UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q/A
(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, 2000
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)
DELAWARE 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 [X] No [ ]
The number of outstanding shares of the registrant's Common Stock as of May
12, 2000 was approximately 18,833,305 shares.
================================================================================
QUEPASA.COM, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Condensed Consolidated Financial Statements . . . . . . . . . . . . 1
Condensed Consolidated Balance Sheets at March 31, 2000, (unaudited)
and December 31, 1999 . . . . . . . . . . . . . . . . . . . 1
Condensed Consolidated Statements of Operations for the Three Months
Ended March 31, 2000 and 1999 (unaudited) . . . . . . . . . 2
Condensed Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2000 and 1999 (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 . . . . . . . . . . . . 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk . . . . 24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 25
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . .25
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ITEM 1. PART I FINANCIAL INFORMATION
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUEPASA.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2000 1999
(UNAUDITED)
(restated)
-------------- -------------
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 5,111,885 $ 6,961,592
Trading securities..................................... 17,345,392 22,237,656
Accounts receivable (net of allowance for doubtful
accounts of $6,638 and $4,813, respectively)........ 416,920 297,170
Forgivable loans....................................... 276,667 368,042
Prepaid expenses....................................... 4,813,301 2,161,494
Other current assets................................... 5,787,391 --
------------ ------------
Total current assets........................... 33,751,556 32,025,954
Prepaid marketing services .............................. 8,840,127 10,120,192
Property and equipment, net.............................. 2,219,857 2,051,103
Goodwill, net ........................................... 19,947,364 --
Other assets............................................. 985,680 153,743
------------ ------------
Total assets............................................. $ 65,744,584 $ 44,350,992
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 4,071,197 $ 2,775,347
Accrued liabilities.................................... 647,518 1,023,984
Interest payable....................................... 21,970 --
Deferred revenue....................................... 97,182 85,417
------------ ------------
Total current liabilities...................... 4,837,867 3,884,748
Long-term notes payable.................................. 2,149,054 --
Redeemable common stock.................................. 2,000,000 2,000,000
Deferred advertising expense ............................ (1,200,000) (1,600,000)
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; issued and outstanding 17,742,790 shares and
14,536,058 shares, respectively........................ 17,743 14,536
Additional paid-in capital............................... 104,338,376 75,829,202
Accumulated deficit...................................... (46,398,456) (35,777,494)
------------ ------------
Total stockholders' equity..................... 57,957,663 40,066,244
------------ ------------
Total liabilities and stockholders' equity .............. $ 65,744,584 $ 44,350,992
============ ============
See accompanying notes to condensed consolidated financial statements.
2
QUEPASA.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
2000 1999
(restated)
------------ -----------
Gross revenue................................... $ 729,533 $ --
Less commissions................................ (64,661) --
------------ -----------
Net revenue..................................... 664,872 --
Operating expenses:
Product and content development expenses..... 1,720,420 186,691
Advertising and marketing expenses........... 7,075,214 2,062,607
General and administrative expenses.......... 1,693,515 1,429,299
Amortization of goodwill..................... 1,079,391 --
------------ -----------
Total operating expenses.............. 11,568,540 3,678,597
------------ -----------
Loss from operations............................ (10,903,668) (3,678,597)
Other income (expense):
Interest expense.............................. (31,358) (20,000)
Interest income and other..................... 430,393 15,378
Short term gain on trading securities......... 2,820 --
Unrealized loss on trading securities......... (119,149) --
------------ -----------
Other income (expenses), net.................... 282,706 (4,622)
------------ -----------
Net loss........................................ $(10,620,962) $(3,683,219)
============ ===========
Net loss per share, basic and diluted........... $ (.67) $ (.41)
============ ===========
Weighted average number of shares
outstanding, basic and diluted.................. 15,764,051 9,075,833
============ ===========
See accompanying notes to condensed consolidated financial statements.
3
QUEPASA.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
2000 1999
(restated)
------------ -----------
Cash flows from operating activities:
Net loss .......................................... $(10,620,962) $(3,683,219)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization .................. 1,360,666 28,694
Stock based compensation ....................... 20,546 479,000
Forgiveness of forgivable loans ................ 173,374 --
Amortization of prepaid marketing services ..... 1,280,065 --
Unrealized loss on trading securities .......... 119,149 --
Short-term gain on trading securities .......... (2,820) --
Increase (decrease) in cash resulting
from changes in assets and liabilities:
Sale of trading securities, net .............. 4,775,935 --
Accounts receivable .......................... (119,750) --
Prepaid expenses ............................. (2,593,807) 456,714
Other assets ................................. (6,710,890) (51,192)
Accounts payable ............................. 1,192,311 317,214
Accrued liabilities .......................... (357,395) 95,142
Amortization of deferred advertising credit .. 400,000 --
Deferred revenue ............................. 11,765 --
------------ -----------
Net cash used in operating activities ..... (11,071,813) (2,357,647)
------------ -----------
Cash flows from investing activities:
Forgivable loans .................................. (82,000) (35,165)
Cash paid for acquisitions ........................ (238,793) --
Cash received in acquisition ...................... 578,730 --
Purchase of fixed assets .......................... (161,804) (510,301)
------------ -----------
Net cash (used in) provided by
investing activities .................... 96,133 (545,466)
------------ -----------
Cash flows from financing activities:
Stock subscription receivable ..................... -- 125,000
Net proceeds from issuance of stock ............... 9,000,000 --
Proceeds from the exercise of stock options ....... 347,302 --
Proceeds from draws on line of credit ............. 12,286 2,000,000
Payment on note payable ........................... (233,615) --
Accrued commissions ............................... -- (191,144)
Stock subscription ................................ -- (337,500)
Deferred initial public offering costs ............ -- (342,441)
------------ -----------
Net cash provided by financing
activities .............................. 9,125,973 1,253,915
------------ -----------
Net decrease in cash and cash equivalents ........... (1,849,707) (1,649,198)
Cash and cash equivalents, beginning of period ...... 6,961,592 2,199,172
4
------------ -----------
Cash and cash equivalents, end of period ............ $ 5,111,885 $ 549,974
============ ===========
Supplemental disclosure of non-cash operating, financing and investing
activities:
Interest paid ....................................... $ 12,286 --
=========== ========
Barter transactions.................................. $ 112,146 --
=========== ========
Notes payable assumed in acquisitions................ $ 2,370,383 --
=========== ========
Issuance of stock in acquisitions.................... $20,073,032 --
=========== ========
See accompanying notes to condensed consolidated financial statements.
5
QUEPASA.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
(1) THE COMPANY
quepasa.com, inc. (the "Company"), a Nevada Corporation, was incorporated in
June 1997. The Company is a bilingual Internet portal and on-line community
focused on the United States Hispanic market. quepasa.com offers a number of
services such as a search engine, Spanish-language newsfeeds, free Web pages,
worldwide weather information, chat, games, maps, messageboards and free e-mail.
