-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HGx5ITfjabanyFRiEz7FpsesE9Yzys5oyg8+fwej3vCagk2TRk5qs3HdbeFR20tO GE+Nq6HMjdeUjBlDsVaHhw== /in/edgar/work/0000950153-00-001550/0000950153-00-001550.txt : 20001116 0000950153-00-001550.hdr.sgml : 20001116 ACCESSION NUMBER: 0000950153-00-001550 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUEPASA COM INC CENTRAL INDEX KEY: 0001078099 STANDARD INDUSTRIAL CLASSIFICATION: [7310 ] IRS NUMBER: 860879433 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25565 FILM NUMBER: 768770 BUSINESS ADDRESS: STREET 1: ONE ARIZONA CENTER STREET 2: 400 E VAN BUREN CITY: PHOENIX STATE: AZ ZIP: 85004 BUSINESS PHONE: 6027160100 MAIL ADDRESS: STREET 1: ONE ARIZONA CENTER STREET 2: 400 E VAN BUREN CITY: PHOENIX STATE: AZ ZIP: 85004 10-Q 1 p64041e10-q.txt FORM 10-Q 1 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 SEPTEMBER 30, 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 NOVEMBER 6, 2000 was approximately 18,693,942 shares. 2 QUEPASA.COM, INC. INDEX
PART I. FINANCIAL INFORMATION PAGE NO. Item 1. Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets at September 30, 2000 (unaudited) and December 31, 1999.............................................................. 3 Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2000, and 1999 (unaudited) ................................ 4 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2000 and 1999 (unaudited)........................................ 5 Notes to Condensed Consolidated Financial Statements........................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Risk Factors.......................................... 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk......................... 22 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................................................. 22 Item 6. Exhibits and Reports on Form 8-K.................................................. 22 Signatures.................................................................................. 23
2 3 PART I FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS QUEPASA.COM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31, 2000 1999 (UNAUDITED) ------------- ------------ ASSETS Current assets: Cash and cash equivalents...................... $2,296,752 $6,961,592 Trading securities............................. 7,192,470 22,237,656 Accounts receivable, net....................... 455,278 297,170 Forgivable loans............................... 34,339 368,042 Prepaid expenses............................... 857,231 5,761,494 Other current assets........................... 5,920,695 -- ----------- ----------- Total current assets................... 16,756,765 35,625,954 Property and equipment, net...................... 1,672,055 2,051,103 Goodwill, net.................................... 16,442,909 -- Other assets..................................... 918,733 153,743 ----------- ----------- Total assets..................................... $35,790,462 $37,830,800 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable............................... $688,821 $2,775,347 Accrued liabilities............................ 199,934 3,023,984 Deferred revenue............................... 21,250 85,417 ----------- ----------- Total current liabilities.............. 910,005 5,884,748 Redeemable common stock.......................... -- 2,000,000 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 17,763,290 shares and 14,536,058 shares, respectively................................... 17,763 14,536 Additional paid-in capital....................... 101,208,254 70,709,010 Deferred advertising services.................... (4,239,011) (5,000,000) Accumulated deficit.............................. (62,106,549) (35,777,494) ----------- ----------- Total stockholders' equity............. 34,880,457 29,946,052 ----------- ----------- Total liabilities and stockholders' equity....... $35,790,462 $37,830,800 =========== ===========
See accompanying notes to condensed consolidated financial statements. 3 4 QUEPASA.COM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30, 2000 1999 2000 1999 ---- ---- ---- ---- Gross revenue ......................... $ 1,012,556 $ 153,582 $ 3,200,316 $ 170,144 Less commissions ...................... 45,975 25,898 185,509 34,017 ------------ ------------ ------------ ------------ Net revenue ........................... 966,581 127,684 3,014,807 136,127 ------------ ------------ ------------ ------------ Operating expenses: Product and content development .... 1,645,177 798,844 5,143,178 1,264,407 Advertising and marketing .......... 4,263,359 6,195,450 15,698,241 11,277,435 General and administrative ......... 1,412,278 1,879,233 4,807,279 9,672,112 Amortization of goodwill ........... 1,752,228 -- 4,583,847 -- ------------ ------------ ------------ ------------ Total operating expenses .... 9,073,042 8,873,527 30,232,545 22,213,954 ------------ ------------ ------------ ------------ Loss from operations .................. (8,106,461) (8,745,843) (27,217,738) (22,077,827) ----------- ---------- ----------- ----------- Other income (expense): Interest expense .................... (2,214) (79,465) 146,539 (212,587) Interest income and other ........... 194,398 494,972 893,527 512,918 Short-term gain on trading securities......................... -- -- 2,820 -- Unrealized gain (loss) on trading securities......................... (3,018) 33,895 (140,127) 34,948 ------------ ------------ ------------ ------------ Other income (expenses), net .......... 189,166 449,402 902,759 335,279 ------------ ------------ ------------ ------------ Net loss .............................. $ (7,917,295) $ (8,296,441) $(26,314,979) $(21,742,548) ============ ============ ============ ============ Net loss per share, basic and diluted . $ (0.45) $ (0.58) $ (1.54) $ (1.96) Weighted average number of shares outstanding, basic and diluted ........ 17,763,290 14,301,920 17,043,327 11,118,507
See accompanying notes to condensed consolidated financial statements. 4 5 QUEPASA.COM, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2000 1999 ---- ---- Cash flows from operating activities: Net loss ................................ $(26,314,979) $(21,742,548) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization ........ 6,458,263 149,822 Stock based compensation ............. 61,638 4,907,732 Amortization of forgivable loans ..... 333,703 -- Consulting services received in exchange for stock ................... -- 550,000 Unrealized (gain) loss on trading securities ......................... 140,127 (34,948) Short-term (gain) loss on trading securities .......................... (2,820) -- Increase (decrease) in cash resulting from changes in assets and liabilities net of effects from acquisitions: Sale (purchase) of trading securities, net .................... 14,907,879 (27,822,148) Accounts receivable ................ (101,108) (227,904) Deposits receivable ................ -- 1,533,632 Prepaid expenses ................... 2,410,263 (4,502,480) Other assets ....................... (6,821,377) (58,308) Accounts payable ................... (2,190,065) 2,440,132 Provision for legal disputes ....... -- 400,000 Accrued liabilities ................ (2,341,025) 2,828,421 Amortization of deferred advertising credit ................ 760,989 156,250 Deferred revenue ................... (64,167) -- ----------- ----------- Net cash used in operating activities .................... (12,762,679) (41,422,347) ----------- ----------- Cash flows from investing activities: Forgivable loans, net ................... -- (42,490) Cash paid for acquisitions .............. (238,793) -- Cash received in acquisition of eTrato .. 