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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. 2
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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<PAGE>
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 594,444 shares to an investor in exchange for cash and debt
assumption of $377,400. 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 is a development stage company with no revenue from operations
to date. The Company owns and operates an Internet site on the World Wide Web
(the "Web") that broadcasts "streaming" radio station programming 24 hours a
day, seven days a week. Streaming is a new technology that permits the
simultaneous transmission and playback of digitized audio streams over the
Internet. The Company currently offers live, uninterrupted radio programming
from more than 90 radio stations across the United States free of charge and
has orders to add an additional 53 radio stations to its service in the next
three months. 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 computer, an Internet
connection and a soundboard connection dedicated exclusively to delivery of the
audio feeds over the Internet. The Company has developed a unique barter
arrangement with the radio stations available on its Web site. In exchange for
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. With respect
to the BMI agreement, the Company pays a license fee based upon a percentage of
the Company's gross revenues with a minimum annual fee of $500. In the case of
the ASCAP agreement, the Company pays an annual flat license fee of $20,000. The
ASCAP agreement expired December 31, 1999, however, the Company is currently
negotiating an extension of the agreement for an additional year on the same
terms. There can be no assurance that the Company will be able to extend the
agreement on the same or any other terms satisfactory to the Company. The
Company believes that these are the only such arrangements of their kind and
that they afford 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. There can be no assurance that the Company will
be able to sell its bartered advertising time.
<PAGE>
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 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 ability to attract users and generate revenue. 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.
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 inhibit the Company's ability to utilize its bartering
arrangement and earn revenue by reselling advertising time.
(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. 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 equipment, (e) expanding Internet
content, and (f) increasing familiarity with and acceptance of the Internet as a
resource for consumers and businesses.
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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 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 traffic and other factors unique to the Internet, such as a
user's or broadcaster's computer hardware or software. At times when bandwidth
which is the range of frequencies utilized by the Internet, 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.
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Moreover, 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 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) Systems and Operations.
The Company relies on providers of streaming audio products, such as
Microsoft and Real Networks, 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
ability to utilize its bartering arrangement and earn revenue by selling
advertising time.
The performance, reliability and availability of the Company's Web site and
network equipment 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. Network congestion caused interruptions in the
Company's service less than one-half of one percent of broadcast time. Services
based on sophisticated software and computer systems may 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.
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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
operations. The Company is also dependent upon Web browsers, Internet Service
Providers ("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.
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.
(iv) 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 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
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by the Company. 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 above, will not have a material adverse effect on the
Company's ability to earn revenue. 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
continued viability.
(v) 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 medium. 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
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.
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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 and encoded by converting from an audio
signal into a digital stream prior to distribution. The Company employs
multicasting technology which sends one signal to multiple users around the
world 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 own brand name. The Company believes that this is
initially 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.
(vi) Marketing and Sales.
The Company markets its streaming audio services directly to radio stations
throughout the United States through its executive officers and through
telemarketing efforts. Radio ad spots obtained from radio stations in exchange
for the Company's streaming audio services are primarily marketed for the
Company by WinStar Global Media, Inc. ("WinStar").
Selling radio advertising is highly competitive. 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 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.
The Company's success depends on the market acceptance of streaming audio
technology provided by companies such as Microsoft Corporation ("Microsoft") and
Real Networks. 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,
traffic over the Internet and loss of information 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, 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.
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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 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.
(vii) Government Regulation and Laws.
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 ability to earn revenue.
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 impose significant
additional licensing fees and other costs on the Company.
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 significantly increase the Company's costs and expenses of
operating its business.
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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
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 ability to earn revenue.
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.
(viii) Employees.
As of the date hereof, the Company has seventeen full-time employees and
one part-time employee. 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 James H.
Comstock, President and Chief Operating Officer, 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.
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(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.
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 October 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.
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 employees and commencing
streaming services. As of October 31, 1999, the Company had an accumulated
deficit of $589,173 and a negative net worth of $19,885. 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 ability to achieve and sustain profitability.
