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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________________ TO __________________
COMMISSION FILE NUMBER: 0-25565
QUEPASA.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 84-0879433
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
ONE ARIZONA CENTER, 400 E. VAN BUREN 85004
4TH FLOOR, PHOENIX, AZ (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 602-716-0100
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
NONE. NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.001 PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 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 [ ] No [X]
The number of outstanding shares of the registrant's Common Stock as of
September 19, 2001 was approximately 17,763,291 shares.
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QUEPASA.COM, INC.
INDEX
PART I. FINANCIAL INFORMATION
<Table>
<Caption>
PAGE NO.
--------
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2001 (unaudited)
and December 31, 2000.........................................................................1
Condensed Consolidated Statements of Operations for the Three Months
Ended March 31, 2001 and 2000 (unaudited).....................................................2
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2001 and 2000 (unaudited)...........................................................3
Notes to Condensed Consolidated Financial Statements............................................5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations -
Risk Factors.................................................................................16
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....................................25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..............................................................................25
Item 2. Changes in Securities and Use of Proceeds......................................................25
Item 3. Defaults Upon Senior Securities................................................................25
Item 4. Submissions of Matters to a Vote of Security Holders...........................................25
Item 5. Other Information..............................................................................25
Item 6. Exhibits and Reports on Form 8-K...............................................................25
Signatures .............................................................................................27
</Table>
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUEPASA.COM, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<Table>
<Caption>
MARCH 31, DECEMBER 31,
2001 2000
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 6,462,046 $ 3,940,232
Trading securities -- 2,393,964
Accounts receivable, net of allowance for doubtful accounts
of $176,699 and $184,100, respectively 57,968 242,275
Other receivable -- 981,870
Prepaid expenses 234,534 302,242
Other current assets -- 158,421
-------- ---------
Total current assets 6,754,548 8,019,004
Property and equipment, net 85,804 103,244
Assets held for sale 5,000 282,000
---------- ---------
$ 6,845,352 $ 8,404,248
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 303,204 $ 354,743
Accrued liabilities 74,032 149,344
Deferred revenue 111,324 202,292
--------- ---------
Total current liabilities 488,560 706,379
--------- ---------
Stockholders' equity:
Preferred stock, authorized 5,000,000 shares, no par value -
none issued or outstanding -- --
Common stock, authorized 50,000,000 shares, $0.001 par value;
17,763,291 shares issued and outstanding at March 31, 2001
and December 31, 2000 17,763 17,763
Additional paid-in capital 104,446,818 104,420,534
Accumulated deficit (98,107,789) (96,740,428)
---------- ----------
Total stockholders' equity 6,356,792 7,697,869
--------- ---------
$ 6,845,352 $ 8,404,248
========= =========
</Table>
See accompanying notes to condensed consolidated financial statements.
1
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QUEPASA.COM, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
<Table>
<Caption>
THREE MONTHS ENDED MARCH 31,
2001 2000
(NOTE 3)
Gross revenue $ 116,233 $ 470,575
Less commissions (2,636) (64,661)
----- ------
Net revenue 113,597 405,914
------- -------
Operating expenses:
Product and content development expenses 334,568 1,720,420
Advertising and marketing expenses 368,280 7,075,214
General and administrative expenses 863,704 1,693,515
Amortization of goodwill -- 1,079,391
------ ---------
Total operating expenses 1,566,552 11,568,540
--------- ----------
Loss from operations (1,452,955) (11,162,626)
--------- ----------
Other income (expense):
Interest expense (1,055) (31,358)
Interest income and other 100,853 433,213
Realized and unrealized loss on trading securities (14,204) (119,149)
------ -------
Net other income 85,594 282,706
------ -------
Loss before the cumulative effect of a change in accounting principle (1,367,361) (10,879,920)
Cumulative effect of a change in accounting principle (see note 3) -- (64,583)
-------- ---------
Net loss $ (1,367,361) $ (10,944,503)
========== ==========
Net loss per share, basic and diluted:
Loss before cumulative effect of a change in accounting principle and
net loss per share, basic and diluted $ (0.08) $ (0.69)
===== =====
Weighted average number of shares
outstanding, basic and diluted 17,763,291 15,764,051
========== ==========
</Table>
See accompanying notes to condensed consolidated financial statements.
2
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QUEPASA.COM, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<Table>
<Caption>
THREE MONTHS ENDED
MARCH 31,
2001 2000
Cash flows from operating activities:
Net loss $ (1,367,361) $ (10,944,503)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 17,440 1,360,666
Stock based compensation 26,284 20,546
Forgiveness of forgivable loans -- 173,374
Amortization of prepaid marketing services -- 1,280,065
Amortization of deferred advertising -- 400,000
Short-term gain on trading securities -- (2,820)
Realized and unrealized loss on trading securities 14,204 119,149
Cumulative effect of change in accounting principle --
64,583
Increase (decrease) in cash, net of acquisitions, resulting from
changes in:
Sale of trading securities, net 2,379,760 4,775,935
Accounts receivable 184,307 (119,750)
Prepaid expenses 67,708 (2,593,807)
Other receivable and other current assets 1,140,291 (6,710,890)
Accounts payable (51,539) 1,192,311
Accrued liabilities (75,312) (357,395)
Deferred revenue (90,968) 270,723
--------- ---------
Net cash provided by (used in) operating activities 2,244,814 (11,071,813)
--------- ----------
Cash flows from investing activities:
Proceeds from assets held for sale 277,000 --
Forgivable loans -- (82,000)
Cash paid for acquisitions -- (238,793)
Cash received in acquisition -- 578,730
Purchase of property and equipment -- (161,804)
------ -------
Net cash provided by investing activities 277,000 96,133
------- ------
Cash flows from financing activities:
Proceeds from exercise of common stock options -- 347,302
Proceeds from issuance of common stock -- 9,000,000
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Proceeds from draws on line of credit -- 12,286
Payments on notes payable -- (233,615)
----- -------
Net cash provided by financing activities -- 9,125,973
----- ---------
Net increase (decrease) in cash and cash equivalents 2,521,814 (1,849,707)
Cash and cash equivalents, beginning of period 3,940,232 6,961,592
--------- ---------
Cash and cash equivalents, end of period $ 6,462,046 $ 5,111,885
========= =========
Supplemental statement of cash flow information:
Interest paid $ 1,055 $ 12,286
========== =========
Supplemental disclosure of non-cash financing and investing activities:
Barter transactions $ -- $ 112,146
========== =========
Acquisitions through balance of stock and notes payable and
assumption of liabilities $ -- $ 22,549,853
========== ==========
</Table>
See accompanying notes to condensed consolidated financial statements.
4
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QUEPASA.COM, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 30, 2001 and 2000
(1) THE COMPANY
quepasa.com, inc. (the "Company" or "quepasa") is a Bilingual
(Spanish/English) Internet portal and online community focused on the
United States Hispanic market. We provide users with information and
content centered around the Spanish language. Because the language
preference of many U.S. Hispanics is English, we also offer our users the
ability to access information in the English language.
(2) LIQUIDITY
To date, the Company's expenses have significantly exceeded revenue and
there is no assurance that the Company will earn profits in the future.
The Company's independent accountants issued their auditors' report dated
May 8, 2001 (except as to the second paragraph of Note 10(a) and Note 16
to the December 31, 2000 consolidated financial statements, which are
dated as of August 6, 2001) stating that the Company has suffered
recurring losses from operations, has an accumulated deficit, has been
unable to successfully execute its business plan, and is considering
alternatives for the Company, all of which raise substantial doubt about
its ability to continue as a going concern.
By April 30, 2001, the Company downsized its workforce to three
individuals, disposed of certain assets, and continues to terminate
long-term commitments. Management believes that as a result of its
significant cost-cutting measures, there is sufficient cash to operate
through the second quarter of 2002. Management of the Company and the
Board of Directors continue to evaluate alternatives for the Company
including disposing of assets and investigating merger opportunities. On
August 6, 2001, the Company executed an agreement to merge with an
unrelated entity (see note 9).
(3) BASIS OF PRESENTATION
The Company's accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and pursuant to
rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for a complete
financial statement presentation. In the Company's opinion, such
unaudited interim information reflects all adjustments, consisting only
of normal recurring adjustments, necessary to present our financial
position and results of operations for the periods presented. The
Company's results of operations for interim periods are not necessarily
indicative of the results to be expected for a full fiscal year. The
Company's condensed consolidated balance sheet as of December 31, 2000
was derived from its audited consolidated financial statements as of that
date but does not include all the information and footnotes required by
accounting principles generally accepted in the United States of America.
The Company suggests that these condensed consolidated financial
statements be read in conjunction with the audited consolidated financial
statements included in its Annual Report on Form 10-K as of and for the
year ended December 31, 2000.
The results for the three months ended March 31, 2000 have been restated
by $64,583 as of January 1, 2000 and gross revenue decreased by $258,958
for the three months ended March 31, 2000 to reflect the adoption of
Staff Accounting Bulletin No. 101. Refer to note 4 under "revenue
recognition" in the Company's Form 10-K as of and for the year-ended
December 31, 2000.
