<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
=
For the Fiscal Year ended
-----------------------------------
OR
X TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
- OF 1934
For the transition period from July 1, 1999 to June 30, 2000
Commission file number 0-30756
QUESTEC.COM, INC.
-----------------
(Name of Small Business Issuer in Its Charter)
Wyoming 13-1713318
------------------------------ -------------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
160B West Industry Court, Deer Park, New York 11729
--------------------------------------------- -----
(Address of principal executive office) (Zip Code)
Issuer's telephone number, including area code (631) 243-1880
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $0.0001 par value
-------------------------------
Check whether the issuer (1) filed all reports to be filed by Section 13 or
15(d) of the Exchange Act during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No .
--- ---
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year were $297,002.
The aggregate market value of the Common Stock held by non-affiliates of
the registrant on September 29, 2000 was $11,118,234.
The number of shares outstanding of registrant's common stock, as of June
30, 2000, was 31,571,643.
Transitional Small Business Format: Yes X No
--- ---
Documents Incorporated by Reference.
A portion of the Proxy Statement to be filed in connection with the Annual
Shareholders' Meeting to be held in November 2000 is incorporated by reference
in Items 9, 10 and 11 hereof.
The Exhibit Index is located on sequential page 8.
<PAGE>
Part I
------
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements contained under "Description of Business", and elsewhere in
this Registration Statement on Form 10-KSB, 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-KSB or
to reflect the occurrence of unanticipated events.
The issuer has elected to follow Form 10-KSB, 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. 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 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 and officiating, and player evaluation and training.
2
<PAGE>
The Company uses cameras, computers, video equipment, proprietary technology and
software to track and measure 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 pitches in a single baseball game on FOX Sports
Net's home team production, provide the same real-time production service for
Fox Sports Net's away team broadcast, including separate national coverage, as
well as foreign networks for international broadcasts, transmit the data via the
internet in real-time for broadcast over the worldwide web and/or interactive TV
platforms, then later provide the data to Major League Baseball and professional
teams as well as video game producers.
The Company offers the following services:
SuperVision(TM). 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(TM) tracks each pitch, then measures the speed, path
and trajectory at various intervals as it approaches the strike zone.
HitTrax(TM). The Company's new HitTrax(TM) system will measure the speed and
direction of each hit, as well as the point of contact between the bat and ball
in the hitting zone. HitTrax(TM) will then display this information, graphically
combined with the Company's proprietary SuperVision(TM) data (which precisely
measures the trajectory, speed, movement and ultimate plate-location of every
pitch thrown during a game). This complete virtual replay will illustrate
dramatically, and for the first time, the relationship between pitch type and
location versus hitting results in the duel between pitcher and batter. The idea
that a given pitcher induces batters to hit grounders or fly balls by his pitch
selection will be clearly illustrated through this rich source of information.
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.
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.
A standard production (equipment) setup is comprised of a 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 computerized 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 for remote users and/or quality control management.
3
<PAGE>
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 had hoped
to 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.
However, as part of the Company's ongoing negotiation, the financier has
requested that the Company make changes to its existing corporate structure.
While many of these changes are relatively minor and within the authority of the
Company's management and Board of Directors to implement, some changes require
the approval of the Company's shareholders. Management is confident that the
Company's shareholders will approve these changes and have placed these matter
on the agenda of the Company's Annual Shareholder's Meeting. In accordance with
the structure of the proposed transaction, 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. These monies will be used to pay down all long-term
and short-term debt, hire additional 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). In addition, Company management would also propose that a
nominee designated by the financier be nominated for election to a seat on the
Company's Board of directors.
Within the next twelve months, the Company anticipates that it will complete
installation of SuperVision in all 30 Major League ballparks (20 ballparks are
presently cabled and 14 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 launched this summer during ISL
Worldwide's coverage of ATP Tour Master Series Tennis tournament from Toronto,
Canada), complete development and deployment of a 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 and national
baseball broadcasts and ISL Worldwide's world feed television coverage of ATP
Tour's Master Series Tennis tournament, the majority of which originate in
Europe. In the fiscal year ended June 30, 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 such fiscal year 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
4
<PAGE>
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.
