employee was liable to the Company, or to such other corporation, for negligence
or misconduct in the performance of such person's duty. The term "expense" shall
include all obligations incurred by such person for the payment of money,
including, without limitation, attorney's fees, judgments, awards, fines,
penalties and amounts paid in satisfaction of judgment or in settlement of any
such action, suit, or proceeding, except amounts paid to the Company or such
other corporation by such person.
Section 78.751 of the Nevada Revised Statutes allows the Company to
indemnify any person who was or is threatened to be made a party to any
threatened, pending, or completed action, suit or proceeding, by reason of the
fact that he or she is or was a director, officer, employee or agent of the
Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of any corporation, partnership, joint venture, trust
or other enterprise.
PART F/S
INDEX TO FINANCIAL STATEMENTS
Financial Statements Page
- -------------------- ----
Proforma Unaudited Combined Condensed Financial
Statements of Web Audio & Radio Portal, Inc. as of
August 31, 1999 and for the eight months ended
August 31, 1999. F-1
Financial Statements of Web Audio & Radio Portal,
Inc. As of August 31, 1999 and for the period from
March 16, 1999 (date of inception) to August 31, 1999. F-4
Financial Statements of HomeQuest, Inc. as of
December 31, 1998 and 1997 and for the years ended
December 31, 1998 and 1997 and for the cumulative
period from March 1, 1998 to December 31, 1998. F-15
Unaudited Financial Statements of HomeQuest, Inc.
as of June 30, 1999 and for the six months ended
June 30, 1999 and for the cumulative period from
March 1, 1998 to June 30, 1999. F-29
22
<PAGE>
WARPRADIO.COM, INC.
UNAUDITED PROFORMA COMBINED CONDENSED BALANCE SHEET
AUGUST 31, 1999
The following unaudited proforma combined balance sheet gives effect to the
merger of Web Audio & Radio Portal, Inc. ("Warp") and HomeQuest, Inc.
("HomeQuest") in a transaction accounted for as a reverse acquisition and
purchase of HomeQuest by Warp for accounting purposes. The proforma information
is presented for illustrative purposes only and is not necessarily indicative of
the operating results or financial position that would have occurred if the
merger had been consummated nor is it necessarily indicative of future operating
results or financial position. The unaudited proforma balance sheet gives effect
to the merger as if it had occurred on August 31, 1999. This proforma balance
sheet should be read in conjunction with the accompanying notes and related
historical financial statements and notes thereto of Warp and HomeQuest included
elsewhere herein.
<TABLE>
<CAPTION>
Proforma Proforma
ASSETS Warp HomeQuest Adjustments Combined
- ------ ---- ------------ ------------- ---------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 8,496 $ -- $ -- $ 8,496
Prepaid expenses 3,925 -- -- 3,925
--------- ----------- ------------- ---------
Total Current Assets 12,421 -- -- 12,421
--------- ----------- ------------- ---------
Property and Equipment, at cost:
Office equipment 57,283 -- -- 57,283
Furniture 1,788 -- -- 1,788
--------- ----------- ------------- ---------
59,071 -- -- 59,071
Less accumulated depreciation (2,204) -- -- (2,204)
--------- ----------- ------------- ---------
Net Property and Equipment 56,867 -- -- 56,867
--------- ----------- ------------- ---------
Total Assets $ 69,288 $ -- $ -- $ 69,288
========= ============ ============= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- ----------------------------------------------
Current Liabilities:
Accounts payable - trade $ 43,527 $ -- $ -- $ 43,527
Accrued expenses 22,707 -- -- 22,707
Notes payable 351,500 -- -- 351,500
--------- ----------- ------------- ---------
Total Current Liabilities 417,734 -- -- 417,734
--------- ----------- ------------- ---------
Commitments and Contingencies -- -- -- --
Stockholders' Equity (Deficit):
Common stock 3,992 37,200 (32,192)(1) 9,000
Additional paid in capital -- 1,789,666 (1,794,674)(1) (5,008)
Deficit accumulated during the development stage (352,438) (1,826,866) 1,826,866 (1) (352,438)
--------- ---------- ------------- ---------
Total Stockholders' Equity (Deficit) (348,446) -- -- (348,446)
--------- ------------ ------------- ---------
Total Liabilities and Stockholders' Equity (Deficit) $ 69,288 $ -- $ -- $ 69,288
========= ============ ============= =========
The accompanying notes are an integral part of these
unaudited proforma combined condensed financial statements.
F-1
<PAGE>
WARPRADIO.COM, INC.
UNAUDITED PROFORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED AUGUST 31, 1999
The following unaudited proforma combined statement of operations and per share
data gives effect to the merger of Warp and HomeQuest in a transaction accounted
for as a reverse acquisition and purchase of HomeQuest by Warp for accounting
purposes. The proforma information is presented for illustrative purposes only
and is not necessarily indicative of the operating results or financial position
that would have occurred if the merger had been consummated nor is it
necessarily indicative of future operating results or financial position. The
unaudited proforma statement of operations gives effect to the merger as if it
had occurred on January 1, 1999. This proforma statement of operations should be
read in conjunction with the accompanying notes and related historical financial
statements and notes thereto of Warp and HomeQuest included elsewhere herein.
Proforma Proforma
Warp HomeQuest Adjustments Combined
---- --------- ----------- --------
Revenue $ -- $ -- $ -- $ --
Operating expenses 344,459 70,908 (70,908)(2) 344,459
--------- -------- --------- ---------
Loss From Operations (344,459) (70,908) 70,908 (344,459)
--------- -------- --------- ---------
Other Income (Expense):
Interest expense (7,979) -- -- (7,979)
--------- -------- --------- ---------
Total Other Income (Expense) (7,979) -- -- (7,979)
--------- -------- --------- ---------
Net Income (Loss) $(352,438) $(70,908) $ 70,908 $(352,438)
========= ======== ======== =========
Net Income (Loss) Per Basic and
Diluted Share of Common Stock $ (.04)
Weighted Average Number of Basic and
Diluted Common Shares Outstanding 9,000,000
The accompanying notes are an integral part of these
unaudited proforma combined condensed financial statements.
F-2
</TABLE>
<PAGE>
WARPRADIO.COM, INC.
NOTES TO UNAUDITED PROFORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
FOR THE PERIOD ENDED AUGUST 31, 1999
1. Basis of Presentation
---------------------
On September 28, 1999, Warp executed an Agreement and Plan of
Reorganization (the "Agreement") to merge with HomeQuest. The merger was
effective September 30, 1999. Under the terms of the Agreement HomeQuest
issued 7,500,000 shares of its common stock for all of the issued and
outstanding shares of Warp's common stock. HomeQuest had 1,500,000 shares
of common stock outstanding at the date of the merger. Since Warp's
stockholders will own approximately 83% of the outstanding shares of common
stock after the merger, Warp is treated as the acquiror for accounting
purposes, whereas for legal purposes HomeQuest is the acquiror. In
September 1999 HomeQuest changed its name to WarpRadio.Com, Inc. The merger
will be treated as a recapitalization of Warp, similar to a reverse
acquisition. In addition, 500,000 shares of common stock will be reserved
for conversion of Warp's convertible notes and 500,000 shares of common
stock will be reserved for a private placement of common stock.
The proforma combined balance sheet gives effect to the merger with
HomeQuest in a transaction accounted for as a reverse acquisition and
purchase of HomeQuest by Warp. The transaction is reflected in the proforma
balance sheet as if it occurred on August 31, 1999.
The proforma combined condensed statement of operations gives effect to the
merger with HomeQuest in a transaction accounted for as a reverse
acquisition and purchase of HomeQuest by Warp. The transaction is reflected
in the proforma statement of operations as if it occurred at the beginning
of the period presented.
The statement of operations for the period ended August 31, 1999 includes
Warp's operations from March 16, 1999 (date of inception) to August 31,
1999. The operations for HomeQuest are included for the eight months ended
August 31, 1999.
2. Proforma Net Income (Loss) Per Share of Common Stock
----------------------------------------------------
The proforma net income (loss) per share of common stock is based on the
weighted average number of common shares outstanding after giving effect to
the merger.
3. Proforma Adjustments
--------------------
Adjustments to present the proforma combined condensed financial statements
are as follows:
1. Record the merger of Warp and HomeQuest in a stock for stock exchange
as described above.
2. Eliminate operations of HomeQuest in connection with the reverse
acquisition treatment for accounting purposes.
F-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Web Audio & Radio Portal, Inc.