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.
The Company has no revenue to date, but has incurred approximately $589,173
of operating losses for the period ended October 31, 1999, comprised primarily
of the following:
o $96,000 for advertising and promotional expenses, which primarily
included industry publications.
o $337,000 for general and administrative expenses, which primarily
included $261,000 for salaries and related expenses, $36,000 for
professional fees and $40,000 for other office and related expenses.
o $140,500 for product and content development expenses, which primarily
included $96,000 for equipment and products and $44,500 for Internet
service costs and the Company's BMI and ASCAP Internet licenses.
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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 on the
Company's continued viability. 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
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.
11
<PAGE>
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 seventeen employees by October 31,
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.
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. The Company presently
expects future revenues to stem from sales of bartered advertising time.
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 of $8,374 per month until
November 2000 and then of $8,507 until October 2002.
Since inception, the Company has received $550,000 to fund operations from
the issuance of convertible promissory notes which were converted to common
stock at $1.00 per share in October 1999. During the period from March 16, 1999
(inception) to October 31, 1999, the Company incurred interest expense of
$15,246 on these convertible promissory notes.
In December 1999, the Company sold 500,000 shares of Common Stock for $2.00
per share resulting in gross proceeds to the Company of $1,000,000.
12
<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
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.
ITEM 3. DESCRIPTION OF PROPERTY.
The Company leases 2,709 square feet of office space at 6535 South Dayton
Street, Suite 3000, Greenwood Village, CO 80111. The Company currently pays
$8,374 per month for the office space and beginning November 1, 2000 the Company
will pay $8,507 per month on a lease which expires on October 31, 2002.
The Company owns no property.
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 December 31, 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 63.3%
All officers and 6,569,500 65.3%
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
James H. Comstock 47 President and Chief Operating
Officer
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.
13
<PAGE>
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.
James H. Comstock - President and Chief Operating Officer
Mr. Comstock has served as the Company's President and Chief Operating
Officer since January 3, 2000. From August 1998 to November 1999, Mr. Comstock
served as Vice President and General Manager Technology & Operations for
RMI.Net, a Colorado-based nationwide commerce solutions provider. Mr. Comstock
was Chief Executive Officer and a consultant for TTTeam, Inc., a Denver,
Colorado, consulting company concentrating on technology start-ups and
turn-around situations, from November 1997 to July 1998. From June 1995 to
November 1997, Mr. Comstock served as Chief Technology Officer for Williams
Commuications Group/ITC Media Conferencing, a national multimedia
teleconferencing company. Mr. Comstock holds a B.S. in Computer Science, a B.A.
in Math and a B.A. in German from Ohio 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>
14
<PAGE>
The Company pays Denise A. Sutton, James H. Comstock and Jo Saari Hadley,
the Company's executive officers, $60,000, $125,000 and $30,000, respectively.
No other officer or director of the Company has received compensation in excess
of $100,000.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In January 1998, the Company issued 3,761 shars of Common Stock to Steven
White, a former officer of the Company, in consideration of services rendered to
the Company valued at $5,076 ($1.35 per share).
In March 1998, the Company entered into an agreement with Phoenix Ink, LLC,
a company owned by Howard Ruff, 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 sold 22,227 shares of Common Stock to Phoenix
for $40,000 ($.25 per share).
In March, 1998, the Company transferred inventory, certain fixed assets,
trademarks and other intangible assets with a book value of $143,395 to William
Turnbull, a former consultant of the Company, in payment of $27,340 in accrued
wages payable resulting in a loss of $116,055.
In April 1998, the Company issued 594,444 shares of Common Stock to Phoenix
to retire $377,000 of Company debt held by Phoenix.
In August 1999,the Company sold 4,166,667 shares of Common Stock to Ken
Edwards, a former officer of the Company, for $30,000 ($.001 per share). In
connection with the Company's September 30, 1999 Agreement and Plan of
Reorganization with WARP, Mr. Edwards gratuitously reconveyed 3,666,667 shares
to the Company.