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, while expanding 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 technology (for
example, Fox will promote the fact that its baseball games feature
SuperVision(TM)).
Competition
Companies that compete in the sports information market are SporTVision, Elias
Sports Bureau, Inside Edge, STATS Inc., Sports Ticker, Princeton Video,
Baseball.TV 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 and manual data entry packages from historical
events as information and analysis tools 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. Competitors
can offer statistical information regarding particular situations. 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
production.
5
<PAGE>
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. The Company believes that its relationship with
AAEC is imperative in maintaining its position as a technological leader in the
industry. AAEC will provide the Company with all research and development of
live-motion-capture tracking technology for future sports related applications.
The Company has a strategic partnership with Live Motion Company ("LMC") of
Wiesbaden, Germany, whereby LMC markets and assists in producing the Company 's
services 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.
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. 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.
Employees.
The Company presently has 7 full-time and 20 part time employees from its Deer
Park, New York office.
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 for the fiscal year ended June
30, 2000 was $30,994.
Item 8. Directors, Executive Officers and Significant Employees.
The information required to be furnished under this Item shall be incorporated
by reference from the Company's definitive Proxy Statement to be filed in
connection with its Annual Meeting of Shareholders to be held in November 2000.
Item 9. Remuneration of Directors and Officers.
The information required to be furnished under this Item shall be incorporated
by reference from the Company's definitive Proxy Statement to be filed in
connection with its Annual Meeting of Shareholders to be held in November 2000.
Item 10. Security Ownership of Management and Certain Security Holders.
The information required to be furnished under this Item shall be incorporated
by reference from the Company's definitive Proxy Statement to be filed in
connection with its Annual Meeting of Shareholders to be held in November 2000.
Item 11. Interest of Management and Others in Certain Transactions.
6
<PAGE>
The information required to be furnished under this Item shall be incorporated
by reference from the Company's definitive Proxy Statement to be filed in
connection with its Annual Meeting of Shareholders to be held in November 2000.
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 OTC NASDAQ Bulletin Board 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.
Quarter-Ended
Year Mar 31 June 30 Sept 30 Dec 31
---- ------ ------- ------- ------
2000 High $1.20 $0.90
Low $0.38 $0.38
1999 High $0.78 $0.98 $0.72 $1.02
Low $0.37 $0.48 $0.43 $0.31
1998 High $0.37 $0.64
Low $0.18 $0.15
Approximate Number of Equity Security Holders
At September 15, 2000, the approximate number of holders of record of the
Company's Common Stock was 3,250.
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.
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.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Compliance with Section 16(a) of the Exchange Act.
None
Item 6. Reports on Form 8-K.
None.
7
<PAGE>
PART F/S
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QUESTEC.COM, INC.
CONTENTS
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Page
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Report of Independent Auditors F-1
FINANCIAL STATEMENTS
Balance Sheets F-2
Statements of Operations F-3
Statement of Changes in Stockholders' Deficit F-4
Statements of Cash Flows F-5
Notes To Financial Statements F-6 - F-11
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Questec.Com, Inc.
Deer Park, NY
We have audited the accompanying balance sheets of Questec.Com, Inc. as of June
30, 1999 and 2000, and the related statement of operations, changes in
stockholders' deficit, and cash flow for each of 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 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 Questec.Com, Inc. at June 30,
1999 and 2000, and the results of its operations and its cash flows for each of
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 4 to the
financial statements, the Company incurred a net loss of $1,354,763 during the
year ended June 30, 2000, and, as of that date, the Company's current
liabilities exceeded its current assets by $1,078,597, and its total liabilities
exceeded its total assets by $662,334 and there are existing uncertain
conditions that the Company faces relative to capital raising activities. These
conditions raise substantial doubt about its ability to continue as a going
concern. Management's plans regarding those matters also are described in Note
4. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Radin, Glass & Co., LLP
Certified Public Accountants
New York, NY
August 3, 2000
F-1
<PAGE>
QUESTEC.COM, INC.