We have audited the accompanying balance sheet of Web Audio & Radio Portal, Inc.
(a development stage company) as of August 31, 1999 and the related statements
of operations, changes in stockholders' equity (deficit) and cash flows for the
period from March 16, 1999 (date of inception) to August 31, 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Web Audio & Radio Portal, Inc.
as of August 31, 1999 and the results of its operations and its cash flows for
the period from March 16, 1999 (date of inception) to August 31, 1999 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred a net loss of $352,438 and, as of that date had a working
capital deficiency of $405,313 and stockholders' deficit of $348,446. As
discussed in Note 1 to the financial statements, the Company's significant
operating losses and working capital deficiency raise substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also discussed in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Angell & Deering
Certified Public Accountants
Denver, Colorado
September 21, 1999, except for the
last paragraph of Note 5 as to which
the date is September 30, 1999
F-4
<PAGE>
WEB AUDIO & RADIO PORTAL, INC.
(A Development Stage Company)
BALANCE SHEET
AUGUST 31, 1999
ASSETS
------
Current Assets:
Cash and cash equivalents $ 8,496
Prepaid expenses 3,925
---------
Total Current Assets 12,421
---------
Property and Equipment, at cost:
Office equipment 57,283
Furniture 1,788
---------
59,071
Less accumulated depreciation (2,204)
---------
Net Property and Equipment 56,867
---------
Total Assets $ 69,288
=========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
Current Liabilities:
Accounts payable - trade $ 43,527
Accrued expenses:
Interest 7,979
Payroll taxes 14,728
Notes payable 351,500
---------
Total Current Liabilities 417,734
---------
Commitments and Contingencies --
Stockholders' Equity (Deficit):
Common stock: no par value, 50,000,000 shares
authorized, 7,500,000 shares issued and outstanding 3,992
Deficit accumulated during the development stage (352,438)
---------
Total Stockholders' Equity (Deficit) (348,446)
---------
Total Liabilities and Stockholders' Equity (Deficit) $ 69,288
=========
The accompanying notes are an integral
part of these financial statements.
F-5
<PAGE>
WEB AUDIO & RADIO PORTAL, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM MARCH 16, 1999 (INCEPTION) TO AUGUST 31, 1999
Revenue $ --
Operating expenses 344,459
-----------
Loss From Operations (344,459)
-----------
Other Income (Expense):
Interest expense (7,979)
-----------
Total Other Income (Expense) (7,979)
-----------
Net Income (Loss) $ (352,438)
===========
Net Income (Loss) Per Basic and
Diluted Share of Common Stock $ (.05)
Weighted Average Number of Basic and
Diluted Common Shares Outstanding 7,500,000
The accompanying notes are an integral
part of these financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
WEB AUDIO & RADIO PORTAL, INC.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM MARCH 16, 1999 (INCEPTION) TO AUGUST 31, 1999
Deficit
Accumulated
Common Stock During the
------------ Development
Shares Amount Stage
------ ------ -----
<S> <C> <C> <C>
Balance at March 16, 1999 (inception) -- $ -- $ --
Shares of common stock issued in March for
services valued at $.0004 per share 7,319,500 3,202 --
Shares of common stock issued in July for
services valued at $.004 per share 180,500 790 --
Net loss for the period -- -- (352,438)
--------- --------- ---------
Balance at August 31, 1999 7,500,000 $ 3,992 $(352,438)
========= ========= =========
The accompanying notes are an integral
part of these financial statements.
F-7
</TABLE>
<PAGE>
WEB AUDIO & RADIO PORTAL, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM MARCH 16, 1999 (INCEPTION) TO AUGUST 31, 1999
Cash Flows From Operating Activities:
Net income (loss) $(352,438)
Adjustments to reconcile net income (loss) to net
cash (used) by operating activities:
Depreciation 2,204
Common stock issued for services 3,992
Changes in assets and liabilities:
Prepaid expenses (3,925)
Accounts payable 43,527
Accrued expenses 22,707
---------
Net Cash (Used) By Operating Activities (283,933)
---------
Cash Flows From Investing Activities:
Capital expenditures (59,071)
---------
Net Cash (Used) By Investing Activities (59,071)
---------
Cash Flows From Financing Activities:
Proceeds from borrowing 351,500
---------
Net Cash Provided By Financing Activities 351,500
---------
Net Increase in Cash and Cash Equivalents 8,496
Cash and Cash Equivalents at Beginning of Period --
---------
Cash and Cash Equivalents at End of Period $ 8,496
=========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ --
Income taxes --
The accompanying notes are an integral
part of these financial statements.
F-8
<PAGE>
WEB AUDIO & RADIO PORTAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1999
1. Summary of Significant Accounting Policies
------------------------------------------
Description of Business
-----------------------
Web Audio & Radio Portal, Inc., (the "Company") was organized on March
16, 1999 as a Colorado corporation. The Company is in the development
stage as is more fully defined in Statement of Financial Accounting
Standards ("SFAS") No. 7 "Accounting and Reporting by Development
Stage Enterprises". Planned principal operations of the Company have
not yet commenced and activities to date have been primarily
organizational in nature.
The Company offers radio stations streaming of their programs on the
Internet to a worldwide audience. With the capability to bring live
local radio programming from the backyard to the world instantly, the
Company brings the world's radio programming to everyone. The service
is offered through a barter agreement to exchange the streaming
services for advertising time. Through the Company's search portal
which lists all United States stations, and the latest streaming
technology, web surfers can reach, find and listen to the stations of
their choice.
Additionally, the Company intends to look at a number of other areas
of exposure and marketing to enhance its image through special
promotions and joint ventures. The Company is also pursuing e-commerce
products for the consumer and strategic alliances with
business-to-business relationships.
Basis of Presentation
---------------------
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the
amount and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern. The
Company's continuation as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its obligations on a
timely basis and to obtain additional financing as may be required,
and to increase sales to a level where the Company becomes profitable.
The Company's continued existence is dependent upon its ability to
achieve its operating plan. Management's plan consists of the
following:
1. Complete the merger with HomeQuest, Inc. (Note 5) and become a
publicly-held company.
2. Obtain additional equity capital through a private placement of
the Company's common stock to raise at least $1,000,000.
3. Achieve the Company's operating plan to provide audio streaming
services to radio stations and others and achieve a level of
sales that will result in positive cash flow to the Company.
Stock Split
-----------
On September 21, 1999, the Company's shareholders adopted a resolution
approving a 2.2857 for one stock split of the issued and outstanding
common shares, effective September 21, 1999. All share information and
per share data have been retroactively restated for all periods
presented to reflect the stock split.
F-9
<PAGE>
WEB AUDIO & RADIO PORTAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1999
1. Summary of Significant Accounting Policies (Continued)
-----------------------------------------------------
Property and Equipment
----------------------
Depreciation of the primary asset classifications is calculated based
on the following estimated useful lives using the straight-line
method.
Classification Useful Life in Years
-------------- --------------------
Office equipment 5
Furniture 7
Depreciation of property and equipment charged to operations is $2,204
for the period ended August 31, 1999.
Cash and Cash Equivalents
-------------------------
For purposes of the statements of cash flows, the Company considers
all highly liquid investments with a maturity of three months or less
at the date of purchase to be cash equivalents.
Stock-Based Compensation
------------------------
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 123, "Accounting for Stock-Based Compensation". The Company will
measure compensation expense for its stock-based employee compensation
plan using the intrinsic value method prescribed by APB Opinion No.
25, "Accounting for Stock Issued to Employees".
Long-Lived Assets
-----------------
In accordance with Statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of", the Company reviews for the
impairment of long-lived assets and certain identifiable intangibles,
whenever events or changes in circumstances indicate that the carrying
value of an asset may not be recoverable. An impairment loss would be
recognized when the estimated future cash flows is less than the
carrying amount of the assets. No impairment losses have been
identified by the Company.
Income Taxes
------------
Deferred income taxes are provided for temporary differences between
the financial reporting and tax basis of assets and liabilities using
enacted tax laws and rates for the years when the differences are
expected to reverse.
Net Income (Loss) Per Share of Common Stock
-------------------------------------------
Basic earnings per share is calculated using the average number of
common shares outstanding. Diluted earnings per share is computed on
the basis of the average number of common shares outstanding plus the
dilutive effect of outstanding stock options using the "treasury
stock" method.