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 December 31, 1999, 10,065,296 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.
15
<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.
(e) Penny Stock.
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.
(f) 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 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.
16
<PAGE>
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.
Subsequent to September 30, 1999, the Common Stock has traded on the bulletin
board and the pink sheets under the symbol WRPR. The following table sets forth
the high and low bid prices for the Company's Common Stock for the periods
indicated. 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
12/31/99 $ .90 $ 6.00
(b) Holders.
As of December 31, 1999, a total of 10,065,296 shares of the Company's
Common Stock were outstanding and there were approximately 95 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.
ITEM 2. LEGAL PROCEEDINGS.
The Company is not a party to any litigation and, to its knowledge, no
action, suit or proceeding 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.
17
<PAGE>
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
Between January 1997 and March 1997, the following persons exercised
options to purchase 84,375 shares of Common Stock at $4.82 per share:
Name Number of Shares
- ---- ----------------
Peter Ely 16,666
Richard Giacolette 4,861
James McCourt 10,555
John Trip 4,861
Dennis Stripling 9,375
Joseph A. Satrape 4,861
Rodney Baker 2,083
Stripling IRA 4,861
Lane Tarrant 4,166
Billy Nelson 2,083
Robert Smith 2,083
Ronald Proffer 2,083
Robert F. Troy 1,041
David Reed 4,166
Michael Plaani 6,250
Bruce Barber 1,041
Joseph T. Satrape 1,041
In May 1997, the Company sold 1,389 shares of Common Stock to William
Wittmann for $25,000 ($18.00 per share).
In January 1998, the Company issued 3,761 shares of Common Stock to Steven
White in consideration for services rendered to the Company valued at $5,076
($1,35 per share).
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.
In March 1998, the Company sold 22,227 shares of Common Stock to 1st Zamora
Corporation for $40,000 (.25 per share).
In March 1998, the Company sold 22,227 shares of Common Stock to Phoenix
for $40,000 ($.25 per share).
In April 1998, the Company issued, 27,777 shares of Common Stock to New
Horizon Education, Inc. ("NHE") to retire preferred stock held by NHE valued at
$3,000 ($.11 per share).
In April 1998, the Company issued 4,594,444 shares of Common Stock to
Phoenix to retire $377,400 of Company debt held by Phoenix.
18
<PAGE>
Between April 1999 and October 1999, the Company raised $550,000 from the
issuance of promissory notes to the following persons in the corresponding
amounts:
Name Amount
- ---- ------
Greg Nahm 75000
Jan Welcome 5000
Jeff Maier 38000
Gene & Joan Meek 10000
Lewis Schwartz 10000
Anthony Frasca 20000
Top Ten LLC 20000
Keven Falduto 20000
Brian O'Keefe 10000
Eric Kayser 5000
M.E. Dobesh 7000
Nancy Cuprisin 10000
Avrohom Friesel 40000
Terald McPherson 5000
James Peters, Jr. 1000
Scott MacBride 10000
Charles Kirby 20000
Lynn Eaton 5000
Dave Begg 5000
George Khalifeh 11000
John Ranay 4500
West Hazmat Rem. S 5000
Michael Hathaway 1000
David Potarf 5000
Ahmad Tehrani 5000
Soraya Taban 3000
Oress Paul Chacon 2000
Manadana Tanner 4000
Fair Mkt Value 60500
Charles LeClaire 10000
Zenith Petroleum Co 33000
Barbara J. Drew 50000
Harris Block 5000
Gary Clayton 11000
Timothy Colleran 14000
M.C. Whitver 10000
The notes mature one year from the date of issuance and bear interest at the
rate of 10% per annum which is payable on the maturity date. Subsequently, in
October 1999 all of the promissory note were converted into the Company's Common
Stock at the exercise price of $1.00 per share. All of the purchasers of
promissory notes were friends or business associates of the officers and
directors of the Company and sophisticated investors able to bear the loss of
their entire investment and the purchasers were advised by the Company that the
securities were restricted from resale.
