UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________________ TO __________________
COMMISSION FILE NUMBER: 0-25565
QUEPASA.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 84-0879433
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
7904 E. Chaparral Road,
Suite A-110, PMB # 160 85250
Scottsdale, AZ (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 480-949-3749
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 March 1,
2002 was approximately 17,763,291 shares.
QUEPASA.COM, INC.
INDEX
PART I. FINANCIAL INFORMATION
PAGE NO.
--------
Item 1. Condensed Financial Statements
Condensed Balance Sheets as of March 31, 2002 (unaudited) and December 31, 2001.................1
Condensed Statements of Operations for the Three Months Ended March 31, 2002 and 2001
(unaudited)...................................................................................2
Condensed Statements of Cash Flows for the Three Months Ended March 31, 2002 and 2001
(unaudited)...................................................................................3
Notes to Condensed Financial Statements.........................................................4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations -
Risk Factors..................................................................................7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..............................................................................14
Item 2. Changes in Securities and Use of Proceeds......................................................14
Item 3. Defaults Upon Senior Securities................................................................14
Item 4. Submissions of Matters to a Vote of Security Holders...........................................14
Item 5. Other Information..............................................................................14
Item 6. Exhibits and Reports on Form 8-K...............................................................14
Signatures .............................................................................................14
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
QUEPASA.COM, INC. AND SUBSIDIARIES
Condensed Balance Sheets
MARCH 31, DECEMBER 31,
2002 2001
(UNAUDITED) (AUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 1,725,328 $ 3,052,147
Other receivable 229,032 113,019
Note Receivable -- 500,000
Prepaid expenses 459,388 251,509
Other current assets 3,045 --
------------- -------------
Total current assets 2,416,793 3,916,675
$ 2,416,793 $ 3,916,675
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 240,035 $ 75,107
Accrued liabilities 1,461 120,807
Arbitration settlement accrual -- 200,000
Deferred revenue -- 20,089
------------- -------------
Total current liabilities 241,496 416,003
------------- -------------
Stockholders' equity:
Preferred stock, authorized 5,000,000 shares, no par value -
none issued or outstanding -- --
Common stock, authorized 50,000,000 shares, $0.001 par value;
17,163,291 shares issued and outstanding
at March 31, 2002 and December 31, 2001 respectively 17,763 17,763
Additional paid-in capital 104,454,267 104,454,267
Accumulated deficit (102,296,733) (100,971,358)
------------- -------------
Total stockholders' equity 2,175,297 3,500,672
------------- -------------
$ 2,416,793 $ 3,916,675
============= =============
See accompanying notes to condensed financial statements.
1
QUEPASA.COM, INC. AND SUBSIDIARIES
Condensed Statements of Operations
(Unaudited)
THREE MONTHS ENDED MARCH 31,
2002 2001
Gross revenue $ 20,089 $ 116,233
Less commissions -- (2,636)
---------------- ------------------
Net revenue 20,089 113,597
---------------- ------------------
Operating expenses:
Product and content development expenses -- 334,568
Advertising and marketing expenses -- 368,280
General and administrative expenses 1,365,633 863,704
Amortization of goodwill -- --
---------------- ------------------
Total operating expenses 1,365,633 1,566,22
Loss from operations -- ( 1,452,955)
---------------- ------------------
1,345,544
Other income (expense):
Interest expense -- ( 1,055)
Interest income and other 20,169 100,853
Realized and unrealized loss on trading securities -- ( 14,204)
---------------- ------------------
Net other income 20,169 85,594
---------------- ------------------
Net loss $ (1,325,375) $ (1,367,361)
================ ==================
Net loss per share, basic and diluted:
Loss before cumulative effect of a change in accounting principle and
net loss per share, basic and diluted $ (0.08) $ (0.08)
================ ==================
Weighted average number of shares
outstanding, basic and diluted 17,763,291 17,763,291
================ ==================
See accompanying notes to condensed financial statements.