Estimates
---------
The preparation of the Company's financial statements in conformity
with generally accepted accounting principles requires the Company's
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
F-10
<PAGE>
WEB AUDIO & RADIO PORTAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1999
1. Summary of Significant Accounting Policies (Continued)
-----------------------------------------------------
Estimates (Continued)
---------------------
and liabilities at the date of the financial statements and the
reported amount of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. Current Notes Payable
---------------------
10% unsecured convertible notes with interest
due at maturity, one year from the date of
the note. The notes are convertible into common
stock of the Company at $1.00 per share. $351,500
========
3. Commitments and Contingencies
-----------------------------
Leases
------
The Company leases its office facilities under noncancellable
operating leases. The following is a schedule of future minimum lease
payments at August 31, 1999 under the Company's operating leases that
have initial or remaining noncancellable lease terms in excess of one
year:
Year Ending
December 31,
------------
1999 $ 22,684
2000 68,232
2001 57,610
--------
Total Minimum Lease Payments $148,526
========
Rent expense charged to operations was $10,036 for the period ended
August 31, 1999.
The Year 2000
-------------
The Company is currently working to resolve the potential impact of
the Year 2000 on the processing of date-sensitive information by the
Company's computerized information systems. The Year 2000 problem is
the result of computer programs being written using two digits (rather
than four) to define the applicable year. Any of the Company's
programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000, which could result in
miscalculations or system failures. Costs of addressing potential
problems are expensed as incurred and are not expected to have a
material adverse impact on the Company's financial position, results
of operations or cash flows in future periods. The Company has
completed its analysis of its computerized systems and believes all of
its hardware and software are Year 2000 compliant. However, if the
Company or its vendors are unable to resolve such processing issues in
a timely manner, it could result in a material financial risk.
Accordingly, the Company plans to devote the necessary resources to
resolve all significant Year 2000 issues in a timely manner. While the
Company does not at this time anticipate significant problems with
suppliers, it will develop contingency plans, if required, with these
third parties due to the possibility of compliance issues.
F-11
<PAGE>
WEB AUDIO & RADIO PORTAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1999
4. Income Taxes
-------------
The components of the provision for income taxes for the period ended
August 31, 1999 are as follows:
Current:
Federal $ --
State --
-----
Total --
-----
Deferred:
Federal --
State --
-----
Total --
-----
Total Provision For Income Taxes $ --
=====
The provision (benefit) for income taxes reconciles to the amount
computed by applying the federal statutory rate to income before the
provision (benefit) for income taxes as follows:
Federal statutory rate 34%
State income taxes, net of federal benefits 3
Valuation allowance (37)
---
Total --%
===
The following is a reconciliation of the provision for income taxes to
income before provision for income taxes computed at the federal
statutory rate of 34%.
Income taxes at the federal statutory rate $(119,829)
State income taxes, net of federal benefits (11,631)
Valuation allowance 131,460
---------
Total $ --
=========
Significant components of deferred income taxes as of August 31, 1999
are as follows:
Net operating loss carry forward $ 132,500
---------
Total Deferred Tax Asset 132,500
---------
Accelerated depreciation (1,000)
---------
Total Deferred Tax Liability (1,000)
Less valuation allowance (131,500)
----------
Net Deferred Tax Asset $ --
==========
F-12
<PAGE>
WEB AUDIO & RADIO PORTAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1999
4. Income Taxes (Continued)
-----------------------
The Company has assessed its past earnings history and trends and
expiration dates of carryforwards and has determined that it is more
likely than not that no deferred tax assets will be realized. A
valuation allowance of $131,500 as of August 31, 1999 is maintained on
deferred tax assets which the Company has not determined to be more
likely than not realizable at this time. The net change in the
valuation allowance for deferred tax assets was an increase of
$131,500 for the period ended August 31, 1999. The Company will
continue to review this valuation on a quarterly basis and make
adjustments as appropriate.
As of August 31, 1999 the Company had net operating loss carryforwards
of approximately $360,000. The net operating losses can be carried
forward twenty years to offset future taxable income. The net
operating loss carryforwards expire in 2019.
5. Proposed Acquisition
--------------------
The Company entered into a letter of intent for a merger with
HomeQuest, Inc. ("HomeQuest") on July 30, 1999. Under the terms of the
Agreement HomeQuest will issue 7,500,000 shares of its common stock
for all of the issued and outstanding shares of the Company's common
stock. HomeQuest will have 1,500,000 shares of common stock
outstanding at the date of the merger. Since the Company's
stockholders will own approximately 83% of the outstanding shares of
common stock after the merger, the Company is treated as the acquiror
for accounting purposes, whereas for legal purposes HomeQuest is the
acquiror. HomeQuest will change its name to WarpRadio.com, Inc. after
the merger is completed. The merger will be treated as a
recapitalization of the Company, similar to a reverse acquisition. In
addition, 500,000 shares of common stock will be reserved for
conversion of the Company's convertible notes and 500,000 shares of
common stock will be reserved for a private placement of common stock
after closing on the merger.
The merger between the Company and HomeQuest was completed on
September 30, 1999.
6. License Agreements
------------------
In June 1999, the Company entered into a web site music performance
agreement with Broadcast Music, Inc. ("BMI") for a non-exclusive
license to perform publicly within the United States as part for the
Company's web site to transmit over the Internet all musical works,
the rights to public performance licenses of which BMI controls. The
Agreement is for a one year period and expires June 30, 2000.
The license fee is based one of two formulas, at the Company's option,
with a minimum annual fee of $500, as follows:
1. 1.75% of the Company's gross revenues generated by the Company's
web site during the term of the Agreement.
2. The greater of 2.5% of Music Area Revenues, as defined in the
Agreement, or .25% of the Company's gross revenues generated by
the Company's web site during the term of the Agreement.
F-13
<PAGE>
WEB AUDIO & RADIO PORTAL, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1999
6. License Agreements (Continued)
-----------------------------
In July 1999, the Company entered into a license agreement with the
American Society of Composers, Authors and Publishers ("ASCAP") for a
license to publicly perform, by means of web site transmissions, non
dramatic renditions of the separate musical compositions in ASCAP's
repertory. The Agreement is effective June 1, 1999 and expires on
December 31, 1999. ASCAP has agreed to an interim license fee of
$20,000 for the period and the interim license fee is subject to
retroactive adjustment as agreed by ASCAP and the Company or as
determined by the Court. If the parties do not reach an agreement on
final fees by December 31, 1999, the parties will either agree upon
interim license fees for the period beginning January 1, 2000, or such
interim license fees as may be fixed by the Court.
The Company originally entered into an agreement with ASCAP in June
1999 which provided for a license fee calculated on a rate schedule
based on the Company's clients' web sites available to web site users
accessing the Company's web site. The agreement was revised as an
interim license based on terms of ASCAP's consent decree with the
United States.
7. Fair Value of Financial Instruments
-----------------------------------
Disclosures about Fair Value of Financial Instruments for the
Company's financial instruments are presented in the table below.
These calculations are subjective in nature and involve uncertainties
and significant matters of judgment and do not include income tax
considerations. Therefore, the results cannot be determined with
precision and cannot be substantiated by comparison to independent
market values and may not be realized in actual sale or settlement of
the instruments. There may be inherent weaknesses in any calculation
technique, and changes in the underlying assumptions used could
significantly affect the results. The following table presents a
summary of the Company's financial instruments as of August 31, 1999:
Carrying Estimated
Amount Fair Value
------ ----------
Financial Assets:
Cash and cash equivalents $ 8,496 $ 8,496
Financial Liabilities:
Notes payable 351,500 351,500
The carrying amounts for cash and cash equivalents, accounts payable
and accrued expenses approximate fair value because of the short
maturities of these instruments. The fair value of the notes payable
approximates fair value because of the market rate of interest on the
notes.
8. Subsequent Events
-----------------
Debt Financing
--------------
The Company issued promissory notes in the amount of $148,500 for cash
in September 1999. The terms of the promissory notes are the same as
those issued prior to August 31, 1999 (See Note 2).
F-14
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
HOMEQUEST, INC.
Springville, Utah
We have audited the balance sheets of HomeQuest, Inc.[a development stage
company] as of December 31, 1998 and 1997, and the related statements of
operations, stockholders' equity (deficit) and cash flows for the years ended
December 31, 1998 and 1997, and for the cumulative period from March 1, 1998
through December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of HomeQuest, Inc. as of December
31, 1998 and 1997, and the results of their operations and their cash flows for
the years ended December 31, 1998 and 1997, and for the cumulative period from
March 31, 1998 through December 31, 1998, in conformity with generally accepted
accounting principles.
