Filed by Bowne Pure Compliance
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
|
|
|
þ |
|
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2007
OR
|
|
|
o |
|
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-33105
QUEPASA CORPORATION
(Name of small business issuer in its charter)
|
|
|
NEVADA
|
|
86-0879433 |
(State or other jurisdiction of
incorporation or organization)
|
|
(IRS Employer
Identification No.) |
7550 E. Redfield Rd.
Scottsdale, AZ 85260
(Address of principal executive offices)
(480) 348-2665
(Issuers telephone number)
Securities registered under Section 12(b) of the Exchange Act:
|
|
|
Title of Each Class
|
|
Name of Each Exchange on Which Registered |
|
|
|
Common Stock, $.001 par value per share
|
|
The NASDAQ Stock Market LLC |
Securities registered under Section 12(g) of the Exchange Act: None.
Check whether the issuer is not required to file reports pursuant to Section 13 or Section 15(d) of
the Exchange Act. o
Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the
Exchange Act during the past 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 þ No o
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B
contained in this form, and no disclosure will be contained, to the best of the registrants
knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-KSB or any amendment to this Form 10-KSB. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act.). Yes o No þ
State issuers revenue for its most recent fiscal year: $219,466.
The aggregate market value of the voting and non-voting common equity held by non-affiliates at
March 27, 2008, computed by reference to the last sale price of $2.66 per share on the NASDAQ
Capital Market, was $33,604,474.
The number of shares outstanding of the issuers common stock as of March 27, 2008, was 12,633,261
shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Quepasa Corporations definitive Proxy Statement relating to its 2008 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Form 10-KSB.
Transitional Small Business Disclosure Format Yes o No þ
Quepasa Corporation
FORM 10-KSB
For the fiscal year ended December 31, 2007
INDEX
2
PART I
Item 1. Description of Business
The Company
In 2007, Quepasa Corporation (the Company) transitioned from being a bilingual search engine
into a bilingual portal and Hispanic social network. With the evolution of the site into a
Hispanic portal and social network, the products and services provided to businesses transitioned
to predominately display advertising. In December of 2007, the Companys portal service was
discontinued. The Company re-launched its Quepasa.com website on February 6, 2008, to be solely a
Hispanic social network with content provided by the user community. The Quepasa.com website
community provides users with access to an expansive, bilingual menu of resources that promote
social interaction, information sharing, and other topics of importance to Hispanic users. We
offer online marketing capabilities, which enable marketers to display their advertisements in
different formats and in different locations on our website. We work with our advertisers to
maximize the effectiveness of their campaigns by optimizing advertisement formats and placement on
the website. We also use our targeting capabilities to help advertisers reach their desired
audiences by placing contextually relevant advertisements on our pages.
We seek to create innovative and high quality Internet services for users and to provide
efficient and effective marketing opportunities for businesses to reach these users. We focus on
increasing our user base and enhancing the user experience on our website to broaden the value of
our user base to advertisers and to increase the revenue from these advertisers. We believe that we
can increase our user base by offering compelling Internet services and effectively integrating
community, personalization, and content to create a powerful user experience. These user
relationships and the social community enable us to leverage our offered forms of online
advertising as well as premium services for users.
While many of our services are free to our users, we intend to generate revenue by providing
marketing services and advertising opportunities to businesses and by establishing paying
relationships with our users for premium services and products. All of our offerings are currently
available in both English and Spanish.
Industry Overview
We believe that the Hispanic market, particularly among 18-34 year olds in the United States,
is an attractive market niche for companies who strive to advertise their brands to that market
segment.
Hispanic growth and concentration: According to the United States Census Bureau and published
sources, the Hispanic population:
|
|
|
totaled 44.3 million, or 14.8% of the total U.S. population, in 2006, an increase of
approximately 25.9% from 35.2 million or 12.5% of the total U.S. population in 2000; |
|
|
|
is expected to grow to 102.6 million, or 24.4% of the total U.S. population, by
2050, an increase of 66.9 million, or 187.4%, between 2000 and 2050; |
|
|
|
is the fastest growing minority group at 3.4% in the U.S. by adding one in every two
people to the US population between 2005 and 2006; and |
|
|
|
is relatively young according to the 2005 U.S. Census; the number of US Hispanics
age 0-24 will rise 25% between 2000 and 2010 as compared to 5.3% for the general
population of the same age group. As of 2006, it has a median age of 27.4, compared to
36.4 for the rest of the population. |
In addition, 15 states have at least 500,000 Hispanic residents and in 22 states Hispanics are the
largest minority, which makes Hispanics in the United States an attractive demographic group for
advertisers, enabling marketers to deliver messages cost effectively to a highly targeted audience
through geographic targeted ad serving.