In August 1999, the Company sold 4,166,667 shars of Common Stock to Ken
Edwards for $30,000 ($.001 per share).
19
<PAGE>
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.
Between October 1999 and December 1999, the Company sold 500,000 shares of
Common Stock to the following persons in the corresponding share amounts at
$2.00 per share:
Number of
Name Shares
- ---- ------
Mark A. Anderson 15,000
Dwaine J. Baldwin 8,000
BDB Holdings, LTD 10,000
Steve Boone 25,000
Kyle & Lela Bush 25,000
Michael Coffey 43,500
Tony Dorsett 35,000
Eischeid 15,000
Keven Falduto 6,000
Michael Flax 30,000
Anthony Frasca 15,000
Galloping Goose Properties, LLC 15,000
Charles B Humphrey 25,000
AEH Trust B, C.B. Humphrey Trust 10,000
SB Irons Trust. Humphrey Child. 10,000
Jolie D Humphrey 5,000
William Jaspersen 10,000
Konczak Corp. Profit Sharing Plan 15,000
Gene & Joan Meek 5,000
Steven Mize 10,000
Reg Schleider 7,500
Rick Schleider 10,000
Rob Schleider 10,000
Robert Schleider, Jr. 7,500
J Curtis Garrett 7,500
Debra Garrett
Lewis Schwartz IRA 15,000
Jeffrey Stone 25,000
Marvin Timmons 25,000
Top Ten LLC 15,000
Kenneth Vanatta 5,000
Leonard Weiss 15,000
H. Ron White 25,000
All of the purchasers of common stock were friends or business associates of the
officers and directors of the Company and accredited investors able to bear the
loss of their entire investment and a restrictive legend was placed on all
certificates representing the shares.
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.
20
<PAGE>
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
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.
21
<PAGE>
WARPRADIO.COM, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Financial Statements Page
- -------------------- ----
Independent Auditors' Report ....................................... F-2
Consolidated Balance Sheets as of October 31, 1999
(unaudited) and August 31, 1999 ................................... F-3
Consolidated Statements of Operations for the period
from March 16, 1999 (date of inception) to
October 31, 1999 (unaudited) and for the period
from March 16, 1999 (date of inception)
to August 31, 1999 ............................................... F-4
Consolidated Statements of Changes in Stockholders'
Equity (Deficit) for the period from March 16, 1999
(date of inception) to August 31, 1999 and for the
period from March 16, 1999 (date of inception) to
October 31, 1999 (unaudited) ..................................... F-5
Consolidated Statements of Cash Flows for the period
from March 16, 1999 (date of inception) to
October 31, 1999 (unaudited) and for the period
from March 16, 1999 (date of inception)
to August 31, 1999 ............................................... F-6
Notes to Consolidated Financial Statements ........................ F-7
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-14
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-28
F-1
<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.
dba WarpRadio.Com, 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.
dba WarpRadio.Com, 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-2
<PAGE>
<TABLE>
<CAPTION>
WARPRADIO.COM, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
ASSETS
------
October 31, August 31,
1999 1999
---------- ---------
(Unaudited)
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 15,922 $ 8,496
Prepaid expenses -- 3,925
--------- ---------
Total Current Assets 15,922 12,421
--------- ---------
Property and Equipment, at cost:
Office equipment 62,798 57,283
Furniture 2,409 1,788
--------- ---------
65,207 59,071
Less accumulated depreciation (3,852) (2,204)
--------- ---------
Net Property and Equipment 61,355 56,867
--------- ---------
Total Assets $ 77,277 $ 69,288
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
Current Liabilities:
Accounts payable:
Trade $ 55,737 $ 43,527
Other 36,000 --
Accrued expenses:
Interest -- 7,979
Payroll taxes 5,425 14,728
Notes payable -- 351,500
--------- ---------
Total Current Liabilities 97,162 417,734
--------- ---------
Commitments and Contingencies -- --
Stockholders' Equity (Deficit):
Preferred stock: $.001 par value, 7,000,000 shares
authorized, none issued or outstanding -- --
Common stock: $.001 par value, 50,000,000 shares
authorized, 9,565,296 and 7,500,000 shares issued
and outstanding, respectively 9,565 7,500
Additional paid in capital 559,723 (3,508)
Deficit accumulated during the development stage (589,173) (352,438)
--------- ---------
Total Stockholders' Equity (Deficit) (19,885) (348,446)
--------- ---------
Total Liabilities and Stockholders' Equity (Deficit) $ 77,277 $ 69,288
========= =========
The accompanying notes are an integral
part of these consolidated financial statements.