578,730 -- Purchase of fixed assets ................ (239,516) (1,617,292) ----------- ----------- Net cash (used in) provided by investing activities .......... 100,421 (1,659,782) ----------- ----------- Cash flows from financing activities: Stock subscription receivable ........... -- 125,000 Net proceeds from issuance of stock ..... 10,000,000 48,655,173 Proceeds from the exercise of stock options ................................ 367,801 -- Proceeds from draws on line of credit ... 12,286 -- Issuance (payment) of notes payable ..... (2,382,669) 2,245,082 Accrued commissions ..................... -- (215,233) Stock subscription ...................... -- (337,500) ----------- ----------- Net cash provided by financing activities .................... 7,997,418 50,472,522 ----------- ----------- Net increase (decrease) in cash and cash equivalents .............................. (4,664,840) 7,390,393 Cash and cash equivalents, beginning of period ................................... 6,961,592 2,199,172 ----------- ----------- Cash and cash equivalents, end of period .. $ 2,296,752 $ 9,589,565 =========== =========== Supplemental Statement of Cash Flows Information: Interest paid .............................. $ 32,175 $ 212,587 =========== =========== Barter transactions ........................ $ 304,000 $ -- =========== =========== Notes payable assumed in acquisitions ...... $ 2,370,383 $ -- =========== =========== Stock issued for advertising credits ....... $ -- $5,234,375 =========== =========== Issuance of stock in acquisitions .......... $20,073,032 $ -- =========== ===========
See accompanying notes to condensed consolidated financial statements. 5 6 QUEPASA.COM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 AND 1999 (1) THE COMPANY Quepasa.com, inc. (the Company), a Nevada Corporation, was incorporated in June 1997. The Company is a Bilingual Hispanic Internet portal and on-line community. Quepasa.com offers a number of services in both Spanish and English such as a search engine, news feeds, free Web pages, chat, games, maps, message boards and free e-mail. The Company's portal draws viewers to their Web site by providing a one-stop destination for identifying, selecting and accessing resources, services, content and information on the Web. The Company is targeted to provide users with information and interactive content centered on the Spanish language. To date the Company's expenses have significantly exceeded revenue and there is no assurance that the Company will 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 for the year ended December 31, 1999. (3) SIGNIFICANT TRANSACTIONS On January 26, 2000, we acquired credito.com, an online credit and personal finance company targeted to the U.S. Hispanic population and available in both Spanish and English, for 681,818 shares of common stock and warrants to purchase 681,818 shares of common stock at an exercise price of $11 per share. The acquisition was accounted for using the purchase method of accounting. The Company recorded $7.8 million of goodwill, which is being amortized over a period of 3 years. On January 28, 2000, we acquired eTrato.com, an online trading community developed especially for the Spanish language or bilingual Internet user, for 1,363,363 shares of the Company's common stock, half of which are held in escrow and are to be released to the seller upon attainment of agreed upon targets, and a $1.3 million promissory note. The acquisition was accounted for using the purchase method of accounting. The Company recorded $10.1 million in goodwill, which is being amortized over a period of 3 years. On March 9, 2000, we acquired RealEstateEspanol.com, a real estate services site providing the U.S. Hispanic community with bilingual home buying services, for 335,925 shares of the Company's common stock. An additional 248,834 shares are held in escrow and are to be issued to the seller upon attainment of agreed upon targets. The acquisition was accounted for using the purchase method of accounting. The Company recorded $3.2 million of goodwill, which is being amortized over a period of 3 years. On March 30, 2000, Gateway, Inc. invested $10 million in exchange for 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 includes distributing computers purchased from Gateway accompanied with Spanish language technical support, providing Internet access, and training for quepasa's subscribers. The Company purchased $6.7 million of computers pursuant to this agreement which are included in other current assets as of September 30, 2000. 6 7 In September 1999, the Company entered into an agreement with Estefan Enterprises, Inc. whereby Gloria Estefan would act as spokesperson for the Company through December 31, 2000 and the Company would sponsor her United States 2000 concert tour. Ms. Estefan's tour was subsequently postponed, and consequently the original terms of the spokesperson agreement have been renegotiated. The revised spokesperson agreement calls for the return of the 156,863 shares of redeemable common stock to the Company, cancellation of the put option for those shares and cancellation of the final installment. The Company obtained the right of first refusal for the sponsorship of Ms. Estefan's next United States and Latin America tours. As of September 30, 2000, the prepaid advertising relating to the Estefan agreement has been fully amortized and the issuance of the 156,863 shares of redeemable common stock has been reversed. The Company recognized $0 and $2.3 million of amortization in relation to the Estefan agreement during the three and nine months ended September 30, 2000, respectively. On May 9, 2000 the Company announced that it would reduce its workforce as part of management's effort to further enhance the Company's competitive position and utilize its assets more efficiently. The Company's workforce was 104 as of March 31, 2000 and has been reduced to 59 as of September 30, 2000. On May 26, 2000 the Company announced it had retained Friedman, Billings, Ramsey & Company to explore alternatives including strategic alliances, significant equity investments in the Company or a merger or the sale of the Company or significant portions of its business. To date, the Company has not executed a merger or sale of a portion or all of the business. On November 14, 2000, the Company announced a further reduction of its workforce in order to conserve its remaining cash as it continues to consider its strategic alternatives. The Company's workforce has been reduced from 58 to 20 employees. The Company also announced that it is now actively pursuing the sale of one or more of its subsidiaries: RealEstateEspanol.com, Etrato.com and Credito.com. (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 financial statement amounts to conform to current period presentation. Concentration of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk are principally accounts receivable, cash and investments. 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. 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. Securities 7 8 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 September 30, 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 earnings. Realized gains and losses for trading securities are included in earnings and are derived using the specific identification method for determining the cost of securities. All securities held at September 30, 2000 and December 31, 1999 are categorized as trading. Revenue Recognition The Company's revenues are 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 an exclusivity for certain areas within our 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 in the ordinary course of business enters into reciprocal service arrangements whereby the Company provides advertising service to third parties in exchange for advertising services in other media. Revenues and expenses from these agreements are recorded at the fair value of services provided. 