<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB/A
Amendment #2
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
QUESTEC.COM, INC.
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(Name of Small Business Issuer in Its Charter)
Wyoming 11-3445299
------------------------------- ----------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
160B West Industry Court, Deer Park, New York 11729
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(Address of Principal Executive Offices) (Zip Code)
(631) 243-1880
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(Issuer's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
------------------- ------------------------------
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.0001 par value
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(Title of Class)
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TABLE OF CONTENTS
Cover Page 1
Table of Contents 2
Cautionary Statement Regarding Forward-Looking Information 3
Part I 3
Description of Business 3
Description of Property 7
Directors, Executive Officers and Significant Employees 7
Remuneration of Directors and officers 11
Security Ownership of Management and certain Security Holders 11
Interest of Management and Others in Certain Transactions 11
Securities Being Offered 12
Part II 12
Market Price and Dividends on the Registrant's Common Equity and
Other Stockholder Matters 12
Legal Proceedings 15
Changes In and Disagreements with Accountants 15
Recent Sales of Unregistered Securities 15
Indemnification of Directors and Officers 15
Part F/S 16
Audited Financial Statements - June 30, 1999 and 1998 16
Unaudited Financial Statements - March 31, 2000 and 1999 16
Part III 17
Signatures 18
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements contained under "Description of Business", and elsewhere in
this Registration Statement on Form 10-SB, regarding matters that are not
historical facts, are "forward-looking statements". Because such forward-looking
statements include risks and uncertainties, actual results may differ materially
from those expressed in or implied by such forward-looking statements. There are
several important factors that could cause actual results to differ materially
from those anticipated by the forward-looking statements contained in such
discussions. We undertake no obligation to release publicly the result of any
revisions to these forward-looking statements that may be made to reflect events
or circumstances after the date of this Registration Statement on Form 10-SB or
to reflect the occurrence of unanticipated events.
PART I
The issuer has elected to follow Form 10-SB, Disclosure Alternative 2.
Item 6. Description of Business.
QuesTec.Com, Inc. (the "Company") is a Wyoming corporation originally
incorporated on February 3, 1987 under the Company Act of British Columbia as
SZL Sportsight, Inc. The Company was involved in the sports entertainment
industry at that time as the designer and developer of a baseball pitch
analyzer, and also subsequently entered the retail computer equipment market
through a subsidiary, Eastern Microsystems. When the retail venture proved
unsuccessful, the Company dissolved Eastern Microsystems. The name of the
corporation was changed to Questec Imaging Inc. on April 29, 1996, and the
corporation was then reorganized in Wyoming on May 18, 1998. The corporate name
was changed to QuesTec.Com, Inc. on December 22, 1999.
Current Business
The Company is a technology-based information service provider, creating
computer-generated, real-time virtual replays and in-game digital analysis
content for professional sporting events covered on TV and the Internet. The
Company also provides realistic content for future development of sports video
games. The Company's patented products use a series of cameras, computers and
sophisticated military-grade technology to track moving objects (such as balls
or players) and instantly reconstruct digital 3D images which can be replayed in
real-time, viewed
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from any angle, compared and analyzed. Such products are routinely and
increasingly used during coverage of baseball, tennis and golf around the world,
while development of new products for other sports continues. The Company's
digital video content has been broadcast and used for analysis during coverage
of such high-profile sporting events as the World Series, the Major League
Baseball All-Star Game, the French Open, the ATP World Championships and World
Cup Golf. The Company continues to provide its products and services to
companies covering these three major sports throughout the year, including Fox
Sports Productions, Fox SportsNet, NBC Sports, MSG Network, CBS Sportsline,
Major League Baseball, ACTV, Williams ChoiceSeat, ZDF and ARD German National
Television, France2 and France3 French National Television, The Golf Channel and
The Sports Network.
Current Products
The Company provides turnkey solutions for real-time virtual replays of
professional sporting events. These interactive 3D replays can be used for
television, sports entertainment, video games, interactive services, display
media, league scoring, player evaluation and team training.
The Company uses cameras, computers, video equipment and proprietary technology
and software to track moving objects (balls, players, anything that moves) and
instantly, in real-time, reconstruct digital 3D images which can then be viewed
from any angle, analyzed, "replayed", compared, etc. Furthermore, each sporting
event can lead to multiple revenue streams for the Company. For example, the
Company can display the pitches in a single baseball game on FOX Sports Net, do
simultaneous real-time broadcasts to other networks worldwide, do a real-time
broadcast over the internet, and then later provide the data to the baseball
teams and also to video game producers.
The Company offers the following services:
o SuperVision. This is used in Major League Baseball ("MLB") to create
virtual replays for television and provide a behind-the-scenes analysis
tool for commentators. SuperVision tracks each pitch, then measures the
speed, path and trajectory at various intervals as it approaches the strike
zone.
o TennisProView. The TennisProView system instantly captures and displays the
exact speed, trajectory and court impact of each serve during a tennis
match. TennisProView creates a virtual replay for television and a
behind-the-scenes analysis tool for commentators, providing spray charts,
serve analysis and player comparisons. Serve patterns and analysis can be
displayed on the internet as well.
o GolfProView. This is used during television golf coverage as an "instant
preview". The GolfProView system locates the golfer's ball on the green,
then proceeds to calculate and display the optimal putt path using 3D
graphics. In addition, GolfProView displays in real-time the exact distance
to the hole, the ball's height with respect to the cup and quantifies the
break or breaks in inches.
Typical Service:
The Company provides its clients with a complete turnkey solution. All equipment
and personnel required to produce the company's unique quantified content are
supplied by the Company, which operates as a separate facilities provider and
production company during each sporting event.
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A typical facilities (equipment) setup consists of front-end data capture
system, consisting of cable infrastructure, a fixed closed circuit camera
system, a video control system and a computer network for data capture and
quantification. The visualization system includes a computer network for
quantified data retrieval and a computer workstation for real-time 3-D
rendering. The scoring system is comprised of a computer or manual timing and
scoring system. The communication system includes audio communication to clients
production, video/audio display of virtual replay and an internet link for data
transmission.
All personnel required to provide services are trained and provided by the
Company.
Plan of Operation for the Next 12 Months
The Company has actively been working on a $4,000,000 private placement
financing for the past several months. At present, the Company is negotiating
with a single New York Stock Exchange listed corporation to purchase 6,000,000
shares of the Company's common stock together with a warrant to purchase up to
4,000,000 additional shares of the Company's common stock. Management is
confident that it will secure and finalize this transaction prior to the close
of the Company's first financial quarter for the current fiscal year on
September 30, 2000. The $4,000,000 purchase price will be paid upon closing of
the transaction in exchange solely for the 6,000,000 shares and above described
warrants. Management believes that the substantial improvement to the financial
condition of the Company as the result of this transaction will benefit the
common stockholders, who, they believe, will not be materially adversely
affected by this transaction, as there will be no resulting increase in
corporate debt nor will there be any financial commitments which would
exacerbate current cash flow difficulties. These monies will be used to pay down
all long-term and short-term debt (approximately $700,000), hire qualified
management, expand marketing and distribution, enhance current product/service
offerings, and initiate a product development center in cooperation with
Atlantic Aerospace Electronics Corporation (AAEC).
Within the next twelve months, the Company anticipates that it will complete
installation of SuperVision in all 30 Major League ballparks (18 ballparks are
presently cabled and 11 systems are in operation), establish internet baseball
production service as a standard per game feature, (to date, this has been a
special event package for All-Star Game and World Series productions), expand
TennisProView production service through contracts with major world-wide
providers of tennis coverage, establish internet tennis production service as a
standard per match feature (which the Company hopes to launch on July 31, 2000
during ISL Worldwide's coverage of ATP Tour Master Series Tennis from Toronto,
Canada), complete development and deployment of new Ski Jumping system (the
Company has worked extensively with RTL Television, Cologne, Germany to develop
a real-time tracking and 3-D virtual replay system), and complete development
and deploy a new version of GolfProView.