F-3
<PAGE>
WARPRADIO.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Period From
March 16, 1999 (Inception) to
-----------------------------
October 31, August 31,
1999 1999
----------- -----------
(Unaudited)
Revenue $ -- $ --
Operating expenses 573,814 344,459
----------- -----------
Loss From Operations (573,814) (344,459)
----------- -----------
Other Income (Expense):
Interest expense (15,359) (7,979)
----------- -----------
Total Other Income (Expense) (15,359) (7,979)
----------- -----------
Net Income (Loss) $ (589,173) $ (352,438)
=========== ===========
Net Income (Loss) Per Basic and
Diluted Share of Common Stock $ (.08) $ (.05)
Weighted Average Number of Basic and
Diluted Common Shares Outstanding 7,716,069 7,500,000
The accompanying notes are an integral
part of these consolidated financial statements.
F-4
<PAGE>
WARPRADIO.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIODS FROM MARCH 16, 1999 (INCEPTION) TO AUGUST 31, 1999
AND OCTOBER 31, 1999 (UNAUDITED)
Deficit
Accumulated
Common Stock Additional During the
--------------------------- Paid in Development
Shares Amount Capital Stage
--------- --------- --------- -----------
Balance at March 16, 1999 (inception) -- $ -- $ -- $ --
Shares of common stock issued in March
for services valued at $.0004 per share 7,319,500 7,320 (4,118) --
Shares of common stock issued in July
for services valued at $.004 per share 180,500 180 610 --
Net loss for the period -- -- -- (352,438)
--------- --------- --------- ---------
Balance at August 31, 1999 7,500,000 7,500 (3,508) (352,438)
Issuance of common stock in
recapitalization (unaudited) 1,500,000 1,500 (1,500) --
Shares issued in October 1999 for
conversion of notes payable and accrued
interest into common stock
valued at $1.00 per share (unaudited) 565,296 565 564,731 --
Net loss for the period (unaudited) -- -- -- (236,735)
--------- --------- --------- ---------
Balance at October 31, 1999 (unaudited) 9,565,296 $ 9,565 $ 559,723 $(589,173)
========= ========= ========= =========
The accompanying notes are an integral
part of these consolidated financial statements.
F-5
<PAGE>
WARPRADIO.COM, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
For the Period from
March 16, 1999 (Inception) to
-----------------------------
October 31, August 31,
1999 1999
----------- ----------
(Unaudited)
Cash Flows From Operating Activities:
Net income (loss) $(589,173) $(352,438)
Adjustments to reconcile net income (loss) to net
cash (used) by operating activities:
Depreciation 3,852 2,204
Common stock issued for services 3,992 3,992
Changes in assets and liabilities:
Prepaid expenses -- (3,925)
Accounts payable 91,737 43,527
Accrued expenses 20,721 22,707
--------- ---------
Net Cash (Used) By Operating Activities (468,871) (283,933)
--------- ---------
Cash Flows From Investing Activities:
Capital expenditures (65,207) (59,071)
--------- ---------
Net Cash (Used) By Investing Activities (65,207) (59,071)
--------- ---------
Cash Flows From Financing Activities:
Proceeds from borrowing 550,000 351,500
--------- ---------
Net Cash Provided By Financing Activities 550,000 351,500
--------- ---------
Net Increase in Cash and Cash Equivalents 15,922 8,496
Cash and Cash Equivalents at Beginning of Period -- --
--------- ---------
Cash and Cash Equivalents at End of Period $ 15,922 $ 8,496
========= =========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 63 $ --
Income taxes -- --
Supplemental Disclosure of Noncash Investing and
Financing Activities:
Conversion of notes payable and accrued interest
into common stock $ 565,296 $ --
The accompanying notes are an integral
part of these consolidated financial statements.