The Company's portal draws viewers to its Web site by providing a one-stop
destination for identifying, selecting and accessing resources, services,
content and information on the Web. Because English is the language preference
of many United States Hispanics, it also offers its users the ability to access
information and services in the English language.
The Company has not had any significant revenue and there is no assurance
that the Company will generate significant revenue or earn profits in the
future.
(2) BASIS OF PRESENTATION
Our 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 our 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. Our results of operations for interim
periods are not necessarily indicative of the results to be expected for a full
fiscal year. Our Condensed Consolidated Balance Sheet as of December 31, 1999
was derived from our audited financial statements as of that date but does not
include all the information and footnotes required by generally accepted
accounting principles. We suggest that these condensed consolidated financial
statements be read in conjunction with the audited financial statements included
in our Annual Report on Form 10-K/A, for the year ended December 31, 1999.
(3) SIGNIFICANT TRANSACTIONS
On January 28, 2000, the Company acquired credito.com, an on-line credit
company targeted to the U.S. Hispanic population for a 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. The value of the 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
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 values at the date of
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,
6
which is being amortized on a straight-line basis over a period of 3 years.
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 common stock valued at $14.09 per share, and assumption of a $1.25
million promissory note. The note payable is due in whole on January 28, 2002
with a stated interest rate at the greater of 6% per annum or the federal rate
then in effect with respect to debt instruments having a two-year term. An
additional 681,818 shares will be held in escrow pending the outcome of certain
revenue and web site contingencies over the six-month period following the
acquisition. The value of the stock was determined using the average stock price
between the date of the merger agreement and the date the merger was publicly
announced, or $14.09 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 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 is being amortized on a straight-line basis over
a period of 3 years.
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. The
purchase price for RealEstateEspanol.com consisted of 335,925 shares of the
Company's common stock valued at $3.0 million and the assumption of $300,000 in
debt 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 stock was
determined using the average stock price between the date of the merger
agreement and the date the merger was publicly announced, or $8.83 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 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 is being amortized on a straight-line basis over a period of 3
years.
The following summary, prepared on a pro forma basis, combines the
consolidated results of operations (unaudited) as if the acquisitions had taken
place on January 1, 1999. Amortization of goodwill related to the acquisitions
of credito.com, eTrato.com and RealEstateEspanol.com has been recorded for the
applicable period of inception, August 17, 1999, June 16, 1999 and August 30,
1999, respectively, through December 31, 1999, based on an estimated useful life
of 3 years. Such pro form amounts are not necessarily indicative of what the
actual results of operations might have been if the acquisition had been
effective on January 1, 1999, including $1,752,000 and $0 amortization of
goodwill during the three months ended March 31, 2000 and 1999, respectively (in
thousands, except per share amounts):
THREE MONTHS ENDED MARCH 31
2000 1999
---- ----
Gross revenue $ 730 $ -
Net revenue 665 -
Operating expenses 13,604 3,679
Net loss (12,657) (3,683)
Net loss per share, basic and diluted (.80) (.41)
7
While issuance of the contingent shares of common stock held in escrow
is believed to be remote, the contingent shares of common stock held in escrow
as a result of the acquisitions, if subsequently issued, would increase the
purchase price of the entities by $7,500,000, $9,607,000, and $2,197,000, for
credito.com, eTrato.com, and RealEstateEspanol.com, respectively, assuming the
same fair value for the contingent shares of common stock as that which was used
for the shares of common stock that were issued as a result of the transaction
on the respective acquisition dates. In addition, pro forma operating expenses
for the first quarter of 2000 would increase to $15,212,000, from $13,604,000,
and would remain at $3,679,000 for the first quarter of 1999, net loss for the
first quarter of 2000 would increase to $14,264,000, from $12,657,000, and would
remain at $3,683,000 for the first quarter of 1999, and net loss per share for
the first quarter of 2000 would increase to $.90, from $.80, and would remain at
$.41 for the first quarter of 1999.
On March 30, 2000, Gateway, Inc. invested $9.0 million (restated) in
exchange for 1,428,571 shares of common stock which represents 7.6% of
quepasa.com'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 $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 is 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 has the 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 includes 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 (restated) of computers pursuant to this
agreement to be used for promotional activities which are included in other
current assets as of March 31, 2000. The Company took title to the computers
upon the close of the transaction. Since the Company has no warehousing
facilities, the computers were segregated from Gateway's inventory in third
party warehouse locations and the Company is responsible for the payment of
warehouse storage charges. The Company will partner with Gateway in joint
marketing and promotional programs targeting the U.S. Hispanic community. These
computers will be amortized as they are donated.
(4) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USES OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Additionally, such estimates and assumptions affect the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year financial statement
amounts to conform to current year presentation.
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, 2000, two customers
8
accounted for 34% and 20% of gross revenue. No other single advertiser utilizing
banner ads or sponsorship agreements amounted to or exceeded 10% of the total
gross revenue.
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.
TRADING 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 March 31, 2000 and December 31, 1999 consist 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 March 31, 2000 and December 31, 1999 are categorized as trading.
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
Web site, 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 revenues are recognized ratably based on the
number of impressions displayed, provided that the Company has no 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 revenues until the remaining
guaranteed impression levels are achieved. Payments received from advertisers
prior to displaying their advertisements on the Company's Web site 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 Web site. These
sponsorships are for periods up to one year. The Company recognizes revenue
during the initial setup, if required under the unique terms of each sponsorship
agreement (e.g. co-branded Web site), to the extent that actual costs are
incurred. The balance of the sponsorship is recognized ratably over the period
of time of the related agreement. Payments received from sponsors prior to
displaying their advertisements on the Company's Web site are recorded as
deferred revenue.
The Company also derives revenue from slotting fees and commissions. Slotting
fees revenue is recognized ratably over the period the services are provided.
Setup fees 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.
9
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 Web site. Expense from
reciprocal service 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, 2000 and 1999 revenues attributable to
reciprocal services totaled approximately $112,000 (restated) and $0,
respectively, and related expenses totaled approximately $161,000 (restated) and
$0, respectively.
COMPUTER PROMOTIONS INVENTORY
Computer promotions inventory is recorded at cost and included in Other
Current Assets. Amortization expense is provided on an individual basis as each
computer is donated.
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 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.
PRODUCT AND CONTENT DEVELOPMENT
Costs incurred in the classification and organization of listings
within the Company's Web site 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 Web site,
costs incurred by the Company during the application development stage have been
insignificant.
In March 2000, EITF No. 00-02, ACCOUNTING FOR WEB SITE DEVELOPMENT
COSTS, was issued, addressing how an entity should account for costs incurred in
web site 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 is effective on and
after June 30, 2000 although early adoption is encouraged. The adoption of EITF
No. 00-02 did not have a material impact on the Company's consolidated financial
statements.
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.
IMPAIRMENT OF LONG-LIVED ASSETS
10
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.
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, forgivable loans, accounts payable, and accrued liabilities
approximates fair market value because of the short term nature of the
instruments.
The terms of the Company's notes payable approximate the terms in the
marketplace at which they could be replaced. Therefore, the fair value
approximates the carrying value of these financial instruments.