The Company's revenue presently is derived from a number of relatively small
projects, such as contributions to Fox Sports Network's regional baseball
broadcasts and a variety of tennis tournament broadcasts, the majority of which
originate in Europe. In 1998, a significant percentage of the Company's revenue
was realized from its contribution to the broadcast of the World Series, a
single limited event from which it derived a large fee without the corresponding
costs inherent in the broadcasting of smaller events. As a result, financial
results for 1998 were more favorable, as a lower percentage of cost per contract
was realized. More recent results present a more dependable presentation of the
Company's current financial revenue flow.
Marketing
The Company has historically worked with labor intensive, limited production
systems for baseball and for golf. Since the company teamed up with Atlantic
Aerospace Electronics Corporation, it has been able to finalize development of
"User" friendly, reliable and robust systems which are now able to be deployed
for multiple events and productions. Before the summer of 1998, the Company's
product/service offerings were limited to three production systems with limited
capability and scope. The integration of AAEC's signal processing intelligence
with the Company's core technology and production expertise has allowed the
company to broaden its product/service offerings.
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In addition to technological support, AAEC has brought organization and
operational support, which has helped the Company to develop detailed
product/service cost models. All pricing and quotes are now calculated and
assume all hardware, training, communication, support, shipping, personnel and
travel.
The advent of the internet and the convergence of digital media has created a
need for new and unique content for television networks, internet service
providers, interactive television providers, data repositories and multimedia.
Through direct marketing efforts, the Company has established, on a global
basis, relationships with the league governing bodies, major television rights
holders and internet service providers.
The Company 's marketing strategy is to maintain dominance in current markets
through technical excellence and outstanding service and to enter new markets
and then similarly dominate them, build global awareness of the Company's brand.
The Company hopes to establish itself as the branded market leader in real-time
data-and motion-capture systems for sports. The Company plans to do so by
launching a promotional campaign targeting journalists and editors who cover
sports, media, entertainment, the internet and investments, availing itself of
significant on-air exposure during sports broadcasts that use the Company's
products, which carry the Company's logo or end of production credits. In
addition, the Company shall utilize public relations by customers as they
promote their own services that utilize the Company's products (for example, Fox
will promote the fact that its baseball games feature SuperVision).
Competition
Companies that compete in the sports information market are SporTVision, Elias
Sports Bureau, Inside Edge, STATS Inc., Sports Ticker, Princeton Video and ORAD.
All companies mentioned charge competitive prices and their pricing strategies
are based on a per contract/project basis.
The Company competes with these entities in the sports production market. Each
broadcast of an athletic event has a certain budget for production enhancement
features, which the Company and its competitors offer. The Company's competitors
offer principally statistics packages from historical events, information and
analysis for utilization during broadcasts. The Company's products are real-time
measurements of live action, and the only products available which create live
content which the viewer can see and understand from an on-screen display. In a
baseball broadcast, the Company can offer a visual display of pitch sequences,
either during the on-going at bat or in comparison with prior at bats, where the
viewer can see how a pitcher is pitching a particular batter and the speed and
location of a series of pitches. The Company and its competitors vie for the
same production dollars budgeted for broadcast enhancements, as only one type of
enhancement is usually utilized per broadcast.
Current Partners
In September, 1998, the Company entered into a 7-year agreement with Atlantic
Aerospace Electronics Corporation ("AAEC"), a Titan (NYSE: TTN) company. AAEC is
a leading military software developer specializing in acquiring and tracking
multiple targets in real-time. AAEC will provide the Company with all research
and development of live-motion-capture tracking technology for future sports
related applications in exchange for a 500,000 share equity interest in the
Company and 10% of product-related gross sales. The Company has a strategic
partnership with Live Motion Company ("LMC") of Wiesbaden, Germany, whereby LMC
markets and produces the Company 's products in Europe. The Company and LMC
split costs and share profits. So far, LMC has produced the French Open, ATP
Tour World Championships and several German tournaments. LMC and LMC's customers
are extremely enthusiastic about this relationship and numerous further projects
are under discussion or already finalized.
Silicon Graphics is a long-time sponsor of the Company which provides technology
expertise and assistance.
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Research and Development
The Company is committed to the improvement of its present product line and the
development of new products to provide the opportunity for growth in an
ever-changing market as the 21st century begins. The Company , pursuant to the
terms of its agreement with AAEC, is provided with all research and development
of live-motion-capture tracking technology for future sports related
applications by AAEC, a leading military software developer specializing in
acquiring and tracking multiple targets in real-time. The Company believes that
its relationship with AAEC is imperative in maintaining its position as a
technological leader in the industry.
Employees.
The Company presently has 7 full-time and 20 part time employees from its Deer
Park, New York office.
Definition of Terms.
For purposes of presentation in the Company's financial statements, the
components of "payroll and consulting" include full-time and part-time
employees, payroll taxes and consulting fees, which fees were paid primarily to
software developers. "General and administrative" are comprised of equipment
rental, accounting costs, legal expenses, banking fees, repair and maintenance,
marketing and advertising, office supplies, travel and entertainment, telephone,
auto, public company fees, postage, shipping, rent and insurance.
Item 7. Description of Property.
The Company's executive offices are located at 160B West Industry Court, Deer
Park, New York 11729 in an approximately 4,200 square foot space. The space,
which houses all of the Company's current operations, is leased for a period
through December 31, 2001, with an option to extend the term for 2 additional
years. The annual rent under the lease agreement is $30,282 for 2000 and $31,500
for 2001.
Item 8. Directors, Executive Officers and Significant Employees.
(a)(1) Directors.
Name Age Director Since
---- --- --------------
Michael W. Russo 52 December 1996
Geoffrey Hibner 50 December 1998
Felix Marggraff 29 December 1998
Philip Albanese 57 November 1998
Paul Baim 40 December 1998
William E. Cavanaugh 66 December 1998
Derek L. Donaldson 56 November 1990
Barbara Rene Stewart 47 October 1997
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(a)(2) Persons nominated to become directors.
None
(a)(3) Executive officers.
Michael W. Russo, 52, President.
Deirdre Gallagher, 36, Secretary.
(a)(4) Persons Chosen to Become Executive Officers.
None.
(a)(5) Significant employees.
Deirdre Gallagher, 36, Executive Assistant
Edward Plumacher, 40, Marketing Manager
Chris Malone, 36, New Media Manager
Dan Beard, 30, Production Manager
Ron Klimkowski, 57, Sports Marketing
(b) Family Relationships.
None.
(c) Business Experience.
Michael W. Russo, President and Director of the Company, has been employed by
the Company for the preceding five years. Mr. Russo joined the Company in
January 1995 as the Vice President of Investor Relations, a post which he held
until December 1997, when he became President of the Company.
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Deirdre Gallagher is the Secretary of the Corporation, having been appointed to
the position in December 1999. Prior to her appointment, she served as an
Executive Assistant at the Company from January 1998, which position she
continues to hold. She served as an Administrative Assistant at the Company from
January 1994 through December 1997.
Paul W. Baim is a Director of the Company, having been elected to the position
in December 1998. For the past five years, Mr. Baim has been the Director for
Software Engineering at Atlantic Aerospace Electronics Corporation in Waltham,
MA, which is now a subsidiary of Titan Corporation (NYSE:TTN). His business
responsibilities include directing engineering research and development, system
architecture, program management, technology assessment and business
development.