F-6
</TABLE>
<PAGE>
WARPRADIO.COM INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Unaudited Financial Statements
------------------------------
The financial statements as of October 31, 1999 and for the period
from March 16, 1999 (inception) to October 31, 1999 are unaudited,
however, in the opinion of management of the Company, all adjustments
(consisting solely of normal recurring adjustments) necessary to a
fair presentation of the financial statements for the interim periods
have been made.
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.
F-7
<PAGE>
WARPRADIO.COM INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies (Continued)
-----------------------------------------------------
Principles of Consolidation (Unaudited)
--------------------------------------
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary. All significant intercompany
accounts and transactions have been eliminated.
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.
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.
Revenue Recognition (Unaudited)
------------------------------
The Company's streaming service is offered through a barter agreement
to exchange the streaming services for advertising time. Advertising
time that is received in the barter transaction is subsequently sold
through a third party Distributor for cash. Revenue is recognized when
the sale of the advertising time is completed by the Distributor in
the amount of the cash to be received.
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.
F-8
<PAGE>
WARPRADIO.COM INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies (Continued)
-----------------------------------------------------
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
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.
F-9
<PAGE>
WARPRADIO.COM INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Commitments and Contingencies (Continued)
----------------------------------------
The Year 2000 (Continued)
------------------------
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.
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 $ --
=========
F-10
<PAGE>
WARPRADIO.COM INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Income Taxes (Continued)
-----------------------
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 $ --
=========
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 Broadcase Music, Inc. ("BMI") for a non-exclusive
F-11
<PAGE>
WARPRADIO.COM INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. License Agreements (Continued)
-----------------------------
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.
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
F-12
<PAGE>
WARPRADIO.COM INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Fair Value of Financial Instruments (Continued)
----------------------------------------------
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 Event
----------------
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).
9. Subsequent Event (Unaudited)
---------------------------
Private Placement
-----------------
In December 1999, the Company completed a private placement of its
common stock. A total of 500,000 shares of common stock were sold at a
purchase price of $2.00 resulting in gross proceeds to the Company of
$1,000,000.
F-13
<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-14
<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 -- 236,807
----------- -----------
Total Current Liabilities 2,909 236,807
NET NON-CURRENT LIABILITIES OF DISCONTINUED
OPERATIONS -- 30,484
----------- -----------
Total Liabilities 2,909 267,291
----------- -----------
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) (1,565,379)
----------- -----------
37,499 (230,989)
Less: Cash to be received for
common stock issued (39,980) --
----------- -----------
Total Stockholders' Equity (Deficit) (2,481) (230,989)
----------- -----------
$ 428 $ 36,302
=========== ===========
The accompanying notes are an integral part of this financial statement.
F-15
<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) (120,775) (725,497) --
Loss on disposal of network marketing
operations (net of income taxes) (58,302) -- --
-------- ----------- --------
NET LOSS (193,988) $ (725,477) $(13,236)
-------- ----------- --------
LOSS PER COMMON SHARE
Loss from continuing operations $ (.00) $ (.00) $ (.00)
Loss from discontinued operations (.03) (.31) --
Loss on disposal of discontinued Operations (.01) -- --
-------- ------------ --------
LOSS PER COMMON SHARE $ (.04) $ (.31) $ (.00)
-------- ------------ --------
The accompanying notes are an integral part of this financial statement.