BALANCE SHEETS
JUNE 30, 1999 AND 2000
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ASSETS: 1999 2000
-------------------------
CURRENT ASSETS:
Cash and cash equivalents $ -- $3,007
Accounts receivable 22,811 51,175
Note receivable -- 10,000
Other current assets 6,530 6,466
-------------------------
Total current assets 29,341 70,648
FURNITURE AND EQUIPMENT, net 123,437 183,417
SOFTWARE DEVELOPMENT COSTS, net of
accumulated amortization of $40,471
and $135,254, in 1999 and 2000, respectively. 255,898 301,513
-------------------------
Total assets $408,676 $555,578
=========================
LIABILITIES AND STOCKHOLDERS' DEFICIT:
CURRENT LIABILITIES:
Accounts payable $162,239 $195,071
Accrued liabilities, current portion 468,819 864,874
Note payable, bank 7,402 9,980
Advances from stockholders 93,183 79,320
-------------------------
Total current liabilities 731,643 1,149,245
OTHER LIABILITIES:
Accrued liabilities, non-current portion 69,951 68,667
-------------------------
Total liabilities 801,594 1,217,912
-------------------------
STOCKHOLERS' DEFICIT:
Preferred stock, $0.0001 par value, 20,000,000
shares authorized, none issued -- --
Common stock; $ 0.0001 par value, 80,000,000
shares authorized, 29,321,143 and 31,571,643
shares issued and outstanding at June 30, 1999
and June 30, 2000, respectively -- 3,157
Additional paid in capital 8,762,105 9,844,295
Accumulated deficit (9,155,023) (10,509,786)
-------------------------
Total stockholders' deficit (392,918) (662,334)
-------------------------
Total liabilities, and stockholders' deficit $408,676 $555,578
=========================
See notes to financial statements.
F-2
<PAGE>
QUESTEC.COM, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1999 AND 2000
--------------------------------------------------------------------------------
1999 2000
---------------------------
Net revenue $127,944 $297,002
Cost of revenue 95,099 188,043
---------------------------
Gross profit 32,845 108,959
---------------------------
Operating expenses:
Selling, general and administrative 1,416,268 1,232,259
Depreciation and amortization 59,156 143,283
---------------------------
Total operating expenses 1,475,424 1,375,542
---------------------------
Operating loss (1,442,579) (1,266,583)
---------------------------
Other income (expenses):
Interest expense, net (4,312) (31,055)
Other expense (699) (57,125)
---------------------------
Total other expenses (5,011) (88,180)
---------------------------
Loss before provision for income taxes (1,447,590) (1,354,763)
Provision for income taxes -- --
---------------------------
Net loss ($1,447,590) ($1,354,763)
===========================
Net Loss Per Share (Basic and Diluted) ($0.05) ($0.04)
===========================
Weighted Average Common Shares Outstanding 26,656,097 30,795,940
===========================
See notes to financial statements.
F-3
<PAGE>
QUESTEC.COM, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED JUNE 30, 1999 AND 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
----------------- --------------------- Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE - July 1, 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 -- 8,762,105 (9,155,023) (392,918)
Change of par value 2,392 (2,932) --
Issued for options exercised 1,720,500 172 652,675 652,847
Debt converted to equity 530,000 53 211,947 212,000
Stock-based compensation 220,500 220,500
Net loss (1,354,763) (1,354,763)
-----------------------------------------------------------------------------------------
BALANCE - June 30, 2000 -- $ -- 31,571,643 $3,157 $9,844,295 ($10,509,786) ($662,334)
=========================================================================================
</TABLE>
See notes to financial statements.