William E. Cavanaugh, a Director of the Company since December 1998, is a
retired business executive. Prior to his retirement in 1996, he was the Chief
Operating Officer of the Company for two years.
Philip Albanese has been a Director of the Company since 1998. He has been the
President of National Equipment Rental Program, Inc. since 1991.
Geoffrey J. Hibner, a Director of the Company since December 1998, is the Senior
Vice President - Finance and Administration and Chief Financial officer of The
Timberland Company, which is a wholesaler of footwear, apparel and licensed
products. Mr. Hibner has held this position since May 1997. From August 1995
through May 1997, he was the Chief Financial Officer of Frontier Technologies
Corporation, and served as the Vice President - Finance for Universal Foods
Corporation from July 1988 through January 1995.
Derek L. Donaldson has been a Director of the Company since November 1990. Mr.
Donaldson has also served as Secretary of the Company. He is an attorney in
Kamloops, British Columbia, Canada, and is the sole shareholder and director of
Derek Donaldson Law Corp.
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Barbara Rene Stewart, a Director of the Company since October 1997, is a legal
secretary and assistant with Derek Donaldson Law Corp., where she has been
employed for 17 years.
Felix Marggraff, a Director of the Company for the last year, is a principal of
Live Motion Company in Wiesbaden, Germany.
Edward Plumacher, the Company's Marketing Manager, has been employed by the
Company since 1991. Mr. Plumacher oversees the Company's technical operations on
a daily basis, and is responsible for the marketing of existing and new
products, as well as the set up and coordination of new product installations.
Chris Malone, The New Media Manager of the Company since January 1999,
coordinates development of new products and the research into new applications
for the Company's products. Prior to holding this position at the Company, Mr.
Malone was head of production services since December 1996 when he joined the
Company. From November 1993 through December 1996, Mr. Malone was General
Manager of Eastern Micro Systems, a small retail computer store.
Dan Beard, as Production manager for the Company, is responsible for setting up
and operating video productions for sporting events, including the coordination
of required equipment. Mr. Beard has been employed by the Company since June,
1998. He previously was an independent technical director from June, 1997
through June, 1998, and prior to that time served as a TV Director for
Cablevision from 1995 through June, 1997.
Ron Klimkowski, in his position as Sports Marketing Director, communicates with
sports teams in order to arrange the coordination of installation of the
Company's products at stadiums and training facilities, as well as the
scheduling of production at sporting events. Mr. Klimkowski, a former major
league pitcher with the New York Yankees, has been employed by the Company since
January, 1996, and prior to that time worked as a financial consultant at Paine
Webber for 3 years.
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(d) Involvement in Certain Legal Proceedings.
None.
Item 9. Remuneration of Directors and Officers.
Name of Individual or Capacities In Which Aggregate
Identity Of Group Remuneration Was Received Remuneration
----------------- ------------------------- ------------
Michael W. Russo President $65,000.00
Deirdre Gallagher Secretary $35,000.00
Directors (8 as a group) Director $0 (each Director receives
a minimum of 50,000
options per year)
Item 10. Security Ownership of Management and Certain Security Holders.
Title Name and Amount Owned Percent
Of Address of Before the of
Class Owner Offering Class
----- ----- -------- -----
Common Michael W. Russo
Stock 4 Cutter Court 767,655 2.57%
W. Islip, NY 11795
Common Deirdre Gallagher 86,433 .29%
Stock 4 Greenleaf Drive
Huntington, NY
Common Ed Plumacher 5,470,333 18.48%
Stock 15 Sexton Drive
W. Islip, NY 11795
Common All Officers and Directors 1,788,136 6.04%
Stock as a Group (9 as a group)
Directors of the Company receive a minimum of 50,000 options to purchase Common
Stock of the Company, the final amount being determined by the Board of
Directors as a whole based upon proportional worked performed on behalf of the
Company. The issuance of such options is then submitted to the shareholders of
the Company for approval.
Options Outstanding
Name of Amount of Common Stock Exercise
Holder Called for by Options Price
Michael W. Russo 225,000 $0.27
Deirdre Gallagher 100,000 $0.38
All Officers and
Directors as a Group
(9 Persons) 1,445,000 $0.35 (weighted average)
All options are currently exercisable.
Item 11. Interest of Management and Others in Certain Transactions.
Pursuant to the terms of the agreements dated September 9, 1998 between AAEC and
the Company, the parties have established a strategic alliance. AAEC received
options to purchase up to 500,000 shares of the Company's common stock as the
result of such agreements, and will be paid a royalty on gross sales of services
or products developed as a result of this alliance. Such payments are made after
confirmation of receipt of payments in connection with such services or
products. In exchange, AAEC provides all research and development in connection
with the Company's services and products. Paul Baim, a director of the Company,
is also the Director for Software Engineering at AAEC and, as a director of the
Company, is to receive at least 50,000 options to purchase shares of the Company
per annum as compensation for his service in such
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capacity. In the fiscal year ended June 30, 1999, Mr. Baim received 200,000
options, 75,000 at $0.21 and 125,000 at $0.62. In the current fiscal year, Mr.
Baim has received 300,000 options at $0.38. Mr. Baim has no personal interest in
connection with the agreements between AAEC and the Company.
Pursuant to the terms of the agreements dated June 9, 1998 between LMC and the
Company, the parties have established a strategic alliance. In exchange for a
fee, LMC received exclusive right to use the Company's tennis product in Europe.
In addition, the Company is compensated by LMC at the end of a tennis tournament
where LMC utilizes the Company's tennis product and the Company pays LMC at the
same time for the Company's use of LMC's employees and/or video production
equipment, if the Company so utilizes the people and equipment. Felix Marggraff,
a director of the Company, is also a principal of LMC and, as a director of the
Company, is to receive at least 50,000 options to purchase shares of the Company
per annum as compensation for his service in such capacity. For the fiscal year
ended June 30, 1999, Mr. Marggraff received 125,000 options exercisable at
$0.21. As a principal of LMC, Mr. Marggraff has a personal interest in
connection with the agreements between LMC and the Company.
Item 12. Securities Being Offered.
No sale of securities is authorized by this filing. The common stock of the
Company is being registered under Section 12(g) of the Securities Exchange Act
of 1934. The Company has 80,000,000 common shares authorized. Each share of
Common Stock is entitled to share pro rata in dividends and distributions with
respect to the Common Stock when, as and if declared by the Board of Directors
from funds legally available for any of the Company's securities. Upon
dissolution, liquidation or winding up of the Company, the assets will be
divided pro rata on a share-for-share basis among holders of the shares of
Common Stock after-any required distribution to the holders of the preferred
Stock, who would be entitled to preference and first distribution in such event.
All shares of Common Stock outstanding are fully paid and non-assessable and the
shares will, when issued upon payment therefore as contemplated hereby, be fully
paid and non-assessable. Each holder of Common Stock is entitled to one vote per
share with respect to all matters that are required by law to be submitted to
shareholders.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Stockholder Matters
Price Range of Common Stock & Dividends
The Company's Common Stock, which is presently traded in the
over-the-counter market, is traded on the Pink Sheets under the symbol "QSTI".
The following table shows the per share range of prices of the Company's Common
Stock for the most recent two-year period.
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Quarter-Ended
Year Mar 31 June 30 Sept 30 Dec 31
---- ------ ------- ------- ------
2000 High $1.20
Low $0.38
1999 High $0.78 $0.98 $0.72 $1.02
Low $0.37 $0.48 $0.43 $0.31
1998 High $0.56 $0.51 $0.37 $0.64
Low $0.17 $0.22 $0.18 $0.15
Approximate Number of Equity Security Holders
At May 31, 2000, the approximate number of holders of record of the
Company's Common Stock was 2,500.