F-16
<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 - - - - - (725,477)
---------- --------- ----------- ---------- ---------- -----------
BALANCE, December 31, 1997 3,000,000 3,000 2,372,920 2,373 1,329,017 (1,565,379)
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 - - - - - (193,988)
---------- --------- ----------- ---------- ---------- -----------
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-17
<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) $(193,988) $(725,477) $ (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 (4,795) -- (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 (1,519) 437,088 (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-18
</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-19
<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-20
<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 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-21
<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-22
<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-23
<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-24
<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-25
<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-26
<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 (193,988) $ (725,477) $ (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-27
<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-28
<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-29
<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-30
<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-31
</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-32
<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-33
<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-34
<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-35
<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.*
10.6 Third Amendment to 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.*
23.5 Consent of Angell & Deering.
23.6 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.*
27.3 Financial Data Schedule of WarpRadio.com, Inc.
* Previously Filed.
22
<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: 01/20/00
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, January 20, 2000
Chief Financial Officer
(Principal Accounting
Officer), Secretary and
Director
/s/ James B. Comstock
- ----------------------
James B. Comstock President and Chief January 20, 2000
Operating Officer
/s/ Jo Saari Hadley
- ----------------------
Jo Saari Hadley Vice President January 20, 2000
THIRD AMENDMENT TO LEASE
THIS THIRD AMENDMENT TO LEASE ("Third Amendment") is entered into effective
as of December 30, 1999 between Merham Partners, LLC, a Missouri Limited
Liability Corporation, Landlord and WarpRadio.com, Inc., a Nevada Corporation,
Tenant.
RECITALS
--------
A. Landlord and Tenant are parties the Lease dated September 16, 1998, it's
First Amendment dated July 23, 1999, it's Second Amendment dated July 30, 1999
and it's Assignment and Assumption Agreement, for the lease of the Premises
known as Suites 3000 and 3675, located at 6535 South Dayton Street, Greenwood
Village, Colorado 80111.
B. Landlord and Tenant desire to amend the Lease in accordance with the
following provisions.
AGREEMENT
---------
For good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged by the parties, the parties agree as follows:
1. Expansion Premises. The Premises shall be expanded ("Expansion
Premises") pursuant to Exhibit A-3, attached, to include the Expansion Premises
located at 6535 South Dayton Street, Suites 3050 and 3850, Greenwood Village,
Colorado 80111, hereinafter attached to and referred to as Suite 3000.
2. Term. This Lease shall be extended to terminate at 11:59 p.m. on the
31st day of October, 2002.
3. Early Occupancy. Landlord allows Tenant early occupancy to the available
vacant portions of the Expansion Premises and the balance as it becomes vacant
or upon substantial completion of the tenant improvements, beginning December
30, 1999, through January 29, 2000 at no charge, under the terms and conditions
of the Lease, for the purposes of installing telephone and data lines, fixtures
and personal property.
4. Base Rent. Pursuant to paragraph 3.1 of the Lease, Base Rent Shall be
paid according to the schedule below:
Lease Year Monthly Payment Sub Total
---------- --------------- ---------
2/1/00 - 10/31/00 $8,374.00 $75,366.00
11/1/00 - 10/31/01 $8,507.00 $102,084.00
11/1/01 - 10/31/02 $8,507.00 $102,084.00
5. Security Deposit. Pursuant to paragraph 7.1 of the Lease, the amount
shall be increased to eight thousand, five hundred seven dollars ($8,507.00),
with five thousand, seven hundred sixty-one dollars ($5,761.00) being carried
forward from the Lease.
6. Reaffirmation of Lease. Except as otherwise expressly modified herein,
the terms of the Lease are hereby affirmed by Landlord and Tenant and such terms
shall remain in full force and effect.
<PAGE>
7. Capitalized Terms. Unless otherwise defined herein, capitalized terms
used in this Third Amendment shall have the same meaning as defined in the
Lease.
8. Conflict. In the event of conflict between the terms of this Third
Amendment and the terms of the Lease, the terms of this Third Amendment shall
control.
The parties have executed this Third Amendment as of the date first written
above.