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 entities to provide pro forma net earnings (loss) and pro forma
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.
Stock based compensation totaled $20,546 for the three months ended
March 31, 2000 and is primarily classified in production and content development
expense. Stock based compensation totaled $479,000 for the three months ended
March 31, 1999 and is classified as follows: $69,300 in production and content
development expense, $35,000 in advertising and marketing expense, and $374,700
in general and administrative expense.
NET LOSS PER SHARE
Basic loss per share is computed by dividing 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.
11
ADVERTISING COSTS
Advertising costs are expensed as incurred in accordance with Statement of
Position 93-7, "Reporting on Advertising Costs". 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.
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 segments. 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.
(5) NOTES PAYABLE
A summary of notes payable at March 31, 2000 and December 31, 1999 follows:
March 31, December 31,
2000 1999
--------- ------------
Unsecured note payable with interest at
6.35% due on February 28, 2002, paid
May 8, 2000 $1,250,000 --
Note payable with interest at prime +2% due on December 31, 2001 secured by
tangible and intangible assets, paid
May 8, 2000 899,054 --
---------- ------------
Total long-term notes payable $2,149,054 --
========== ============
(6) COMMITMENTS
ADVERTISING CONTRACTS
In April 1999, the Company entered into an agreement with Telemundo Network
Group LLC ("Telemundo"). A director of the Company serves as the Chief Operating
Officer of Telemundo. Under this agreement, the Company issued Telemundo 600,000
shares of its common stock and warrants to purchase 1,000,000 shares of the
Company's 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. This agreement also provides that the Company will collaborate
regarding online content development, co-branded marketing promotions and other
complementary aspects of its businesses. As of March 31, 2000, the Company's
unused advertising credit amounted to $4.7 million.
In March 1999, the Company entered into a sponsorship agreement with the
Arizona Diamondbacks. A director of the Company serves as the Arizona
Diamondbacks' Chief Executive Officer and General Manager. Under this agreement,
the Company will receive English and Spanish television and radio broadcast
time, ballpark signage, and Internet and print promotions for the 2000 season
for a sponsorship fee of $1.5 million which is payable during 2000. The $1.5
million sponsorship fee is recognized
12
as expense ratably over the 2000 baseball season. The Company paid $500,000 and
recognized $216,000 in expense for the period ended March 31, 2000.
The Company is obligated to pay $2.0 million in 2000 under an agreement with
Estefan Enterprises, Inc. ("Estefan"). In addition, if the closing price of the
Company's common stock on September 1, 2000 is less than $12.75 per share,
Estefan will have the option to return 156,863 shares of the Company's common
stock (issued to Estefan in September, 1999) to the Company in exchange for $2.0
million cash. As of March 31, 2000, the Company has paid $1.5 million of the
year 2000 obligation.
INTERNET ACCESS AGREEMENT
On December 14, 1999, the Company entered into a one-year agreement with
NetZero, Inc. ("NetZero"), where they will provide free internet access along
with the Company's content to the U.S. Hispanic market. According to the terms
of this agreement, the Company is obligated to pay a fee for their subscribers
who access the Company's Web site. This fee ranges from $.10 to $.15 per user
session. The Company is also committed to spend at least $1 million for the
production and distribution of CD's containing the customized NetZero service.
(7) CONTINGENCIES
LEGAL PROCEEDINGS
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 for the three months ended March 31, 2000 and 1999 follows:
THREE MONTHS ENDED MARCH 31,
2000 1999
(restated)
------------- ---------
Loss available to common stockholders $(10,620,962) $(3,683,219)
Basic EPS-weighted average shares ============ ===========
outstanding........................ 15,764,051 9,075,833
============ ===========
Basic and diluted loss per share..... $ (.67) $ (.41)
============ ===========
Stock options not included in diluted
EPS since antidilutive............... 3,996,046 1,463,000
============ ===========
Warrants not included in diluted
EPS since antidilutive............ 2,565,313 --
============ ===========
Contingent shares not included in basic and diluted EPS total 930,652
and 0 for the three months ended March 31, 2000 and March 31, 1999,
respectively.
(9) SUBSEQUENT EVENTS
On May 9, 2000 the Company announced that it would be reducing its workforce
by approximately one third over the next 60 days as part of management's effort
to
13
further enhance the Company's competitive position and utilize its assets more
efficiently. The Company will record the costs associated with the workforce
reduction in its second fiscal quarter.
(10) RESTATEMENT
The Company has restated its March 31, 2000 financial statements to
appropriately reflect the following: (1) the classification of a
contra-redeemable common stock account in the amount of $2 million, net of
accumulated amortization of $800,000, reclassified from prepaid expenses, and
reversal of a $500,000 liability (accounts payable), which also reduces prepaid
expenses, as of March 31, 2000 for payments to be made after March 31, 2000
under the Estefan contract since the Company did not have a present obligation
to make the future installment payments, and (2) the classification of prepaid
marketing services of $4,658,640 as an asset, reclassified from deferred
advertising services, and an increase in the value assigned to the issuance of
common stock and warrants related to the Telemundo agreement in the amount of
$5,120,192, both amounts of which are reflected as prepaid marketing services on
the balance sheet. The increase in amortization associated with the prepaid
marketing services was $256,010 during the three months ended March 31, 2000.
Additionally, the Company recorded $682,695 of amortization expense (included in
the advertising and marketing expenses line item on the statement of operations)
in the first quarter of 2000 related to the 1999 amortization of prepaid
marketing services. The Company did not adjust the amortization of these costs
in its 1999 Form 10-K/A due to the immaterial impact on its results of
operations. Prepaid marketing services were reduced by the total of $938,705 in
amortization for the three months ended March 31, 2000.
Furthermore, the Company originally recorded the issuance of 1,428,571
shares of common stock in the Gateway transaction at $7.00 per share and
immediately expensed a $1,000,000 marketing payment to Gateway. Management has
determined that the issuance of shares of common stock should be valued at $5.38
per share representing the closing price of the Company's common stock on the
execution date of the transaction. The difference in the price per share noted
above has been reflected as a reduction of additional paid-in capital in the
amount of $1,928,499, elimination of $1.0 million advertising expense, and a
reduction of $928,499 in other current assets representing a discount assigned
to the value of computer promotions inventory purchased as part of the
transaction.
The Company has restated its barter revenue and barter expenses for the
quarter ended March 31, 2000 to comply with limitations identified in EITF
99-17. As a result, gross revenues and advertising and marketing expenses were
both reduced by $192,000 for the three months ended March 31, 2000. Barter
revenue for the three months ended March 31, 2000, after the restatement, was
$112,000, while advertising and marketing expenses related to barter
transactions was $161,000.