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 September 30, 2000 and 1999 revenues attributable to reciprocal services totaled approximately $618,452 and $0, respectively. During the nine months ended September 30, 2000 and 1999 revenues attributable to reciprocal services totaled approximately $1.8 million and $0, respectively. 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 and the development of new products and enhancements to existing products are charged to expense as incurred. Material software development costs 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. 8 9 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 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 exceeds 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. 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. 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. Net Loss Per Share Basic loss per share is computed by dividing net loss 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. 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. 9 10 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. With the exception of NewsSurfer.com, representing 20% of gross revenue for the three months ended September 30, 2000, and Folgers, NewsSurfer.com and Star Travel representing 15%, 13% and 10%, respectively, for the nine months ended September 30, 2000, no other single advertiser utilizing banner ads or sponsorship agreements amounted to or exceeded 10% of total gross revenue. Sponsor revenue is recognized ratably over the term of the agreement. (5) 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, we issued Telemundo 600,000 shares of our common stock and warrants to purchase 1,000,000 shares of our common stock exercisable up to and including June 25, 2001 at $14.40 per share. In exchange, we 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. As of September 30, 2000, the Company's unused advertising credit amounted to $4.2 million. The Company has a sponsorship agreement with the Arizona Diamondbacks major league baseball team. A director of the Company serves as the Arizona Diamondbacks' Chief Executive Officer and General Manager. Under this agreement, the Company receives English and Spanish television and radio broadcast time, ballpark signage, and Internet and print promotions for an annual sponsorship fee of $1.5 million which is payable during each season. The $1.5 million annual sponsorship fee is recognized as expense ratably over the baseball season. The Company recognized $649,000 AND $1.5 MILLION in expense related to this agreement during the three and nine months ended September 30, 2000, respectively. 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 our content to the U.S. Hispanic market. According to the terms of this agreement, we are obligated to pay a fee for their subscribers who access our Web site. This fee ranges from $.10 to $.15 per user session. We also committed to spend at least $1 million for the production and distribution of CD's containing the customized NetZero service. This commitment was fulfilled in the first quarter of 2000. (6) 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, based on advice of legal counsel, that the outcome of all such pending legal proceedings to which it is a party will not in the aggregate have a material adverse effect on the Company's business or financial condition. 10 11 (7) LOSS PER SHARE The following table sets forth a summary of the reconciliation from basic loss per share to diluted loss per share for the three and nine months ended September 30, 2000 and 1999.
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30, 2000 1999 2000 1999 Loss available to common stockholders (7,917,295) (8,296,441) (26,314,979) (21,742,548) Basic EPS-weighted average shares outstanding....................................... 17,763,290 14,301,920 17,043,327 11,118,507 Basic and diluted loss per share.................... ($0.45) ($0.58) ($1.54) ($1.96)
SUBSEQUENT EVENTS On October 4th, 2000, RealEstateEspanol.com entered into an agreement with Freddie Mac, the National Counsel of La Raza ("NCLR"), and the National Association of Hispanic Real Estate Professionals ("NAHREP"). As part of the agreement, RealEstateEspanol.com will donate 200 Gateway computers to the NCLR housing counseling offices. RealEstateEspanol.com will receive a $250,000 sponsorship fee. As previously discussed under note 3, on November 14, 2000, the Company announced a further reduction of its workforce. 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 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 not be able to enter into a strategic alliance, obtain a significant equity investment in the Company or arrange a merger or sale of the Company or significant portions of its business; - 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 included in this section and "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 and nine months ended September 30, 2000 and 1999 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. 11 12 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 operating results are not meaningful and the results for any period should not be relied upon as an indication of future performance. 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 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, in both Spanish and English, a search engine, free e-mail, 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, 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. 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. 12 13 Other Services. We 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. The Company has entered into a partnership with Insight Guides, providing quepasa.com users with online resources to learn more about the rich U.S. Latino ethnic heritage. Quepasa.com members will have online access, in both English and Spanish, to Insight Guide's unique historical, cultural and travel related content for many Latin American destinations. The Company has also entered into a revenue generating alliance with StarTravel Group, who operates a full service travel portal, StarTravel.com. Through this agreement quepasa.com users can access StarTravel.com in both English and Spanish. StarTravel.com is an e-commerce Internet travel portal specializing in the delivery of travel services to the U.S. Hispanic and Latin American online markets. Quepasa.com entered into a partnership with Telemundo Network Group and the Los Angeles Police Department. Through this agreement, the Company will feature content dedicated to creating awareness among the Latino community and to solving crime. On-line Auctions On January 28, 2000 we acquired eTrato.com, an online trading community developed especially for the Spanish language or bilingual Internet user. 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 has 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. On-line Financing and Real Estate Services On January 28, 2000 we acquired credito.com, an online credit and personal finance company targeted to the U.S. Hispanic population and available in both Spanish and English. 