F-4
<PAGE>
QUESTEC.COM, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1999 AND 2000
<TABLE>
<CAPTION>
1999 2000
-----------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($1,447,590) ($1,354,763)
Adjustments to reconcile net loss to net cash provided (used)
by operating activities:
Depreciation and amortization 59,156 143,283
Stock-based compensation 120,362 220,500
Changes in operating assets and liabilities:
Accounts receivable 59,989 (28,364)
Note receivable -- (10,000)
Other current assets (5,706) --
Deferred revenue (48,000) --
Accounts payable 20,128 32,833
Accrued liabilities 1,180,245 1,059,907
-----------------------------
Net cash provided (used) by operating activities (61,416) 63,396
-----------------------------
Cash flows from investing activities:
Purchases of furniture and equipment (74,810) (108,416)
Costs incurred on development costs (296,368) (140,398)
-----------------------------
Net cash provided (used) by investing activities (371,178) (248,814)
-----------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 278,000 --
Proceeds from exercise of options and warrants 537,787 39,712
Payments of note payable (10,000) --
Net changes in bank credit line 7,401 2,578
Cash overdraft 3,259 --
Net changes in stockholders' loan (387,307) 146,135
-----------------------------
Net cash provided (used) by financing activities 429,140 188,425
-----------------------------
Net increase (decrease) in cash and cash equivalents (3,454) 3,007
Cash and cash equivalents at beginning of year 3,454 --
-----------------------------
Cash and cash equivalents at end of year $ 0 $ 3,007
=============================
Supplemental disclosure of cash flow information: Cash paid during the years for:
Interest $ 4,312 $ 9,007
=============================
Taxes $ -- $ 405
=============================
Non-cash investing and financing activities:
Exercise of options by reducing liabilities $ -- $613,135
=============================
Conversion of debt to equity $1,156,999 $212,000
=============================
</TABLE>
See notes to financial statements.
F-5
<PAGE>
QUESTEC.COM, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. DESCRIPTION OF THE COMPANY:
QuesTec.com, Inc. (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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Software Development Costs:
The Company capitalizes software development costs in accordance with SFAS 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 $296,369 and $ 140,398 in years ended June
30, 1999 and 2000, 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 $94,783 for
the years ended June 30, 1999 and 2000, respectively.
Furniture and Equipment:
Furniture and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation and amortization are provided using the straight-line
method over the estimated useful lives of the related assets, which range from
five to seven years, or over the lesser of the term of the lease or the
estimated useful life of the asset for assets under capital lease. Routine
maintenance, repairs and replacement costs are expensed as incurred and
improvements that extend the useful life of the assets are capitalized. When
furniture and equipment is sold or otherwise disposed of, the cost and related
accumulated depreciation are eliminated from the accounts and any resulting gain
or loss is recognized in income.
Allowance for Doubtful Account:
At June 30, 1999 and 2000, management concluded that no allowance for doubtful
account is needed as all accounts receivable are 100% collectible.
Revenue Recognition:
Revenues are recorded when services are provided.
Income Taxes:
The Company utilizes the liability method of accounting for income taxes as set
forth in SFAS No. 109, "Accounting for Income Taxes". Under the liability
method, deferred taxes are determined based on the difference between the
financial statement and tax basis of assets and liabilities using enacted tax
rates in effect in the years in which the differences are expected to reverse.
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 non-employee stock transactions in accordance with SFAS No.
123 and EITF 96-18.
Reclassifications:
Certain reclassifications have been made to the prior year's financial
statements to conform to the current year presentation. These reclassifications
had no effect on previously reported results of operations or retained earnings.
F-6
<PAGE>
QUESTEC.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
Web-site Development Costs:
The Company adopted EITF 00-2, "Accounting for Web-site Development Costs". EITF
00-2 requires certain web-site development costs to be expensed and others to be
capitalized. During the years ended June 30, 1999 and 2000, no web-site
development costs were incurred, which would be capitalized under EITF 00-2.
Routine maintenance cost on the web-site was charged to expense as incurred.
Management's 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 dates of the financial statements and
the reported amounts of expenses during the reporting periods. Actual results
could differ from those estimates.
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.
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 and 2000, the Company believes that there
has been no impairment of its long-lived assets.