Therefore, the quarterly financial information as of and for the three
months ended March 31, 2000, has been restated to properly record these matters
in accordance with generally accepted accounting principles. The net loss of the
Company for the three-month period ended March 31, 2000, decreased from $10.7
million to $10.6 million, with a decrease in the basic and diluted net loss per
share of $.01.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - RISK FACTORS
This Quarterly Report on Form 10-Q/A 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 Operations - 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 financing 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, including the following:
- we may lose members or fail to grow our member base;
- we may not successfully integrate new members or assets obtained through
acquisitions;
- we may fail to compete with existing and new competitors;
- we may not be able to sustain our current growth;
- we may not adequately respond to technological developments impacting the
Internet;
- we may fail to identify and correct problems associated with system
migration; and
- we may not be able to find needed financing.
This list is intended to identify some of the principal factors that could
cause actual results to differ materially from those described in the
forward-looking statements included elsewhere in this report. These factors are
not intended to represent a complete list of all risks and uncertainties
inherent in our business, and should be read in conjunction with the more
detailed cautionary statements included in this Quarterly Report on Form 10-Q/A
under the caption "Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Risk Factors", "Item 3, Quantitative and
Qualitative Disclosures about Market Risk" and our other SEC filings and our
press releases.
The following discussion of our financial condition and results of
operations for the three months ended March 31, 2000 and 1999 should be read in
conjunction with our financial statements, the notes related thereto, and the
other financial data included elsewhere in this Form 10-Q/A.
OVERVIEW
We commenced operations on June 25, 1997. The operations for the period June
25, 1997 through May 1998 were limited to organizing quepasa.com, raising
operating capital, hiring initial employees and drafting a business plan. From
May 1998 to present, we were engaged primarily in content development and
acquisition. In May 1999, we launched our first media-based branding and
advertising campaign in the United States. Significant revenues did not commence
until the fourth quarter of 1999. For these reasons, we believe that
period-to-period comparisons of our
15
operating results are not meaningful and the results for any period should not
be relied upon as an indication of future performance. We currently expect to
continue investing in marketing and advertising and content development. As a
result of these factors, we expect to continue to incur significant losses on a
quarterly and annual basis for the foreseeable future.
THE QUEPASA.COM COMMUNITY
quepasa.com is a Bilingual (Spanish/English) Internet portal and online
community launched in November of 1998, focused initially on the U.S. Hispanic
market. We provide users with information and interactive content centered
around the Spanish language. Because the language preference of many
acculturated U.S. Hispanics is English, we also offer our users the ability to
access information and services in the English language. We draw viewers to our
Web site by providing a one-stop destination for identifying, selecting and
accessing resources, services, content and information on the Web. Our online
community includes a search engine, free e-mail, Spanish and English-language
news feeds, chat rooms, message boards, auction and e-commerce sites. We
anticipate that our principal source of revenue will be fees paid by third
parties for advertising their products and services on our Web site, sponsorship
revenue for specific areas within our Web site, auction revenue from our recent
acquisition of eTrato.com, e-commerce revenues from our recent acquisitions of
credito.com and realestateespanol.com and through other acquisitions and
partnerships.
The quepasa.com Web site currently offers a number of categories of topical
interest, including the following:
Noticias (News)
Etretenimiento (Entertainment)
Salud (Health)
Mundo Latino (Latino World)
Recetario (Recipe Box)
Compras (Shopping)
Negocios y Finanzas (Business & Finance)
Deportes (Sports)
Computadoras y Tecnologia (Science & Technology)
Empleo (Employment)
Educacion (Education)
Temas de Sociedad (People & Society)
Subastas (Auctions)
SEARCH ENGINE. The quepasa.com search engine helps users find information on
the Web by searching through quepasa.com's index of Web documents. Our search
technology is provided by Inktomi which enables us to provide customers with a
variety of online search services.
FREE E-MAIL, CHAT AND MESSAGE BOARD FEATURES. quepasa.com offers free e-mail
and free Web community services that consist of chat services and message
boards. These features enable users to discuss topics of mutual interest by
participating in ongoing discussions or by creating their own topics for
discussion.
24 HOUR REAL-TIME NEWS, WEATHER, MAPS AND GAMES. quepasa.com offers
worldwide news coverage from Associated Press, Reuters and Hispanic Business
Magazine including worldwide editorialized, topical news covering areas of
special interest to Hispanic users (in Spanish and English), as well as a
Spanish and English-language news feed that we format and edit internally to
provide broad coverage of news that is of special interest to Hispanic users.
Our users are also able to search a database of archived news stories over the
prior 30-day period. Through an agreement with WeatherLabs, we offer worldwide
weather information, including real time weather reports and forecasts, for
5,000 U.S. and 2,400 international cities. We were the first to offer maps and
door-to-door driving directions in both Spanish and English in connection with a
partnership with MapQuest Global Corporation and a bilingual "yellow-pages"
directory through a partnership with MapQuest.com Inc. We also offer several
internally developed games on our Web site for free.
16
OTHER SERVICES. We will offer our members unified messaging, PC-to-phone and
calling card services as part of an agreement with Net2Phone. Through an
agreement with GlobalEnglish Corporation we offer English language online
learning to our members and through an agreement with X:Drive, we offer free
Internet hard drive space.
ON-LINE AUCTIONS
Our goal is to become the most popular auction community for Hispanic
Internet users. On January 28, 2000 we acquired eTrato.com, an online 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 common stock valued at $9.6 million and assumption of a $1.25 million
promissory note. An additional 681,818 shares are being held in escrow pending
the outcome of certain revenue and web-site contingencies over the 6-month
period following the acquisition. Our acquisition of eTrato.com will enable us
to move toward this goal. eTrato.com is an online, auction community that:
- facilitates transactions from consumer-to-consumer, business-to-consumer
and business-to-business;
- links Hispanic buyers and sellers of goods and services;
- aids transactions with online tools for payment and fulfillment; and
- provides a secure and easy to understand environment for conducting
e-business.
Members of the eTrato.com community can list products or services in the
site's online auction or classifieds section in Spanish, English or both. If
users request, eTrato.com will translate to either language, for a small fee.
Some of the features of the site include escrow payment services, customs and
shipping estimates and options, currency conversion tools, chat and discussion
forums, a trading resource center and directory, advanced auction functions such
as image hosting, user ratings and bulk item uploading and specialized
business-to-business areas with sealed bid and reverse auction formats.
eTrato.com will also have live online customer service in order to help users
have a positive first experience. We expect online auction revenue from the
following sources:
- revenue splits on the sale of value-added trading services (e.g. escrow
and freight forwarding);
- premium service fees and premium listing upgrades providing the seller
with more prominent ad space;
- the auctioning of our own products through the site;
- fees paid by third parties for advertising their products and services on
the site; and
- translation services.
It is estimated that the volume of auction-based or market-priced Internet
commerce transactions is close to $4.0 billion, or 10% of total Internet trading
today. Projections are for this number to grow to nearly $129.0 billion and 29%
of the market by the year 2002. We are unaware of any companies which have
successfully targeted the Spanish-language segment of this market. While the
online trading market and in particular the auction market is very competitive,
we believe that eTrato.com's Spanish/English language advantage represents an
attractive alternative for Hispanic users.
