<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) FEBRUARY 2, 1999
(NOVEMBER 19, 1998)
CBQ, INC.
(Exact name of registrant as specified in its charter)
COLORADO 33-14707-NY 84-1047159
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
4851 KELLER SPRINGS RD., SUITE 213, DALLAS, TEXAS 75246
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972) 732-1100
FREEDOM FUNDING, INC., 1999 BROADWAY, STE. 3235, DENVER, COLORADO 80202
(Former name or former address, if changed since last report.)
<PAGE> 2
ITEM 1. CHANGE IN CONTROL OF REGISTRANT.
On November 19, 1998 (the "Closing Date"), CBQ, Inc., a Colorado
corporation formerly known as Freedom Funding, Inc. (the "Company"), consummated
an Agreement of Purchase (the "Reorganization Agreement") dated as of the
Closing Date among the Company, CyberQuest, Inc., a Colorado corporation
("CyberQuest"), and the individual stockholders of CyberQuest. The
Reorganization Agreement provided for the acquisition of all the outstanding
capital stock of CyberQuest by the Company for consideration of all the
outstanding capital stock of the Company, resulting in the complete control of
the Company by the previous stockholders of CyberQuest. On October 23, 1998,
CyberQuest was formed as a result of a Reorganization Agreement dated October
23, 1998 between CyberQuest and CyberQuest, Ltd., a Texas limited partnership.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
See Item 1, above.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired
(1) Audited consolidated financial statements of CyberQuest, Ltd.
(b) Pro Forma Financial Information.
(1) Pro Forma Consolidated Financial Statements of CBQ, Inc. at
and for the twenty-one month period ending December 31, 1996.
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Company has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
CBQ, Inc.
By: /s/ MICHAEL SHERIFF
--------------------------------------
Michael Sheriff
Chief Executive Officer
Date: February 2, 1999
<PAGE> 4
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
<S> <C>
1 Agreement of Purchase dated as of November 19, 1998 among
CBQ, Inc., a Colorado corporation formerly known as Freedom
Funding, Inc., CyberQuest, Inc., a Colorado corporation, and
the individual stockholders of CyberQuest, Inc.*
2 Series A Preferred Stock Resolutions and Provisions.*
3 Consolidated financial statements of CyberQuest,
Ltd. for the eleven month period ended December 31, 1997.
4 Consolidated financial statements of CBQ, Inc., a Texas
corporation and predecessor of CyberQuest, Ltd. for the
period from inception (April 6, 1995) to December 31, 1996.
* - previously filed.
</TABLE>
<PAGE> 1
EXHIBIT 3
CYBERQUEST, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Financial Statements
December 31, 1997
<PAGE> 2
CYBERQUEST, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
Table of Contents
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Independent Auditors' Report 1
Consolidated Financial Statements:
Consolidated Balance Sheets 2
Consolidated Statements of Loss 3
Consolidated Statements of Changes in Partners' Deficit 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6 - 10
</TABLE>
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
CyberQuest, Ltd.
Dallas, Texas
We have audited the accompanying consolidated balance sheet of CyberQuest, Ltd.
(a development stage enterprise) as of December 31, 1997, and the related
consolidated statements of loss and partners' capital, changes in partners'
capital, and cash flows for the period from inception (February 10, 1997) to
December 31, 1997. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CyberQuest, Ltd. as
of December 31, 1997, and the results of its operations and cash flows for the
period from inception (February 10, 1997) to December 31, 1997 in conformity
with generally accepted accounting principles.
/s/ Travis, Wolff & Company, L.L.P.