The accompanying statements have been prepared assuming the Company will
continue as a going concern. As discussed in Note 8 to the financial statements,
the Company has no on-going operations, has current liabilities in excess of
current assets, has sustained substantial losses from inception and has a
stockholders' deficit. These factors raise substantial doubt about its ability
to continue as a going concern. Management's' plans in regards to these matters
are also described in Note 8. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
/s/ Pritchett, Siler & Hardy, P.C.
January 26, 1999
Salt Lake City, Utah
F-15
<PAGE>
<TABLE>
<CAPTION>
HOMEQUEST, INC.
BALANCE SHEETS
ASSETS
December 31,
------------------------------------
1998 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ -- $ 35,507
----------- -----------
Total Current Assets -- 35,507
ORGANIZATION COSTS, net 428 795
----------- -----------
$ 428 $ 36,302
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts Payable $ 2,909 $ --
Net current liabilities of discontinued operations -- 415,884
----------- -----------
Total Current Liabilities 2,909 415,884
NET NON-CURRENT LIABILITIES OF DISCONTINUED
OPERATIONS -- 30,484
----------- -----------
Total Liabilities 2,909 446,368
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.001 par value, 7,000,000
shares authorized, 3,000,000 shares issued
and outstanding -- 3,000
Common stock, $.001 par value, 50,000,000
shares authorized,7,200,000 and 2,372,920
shares issued and outstanding 7,200 2,373
Additional paid in capital 1,789,666 1,329,017
Accumulated deficit (1,759,367) (1,744,456)
----------- -----------
37,499 (410,066)
Less: Cash to be received for
common stock issued (39,980) --
----------- -----------
Total Stockholders' Equity (Deficit) (2,481) (410,066)
----------- -----------
$ 428 $ 36,302
=========== ===========
The accompanying notes are an integral part of this financial statement.
F-16
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
STATEMENTS OF OPERATIONS
For the Years Cumulative from
Ended December 31, March 1, 1998
------------------------------- through
1998 1997 December 31, 1998
-------- ----------- -----------------
SALES $ -- $ -- $ --
COST OF SALES -- -- --
-------- ----------- --------
Gross Profit (Loss) -- -- --
-------- ----------- --------
EXPENSES:
General and administrative 12,930 -- 12,930
Amortization 367 -- 306
-------- ----------- --------
OPERATING LOSSES (13,297) -- (13,236)
OTHER EXPENSES:
Interest expense 1,614 -- --
-------- ----------- --------
LOSS FROM OPERATIONS BEFORE INCOME
TAXES (14,911) -- (13,236)
CURRENT TAX EXPENSE -- -- --
DEFERRED TAX EXPENSE -- -- --
-------- ----------- --------
LOSS FROM OPERATIONS BEFORE
DISCONTINUED OPERATIONS (14,911) -- (13,236)
-------- ----------- --------
DISCONTINUED OPERATIONS:
Loss from discontinued network marketing
operations (net of income taxes) -- (846,252) --
Loss on disposal of network marketing
operations (net of income taxes) -- (58,302) --
-------- ----------- --------
NET LOSS (14,911) $ (904,554) $(13,236)
-------- ----------- --------
LOSS PER COMMON SHARE
Loss from continuing operations $ (.00) $ (.00) $ (.00)
Loss from discontinued operations -- (.37) --
Loss on disposal of discontinued Operations -- (.02) --
-------- ------------ --------
LOSS PER COMMON SHARE $ (.00) $ (.39) $ (.00)
-------- ------------ --------
The accompanying notes are an integral part of this financial statement.
F-17
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM DECEMBER 31, 1996 THROUGH DECEMBER 31, 1998
Preferred Stock Common Stock Additional
------------------------ ------------------------- Paid in Accumulated
Shares Amount Shares Amount Capital Deficit
---------- --------- ----------- ---------- ---------- -----------
BALANCE, December 31, 1996 3,000,000 $ 3,000 1,755,420 $ 1,755 $ 899,635 $ (839,902)
Issuance of common stock upon
exercise of stock options for
cash at $.67 per share,
January - March, 1997 - - 607,500 608 404,392 -
Issuance of common stock for
cash at $2.50 per share, May
1997 - - 10,000 10 24,990 -
Net loss for the year ended
December 31, 1997 - - - - - (904,554)
---------- --------- ----------- ---------- ---------- -----------
BALANCE, December 31, 1997 3,000,000 3,000 2,372,920 2,373 1,329,017 (1,744,456)
Common stock issued for accrued
wages payable at approximately
$.19 per share, January 1998 - - 27,080 27 5,049 -
Common stock issued to retire,
preferred stock, April, 1998 (3,000,000) (3,000) 200,000 200 2,800 -
Common stock issued in
connection with disposal of
discontinued operations at
approximately $.10 per share,
March 1998 - - 4,600,000 4,600 452,800 -
Net loss for the year ended
December 31, 1998 - - - - - (14,911)
---------- --------- ----------- ---------- ---------- -----------
BALANCE, December 31, 1998
- $ - 7,200,000 $ 7,200 $ 1,789,666 $ (1,759,367)
---------- --------- ----------- ---------- ---------- -----------
The accompanying notes are an integral part of this financial statement.
F-18
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
STATEMENTS OF CASH FLOWS
NET INCREASE (DECREASE) IN CASH
For the Years Cumulative from
Ended December 31, March 1, 1998
--------------------------- through
1998 1997 December 31, 1998
--------- --------- -----------------
Cash Flows from Operating Activities:
Net (loss) $ (14,911) $(904,554) $ (13,236)
--------- --------- ---------
Adjustments to reconcile net income
(loss) to net cash used by operating
activities:
Depreciation and amortization 367 32,027 306
Non-cash expense -- 117,274 --
Estimate future losses from discontinued operations (183,872) 179,077 (193,761)
Change in assets and liabilities:
(Increase) decrease in accounts receivable -- 130,171 --
(Increase) decrease in prepaid expenses -- 90,268 --
(Increase) decrease in inventory -- (11,201) --
Increase (decrease) in bank overdraft -- -- 47,722
Increase (decrease) in accounts payable -- 40,344 --
Increase (decrease) in accrued expenses 2,909 38,205 (1,031)
--------- --------- ---------
Total Adjustments (180,596) (616,165) (146,764)
--------- --------- ---------
Net Cash Flows (Used) by Operating Activities (195,507) (288,389) (160,000)
--------- --------- ---------
Cash Flows from Investing Activities:
Purchase of fixed assets -- (10,529) --
Deposits, organizational costs and other assets -- 1,423 --
--------- --------- ---------
Net Cash Flows (Used) by Investing Activities -- (9,106) --
--------- --------- ---------
Cash Flows from Financing Activities:
Payments on notes payable - related party -- (34,997) --
Proceeds from sale of common stock 160,000 430,000 160,000
Proceeds from notes payable -- 277,600 --
Payments on notes payable -- (416,740) --
--------- --------- ---------
Net Cash Flows Provided by Financing Activities 160,000 255,863 160,000
--------- --------- ---------
Net Increase (Decrease) in Cash (35,507) (41,632) --
Cash at Beginning of Period 35,507 77,139 --
--------- --------- ---------
Cash at End of Period $ -- $ 35,507 $ --
--------- --------- ---------
Supplemental Disclosures of Cash Flow information:
Cash paid during the year for:
Interest $ 1,614 $ 30,337 $ --
Income taxes $ -- $ -- $ --
[Continued]
F-19
</TABLE>
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
STATEMENTS OF CASH FLOWS
NET INCREASE (DECREASE) IN CASH
[Continued]
Supplemental Schedule of Non-cash Investing and Financing Activities:
For the year ended December 31, 1998:
The Company transferred inventory, certain fixed assets, trademarks
and other intangible assets with a book value of $143,395 to a former
consultant of the company in payment of $27,340 in accrued wages
payable resulting in a loss of $116,055, which was included in loss
from discontinued operations as of December 31, 1997.
The Company issued 200,000 shares of common stock in consideration for
the cancellation of 3,000,000 shares of preferred stock.
The Company entered into an agreement with Phoenix, Ink. (a company
owned by an officer and shareholder of the Company) wherein the
Company agreed to issued 4,600,000 shares to Phoenix, Ink. or it's
designees in consideration for Phoenix, Ink purchasing the remaining
assets and assuming full responsibilities for all the remaining
liabilities of the Company. Over and above satisfying all of the
Company's liabilities, Phoenix Ink. will provide $50,000 in cash to
the Company. [See Note 2]
For the year ended December 31, 1997:
The Company wrote off approximately $117,000 in accounts receivable.