2
QUEPASA.COM, INC. AND SUBSIDIARIES
Condensed Statements of Cash Flows
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
2002 2001
Cash flows from operating activities:
Net loss $ (1,325,375) $ (1,367,361)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization -- 17,440
Stock based compensation -- 26,284
Allowance for note receivable 500,000 --
Realized and unrealized loss on trading securities -- 14,204
Increase (decrease) in cash, net of acquisitions, resulting from
changes in:
Sale of trading securities, net -- 2,379,760
Accounts receivable -- 184,307
Prepaid expenses (207,879) 67,708
Other receivable and other current assets (119,058) 1,140,291
Accounts payable 164,928 (51,539)
Accrued liabilities (319,346) (75,312)
Deferred revenue (20,089) (90,968)
--------------- -------------
Net cash (used in) provided by operating activities (1,326,819) 2,244,814
--------------- -------------
Cash flows from investing activities:
Proceeds from assets held for sale -- 277,000
Net cash provided by investing activities -- 277,000
--------------- -------------
Cash flows from financing activities:
Net cash provided by financing activities -- --
--------------- -------------
Net increase (decrease) in cash and cash equivalents (1,326,819) 2,521,814
Cash and cash equivalents, beginning of period 3,052,147 3,940,232
--------------- -------------
Cash and cash equivalents, end of period $ 1,725,328 $ 6,462,046
=============== =============
Supplemental statement of cash flow information:
Interest paid $ -- $ 1,055
=============== =============
Supplemental disclosure of non-cash financing and investing activities:
Barter transactions $ -- $ --
=============== =============
Acquisitions through balance of stock and notes payable and
assumption of liabilities $ -- $ --
=============== =============
See accompanying notes to condensed financial statements.
3
QUEPASA.COM, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 30, 2002 and 2001
(1) THE COMPANY
quepasa.com, inc. (the "Company" or "quepasa") is a Bilingual (Spanish/English)
Internet portal and online community focused on the United States Hispanic
market. We provide users with information and content centered around the
Spanish language. Because the language preference of many U.S. Hispanics is
English, we also offer our users the ability to access information in the
English language.
(2) LIQUIDITY
To date, the Company's expenses have significantly exceeded revenue and there is
no assurance that the Company will earn profits in the future. The Company's
independent accountants issued their auditors' report dated February 27, 2002
stating that the Company has suffered recurring losses from operations, has an
accumulated deficit, has been unable to successfully execute its business plan,
and is considering alternatives for the Company, all of which raise substantial
doubt about its ability to continue as a going concern.
By March 31, 2002, the Company downsized its workforce to two individuals and
disposed of certain assets.. Management believes that as a result of its
significant cost-cutting measures, there is sufficient cash to operate through
the second quarter of 2002. Management of the Company and the Board of Directors
continue to evaluate alternatives for the Company including disposing of assets
and investigating merger opportunities.
(3) BASIS OF PRESENTATION
The Company's accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and pursuant to rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for a complete financial statement presentation. In the Company's opinion, such
unaudited interim information reflects all adjustments, consisting only of
normal recurring adjustments, necessary to present our financial position and
results of operations for the periods presented. The Company's results of
operations for interim periods are not necessarily indicative of the results to
be expected for a full fiscal year. The Company's condensed consolidated balance
sheet as of December 31, 2001 was derived from its audited consolidated
financial statements as of that date but does not include all the information
and footnotes required by accounting principles generally accepted in the United
States of America. The Company suggests that these condensed consolidated
financial statements be read in conjunction with the audited consolidated
financial statements included in its Annual Report on Form 10-K as of and for
the year ended December 31, 2001.
4
(4) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) USES OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
5
of the financial statements. Additionally, such estimates and assumptions affect
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(b) 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 31,2002 and 2001,
one and two customers accounted for 100% and 69% of gross revenue, respectively.
(5) COMMITMENTS
(a) EMPLOYMENT AGREEMENTS
In connection with the termination of an employment agreement, the Company was
required to pay a severance payment of $100,000 in the first quarter of 2002. In
addition all of the employees options (totaling 193,334) became immediately
vested.
(b) CONTINGENCIES
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.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - RISK FACTORS
This Quarterly Report on Form 10-Q and the information incorporated by reference
may include "forward-looking statements" within the meaning of Section 27A of
the Securities Act and Section 21E of the Exchange Act. In particular, we direct
your attention to Item 1. Financial Statements, Item 2. Management's Discussion
and Analysis of Financial Condition and Results of Operation - Risk Factors and
Item 3. Quantitative and Qualitative Disclosures About Market Risk. We intend
the forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements in these sections. All statements regarding our
expected financial position and operating results, our business strategy, our
future business operations, our proposed merger transaction, our potential
liquidation plans and the outcome of any contingencies are forward-looking
statements. These statements can sometimes be identified by our use of
forward-looking words such as "may," "believe," "plan," "will," "anticipate,"
"estimate," "expect," "intend" and other phrases of similar meaning. Known and
unknown risks, uncertainties and other factors could cause the actual results to
differ materially from those contemplated by the statements. The forward-looking
information is based on various factors and was derived using numerous
assumptions. Although we believe that our expectations expressed in these
forward-looking statements are reasonable, we cannot promise that our
expectations will turn out to be correct. Our actual results could be materially
different from our expectations.