Dallas, Texas
January 8, 1999
<PAGE> 4
CYBERQUEST, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30,1998 December 31, 1997
----------------- -----------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash $ -- $ --
Accounts receivable 10,197 36,246
-------- --------
Total current assets 10,197 36,246
-------- --------
Property and equipment (Note 2):
Equipment 68,676 68,676
Capitalized license fees 112,500 112,500
-------- --------
181,176 181,176
Less accumulated depreciation and amortization 111,535 63,735
-------- --------
Net property and equipment 69,641 117,441
-------- --------
Deposits and other assets 10,885 11,983
-------- --------
Total assets $ 90,723 $165,670
======== ========
Liabilities and Partners' Deficit
Current liabilities:
Accounts payable $ 87,676 $ 66,514
Accrued liabilities 28,642 24,619
-------- --------
Total current liabilities 116,318 91,133
-------- --------
Other liabilities (Note 4) 125,572 125,572
-------- --------
Commitments and contingencies (Notes 1, 2, 3, 4 and 5)
Partners' deficit (Note 1):
General partner (160,826) (37,810)
Limited partners (9,659) (13,225)
-------- --------
(151,167) (51,035)
-------- --------
Total liabilities and partners' equity $ 90,723 $165,670
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-2-
<PAGE> 5
CYBERQUEST, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Statements of Loss
<TABLE>
<CAPTION>
Nine Months
Ended September 30, Period from Inception
------------------------ (February 10, 1997) to
1998 1997 December 31, 1997
--------- --------- ---------------------
(Unaudited)
<S> <C> <C> <C>
Revenues $ 139,010 $ 100,681 $ 136,122
--------- --------- ---------
Costs amd Expenses:
General and administrative expense 191,342 543,511 664,099
Depreciation and amortization (Note 2) 47,800 48,500 63,735
--------- --------- ---------
239,142 592,011 727,834
--------- --------- ---------
Net loss $(100,132) $(491,330) $(591,712)
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-3-
<PAGE> 6
CYBERQUEST, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Statement of Changes in Partners' Deficit
<TABLE>
<CAPTION>
General Limited Partners'
Partner Partners Deficit
-------- -------- ---------
<S> <C> <C> <C>
Balance at inception, February 10, 1997 $ - $ - $ -
Reorganization (Note 1) - (59,323) (59,323)
Contribution of capital by new
limited partner (Note 1) - 600,000 600,000
Net Loss (37,810) (553,902) (591,712)
--------- ---------- ---------
Balance at December 31, 1997 (37,810) (13,225) (51,035)
Net Loss (unaudited) (8,315) (121,817) (100,132)
--------- ---------- ---------
Balance, September 30, 1998 (unaudited) $ (46,125) $ (135,042) $(151,167)
========= ========== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-4-
<PAGE> 7
CYBERQUEST, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months
Ended September 30, Period from Inception
------------------------------------- (February 10, 1997) to
1998 1997 December 31, 1997
---------------- ---------------- -----------------------
(Unaudited)
<S> <C> <C> <C>
Cash flows provided by operating activities:
Net loss $(100,132) $(491,330)
Adjustments to reconcile net loss $(591,712)
to net cash used in operating activities:
Depreciation and amortization 47,800 48,500
Changes in operating assets and liabilities: 63,735
Decrease (Increase) in accounts receivable 26,049 (26,296)
Decrease (Increase) in deposits and other assets 1,098 (18,135) (13,746)
(Decrease) Increase in accounts payable 21,162 22,598 (11,983)
(Decrease) Increase in other liabilities -- (17,500) 44,691
(Decrease) Increase in accrued liabilities 4,023 10,297 (24,428)
--------- --------- 24,619
---------
Net cash used in operating activities -- (471,866)
(508,824)
Cash flows used in investing activities:
Purchase of property and equipment -- (45,634)
(68,676)
Cash flows provided by financing activities:
Proceeds from capital contribution -- 517,500
--------- --------- 577,500
---------
-- 517,500
--------- --------- 577,500
---------
Net increase in cash -- --
--
Cash, beginning of period -- --
--------- --------- --
---------
Cash, end of period $ -- $ --
========= ========= $ --
=========
Supplemental disclosure of non-cash financing activities:
Limited Partner contribution receivable $ -- $ -- 22,500
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-5-
<PAGE> 8
CYBERQUEST, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements
(Information as of interim periods ended September 30, 1998 and 1997
is unaudited)
Note 1 - The Partnership and Going Concern Considerations
CyberQuest, Ltd., a development stage enterprise (the "Partnership"), is a Texas
limited partnership and began operation on February 10, 1997. The general
partner is CyberQuest Management Group, L.L.C. The Partnership assumed the
assets and liabilities of CBQ, Inc., (formerly CyberQuest Inc.), on February 10,
1997 in exchange for granting a 22.11 percent limited partner interest to the
CyberQuest, Inc.'s shareholders. CBQ, Inc. is now wholly-owned by the
Partnership. The transaction was recorded as reorganization accounted for in a
manner similar to a pooling of interests. During 1997, new investors contributed
a total of $600,000 cash in exchange for limited partner interests totaling 71.5
percent. The assets, liabilities and operations of CBQ, Inc. through February
10, 1997, were not significant. The net deficit of CBQ, Inc. at the date of the
reorganization is included in the Statement of Partner' Deficit as a
reorganization adjustment. The Partnership has developed an internet-based site,
Bid4it, through which buyers and sellers can trade products in an auction
format. The Bid4it site was launched in October 1997. The Partnership has no
significant revenue or operations through December 31, 1997.