Dividends
The Company has never paid dividends. At present, the Company does not
anticipate paying any dividends on its Common Stock in the foreseeable future
and intends to devote any earnings to the development of the Company's business.
PENNY STOCK
Until the Company's shares qualify for inclusion in the NASDAQ system,
the trading of the Company's securities, if any, will be in the over-the-counter
markets which are commonly referred to as the "pink sheets" or on the OTC
Bulletin Board. As a result, an investor may find it more difficult to dispose
of, or to obtain accurate quotations as to the price of the securities offered.
Effective August 11, 1993, the Securities and Exchange Commission adopted Rule
15g-9, which established the definition of a "penny stock," for purposes
relevant to the Company, as any equity security that has a market price of less
than $5.00 per share or with an exercise price of less than $5.00 per share,
subject to certain exceptions. For any transaction involving a penny stock,
unless exempt, the rules require: (i) that a broker or dealer approve a person's
account for transactions in penny stocks; and (ii) the broker or dealer receive
from the investor a written agreement to the transaction, setting forth the
identity and quantity of the penny stock to be purchased. In order to approve a
person's account for transactions in penny stocks, the broker or dealer must (i)
obtain financial information and investment experience and objectives of the
person; and (ii) make a reasonable determination that the transactions in penny
stocks are suitable for that person and that person has suffi-
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cient knowledge and experience in financial matters to be capable of evaluating
the risks of transactions in penny stocks. The broker or dealer must also
deliver, prior to any transaction in a penny stock, a disclosure schedule
prepared by the Commission relating to the penny stock market, which, in
highlight form, (i) sets forth the basis on which the broker or dealer made the
suitability determination; and (ii) that the broker or dealer received a signed,
written agreement from the investor prior to the transaction. Disclosure also
has to be made about the risks of investing in penny stock in both public
offering and in secondary trading, and about commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. The National Association of
Securities Dealers, Inc. (the "NASD"), which administers NASDAQ, has recently
made changes in the criteria for continued NASDAQ eligibility. In order to
continue to be included on NASDAQ, a company must maintain $2,000,000 in net
tangible assets or $35,000,000 in market capitalization or $500,000 net income
in latest fiscal year or 2 or last 3 fiscal years, a $1,000,000 market value of
its publicly-traded securities and 500,000 shares in public float. In addition,
continued inclusion requires two market-makers and a minimum bid price of $1.00
per share. There can be no assurances that the Company will qualify its
securities for listing on NASDAQ or some other national exchange, or be able to
maintain the maintenance criteria necessary to insure continued listing. The
failure of the Company to qualify its securities or to meet the relevant
maintenance criteria after such qualification in the future may result in the
discontinuance of the inclusion of the Company's securities on a national
exchange. In such events, trading, if any, in the Company's securities may then
continue in the over-the-counter market. As a result, a shareholder may find it
more difficult to dispose of, or to obtain accurate quotations as to the market
value of, the Company's securities.
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Item 2. Legal Proceedings.
The Company has recently concluded a legal proceeding in which it was the
defendant in an action commenced in May 1997 in the Circuit Court of the
Fifteenth Judicial Circuit in and for Palm Beach County, Florida by a former
employee, Charles F. Mehler. Mr. Mehler claimed damages of approximately
$161,000 for breach of employment agreement, non-payment of wages, including
damages therefrom, unreimbursed employment related expenses, and loans made to
the Company. The Company denied the allegations and filed a counterclaim against
Mr. Mehler alleging receipt of funds to which he was not entitled. At the
conclusion of the case, Mr. Mehler was required to repay funds to the Company.
Item 3. Changes In and Disagreements with Accountants
Not applicable.
Item 4. Recent Sales of Unregistered Securities
On October 1, 1997, the Company commenced an offering through Alexander Wescott
& Co., Inc., pursuant to Regulation D of the Securities Act of 1933 (the "Act"),
Rule 504, of up to 5,000,000 shares of its common stock at a price of $0.21 per
share, which price was later reduced to $0.14 per share. On November 16, 1998,
this offering was completed with 5,364,756 shares being sold and issued for a
total of $834,399 being received by the Company. Common stock was sold to a
total of 40 accredited investors. The proceeds from this offering were used for
working capital, legal and accounting fees, consulting fees and office
equipment.
In addition, on October 23, 1998, the Company sold shares of its Common Stock at
$0.15 per share, subject to Rule 144, to the following individuals for the
following reasons:
Recipient Number of Shares Reason for Sale
--------- ---------------- ---------------
Michael W. Russo 300,000 For prior salary owed
Chris Malone 300,000 For prior salary owed
Edward Plumacher 4,333,333 For prior salary owed
Dan Beard 100,000 For prior salary owed
Derek Donaldson 476,666 For accrued legal fees
William Cavanaugh 300,000 For prior salary owed
Item 5. Indemnification of Directors and Officers
The Company shall indemnify to the fullest extent permitted by, and in the
manner permissible under the laws of the State of Wyoming, any person made, or
threatened to be made, a party to an action or proceeding, whether criminal,
civil, administrative or investigative, by reason of the fact that he is or was
a director or officer of the Company, or served any other enterprise as
director, officer or employee at the request of the Company. The Board of
Directors, in its discretion, shall have the power on behalf of the Company to
indemnify any person, other than a director or officer, made a party to any
action, suit or proceeding by reason of the fact that he/she is or was an
employee of the Company. INDEMNIFICATION OF OFFICERS OR PERSONS CONTROLLING THE
COMPANY FOR LIABILITIES ARISING UNDER THE SECURITIES ACT OF 1933, IS HELD TO BE
AGAINST PUBLIC POLICY BY THE SECURITIES AND EXCHANGE COMMISSION AND IS THEREFORE
UNENFORCEABLE.
15
<PAGE>
PART F/S
Financial Statements
The issuer has available audited financial statements for the fiscal years
ending June 30, 1999 and June 30, 1998.
QUESTEC.COM, INC.
(Formerly QUESTEC IMAGING INC.)
Years Ended June 30, 1999, and 1998
CONTENTS
PAGE
INDEPENDENT AUDITOR'S REPORT F-1
BALANCE SHEET F-2
STATEMENT OF OPERATIONS F-3
STATEMENT OF SHAREHOLDERS' EQUITY F-4
STATEMENT OF CASH FLOWS F-5
NOTES TO FINANCIAL STATEMENTS F-6
UNAUDITED FINANCIAL STATEMENTS
9 MONTHS ENDED MARCH 31, 2000 AND 1999
BALANCE SHEET F-16
STATEMENT OF OPERATIONS F-17
STATEMENT OF CASH FLOWS F-18
NOTES TO FINANCIAL STATEMENTS F-19
16
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Shareholders and Directors
QuesTec.com, Inc.
(formerly QuesTec Imaging Inc.)
Deer Park, New York
We have audited the accompanying balance sheets of QuesTec. Com, Inc.
(formerly QuesTec Imaging Inc.) as of June 30, 1999 and 1998 and the related
statements of operations, shareholders' equity (deficit) and cash flows for the
years then ended. 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 an 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.
In our opinion, the financial statements present fairly, in all
material respects, the financial position of QuesTec.com, Inc,.(formerly QuesTec
Imaging Inc.) as of June 30, 1999 and 1998, and the results of its operations
and cash flows for the years then ended 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 discussed in Note 3 to the
financial statements, the Company has suffered recurring losses, owes $235,000
in payroll taxes at June 30, 1999 and has a working capital deficiency that
raise substantial doubt about its ability to continue as a going concern.