Hispanic use of the Internet: According to eMarketer, in 2007, Hispanics represented 10% or
18.8 million users of all Internet users in the United States. This group is expected to grow to
11.4% by 2011. From 2001 to 2004, internet usage by Hispanics has increased by 32.9% which is a
faster pace than the general population at 17.9%. eMarketer reports that more than 35% of online
Hispanics were 24 years old or younger, which is a coveted demographic to reach by advertisers.
Forrester Research reports that 54% of Hispanic social networkers are Spanish-preferring over
English.
3
Increasing Hispanic purchasing power: The purchasing power of Hispanic households is rapidly
increasing. A 2005 Selig Center study predicts that Hispanics collective buying power will hit
$923 billion in 2008 and over $1 trillion by 2010. Captura Group and Idiom Technologies anticipates by 2050, the Hispanic population in the
United States could represent a consumer marketplace of between $2.5 and $3.6 trillion. The U.S.
Census Bureau reports that in 2005, 49.5% of all Hispanics own their home.
The MediaAudit reports online shopping has grown at a faster pace for Hispanics than the
general population. Over 38% of Hispanics made at least one purchase online in 2004 as compared to
24.4% in 2001.
Market Opportunity
We are committed to providing a comprehensive set of Internet marketing solutions for
advertisers. We believe there is ongoing growth in the online advertising market and an increasing
shift in advertisers use of online media as audiences shift toward the Internet from traditional
media:
|
|
|
According to eMarketer, U.S. online spending in 2008 will reach $27.5 billion and by
2011 it will increase by 53% to $42.0 billion. The estimated online share of total
U.S. media ad spending will grow from 9.3% in 2008 to 13.3% in 2011; |
|
|
|
eMarketer estimates that by the end of 2007, 38% of all U.S. Internet users or 72
million people, will have used social networking at least once a month. By 2011, half
of all internet users, nearly 105 million people, will use social networking regularly.
In 2008, U.S. Social Network Advertising Spending will continue to grow to an
estimated $1.6 billion and by 2011 is estimated to increase 69% to $2.7 billion; |
|
|
|
ZenithOptimedias December 2007 report, predicts internet advertising to overtake
global radio advertising spending in 2008, to attain double digit share of global
advertising in 2009, and to overtake magazine advertising in 2011, with 11.5% of total
advertising spending representing $60.9 billion dollars; |
|
|
|
According to PriceWaterhouseCoopers, Internet advertising and access spending in
Latin America will increase from $6.0 billion in 2006 to $12.2 billion in 2011; |
|
|
|
GroupM predicts Latin American advertising spending to grow from $14.4 billion in
2006 to $19.3 billion in 2008; and |
|
|
|
ComScore reports that there are 53.6 million users in Latin America as of June 2007. |
We are committed to capitalizing on this shift to Internet advertising and helping our
advertisers create and execute Internet marketing strategies that both encourage our users to
interact with our advertisers brands as well as provide valuable insights into their customer
base.
Although businesses have many online advertising options, we believe that there are only
limited opportunities available to effectively reach the rapidly growing Hispanic online
population. We believe that the traditional advertising agency approach to Hispanic marketing is
too slow and costly to effectively reach this population in light of rapidly evolving online
marketing trends. We believe we are among the first technology companies to develop, deploy, and
promote cost effective, performance-based online marketing solutions for the Spanish language
market. We utilize our continuing research of the Hispanic marketplace and our understanding of
our users and their interests to offer a suite of targeted marketing services for our advertisers
to meet the full range of their needs from brand building, to consumer awareness, direct marketing,
lead generation and commerce services.
In addition, we offer all of our services in both English and Spanish, which we believe
provides great value to advertisers seeking to reach the Hispanic audience. According to published
sources, approximately 90% of Hispanic adults in the United States speak Spanish at home.