(4) SIGNIFICANT TRANSACTIONS AND WORKFORCE REDUCTIONS
On January 28, 2000, the Company acquired credito.com, an on-line credit
company targeted to the U.S. Hispanic population for an aggregate
purchase price of $8.4 million consisting of 681,818 shares of common
stock valued at $11 per share and assumption of an $887,000 note payable.
The Company included the 681,818 shares of common stock issued
unconditionally in determining the
cost of credito.com recorded at the date of acquisition. Contingent
consideration consisted of warrants to purchase 681,818 shares of common
stock exercisable upon credito.com's achievement of certain performance
objectives related to gross revenue as of January 2001 and January 2002.
credito.com did not meet the performance objectives as of January 2001,
and consequently, the warrants were returned to
5
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the Company. The value of the common stock was determined using the
average stock price between the date of the merger agreement and the
date the merger was publicly announced, or $11 per share. The Company
accounted for the acquisition using the purchase method of accounting.
Accordingly, the purchase price was allocated to the assets purchased
and the liabilities assumed based upon the estimated fair values on
the date of the acquisition. The excess of the purchase price over the
fair value of the net assets acquired was approximately $7.8 million
and was recorded as goodwill, which was being amortized on a
straight-line basis over a 3-year period. On December 27, 2000, the
Company's Board of Directors approved the development of a plan of
liquidation and sale of the Company's assets in the event that no
strategic transaction involving the Company could be achieved.
Accordingly, the Company performed an impairment analysis of all
long-lived assets and identifiable intangibles in accordance with
accounting principles generally accepted in the United States of
America. As a result, the unamortized balance of goodwill of $7.3
million recorded in conjunction with the transaction was written off
in the fourth quarter of 2000.
On January 28, 2000, the Company acquired eTrato.com, an on-line trading
community developed especially for the Spanish language or bilingual
Internet user, for an aggregate purchase price of $10.85 million,
consisting of 681,818 shares of the Company's common stock valued at
$14.09 per share, and assumption of a $1.25 million promissory note. The
note payable was due on January 28, 2002, and had a stated interest rate
at the greater of 6% per annum or the applicable federal rate in effect
with respect to debt instruments having a term of two years. This note
was paid in full on May 8, 2000. The value of the common stock was
determined using the average stock price between the merger agreement
date and the date the merger was publicly announced on December 20, 1999.
Contingent consideration consisted of 681,818 shares of common stock
which were held in escrow to be released to the seller pending the
outcome of certain revenue and website contingencies over the six-month
period following the acquisition. The contingencies were not met, and
consequently, these shares were returned to quepasa subsequent to
year-end and cancelled. The acquisition was accounted for using the
purchase method of accounting and, accordingly, the purchase price was
allocated to the assets purchased and the liabilities assumed based upon
the estimated fair value at the date of acquisition. The excess of the
purchase price over the fair value of the net assets acquired was
approximately $10.1 million and was recorded as goodwill, which was being
amortized on a straight-line basis over a period of 3 years. On December
27, 2000, the Company's Board of Directors approved the development of a
plan of liquidation and sale of the Company's assets in the event that no
strategic transaction involving the Company could be achieved.
Accordingly, the Company performed an impairment analysis of all
long-lived assets and identifiable intangibles in accordance with
accounting principles generally accepted in the United States of America.
As a result, the balance of unamortized goodwill of $5.6 million recorded
in conjunction with the transaction was written off in the fourth quarter
of 2000.
On March 9, 2000, the Company acquired RealEstateEspanol.com, a real
estate services site providing the Hispanic-American community with
bilingual home buying services, for an aggregate purchase price of $3.3
million, consisting of 335,925 shares of the Company's common stock for
$8.83 per share and assumption of $300,000 in debt which was paid
immediately following the closing of the acquisition. Contingent
consideration consisted of 248,834 shares of common stock which were held
in escrow pending RealEstateEspanol.com's achievement of gross revenue
targets within 12 months of the date of the agreement. The value of the
common stock was determined using the average stock price between the
merger agreement date and the date the merger was publicly announced.
RealEstateEspanol.com did not meet the agreed-upon targets contingent to
the seller receiving the shares of common stock held in escrow, and
consequently, these shares were returned to quepasa and cancelled
subsequent to year-end. The acquisition was accounted for using the
purchase method of accounting, and, accordingly, the purchase price was
allocated to the assets purchased and the liability assumed based upon
the estimated fair value at the date of acquisition. The excess of the
purchase price over the fair value of the net assets acquired was
approximately $3.2 million and was recorded as goodwill, which was being
amortized on a straight-line basis over a period of 3 years. On December
27, 2000, the Company's Board of Directors approved the development of a
plan of liquidation and sale of the Company's assets in the event that no
strategic transaction involving the Company could be achieved.
Accordingly, the Company performed an impairment analysis of all
long-lived assets and identifiable intangibles in accordance with
accounting principles generally accepted in the United States of America.
As a result, the balance of unamortized goodwill of $2.4 million recorded
in conjunction with the transaction was written off in the fourth quarter
of 2000.
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On March 30, 2000, Gateway, Inc. invested $9.0 million in exchange for
1,428,571 shares of common stock, which represented 7.6% of quepasa's
outstanding common stock. The amount attributable to common stock and
additional paid-in capital was $7,685,712, the value of the 1,428,571
shares of common stock on the date issued ($5.38 per share).
Additionally, quepasa granted a 60-day warrant to acquire 483,495 shares
of common stock at $7 per share. The warrants were valued at
approximately $386,000 using the Black Scholes option-pricing model. The
assumptions used for the Gateway warrants are as follows: expected
dividend yield 0%, risk-free interest rate of 5.67%, expected volatility
of 147%, and expected life of two months. In the event there was a change
in ownership of quepasa in excess of 30% prior to September 30, 2000, and
for a price per share less than $7.00, Gateway had a right to be
reimbursed for the differential in the per share amount. quepasa also
committed itself to use a substantial portion of the proceeds of
Gateway's investment to further its community and educational initiative
program, which included distributing computers purchased from Gateway
accompanied with Spanish language technical support, providing Internet
access, and training for quepasa's subscribers. The Company purchased
$5.8 million of computers, net of $928,500 of a volume purchase discount,
pursuant to this agreement to be used for promotional activities. The
Company took title to the computers upon the close of the transaction.
Since the Company had no warehousing facilities, the computers were
segregated from Gateway's inventory in third party warehouse locations
and the Company was responsible for the payment of warehouse storage
charges. These computers were expensed as donated.
In the fourth quarter of 2000, the Company halted virtually all
promotional activities to conserve cash. In December 2000, the Company,
at the direction of the Board of Directors, initiated discussions and
sold the majority of its remaining computer inventory back to Gateway at
a $3.5 million loss. The Company was required to approach Gateway first
as the original purchase agreement allowed the Company to use the
computers only for promotional activities. However, several months after
the Gateway transaction closed, as a result of the decline in stock
prices for internet businesses, the Company substantially curtailed its
business activities because it was unable to obtain financing. Virtually
all-promotional activities were halted in order to conserve cash. Only a
small number of the computers had been used in promotional activities at
that time. In the fourth quarter of 2000, the Company's Board of
Directors instructed management to liquidate the computer inventory, and
management initiated discussions with Gateway regarding the prohibition
on resale, at which time, the Company and Gateway negotiated the resale
back to Gateway at the price stated above. The Company recognized
$158,429 of expense related to the donation of 200 computers during 2000.
At March 31, 2001, the Company had no computer inventory remaining.
In September 1999, the Company entered into an agreement with Estefan
Enterprises, Inc. whereby Gloria Estefan would act as spokesperson for
the Company through December 31, 2000 and the Company would sponsor her
United States 2000 concert tour. Ms. Estefan's tour was subsequently
postponed, and consequently the original terms of the spokesperson
agreement were renegotiated. The revised spokesperson agreement called
for the return of the 156,863 shares of redeemable common stock to the
Company, cancellation of the put option for those shares and cancellation
of the final cash installment. The Company obtained the right of first
refusal for the sponsorship of Ms. Estefan's next United States and Latin
America tours. The Company recognized $1.2 million of amortization in
relation to the Estefan agreement during the quarter ended March 31, 2000
in relation to the original contract. The issuance of the 156,863 shares
of redeemable common stock was reversed in the second quarter of 2000.
During the three months ended March 31, 2001, the Company reduced its
workforce as part of management's effort to enhance the Company's
competitive position, utilize its assets more efficiently, and conserve
remaining cash. The Company recognized $44,000 in employee severance and
termination costs for the three months ended March 31, 2001, relating to
the reduction in the workforce of approximately 17 employees. As of March
31, 2001, all employee severance and termination costs incurred in 2001
had been paid.
(5) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) USES OF ESTIMATES
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America 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
7
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of the financial statements. Additionally, such estimates and
assumptions affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
(b) RECLASSIFICATIONS
Certain reclassifications have been made to prior year financial
statement amounts to conform to the current year presentation.
(c) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial
statements of quepasa and its three wholly owned subsidiaries. All
significant intercompany balances and transactions have been
eliminated in consolidation.