Management's plan regarding these matters is also described in Note 3. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
New York, New York
November 3, 1999
/s/ Radin, Glass & Co., LLP
Certified Public Accountants
F-1
<PAGE>
QUESTEC.COM, INC.
(formerly QUESTEC IMAGING INC.)
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
---------------------------
1999 1998
---------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ -- $ 3,454
Accounts receivable, net 22,811 82,800
Other assets 5,960 254
----------- -----------
TOTAL CURRENT ASSETS 28,771 86,508
INTANGIBLE ASSETS, net 570 633
SOFTWARE DEVELOPMENT COSTS, net of amortization
of $40,471 and $O. 255,898 --
FURNITURE AND EQUIPMENT, net 123,436 67,249
----------- -----------
$ 408,675 $ 154,390
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Cash overdraft $ 3,259 $ --
Bank credit line 7,402 --
Accounts payable 158,979 138,851
Accrued liabilities 468,819 443,478
Deferred revenue -- 48,000
Advance from shareholder 93,183 480,490
----------- -----------
TOTAL CURRENT LIABILITIES 731,642 1,110,819
OTHER LIABILITIES:
Note payable -- 10,000
Accrued liabilities, long term 69,951 72,047
----------- -----------
TOTAL LIABILITIES 801,593 1,192,866
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY: (DEFICIT)
Preferred stock, no par value, authorized 10,000,000
shares; none issued -- --
Common stock, no par value; authorized 40,000,000 shares;
issued and outstanding 29,321,143 shares and
20,701,274 shares. -- --
Paid - in capital 8,762,105 6,668,957
Accumulated deficit (9,155,023) (7,707,433)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (392,918) (1,038,476)
----------- -----------
$ 408,675 $ 154,390
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
QUESTEC.COM, INC.
(formerly QUESTEC IMAGING, INC.)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended June 30,
----------------------------
1999 1998
----------------------------
<S> <C> <C>
REVENUE
Services 127,944 165,395
----------- ------------
127,944 165,395
----------- ------------
COST OF REVENUE 95,099 98,639
----------- ------------
GROSS PROFIT 32,845 66,756
EXPENSES:
Amortization and depreciation 59,156 13,494
Payroll and consulting 928,359 291,538
General and administrative 492,920 887,389
----------- ------------
1,480,435 1,192,421
----------- ------------
NET LOSS $($1,447,590) $($1,125,665)
=========== ============
NET LOSS PER SHARE:
EARNINGS PER COMMON SHARE $ ($0.05) $ ($0.06)
(Basic and Diluted) =========== ============
WEIGHTED AVERAGE SHARES 26,656,097 18,093,820
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
QUESTEC.COM, INC.
(formerly QUESTEC IMAGING INC.)
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock Total
-------------------------- Additional Accumulated Shareholders'
Shares Amount Paid in Capital Deficit Equity
------ ------ --------------- ------- ------
<S> <C> <C> <C> <C> <C>
BALANCE - JUNE 30, 1997 16,787,018 $ 5,708,807 $ -- $(6,581,768) $ (872,961)
Issued through private placement 5,364,756 834,399 834,399
Issued for options exercised 424,500 125,751 125,751
Shares cancelled (1,875,000) --
Net loss (1,125,665) (1,125,665)
---------- ---------- -------- ------------ -----------
BALANCE - JUNE 30, 1998 20,701,274 6,668,957 -- (7,707,433) (1,038,476)
Issued through private placement 1,215,000 278,000 278,000
Issued for options exercised 927,608 320,704 320,704
Issued for warrants exercised 667,262 217,083 217,083
Debt converted to equity 5,809,999 1,156,999 1,156,999
Issuance of options for services 120,362 120,362
Net loss (1,447,590) (1,447,590)
---------- ---------- -------- ------------ -----------
BALANCE - JUNE 30, 1999 29,321,143 $8,641,743 $120,362 $ (9,155,023) $ (392,918)
========== ========== ======== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
QUESTEC.COM, INC.
(formerly QUESTEC IMAGING, INC.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended June 30,
------------------------------
1999 1998
------------------------------
<S> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES:
NET LOSS $(1,447,590) $(1,125,665)
Add: Non-cash item - amortization and
depreciation 59,156 13,494
Stock options issued to employees
and non-employees for services 120,362 --
INCREASE (DECREASE) TO CASH ATTRIBUTABLE TO
CHANGES IN ASSETS AND LIABILITIES:
Accounts receivable 59,989 (46,400)
Inventories -- --
Notes receivable -- --
Other assets (5,706) 1,137
Accounts payable 20,128 (91,161)
Accrued expenses 23,245 (41,921)
Software development costs (296,368) --
Deferred revenue (48,000) 39,000
Bankcredit line 7,402 --
---------------------------
(1,507,382) (1,251,516)
--------- ----------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
ISSUANCE OF SHARES 1,972,786 960,150
Proceeds from (payments of)
advance from shareholders (387,307) 313,177
Proceeds from (payments of) notes payable (10,000) 10,000
Cash overdraft 3,259 --
--------- ----------
1,578,738 1,283,327
--------- ----------
CASH (USED IN) INVESTING ACTIVITIES:
Purchase of furniture and equipment (74,810) (31,217)
--------- ----------
(74,810) (31,217)
--------- ----------
(DECREASE) INCREASE IN CASH (3,454) 594
CASH, BEGINNING OF YEAR 3,454 2,860
--------- ----------
(CASH DEFICIT) CASH, END OF YEAR $ 0 $ 3,454
============ ============
SUPPLEMENTAL DISCLOSURES
Interest paid $ 4,312 $ --
Income taxes paid $ -- $ --
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
QUESTEC.COM, INC.
(Formerly QUESTEC IMAGING INC.)
(Incorporated under the laws of Wyoming, United States of America)
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY
QuesTec.com, Inc (formerly Questec Imaging, Inc.) (the "Company") was
incorporated in 1987 under the Company Act of British Columbia. During the year
ended June 30, 1996 the Company changed its name to Questec Imaging, Inc. from
SZL Sportsight, Inc. During the year ended June 30, 1998, the Company was
continued in Wyoming, United States of America. The Company designs, develops,
and markets proprietary software and hardware systems, with shared technology
bases, which present three-dimensional computer analyzed images for sports
entertainment, business, and industrial markets.
2. SIGNIFICANT ACCOUNTING POLICIES
a. Software Development Costs- The Company capitalizes software development
costs in accordance with Statement of Financial Accounting Standards No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed. Software costs, which are capitalized after
technological feasibility is established, totaled $296,000 and $0 in years
ended June 30, 1999 and 1998, respectively. Amortization of capitalized
software costs is computed using the straight-line method over the
estimated economic life of the software, primarily four years. Amortization
expense was $40,471 and $0 for the years ended June 30, 1999 and 1998,
respectively.
b. Furniture and Equipment- Furniture and equipment are stated at cost and
are depreciated using the straight line method over the estimated useful
lives of the assets.
c. Use of Estimates- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
F-6
<PAGE>
d. Loss Per Share- Loss per share is computed on the basis of weighted
average number of common shares outstanding during the respective periods.