Moreover, Hispanics in the United States are expected to continue to speak Spanish because:
|
|
|
Approximately two-thirds were born outside the U.S.; |
|
|
|
Hispanic immigration is continuing; |
|
|
|
Hispanics generally seek to preserve their cultural identity; and |
|
|
|
Hispanic population concentration encourages communication in Spanish. |
4
Products and Services
Products and services for businesses:
In 2007, Quepasa moved away from being a bilingual search engine into a bilingual portal and
Hispanic social network. With the evolution of the site into a Hispanic portal and social network,
the products and services provided to businesses transitioned to predominately display advertising.
In December of 2007, the portal service of Quepasa was discontinued. Quepasa re-launched the site on February 6, 2008, to be solely a Hispanic
social network with content provided by the user community.
We offer online marketing capabilities which enable marketers to display their advertisements
in different formats and in different locations on our website. We work with our advertisers to
maximize the effectiveness of their campaigns by optimizing advertisement formats and placement on
the website. We also use our targeting capabilities to help advertisers reach their desired
audiences by placing contextually relevant advertisements on our pages.
For advertising services, we earn revenue as follows:
|
|
|
Banner advertising, in which we earn revenue when an advertiser purchases
advertising space within our website and impressions are delivered. An impression
is delivered when an advertisement appears on our website pages viewed by users. We
recognize such revenue ratably over the contract period. |
|
|
|
Other types of display advertising earn revenue for Quepasa using various business
models, such as, but not limited to, cost per click, flat fee, and cost per
acquisition. |
|
|
|
We partner with offline properties and provide the online media component to their
sponsorship packages. When the online sponsorship package is sold, Quepasa splits the
revenue with the content provider. |
|
|
|
We will continue to sell the opportunity for marketers to email our registered user
base with a branded message. |
|
|
|
We will also continue to sell the bulletin functionality to advertisers. Bulletins
allow ads to be posted directly to a users profile. |
Products and services for community members: Our offerings to users of our website include
bilingual products and services that promote social interaction, information sharing, and other
topics of high importance to Hispanic users, including blogs, chat, user created communities,
email, bulletins, message boards, news, invites, photos, music and video. We offer services free
of charge to provide them with the opportunity to discover, connect and interact with other users
who share similar interests and ideas.
On February 7, 2007, the Company purchased certain assets of corazones.com. We acquired all
existing registered users, the domains corazones.com and corazonesdemexico.com, the existing
operating system including the interface, administrative and billing systems and the related logos
and trademarks of the associated properties.
In 2008, Quepasa intends to re-launch corazones.com with a fresh design for enhanced user
experience. The site is being re-developed to improve performance and enhance the user experience.
We plan to add additional functionality such as enhanced search, animated messaging/winks, video
chat, revised registration process, and email verification to the site.
The site will move away from a subscription based revenue model to a free adult dating site.
Revenue will be generated from display advertising using the same model as Quepasa.com. In some
cases, advertising on Corazones.com will be sold as a package with advertising on Quepasa.com.
We continue to invest in our technology infrastructure to improve the user experience. We are
updating our hardware and upgrading our data center facilities to improve performance on both
Quepasa.com and Corazones.com.
Sales and Marketing
We sell our marketing services to businesses through direct channels. Our direct advertising
sales team focuses on selling our marketing services and solutions to leading advertising agencies
and marketers in the United States, Mexico and Latin America.
We employ sales professionals in Miami, Florida and Mexico City, Mexico. Our sales
representatives consult regularly with agencies and advertisers on design and placement of online
advertising, and provide customers with measurements and analysis of advertising effectiveness as
well as effective consumer insights that can be turned into marketing campaigns.
With respect to our users, our sales and marketing activities are focused on developing the
Quepasa brand within the Hispanic community in order to gain a competitive advantage that will
enable us to attract, retain, and more deeply engage users and advertisers. We believe that our
ability to obtain and retain users is also related to our ability to provide a fully bilingual
site.
5
Product Development
We continually seek to enhance and expand our existing offerings and develop new offerings to
meet evolving user needs for technological innovation and a deeper, more integrated user
experience. We perform research to address fundamental problems facing users, such as making their
search for information on the Internet easier and more efficient, providing them tools to help
solve their problems, finding new and better ways for them to connect and communicate with family
and friends, and guiding them and their family and friends towards high-quality products, songs,
movies, and other resources. We also help advertisers connect with customers most likely to be
interested in their products, maximizing the advertisers marketing investments and providing a
better overall user experience. Among our recently introduced products are the Quepasa Mobile
Entertainment and Quepasa Market Intelligence services described above. We have developed
internally, acquired or licensed the products and services we offer.