The Company recorded an estimated future loss of $120,775 for the
discontinuance of their network marketing operations and $58,302 from
the disposal of the related inventory and fixed assets.
The accompanying notes are an integral part of this financial statement.
F-20
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation - The accompanying financial statements and notes
were prepared by the Company and are the representations of the Company's
management who is responsible for their integrity and objectivity. In the
opinion of management, all adjustments necessary to present fairly the
financial position, results of operations and cash flows at December 31,
1998 and 1997 have been made.
Organization - The Company was incorporated on March 23, 1995 in the State
of Nevada for the purpose of acquiring the assets and operations of New
Horizon Education, Inc. ["NHE"], including its business concept,
compensation plan, sales downline, and related marketing rights. The
Company marketed educational and nutritional products through a network
marketing plan. The Company took over the operations of NHE on June 1,
1995, and on August 1, 1995 signed a purchase agreement. During the year
ended December 31, 1998, the company formalized a plan of disposition and
disposed of the operations to prepare the Company for a possible reverse
merger [See Note 2]. On March 1, 1998, the Company re-entered and is
considered a development stage company as defined by SFAS. No. 7, due to
the disposition of their operations and having no planned principal
operations. Currently the Company is considering other business
opportunities or possible business acquisitions.
Organization Costs - The Company is amortizing its organization costs,
which reflect amounts expended to organize the Company, over sixty [60]
months using the straight line method.
Income Taxes - The Company accounts for income taxes in accordance with
FASB Statement No. 109, "Accounting for Income Taxes".
Loss Per Share - The Company calculates earnings (loss) per share in
accordance with Statement of Financial Accounting Standards (SFAS) No. 128
"Earnings Per Share," which requires the Company to present basic earnings
per share and dilutive earnings per share when the effect is dilutive. [See
Note 9] Dilutive loss per share is not presented because its effect is
anti-dilutive.
Cash and Cash Equivalents - For purposes of the statement of cash flows,
the Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Stock Based Compensation - The Company accounts for its stock based
compensation in accordance with Statement of Financial Accounting Standard
No.123, "Accounting for Stock-Based Compensation". This statement
establishes an accounting method based on the fair value of equity
instruments awarded to employees as compensation. However, companies are
permitted to continue applying previous accounting standards in the
determination of net income with disclosure in the notes to the financial
statements of the differences between previous accounting measurements and
those formulated by the new accounting standard. The Company has adopted
the disclosure only provision of SFAS No. 123, accordingly, the Company has
elected to determine net income using previous accounting standards.
F-21
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
Accounting 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, the disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amount
of revenues and expenses during the reporting period. Actual results could
differ from those estimated.
Reclassification - The financial statements for all periods presented have
been reclassified to conform to the headings and classifications used in
the December 31, 1998 financial statements.
Recently Enacted Accounting Standards - SFAS No. 130, "Reporting
Comprehensive Income", SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" SFAS No. 132, "Employer's Disclosure
about Pensions and Other Postretirement Benefits", SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" and SFAS No.
134, "Accounting for Mortgage-Backed Securities..." were recently issued.
SFAS No. 130, 131, 132, 133 and 134 have no current applicability to the
Company or their effect on the financial statements would not have been
significant.
NOTE 2 - DISCONTINUED OPERATIONS
The accompanying financial statements as of December 31, 1998 and 1997 have
been reclassified to reflect management's decision to discontinue the
operations of the Company. On February 17, 1998, the shareholders approved
a plan to dispose of the Company's operation. The plan entailed effective
March 1, 1998, the sale of the Company's network marketing operations,
inventory, related fixed assets, and other intangible assets to a
consultant of the Company in exchange for $27,340 in consulting fees owed
him. The plan also approved the board of directors to seek and negotiate a
reverse-takeover-type merger. The board of directors then approved an
agreement with Phoenix Ink, a corporation owned by certain directors and
shareholders of the Company, wherein Phoenix Ink, or its assignees
purchased, 4,600,000 shares of the Company's common stock, a controlling
interest of the Company's common stock, at approximately $.10 per share by
clearing the Company of the remaining assets amounting to approximately
$16,909, and assuming the remaining liabilities amounting to approximately
$313,129 and providing the Company with $50,000 in cash. As of December 31,
1998, $10,020 of the $50,000 had been received; the remaining $39,980 has
been recorded as contra equity. These transactions resulted in losses of
$120,775. Losses from the discontinued operations for the year ended
December 31, 1998 were $58,302. These losses along with the Company's
result of operations for the year ended December 31, 1997 were recorded as
loss from discontinued operation in the December 31, 1997 financial
statements. The Shareholders further approved the Company's board of
directors to seek and negotiate a reverse-takeover-type merger.
F-22
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 2 - DISCONTINUED OPERATIONS [Continued]
Net current (liabilities) of discontinued operations of the Company
consisted of the following at December 31, 1997:
1997
-------------
Accounts receivable, net $ 96,293
Inventory 70,512
Prepaid Expenses 2,323
Short-term notes payable (127,610)
Accounts payable (141,316)
Accrued Expenses (137,009)
Estimated future losses of
Discontinued operations (179,077)
-------------
Net current (liabilities) of
discontinued operations $ (415,884)
-------------
Net non-current (liabilities) of discontinued operations of the Company
consisted of the following at December 31, 1997:
1997
-------------
Property and equipment, net $ 75,400
Other assets, net 8,801
Notes payable (20,000)
Notes payable - related party (94,685)
-------------
Net non-current (liabilities) of
discontinued operations $ (30,484)
-------------
The following is a condensed proforma statement of operations that reflects
what the presentation would have been for year ended without the
reclassification required by discontinued operations accounting principles
and the related sale of the assets:
December 31,
1998 1997
------------- -------------
Net sales $ 89,895 $ 1,103,852
Cost of goods sold (27,641) (377,091)
Other operating expenses (138,024) (1,490,206)
Other Income (expense) (2,165) 37,968
Provision for taxes - -
----------- -----------
Net loss $ (77,935) $ (725,477)
----------- -----------
Loss per share $ (.02) $ (.31)
----------- -----------
F-23
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 3 - RELATED PARTY TRANSACTIONS
Agreement - During March 1998, the Company entered into an agreement with
Phoenix, Ink. (a company owned by an officer and shareholder of the
Company) wherein the Company agreed to issued 4,600,000 shares of common
stock to Phoenix, Ink. or it's designees in consideration for Phoenix, Ink
purchasing the remaining assets and assuming full responsibilities for all
the remaining liabilities of the Company and providing the Company with
$50,000 in cash. [See Note 2]
Note Payable - On August 1, 1995, in connection with the purchase of assets
from NHE, the Company issued a note payable to NHE for $337,055. The note
provides a minimum monthly payment of $5,000 with the balance due at
maturity on July 31, 1998. For the years ended December 31, 1997, payments
of $34,997 have been made against the note and related accrued interest,
leaving an unpaid principal balance of $94,685 at December 31, 1997. The
Company has included in interest expense $6,544 interest as of December 31,
1997. During March 1998, the remaining balance of the note $90,344 was paid
off in connection with Phoenix, Ink. purchasing the remaining assets and
assuming the remaining liabilities of the Company.
Common Stock - During April, 1998 the Company issued 200,000 shares of
common stock to NHE in consideration for the cancellation of 3,000,000
shares of preferred stock.
Related Party Advances - The Company routinely paid bills on behalf of NHE
and the Company's president, which are treated as non-interest bearing
advances. These advances were used to satisfy the payment requirements of
the note payable to NHE.
NOTE 4 - NOTES PAYABLE
During December 1995, the company gave a $50,000 note bearing interest at
12% and issued 3,000 shares of common stock, valued at $.67 per share and
recorded as interest expense, to an individual in consideration for $50,000
cash. The note was due on February 1, 1996. During the year ended December
31, 1996 the Company paid the individual $25,000, with the remaining
$25,000 in default. The Company has included in accrued expense $5,919 in
accrued interest as of December 31, 1997. During May 1996, the Company
issued another note (for $25,000) bearing interest at 12% and issued 3,000
shares of common stock, valued at $.67 per share and recorded as interest
expense, to an individual in consideration for an additional $25,000 cash.