(d) CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments which potentially subject the Company to
concentrations of credit risk are principally accounts receivable,
cash and cash equivalents and trading securities. The Company
maintains ongoing credit evaluations of its customers and
generally does not require collateral. The Company provides
reserves for potential credit losses and such losses have not
exceeded management expectations. Periodically during the year,
the Company maintains cash and investments in financial
institutions in excess of the amounts insured by the federal
government. During the three months ended March 31, 2001, two
customers accounted for 43% and 26% of gross revenue. During the
three months ended March 31, 2000, two customers accounted for 33%
and 10% of gross revenue. No other single advertiser utilizing
banner ads or sponsorship agreements amounted to or exceeded 10%
of the total gross revenue.
(e) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and highly liquid
debt instruments with original maturities of three months or less.
(f) SECURITIES
The Company classifies its securities in one of three categories:
trading, available-for-sale, or held-to-maturity. Trading
securities are bought and held principally for the purpose of
selling them in the near term. Held-to-maturity securities are
those securities in which the Company has the ability and intent
to hold the security until maturity. All other securities not
included in trading or held-to-maturity are classified as
available-for-sale. Trading securities at December 31, 2000
consisted of corporate debt securities.
Trading and available-for-sale securities are recorded at market
value. Held-to-maturity securities are recorded at amortized cost,
adjusted for the amortization or accretion of premiums or
discounts. Unrealized holding gains and losses on trading
securities are included in operations. Unrealized holding gains
and losses, net of the related tax effect, on available-for-sale
securities are excluded from operations and are reported as a
separate component of other comprehensive income until realized.
Realized gains and losses for trading securities are included in
operations and are derived using the specific identification
method for determining the cost of securities. All securities held
at December 31, 2000 were categorized as trading. The Company had
no securities at March 31, 2001.
(g) REVENUE RECOGNITION
The Company's revenue is derived principally from the sales of
banner advertisements and sponsorships. The Company sells banner
advertising primarily on a cost-per-thousand impressions, or "CPM"
basis, under which advertisers and advertising agencies receive a
guaranteed number of "impressions," or number of times that an
advertisement appears in pages viewed by users of the Company's
website, for a fixed fee. The Company's contracts with advertisers
and advertising agencies for these types of contracts cover
periods ranging from one to twelve months. Advertising revenue is
recognized ratably based on the number of impressions displayed,
provided that the Company has no
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obligations remaining at the end of a period and collection of
the resulting receivable is probable. Company obligations
typically include guarantees of a minimum number of
impressions. To the extent that minimum guaranteed impressions
are not met, the Company defers recognition of the
corresponding revenue until the remaining guaranteed impression
levels are achieved. Payments received from advertisers prior
to displaying their advertisements on the Company's website are
recorded as deferred revenue.
The Company also derives revenue from the sale of sponsorships for
certain areas or a sponsorship exclusivity for certain areas
within its website. These sponsorships are typically for periods
up to one year. Prior to the adoption of Staff Accounting Bulletin
(SAB) 101, the Company recognized revenue during the initial
setup, if required under the unique terms of each sponsorship
agreement (e.g., co-branded website), to the extent that actual
costs were incurred. The balance of the sponsorship was recognized
ratably over the period of time of the related agreement. The
Company adopted SAB 101 in the fourth quarter of 2000. As such,
the Company records initial setup fees as deferred revenue and
recognizes the fee over the term of the related agreement.
The Company also derives revenue from slotting fees, set-up fees
and commissions. Slotting fees revenue is recognized ratably over
the period the services are provided. Setup fee revenue is
recognized during the initial setup to the extent that direct
costs are incurred. The remaining revenue derived from setup fees
is deferred and amortized ratably over the term of the applicable
agreement. Commission revenue related to X:Drive is recognized in
the month in which a new account is established (i.e. services are
provided). Commission revenue and expenses related to Net2Phone
are recognized during the month in which the service is provided.
The Company in the ordinary course of business enters into
reciprocal service arrangements (barter transactions) whereby the
Company provides advertising service to third parties in exchange
for advertising services in other media. Revenue and expenses from
these agreements are recorded at the fair value of services
provided or received, whichever is more determinable in the
circumstances. The fair value represents market prices negotiated
on an arms' length basis. Revenue from reciprocal service
arrangements is recognized as income when advertisements are
delivered on the Company's website. Expense from reciprocal
services arrangements is recognized when the Company's
advertisements are run in other media, which are typically in the
same period when the reciprocal service revenue is recognized.
Related expenses are classified as advertising and marketing
expenses in the accompanying statements of operations. During the
three months ended March 31, 2001 and 2000, revenue attributable
to reciprocal services totaled zero and approximately $112,000,
respectively, and related expenses totaled zero and approximately
$161,000, respectively.
In November 1999, the EITF commenced discussions on EITF No.
99-17, ACCOUNTING FOR ADVERTISING BARTER TRANSACTIONS, concluding
that revenue and expenses from advertising barter transactions
should be recognized at the fair value of the advertising
surrendered or received only when an entity has a historical
practice of receiving or paying cash for similar advertising
transactions. In evaluating "similarity," the Company ensured
reasonableness of the target market, circulation, timing, medium,
size, placement, and location of the advertisement. In cases where
the total dollar amount of barter revenue exceeded the total
amount of the "similar" cash transaction, the total barter amount
was capped at the lower cash amount. EITF No. 99-17 was effective
and was applied prospectively to all transactions occurring after
January 20, 2000.
(h) COMPUTER PROMOTIONS INVENTORY
Computer promotions inventory is recorded at cost and included in
other current assets. The computer promotions inventory is charged
to expense on an individual basis as each computer is donated.
(i) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and
amortization expense is generally provided on a straight-line
basis using estimated useful lives of the assets which range from
two to five years. Leasehold improvements are amortized on a
straight-line basis over the shorter of the lease term
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or the estimated useful lives of the related improvements.
Expenditures for repairs and maintenance are charged to
operations as incurred and improvements, which extend the
useful lives of the assets, are capitalized.
(j) PRODUCT AND CONTENT DEVELOPMENT
Costs incurred in the classification and organization of listings
within the Company's website are charged to expense as incurred.
In accordance with SOP 98-1, material software development costs,
costs of development of new products and costs of enhancements to
existing products incurred during the application development
stage are capitalized. Based upon the Company's product
development process, and the constant modification of the
Company's website, costs incurred by the Company during the
application development stage have been insignificant.
In March 2000, EITF No. 00-02, ACCOUNTING FOR WEBSITE DEVELOPMENT
COSTS, was issued which addresses how an entity should account for
costs incurred in website development. EITF 00-02 distinguishes
between those costs incurred during the development, application
and infrastructure development stage and those costs incurred
during the operating stage. EITF 00-02 was effective on and after
June 30, 2000 although early adoption was encouraged. The adoption
of EITF No. 00-02 did not have a material impact on the Company's
consolidated financial statements.
Pursuant to Statement of Position 98-1, ACCOUNTING FOR THE COSTS
OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE, the
Company capitalized certain material development costs incurred
during the acquisition development stage, including costs
associated with coding, software configuration, upgrades and
enhancements.
(k) INCOME TAXES
The Company utilizes the asset and liability method of accounting
for income taxes. Under the asset and liability method, deferred
tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(l) IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to
future undiscounted net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying
amount or fair value of the assets less costs to sell.
(m) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments, which
principally include cash and cash equivalents, trading securities,
accounts receivable, other receivable, forgivable loans, accounts
payable, and accrued liabilities approximates fair market value
because of the short term nature of the instruments.
(n) STOCK-BASED COMPENSATION
The Company accounts for its stock option plan in accordance with
the provisions of Accounting Principles Board ("APB") Opinion No.
25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense is recorded on the
date of grant only if the current market price of the underlying
stock exceeded the exercise price. The Company has adopted the
disclosure provisions of SFAS No. 123, Accounting for Stock-Based
Compensation, which permits
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entities to provide pro forma net earnings (loss) and pro forma
net earnings (loss) per share disclosures for employee stock
option grants as if the fair-value-based method as defined in
SFAS No. 123 had been applied.
The Company uses one of the most widely used option pricing
models, the Black-Scholes model (Model), for purposes of valuing
its stock option grants. The Model was developed for use in
estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, it requires
the input of highly subjective assumptions, including the expected
stock price volatility, expected dividend yields, the risk free
interest rate, and the expected life. Because the Company's stock
options have characteristics significantly different from those of
traded options, and because changes in subjective input
assumptions can materially affect the fair value estimate, in
management's opinion, the value determined by the Model is not
necessarily indicative of the ultimate value of the granted
options.
(o) NET LOSS PER SHARE
Basic loss per share is computed by dividing net loss available to
common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted loss per share reflects
the potential dilution that could occur if securities or contracts
to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared
in the earnings of the Company. Stock options and warrants are
excluded because they are anti-dilutive.
(p) ADVERTISING COSTS
Advertising costs are expensed as incurred in accordance with
Statement of Position 93-7, "Reporting on Advertising Costs."
Advertising costs for the three months ended March 31, 2001 and
2000 totaled $23,000 and $2.8 million, respectively. The Company
recognizes the advertising expense in a manner consistent with how
the related advertising is displayed or broadcast. Advertising
production costs are expensed as incurred.