The general partner owns 6.39 percent and the limited partners own 93.61
percent. The financial statements do not reflect assets the partners may have
outside their interests in the partnership, nor any personal obligations,
including income taxes, of the individual partners.
The Partnership is currently engaged in raising capital and continued
development of Bid4it. Funding of the day to day operations has been achieved
through contributions of capital from limited partner.
The Partnership's financial statements are presented on the going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. The Partnership is seeking additional working
capital and equity capital to adequately fund operating losses and strategic
growth.
The Partnership's continued existence is dependent upon its ability to resolve
its liquidity problems, principally by obtaining debt financing and/or equity
capital. While pursuing additional debt and equity funding, the Partnership must
continue to operate on limited cashflow generated internally.
Working capital limitations continue to impinge on day-to-day operations, thus
contributing to operating losses. The continued support and forbearance of its
vendors and will be required, although this is not assured.
-6-
<PAGE> 9
CYBERQUEST, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements
(Information as of interim periods ended September 30, 1998 and 1997
is unaudited)
Note 2 -Summary of Significant Accounting Policies
Basis of presentation
The consolidated financial statements include the accounts of the Partnership
and CBQ, Inc. All significant inter-company balances and transactions have been
eliminated.
The Partnership's balance sheet as of September 30, 1998 and the related
statements of loss, cash flow and deficit for the nine-month periods ended
September 30, 1998 and 1997 are unaudited. These unaudited financial statements
have been prepared from the books and records of the Partnership and reflect all
adjustments that are, in the opinion of management, necessary for a fair
statement of the results for the periods. All such adjustments are, in the
opinion of management, of a normal recurring nature. Operations results for the
nine-month period ended September 30, 1998 is not necessarily indicative of the
results that may be expected for the year ending December 31, 1998.
Property, equipment and depreciation
Property and equipment are carried at cost. Depreciation is computed on a
straight-line basis over the estimated useful lives of three to five years. The
carrying value of property and equipment is evaluated periodically in relation
to operating performance of the related business.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the financial statements at, and during the reporting periods. Actual
results could differ from these estimates.
Income taxes
The Partnership does not incur income taxes for federal income tax purposes.
Instead, its earnings and losses are included in the personal returns of the
partners and taxed accordingly.
Capitalized software
Capitalized software consists of minimum amounts owed under a license agreement.
The amounts are being amortized on a straight-line basis over a period of three
years.
-7-
<PAGE> 10
CYBERQUEST, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements
(Information as of interim periods ended September 30, 1998 and 1997
is unaudited)
Note 3 - Risks and Uncertainties
The Partnership's results in the development, operations and servicing of the
Bid4It operations may vary significantly given the nature of the emerging but
competitive Internet market. The success of the Partnership will depend upon a
variety of factors not within the Partnership's control, such as: Internet
growth, risk of Internet failures, competition, changes in technology, fraud,
and government regulations.