13 14 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. RealEstateEspanol.com has been designated the official internet site of the National Association of Hispanic Real Estate Professionals. RealEstateEspanol.com's functionality has been incorporated into the quepasa.com site and once fully developed will allow members 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; and Amortization of Goodwill. Three Months Ended September 30, 2000 Compared to the Three Months Ended September 30, 1999 and the Nine Months Ended September 30, 2000 Compared to the Nine Months Ended September 30, 1999. Our results of operations for the three and nine months ended September 30, 2000 and 1999 were characterized by increased expenses that more than offset revenue growth during these periods. We reported a net loss of $7.9 million for the three months ended September 30, 2000, compared to a net loss of $8.3 million for the three months September 30, 1999 and reported a net loss of $26.3 million for the nine months ended September 30, 2000, compared to a net loss of $21.7 million for the nine months ended September 30, 1999. During the three and nine months ended September 30, 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 Net Zero partnership, our number of registered users increased 23.5% to approximately 568,000 as of September 30, 2000 from 460,000 as of June 30, 2000. Approximately 45% of total user sessions during the three months ended September 30, 2000 originated from the quepasa.com/NetZero co-branded service. Advertising impressions increased 14% during the three months ended September 30, 2000 to 190.3 million from 167.0 million for the three months ended June 30, 2000. Net Revenues Net Revenue increased 657% to $1.0 million for the three months ended September 30, 2000 from $128,000 for the three months ended September 30, 1999. For the nine months ended September 30, 2000, net revenues increased 2115% to $3.0 million from $136,000 for the nine months ended September 30, 1999. We launched our Web site in the fourth quarter 1998 and first generated revenue during the second quarter 1999. During the nine months ended September 30, 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. For the three and nine months ended September 30, 2000, approximately, 87.4% and 87.4% of the gross revenue was generated from banner advertising and 12.3% and 12.2% was generated from sponsorship agreements. With the exception of NewsSurfer.com, representing 20% of gross revenue for the three months ended September 30, 2000, and Folgers, NewsSurfer.com and Star Travel representing 15%, 13% and 10%, respectively, for the nine months ended September 30, 2000, no other single advertiser utilizing banner ads or sponsorship agreements amounted to or exceeded 10% of total gross revenue. During the three and nine months ended September 30, 2000, we recognized $618,452 and $1.8 million of barter revenue respectively, which is included in the amounts noted above. Operating Expenses Product and Content Development Expenses. Our product and content development expenses increased 106% to $1.6 million for the three months ended September 30, 2000 from $799,000 for the three months ended September 30, 1999. For the nine months ended 14 15 September 30, 2000, Product and Content Development Expenses increased 292% to $5.1 million from $1.3 million for the nine months ended September 30, 1999. For the three and nine months ended September 30, 2000 and 1999, the period-to-period increase was principally attributable to an increase in personnel costs relating to the development of content and technological support, an increase in expenses for telecommunications links, and an increase in third-party content and development expenses. Advertising and Marketing Expenses. Our advertising and marketing expenses decreased 31% to $4.3 million for the three months ended September 30, 2000 from $6.2 million for the three months ended September 30, 1999. For the nine months ended September 30, 2000, Advertising and Marketing Expenses increased 39% to $15.7 million from $11.3 million for the nine months ended September 30, 1999. For the nine months ended September 30, 2000 and 1999, the period-to-period increase was principally attributable to an increase in marketing and sales personnel costs, an increase in the amortization of advertising agreements and the initial expenditures related to the Net Zero campaign comprised of production expenses, CD distribution and other related expenses. General and Administrative Expenses. Our general and administrative expenses decreased 26% to $1.4 million for the three months ended September 30, 2000 from $1.9 million for the three months ended September 30, 1999. For the nine months ended September 30, 2000, General and Administrative Expense remained consistent at $4.8 million from $4.8 million for the nine months ended September 30, 1999. For the three months ended September 30, 2000, the period-to-period decrease was principally attributable to a decrease in stock based compensation and the reduction in workforce partly offset by increases in professional fees, depreciation, and increase in other office and related expenses. Amortization of Goodwill. During the nine months ended September 30, 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 million of goodwill in relation to these acquisitions, which is being amortized over a period of three years. Amortization of goodwill amounted to $1.8 and $4.6 million for the three and nine months ended September 30, 2000. 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, decreased 58% to $189,000 for the three months ended September 30, 2000 from $449,000 for the three months ended September 30, 1999. For the nine months ended September 30, 2000, other income (expense) increased 170% to $903,000 from $335,000 for the nine months ended September 30, 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. On May 9, 2000 the Company announced that it would reduce its workforce by approximately one third as part of management's effort to further enhance the Company's competitive position and utilize its assets more efficiently. Our workforce was 104 as of March 31, 2000, and has been reduced to 59 as of the end of September 30, 2000. 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, 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 have retained the investment banking firm of Friedman, Billings, Ramsey & Co., Inc. to explore alternatives including strategic alliances, significant equity investments in the Company or a merger or the sale of the Company or significant portions of its business. To date the Company has not executed a merger or sale of a portion or all of its business. As of September 30, 2000, we had $2.3 million in cash and cash equivalents and $7.2 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 $10 million. 