The following discussion of our financial condition and results of operations
for the three months ended March 31, 2002 and 2001 should be read in conjunction
with our condensed consolidated financial statements, the notes related thereto,
and the other financial data included elsewhere in this Form 10-Q.
OVERVIEW
We commenced operations on June 25, 1997. Prior to May 1998, our operations were
limited to organizing quepasa.com, raising operating capital, hiring initial
employees and drafting a business plan. From May 1998 through May 1999, we were
engaged primarily in content development and acquisition. In May 1999, we
launched our first media-based branding and advertising campaign in the U.S.
Significant revenues from our business activities did not commence until the
fourth quarter of 1999. In the first quarter of 2000, we significantly increased
our operating expenses as we expanded our sales, marketing and advertising
efforts.
During 2001 the Company reduced its workforce as part of managements effort to
conserve remaining cash.
Also during the first quarter of 2002:
- In March 2002, the employment agreement for the Company's President was
terminated. As a result the company was required to pay $100,000 in severance
and all employee stock options became fully vested.
7
.. On August 1, 2001, we and our landlord executed an agreement pursuant to which
we made a $130,000 lump sum payment to our landlord for any and all amounts due
and we have subsequently vacated our office.
.. On August 6, 2001, we entered into a merger agreement that would result in the
company becoming a wholly owned subsidiary of Great Western Land and Recreation,
Inc. Great Western is an Arizona-based, privately held real estate development
company with holdings in Arizona, New Mexico and Texas. Great Western's business
focuses primarily on condominiums, apartments, residential lots and recreational
property development. In addition to holding completed developments in
metropolitan areas of Arizona, New Mexico and Texas, Great Western also owns and
is currently developing the Wagon Bow Ranch in northwest Arizona and the Willow
Springs Ranch in central New Mexico. The merger agreement represents a stock for
stock offering, pursuant to which each share of quepasa common stock will be
converted into one share of Great Western common stock. In the 1st Quarter of
2002 this agreement was terminated.
8
THE QUEPASA.COM COMMUNITY
quepasa.com, inc. is a Bilingual (Spanish/English) Internet portal and online
community focused on the United States Hispanic market. We provide users with
information and content centered around the Spanish language. Because the
language preference of many U.S. Hispanics is English, we also offer our users
the ability to access information in the English language.
RESULTS OF OPERATIONS
INTRODUCTION.
NET REVENUE: We expect to derive future net revenue from one principal source:
the sale of advertising on our web site.
ADVERTISING REVENUE: In the first quarter of 2001, we derived approximately 35%
of our net revenues from the sale of advertisements on our web site which are
received principally from advertising arrangements under which we receive fixed
fees for banners placed on our web site for specified periods of time or for a
specified number of delivered ad impressions. During the first quarter of 2001,
we discontinued the use of our banner ad software and sought a third-party
outsourced for our banner ad sales and service. As of September 18, 2001, we
have been unsuccessful in retaining a third-party outsourcer for our banner ad
sales and service.
SPONSORSHIP REVENUE. In the first quarter of 2001, we derived approximately 65%
of our net revenue from the sale of sponsorships for certain areas or exclusive
sponsorship rights for certain areas within our web site. These sponsorships
typically cover periods up to 1 year. We recognize revenue during the initial
setup, if required under the unique terms of each sponsorship agreement (e.g.
co-branded web site), ratably over the period of time of the related agreement.
Payments received from sponsors prior to displaying their advertisements on our
web site are recorded as deferred revenue.
Our principal expenses are: Product and Content Development, Advertising and
Marketing and General and Administrative.
THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
2001
Our results of operations for the three months ended March 31, 2002 and 2001
were characterized by expenses that significantly exceeded revenues during the
periods. We reported a net loss of $825,000 for the three months ended March
31, 2002, compared to a net loss of $1.4 million for the three months ended
March 31, 2001. During the three months ended March 31, 2002, we focused on
reducing our cash expenses in all operation areas.
9
NET REVENUES
Net revenue decreased 465% to $20,000 for the three months ended March 31, 2002
from $114,000 for the three months ended March 31, 2001 as a result of the
Company's curtailment of operations.
OPERATING EXPENSES
PRODUCT AND CONTENT DEVELOPMENT EXPENSES. Our product and content development
expenses decreased to $0 for the three months ended March 31, 2002,
compared to $335,000 for the three months ended March 31, 2001. The
period-to-period decrease was also attributable to the Company's curtailment of
operations.