During 2007, we made a number of strategic changes to the Quepasa website including a redesign
of our homepage and site navigation to better align our content delivery to user experience. In
addition, we invested in new hardware and systems to provide increased scalability of our offerings
to our expanding user base.
During
2007 and 2006, we incurred $995,888 and $525,847 in research and
development costs, respectively.
In January 2008, we hired a Chief Technology Officer to lead the development and enhancement
of our new products and services. In addition, the Chief Technology Officer will hire the requisite
personnel to enhance the features and functionality of our website and related properties in order
to meet the increasing demand for the offerings by our users and advertisers.
Intellectual Property
We create, own and maintain a wide array of intellectual property that we believe are valuable
to the Company. Our intellectual property includes patents and patent applications related to our
innovations, products and services; trademarks related to our brands, products and services;
copyrights in software and creative content; trade secrets; and other intellectual property rights
and licenses of various kinds. We seek to protect our intellectual property assets through patent,
copyright, trade secret, trademark and other laws of the United States and other countries of the
world, and through contractual provisions. We enter into confidentiality and invention assignment
agreements with our employees and contractors, and non-disclosure agreements with third parties
with whom we conduct business in order to limit access to, and disclosure of, our proprietary
information.
We consider the Quepasa trademark and our related trademarks to be valuable to the Company and
we have registered these trademarks in the United States and other countries throughout the world
and aggressively seek to protect them. We have licensed in the past, and expect that we may license
in the future, certain of our proprietary rights, such as trademark, patent, copyright and trade
secret rights to third parties.
In February 2007, we acquired the assets of Corazones.com, a leading bi-lingual online dating
website designed for Hispanic users. As a result of the purchase, we acquired all the related
logos and trademarks of the associated properties. Corazones.com offers features to our users that
complement our social network suite of products and services.
Competition
The market for Internet products, services, advertising and commerce is very competitive, and
we expect that competition will continue to intensify. We believe that the principal competitive
factors in these markets are name recognition, distribution arrangements, functionality,
performance, ease of use, the number of value-added services and features, and quality of support.
Our primary competitors are other companies providing portal and online community services,
especially to the Spanish-language Internet users, such as Yahoo!Español, America Online Latin
America, and Terra.com.
In addition, a number of companies offering Internet products and services, including our
direct competitors, recently began integrating multiple features within the products and services
they offer to users. Integration of Internet products and services is occurring through the
development of competing products and by acquisitions of or joint ventures and/or licensing
arrangements with other Internet companies and our competitors.
Many large media companies have developed, or are developing, Internet navigation services to
become gateway sites for web users. As these companies develop such portal or community sites,
we could lose a substantial portion of our user traffic. Further, entities that sponsor or
maintain high-traffic websites or that provide an initial point of entry for Internet viewers, such
as the regional Bell companies or Internet service providers, such as Microsoft and America Online,
currently offer and can be expected to consider further development, acquisition, or licensing of
Internet search and navigation functions. These functions may be competitive with those that we
offer.
6
Most of our existing competitors, as well as new competitors such as Spanish-language media
companies, other portals, communities and Internet industry consolidators, have significantly
greater financial, technical, and marketing resources. Many of our competitors offer Internet
products and services that are superior and achieve greater market acceptance. There can be no
assurance that we will be able to compete successfully against current or future competitors or
that competition will not have a material adverse affect on our business.
Employees
As of March 15, 2008, we employed approximately 63 employees, 51 individuals in Sonora, Mexico
and 12 in the United States none of whom are represented by a labor union. Our future success is
substantially dependent on the performance of our senior management and key technical personnel,
and our continuing ability to attract and retain highly qualified technical and managerial
personnel.
Executive Officers of the Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer or |
Name |
|
Age |
|
Position |
|
Director Since |
John C. Abbot |
|
|
37 |
|
|
Chief Executive Officer |
|
|
2007 |
|
Michael Matte |
|
|
48 |
|
|
Chief Financial Officer |
|
|
2007 |
|
Louis Bardov |
|
|
44 |
|
|
Chief Technology Officer |
|
|
2008 |
|
John C. Abbott has over 15 years of experience in strategic advisory and entrepreneurship.