ON-LINE FINANCING AND REAL ESTATE SERVICES
On January 28, 2000 we acquired credito.com, an online credit company
targeted to the U.S. Hispanic population for a purchase price of $8.4 million
consisting of
17
681,818 shares of common stock valued at $11 per share and assumption of an
$887,000 note payable. 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, will provide our members with
information, interactive tools and resources to help them build and manage their
credit needs and will provide a secure and easy process to apply for a wide
variety of credit products and services. The site will also provide lenders with
the opportunity to communicate with credit educated customers using its consumer
profiling and marketing technologies. We will offer our members the ability to
apply for mortgage loans, credit cards, auto finance loans, home equity loans
and student loans.
On March 9, 2000, we acquired RealEstateEspanol.com, a real estate services
site providing the Hispanic-American community with bilingual home buying
services for 335,925 shares of the Company's common stock valued at $3.0 million
and assumption of $300,000 in debt 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.
RealEstateEspanol.com has been designated the official internet site of the
National Association of Hispanic Real Estate Professionals (NAHREP). quepasa.com
members will be able to search for a real estate agent, access school
information, take virtual tours, apply for a mortgage, and view homes for sale
among the more than 800,000 online listings provided through a partnership with
homeseekers.com.
RESULTS OF OPERATIONS
INTRODUCTION
The Company derives its net revenues from three principal sources:
advertising on our Website; sales of sponsorships for different areas within our
Website; and e-commerce related revenue. The Company's principle expenses are:
Product and Content Development; Marketing and Advertising; General and
Administrative expense; and Amortization of Goodwill.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1999
Our results of operations for the three months ended March 31, 2000 were
characterized by increased expenses that more than offset revenue growth during
the period. We reported a net loss of $10.6 million (restated) for the three
months ended March 31, 2000, compared to a net loss of $3.7 million for the
three months ended March 31, 1999. During the three months ended March 31, 2000,
we have continued to enter into strategic partnerships, develop our content and
capitalize on our branding efforts and newly created sales force. As a result of
our marketing initiatives, including the NetZero partnership, our number of
registered users increased 67% to approximately 350,000 as of March 31, 2000
from 210,000 as of December 31, 1999. Our monthly impressions increased 144%
during the three months ended March 31, 2000 to 58.7 million from 24.1 million
as of December 31, 1999. The Company realized nominal revenue ($35) but incurred
approximately $490,000 in expenses as a result of the acquisitions of
credito.com, eTrato.com and RealEstateEspanol.com during the first quarter 2000.
NET REVENUES
Net Revenue increased 100% to $664,872 (restated) for the three months ended
March 31, 2000 from zero for the three months ended March 31, 1999. We launched
our Web site in the fourth quarter 1998 and first generated revenue during the
second quarter 1999. During the three months ended March 31, 2000, revenue was
principally derived from two sources: 1) banner advertising arrangements under
which we receive revenue based on cost per thousand ad impressions (CPM) and on
cost per clicks and 2) sponsor agreements which allow advertisers to sponsor an
area or receive exclusivity on an area within our Web site. Approximately, 49%
of the gross revenue was generated from banner advertising and 51% was generated
from sponsorship agreements. With the exception of Star Travel and Net2Phone,
18
representing 34% and 20% of gross revenue, respectively, no other single
advertiser utilizing banner ads or sponsorship agreements amounted to or
exceeded 10% of total gross revenue. Sponsor revenues are recognized ratably
over the term of the agreement. During the three months ended March 31, 2000, we
recognized $112,146 (restated) of barter revenue which is included in the
amounts noted above.
OPERATING EXPENSES
PRODUCT AND CONTENT DEVELOPMENT EXPENSES. Our product and content
development expenses increased 809% to $1.7 million for the three months ended
March 31, 2000 from $187,000 for the three months ended March 31, 1999. The
period-to-period increase was principally attributable to:
- an increase in personnel costs relating to the development of content
and technological support to $839,000 for the three months ended March
31, 2000 from $68,000 for the three months ended March 31, 1999;
- an increase in expenses for telecommunications links to $143,000 for the
three months ended March 31, 2000 from $119,000 for the three months
ended March 31, 1999; and
- an increase in third-party content and development expenses to $579,000
for the three months ended March 31, 2000 from zero for the three months
ended March 31, 1999.
ADVERTISING AND MARKETING EXPENSES. Our marketing and sales expenses
increased 238% to $7.1 million (restated) for the three months ended March 31,
2000 from $2.1 million for the three months ended March 31, 1999. This increase
was principally attributable to:
- an increase in marketing and sales personnel costs to $598,000 for the
three months ended March 31, 2000 from $30,000 for the three months
ended March 31, 1999;
- an increase in the amortization of advertising agreements amounting to
$2.4 million (restated) for the three months ended March 31, 2000 from
$423,000 for the three months ended March 31, 1999;
- an increase in advertising expenditures amounting to $2.8 million
expended on the maintenance of brand awareness for the three months
ended March 31, 2000 from $1.2 million for the three months ended
March 31, 1999; and
- the initial expenditures related to the NetZero campaign amounting to
$2.0 million, comprised of $1.2 million in production expenses and
$750,000 for CD distribution and other related expenses.
GENERAL AND ADMINISTRATIVE EXPENSES. Our general and administrative expenses
increased 21% to $1.7 million for the three months year ended March 31, 2000
from $1.4 million for the three months ended March 31, 1999. This increase was
principally attributable to an increase in professional fees to $407,000, in
depreciation and rent to $312,000 and an increase in other office and related
expenses to $490,000 for the three months ended March 31, 2000 from $150,000,
$77,000 and $123,000 for the three months ended March 31, 1999. These increases
were partially offset by a 96% decrease in stock based compensation to $21,000
for the three months ended March 31, 2000 compared to $479,000 for the three
months ended March 31, 1999. Stock Based compensation for the three months ended
March 31, 2000 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, 1999 consisted primarily of
employee stock options vesting immediately.
19
AMORTIZATION OF GOODWILL. During the three months ended March 31, 2000, the
Company completed the acquisition of eTrato.com, credito.com and
RealEstateEspanol.com. These three acquisitions were accounted for using the
purchase method of accounting. The Company recorded approximately $21.0 million
of goodwill in relation to these acquisitions, amortized over a period of three
years. Amortization of goodwill amounted to $1.1 million for the three months
ended March 31, 2000.
OTHER INCOME (EXPENSE). Other income (expense), which primarily consists of
interest income, unrealized gains or losses and short-term gains or losses on
trading securities, offset by interest expense increased 6252% to $283,000 for
the three months ended March 31, 2000 from $(4,600) for the three months ended
March 31, 1999. This change resulted primarily from interest income and
short-term gains on trading securities purchased with the remaining proceeds of
the June 1999 initial public offering.
LIQUIDITY AND CAPITAL RESOURCES
We have substantial liquidity and capital resource requirements, but limited
sources of liquidity and capital resources. We have generated net losses and
negative cash flows from our inception and anticipate that we will experience
substantial and increasing net losses and negative cash flows for at least the
next several years. As we implement our strategy and seek to take advantage of
our market opportunity, we anticipate that our liquidity and capital resource
requirements will increase significantly.