Note 4 - Commitments
CBQ, Inc. has a license agreement with Electronic Data Systems Corporation
("EDS") relating to certain proprietary software. The license agreement
terminates at the earlier of April 19, 2004 or upon the Partnership's payment to
EDS of $350,000, including amounts related to the license of certain technology
discussed below. No royalties were owed at December 31, 1997 or 1996.
Other liabilities include minimum royalties due EDS related to the license
discussed above in the development of the Bid4it web site. The amount is due in
annual installments of $50,000 in 1997 and $75,000 in 1998. The agreement was
subsequently amended to extend the payments dates to 1999 and 2000,
respectively, and extend the license agreement above to April 19, 2006.
The Partnership has an office lease commitment that requires payments of $1,792
per month through March 31, 1999.
Note 5 - Subsequent Events (unaudited)
On October 23, 1998, the Partnership entered into an to form new a corporation,
Cyberquest Inc. ("CI"). CI is a Colorado Corporation chartered on October 19,
1998. The agreement provided for the contribution of certain software technology
and $180,000 cash in exchange for 90,000 shares of common stock in CI and a
warrant for the purchase of 80,000 shares at $2.50 per share. The Partnership
agreed to contribute assets and liabilities in exchange for 10,000 shares of
common stock, 70,000 shares of preferred stock and warrants for the purchase of
40,000 shares of common stock at $2.50 per share. The warrants expire on October
23, 2003.
-8-
<PAGE> 11
CYBERQUEST, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements
(Information as of interim periods ended September 30, 1998 and 1997
is unaudited)
Note 5 - Subsequent Events (unaudited) - (Continued)
The preferred stock issued is redeemable at the option of CI as follows:
o 7000 shares at the greater of $10.00 per share or the traded market value of
the preferred stock on or before October 23,1999
o 14,000 shares at the greater of $10.715 per share or the traded market value
of the preferred stock on or before October 23,2000
o 21,000 shares at the greater of $11.905 per share or the traded market value
of the preferred stock on or before October 23,2001
o 28,000 shares at the greater of $12.50 per share or the traded market value
of the preferred stock on or before October 23, 2002
Any preferred stock not redeemed by the CI may at the Company's option be
converted to common stock of CI on the basis of four shares of common stock for
one share of preferred stock converted. CI also granted an incentive option to
acquire 25,000 shares of common stock at $.10 per share if a merger with a
publicly traded entity on a national stock exchange is completed with ninety
days of the CI/Company merger.
On November 19, 1998, CI was acquired by Freedom Funding, Inc. ("Freedom"), a
public shell listed on the Over-the-Counter bulletin board, in a reverse
acquisition accounted for as a recapitalization. CI is the "accounting"
acquirer. Freedom had no assets as of September 30, 1998 or operations for the
nine-month period ended September 30, 1998. Subsequently, Freedom changed its
name to CBQ, Inc. The CI stockholders received 18,000,000 shares of common stock
(par value $.0001 per share) and 70, 000 shares of Series A preferred stock (par
value $10.00 per share). The call provisions of the Series A preferred stock are
the same as the CI preferred stock except the call prices range from $10.00 to
$13.00 and there is no conversion feature.
-9-
<PAGE> 12
CYBERQUEST, LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements
(Information as of interim periods ended September 30, 1998 and 1997
is unaudited)
Note 5 - Subsequent Events (unaudited)- (Continued)
The following is the unaudited pro forma Stockholders' equity as if the
reorganization of CI and the merger with Freedom Funding, Inc. had occurred on
September 30, 1998:
<TABLE>
<CAPTION>
Preferred Stock Common Stock
----------------------- --------------------------- Accumulated Partners'
Shares Values Shares Values Deficit Deficit Total
---------- ---------- -------------- ----------- ---------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CyberQuest, Ltd. at
September 30, 1998 -- $ -- -- $ -- $ -- $ (151,167) $ (151,167)
Reorganization into CI 70,000 700,000 100,000 180,000 (851,167) 151,167 180,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
70,000 700,000 100,000 180,000 (851,167) -- 28,833
Merger with Freedom
Funding Inc on
November 19, 1998 -- -- 19,975,325 (177,992) 177,992 -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
70,000 $ 700,000 20,075,325 $ 2008 $ (673,175) $ -- $ 28,833
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
-10-
<PAGE> 1
EXHIBIT 4
CBQ, INC.