(q) SEGMENT REPORTING
The Company utilizes the management approach in designating
business segments. The management approach designates the internal
organization that is used by management for making operating
decisions and assessing performance as the source of the Company's
reportable segment. The Company's one segment provides Internet
Portal and On-Line Community services in both Spanish and English
to the Hispanic market. The Company's initial focus is on the U.S.
Hispanic market, with substantially all of the Company's assets in
and revenues originating from the United States.
(6) COMMITMENTS
(a) EMPLOYMENT AGREEMENTS
The Company has entered into employment and other agreements with
many of its employees and its executive officers and non-employee
directors. Under the terms of the employment agreements with its
employees, the Company and the other parties thereto agreed to
various provisions relating to base salary, forgivable loans and
severance and bonus arrangements. The Company recognized the
forgivable loans ratably as expense over the full loan period, or
earlier, if the loan is forgiven on the date of the particular
employee's termination of employment with the Company, according
to such employee's employment agreement.
In the event of a change of control or liquidation, the Company
may be required to pay up to a maximum of $1.2 million in
severance payments under the Company's existing employment
agreements with its remaining officers and other agreements with
its non-employee directors as follows:
Pursuant to the pending merger agreement with Great Western Land
and Recreation, Inc., Gary L. Trujillo and Robert J. Taylor will
be terminated at the closing thereof, triggering certain severance
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obligations of the Company. Under Taylor's employment agreement,
Taylor's employment terminates on its own terms on March 8, 2002,
but the Company may terminate his employment for any reason, with
or without cause. If the Company terminates Taylor's employment
without cause before the end of Taylor's employment term, the
Company is required to pay Taylor a severance payment in the
amount of $100,000, which payment is due and payable immediately
upon termination. In addition, all of Taylor's 193,334 unvested
options will become fully vested and exercisable upon the closing
of the merger. Trujillo's employment terminates on its own terms
on April 26, 2004, and the Company may not terminate his
employment without cause. Trujillo has agreed to terminate his
employment with the Company at the merger closing in exchange for
a discounted lump sum payment of the compensation due him over the
remaining term of his agreement. Trujillo will receive up to
approximately $850,000 in connection with the termination of his
employment agreement. That amount will be reduced by any monthly
salary payments made to Trujillo. In addition, all of Trujillo's
286,111 unvested options will become fully vested and exercisable
upon the closing of the merger.
A change of control in the Company will also trigger a cash
payment due to the Company's non-employee directors. As of March
2001, the Company agreed to pay each non-employee director a
payment of $50,000 for past and current services, payable only
upon any change of control in or liquidation of the Company. In
addition, 200,000 unvested options previously granted to the
non-employee directors with an exercise price of $0.15 per share
will become fully vested and exercisable.
(b) ADVERTISING CONTRACTS
In April 1999, the Company entered into an agreement with
Telemundo Network Group LLC (Telemundo). The Chief Operating
Officer of Telemundo served as director of the Company through
January, 2001. Under this agreement, the Company issued Telemundo
600,000 shares of its common stock and a warrant to purchase
1,000,000 shares of its common stock exercisable up to and
including June 25, 2001 at $14.40 per share. In exchange, the
Company received a $5.0 million advertising credit on the
Telemundo television network at the rate of $1.0 million for each
of the next five years. After completion of the IPO, the shares
and warrant became fully vested and were not subject to return for
nonperformance by Telemundo. The fair value of the transactions
was measured and based on the fair value of the common stock
issued at the Company's IPO price of $12.00 per share plus
$2,920,192 assigned to the warrant based upon the Black-Scholes
pricing model using a 50% volatility rate. The Company began
amortizing the $5.0 million advertising credit on January 1, 2000,
after a cash purchase from Telemundo of $1.0 million in
advertising services in 1999. The remaining balance of prepaid
marketing services of $5,120,192 was to be amortized over the term
of the agreement (5 years). This agreement also provides (1) that
the parties will collaborate regarding online content development,
co-branded marketing promotions, and other complementary aspects
of its business, (2) that the parties will cross-link each other's
websites, and (3) exclusivity provisions for a period of six
months. On December 27, 2000, the Company's Board of Directors
approved the development of a plan of liquidation and sale of the
Company's assets in the event that no strategic transaction
involving the Company could be achieved. Accordingly, the Company
performed an impairment analysis of all long-lived assets and
identifiable intangibles in accordance with generally accepted
accounting principles. As a result, the Company wrote off the $7.6
million remaining unamortized prepaid marketing services in the
fourth quarter of 2000.
In April 1999, the Company issued 50,000 shares of its common
stock to an entity partially owned by a former director of the
Company for advertising and marketing services valued at $634,000.
The value of the stock and the related advertising costs were
adjusted at each quarterly reporting period based on the then fair
value of the stock issued through the final measurement date
(December 31, 1999). The advertising costs were amortized on a
straight-line basis over the full term of the contract as the
services were performed ratably over the period. In August 1999,
the Company entered into a one-year agreement with this company
with a monthly commitment of $150,000. Payment during the first 5
months of the agreement included amortization of the prepaid
amount from the issuance of common stock. This agreement was
amended, reducing the monthly commitment to $50,000 for January
2000
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and to $40,000 through October 2000. The agreement continued on
a month-to-month basis with payments totaling $437,000 through
December 2000, when it was terminated.
During 2000 and 1999, the Company was a party to a sponsorship
agreement with the Arizona Diamondbacks major league baseball
team. A director of the Company serves as the Arizona
Diamondbacks' Chief Executive Officer and General Manager. Under
this agreement, the Company received English and Spanish
television and radio broadcast time, ballpark signage, and
Internet and print promotions for an annual sponsorship fee of
$1.5 million which was payable in cash during each season. This
agreement was not renewed for the 2001 season. The $1.5 million
annual sponsorship fee was recognized as expense ratably over the
2000 and 1999 baseball seasons.
(c) CONTENT AND WEBSITE ADMINISTRATION
During 2000, 1999 and 1998, the Company had various agreements
with third parties to provide content to the Company's website and
incurred license fee expense of $13,000 and $579,000 for the three
months ended March 31, 2001 and 2000, respectively. The Company
paid $41,000 during the three months ended March 31, 2001 to
terminate all content development agreements. The Company has
outsourced the hosting and administration of its website for
approximately $2,000 per month.
(7) CONTINGENCIES
In February 2001, the Company initiated arbitration against Telemundo to
defend the enforceability of an agreement between us, and submitted a
damages claim for $4.3 million, plus reasonable attorneys' fees and
costs. Alleging that the Company breached the agreement by failing to
develop and maintain the Telemundo web site, Telemundo asserted a damages
claim in the arbitration for $655,000, plus reasonable attorneys' fees
and costs. The Company does not believe that it has breached the
agreement and intends to vigorously assert its rights thereunder,
particularly its right to use or transfer any unused advertising credits.
A hearing date for the arbitration has been set for October 1, 2001.
While the Company believes it will be successful in the arbitration
proceeding, there can be no assurance that it will succeed. Accordingly,
the accompanying financial statements do not include a provision for
loss, if any, that might result from the ultimate outcome of this matter.
The Company from time to time is involved in various legal proceedings
incidental to the conduct of its business. The Company believes that the
outcome of all such pending legal proceedings will not in the aggregate
have a material adverse effect on the Company's business, financial
condition, results of operations or liquidity.
(8) LOSS PER SHARE
A summary of the reconciliation from basic loss per share to diluted loss
per share follows for the three months ended March 31, 2001 and 2000:
<Table>
<Caption>
THREE MONTHS ENDED MARCH 31,
------------------------------------
2001 2000
Net loss $ (1,367,361) $ (10,944,503)
=============== =================
Basic EPS-weighted average shares outstanding 17,763,291 15,764,051
=============== =================
Basic and diluted net loss per share $ (0.08) $ (0.69)
=============== =================
Stock options not included in diluted EPS since
antidilutive 2,458,217 3,996,046
=============== =================
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Warrants not included in dilutive EPS since antidilutive 1,400,000 2,565,313
=============== =================
</Table>
(9) SUBSEQUENT EVENTS
In December 1999, realestateespanol.com and the National Association of
Hispanic Real Estate Professionals entered into an Internet Endorsement
Agreement, pursuant to which, in exchange for NAHREP's endorsement of the
realestateespanol.com website, realestateespanol was required to pay
NAHREP an annual $50,000 fee over a ten-year term. Thereafter, in
connection with the Internet Endorsement Agreement, in October 2000,
realestateespanol.com, NAHREP, the National Council of La Raza and
Freddie Mac entered into a Memorandum of Understanding which, among other
things, set forth the business relationship through which the parties
agreed to implement a program to deliver the benefits of technology to
mortgage origination for low and moderate income Hispanic and Latino
borrowers. Contemporaneously, realestateespanol and NAHREP entered into
an agreement which set forth the terms and conditions of their rights and
obligations under the MOU.