LANDLORD
Merham Partners, LLC
a Missouri Limited Liability Corporation
By: ____________________________________
Name: Daniel Bruce Strong
Title: Vice President
TENANT
WarpRadio.com, Inc.
a Nevada Corporation
By: ____________________________________
Name: Denise Sutton
Title: CEO
<PAGE>
EXHIBIT A-3
EXPANSION PREMISES
<PAGE>
EXHIBIT B-3
Landlord at it's sole expense shall provide the tenant improvements
indicated on the list and drawing below:
A. Demolish Closet door to connect suites in the Expansion Premises.
B. Install a fourplex electrical outlet in the Second Amendment, Expanded
Premises in the approximate location indicated on this Exhibit, actual
location to be finally determined between Landlord and Tenant.
C. Repair or replace the door to include a lockset, in the Second
Amendment, Expanded Premises in the approximate location indicated on
this Exhibit
D. Relocate suite sign to the location indicated.
E. Install building standard mini-blind on entry door of the former suite
3050.
F. Demolish carpet in the portion of the Expanded Premises formerly
referred to as Suite 3050 and install that used carpet into the
original Premises, indicated in Exhibit A of the Lease, in the
reception and the office directly to the left of the entry door,
subject to available demolition carpet.
G. Minor changes , mutually agrred upon between Landlord and Tenant, not
to exceed one thousand dollars ($1,000.00).
H. Install new carpet throughout the Third Amendment Expansion Premises.
I. Paint and/or touchup paint throughout the Third Amendment Expansion
Premises.
J. Re-key all doors entry doors as directed by Tenant, while retaining
building access system.
<PAGE>
EXHIBIT C-3
CORPORATE RESOLUTION
RESOLUTION OF THE BOARD OF DIRECTORS AUTHORIZING LEASE AMENDMENT
RESOLUTION OF THE BOARD OF DIRECTORS
OF
WARPRADIO.COM, INC.
A meeting of the board of directors of this corporation was duly called and held
on December 30, 1999.
A quorum of the board of directors was present and at the meeting it was
decided, by majority vote, that it has become necessary to enter into a Lease of
the Premises located at: 6535 South Dayton Street, Suites formerly known as 3050
and 3850 hereinafter referred to as suite 3000, Greenwood Village, Colorado
80111.
Therefore, it is resolved, that this corporation enter into a Lease for the
period from February 1, 2000 through, October 31, 2002 with Merham Partners,
LLC, Landlord for the Premises.
Base Rent shall be paid as illustrated below:
Base Rent. Pursuant to paragraph 3.1 of the Lease, Base Rent Shall be paid
according to the schedule below:
Lease Year Monthly Payment Sub Total
2/1/00 - 10/31/00 $8,374.00 $75,366.00
11/1/00 - 10/31/01 $8,507.00 $102,084.00
11/1/01 - 10/31/02 $8,507.00 $102,084.00
The officers of this corporation are hereby authorized to perform all necessary
acts to enter into such Lease.
The undersigned, certifies that he or she is the duly elected Director of this
corporation and that the above is a true and correct copy of the resolution that
was duly adopted at a meeting of the board of directors which was held in
accordance with state law and the By-Laws of the corporation on December 30,
1999.
I further certify that such resolution is now in full force and effect.
Dated
----------------------------------------
SEAL
- ----------------------------------------------
Denise Sutton, Director
Exhibit 23.5
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use, in Amendment No. 2 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., dba WarpRadio.Com,
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
January 19, 2000
Exhibit 23.6
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use in this Amendment No. 2 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
January 18, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> MAR-16-1999
<PERIOD-END> OCT-31-1999
<CASH> 15,922
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,922
<PP&E> 65,207
<DEPRECIATION> 3,852
<TOTAL-ASSETS> 77,277
<CURRENT-LIABILITIES> 97,162
<BONDS> 0
0
0
<COMMON> 9,565
<OTHER-SE> (29,450)
<TOTAL-LIABILITY-AND-EQUITY> 77,277
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 573,814
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,359
<INCOME-PRETAX> (589,173)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (589,173)
<EPS-BASIC> (.08)
<EPS-DILUTED> (.08)
</TABLE>