15 16 Net cash used in operating activities was $13.1 million for the nine months ended September 30, 2000 as compared to $41.4 million for the nine months ended September 30, 1999. The decrease in net cash used by operations for the nine months ended September 30, 2000 was primarily due to the sale of trading securities of $14.9 million during the nine months ended September 30, 2000 versus the net purchase of securities of $41.4 million during the nine month period ended September 30, 1999, partially offset by, an increase in other assets principally due to the purchase of computers pursuant to the Gateway agreement, and a decrease in stock based compensation. Net cash provided by investing activities increased by $1.8 million to $434,000 for the nine months ended September 30, 2000 as compared to the nine months ended September 30, 1999. The increase is primarily attributed to a decrease in the purchase of fixed assets of $1.4 million and the net cash received from acquisitions during the nine month period ended September 30, 2000 as compared to the nine month period ended September 30, 1999. Net cash provided by financing activities was $8.0 million for the nine months ended September 30, 2000 and $50.5 million for the nine months ended September 30, 1999. The decrease is primarily attributed to the proceeds generated from our June 24, 1999 Initial Public Offering, which raised approximately $42.4 million, net of offering costs. During the nine months ended September 30, 2000, Gateway purchased a 7.6% equity stake in the Company, which was partially offset by the repayment of long-term notes payable and accrued interest. Currently, we have commitments under non-cancelable operating leases for office facilities and equipment requiring payments of $177,000 for the remainder of 2000. We are required to pay $125,000 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 $619,000 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 have paid an annual fee of $1.5 million under our sponsorship agreement with the Arizona Diamondbacks for the 2000 baseball season. In addition, the Company entered into a one-year agreement with NetZero, Inc. "NetZero", where they will provide free internet access along with our content to the U.S. Hispanic market. According to the terms of this agreement, we are obligated to pay a fee for their subscribers who access our Web site. This fee ranges from $.10 to $.15 per user session. We also committed to spend at least $1 million for the production and distribution of CD's containing the customized NetZero service. This commitment was fulfilled in the first quarter of 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 fourth quarter 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 the Company announced that it would reduce its workforce by approximately one third as part of management's effort to further enhance the Company's competitive position and utilize its assets more efficiently. Our workforce was 104 as of March 31, 2000 and was reduced to 59 as of September 30, 2000. On November 14, 2000, the Company announced a further reduction of its workforce in order to conserve its remaining cash as it continues to consider its strategic alternative. The Company's workforce has been reduced from 58 to 20 employees. 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. 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. ACCOUNTING MATTERS The Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) 101, Revenue Recognition in Financial Statements, in December 1999. The SAB summarizes certain of the SEC staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. In June 2000, the SEC issued SAB 101B, which delays the implementation date of SAB 101 until no later than the fourth fiscal quarter of fiscal years beginning after December 15, 1999. The Company does not believe that adoption of this SAB will have a material impact on its financial statements. 16 17 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: - enter into a strategic alliance, obtain a significant equity investment in the Company or arrange a merger or sale of the Company or significant portions of its business; - 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 September 30, 2000, we had an accumulated deficit of approximately $62.1 million. 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 17 18 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. In addition, because we have generated negligible revenue and have incurred significant operating losses to date we have reduced our workforce by approximately 80% in order to utilize our limited capital and assets more efficiently. As a result of the reduction in our workforce, our ability to execute our business plan and our business may be materially and adversely affected. Further, in the event we fail to generate improved revenue in the near future, we may be required to further reduce our workforce, curtail our operations and raise additional capital. We cannot assure 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. If We Fail to Consummate a Strategic Business Transaction, our Business and our Continued Viability May Be Adversely Affected We have retained the investment banking firm of Friedman, Billings, Ramsey & Co. Inc. to consider strategic business alternatives in an effort to further enhance our competitive position and maximize shareholder value. Friedman, Billings, Ramsey & Co., has been authorized to consider a number of strategic alternatives including strategic alliances, significant equity investments in our company, and a merger or the sale of our company or significant portions of our business. To date, the Company has not executed a merger or sale of a portion or all of the business. There is no assurance that any transaction will be consummated or that any transaction that is approved and consummated will effectively enhance our competitive position or maximize shareholder value. If we are unable to consummate an acceptable strategic business transaction, our business and our continued viability may be materially and adversely affected. 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; and - diluting our stockholders' ownership interest. Our Stock Price is Highly Volatile In the past, our common stock has traded at volatile prices and it has closed below $1.00 since September 27, 2000. We believe that the market price of our common stock will continue to be subject to significant fluctuations due to various factors and events that may be unrelated to our performance. If the market value of our common stock continues to close below $1.00, 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 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 two years 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 18 19 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 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 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, 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. 19 20 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 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. 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, and none of our executive officers has extensive experience managing a rapidly growing business enterprise prior to joining the company. 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 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. 20 21 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 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. We Have No Intention to Pay Dividends 21 22 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 this filing, we have 18,693,942 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. Currently, there are outstanding stock options or common stock purchase warrants to acquire 3,619,676 of common stock at exercise prices ranging from $1 to $16.65 per share, including 2,081,818 common stock purchase warrants subject to demand and piggy-back registration rights. EMPLOYEES As of September 30, 2000, we had 59 employees, including our four executive officers. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK We do not have any derivative financial instruments as of September 30, 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. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company from time to time is involved in various legal proceedings incidental to the conduct of its business. The Company believes, based on advice of legal counsel, that the outcome of all such pending legal proceedings to which it is a party will not in the aggregate have a material adverse effect on the Company's business or financial condition. ITEM 5. OTHER INFORMATION On November 14, 2000, the Company announced a further reduction of its workforce in order to conserve its remaining cash as it continues to consider its strategic alternatives. The Company's workforce has been reduced from 58 to 20 employees. The Company also announced that it is now actively pursuing the sale of one or more of its subsidiaries: RealEstateEspanol.com, Etrato.com and Credito.com. For more information, see Exhibit 99.1 to this Report on Form 10-Q. 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. b. Reports on Form 8-K: None. 22 23 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 November 14, 2000. 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/ JUAN C. GALAN --------------------------------- Name: Juan C. Galan Title: Chief Financial Officer 23 24 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS 10.1 Third Amended and Restated Employment Agreement with Juan C. Galan 27.1 Financial Data Schedule 99.1 Press Release dated November 14, 2000