(FORMERLY CYBERQUEST, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
Financial Statements
December 31, 1996
<PAGE> 2
CBQ, INC.
(FORMERLY CYBERQUEST, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
Table of Contents
<TABLE>
<CAPTION>
Page
------
<S> <C>
Independent Auditors' Report 1
Financial Statements:
Balance Sheet 2
Statement of Loss 3
Statement of Stockholders' Deficit 4
Statement of Cash Flows 5
Notes to Financial Statements 6 - 8
</TABLE>
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
CBQ, Inc.
Dallas, Texas
We have audited the accompanying balance sheet of CBQ, Inc. (formerly
CyberQuest, Inc.) (a development stage enterprise) as of December 31, 1996, and
the related statement of loss, stockholders' deficit, and cash flows for the
period from inception (April 6, 1995) to December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CBQ, Inc. as of December 31,
1996, and the results of its operations and cash flows for the period from
inception (April 6, 1995) to December 31, 1996 in conformity with generally
accepted accounting principles.
/s/ Travis Wolff & Company, L.L.P.
Dallas, Texas
January 8, 1999
<PAGE> 4
CBQ, INC.
(FORMERLY CYBERQUEST, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
Balance Sheet
December 31, 1996
<TABLE>
<S> <C>
Assets
Current assets:
Cash $ 3,208
Accounts receivable 3,270
---------
6,478
Capitalized license fees, net of $37,500
accumulated depreciation (Note 1 and 3) 112,500
Deposits and other assets 16,953
---------
Total assets $ 135,931
=========
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable ($18,282 to affiliate) $ 19,479
Accrued liabilities 6,000
---------
25,479
Other liabilities (Note 3) 153,481
---------
Total liabilities 178,960
---------
Commitments and contingencies (Notes 1 and 3)
Stockholders' Deficit:
Common stock; 10,000,000 shares authorized; 3,076,333
issued and outstanding; par value of $.01 per share 30,763
Accumulated Deficit (73,792)
---------
(43,029)
---------
Total liabilities and stockholders' deficit $ 135,931
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-2-
<PAGE> 5
CBQ, INC.
(FORMERLY CYBERQUEST, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
Statement of Loss
For the Period From Inception (April 6, 1995) to December 31, 1996
<TABLE>
<S> <C>
Revenues $ 53,344
---------
Costs and Expenses:
General and administrative (Note 2) 89,636
Amortization expenses 37,500
---------
127,136
---------
Net loss $ (73,792)
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-3-
<PAGE> 6
CBQ, INC.
(FORMERLY CYBERQUEST, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
Statement of Stockholders' Deficit
For the Period from Inception (April 6, 1995) to December 31, 1996
<TABLE>
<CAPTION>
Common Stock
-----------------------
Shares Amount Accumulated deficit
--------- --------- -------------------
<S> <C> <C> <C>
Balance, at inception (April 6, 1995) -- $ -- $ --
Issuance of common stock to
founders for organization costs and
acquisition of certain technology
(Note 2) 3,076,333 30,763 --
Net loss -- -- (73,792)
--------- --------- ---------
Balance, December 31, 1996 3,076,333 $ 30,763 $ (73,792)
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-4-
<PAGE> 7
CBQ, INC.
(FORMERLY CYBERQUEST, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
Statement of Cash Flows
For the Period From Inception (April 6, 1995) to December 31, 1996
<TABLE>
<S> <C>
Cash flows provided by operating activities:
Net loss $ (73,792)
Adjustments to reconcile net loss
to net cash provided by (used in) operating activities:
Depreciation and amortization 37,500
Changes in operating assets and liabilities:
Increase in accounts receivable (3,270)
Decrease in deposits and other assets 13,810
Increase in accounts payable 19,479
Increase in accrued liabilities 6,000
Increase in other liabilities 3,481
---------
Net cash provided by operating activities 3,208
---------
Net change in cash 3,208
Cash, beginning of period --
---------
Cash, end of period $ 3,208
=========
Supplemental disclosure of non-cash investing/financing activities:
Capitalized license fees payable $ 150,000
=========
Issuance of 3,076,333 shares of common stock for
services rendered and technology $ 30,763
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-5-
<PAGE> 8
CBQ, INC.