From 1992 to 2005, Mr. Abbott held several senior positions within JPMorgan Chase Bank, N.A. Since
2005, Mr. Abbott has been an advisor to Altos Hornos de Mexico, S.A.B. de C.V. In addition, over
the past two years, Mr. Abbott has led investor groups and has participated in the executive
committees of two start-up efforts in Brazil, namely Click Filmes (www.clickfilmes.com), Brazils
first hotel video on demand business and Industria de Entretenimento, an entertainment business
that owns the rights to the Pacha brand in Brazil, among others. Mr. Abbott received his A.B. in
History from Stanford University and his MBA from Harvard Business School.
Michael D. Matte has over 16 years of experience operating as Chief Financial Officer. Mr.
Matte was the Chief Financial Officer of Cyberguard Corporation from February 2001 to April 2006
and, from 1998 to 2001, he served as Chief Financial Officer for AmeriJet International. From 1992
to 1998, he served as Chief Financial Officer for InTime Systems International. Prior to serving
as Chief Financial Officer for InTime Systems International, he was a Senior Audit Manager for
PriceWaterhouseCoopers where he was employed from 1981 to 1992. Mr. Matte continues to serve on
the Board of Directors of Iris International, a medical diagnostic company, and has served on its
Board since January 2004. Mr. Matte is a Certified Public Accountant and has a B.S. in Accounting
from Florida State University.
Louis Bardov has over 21 years experience in software development and technology management.
Most recently, Mr. Bardov served as Senior Vice President of Software Development, Customer Care
and Customer Retention at Match.com., having started as Match.coms VP of Internet Development in
2001.
There is no family relationship among any such officers.
Risk Factors
This Annual Report on Form 10-KSB includes forward-looking statements, as that term is
defined in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. All statements, other than statements of historical facts, included or incorporated in
this Form 10-KSB could be deemed forward-looking statements, particularly statements about our
plans, strategies and prospects under the headings Managements Discussion and Analysis or Plan of
Operation and Description of Business. Forward-looking statements are often characterized by the
use of words such as believes, estimates, expects, projects, may, will, intends,
plans, or anticipates, or by discussions of strategy, plans or intentions. All forward-looking
statements in this Form 10-KSB are made based on our current expectations and estimates, and
involve risks, uncertainties and other factors that could cause results or events to differ
materially from those expressed in forward-looking statements.
7
Among these factors are, as discussed more below, our current level of indebtedness and the
restrictions in our subordinated promissory notes, which may make it difficult to obtain additional
financing, our ongoing operating losses, the possibility of liability for information displayed or
accessed via our website and for other commerce related activities, competition in the operation of
our website and in the provision of our information retrieval services, the ability to protect our
intellectual property rights, the ability to retain our executive officers and senior management,
the ability to raise additional capital, changing laws, rules, and regulations, potential liability
for breaches of security on the Internet, dependence on third party databases and computer systems,
competition from traditional media companies, and new technologies that could block our ability to
advertise. Additional factors that could affect our future results or events are described from
time to time in our Securities and Exchange Commission reports. See in particular the description
of risks and uncertainties that is set forth below and similar disclosures in subsequently filed
reports. Readers are cautioned not to place undue reliance on forward-looking statements. We
assume no obligation to update such information.
You should carefully consider the risks and uncertainties described below and other
information in this Form 10-KSB and subsequent reports filed with or furnished to the Securities
and Exchange Commission before making any investment decision with respect to our securities. If
any of the following risks or uncertainties actually occurs or continues, our business, financial
condition or operating results could be materially adversely affected, the trading prices of our
securities could decline, and you could lose all or part of your investment. All forward-looking
statements attributable to us or persons acting on our behalf are expressly qualified in their
entirety by this cautionary statement.
Risks and Uncertainties
Our current level of indebtedness and the restrictions in our subordinated promissory notes may
make it more difficult to obtain additional financing.