From our inception to date, we have relied principally upon equity
investments to support the development of our business. We expect to continue to
rely mainly on further equity offerings to provide financing.
As of March 31, 2000, we had $5.1 million in cash and cash equivalents and
$17.3 million in short-term investments. These resources are principally the
remaining funds generated from our June 24, 1999 Initial Public Offering, which
raised approximately $42.4 million, net of offering costs and an additional $6.3
million, net of offering costs, from the exercise in July 1999 of an option
granted to our underwriters to cover overallotments from the IPO. In March 2000,
Gateway purchased a 7.6% equity stake in the Company for $9.0 million
(restated).
Net cash used in operating activities was $11.1 million (restated) for the
three months ended March 31, 2000 and $2.4 million for the three months ended
March 31, 1999. Net cash used by operations for the three months ended March 31,
2000 consisted of a net loss of $10.6 million (restated), $4.8 million net
proceeds from the sale of trading securities, an increase in prepaid expenses of
$2.6 million (restated), an increase in other assets of $6.7 million and a
decrease in accrued liabilities of $357,000 (restated) offset by non-cash
expenses for the depreciation of fixed assets and amortization of $1.4 million
(restated), and an increase in accounts payable of $1.2 million (restated).
Net cash provided by (used in) investing activities amounted to $96,000 for
the three months ended March 31, 2000 and ($545,000) for the three months ended
March 31, 1999. The increase is attributed to $579,000 in net cash obtained from
newly acquired subsidiaries, partially offset by $162,000 of fixed asset
purchases and $239,000 expended for deferred acquisition costs.
Net cash provided by financing activities was $9.1 million (restated) for
the three months ended March 31, 2000 and $1.3 million for the three months
ended March 31, 1999. The increase is primarily attributed to the proceeds
received from Gateway's $9.0 million (restated) purchase of a 7.6% equity stake
in the Company and
20
$347,000 from the exercise of stock options, partially offset by the $234,000
payment of a note payable assumed in the acquisition of RealEstateEspanol.com.
On March 30, 2000, Gateway, ranked number one in 1999 in U.S. consumer PC
revenue, invested $9.0 million (restated) in exchange for 1,428,571 shares of
common stock which represents 7.6% of quepasa.com's outstanding stock. 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
will include distributing computers purchased from Gateway accompanied with
Spanish language technical support, providing Internet access, and training for
quepasa's subscribers. The Company will partner with Gateway in joint marketing
and promotional programs targeting the U.S. Hispanic community.
Currently, we have commitments under non-cancelable operating leases for
office facilities and equipment requiring payments of $258,000 for the remainder
of 2000. We paid $1.5 million in the three months ended March 31, 2000 and are
obligated to pay an additional $500,000 in 2000 under an agreement with Estefan
Enterprises, Inc. In addition, if the closing price of our common stock on
September 1, 2000 is less than $12.75 per share Estefan Enterprises will have
the option to return 156,863 shares of our common stock (issued to Estefan
Enterprises in September, 1999) to us in exchange for $2.0 million cash. We are
required to pay $188,000 for the remainder of 2000, pursuant to the terms of our
search technology licensing agreement with Inktomi which extends through
September 2001. The Inktomi agreement may require additional payments based upon
the level of use; however, we believe the additional payments, if any, will not
be material. Including the Inktomi agreement, we are obligated to pay
approximately $1.2 million for the remainder of 2000 for technology and content
used on our Web site portal furnished by service providers such as Reuters,
Zacks, Associated Press, STATS, Inc., EFE News Services. We are required to pay
$1.5 million under our sponsorship agreement with the Arizona Diamondbacks for
the 2000 baseball season. In addition, under a one-year agreement with NetZero,
Inc. ("NetZero"), they will provide free internet access along with our content
to the U.S. Hispanic market and we are obligated to pay a fee for their
subscribers who accessed our Web site. This fee ranges from $.10 to $.15 per
user session (user session fees), however, we have made an advance payment to
NetZero of $1.0 million and are required to maintain this advance payment
deposit amount at least equal to 125% of the prior month amount due for the user
session fees. We are also committed to spend at least $1.0 million for the
production and distribution of CD's containing the customized NetZero service.
In the event we have paid an aggregated of $6.0 million for user session fees we
are obligated to spend an additional $1.0 million for CD's. We are also
obligated under an agreement with a company owned by a former Director to
provide advertising and marketing advisory services through July 2000. The total
remaining commitment under this agreement is $160,000 in 2000. We recognize the
expense related to advertising, content and technology agreements in a manner
consistent with the timing of the services provided for under the terms of the
respective agreements. Generally, the services are received evenly over the
terms of the agreements.
We expect to continue to incur costs, particularly sales, marketing and
advertising costs, product content and development costs, general and
administrative costs and technology and equipment purchase costs during the
second, third and fourth quarters of 2000 in order to execute our strategic
objectives. We expect to expend the largest portion of our existing capital on
sales, marketing and advertising expenses and product content and development
costs and do not expect sufficient revenue to be realized to offset these costs.
We believe that our cash on hand, along with our planned cost cutting measures,
will be sufficient to meet our working capital and capital expenditure needs
through the second quarter of 2001, however, we believe it will be necessary for
us to raise additional capital to ensure our continued operations beyond the
second quarter of 2001. In the event we are not able to raise capital our
ability to continue operations will be severely impacted and could include a
significant reduction in our advertising spending, a reduction in our personnel
and other spending cuts which could have an adverse effect on the Company. On
May 9, 2000 we announced that we would be reducing our workforce by
approximately one third over the next 60 days as part of management's effort to
utilize its assets more efficiently. The Company will record the costs
associated with the workforce reduction in the second fiscal quarter. There can
be no assurance that we will be successful in raising the necessary funds or
that these funds will be on terms which are beneficial to us.
21
SYSTEM ISSUES
We have successfully completed our migration from a Windows NT-based
platform to a Sun Solaris-based platform in March of 2000. We depend on the
delivery of information over the Internet, a medium that depends on information
contained primarily in electronic format, in databases and computer systems
maintained by third parties and us. A disruption of third-party systems or our
systems interacting with these third party systems could prevent us from
delivering search results or other services in a timely manner, which could
materially adversely affect our business and results of operations.
RISK FACTORS
You should carefully consider the risks described below.
OUR OPERATING HISTORY IS EXTREMELY LIMITED
We were incorporated in June 1997 and have generated no significant revenue
to date. Accordingly, we have no operating history upon which an investor can
evaluate us, and our prospects are subject to the risks and uncertainties
encountered by companies that are in the early stages of operation and
particularly companies which operate in the new and rapidly evolving Internet
market.
These risks include, among others, our ability to:
- expand the contents and services on our Web site;
- maintain and increase levels of traffic on our Web site;
- increase awareness of our quepasa.com brand;
- attract advertisers and sponsors to our Web site;
- generate significant revenues from e-commerce;
- respond effectively to competitive pressure;
- maintain our current, and develop new, strategic relationships;
- recruit and retain personnel, including sales, content and technology
personnel;
- anticipate and adapt to developing markets;
- upgrade and develop our systems and infrastructure;
- respond to any failure of our network and to handle efficiently our Web
traffic; and
- manage our rapidly expanding operations.