On December 31, 1997, the Company adopted SFAS No. 128, "Earnings per
Share." Earnings per common share are computed by dividing income available
to common stockholders by the weighted average number of common shares
outstanding during the period. The earnings per common share, assuming
dilution, computation gives effect to all dilutive potential common shares
during the period. The computation assumes that the outstanding stock
options and warrants were exercised and that the proceeds were used to
purchase common shares of the Company. For the years ended June 30, 1999
and 1998 the Company had no dilutive securities.
e. Fair Value of Financial Instruments- The carrying amounts reported in
the balance sheet for assets and liabilities approximate fair value based
on the short term maturity of these instruments.
f. Accounting for Long-Lived Assets- The Company reviews long-lived assets,
certain identifiable assets and any goodwill related to those assets for
impairment whenever circumstances and situations change such that there is
an indication that the carrying amounts may not be recoverable. At June 30,
1999 the Company believes that there has been no impairment of its
long-lived assets.
g. Allowance for Doubtful Account- At June 30, 1999 and 1998, management
concluded that no allowance for doubtful account is needed as all accounts
receivable are 100% collectible.
h. Revenue recognition- Revenues are recorded when services are provided.
i. Stock Based Compensation- The Company accounts for stock transactions in
accordance with APB Opinion No. 25, "Accounting For Stock Issued To
Employees." Accordingly, no compensation is recorded on the issuance of
employee stock options at fair market value. The Company accounts for
nonemployee stock transactions in accordance with SFAS No. 123 and EITF
96-18.
j. Website Development Costs - The Company did not incur website
development cost during the years ended June 30, 1999 and 1998. Routine
maintenance cost on the website was charged to expense as incurred. The
Company intends to follow EITF 00-2 as to Website Development Costs in the
future.
3. BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate the
continuation of the Company as a going concern. The Company has reported
significant recurring net losses of approximately $1,448,000 and $1,126,000
in years ended June 30, 1999 and 1998, respectively. The Company has a
working capital deficiency of approximately $773,100 at June 30, 1999 in
comparison to $1,096,400 at June 30, 1998 respectively. Consequently,
recoverability of a major portion of the recorded asset amounts shown in
the accompanying balance sheet is dependent upon the Company's ability to
raise capital and ultimately, to
F-7
<PAGE>
generate profitable operations. In addition, the Company is currently
working on a $4 million private placement offering. The financial
statements do not include any adjustments relating to the recoverability
and classification of recorded asset amounts or amounts and classifications
of liabilities that might be necessary should the Company be unable to
continue in existence.
The Company's plan for the continued operations include the following:
o Expansion of revenue earnings for customers utilizing its
SuperVision system and its other systems.
o The setting up of strategic partnerships to reduce the cost of
future development.
o Setting up additional sources of revenue, such as internet
services, which require little capital but potentially generate
additional revenue.
o Keeping cash requirements to a minimum.
While the success of none of the above steps can be assured, management
believes that it can continue to achieve a reasonable mix of such steps, as
it has done in the past, to be able to continue as a going concern.
The Company has previously presented its financial statements in
accordance with Canadian accounting principles and in Canadian dollars.
These statements are in accordance with United States generally accepted
accounting principles and are stated in United States dollars.
4. FURNITURE AND EQUIPMENT
<TABLE>
<CAPTION>
June 30
------------------------ Estimated
1999 1998 useful lives
--------- ----------- -----------
<S> <C> <C> <C>
Furniture and equipment $226,102 $151,292 5-7 years
Accumulated depreciation (102,666) (84,043)
--------- --------
$123,436 $ 67,249
========= ========
</TABLE>
5. ACCRUED LIABILITIES
<TABLE>
<CAPTION>
June 30
-----------------------
1999 1998
--------- ---------
<S> <C> <C>
Accrued taxes $234,657 $ 46,472
Accrued payroll 117,474 188,662
Litigation settlement 78,095 83,181
Accrued expenses 76,269 98,505
Accrued professional 32,275 98,705
--------- --------
$538,770 $ 515,525
Less current portion 468,819 443,478
-------- ---------
Accrued liabilities less
current portion $ 69,951 $ 72,047
========= ========
</TABLE>
6. ADVANCE TO SHAREHOLDER
A shareholder and former officer of the Company had made advances on
behalf of the Company over several years, for a portion which advances he
had not
F-8
<PAGE>
requested reimbursement. During the year ended June 30, 1998, the Board of
Directors approved a reimbursement resulting in an amount due the
shareholder of $480,490, including amounts previously recorded. The advance
is not interest bearing and is due on demand. The remaining balance at June
30, 1999 approximates $93,000.
7. INCOME TAXES
The Company accounts for income taxes pursuant to the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 requires the recognition of deferred tax
assets and liabilities for both the expected tax impact of differences
between the financial statement and tax impact of assets and liabilities,
and for the expected future tax benefit to be derived from tax loss and tax
credit carryforwards. SFAS 109 additionally requires the establishment of a
valuation allowance to reflect the likelihood of realization of deferred
tax assets. At June 30, 1999, and 1998, the Company had deferred tax assets
of approximately $3,678,000, and $3,200,000, respectively, which represent
the tax impact of the Company's net operating loss carryforwards. The
Company has recorded a valuation for the full amount of such deferred tax
assets.
As a result of the U.S. Tax Reform Act of 1986, the Company is
obligated to pay an alternative minimum tax on its alternative minimum
taxable income, even though it has a loss carryforward. These carryforwards
are subject to possible limitations on annual utilization if there are
"equity structure shifts" or "owner shifts" involving "5% shareholders" (as
these terms are defined in Section 382 of the Internal Revenue Code), which
result in more than 50 percentage point change in ownership. The company
has net operating loss carryforwards approximating $10,600,000 and
$9,125,000 at June 30, 1999 and 1998, respectively, available to offset any
future taxable income through 2014.
8. ACCRUED PAYROLL TAXES
The Company owed payroll taxes at June 30, 1999 and 1998 approximating
$235,000 and $46,000 respectively.
F-9
<PAGE>
9. RELATED PARTY TRANSACTIONS
During the years ended June 30, 1999 and 1998, legal services was
provided by an attorney who is also a member of the board of Directors. The
balance due at June 30, 1998 was approximately $33,000. The Company repaid
the balance in the year ended June 30, 1999.
10. SHARE CAPITAL
a. Authorized - The authorized share capital of the company consists of
50,000,000 shares, divided into 40,000,000 common shares without par value
and 10,000,000 preferred shares without par value.
b. Certain Shareholder Transactions - In January 1997, certain managing
shareholders received, for nominal consideration, an aggregate of 300,000
shares of the Company's common stock. The value of these shares, as
recorded by the Company, was $.42, which is the price realized in a
contemporaneous transaction involving the exchange of certain debt for
shares. In connection with the issuance of these shares, the shareholders
relinquished their rights to 300,000 previously issued warrants. The
Company has recorded $126,000 as compensation expense upon consummation of
this transaction.
c. Escrow Shares:
i. Principals' shares
750,000 common shares issued at a price of $.01 per share to two
principals of the Company were escrowed pursuant to an escrow agreement
dated June 30, 1987. The agreement provides that the principals will be
entitled to maintain ownership of these shares if the Company achieves the
financial objectives set out in its business plan. The release of the
shares is subject to the
F-10
<PAGE>
policies of the Superintendent of Brokers of the Vancouver Stock Exchange.
During the year ended June 30, 1989, the Vancouver Stock Exchange
approved a pro-rata release of 225,000 of the principals' escrowed shares.
525,000 of the principals' shares were canceled in fiscal year June 1998.
ii. Escrowed shares to be released on the basis of an earn-out formula.