The note was due August 15, 1996 and is also in default as of December 31,
1997. The Company has included $5,162 in accrued interest for the years
ended December 31, 1997. During 1998, in connection with Phoenix Ink
assuming the liabilities of the Company, the holder of the notes agreed to
cancel the notes in consideration for a note issued them by Phoenix, Ink.
The Company has arranged for the financing of some of their sales wherein
the related receivable is held as collateral on short-term borrowings.
During 1998, the short-term borrowings and related receivables were assumed
by Phoenix Ink. [See Note 2].
F-24
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 4 - NOTES PAYABLE [Continued]
During the year ended December 31, 1996 the Company gave four convertible
notes payable to individuals for a total of $65,000. The notes bear
interest at 10%, the interest is to be paid quarterly and the notes mature
between April 15, 1999 and August 15, 1999. The notes are convertible into
the Company's common stock at $.67 per share. As of December 31, 1996,
three notes totaling $45,000 were converted to 67,500 shares of common
stock with a $20,000 note remaining outstanding. During 1997 the remaining
note payable accrued $2,143 interest with total accrued interest payable
amounting to $3,508. During 1998, in connection with Phoenix Ink assuming
the liabilities of the Company, the holder of the notes agreed to cancel
the notes in consideration for a note issued him by Phoenix, Ink.
During July 1997 the Company took a loan payable for the purchase of
inventory. The balance outstanding at December 31, 1997 was $1,100 with
related accrued interest of $90. During 1998, the loan and related accrued
interest was paid off.
NOTE 5 - CAPITAL STOCK
Preferred Stock - On November 18, 1996 the Company's Board of Directors
approved to increase the authorized preferred shares from 5,000,000 to
7,000,000 with the par value to remain unchanged. The Company's 7,000,000
authorized shares of preferred stock have a $.001 par value with such
rights, preferences and designations, and to be issued in such series as
determined by the Board of Directors.
On August 1, 1995, the Company agreed to designate and issue 3,000,000
shares of preferred stock to NHE in accordance with the NHE purchase
agreement. The preferred stock has been designated by the board of
directors as Series A preferred stock. The preferred shares are convertible
to common shares at the rate of 75,000 shares for the first $500,000 of
annual earnings and 75,000 shares for each $100,000 thereafter. The
preferred shares have no voting rights. The preferred stock also has a
liquidation preference of $.01 per share and a preference to receive any
declared dividends before the common stockholders receive a dividend.
During April 1998, the Company issued 200,000 shares of common stock in
consideration for the cancellation of 3,000,000 share of preferred stock.
Common Stock - During 1998, the Company issued 27,080 shares of common
stock in settlement of $5,076 in accrued vacation.
During March 1998, the Company issued 4,600,000 shares of common stock to
Phoenix, Ink. (a company owned by an officer and shareholder of the
Company) or it's designees in consideration for assuming all the remaining
liabilities of the Company [See Note 2].
Stock Options - The following table reflects the current non-compensatory
options outstanding as of December 31, 1998:
<TABLE>
<CAPTION>
Number Exercise Number of Option
of Shares Price Shares Exercised Outstanding Vesting Date Expiration Date
--------- --------- ---------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
360,000 $.67 262,500 97,500 July 18, 1996 July 18, 1999
412,500 $.67 300,000 112,500 August 31, 1996 August 31, 1999
15,000 $.67 15,000 -- July 21, 1996 August 1, 1999
</TABLE>
F-25
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 5 - CAPITAL STOCK [Continued]
Stock Based Compensation Plan - On November 18, 1995, the Board of
Directors of the Company adopted and a majority of the stockholders
approved a stock option plan. The plan provides for the granting of awards
of up to 900,000 shares of common stock to key employees, officers,
directors, consultants and sales representatives. The awards can consist of
stock options, restricted stock awards, deferred stock awards, stock
appreciation rights and other stock-based awards as described in the plan.
Awards under the plan will be granted as determined by the board of
directors.
A summary of the status of the options granted under the Company's stock
option plan and other agreements at December 31, 1998, and 1997, and
changes during the periods then ended is presented in the table below:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
---------------------------- ----------------------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
------ ---------------- -------- ----------------
<S> <C> <C> <C> <C>
Outstanding at
beginning of period 435,000 $.72 532,500 $.70
Granted - - - -
Exercised - - - -
Forfeited (435,000) $.72 (60,000) $.67
Expired - - (37,500) $.67
-------- ------------- -------- ------------
Outstanding at end of Period - - 435,000 $.72
-------- ------------- -------- ------------
Exercisable at end of period - - 99,000 $.72
-------- ------------- -------- ------------
Weighted average fair value
of options granted - - - -
-------- ------------- -------- ------------
</TABLE>
During the year ended December 31, 1998 and 1997, no compensatory options
were granted. During the year ended December 31, 1998, the remaining
employees forfeited their options and the plan was terminated.
F-26
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 6 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standard No. 109 "Accounting for Income Taxes". FASB
109 requires the Company to provide a net deferred tax asset/liability
equal to the expected future tax benefit/expense of temporary reporting
differences between book and tax and any available operating loss or tax
credit carry forwards. At December 31, 1998, the company has available
unused operating loss carryforwards of approximately $2,100,000 which may
be applied against future taxable income and which expire through 2013. The
amount and ultimate realization of the benefits from the operating loss
carryforwards for income tax purposes is dependent, in part, upon the tax
laws in effect, the future earnings of the Company, and other future
events, the effect of which cannot be determined. Because of the
uncertainties surrounding the realization of the loss carry forwards the
Company has established a valuation allowance equal to the tax effect of
the loss carryforwards and, therefore, no deferred tax asset has been
recognized for the loss carryforwards. The change in the valuation
allowance was a decrease of approximately $87,000. Because operations have
ceased and with the substantial changes in the Company's ownership [See
Note 2] it is doubtful that these tax benefits will ever be realized as
there is an annual limitation on the amount of carryforwards which can be
utilized.
NOTE 7 - COMMITMENTS AND CONTINGENTCIES
Management believes that the Company is not liable for any existing
liabilities related to its former operations, as the amounts were assumed
by Phoenix, Ink. [See Note 2]. At December 31, 1998, there was still
approximately $45,000 in unpaid contingent commissions payable and refunds
payable that were assumed by Phoenix, Ink. The unpaid commissions are
contingent upon collection of the related accounts receivable which were
also assumed by Phoenix InK. There is the possibility that creditors and
others seeking relief, which if not paid by Phoenix, Ink., may cause the
Company to be included in claims and or lawsuits. The Company is not
currently named nor is it aware of any such claims or suits against the
Company. No amounts have been reflected or accrued in these financial
statements for any contingent liability.
NOTE 8 - GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of
the Company as a going concern. However, the Company has recently sold
their business operations and assets and is considered a development stage
company with no on-going operations. In addition, the Company has
experienced losses since inception, and has not yet been successful in
establishing profitable operations. These factors raise substantial doubt
about the ability of the Company to continue as a going concern. In this
regard, management is proposing to raise additional funds through loans
and/or through additional sales of its common stock or through the proposed
acquisition of another company by issuing common stock. There is no
assurance that the Company will be successful in raising this additional
capital or finding a suitable acquisition.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts
and classification of liabilities that might be necessary should the
Company be unable to obtain additional financing, establish profitable
operations or locate another company to acquire.
F-27
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 9 - LOSS PER SHARE
The following data show the amounts used in computing loss per share and
the effect on income and the weighted average number of shares of dilutive
potential common stock for the periods ending December 31, 1998 and 1997:
<TABLE>
<CAPTION>
Cumulative from
For the Years March 1, 1998
Ended December 31, through
1998 1997 December 31,1998
-------------- --------------- ----------------
Loss available to common stockholders used in
<S> <C> <C> <C>
Loss per share (14,911) $ (904,554) $ (13,236)
-------------- --------------- ---------------
Weighted average number of common shares used
in earnings per share outstanding during the period 5,659,097 2,315,215 6,300,582
-------------- --------------- ---------------
Dilutive earnings per share was not presented as its effect is
anti-dilutive. The Company had at December 31, 1998, options to purchase
210,000 shares of common stock, respectively, at a price of $.67 per share,
that were not included in the computation of diluted earnings per share
because their effect was anti-dilutive.
F-28
<PAGE>
HOMEQUEST, INC.