If we are unsuccessful in addressing these and other risks, our business,
financial condition and results of operations will be materially and adversely
affected.
WE EXPECT FUTURE LOSSES AND WILL NEED MORE CAPITAL
We have never been profitable. As of March 31, 2000, we had an accumulated
deficit of approximately $46.4 million (restated). Our limited operating history
and the uncertainty of the Internet market in which we operate our business make
any prediction of our future results of operations difficult or impossible. We
expect to make significant expenditures in marketing and advertising and content
development. We also expect our expenses to increase from the acquisitions of
eTrato.com, credito.com and realestateespanol.com. We do not expect that our
revenue will cover our expenses in the foreseeable future. As a result, we will
continue to incur significant losses and will need to raise additional capital.
We cannot assure
22
that we will be able to raise additional capital and we do not know what the
terms of such capital raising would be. Any future sale of our equity securities
would dilute the ownership and control of our stockholders.
WE ARE SUBJECT TO RISKS ASSOCIATED WITH ACQUISITIONS
In the first quarter of 2000, we acquired the stock of three companies. As
part of our long-term business strategy, we continually evaluate strategic
acquisitions of businesses. Acquisitions often involve a number of special
risks, including the following:
- we may experience difficulty integrating acquired operations and
personnel;
- we may be unable to retain acquired subscribers;
- the acquisition may disrupt our ongoing business;
- we may not be able to successfully incorporate acquired technology and
rights into our offerings and maintain uniform standards, controls,
procedures, and policies;
- the businesses we acquire may fail to achieve the revenues and earnings
we anticipated;
- we may ultimately be liable for contingent and other liabilities, not
previously disclosed to us, of the companies that we acquire; and
- our resources may be diverted in asserting and defending our legal
rights.
We may not successfully overcome problems encountered in connection with our
recent and potential future acquisitions. In addition, an acquisition could
materially adversely affect our operating results by:
- causing us to incur additional debt;
- forcing us to accelerate amortization of expenses related to goodwill
and other intangible assets;
- diluting our stockholders' ownership interest.
WE WILL BE UNABLE TO GENERATE SUFFICIENT REVENUE IF OUR TARGET AUDIENCE DOES NOT
ACCEPT OUR PRODUCTS AND SERVICES
We have been promoting our site for less than one year and we cannot give
assurances that the Spanish-speaking population will accept our products and
services or that we will attract repeat users to our Web site. Because the
market for our products and services is new and evolving, it is difficult to
predict the future growth rate, if any, and the size of the market we have
targeted. If the market develops more slowly than we expect or becomes saturated
with competitors, or if our products and services are not accepted by the
market, we will be unable to generate enough revenue to offset our expenses and
to earn profits.
OUR INABILITY TO MAINTAIN THE QUEPASA.COM BRAND WILL SIGNIFICANTLY REDUCE OUR
REVENUE
We believe that maintaining the quepasa.com brand is of critical importance
to our efforts to attract and expand our user base and our advertising,
sponsorships and e-commerce revenues. We also believe that brand recognition
will become more important due to the increasing number of Internet sites.
Promotion and enhancement of the quepasa.com brand will depend largely on our
success in providing high quality products and services and Web site content
that is of interest to the worldwide Spanish-speaking population. We cannot
assure that success. Failure to
23
develop brand loyalty among our users could result in our being unable to
generate enough revenue to offset our expenses and to earn profits.
WE WILL BE ADVERSELY AFFECTED IF THE INTERNET DOES NOT BECOME A MORE WIDELY
ACCEPTED AS A MEDIUM FOR ADVERTISING AND E-COMMERCE
We will need revenue from the sale of advertisements and sponsorships on our
Web pages and from e-commerce transactions to offset expenses. At the present
time, Web advertisers generally enter into only short-term advertising
contracts. Because Web site advertising is a new phenomenon, few advertisers
have significant experience with the Web as an advertising medium. Consequently,
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 predominant revenue producing mode of advertising
currently used on the Web, will be accepted as an effective advertising medium
or that we can effectively transition to any other forms of Web-based
advertising, should they develop. 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.
OUR WEB SITE OPERATIONS COULD BE IMPAIRED IF WE LOSE THE SERVICES OF THIRD PARTY
TECHNOLOGY AND CONTENT PROVIDERS
Our business depends upon third parties, including providers of technology,
infrastructure, content and features.
We supplement our Web site directory listings with Web search results
provided by Inktomi under a non-exclusive agreement. We depend upon Inktomi for
ongoing maintenance and technical support to ensure accurate and rapid
presentation of search results to users of our Web site. Termination of our
relationship with Inktomi or Inktomi's failure to renew our agreement upon
expiration could result in substantial additional costs to us in developing or
replacing technology. We also rely on GTE for our Internet and Critical Path for
our e-mail connections. Any interruption in the Internet access provided by GTE
or any other provider of access could disrupt our Web site operations and impair
relations with our users.
We license content, including technology and related databases, from third
parties for portions of our quepasa.com Web site, including news from Associated
Press, Reuters, Hispanic Business and EFE News Services, weather from
WeatherLabs, stock quotes and other stock information from Zacks Investment
Research and sports scores and statistics from STATS, Inc. Any errors, delays or
failures experienced in connection with these third party technologies and
services could have a negative effect on our relationship with users of our Web
site, could materially and adversely affect our brand and our business and could
subject us to liability to third parties for business negligence such as
defamation or libel.
SYSTEM FAILURE COULD DISRUPT OUR WEB SITE OPERATIONS
The continued and uninterrupted performance of our hardware and software is
critical to our reputation and our success in attracting traffic to our Web
site. Users of our site and our services, such as our e-mail services, may
become dissatisfied by system failures that may limit our Web site services.
Sustained or repeated system failures could significantly reduce the traffic on
our Web site and may impair our reputation and brand name. Our operations depend
on our ability to protect our computer systems from damage from fire, power
loss, water damage, telecommunications failures, vandalism and other malicious
acts, and similar unexpected adverse events.
The number of pages of information transmitted over our network, commonly
referred to as "page views," has continued to increase over time. We are
actively trying to increase our level of page views. As a result, our network
must
24
accommodate a high volume of traffic, often at unexpected times. We have
experienced periodic capacity constraints in terms of our ability to serve our
increasing user volumes. In addition, we have had reliability problems with two
of our internally developed applications, chat and e-mail, and as a result we
are currently outsourcing these two applications. We are in the process of
improving our network infrastructure to ensure that we will be able to handle
future increases in traffic. We have migrated our platform and our applications
to a Unix platform using Sun Microsystems servers. Any break in the continuous
operations of our network could have a material adverse effect on our operating
expenses, our brand and our business.