Income (Loss) Per Share:
The Company adopted SFAS No. 128, "Earnings per Share". SFAS No. 128 eliminates
the presentation of primary and fully dilutive earnings per share ("EPS") and
requires presentation of basic and diluted EPS. Basic EPS is computed by
dividing income (loss) available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS is based on the
weighted-average number of shares of common stock and common stock equivalents
outstanding for the period. Common stock equivalents are excluded in the
computation of diluted EPS, as such inclusion is antidiluted.
Reporting of Segments:
The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information". SFAS No. 131 establishes the criteria for determining
an operating segment and establishes the disclosure requirements for reporting
information about operating segments. The Company has determined that under SFAS
No. 131, it operates in one segment of service.
3. FURNITURE AND EQUIPMENT:
Furniture and equipment consist of the following as of June 30:
1999 2000
-------------------------
Furniture and equipment $226,102 $334,518
Less: Accumulated depreciation and amortization (102,665) (151,101)
-------------------------
Furniture and Equipment, net $123,437 $183,417
=========================
Depreciation expense was $18,685 and $48,436 for the years ended June 30, 1999
and 2000, respectively.
F-7
<PAGE>
QUESTEC.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
4. BASIS OF PRESENTATION:
As shown in the accompanying financial statements, the Company incurred a net
loss of $1,354,763 during the year ended June 30, 2000, and, as of that date,
the Company's current liabilities exceeded its current assets by $1,078,597 and
its total liabilities exceeded its total assets by $662,334. These factors, as
well as the uncertain conditions that the Company faces relative to capital
raising activities, create an uncertainty as to the Company's ability to
continue as a going concern. The Company is currently working on a $4,000,000
private placement offering, setting up strategic partners to reduce future
development costs, expansion of revenue earnings for customers utilizing its
existing systems and setting up additional sources of revenue, such as internet
services, which require little capital but potentially generate additional
revenue. The ability of the Company to continue as a going concern is dependent
upon the success of the offering or alternative financing arrangements and
expansion of its operations. The financial statements do not include any
adjustments that might be necessary should the Company be unable to continue as
a going concern.
5. ACCRUED LIABILITIES:
Accrued liabilities consist of the following as of June 30:
1999 2000
-----------------------
Accrued taxes $234,657 $264,482
Accrued payroll 117,474 384,429
Litigation settlement 78,095 76,776
Accrued expenses 108,544 207,854
-----------------------
538,770 933,541
Less: Current Portion 468,819 864,874
-----------------------
Accrued Liabilities, Non-current Portion $ 69,951 $ 68,667
=======================
The Company owed payroll taxes at June 30, 1999 and 2000 approximating $235,000
and $264,000, respectively.
6. ADVANCE FROM STOCKHOLDERS:
Certain stockholders and officers of the Company had made advances on behalf of
the Company during the years ended June 30, 1999 and 2000. These advances are
non-interest bearing and are due on demand.
7. INCOME TAXES:
No provision has been made in the accompanying financial statements for income
tax expense as a result of the current operating loss and net operating loss
carryforwards. Differences between income tax benefits computed at the Federal
statutory rate (34%) and reported income taxes for years ended June 30, 1999 and
2000 are primarily attributable to the net operating loss carryforwards.
At June 30, 1999 and 2000, the Company had deferred tax assets of approximately
$3,678,000 and $4,128,000, respectively, which represent the tax impact of the
Company's net operating loss carryforwards. A valuation allowance is required
if, based on the weight of available evidence, it is more likely than not that
some portion of all of the deferred tax assets will not be realized. Management
concluded a full valuation allowance was appropriate at June 30, 1999 and 2000
due to operating losses incurred. The Company estimated the available net
operating loss carryforwards to be approximately $10,600,000 and $11,900,000 at
June 30, 1999 and 2000, respectively, which will expire on various dates through
2019.
F-8
<PAGE>
QUESTEC.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
8. STOCKHOLDERS' EQUITY:
Authorized:
On December 16, 1999, the Board of Directors amended the certificate of
incorporation to increase the number of authorized shares from 50,000,000 to
100,000,000 shares having a par value of $0.0001. The authorized share capital
of the Company comprised of 80,000,000 common shares and 20,000,000 preferred
shares.