24 EX-10.1 2 p64041ex10-1.txt EXHIBIT 10.1 1 EXHIBIT 10.1 THIRD AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIRD AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement") entered into as of the 22nd day of September, 2000, by and among QUEPASA.COM, INC., a Nevada corporation (the "Company"), and JUAN C. GALAN ("Galan"). RECITALS A. The Company and Galan entered into an Employment Agreement dated January 29, 1999, an Amendment of Employment Agreement dated April 7, 1999 an Amended and Restated Employment Agreement dated August 1, 1999, a Second Amended and Restated Employment Agreement dated December 1, 1999, a confirming letter dated May 9, 2000 and an Amendment of Employment Agreement dated June 29, 2000 (collectively, the "Employment Agreement"). B. The Company and Galan desire to amend and restate the Employment Agreement in its entirety. NOW, THEREFORE, for and in consideration of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree that the Employment Agreement is hereby amended and restated as follows: 1. EMPLOYMENT. The Company hereby employs Galan and Galan hereby accepts employment with the Company as its Chief Financial Officer and Senior Vice President, Finance and Accounting upon the terms and conditions hereinafter set forth. Galan's employment shall be deemed an "at will" employment. 2. DUTIES. Galan will serve the Company as its Chief Financial Officer and Senior Vice President, Finance and Accounting and will faithfully and diligently perform the services and functions relating to such offices and positions or otherwise reasonably incident to such offices and positions, provided that all such services and functions will be reasonable and within Galan's areas of expertise. Galan will perform these duties on a part-time basis, and the Company acknowledges that Galan may have other employment while performing his duties hereunder. 3. SCOPE OF EMPLOYMENT. Galan will make himself available as reasonably necessary to carry out his duties hereunder, including outside of normal business hours, but shall not be required to be in the Company's offices on a daily basis. Galan's duties will include participation as reasonably required in the preparation of all required filings by the Company with the Securities and Exchange Commission. Galan will be compensated on an hourly basis pursuant to Section 4 below, but will not work more than 20 hours in a week without prior approval from the Company's President and Chief Executive Officer. 4. COMPENSATION. Galan will continue to receive his current salary through September 30, 2000. Commencing October 1, 2000, as compensation for the services rendered to the Company 1 2 under this Agreement, Galan will be paid an hourly rate of $125.00; provided, that Galan shall be paid for at least ten hours each week regardless of the number of hours actually worked in that week for so long as this Agreement remains in effect. Galan's compensation shall be paid to him in accordance with the then current payroll policies of the Company or as otherwise agreed to by the parties. In addition, Galan shall receive a bonus of $10,000 payable upon the closing of a Change of Control (as defined below). A "Change of Control" is a transaction constituting (i) a sale of all or substantially all of the assets of the Company or (ii) a merger, acquisition, consolidation or other transaction involving the transfer or issuance of at least 30% of the outstanding voting stock of the Company. If this Agreement is terminated pursuant to Section 5(a), (b) or (e) after a definitive agreement for a Change of Control is entered into by the Company but before the Change of Control has closed, Galan shall receive a bonus of $5,000 payable on the date of termination, and shall receive an additional bonus of $5,000 payable upon such closing (these bonuses are in lieu of the $10,000 bonus referred to above). In addition, upon termination of this Agreement pursuant to Sections 5(a), (b), (e) or, following the closing of a Change of Control, 5(d), the Company will transfer ownership to Galan of the following items of technology equipment currently used by Galan: laptop computer; office PC and Monitor; office Fax/Printer; Cellular Phone; and Palm Pilot. 5. TERMINATION. This Agreement will terminate upon the occurrence of any of the following events: a. The death of Galan; b. The "Total Disability" (as hereinafter defined) of Galan; c. Written notice to Galan from the Company of termination for "Cause" (as hereinafter defined); d. The voluntary termination of this Agreement by Galan upon two weeks prior written notice; e. Two weeks prior written notice to Galan from the Company for any reason without "Cause". "Total Disability" means physical or mental disability, or both, determined to be (or reasonably expected to be, based upon then available medical information) of not less than twelve months duration where Galan is unable to reasonably perform the duties he was performing for the Company immediately prior to such disability. The determination shall rest upon the opinion of the physician regularly attending Galan. If the Company disagrees with said physician's opinion, the Company may engage at their own expense a physician to examine the Galan, and Galan hereby consents to such examination and to waive, if applicable any privilege between the physician and Galan that may arise as a result of said examination. If after conferring, the two physicians cannot concur on a final opinion, they shall choose a third consulting physician whose opinion shall control. The expense of the third consulting physician shall be borne equally by the Galan and the Company. 2 3 "Cause" means (i) Galan has failed to substantially perform his duties as reasonably determined by the Board, (ii) Galan engages in poor performance that is not cured within thirty days after counseling by the Company, (iii) Galan has failed to comply with the reasonable directives and policies of the Board, or (iv) Galan breaches his fiduciary duty to the Company or commits any dishonest, unethical, fraudulent, or felonious act in respect to Galan's duties to the Company. Galan's refusal to relocate from the Phoenix, Arizona metropolitan area if requested by the Company shall not constitute the basis for termination of Galan's employment for Cause. If Galan's employment is terminated pursuant to Sections 5(a), (b) or (e) of this Agreement and the Company closes a Change of Control within six months of the date of termination of employment, Galan shall receive the $10,000 bonus on the closing date of the Change of Control. 