We may, from time to time, experience interruptions due to several factors
including hardware failures, unsolicited bulk e-mail and operating system
failures. Because our revenues depend 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 as being unreliable, traffic on our Web site 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 and our business.
We may not carry enough business interruption insurance to compensate for
losses that may occur as a result of any of these adverse events. We also depend
upon Internet browsers and Internet service providers that provide users with
access to the Internet and our Web site. Users may experience difficulties due
to system failures unrelated to our systems. Any disruption in Internet access
by Internet service providers and other third party access providers, or any
failure of such providers to handle higher volumes of user traffic, could
disrupt our Web site operations and impair relations with our users.
OUR MANAGEMENT IS INEXPERIENCED AND MAY NOT BE ABLE TO MANAGE OUR GROWTH
Several executive officers and members of our board of directors joined us
in 1999, our management team has worked together for less than a year and none
of our executive officers has extensive experience managing a rapidly growing
business enterprise. Any growth we experience will place a significant strain on
our management and financial resources. Any inability of our management to
manage growth effectively could increase our operating expenses, impair our
marketing efforts and limit the development of our Web site.
GROWTH OF OUR WEB SITE MAY BE LIMITED BY GOVERNMENTAL REGULATIONS
Government regulation has not materially restricted use of the Internet in
our markets to date. However, the legal and regulatory environment pertaining 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 United States or other places, could increase significantly the
costs of communicating over the Internet, which could in turn decrease the
demand for our products and services. 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
25
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. We could also be
exposed to liability because of the listings that we select and make available
through our Web site, or through content and materials posted by users in chat
room and message board services that we provide. We could face personal injury
or other product liability claims arising from the use of products sold through
our Web site. We offer e-mail services, which expose us to potential liabilities
or claims resulting from unsolicited e-mail, lost or misdirected messages,
illegal or fraudulent use of e-mail or interruptions or delays in e-mail
service. 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. 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.
CONCERNS ABOUT SECURITY OF E-COMMERCE TRANSACTIONS AND CONFIDENTIALITY OF
INFORMATION ON THE INTERNET MAY REDUCE THE USE OF OUR WEB SITE AND IMPEDE OUR
GROWTH
A significant barrier to e-commerce and confidential communications over the
Internet has been the need for security. Internet usage could decline if any
well-publicized compromise of security occurred. We may incur significant costs
to protect against the threat of security breaches or to alleviate problems
caused by these breaches. Unauthorized persons could attempt to penetrate our
network security. If successful, they could misappropriate proprietary
information or cause interruptions in our services. As a result, we may be
required to expend capital and resources to protect against or to alleviate
these problems. Security breaches could have a material adverse effect on our
business, financial condition and results of operations.
COMPETITION FOR INTERNET USERS MAY LIMIT TRAFFIC ON, AND THE VALUE OF OUR WEB
SITE
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. There are many companies
that provide Web sites and online destinations targeted to Spanish-language
Internet users. Competition for visitors, advertisers and e-commerce partners 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 Network,
El Sitio, Yahoo! Espanol, America Online Latin America, Yupi, Prodigy and
Microsoft networks in Latin America, Mexico and Spain. 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 Web site.
TECHNOLOGICAL CHANGES COULD IMPAIR OUR ABILITY TO COMPETE AND SUBJECT US TO
SIGNIFICANT EXPENDITURES
The market for Internet products and services is characterized by rapid
technological developments, frequent new product and service introductions and
evolving industry standards. The emerging character of these products and
services and their rapid evolution will require that we continually improve the
performance, features and reliability of our Internet content, particularly in
response to competitive offerings. There can be no assurance that we will be
successful in
26
responding quickly, cost effectively and sufficiently to these developments. In
addition, the widespread adoption of new Internet technologies or standards
could require substantial expenditures by us to modify or adapt our Web site and
services and could fundamentally affect the character, viability and frequency
of Web-based advertising, either of which could have a material adverse effect
on our business. In addition, new Internet services or enhancements offered by
us may contain design flaws or other defects that could require costly
modifications or result in a loss of consumer confidence.
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. If
the market value of our common stock decreased substantially, we could be
delisted from the Nasdaq National Market. Consequently, you could find it
difficult or impossible to sell your stock or to determine the value of your
stock.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations, which have particularly affected the market
prices of the stocks of Internet-sector companies and which may be unrelated to
the operating performance of such companies. Furthermore, our operating results
and prospects from time to time may be below the expectations of public market
analysts and investors. Any such event could result in a material decline in the
price of your stock.
WE HAVE NO INTENTION TO PAY DIVIDENDS
We have never paid any cash dividends on our common stock. We currently
intend to retain all future earnings, if any, for use in our business and do not
expect to pay any dividends in the foreseeable future.
FUTURE SALES OF OUR COMMON STOCK OR SHARES ISSUABLE UPON EXERCISE OF STOCK
OPTIONS COULD ADVERSELY AFFECT OUR STOCK PRICE AND OUR ABILITY TO RAISE FUNDS IN
NEW STOCK OFFERINGS
As of the date of the original filing, we had 18,833,305 shares of common
stock outstanding. Sale of substantial amounts of common stock, or the
perception that sales could occur, could reduce the market price of the common
stock. At that time, there were outstanding stock options or common stock
purchase warrants to acquire 6,561,359 of common stock at exercise prices
ranging from $1 to $19.80 per share, including 2,565,313 common stock purchase
warrants subject to demand and piggy-back registration rights.
EMPLOYEES
As of March 31, 2000, we had 104 employees, including our five executive
officers.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We do not have any derivative financial instruments as of March 31, 2000.
Our interest income 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. To mitigate the impact of fluctuations in interest
rates, we generally enter into fixed rate investing arrangements. As a result,
we believe that the market risk arising from holdings of our financial
instruments is not material. We do not believe that we are exposed to any
significant market risk for market rate changes to our notes payable.
27
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 9, 2000 the Company announced that it would be reducing its
workforce by approximately one third over the next 60 days as part of
management's effort to further enhance the Company's competitive position and
utilize its assets more efficiently. The Company will record the costs
associated with the workforce reduction in its second fiscal quarter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. The exhibits listed in the accompanying Index to Exhibits are filed as
part of this Report on Form 10-Q/A.
b. Reports on Form 8-K:
(1) On January 21, 2000, the Company filed a report on Form 8-K
announcing that it had replaced Deloitte & Touche LLP with KPMG
LLP as its independent accountants.
(2) On January 28, 2000, the Company filed a report on Form 8-K
announcing the closing of its acquisition of credito.com, Inc.
(3) On February 11, 2000, the Company filed a report on Form 8-K
announcing the closing of its acquisition of eTrato.com, Inc.
(4) On March 17, 2000, the Company filed a report on Form 8-K
announcing the closing of its acquisition of
RealEstateEspanol.com, Inc.
28
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 August 15, 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
29
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- ---------------------------------
20.1 News Release dated May 9, 2000 (1)
27.1 Financial Data Schedule (1)
30
(1) Previously filed with the Registrant's Quarterly Report on Form 10-Q
dated May 15, 2000.
31