ADVERTISING AND MARKETING EXPENSES. Our marketing, advertising and sales
expenses decreased to $0 for the three months ended March 31, 2002,
compared to $368,000 for the three months ended March 31, 2001. This
decrease was related to the curtailment of operations.
GENERAL AND ADMINISTRATIVE EXPENSES. Our general and administrative expenses
increased 58% to $1,357,000 for the three months ended March 31, 2002, compared
to $864,000 for the three months ended March 31, 2001. This increase was
primarily attributable to the allowance for the note receivable from Great
Western.
10
OTHER INCOME (EXPENSE). Other income (expense), which consists primarily of
interest income, net of interest earned, decreased 80% to $20,000 for the three
months ended March 31, 2002, compared to $101,000 for the three months ended
March 31, 2001. This is the result of a decrease in the Company's cash balances.
LIQUIDITY AND CAPITAL RESOURCES
We have substantial liquidity and capital resource requirements, but limited
sources of liquidity and capital resources. We have generated significant net
losses and negative cash flows from our inception and anticipate that we will
experience continued net losses and negative cash flows for the foreseeable
future. Our independent accountants have issued their independent auditor's
report dated May 8, 2001 on our consolidated financial statements for 2000
stating that our recurring losses, accumulated deficit and our inability to
successfully execute our business plan, among other things, raise substantial
doubt about our ability to continue as a going concern.
From our inception to date, we have relied principally upon equity investments
to support the development of our business. We have retained the
investment-banking firm of Friedman, Billings, Ramsey & Co., Inc. to explore
alternatives including strategic alliances, significant equity investments in us
or a merger or the sale of all or a significant portion of our business.
We expect to continue to incur costs, particularly general and administrative
costs during the second, third and fourth quarters of 2002, including our
website administration of approximately $2,000 per month, and do not expect
sufficient revenue to be realized to offset these costs. We believe that our
cash on hand will be sufficient to meet our working capital and capital
expenditure needs through the second quarter of 2002. We believe it will be
necessary for us to raise additional capital, conclude one or more strategic
transactions or merge or sell quepasa by year-end 2002. In the event we are not
able to raise capital, conclude one or more strategic transactions or merge or
sell quepasa during that period, our ability to continue operations will be
severely impacted and could have a significant adverse effect on us. There can
be no assurance that we will be successful in raising the necessary funds,
concluding one or more strategic transactions, merging or selling quepasa or
that the terms of any such transaction will be beneficial to us.
11
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 5, 2002, we announced that we terminated the merger agreement
because Great Western had materially breached the agreement. As a result of the
termination of the merger agreement, quepasa's outstanding $500,000 loan to
Great Western became immediately due and payable under the terms of the loan. We
have not yet received repayment of the loan to Great Western. On February 6,
2002, Great Western notified us that it was terminating the merger agreement and
on February 11, 2002, Great Western initiated a lawsuit against us in the
Superior Court of Arizona. In its complaint, Great Western alleged, among other
things, that we breached the merger agreement and, as a result, Great Western is
entitled to receive a $500,000 termination fee. Great Western asserted that the
$500,000 loan that we made to Great Western in October of 2001 should be deemed
paid in full as payment of the termination fee. We intend to vigorously defend
the lawsuit filed by Great Western.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS.
The exhibits listed in the accompanying Index to Exhibits are filed as part of
this Report on Form 10-Q.
b. REPORTS ON FORM 8-K.
The Company filed four reports on Form 8K during the quarter covered by this
report.
1. Form 8K dated February 28, 2002 reporting the settlement of certain
shareholder litigation.
2. Form 8K dated Feb. 6, 2002 reporting the termination of our merger agreement
with Great Western Land and Recreation.
3. Form 8K dated Jan. 14, 2002 changing a proxy record date.
4. Form 8K dated Jan. 10, 2002 changing the date of a shareholder meeting.
12
On August 16, 2001, the Company filed a Current Report on Form 8-K attaching the
press released dated August 15, 2001 announcing that the Company had resolved
all issues with the Commission relating to its 1999 Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q for the first three quarters of 2000 and a
Current Report on Form 8-K, previously filed with the Commission on April 14,
2000.
13
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 May 15, 2002.
quepasa.com, inc.
By: /s/ Jeffrey S. Peterson
-----------------------------------
Name: Jeffrey S. Peterson
Title: President, Chief Executive Officer
and Chairman of the Board of Directors
(PRINCIPAL EXECUTIVE OFFICER)
By: /s/ Jeffrey S. Peterson
-----------------------------------
Name: Jeffrey S. Peterson
Title: Chief Financial Officer
(PRINCIPAL FINANCIAL OFFICER)
14