6. STOCK OPTIONS. Notwithstanding anything to the contrary in any previous agreement between Galan and the Company, in the event Galan's employment is terminated for any reason other than pursuant to Section 5(c), Galan may exercise such portion of his or her stock options as was exercisable by Galan at the date of such termination (the "Termination Date") at any time within three months following the Termination Date; provided, however, that if Galan's employment is terminated due to disability within the meaning of Internal Revenue Code section 422A, he may exercise such portion of his stock options as was exercisable on the Termination Date within one year following the Termination Date. Stock options not exercised within the applicable period specified above shall terminate. If Galan's employment is terminated pursuant to Section 5(c) all of his stock options shall terminate immediately and shall not be exercisable. 7. LOAN. The Company acknowledges that the $20,000 loan made to Galan upon commencement of his employment with the Company has been forgiven in full in accordance with its terms. 8. BENEFITS. Galan shall be entitled to continued participation in the Company' medical and dental insurance coverage and 401(k) plan on the same basis as other executives of the Company. These benefits shall continue through the last day of the month in which Galan's employment with the Company is terminated for any reason. Commencing October 1, 2000, Galan will no longer be entitled to any paid vacation days from the Company and will no longer receive a car allowance. Any accrued and unused vacation days as of September 30, 2000 shall be paid to Galan on September 30, 2000 based upon his current annual salary. 9. BUSINESS EXPENSES. Galan is authorized to incur, with the prior approval of the Company's President and Chief Executive Officer, reasonable expenses for promoting the business of the Company, including expenses for entertainment, travel and similar items. The Company shall reimburse Galan for all such expenses on the presentation by Galan of itemized accounts of such expenditures in accordance with guidelines set forth by the Company and the Internal Revenue Service. 10. NON-COMPETITION AND CONFIDENTIALITY. 3 4 a. Non-Competition. The Company and Galan acknowledge and agree that Galan's services are of a special and unusual character which have a unique value to the Company, the loss of which cannot be adequately compensated by damages in an action at law and if used in competition with the Company, could cause serious harm to the Company. Accordingly, Galan agrees that during the Term of this Agreement and for a period of two years after the termination of this employment by the Company, irrespective of the reason for such termination, Galan will not (1) enter into any agreement with or directly or indirectly solicit or attempt to solicit any employee or other representatives of the Company for the purpose of causing them to leave the Company to take employment with any other business entity, or (2) compete, directly or indirectly, with the Company in any way and that Galan will not act as an officer, director, employee, consultant, shareholder, lender or agent of any entity engaged in any business of the same nature as, or in competition with, the business in which the Company is now engaged, was engaged during Galan's employment or is engaged at the time of Galan's termination of employment, except for the ownership of less than 5% of the outstanding capital stock of a publicly traded company. b. Confidentiality. (1) Galan acknowledges that in Galan's employment hereunder, Galan will be making use of, acquiring and adding to the Company's trade secrets and its confidential and proprietary information of a special and unique nature and value relating to such matters as, but not limited to, the Company's business operations, internal structure, financial affairs, programs, software systems, procedures, manuals, confidential reports, lists of clients and prospective clients and sales and marketing methods, as well as the amount, nature and type of services, equipment and methods used and preferred by the Company's clients and the fees paid by such clients, all of which shall be deemed to be confidential information. Galan acknowledges that such confidential information has been and will continue to be of central importance to the business of the Company and that disclosure of it to or its use by others could cause substantial loss to the Company. In consideration of employment by the Company, Galan agrees that during the Term and any renewal term of this Agreement and upon and after leaving the employ of the Company for any reason whatsoever, Galan shall not, for any purpose whatsoever, directly or indirectly, divulge or disclose to any person or entity any of such confidential information which was obtained by Galan as a result of the Galan's employment with the Company or any trade secrets of the Company, but shall hold all of the same confidential and inviolate. (2) All contracts, agreements, financial books, records, instruments and documents; client lists; memoranda; data; reports; programs; software, tapes; Rolodexes; telephone and address books; letters; research; card decks; listings; programming; and any other instruments, records or documents relating or pertaining to clients serviced by the Company or Galan, the services rendered by Galan, or the business of the Company (collectively, the "Records") shall at all times be and remain the property of the Company. Upon termination of this Agreement and Galan's employment under this Agreement for any reason whatsoever, Galan shall return to the Company all Records (whether furnished by the Company or prepared by Galan), and Galan shall neither make nor retain any copies of any of such Records after such termination. 4 5 (3) All inventions and other creations, whether or not patentable or copyrightable, and all ideas, reports and other creative works, including, without limitation, computer programs, manuals and related materials, made or conceived in whole or in part by Galan while employed by the Company and within one year thereafter, which relate in any manner whatsoever to the business, existing or proposed, of the Company or any other business or research or development effort in which the Company or any of its subsidiaries or affiliates engages during Galan's employment by the Company will be disclosed promptly by Galan to the Company and shall be the sole and exclusive property of the Company. All copyrightable works created by Galan and covered by this Section 12b(3) shall be deemed to be works for hire. Galan shall cooperate with the Company in patenting or copyrighting all such inventions, ideas, reports and other creative works, shall execute, acknowledge, seal and deliver all documents tendered by the Company to evidence its ownership thereof through the world, and shall cooperate with the Company obtaining, defending and enforcing its rights therein. c. Enforceability. In the event of a breach by either party to this Agreement of the covenants contained in this Section 10, it is understood that damages will be difficult to ascertain and the Company may petition a court of law or equity for injunctive relief in addition to any other relief which the Company may have under the law, this Agreement or any other agreement executed in connection herewith. In connection with the bringing of any legal or equitable action for the enforcement of this Agreement, the Company shall be entitled to recover, whether the Company seeks equitable relief, and regardless of what relief is afforded, such reasonable attorneys' fees and expenses as the Company may incur in prosecution of the Company's claim for breach hereof. It is hereby agreed that the provisions of this Section 10 are separate and independent from the other provisions of this Agreement, that these provisions are specifically enforceable by the Company notwithstanding any claim by Galan