UNAUDITED BALANCE SHEET
ASSETS
June 30,
1999
-----------
CURRENT ASSETS:
Cash $ --
-----------
Total Current Assets --
-----------
$ --
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts Payable $ 3,409
-----------
Total Current Liabilities 3,409
STOCKHOLDERS' DEFICIT:
Preferred stock, $.001 par value, 7,000,000
shares authorized, no shares issued
and outstanding --
Common stock, $.001 par value, 50,000,000
shares authorized,7,200,000 shares issued
and outstanding 7,200
Additional paid in capital 1,789,666
Accumulated deficit (1,765,795)
-----------
(31,071)
Less: Cash to be received for
common stock issued (34,480)
-----------
Total Stockholders' Deficit (3,409)
-----------
$ --
-----------
The accompanying notes are an integral part of this financial statement.
F-29
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
UNAUDITED STATEMENTS OF OPERATIONS
For the Six Cumulative from
Months Ended March 1, 1998
June 30, through
1999 June 30, 1999
-------- -------------
SALES $ -- $ --
COST OF SALES -- --
-------- --------
Gross Profit (Loss) -- --
-------- --------
EXPENSES:
General and administrative 6,000 18,930
Amortization 428 734
-------- --------
TOTAL EXPENSES (6,428) (19,664)
-------- --------
LOSS FROM OPERATIONS BEFORE INCOME
TAXES (6,428) (19,664)
CURRENT TAX EXPENSE -- --
DEFERRED TAX EXPENSE -- --
-------- --------
NET LOSS $ (6,428) $(19,664)
-------- --------
LOSS PER COMMON SHARE $ (.00) $ (.00)
-------- --------
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
UNAUDITED STATEMENT OF STOCKHOLDERS' DEFICIT
FROM MARCH 1, 1998 THROUGH JUNE 30, 1999
Preferred Stock Common Stock Additional
------------------------ ------------------------- Paid in Accumulated
Shares Amount Shares Amount Capital Deficit
---------- --------- ----------- ---------- ---------- -----------
BALANCE, March 1, 1998 3,000,000 3,000 2,400,000 2,400 1,329,017 (1,744,456)
Common stock issued in
connection with disposal of
discontinued operations at
approximately $.10 per share,
March 1998 - - 4,600,000 4,600 452,800 -
Common stock issued to retire,
preferred stock, April, 1998 (3,000,000) (3,000) 200,000 200 2,800 -
Net loss for the period ended
December 31, 1998 - - - - - (14,911)
---------- --------- ----------- ---------- ---------- -----------
BALANCE, December 31, 1998 - - 7,200,000 7,200 1,789,666 (1,759,367)
Net loss for the period ended
June 30, 1999 - - - - - (6,428)
---------- --------- ----------- ---------- ---------- -----------
BALANCE, June 30, 1999 - $ - 7,200,000 $ 7,200 $ 1,789,666 $ (1,765,795)
---------- --------- ----------- ---------- ---------- -----------
The accompanying notes are an integral part of this financial statement.
F-31
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
UNAUDITED STATEMENTS OF CASH FLOWS
NET INCREASE (DECREASE) IN CASH
For the Six Cumulative from
Months Ended March 1, 1998
June 30, through
1999 June 30, 1999
--------- -------------
Cash Flows from Operating Activities:
Net (loss) $ (6,428) $ (19,664)
--------- ---------
Adjustments to reconcile net income
(loss) to net cash used by operating
activities:
Depreciation and amortization 428 734
Non-cash expense -- --
Losses from discontinued operations -- (193,761)
Change in assets and liabilities:
Increase (decrease) in bank overdraft -- 47,722
Increase (decrease) in accounts payable 500 500
Increase (decrease) in accrued expenses -- (1,031)
--------- ---------
Total Adjustments 928 (145,836)
--------- ---------
Net Cash Flows (Used) by Operating Activities (5,500) (165,500)
--------- ---------
Cash Flows from Investing Activities:
Purchase of fixed assets -- --
Deposits, organizational costs and other assets -- --
--------- ---------
Net Cash Flows (Used) by Investing Activities -- --
--------- ---------
Cash Flows from Financing Activities:
Proceeds from sale of common stock 5,500 165,500
--------- ---------
Net Cash Flows Provided by Financing Activities 5,500 165,500
--------- ---------
Net Increase (Decrease) in Cash -- --
Cash at Beginning of Period -- --
--------- ---------
Cash at End of Period $ -- $ --
--------- ---------
Supplemental Disclosures of Cash Flow information:
Cash paid during the period for:
Interest $ -- $ 1,614
Income taxes $ -- $ --
Supplemental Schedule of Non-cash Investing and Financing Activities:
For the period ended June 30, 1999:
The Company expensed organization costs of $428
The accompanying notes are an integral part of these financial statements.
F-32
</TABLE>
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation - The accompanying financial statements and notes
were prepared by the Company and are the representations of the Company's
management who is responsible for their integrity and objectivity. In the
opinion of management, all adjustments necessary to present fairly the
financial position, results of operations and cash flows at June 30, 1999
have been made.
Organization - The Company was incorporated on March 23, 1995 in the State
of Nevada for the purpose of acquiring the assets and operations of New
Horizon Education, Inc. ["NHE"], including its business concept,
compensation plan, sales downline, and related marketing rights. The
Company marketed educational and nutritional products through a network
marketing plan. The Company took over the operations of NHE on June 1,
1995, and on August 1, 1995 signed a purchase agreement. During the year
ended December 31, 1998, the company formalized a plan of disposition and
disposed of the operations to prepare the Company for a possible reverse
merger [See Note 2]. On March 1, 1998, the Company re-entered and is
considered a development stage company as defined by SFAS. No. 7, due to
the disposition of their operations and having no planned principal
operations. Currently the Company is considering other business
opportunities or possible business acquisitions.
Organization Costs - The Company expensed organization costs of $428, which
reflect amounts expended to organize the Company, during the period ended
June 30, 1999 in accordance with Statement of Financial Accounting Position
No. 98-5.
Income Taxes - The Company accounts for income taxes in accordance with
FASB Statement No. 109, "Accounting for Income Taxes".
Loss Per Share - The Company calculates loss per share in accordance with
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share," which requires the Company to present basic loss per share and
dilutive earnings per share when the effect is dilutive. [See Note 8]
Dilutive earnings per share is not presented because its effect is
anti-dilutive.
Cash and Cash Equivalents - For purposes of the statement of cash flows,
the Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Stock Based Compensation - The Company accounts for its stock based
compensation in accordance with Statement of Financial Accounting Standard
No.123, "Accounting for Stock-Based Compensation". This statement
establishes an accounting method based on the fair value of equity
instruments awarded to employees as compensation. However, companies are
permitted to continue applying previous accounting standards in the
determination of net income with disclosure in the notes to the financial
statements of the differences between previous accounting measurements and
those formulated by the new accounting standard. The Company has adopted
the disclosure only provision of SFAS No. 123, accordingly, the Company has
elected to determine net income using previous accounting standards.
F-33
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
Accounting 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, the disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amount
of revenues and expenses during the reporting period. Actual results could
differ from those estimated.
NOTE 2 - DISCONTINUED OPERATIONS
The accompanying financial statements as of June 30, 1999 have been
reclassified to reflect management's decision to discontinue the operations
of the Company. On February 17, 1998, the shareholders approved a plan to
dispose of the Company's operation. The plan entailed effective March 1,
1998, the sale of the Company's network marketing operations, inventory,
related fixed assets, and other intangible assets to a consultant of the
Company in exchange for $27,340 in consulting fees owed him. The plan also
approved the board of directors to seek and negotiate a
reverse-takeover-type merger. The board of directors then approved an
agreement with Phoenix Ink, a corporation owned by certain directors and
shareholders of the Company, wherein Phoenix Ink, or its assignees
purchased, 4,600,000 shares of the Company's common stock, a controlling
interest of the Company's common stock, at approximately $.10 per share by
clearing the Company of the remaining assets amounting to approximately
$16,909, and assuming the remaining liabilities amounting to approximately
$313,129 and providing the Company with $50,000 in cash. As of June 30,
1999, $15,520 of the $50,000 had been received; the remaining $34,480 has
been recorded as contra equity. These transactions resulted in losses of
$120,775. Losses from the discontinued operations for the year ended
December 31, 1998 were $58,302. These losses along with the Company's
result of operations for the year ended December 31, 1997 were recorded as
loss from discontinued operation in the December 31, 1997 financial
statements. The Shareholders further approved the Company's board of
directors to seek and negotiate a reverse-takeover-type merger.