Under the MOU, among other things, (1) realestateespanol was required to
(a) develop a web-based technology tool to be distributed to NCLR and
NCLR affiliates, and (b) donate 200 computers, at no charge, to NAHREP
for distribution to NCLR and NCLR affiliates for promotional purposes,
(2) Freddie Mac was required to provide an aggregate dollar amount of
$250,000 as sponsorship fees to NAHREP, and (3) NAHREP was required, in
turn, to deliver the same to realestateespanol towards the initial
development of the technology tool discussed above. In May 2001, all of
the parties agreed to either terminate certain of the agreements or
release realestateespanol from its duties and obligations thereunder. In
exchange for such termination or release, as the case may be,
realestateespanol (a) transferred ownership of, and exclusive rights to,
the in-process technology tool to NAHREP, (b) granted NAHREP a
non-exclusive license to operate and use the realestaeespanol.com website
the content thereon and any related technology tools, (c) granted NAHREP
an exclusive license to operate and use any related domain names, (d)
permitted NAHREP to retain the full amount of the unpaid sponsorship fee
to be paid by Freddie Mac to NAHREP for development of the technology
tool, and (e) permitted NAHREP to retain ownership of the previously
donated computers in the first quarter of 2001. The $100,000 sponsorship
collected in 2000 was amortized over a six-month period through March 31,
2001.
On June 21, 2001, Michael Weck resigned from the Company's Board of
Directors.
On June 25, 2001, under the agreement between the Company and Telemundo,
the warrants previously issued to Telemundo to purchase 1,000,000 shares
of the Company's common stock at $14.40 per share expired on their own
terms. The warrant was not exercised.
In August 2001, Peterson sold all but 70,000 of his remaining shares of
the Company's common stock. Accordingly, the voting trust currently is
entitled to vote only those 70,000 shares on Peterson's behalf, according
to the terms and conditions of the voting trust agreement.
On August 1, 2001, the Company and its landlord executed an agreement
pursuant to which the Company made a $130,000 lump sum payment to the
landlord for any and all amounts due and owing under its lease, including
any and all future amounts to be paid thereunder. The Company is required
to vacate the property on the earlier to occur of October 31, 2001, or
upon 30-days prior written notice from the landlord. As of August 31,
2001, the Company has not received such written notice to vacate from the
landlord.
On August 6, 2001, we entered into a merger agreement that would result
in the company becoming a wholly owned subsidiary of Great Western Land
and Recreation, Inc. Great Western is an Arizona-based, privately held
real estate development company with holdings in Arizona, New Mexico and
Texas. Great Western's business focuses primarily on condominiums,
apartments, residential lots and recreational property development. In
addition to holding completed developments in metropolitan areas of
Arizona, New Mexico and Texas, Great Western also owns and is currently
developing the Wagon Bow Ranch in northwest Arizona and the Willow
Springs Ranch in central New Mexico.
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The merger agreement represents a stock for stock offering, pursuant
to which each share of quepasa common stock will be converted into one
share of Great Western common stock.
Immediately following the merger our current shareholders would own
approximately 49% of Great Western and Amortibanc Management, L.C., Great
Western's current sole shareholder, would own approximately 51% of Great
Western. In addition, Amortibanc holds one or more warrants to purchase
14,827,175 shares of Great Western common stock that, if exercised, would
increase its ownership to a maximum of 65% of the outstanding common
stock of Great Western on a fully diluted basis (except for an aggregate
of 400,000 unvested stock options with an exercise price of $0.15 per
share held by our directors, Chief Executive Officer and Chief Operating
Officer). The warrant is exercisable at any time, and from time to time
for ten years following the merger closing. Under the terms of the
warrant, Great Western may purchase 4,942,392 shares of Great Western
common stock for $.30 per share, 4,942,392 shares for $.60 per share and
4,942,391 shares for $1.20 per share. Great Western may purchase shares
by paying cash for such shares or by surrendering the right to receive a
number of shares having an aggregate market value equal to the purchase
price for such shares.
Following the merger, the combined company's common stock will be
publicly traded under the Great Western name. The merger is subject to
certain closing conditions and stockholder approval. There can be no
assurance that we will consummate the merger transaction.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - RISK FACTORS
This Quarterly Report on Form 10-Q and the information incorporated by
reference may include "forward-looking statements" within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act. In particular, we
direct your attention to Item 1. Financial Statements, Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operation - Risk
Factors and Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We intend the forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements in these sections. All statements
regarding our expected financial position and operating results, our business
strategy, our future business operations, our proposed merger transaction, our
potential liquidation plans and the outcome of any contingencies are
forward-looking statements. These statements can sometimes be identified by our
use of forward-looking words such as "may," "believe," "plan," "will,"
"anticipate," "estimate," "expect," "intend" and other phrases of similar
meaning. Known and unknown risks, uncertainties and other factors could cause
the actual results to differ materially from those contemplated by the
statements. The forward-looking information is based on various factors and was
derived using numerous assumptions. Although we believe that our expectations
expressed in these forward-looking statements are reasonable, we cannot promise
that our expectations will turn out to be correct. Our actual results could be
materially different from our expectations.
The following discussion of our financial condition and results of
operations for the three months ended March 31, 2001 and 2000 should be read in
conjunction with our condensed consolidated financial statements, the notes
related thereto, and the other financial data included elsewhere in this Form
10-Q.
OVERVIEW
We commenced operations on June 25, 1997. Prior to May 1998, our operations were
limited to organizing quepasa.com, raising operating capital, hiring initial
employees and drafting a business plan. From May 1998 through May 1999, we were
engaged primarily in content development and acquisition. In May 1999, we
launched our first media-based branding and advertising campaign in the U.S.
Significant revenues from our business activities did not commence until the
fourth quarter of 1999. In the first quarter of 2000, we significantly increased
our operating expenses as we expanded our sales, marketing and advertising
efforts.
In May 2000, our Board of Directors announced the engagement of Friedman,
Billings, Ramsey & Co., an investment banking firm, to assist us in developing
strategic alternatives to maximize shareholder value. Following the announcement
and during the remainder of 2000, we reduced our work force by approximately 80%
and significantly reduced the products and content we provide, and our
marketing, sales and general operating expenses, in order to conserve cash. We
continue to review the size of our work force, the products and content we
provide and our marketing, sales and general operating costs with a view to
conserve cash.
While management continued to develop and support its websites and pursue its
original business plan, the Company continued to amortize its goodwill through
November 30, 2000. The Company has been unable to develop a revenue stream to
support the carrying value of its long lived and intangible assets. Accordingly,
on December 27, 2000, our Board of Directors approved the development of a plan
of liquidation and sale of our assets in the event that no strategic transaction
involving the Company can be achieved. As a result, we performed an impairment
analysis of all long-lived assets and all identifiable intangibles. Included in
our $61.0 million net loss for 2000 is a $24.9 million non-cash asset impairment
charge that consists of the following: goodwill and domain and license
agreements - $16.2 million unamortized balance; prepaid marketing services -
$7.6 million unamortized balance; and property and equipment - $1.1 million
representing the excess carrying value over sale proceeds. We also recognized a
$3.5 million loss on the resale of our computer promotions inventory to Gateway
in December 2000. We anticipate that these developments will contribute to a
decrease in both our revenue and expenses in future periods as compared to 2000.
Also during the first quarter of 2001:
o In January 2001, Alan Sokol resigned from our Board of Directors.
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o Our common stock was delisted from the Nasdaq National Market in
January 2001. In March 2001, our common stock began trading on the
Over-The-Counter Bulletin Board.
o We received a cash payment from Gateway, Inc. in January 2001, in an
amount equal to $981,870 for the computers that we sold back to
Gateway in December 2000.
o On February 1, 2001, Jose Ronstadt resigned as an officer of the
Company.
o In order to conserve cash and limit the services and content we
provide, we (1) terminated most of or strategic relationships with our
third-party content and service providers, (2) suspended operations of
the eTrato.com and credito.com web sites, (3) outsourced the hosting
and administration of the quepasa.com web site for approximately
$2,000 per month, and (4) sold substantially all of our furniture,
computer and server equipment and office equipment for $277,000 in
cash.
o On March 15, 2001, we granted an aggregate of 400,000 stock options to
our remaining officers and directors. The options are exercisable at
$.15 per share (representing a 33% premium over the $.10 closing price
on March 15, 2001) and vest ratably over a 3-year period, or
immediately upon a change of control or liquidation. Of that number,
we granted 100,000 to each of Gary Trujillo and Robert Taylor, and
50,000 to each of our non-employee directors.
o On March 22, 2001, we agreed to pay each of our non-employee directors
a lump sum payment of $50,000 for prior and current service, upon the
occurrence of a Significant Event, defined as a change of control or
liquidation of the Company.
Developments since March 31, 2001:
o As of April 30, 2001, we had reduced our work force from 20 employees
at December 31, 2000, to 3 employees, and one full-time and several
part-time contractors.
o In December 1999, realestateespanol.com and the National Association
of Hispanic Real Estate Professionals entered into an Internet
Endorsement Agreement, pursuant to which, in exchange for NAHREP's
endorsement of the realestateespanol.com website, realestateespanol
was required to pay NAHREP an annual $50,000 fee over a ten-year term.
Thereafter, in connection with the Internet Endorsement Agreement, in
October 2000, realestateespanol.com, NAHREP, the National Council of
La Raza and Freddie Mac entered into a Memorandum of Understanding
which, among other things, set forth the business relationship through
which the parties agreed to implement a program to deliver the
benefits of technology to mortgage origination for low and moderate
income Hispanic and Latino borrowers. Contemporaneously,
realestateespanol and NAHREP entered into an agreement which set forth
the terms and conditions of their rights and obligations under the
MOU.