that the Company has violated or breached this Agreement or any claim that Galan is entitled to any offset or compensation. To induce the Company to enter into this Agreement, Galan represents and warrants to the Company that Section 10 of this Agreement is enforceable by the Company in accordance with its terms. The parties hereto agree that to the extent that any provision or portion of Section 10 of this Agreement shall be held, found or deemed to be unreasonable, unlawful or unenforceable by a court of competent jurisdiction, then any such provision or portion thereof shall be deemed to be modified to the extent necessary in order that any such provision or portion thereof shall be legally enforceable to the fullest extent permitted by applicable law; and the parties hereto do further agree that any court of competent jurisdiction shall, and the parties hereto do hereby expressly authorize, request and empower any court of competent jurisdiction to, enforce any such provision or portion thereof or to modify any such provision or portion thereof in order that any such provision or portion thereof shall be enforced by such court to the fullest extent permitted by applicable law. 11. WAIVER OF BREACH. The waiver by any party hereto of a breach of any provision of this Agreement will not operate or be construed as a waiver of any subsequent breach by any party. 5 6 12. NOTICES. Any notices, consents, demands, request, approvals and other communications to be given under this Agreement by either party to the other will be deemed to have been duly given if given in writing and personally delivered, faxed or if sent by mail, registered or certified, postage prepaid with return receipt requested, as follows: If to the Company: quepasa.com, inc. One Arizona Center 400 E. Van Buren, Suite 400 Phoenix, AZ 85004 Facsimile: (602) 716-0200 Attention: Chief Executive Officer If to Galan: Juan C. Galan One Arizona Center 400 E. Van Buren, Suite 400 Phoenix, AZ 85004 Facsimile: (602) 716-0200 Notices delivered personally will be deemed communicated as of actual receipt, notices by fax shall be deemed delivered when such notices are faxed to recipient's fax number and notices by mail shall be deemed delivered when mailed. 13. ENTIRE AGREEMENT. This Agreement and the agreements contemplated hereby constitute the entire agreement of the parties regarding the subject matter hereof, and supersede all prior agreements and understanding, both written and oral, among the parties, or any of them, with respect to the subject matter hereof. 14. SEVERABILITY. If any provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future laws effective during this Agreement, such provision will be fully severable and this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision never comprised a part hereof; and the remaining provisions hereof will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable provision, there will be added automatically, as part of this Agreement, a provision as similar in its terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. 15. GOVERNING LAW. To the extent permitted by applicable law, this Agreement and the rights and obligations of the parties will be governed by and construed and enforced exclusively in accordance with the substantive laws (but not the rules governing conflicts of laws) of the State of Arizona and the State of Arizona shall have exclusive jurisdiction regarding any legal actions relating to this Agreement. 6 7 16. CAPTIONS. The captions in this Agreement are for convenience of reference only and will not limit or otherwise affect any of the terms or provisions hereof. 17. GENDER AND NUMBER. When the context requires, the gender of all words used herein will include the masculine, feminine and neuter, and the number of all words will include the singular and plural. 18. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which will be deemed an original and all of which will constitute one and the same instrument. [SIGNATURE PAGE FOLLOWS] 7 8 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. THE COMPANY: quepasa.com, inc., a Nevada corporation By: /s/ Gary L. Trujillo -------------------------------------- Gary L. Trujillo, Chairman/Chief Executive Officer GALAN: /s/ Juan C. Galan -------------------------------------- 8 EX-27.1 3 p64041ex27-1.txt EXHIBIT 27.1 - FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-2000 SEP-30-2000 2,296,752 7,192,470 756,905 299,802 0 16,756,765 2,883,320 1,211,265 35,790,462 895,929 0 0 0 17,763 34,876,770 35,790,462 3,014,807 3,014,807 0 30,232,545 0 0 53,345 (26,314,979) 0 (26,314,979) 0 0 0 (26,314,979) (1.54) (1.54)
EX-99.1 4 p64041ex99-1.txt EX-99.1 1 Exhibit 99.1 Quepasa.com Announces Reduction of Workforce by Approximately Two Thirds and Seeks Sale of Subsidiaries PHOENIX--(BUSINESS WIRE) -- November 14, 2000--Quepasa.com (Nasdaq: PASA), the premier online community for U.S. Hispanics, today announced that the Company has reduced its workforce by approximately two thirds effective immediately as the Company continues to consider its strategic alternatives. As announced earlier this year, the Company has been considering a number of strategic alternatives for quepasa.com, including a sale of the company. The Company is now actively pursuing the sale of one or more of its subsidiaries: Real EstateEspanol.com, Etrato.com and Credito.com. "We have taken these actions in order to conserve our remaining cash. We are committed to continuing to operate the quepasa Web site which has been achieving growth in its metrics. In fact, a recent study by Roslow Research Group ranks quepasa.com third in terms of appeal and visitors, ahead of Espanol.Lycos.com, Terra.com, Yupi.com, StarMedia.com and ElSitio.com." said Gary L. Trujillo, quepasa.com's Chairman and Chief Executive Officer. "We have spent a significant amount of effort and capital over the past 18 months to build a strong market presence, the infrastructure for our Web site and to achieve top-of-mind awareness in the Hispanic community. Ad impressions for the third quarter equaled 190 million, and registered users increased to approximately 568,000 by the end of the third quarter." Quepasa's workforce has been reduced from 58 to 20 employees. The reduction affects all areas of the Company. The Company will take a one time restructuring charge of approximately $730,000 in connection with the workforce reduction in its fourth fiscal quarter, ending December 31, 2000. The announcement comes after the Company announced losses at the end of the third quarter of $7.9 million on revenues of $1.0 million. At September 30, 2000, cash and cash equivalents and liquid securities totaled approximately $9.5 million. About quepasa.com: Quepasa.com provides the rapidly growing U.S. Hispanic market with information and interactive content available in both Spanish and English. The site was founded in 1998 and includes a search engine, free e-mail, Spanish-language news feeds, worldwide weather information, chat rooms, games, maps and message boards. Quepasa.com has entered into strategic alliances with leading providers of media, content and technology including: NetZero, Inc.; Reuters NewMedia, Inc.; Associated Press; Agencia EFE; Hispanic Business Magazine; Internet Wire, Inc.; e-lingo; Inktomi; Egreetings Network, CriticalPath and GTE Internetworking. The statements in this press release regarding future performance and growth are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially. Factors that could cause or contribute to such differences include, but are not limited to, those set forth in quepasa.com's documents filed the Securities and Exchange Commission. -----END PRIVACY-ENHANCED MESSAGE-----