NOTE 3 - RELATED PARTY TRANSACTIONS
Agreement - During March 1998, the Company entered into an agreement with
Phoenix, Ink. (a company owned by an officer and shareholder of the
Company) wherein the Company agreed to issued 4,600,000 shares of common
stock to Phoenix, Ink. or it's designees in consideration for Phoenix, Ink
purchasing the remaining assets and assuming full responsibilities for all
the remaining liabilities of the Company and providing the Company with
$50,000 in cash. [See Note 2]
Common Stock - During April, 1998 the Company issued 200,000 shares of
common stock to NHE in consideration for the cancellation of 3,000,000
shares of preferred stock.
F-34
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 4 - CAPITAL STOCK
Preferred Stock - On November 18, 1996 the Company's Board of Directors
approved to increase the authorized preferred shares from 5,000,000 to
7,000,000 with the par value to remain unchanged. The Company's 7,000,000
authorized shares of preferred stock have a $.001 par value with such
rights, preferences and designations, and to be issued in such series as
determined by the Board of Directors.
On August 1, 1995, the Company agreed to designate and issue 3,000,000
shares of preferred stock to NHE in accordance with the NHE purchase
agreement. The preferred stock has been designated by the board of
directors as Series A preferred stock. The preferred shares are convertible
to common shares at the rate of 75,000 shares for the first $500,000 of
annual earnings and 75,000 shares for each $100,000 thereafter. The
preferred shares have no voting rights. The preferred stock also has a
liquidation preference of $.01 per share and a preference to receive any
declared dividends before the common stockholders receive a dividend.
During April 1998, the Company issued 200,000 shares of common stock in
consideration for the cancellation of 3,000,000 share of preferred stock.
Common Stock - During March 1998, the Company issued 4,600,000 shares of
common stock to Phoenix, Ink. (a company owned by an officer and
shareholder of the Company) or it's designees in consideration for assuming
all the remaining liabilities of the Company [See Note 2].
Stock Options - The following table reflects the current non-compensatory
options outstanding as of June 30, 1999:
<TABLE>
<CAPTION>
Number Exercise Number of Option
of Shares Price Shares Exercised Outstanding Vesting Date Expiration Date
--------- --------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
360,000 $.67 262,500 97,500 July 18, 1996 July 18, 1999
412,500 $.67 300,000 112,500 August 31, 1996 August 31, 1999
</TABLE>
NOTE 5 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standard No. 109 "Accounting for Income Taxes". FASB
109 requires the Company to provide a net deferred tax asset/liability
equal to the expected future tax benefit/expense of temporary reporting
differences between book and tax and any available operating loss or tax
credit carry forwards. At June 30, 1999, the company has available unused
operating loss carryforwards of approximately $2,100,000 which may be
applied against future taxable income and which expire in various years
through 2018. The amount and ultimate realization of the benefits from the
operating loss carryforwards for income tax purposes is dependent, in part,
upon the tax laws in effect, the future earnings of the Company, and other
future events, the effect of which cannot be determined. Because of the
uncertainties surrounding the realization of the loss carry forwards the
Company has established a valuation allowance equal to the tax effect of
the loss carryforwards and, therefore, no deferred tax asset has been
recognized for the loss carryforwards. The change in the valuation
allowance for the six months ended June 30, 1999 was a decrease of
approximately $0. Because operations have ceased and with the substantial
changes in the Company's ownership [See Note 2] it is doubtful that these
tax benefits will ever be realized as there is an annual limitation on the
amount of carryforwards which can be utilized.
F-35
<PAGE>
HOMEQUEST, INC.
[A Development Stage Company]
NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 6 - COMMITMENTS AND CONTINGENTCIES
Management believes that the Company is not liable for any existing
liabilities related to its former operations, as the amounts were assumed
by Phoenix, Ink. [See Note 2]. At June 30, 1999, there was still
approximately $45,000 in unpaid contingent commissions payable and refunds
payable that were assumed by Phoenix, Ink. The unpaid commissions are
contingent upon collection of the related accounts receivable which were
also assumed by Phoenix InK. There is the possibility that creditors and
others seeking relief, which if not paid by Phoenix, Ink., may cause the
Company to be included in claims and or lawsuits. The Company is not
currently named nor is it aware of any such claims or suits against the
Company. No amounts have been reflected or accrued in these financial
statements for any contingent liability.
NOTE 7 - GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of
the Company as a going concern. However, the Company has recently sold
their business operations and assets and is considered a development stage
company with no on-going operations. In addition, the Company has
experienced losses since inception, and has not yet been successful in
establishing profitable operations. These factors raise substantial doubt
about the ability of the Company to continue as a going concern. In this
regard, management is proposing to raise additional funds through loans
and/or through additional sales of its common stock or through the proposed
acquisition of another company by issuing common stock. There is no
assurance that the Company will be successful in raising this additional
capital or finding a suitable acquisition.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts
and classification of liabilities that might be necessary should the
Company be unable to obtain additional financing, establish profitable
operations or locate another company to acquire.
NOTE 8 - LOSS PER SHARE
The following data show the amounts used in computing loss per share and
the effect on income and the weighted average number of shares of dilutive
potential common stock for the periods ending June 30, 1999:
<TABLE>
<CAPTION>
For the Six Cumulative from
Months Ended March 1, 1998
June 30, through
1999 June 30, 1999
------------ ------------
Loss available to common stockholders used in
<S> <C> <C>
Loss per share $ (6,428) $ (19,664)
------------ ------------
Weighted average number of common shares used
in earnings per share outstanding during the period 7,200,000 6,300582
------------ ------------
</TABLE>
Dilutive earnings per share was not presented as its effect is
anti-dilutive. The Company had at June 30, 1999, options to purchase
210,000 shares of common stock, respectively, at a price of $.67 per share,
that were not included in the computation of diluted earnings per share
because their effect was anti-dilutive.
F-36
<PAGE>
PART III
ITEMS 1 AND 2. INDEX TO EXHIBITS AND DESCRIPTION OF EXHIBITS
Exhibit No. Description
- ----------- -----------
3.1 Articles of Incorporation, as amended, of the Registrant.*
3.2 By-laws of the Registrant.*
4.1 Specimen Stock Certificate of the Registrant.*
10.1 Agreement and Plan of Reorganization between HomeQuest, Inc.
and Web Audio & Radio Portal, Inc.*
10.2 Internet Licensing Agreement with Broadcast Music, Inc.*
10.3 Internet Licensing Agreement with American Society of
Composers, Authors and Publishers.*
10.4 Form of licensing agreement with radio stations.*
10.5 Office lease of the Registrant.*
23.1 Consent of Angell & Deering.*
23.2 Consent of Pritchett, Siler & Hardy, P.C.*
23.3 Consent of Angell & Deering.
23.4 Consent of Pritchett, Siler & Hardy, P.C.
27.1 Financial Data Schedule of Web Audio & Radio Portal, Inc.*
27.2 Financial Data Schedule of HomeQuest, Inc.*
* Previously Filed.
23
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
WARPRADIO.COM, INC.
By: /s/ Denise A. Sutton
-----------------------------------------
Denise A. Sutton, Chief Executive Officer
Date: 11-22-99
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Denise A. Sutton
- ----------------------
Denise A. Sutton Chief Executive Officer, November 22, 1999
Chief Financial Officer
(Principal Accounting
Officer), Secretary and
Director
/s/ Gregory J. Liptak
- ----------------------
Gregory J. Liptak President November 22, 1999
/s/ Jo Saari Hadley
- ----------------------
Jo Saari Hadley Vice President November 22, 1999
24
Exhibit 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use, in Amendment No. 1 to the Registration
Statement on Form 10-SB, of our report dated September 21, 1999, except for the
last paragraph of Note 5 as to which the date is September 30, 1999, relating to
the financial statements of Web Audio & Radio Portal, Inc. for the period from
March 16, 1999 (inception) to August 31, 1999 contained in said Registration
Statement.
Angell & Deering
Certified Public Accountants
Denver, Colorado
November 22, 1999
Exhibit 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use in this Amendment No. 1 to the Registration
Statement on Form 10-SB for WARPRADIO.COM, INC., of our report dated January 26,
1999, relating to the December 31, 1998 and 1997 financial statements of
HOMEQUEST, INC. (now known as WARPRADIO.COM, INC.), which appears in such
Registration Statement.
PRITCHETT, SILER & HARDY, P.C.
Salt Lake City, Utah
November 22, 1999