Under the MOU, among other things, (1) realestateespanol was required
to (a) develop a web-based technology tool to be distributed to NCLR
and NCLR affiliates, and (b) donate 200 computers, at no charge, to
NAHREP for distribution to NCLR and NCLR affiliates for promotional
purposes, (2) Freddie Mac was required to provide an aggregate dollar
amount of $250,000 as sponsorship fees to NAHREP, and (3) NAHREP was
required, in turn, to deliver the same to realestateespanol towards
the initial development of the technology tool discussed above. In May
2001, all of the parties agreed to either terminate certain of the
agreements or release realestateespanol from its duties and
obligations thereunder. In exchange for such termination or release,
as the case may be, realestateespanol (a) transferred ownership of,
and exclusive rights to, the in-process technology tool to NAHREP, (b)
granted NAHREP a non-exclusive license to operate and use the
realestaeespanol.com website the content thereon and any related
technology tools, (c) granted NAHREP an exclusive license to operate
and use any related domain names, (d) permitted NAHREP to retain the
full amount of the unpaid sponsorship fee to be paid by Freddie Mac to
NAHREP for development of the technology tool, and (e) permitted
NAHREP to retain ownership of the previously donated computers in the
first quarter of
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2001. The $100,000 sponsorship collected in 2000 was
amortized over a six month period through March 31,2001
o On June 21, 2001, Michael Weck resigned from our Board of Directors.
o On June 25, 2001, under the agreement between us and Telemundo, the
warrants previously issued to Telemundo to purchase 1,000,000 shares
of our common stock at $14.40 per share expired on their own terms.
None of the warrants were exercised.
o On August 1, 2001, we and our landlord executed an agreement pursuant
to which we made a $130,000 lump sum payment to our landlord for any
and all amounts due or to become due under our office lease. We are
required to vacate the property on the earlier to occur of October 31,
2001, or upon 30-days written notice from the landlord. As of
September 18, 2001, we have not received a written notice to vacate.
o Jeffrey S. Peterson, our former chief executive officer and director,
and Michael A. Hubert, a former officer and director, previously
entered into a voting trust agreement which provides that until June
24, 2004, Messrs. Seidman and Trujillo shall vote all shares of our
common stock covered by the agreement in the same proportion as those
shares voted by our unaffiliated stockholders. Previously, Mr. Hubert
transferred all of his shares of our common stock. In August 2001, Mr.
Peterson transferred all but 70,000 of his shares of our common stock
(or an aggregate of 1,261,083 shares). Accordingly, there are
currently 70,000 shares in the voting trust.
o On August 6, 2001, we entered into a merger agreement that would
result in the company becoming a wholly owned subsidiary of Great
Western Land and Recreation, Inc. Great Western is an Arizona-based,
privately held real estate development company with holdings in
Arizona, New Mexico and Texas. Great Western's business focuses
primarily on condominiums, apartments, residential lots and
recreational property development. In addition to holding completed
developments in metropolitan areas of Arizona, New Mexico and Texas,
Great Western also owns and is currently developing the Wagon Bow
Ranch in northwest Arizona and the Willow Springs Ranch in central New
Mexico. The merger agreement represents a stock for stock offering,
pursuant to which each share of quepasa common stock will be converted
into one share of Great Western common stock.
Immediately following the merger our current shareholders would own
approximately 49% of Great Western and Amortibanc Management, L.C.,
Great Western's current sole shareholder, would own approximately 51%
of Great Western. In addition, Amortibanc holds one or more warrants
to purchase 14,827,175 shares of Great Western common stock that, if
exercised, would increase its ownership to a maximum of 65% of the
outstanding common stock of Great Western on a fully diluted basis
(except for an aggregate of 400,000 unvested stock options with an
exercise price of $0.15 per share held by our directors, Chief
Executive Officer and Chief Operating Officer). The warrant is
exercisable at any time, and from time to time for ten years following
the merger closing. Under the terms of the warrant, Great Western may
purchase 4,942,392 shares of Great Western common stock for $.30 per
share, 4,942,392 shares for $.60 per share and 4,942,391 shares for
$1.20 per share. Great Western may purchase shares by paying cash for
such shares or by surrendering the right to receive a number of shares
having an aggregate market value equal to the purchase price for such
shares.
Following the merger, the combined company's common stock will be
publicly traded under the Great Western name. The merger is subject to
certain closing conditions and stockholder approval. There can be no
assurance that we will consummate the merger transaction.
We have been unsuccessful in executing our business plan and developing a
revenue stream to support the carrying value of our long-lived and intangible
assets, have incurred substantial losses since inception and have an accumulated
deficit of $98.1 million as of March 31, 2001. For these reasons, we believe
that period-to-period comparisons of our operating results are not meaningful
and the results for any period should not be relied upon as an indication of
future performance.
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THE QUEPASA.COM COMMUNITY
quepasa.com, inc. is a Bilingual (Spanish/English) Internet portal and online
community focused on the United States Hispanic market. We provide users with
information and content centered around the Spanish language. Because the
language preference of many U.S. Hispanics is English, we also offer our users
the ability to access information in the English language.
RESULTS OF OPERATIONS
INTRODUCTION.
NET REVENUE: We expect to derive future net revenue from one principal
source: the sale of advertising on our web site.
ADVERTISING REVENUE: In the first quarter of 2001, we derived approximately
35% of our net revenues from the sale of advertisements on our web site which
are received principally from advertising arrangements under which we receive
fixed fees for banners placed on our web site for specified periods of time or
for a specified number of delivered ad impressions. During the first quarter of
2001, we discontinued the use of our banner ad software and sought a third-party
outsourced for our banner ad sales and service. As of September 18, 2001, we
have been unsuccessful in retaining a third-party outsourcer for our banner ad
sales and service.
SPONSORSHIP REVENUE. In the first quarter of 2001, we derived approximately
65% of our net revenue from the sale of sponsorships for certain areas or
exclusive sponsorship rights for certain areas within our web site. These
sponsorships typically cover periods up to 1 year. We recognize revenue during
the initial setup, if required under the unique terms of each sponsorship
agreement (e.g. co-branded web site), ratably over the period of time of the
related agreement. Payments received from sponsors prior to displaying their
advertisements on our web site are recorded as deferred revenue.
Our principal expenses are: Product and Content Development, Advertising
and Marketing and General and Administrative.
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
2000
Our results of operations for the three months ended March 31, 2001 and 2000
were characterized by expenses that significantly exceeded revenues during the
periods. We reported a net loss of $1.4 million for the three months ended March
31, 2001, compared to a net loss of $10.9 million for the three months ended
March 31, 2000. During the three months ended March 31, 2001, we focused on
reducing our cash expenses in all operation areas, including product and
content, marketing and advertising, personnel and general and administrative
expenses.
During the periods from December 31, 2000 through March 31, 2001, in order to
conserve cash, we:
o reduced our employee count from 20 to 3 professionals, as compared to
104 professionals as of March 31, 2000;
o suspended the web site operations of eTrato.com, inc., an online
auction web site linking Hispanic buyers and sellers of goods and
services, and credito.com, inc., a Spanish language Internet web site
providing personal credit content and information. We acquired eTrato
and credito in January 2000;
o outsourced the hosting and administration of the quepasa.com web site
for approximately $2,000 per month; and
o terminated most of our strategic relationships with our third party
content and service providers.
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NET REVENUES
Net revenue decreased 72% to $114,000 for the three months ended March 31, 2001
from $406,000 for the three months ended March 31, 2000 as a result of the
Company's curtailment of operations.
OPERATING EXPENSES
PRODUCT AND CONTENT DEVELOPMENT EXPENSES. Our product and content development
expenses decreased 80% to $335,000 for the three months ended March 31, 2001,
compared to $1.7 million for the three months ended March 31, 2000. The
period-to-period decrease was principally attributable to:
o an decrease in personnel costs relating to the development of content
and technological support to $85,000 for the three months ended March
31, 2001, compared to $839,000 for the three months ended March 31,
2000;
o a reduction in the products and content we provide;
o the suspension of the operation of the eTrato.com and credito.com web
sites;
o the outsourcing of the hosting and administration of the quepasa.com
and realestateespanol.com web sites; and
o termination of most of our strategic relationships with third-party
content and service providers.
ADVERTISING AND MARKETING EXPENSES. Our marketing, advertising and sales
expenses decreased 95% to $368,000 for the three months ended March 31, 2001,
compared to $7.1 million for the three months ended March 31, 2000. This
decrease was principally attributable to:
o a decrease in marketing and sales personnel costs to $70,000 for the
three months ended March 31, 2001, compared to $598,000 for the three
months ended March 31, 2000;
o a decrease in advertising expenditures amounting to $23,000 for the
three months ended March 31, 2001 compared to $2.8 million expended on
the maintenance of brand awareness for the three months ended March
31, 2000; and
o a decrease in the amortization of the NetZero, Telemundo and Gloria
Estefan contracts which approximated $3.5 million in the first quarter
of 2000 and zero in 2001.