Conversion of Debt:
During the years ended June 30, 1999 and 2000, the Company converted certain
liabilities in the amount of approximately $1,157,000 and $212,000,
respectively, owed to certain stockholders/employees of the Company to 5,809,999
and 530,000 shares of its 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.
Private Placement Offering:
During the year ended June 30, 1999, the Company issued 1,215,000 shares,
raising $278,000 as part of a private placement offering.
Options and Warrants:
During the year ended June 30, 1999, the Company granted certain consultants
options to purchase 760,000 shares of its common stock at an exercise price of
$0.21 per share. Accordingly, the Company recorded consulting costs of $84,142
based on the Black-Scholes Option Price Model. In addition, the Company granted
1,400,000 options to its employees with an exercise price less than market
value. As a result, the Company recognized $36,220 in compensation expenses for
these options.
During the year ended June 30, 2000, the Company granted certain consultants
options to purchase 550,000 shares of its common stock at exercise price ranging
from $0.38 to $0.53 per share. Accordingly, the Company recorded consulting
costs of $188,000 based on the Black-Scholes Option Price Model. In addition,
the Company granted 650,000 options to its employees with an exercise price less
than market value. As a result, the Company recognized $32,500 in compensation
expenses for these options. Furthermore, the Company granted 1,350,000 options
to its employee and directors with exercise prices greater than the market value
of the stock at the grant dates.
The weighted average fair value of the options granted during the years ended
June 30, 1999 and 2000 was $0.18 and $0.32 per share, respectively, which was
estimated at the date of grant using a Black-Scholes option-pricing model with
the following weighted-average assumptions for the years ended June 30, 1999 and
2000:
Assumptions 1999 2000
---------------------------------------------------------------------------
Risk-free rate 6.0% 5.98%
Dividend yield --% --%
Volatility factor of the expected market
price of the Company's common stock 50% 95%
Expected life 2-5 Years 5 Years
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
F-9
<PAGE>
QUESTEC.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
Activities under the Plan are as follows:
<TABLE>
<CAPTION>
Options Warrants
---------------------------------------------------------------
Number of Weighted Range of
Shares Average Number of Warrant
Outstanding Exercise Price Shares Price
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at July 1, 1998 1,903,282 $0.39 426,188 $0.42 - $0.80
Granted 2,160,000 $0.47 857,500 $0.25 - $0.30
Exercised (927,608) $0.45 (726,786) $0.25 - $0.42
Expired or cancelled -- (261,902) $0.70
-------------- -------------
Balance at June 30, 1999 3,135,674 $0.38 295,000 $0.30
Granted 2,550,000 $0.43 --
Exercised (1,720,500) $0.38 --
Expired or cancelled (152,174) $0.23 --
-------------- -------------
Balance at June 30, 2000 3,813,000 $0.37 295,000 $0.30
============== =============
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the vesting period of the options. The Company's
pro forma information for the years ended June 30, 1999 and 2000 is as follows:
1999 2000
-------------------------
Pro forma net loss $1,617,009 $1,959,263
=========================
Pro forma net loss per share
- basic and diluted $0.06 $0.06
=========================
10. COMMITMENTS AND CONTINGENCIES:
Lawsuits and Claims:
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. This claim was settled on July 18, 2000, whereby the former
employee agreed to pay the Company the total sum of $10,000.
On March 10, 1997, an action was commenced by Montreal Trust Company with
respect to debt and for which judgment was obtained in the amount of $90,000
with interest accrued at the fixed 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 and $5,000 during the years
ended June 30, 1999 and 2000, respectively. Unpaid balance of $78,095 and
$76,776 at June 30, 1999 and 2000, respectively, are included in accrued
liabilities. The average and end of period translation rates are $1.4726,
$1.4735 and $1.4767, $1.4798 for the years ended June 30, 1999 and 2000,
respectively.
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.
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 State without appropriate filings with the Attorney
General.