In connection with the acquisition of Sportsight Inc; 3,000,000 common
shares of the Company were escrowed. As of February 22, 1995 1,650,000 of
the performance shares were canceled. The remaining 1,350,000 shares
previously held by directors and employees of the Company were canceled
during fiscal year June 1998.
d. Conversion of Debt - On October 23, 1998 and December 10, 1998, the Company
converted certain liabilities in the amount of $1,142,000 and $15,000,
respectively, owed to certain employees and directors of the Company to
5,709,999 shares and 100,000 shares of the Company's common stock. The
conversion rate was the average trading price of the Company's shares
during the previous ten (10) trading days. There was no conversion feature
in the original debt.
e. Accounting for Stock Options - The Company accounts for its stock option
plan under APB Opinion No. 25, "Accounting for Stock Issued to Employees",
("APB 25") under which no compensation expense is recognized. In fiscal
1997, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation", (SFAS 123") for disclosure purposes; accordingly, no
compensation has been recognized in the results of operations for its stock
option plan as required by APB 25.
For disclosure purposes, the fair value of each employee stock option
grant is estimated on the date of grant using the Black-Scholes Option
Pricing Model with the following weighted-average assumptions used for
employee stock options granted during the years ended June 30, 1999, 1998
and 1997; annual dividends of $0.00, expected volatility of 50.0%, and
risk-free interest rate of 6.0%, over the expected life of each grant. The
weighted-average fair value of the employee stock options granted the
years ended June 30, 1999 and 1998 was $.18 and $.19, respectively. The
expected life of the grants range from two to five years.
If the Company recognized compensation cost for the employee stock
option plan in accordance with SFAS 123, the Company's proforma net loss
and loss per share would have been approximately $1.52 Million and $.06 in
1999, and $1.17 million and $0.06 in 1998.
F-11
<PAGE>
During the year ended June 30, 1999, the Company granted certain
consultants options to purchase 760,000 shares of the Company's common
stock at an exercise price of $0.21 per share. Accordingly, the Company
recorded compensation costs of $84,142 based on the Black-Scholes Option
Price Model. The assumptions are the same as previously disclosed (see
above). In addition, the Company granted 1,400,000 options to its employees
with an exercise price less than market value. Accordingly, the Company
recognized $36,220 in compensation expenses for these options.
The following table summarizes the changes in options and warrants
outstanding, the weighted-average exercise price as calculated in
accordance with SFAS 123, and the related price ranges for shares of the
Company's common stock:
<TABLE>
<CAPTION>
STOCK OPTIONS WARRANTS
------------------------------------------- ---------------------------------
WEIGHTED RANGE OF
AVERAGE EXERCISE WARRANT
SHARES EXERCISE PRICE PRICE SHARES PRICE
------ -------------- ----- ------ -----
<S> <C> <C> <C> <C> <C>
Outstanding at June 30, 1997 1,441,650 0.62 $ .44 to 1.20 1,312,857 $.42 to .80
Granted/Issued 1,384,782 0.30 .23 to .38 -- --
Expired (38,650) 1.15 1.15 (886,669) .75
Exercised (424,500) 0.30 .23 to .318 -- --
Canceled (460,000) 0.75 .318 to 1.10 -- --
----------- -----------
Outstanding at June 30, 1998 1,903,282 0.39 .23 to 1.20 426,188 .42 to .80
Granted/Issued 2,160,000 0.47 .20 to .62 857,500 .25 to .30
Expired -- -- -- (261,902) .70
Exercised (927,608) 0.45 .21 to .62 (726,786) .25 to .42
----------- -----------
Outstanding at June 30, 1999 3,135,674 0.38 .20 to .62 295,000 .30
=========== ===========
</TABLE>
F-12
<PAGE>
f. Private Placement - In October 1997 through February 1998, the Company
issued 5,364,756 shares, raising $834,399. The shares were selling between
$.14 and $.21 during this time period.
11. COMMITMENTS AND CONTINGENCIES
The Company has been involved in the following law suits and claims:
i. Charles F. Mehler vs. Questec Imaging, Inc. - A suit brought by a former
employee of the Company claiming approximately $161,000 for breach of
employment agreement, non-payment of wages, including damages therefrom,
unreimbursed employment related expenses, and loans made to the Company.
The Company intends to vigorously defend this suit as it believes that Mr.
Mehler has been fully paid for all services rendered, and that he in fact
is the party who violated the employment agreement between the parties. As
management believes the Company has no obligation to Mr. Mehler, no accrual
has been made with respect to this litigation. Management contends that Mr.
Mehler was actually paid in excess of what was due him and he owes the
Company money.
ii. Fraser & Company - A claim with respect to debt for legal services
provided in the amount of $15,127. Payments totalling $10,062 and $2,980
were made on this claim in 1999 and 1998 respectively. Unpaid balances of
$-0- and $2,980 at June 30, 1999 and 1998, respectively, are included in
accrued liabilities.
iii. On October 23, 1998, the Company agreed to settle and affix the
accrued salary for a current employee to approximately $177,000. As part of
the settlement, the Company further agreed to pay the employee $60,000 per
year for the next four years, without condition. Such additional
compensation has been accrued at $15,000 per quarter by the Company.
iv. In October 1998, the Company and the New York State Attorney General
signed an assurance of discontinuance in which, without admitting or
denying certain allegations related to the Company's sale of its stock
without proper New York State filings, the Company paid the state $20,000
and agreed not to sell stock in the future in New York without appropriate
filings with the Attorney General.
F-13
<PAGE>
v. Montreal Trust Company v. Questec Imaging, Inc.- On March 10, 1997, an
action was commenced with respect to debt and for which judgment was
obtained in the amount of $90,000 with interest accrued at the rate of
$15.18 (Canadian Dollars) per day. Principal and interest payment of $1,000
(Canadian Dollars) should be paid monthly. Payments should be applied to
accrued interest first. Total payments made under this judgment were
approximately $7,000 each during the years ended June 30, 1999 and 1998.
Unpaid balances of approximately $78,000 and $80,000 at June 30, 1999 and
1998, respectively, are included in accrued liabilities. The average and
end of period translation rates are $1.4726, $1.4735 and $1.4264, $1.4716
in fiscal 1999 and 1998, respectively.
vi. Atlantic Aerospace Electronics Corporation agreement - In September
1998, the Company entered into an agreement with Atlantic Aerospace to
collaborate on the development of products that will display real time
graphic simulation of players and any and all action on the field of play
by combining sensing technology, signal processing, animation software,
custom interface software, peripheral hardware equipment, engineer
operators and graphic workstations. Atlantic shall retain ownership of the
software they develop under this agreement. The parts of each graphic
workstation not developed by Atlantic shall be owned by the Company.
Atlantic shall grant the Company a license to use executable software
libraries Atlantic develops under this agreement. This license shall give
the Company perpetual and exclusive rights to use the software for sports
related applications. In exchange for this license to use Atlantic's
software, the Company, will grant Atlantic options for 500,000 stock
options for shares in the common stock of the Company, with an exercise
price of $0.20 per share. The Company will also pay Atlantic a 10% royalty
on the Company's portion of gross revenues derived directly or indirectly
from the sale, license or use of the graphic workstations. The options have
a life of 5 years and will be subject to a 1 year restriction. The options
are valued at $55,357 under the Black-Scholes option-price model. (See Note
10d). Total royalty fee incurred during the year ended June 30, 1999
amounted to $3,913.
vii. In May 1998 the Company entered into an agreement with an individual
to perform system development services. The agreement terminates
automatically on August 31, 2000. Either party may terminate agreement upon
notifying the other party in writing fourteen days prior to termination.
The Company entered into a lease agreement for office space under
noncancellable operating leases on February 1, 1999 and expiring December
31, 2001. Minimum annual rental commitments under noncancellable operating
leases as of June 30, 1999 are as follows:
2000 $29,838
2001 30,888
2002 15,750
F-14
<PAGE>
Rental expense of $12,250 and $5,380 for 1999 and 1998 respectively, has
been charged to operations.