GENERAL AND ADMINISTRATIVE EXPENSES. Our general and administrative expenses
decreased 49% to $864,000 for the three months ended March 31, 2001, compared to
$1.7 million for the three months ended March 31, 2000. This decrease was
principally attributable to a reduction in our work force. Our professional fees
were $438,000, depreciation and rent was $98,000 and our office and related
expenses were $25,000 for the three months ended March 31, 2001, compared to
$407,000, $312,000 and $490,000 for the three months ended March 31, 2000. Stock
based compensation increased to $26,000 for the three months ended March 31,
2001, compared to $21,000 for the three months ended March 31, 2000. Stock based
compensation for the three months ended March 31, 2001 is comprised of expense
recognized in accordance with APB Opinion No. 25, for various employee stock
options vesting over time. The expense recognized for the three months ended
March 31, 2000 consisted primarily of the immediate vesting of employee stock
options.
AMORTIZATION OF GOODWILL. Amortization for the three months ended March 31, 2001
was zero, compared to $1.1 million for the three months ended March 31, 2000.
There was no amortization of goodwill in the first quarter of 2001 as a result
of the write-off of goodwill in the fourth quarter of 2000.
At December 31, 2000, we determined that the fair market value of certain
acquired assets was significantly below their respective carrying values. As a
result, we recorded asset impairment charges of $24.9 million in the fourth
quarter of 2000.
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OTHER INCOME (EXPENSE). Other income (expense), which consists primarily of
interest expense, net of interest earned, decreased 70% to $86,000 for the three
months ended March 31, 2001, compared to $283,000 for the three months ended
March 31, 2000. Following our initial public offering in 1999 and continuing
through 2000, we invested most of our assets in cash or cash equivalents, which
are either debt instruments of the U.S. Government, its agencies, or high
quality commercial paper. Interest income will decrease over time as cash is
used to fund operations.
LIQUIDITY AND CAPITAL RESOURCES
We have substantial liquidity and capital resource requirements, but limited
sources of liquidity and capital resources. We have generated significant net
losses and negative cash flows from our inception and anticipate that we will
experience continued net losses and negative cash flows for the foreseeable
future. Our independent accountants have issued their independent auditor's
report dated May 8, 2001 on our consolidated financial statements for 2000
stating that our recurring losses, accumulated deficit and our inability to
successfully execute our business plan, among other things, raise substantial
doubt about our ability to continue as a going concern.
From our inception to date, we have relied principally upon equity investments
to support the development of our business. We have retained the
investment-banking firm of Friedman, Billings, Ramsey & Co., Inc. to explore
alternatives including strategic alliances, significant equity investments in us
or a merger or the sale of all or a significant portion of our business.
As of March 31, 2001, we had $6.5 million in cash and cash equivalents and no
short term investments, compared to $5.1 million and $17.3 million, respectively
at March 31, 2000. On June 24, 1999, we raised approximately $42.4 million, net
of offering costs, through an initial public offering of our common stock and
during July 1999, we raised an additional $6.3 million, net of offering costs,
from the exercise of an option granted to our underwriters to cover
overallotments from the initial public offering. In March 2000, we raised $9.0
million by issuing 1,428,571 shares of the our common stock to Gateway
Companies, Inc.
Net cash provided by operations for the three months ended March 31, 2001
consisted of a net loss of $1.4 million, $2.4 million net proceeds from the sale
of trading securities and the collection of $1.1 million of the other receivable
and other current assets. Net cash used in operations for the three months ended
March 31, 2000 consisted of a net loss of $10.9 million, $4.8 million net
proceeds from the sale of trading securities, an increase in prepaid expenses of
$2.6 million, an increase in other assets of $6.7 million and a decrease in
accrued liabilities of $357,000 offset by non-cash expenses for the depreciation
of fixed assets and amortization of $1.4 million, and an increase in accounts
payable of $1.2 million. Net cash provided by operations for the three months
ended March 31, 2001 primarily resulted from the curtailment of the Company's
operations.
Net cash provided by investing activities amounted to $277,000 for the three
months ended March 31, 2001 and $96,000 for the three months ended March 31,
2000. The $277,000 resulted from the sale of assets held for sale.
Net cash provided by financing activities was zero for the three months ended
March 31, 2001 and $9.1 million for the three months ended March 31, 2000. The
Company was unable to raise any capital during the three months ended March 31,
2001.
As of December 31, 2000, we had commitments under non-cancelable operating
leases for office facilities requiring payments of $629,000 through the end of
the longest-term agreement scheduled to expire in November 2002. However, as a
result of our reduction in our work force and inability to execute our business
strategy, on August 1, 2001, we executed an agreement with our landlord pursuant
to which we made a $130,000 lump sum payment for any and all amounts due and
owing under the lease, including any and all future amounts to be paid
thereunder. We are required to vacate the property on the earlier to occur of
October 31, 2001, or upon 30-days prior written notice from the landlord. As of
September 18, 2001, we have not received a written notice to vacate.
We expect to continue to incur costs, particularly general and administrative
costs during the second, third and fourth quarters of 2001, including our
website administration of approximately $2,000 per month, and do not expect
sufficient revenue to be realized to offset these costs. We believe that our
cash on hand will be sufficient to meet our working capital and capital
expenditure needs through the first quarter of 2002. We believe it will be
necessary for
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us to raise additional capital, conclude one or more strategic transactions
or merge or sell quepasa by year-end 2001. In the event we are not able to
raise capital, conclude one or more strategic transactions or merge or sell
quepasa during that period, our ability to continue operations will be
severely impacted and could have a significant adverse effect on us. There
can be no assurance that we will be successful in raising the necessary
funds, concluding one or more strategic transactions, merging or selling
quepasa or that the terms of any such transaction will be beneficial to us.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 as well as all purchase method business
combinations completed after June 30, 2001. Statement 141 also specifies
criteria intangible assets acquired in a purchase method business combination
must meet to be recognized and reported apart from goodwill, noting that any
purchase price allocable to an assembled workforce may not be accounted for
separately. Statement 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of Statement 142
and that intangible assets with definite useful lives be amortized over their
respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.
We are required to adopt the provisions of Statement 141 immediately, except
with regard to business combinations initiated prior to July 1, 2001, which it
expects to account for using the pooling-of-interests method, and Statement 142
effective January 1, 2002. Furthermore, any goodwill and any intangible asset
determined to have an indefinite useful life that are required in a purchase
business combination completed after June 30, 2001 will not be amortized but
will continue to be evaluated for impairment in accordance wit the appropriate
pre-Statement 142 accounting literature. Goodwill and intangible assets acquired
in business combinations completed before July 1, 2001 will continue to be
amortized prior to the adoption of Statement 142. Management does not believe
that adoption of Statements 141 and 142 will have a material impact on our
consolidated financial statements.
RISK FACTORS
You should carefully consider the risks described below.
WE HAVE INCURRED SUBSTANTIAL OPERATING LOSSES AND OUR AUDITORS HAVE ISSUED A
"GOING CONCERN" AUDIT OPINION.
Our consolidated financial statements as of December 31, 2000 have been prepared
on the assumption that we will continue as a going concern. Our independent
accountants have issued their auditors' report dated May 8, 2001 (except as to
the second paragraph of Note 10(a) and Note 16 to the consolidated financial
statements, which are dated as of August 6, 2001) stating that the Company has
suffered recurring losses from operations, has an accumulated deficit, has not
been able to successfully execute its business plan, and is considering
liquidating the Company, all of which raise substantial doubt about our ability
to continue as a going concern.
THERE CAN BE NO ASSURANCES THAT THE PROPOSED MERGER WILL BE CONSUMMATED, AND
FAILURE TO COMPLETE THE MERGER COULD HAVE SUBSTANTIAL CONSEQUENCES TO THE
COMPANY.
On August 6, 2001, we executed a merger agreement with Great Western Land and
Recreation, Inc., an unrelated entity which operates as a privately-held real
estate development company. This merger can only be completed, though, if we and
our potential merger partner meet all the closing conditions set forth in the
definitive merger documents, including, but not limited to, approval by our
stockholders, as well as completion of required filings with the Securities and
Exchange Commission. There can be no assurances that we or Great Western will be
able to meet all the closing conditions set forth in such definitive merger
documents. Regardless of whether an actual merger is consummated, we have
incurred and will continue to incur significant expenses negotiating and
executing the definitive merger documents and attempting to comply with all the
closing conditions. This merger transaction is also subject to our potential
merger partner delivering to us audited financial statements and real estate
appraisals
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satisfactory to us. In light of our limited cash reserves and negative
operating cash flow, if the merger fails to be completed we may have no
option other than to liquidate.
WE HAVE FAILED TO EXECUTE OUR BUSINESS PLAN, ARE NOT CURRENTLY GENERATING
NEW REVENUE AND EXPECT FUTURE LOSSES.
We have never been profitable and have failed to execute our business plan. We
have incurred losses and experienced negative operating cash flow for each month
since our formation. As of December 31, 2000, we had an accumulated deficit of
approximately $96.7 million. Our operating history and the general downturn of
the Internet market in which we operate our business makes predictions of our
future results of operations difficult or impossible. In addition, because we
elected to substantially reduce our operations and terminate most of our
employees we are not currently generating any new revenue, nor do we have
employees, equipment, or any plan in place which would allow us to begin
generating any new revenue in the foreseeable future. The limited revenue we do
have will not cover our expenses in the foreseeable future and we do not believe
we will be able to raise additional capital or debt financing. As a result, we
will continue to incur significant losses and eventually may be required to
liquidate if our proposed merger is not consummated.