(FORMERLY CYBERQUEST, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements
December 31, 1996
Note 1 - The Company and Summary of Significant Accounting Policies
The Company
CBQ, Inc., a development stage enterprise (the "Company"), was incorporated
under the laws of the State of Texas on April 6, 1995, and began operation in
January 1996. The Company has no significant revenue or operations through
December 31, 1996. The Company is developing an internet-based site, Bid4it.
Through this site, buyers and sellers can trade products in an auction format.
Cash and cash equivalents
Cash and cash equivalents are defined as cash and investments that have a
maturity of less than three months.
Property, equipment and depreciation
Property and equipment are carried at cost. Depreciation is computed on a
straight-line basis over the estimated useful life of three years. The carrying
value of property and equipment is evaluated periodically in relation to
operating performance of the related business.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the financial statements at, and during the reporting periods. Actual
results could differ from these estimates.
Income taxes
The Company has a net operating loss for income taxes. Due to the regulatory
limitations in utilizing the loss, it is uncertain whether the Company will be
able to realize a benefit from these losses. Therefore, a deferred tax asset has
not been recorded. There are no significant tax differences requiring deferral.
-6-
<PAGE> 9
CBQ, INC.
(FORMERLY CYBERQUEST, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements
December 31, 1996
Note 1 - The Company and Summary of Significant Accounting Policies -
(Continued)
Capitalized software
Capitalized software consists of minimum amounts owed under a license agreement.
The amounts are being amortized on a straight-line basis over a period of three
years.
Note 2 - Common Stock and Related Party Transactions
The Company acquired an Internet site, GoodStuffCheap from an entity -
Commonwealth Trading Company, wholly owned by a Company's shareholder in
exchange for 214,667 shares of common stock. The Company also issued 150,000
shares for certain services and expenses incurred. The shares were recorded at
par value with a charge to general and administrative expense. The site is
designed to and has operated as an e-commerce site for buyers and sellers of
less-costly items. The site is functional but not currently operating due to
management's focus on developing Bid4it. Management intends to utilize this site
as a secondary trade site relative to Bid4it.
The Company's shareholders completed activities necessary to form the entity and
operations. In lieu of wages, the shareholders received 2,500,000 shares of
common stock. The shares were recorded at par value with a charge to general and
administrative expense.
Note 3 - Commitments
On April 19, 1996, the Company entered into an agreement with Electronic Data
System Corporation ("EDS") to license certain proprietary software. The license
agreement terminates at the earlier of April 19, 2004 or upon the Company's
payment to EDS of $350,000, including amounts related to the license of certain
technology discussed below. No royalties were owed at December 31, 1996.
Other liabilities include an amount due Electronic Data System Corporation
related to the license of certain technology used in the development of the
Bid4it web site. The amount is due in annual installments of $50,000 in 1997 and
$75,000 in 1998. The agreement was subsequently amended to extend the payments
dates to 1999 and 2000, respectively and to extend the termination date of the
license agreement to April 2006.
-7-
<PAGE> 10
CBQ, INC.
(FORMERLY CYBERQUEST, INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements
December 31, 1996
Note 4 - Risks and Uncertainties
The Company's results in the development, operations and servicing of the Bid4it
operations may vary significantly given the nature of the emerging but
competitive Internet market. The success of the Company will depend upon a
variety of factors not within the Company's control, such as: internet growth,
risk of internet failures, competition, changes in technology, fraud, and
government regulations.
Note 5 - Reorganization
In February 1997, the shareholders of the Company exchanged their investment in
common stock of the Company for limited partnership interests in CyberQuest,
Ltd. CyberQuest, Ltd. assumed the assets and liabilities of the Company.
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