13. SIGNIFICANT CUSTOMERS
Approximately 54.2%, 14.0%, 13.3%, and 10.7% of the Company's revenue
was derived from four major customers during the year ended June 30, 1999.
During the year ended June 30, 1998, approximately 65.4%, 16.4%, and 10.9%
of the Company's revenue was derived from three major customers
14. SUBSEQUENT EVENTS
Exercise of Options
-------------------
On July 9, 1999 the president, a shareholder and an employee of the Company
exercised their options to purchased 50,000, 200,000 and 50,000 shares of
the Company's common stock for $15,600, $124,000 and $19,000, respectively.
The Company received no cash on these exercises of options as such amounts
were reduced from accrued payroll and other liability due to the president,
the shareholder and the employee.
Conversion of Debt
------------------
On July 9, 1999, the Company agreed to settle various debts owed to two
individuals, both of whom are shareholders and employees, of $160,000 for
one and $52,000 for the other for shares of the Company, respectively. Each
$0.40 of debt was converted into one (1) share of common stock. The total
shares issued for this conversion were 400,000 and 130,000, respectively.
The conversion rate was the average trading price of the Company's shares
during the previous ten (10) trading days.
F-15
<PAGE>
QUESTEC.COM, INC.
(Formerly QUESTEC IMAGING INC.)
BALANCE SHEET
<TABLE>
<CAPTION>
---------------------------------
March 31, 2000 June 30, 1999
(Unaudited) (Audited)...
ASSETS --------------------------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 22,003 $ ---
Accounts receivable 78,300 22,811
Other assets - security deposits 5,960 5,960
----------- ----------
TOTAL CURRENT ASSETS 106,263 28,771
INTANGIBLE ASSETS, net 522 570
SOFTWARE DEVELOPMENT COSTS,
net of amortization 293,170 255,898
FURNITURE AND EQUIPMENT, net 136,847 123,436
----------- ----------
$ 536,802 $ 408,675
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Cash overdraft $ --- $ 3,259
Bank credit line 9,629 7,402
Accounts payable 166,351 158,979
Accrued liabilities 482,563 538,770
ADVANCE FROM SHAREHOLDER 277,677 93,183
----------- ----------
TOTAL CURRENT LIABILITIES 936,220 801,593
----------- ----------
SHAREHOLDERS' EQUITY:
Preferred stock, $0.0001 par value,
authorized 20,000,000 shares;
none issued -- --
Common stock, $0.0001 par value; authorized
80,000,000 shares; 31,524,643 and 29,321,143
shares issued and outstanding, respectively. 3,152 --
Paid - in capital 9,467,450 8,762,105
Accumulated deficit (9,870,020) (9,155,023)
----------- ----------
TOTAL STOCKHOLDERS' EQUITY (399,418) (392,918)
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 536,802 $ 408,675
========== ============
</TABLE>
F-16
<PAGE>
QUESTEC.COM, INC.
(formerly QuesTec Imaging, Inc.)
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended March 31,
-----------------------------
2000 1999
Revenue: -----------------------------
<S> <C> <C>
Services $ 153,312 $ 100,483
Cost of revenue 137,531 35,154
----------- -----------
Gross profit 15,781 65,329
----------- -----------
Expenses:
Payroll, payroll taxes and related benefits 333,912 368,878
Amortization and depreciation 90,882 33,362
Other general and administrative expenses 305,984 294,768
----------- -----------
730,778 697,008
----------- -----------
Loss before Taxes (714,997) (631,679)
Income Tax Expense --- ---
----------- -----------
Net Loss $ (714,997) $ (631,679)
=========== ===========
Weighted Average Shares of
common stock outstanding 30,634,199 25,789,521
=========== ===========
Net Loss per share $ (0.02) $ (0.02)
(basis and diluted) =========== ===========
</TABLE>
F-17
<PAGE>
QUESTEC.COM, INC.
(formerly QUESTEC IMAGING, INC.)
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended March 31,
---------------------------
2000 1999
---------------------------
<S> <C> <C>
CASH FLOES FROM OPERATING ACTIVITIES:
Net Loss $ (714,997) $ (631,679)
Depreciation 23,538 11,367
Amortization 67,344 21,995
Increase/Decrease in current assets (55,489) 4,489
Increase in other assets -- (5,706
Increase in Software development costs (104,569) (176,623)
Decrease in deferred revenue -- (48,000)
Increase in Bank credit line 2,227 10,000
Increase/Decrease in Accounts payable 7,372 (26,525)
Decrease in accrued liabilities (56,207) (110,262)
---------- ----------
(36,948) (18,544)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of shares 708,497 1,373,626
Note payable -- (10,000)
Cash overdraft -- 8,073
Advances from/to shareholders, net 184,494 (405,665)
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 892,991 966,034
---------- ----------
CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES:
Purchase of capital expenditures (36,948) (18,544)
---------- ----------
(11,091) --
---------- ----------
INCREASE (DECREASE) IN CASH 25,262 (3,454)
CASH, BEGINNING OF PERIOD (3,259) 3,454
---------- ----------
CASH, END OF PERIOD $ (22,003) $ 0
========== ==========
SUPPLEMENTAL DISCLOSURES
Interest paid $ 3,388 $ 5,153
Income taxes paid $ -- $ --
</TABLE>
F-18
<PAGE>
QUESTEC.COM, INC.
(Formerly QUESTEC IMAGING INC.)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NINE MONTHS ENDED MARCH 31, 2000
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of QuesTec.com, Inc.
(the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to prepare them for inclusion as an exhibit to Form 10-SB.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments considered
necessary for a fair presentation (consisting of normal recurring accruals)
have been included. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported 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. Operating results for the nine month period ended March 31, 2000
are not necessarily indicative of the results that may be expected for the
year ending June 30, 2000. For further information, refer to the financial
statements and footnotes thereto included in the Company's audited report
for the year ended June 30, 1999.
2. THE COMPANY
QuesTec.com, Inc. (the "Company") was incorporated in 1987 under the
Company Act of British Columbia. During the year ending June 30, 2000, the
Company changed its name to QuesTec.com, Inc. from QuesTec Imaging Inc.
During The year ended June 30, 1998, the Company was continued in Wyoming,
United States of America. The Company designs, develops and markets
proprietary software and hardware systems, with shared technology bases,
which present three-dimensional computer analyzed images for sports
entertainment, business and industrial markets.
3. LOSS PER SHARE
Loss per share is computed on the basis of the weighted average number
of common stock outstanding during the respective periods. Options and
warrants are excluded from the calculation of diluted loss per share as
such inclusion will be antidiluted.
F-19
<PAGE>
PART III
Exhibits
Index to Exhibits
2. Charter and By-Laws*
6. Material Contracts*
6a. Agreements with Atlantic Aerospace Electronics Corporation dated
September 9, 1998*
6b. Agreement with Live Motion Company dated June 9, 1999*
15. Private Placement Memorandum dated October 1, 1997*
* Incorporated by reference from Form 10-SB filed on March 2, 2000
Item 2. Description of Exhibits
As listed in the above Index, the appropriate exhibits are either being filed or
have previously been filed and are incorporated herein by reference. The
additional exhibits are marked and filed. The issuer is not a Canadian issuer
and is not filing a written consent and power of attorney.
17
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
as amended, the Registrant caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
QUESTEC.COM,INC.
July 26, 2000 By: /s/ Michael W. Russo
--------------------------
Michael W. Russo,
President
July 26, 2000 /s/ Deirdre Gallagher
-----------------------------
Deirdre Gallagher,
Secretary
18