As disclosed in the Form 8-K filed on January 25, 2008, we are party to two subordinated
promissory notes for the principal amounts of $5,000,000 and $2,000,000, respectively. These
subordinated promissory notes impose certain restrictions that may affect, among other things, our
ability to incur future debt, sell assets, create liens, make capital expenditures and investments,
merge or consolidate, and otherwise, enter into certain transactions outside the ordinary course of
business. Our ability to comply with these covenants and restrictions may be affected by events
beyond our control. If we are unable to comply with the terms of our subordinated promissory
notes, we may be required to obtain additional financing. If cash flow is insufficient or
additional financing is unavailable because of our high levels of debt and the debt incurrence
restrictions under our subordinated promissory notes, we could default on our subordinated
promissory notes. In the event of a default, the debt holders may accelerate the maturity of our
obligations.
We have incurred ongoing operating losses and cannot assure we will be profitable in the future.
For the years ended December 31, 2007 and 2006, we had revenue of $219,466 and $395,432,
respectively, and incurred net losses of $13,358,499 and $13,606,031, respectively. We are
currently not generating sufficient revenue to reach profitability nor can there be any assurance
that we will generate sufficient revenue in the future to be profitable. Continued losses could
cause us to limit our operations in order to preserve working capital.
We may face liability for information displayed on or accessible via our website, and for other
content and commerce-related activities, which could reduce our net worth and working capital and
increase our operating losses.
Because materials may be downloaded by the services that we operate or facilitate and the
materials may be subsequently 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, which could adversely affect our financial condition. 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.
We may be subjected to claims for defamation, negligence, copyright or trademark infringement
or based on other theories relating to the information we publish on our website. These types of
claims have been brought, sometimes successfully, against marketing and media companies in the
past. We may be subject to liability based on statements made and actions taken as a result of
participation in our chat rooms or as a result of materials posted by members on bulletin boards on
our website. Based on links we provide to third-party websites, we could also be subjected to
claims based upon online content we do not control that is accessible from our website.
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 would reduce our net worth and
working capital and increase our operating losses.
8
Competition in the operation of our website and in the provision of our information retrieval
services could cause us to reduce our prices or increase our marketing costs.
Our websites, Quepasa.com and Corazones.com, compete with a number of other Spanish speaking
websites, including websites offered by large multinational Internet companies such as Yahoo! Inc.
Moreover, we compete with a number of companies that provide information retrieval services, most
of which have operated retrieval services in the market for a longer period, are better known, have
greater financial resources, have established marketing relationships with leading online services
and advertisers, and have secured greater presence in distribution channels. The level of
competition could cause us to reduce our prices or increase our marketing costs, either of which
would reduce our profitability or increase our losses.
If we are unable to protect our intellectual property rights, we may be unable to compete with
competitors developing similar technologies.
Our success and ability to compete are often dependent upon internally developed software
technology that we are developing for our Quepasa.com and Corazones.com websites. While we rely on
copyright, trade secret and trademark law to protect our technology, we believe that factors such
as the technological and creative skills of our personnel, new product developments, frequent
product enhancements and reliable product maintenance are more essential to establishing a
technology leadership position. There can be no assurance that others will not develop
technologies that are similar or superior to our technology. Despite our efforts to protect our
proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our
technology, making it more difficult for us to compete.
The loss of the services of our executive officers and senior management would disrupt our
operations and interfere with our ability to compete.
We depend upon the continued contributions of our executive officers and senior management.
We have employment agreements with these individuals, but do not carry key person life insurance on
any of their lives. The loss of services of any of these individuals could disrupt our operations
and interfere with our ability to compete with others.
If we need and are unable to raise additional capital, we may be unable to maintain our operations.
We may need to raise additional funds in the future through debt or equity financings in order
to remain in business or to expand our operations. We are party to subordinated promissory notes
that impose certain restrictions that may affect, among other things, our ability to incur future
debt, sell assets, create liens, make capital expenditures and investments, merge or consolidate,
and otherwise enter into certain transactions outside the ordinary course of business. If
additional funds are raised through the issuance of equity securities, the percentage ownership of
our then current stockholders will be reduced, and such equity securities may have rights,
preferences or privileges senior to those of the holders of our common stock. There can be no
assurance that additional financing will be available on terms favorable to us, or at all. If
adequate funds are not available or are not available on acceptable terms, we may be unable to
maintain our operations.
Changing laws, rules and regulations and legal uncertainties could increase the regulation of our
business and therefore increase our operating costs.