WE HAVE SUBSTANTIALLY REDUCED OUR OPERATIONS AND TERMINATED MOST OF OUR
EMPLOYEES.
During the period from December 31, 2000 through March 31, 2001, we
substantially reduced the extent and scope of our operations. In order to
conserve cash and limit the services and content we provide, we terminated most
of our strategic relationships with our third-party content and service
providers, suspended operations of the eTrato.com and credito.com websites,
outsourced the hosting and administration of the quepasa.com website and sold
substantially all of our furniture, computer and server equipment and office
equipment. We discontinued the use of our banner advertising software and sought
a third-party outsourcer for our banner advertising sales and service, but have
been unsuccessful in retaining such a third-party outsourcer. There are no
current negotiations taking place with any potential outsourcers at this time
and the prospects of obtaining future revenue from this kind of arrangement in
the near future is doubtful. In addition, we reduced our employee count from 20
to 3 professionals, as compared to 104 professionals as of March 31, 2000. As a
result of this reduction we are currently receiving no new revenue from our
website operations.
COMPETITION FOR INTERNET USERS MAY LIMIT TRAFFIC ON, AND THE VALUE OF, OUR
WEBSITE.
The market for Internet products and services and the market for Internet
advertising and electronic commerce arrangements are extremely competitive, and
we expect that competition will continue to intensify for the limited number of
customers in our market. There are many companies that provide websites and
online destinations targeted to Spanish-language Internet users. Competition for
visitors and advertisers is intense and is expected to increase significantly in
the future because there are no substantial barriers to entry in our market. We
believe that the principal competitive factors in these markets are name
recognition, distribution arrangements, functionality, performance, ease of use,
the number of services and features provided and the quality of support. Our
primary competitors are other companies providing portal or other online
services, especially to Spanish-language Internet users such as StarMedia, Terra
Lycos, El Sitio, Yahoo! Espanol, America Online Latin America, MSN and Univision
online. Most of our competitors, as well as a number of potential new
competitors, have significantly greater financial, technical and marketing
resources than we do. Our competitors may offer Internet products and services
that are superior to ours or that achieve greater market acceptance. There can
be no assurance that competition will not limit traffic on, and the value of,
our website.
WE WILL BE ADVERSELY AFFECTED IF THE INTERNET DOES NOT BECOME WIDELY
ACCEPTED AS A MEDIUM FOR ADVERTISING.
For our website to have value, it must be able to generate revenue from the sale
of advertising. Many advertisers have not devoted a substantial portion of their
advertising expenditures to web-based advertising, and may not find web-based
advertising to be effective for promoting their products and services as
compared to traditional print and broadcast media.
No standards have yet been widely accepted for the measurement of the
effectiveness of web-based advertising, and we can give no assurance that such
standards will be developed or adopted sufficiently to sustain web-based
advertising as a significant advertising medium. We cannot give assurances that
banner advertising, the
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predominant revenue producing mode of advertising currently used on the web,
will be accepted as an effective advertising medium. Software programs are
available that limit or remove advertisements from an Internet user's
desktop. This software, if generally adopted by users, may materially and
adversely affect web-based advertising and the value of our website.
SYSTEM FAILURE COULD DISRUPT OUR WEBSITE OPERATIONS.
We may, from time to time, experience interruptions in the transmission of our
website due to several factors including hardware and operating system failures.
Because our website's value depends on the number of users of our network, we
will be adversely affected if we experience frequent or long system delays or
interruptions. If delays or interruptions continue to occur, our users could
perceive our network to be unreliable, traffic on our website could deteriorate
and our brand could be adversely affected. Any failure on our part to minimize
or prevent capacity constraints or system interruptions could have an adverse
effect on our brand.
OUR WEBSITE MAY BE LIMITED BY GOVERNMENTAL REGULATION.
Government regulations have not materially restricted use of the Internet in our
markets to date. However, the legal and regulatory environment related to the
Internet remains relatively undeveloped and may change. New laws and regulations
could be adopted, and existing laws and regulations could be applied to the
Internet and, in particular, to e-commerce. New laws and regulations may be
adopted with respect to the Internet covering, among other things, sales and
other taxes, user privacy, pricing controls, characteristics and quality of
products and services, consumer protection, cross-border commerce, libel and
defamation, intellectual property matters and other claims based on the nature
and content of Internet materials. Any laws or regulations adopted in the future
affecting the Internet could subject us to substantial liability. Such laws or
regulations could also adversely affect the growth of the Internet generally,
and decrease the acceptance of the Internet as a communications and commercial
medium. In addition, the growing use of the Internet has burdened the existing
telecommunications infrastructure. Areas with high Internet use relative to the
existing telecommunications structure have experienced interruptions in phone
service leading local telephone carriers to petition regulators to govern
Internet service providers and impose access fees on them. Such regulations, if
adopted in the U.S. or other places, could increase significantly the costs of
communicating over the Internet, which could in turn decrease the value of our
website. The adoption of various proposals to impose additional taxes on the
sale of goods and services through the Internet could also reduce the demand for
web-based commerce.
WE MAY FACE LIABILITY FOR INFORMATION CONTENT AND COMMERCE-RELATED
ACTIVITIES.
Because materials may be downloaded by the services that we operate or
facilitate and the materials may subsequently be distributed to others, we could
face claims for errors, defamation, negligence, or copyright or trademark
infringement based on the nature and content of such materials. Even to the
extent that claims made against us do not result in liability, we may incur
substantial costs in investigating and defending such claims.
Although we carry general liability insurance, our insurance may not cover all
potential claims to which we are exposed or may not be adequate to indemnify us
for all liabilities that may be imposed. Any imposition of liability that is not
covered by insurance or is in excess of insurance coverage could have a material
adverse effect on our financial condition, results of operations and liquidity.
In addition, the increased attention focused on liability issues as a result of
these lawsuits and legislative proposals could impact the overall growth of
Internet use.
OUR STOCK PRICE IS HIGHLY VOLATILE.
In the past, our common stock has traded at volatile prices. We believe that the
market prices will continue to be subject to significant fluctuations due to
various factors and events that may or may not be related to our performance.
Our common stock is no longer traded on the Nasdaq National Market but is traded
on the OTCBB. This may make it more difficult to buy or sell our common stock.
In addition, our stockholders could find it difficult or impossible to sell
their stock or to determine the value of their stock.
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EMPLOYEES
As of September 18, 2001, we had 3 employees and one full-time and several
part-time contractors. We continue to review the size of our work force in light
of our evolving business plan.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We do not have any derivative financial instruments as of March 31, 2001. We
invest our cash in money market funds and corporate bonds, classified as cash
and cash equivalents and trading securities, which are subject to minimal credit
and market risk. Our interest income arising from these investments is sensitive
to changes in the general level of interest rates. In this regard, changes in
interest rates can affect the interest earned on our cash equivalents and
trading securities. To mitigate the impact of fluctuations in interest rates, we
generally enter into fixed rate investing arrangements (corporate bonds). As of
March 31, 2001, a 10 basis point change in interest rates would have a potential
impact on our interest earnings of less than $2,000, which is clearly immaterial
to our consolidated financial statements.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
TELEMUNDO ARBITRATION - See Item 3 - Legal Proceedings in our Annual Report on
Form 10-K filed on September 20, 2001, for background information concerning our
arbitration with Telemundo Network Group LLC.
We are from time to time involved in various other legal proceedings incidental
to the conduct of our business. We believe that the outcome of all such pending
legal proceedings will not in the aggregate have a material adverse effect on
our business, financial condition, results of operations or liquidity.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS.
The exhibits listed in the accompanying Index to Exhibits are filed as part of
this Report on Form 10-Q.
b. REPORTS ON FORM 8-K.
On August 15, 2001, the Company filed a Current Report on Form 8-K announcing
that (1) it had executed a definitive merger agreement with Great Western Land
and Recreation, Inc. and (2) it had resolved all issues with the Securities and
Exchange Commission relating to its 1999 Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q for the first three quarters of 2000 and a Current Report
on Form 8-K, previously filed with the Commission on April 14, 2000.
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On August 16, 2001, the Company filed a Current Report on Form 8-K attaching the
press released dated August 15, 2001 announcing that the Company had resolved
all issues with the Commission relating to its 1999 Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q for the first three quarters of 2000 and a
Current Report on Form 8-K, previously filed with the Commission on April 14,
2000.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the city of
Phoenix, state of Arizona, on September 21, 2001.
quepasa.com, inc.
By: /s/ Gary L. Trujillo
-----------------------------------
Name: Gary L. Trujillo
Title: President, Chief Executive Officer
and Chairman of the Board of Directors
(PRINCIPAL EXECUTIVE OFFICER)
By: /s/ Robert J. Taylor
-----------------------------------
Name: Robert J. Taylor
Title: Chief Financial Officer
(PRINCIPAL FINANCIAL OFFICER)
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