F-10
<PAGE>
QUESTEC.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
Developing and License Agreement:
In September 1998, the Company entered into an agreement with Atlantic Aerospace
Electronics Corporation ("Atlantic") to collaborate developing certain software
and graphic workstations. The Company and Atlantic jointly own the software if
such software is developed by the Company and Atlantic together. Atlantic
retains ownership of the software they develop and the Company owns the graphic
workstations. The parts of each system not developed by Atlantic are owned by
the Company. In addition, Atlantic will grant the Company exclusive rights to
use the software for sport related applications. In exchange for the license,
the Company granted Atlantic options to purchase 500,000 of its common stock
with an exercise price of $0.20 per share. The options have a life of five years
and are subject to one year of restriction. The options are valued at $55,357
under the Black-Scholes Option Price Model. In addition, the Company is required
to pay Atlantic a 10% royalty fee on the Company's portion of gross revenues
derived directly or indirectly from the sale, license or use of the graphic
workstations. Total royalty fee incurred during the years ended June 30, 1999
and 2000 amounted to $3,913 and $28,870, respectively.
Research and Development Agreement:
In June 1998, the Company entered into a seven-year research and development
agreement with LMC Live Motion Company ("LMC"), whereby the Company and LMC
establish strategic alliance in research and development of software related
broadcast enhancement products in the field of sports broadcasting and athletic
analysis. The Company will grant LMC an exclusive license to the Company's
intellectual property and designate LMC as its distributor in Europe, Dubai and
United Arab Emirates. The licensing fee and royalty of development and
distribution of software and products will be stipulated in the Individual
Contracts, as defined. Total licensing fee received from LMC during the years
ended June 30, 1999 and 2000 amounted to $ 69,311 and $77,932, respectively. No
distribution fee has been paid to LMC during the years ended June 30, 1999 and
2000.
Lease Agreement:
The Company entered into a lease agreement for its office and warehouse space
under a noncancellable operating lease expiring on December 31, 2001, with an
option to extend the lease for two (2) years. Minimum annual rental commitments
under this operating lease as of June 30, 2000 are as follows:
Year Ending June 30, Amount
------------------------ ----------
2001 $ 30,888
2002 15,750
Rental expense of $12,250 and $30,994 for the years ended June 30, 1999 and
2000, respectively, has been charged to operations.
11. SIGNIFICANT CUSTOMERS:
Approximately 54.2%, 14%, 13.3% and 10.7% of the Company's revenue was derived
from four major customers during the year ended June 30, 1999. Approximately
26.2% and 61.8% of the Company's revenue was derived from two major customers
during the year ended June 30, 2000.
12. ACCOUNTING DEVELOPMENT:
In December 1999, the Securities and Exchange Commission ("SEC") released Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101") which clarifies the SEC's views on revenue recognition. The Company is
required to adopt SAB 101 in the fourth quarter of the year ending June 30,
2001. The Company is currently studying the impact of SAB 101, but does not
expect it will have a material impact on its financial statements.
In November 1999, the SEC released Staff Accounting Bulletin No. 100,
"Restructuring and Impairment Charges". The Company is currently reviewing the
impact of SAB 100 and believes it has complied with SAB 100.
F-11
<PAGE>
PART III
ITEM 1. INDEX TO 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.
8
<PAGE>
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
QUESTEC.COM, INC.
October 11, 2000 By: /s/ Michael W. Russo
-----------------------------
Michael W. Russo,
President
October 11, 2000 /s/ Deirdre Gallagher
-----------------------------
Deirdre Gallagher,
Secretary
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
October 11, 2000 /s/ Michael W. Russo
-----------------------------
Michael W. Russo,
President and Director
October 11, 2000 /s/ Deirdre Gallagher
-----------------------------
Deirdre Gallagher,
Secretary
October 11, 2000 /s/ Philip Albanese
-----------------------------
Phlip Albanese,
Director
October 11, 2000 /s/ Derek Donaldson
-----------------------------
Derek Donaldson,
Director
October 11, 2000 /s/ Bruce L. Nesenger
-----------------------------
Bruce L. Nesenger,
Director
October 11, 2000 /s/ Paul Baim
-----------------------------
Paul Baim,
Director
9