Unfavorable changes in existing, or the promulgation of new, laws, rules and regulations
applicable to us and our businesses, including those relating to the Internet, online commerce, the
regulation of adware and other downloadable applications, broadband and telephony services,
consumer protection and privacy, including requirements for criminal background checks for
subscribers to online dating services, and sales, use, value-added and other taxes, could decrease
demand for products and services, increase costs and/or subject us to additional liabilities, which
could adversely affect our business. There is, and will likely continue to be, an increasing number
of laws and regulations pertaining to the Internet, online commerce, the neutrality of the Internet
as a network, liability for information retrieved from or transmitted over the Internet, user
privacy, taxation and the quality of products and services, all of which could increase our
operating costs.
We also face risks due to a failure to enforce or legislate existing laws, rules, and
regulations, particularly in the area of network neutrality, where governments might fail to
protect the Internets basic neutrality as to the services and sites that users can access through
the network. Such a failure could limit our ability to innovate and deliver new features and
services, which could harm our business.
There are also legislative proposals pending before the United States Congress and various
state legislative bodies regarding online privacy, data security and regulation of adware and other
downloadable applications, and the continued growth and development of online commerce may continue to prompt calls for more stringent
consumer protection laws, which may impose additional cost and burdens on us and online businesses
generally.
9
In addition, the application of various domestic and international sales, use, value-added and
other tax laws, rules and regulations to our historical and new products and services is subject to
interpretation by the applicable taxing authorities. While we believe that we are generally
compliant with these tax provisions, there can be no assurances that taxing authorities will not
take a contrary position, or that such positions will not increase our tax liability and adversely
affect our business, financial condition and results of operations.
We could face liability for breaches of security on the Internet.
To the extent that our activities or the activities of third-party contractors involve the
storage and transmission of information, such as credit card numbers, social security numbers or
other personal information, security breaches could disrupt our business, damage our reputation and
expose us to a risk of loss or litigation and possible liability. We could be liable for claims
based on unauthorized purchases with credit card information, impersonation or other similar fraud
claims. We could also be liable for claims relating to security breaches under recently-enacted or
future data breach legislation. These claims could result in substantial costs and a diversion of
our managements attention and resources.
We are dependent on third party databases and computer systems.
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 services in a timely manner, which could have
a material adverse affect on our business and results of operations.
We face competition from traditional media companies, and we may not be included in the advertising
budgets of large advertisers, which could harm our operating results.
In addition to Internet companies, we face competition from companies that offer traditional
media advertising opportunities. Most large advertisers have set advertising budgets, a portion of
which is allocated to Internet advertising. We expect that large advertisers will continue to focus
most of their advertising efforts on traditional media. If we fail to convince these companies to
spend a portion of their advertising budgets with us, or if our existing advertisers reduce the
amount they spend on our programs, our operating results would be harmed.
New technologies could block our ads, which would harm our business.
Technologies may be developed that can block the display of our ads. Most of our revenues are
derived from fees paid to us by advertisers in connection with the display of ads on web pages. As
a result, ad-blocking technology could, in the future, adversely affect our operating results.
Item 2. Description of Properties
Our headquarters are located in Scottsdale, Arizona and consists of approximately 15,931
square feet of office space. The lease expires in May 2009. Our data center is operated in Tempe,
Arizona, and our technical operations are provided in leased offices located in Hermosillo, Mexico.
We also lease office space in Mexico City, Mexico for our Mexican based sales personnel. We
believe that our existing facilities are adequate to meet current requirements, and that suitable
additional or substitute space will be available as needed to accommodate any further physical
expansion of operations and for any additional sales offices.
Item 3. Legal Proceedings
From time to time, we are party to certain legal proceedings that arise in the ordinary course
and are incidental to our business. There are currently no such pending proceedings to which we
are a party that our management believes will have a material adverse effect on the Companys
consolidated financial position or results of operations. However, future events or circumstances,
currently unknown to management, will determine whether the resolution of pending or threatened
litigation or claims will ultimately have a material effect on our consolidated financial position,
liquidity or results of operations in any future reporting periods.
Item 4. Submission of Matters to a Vote of Security Holders
None
10
PART II
|
|
|
Item 5. |
|
Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases
of Equity Securities |
Our common stock has been listed on the NASDAQ Capital Market (formerly the NASDAQ SmallCap
Market) under the symbol QPSA since October 24, 2006. For the three years prior to that time,
our common stock was listed on the Over-the-Counter Bulletin Board under the symbol QPSA. The
following table sets forth the high and low sales prices of our common stock for each calendar
quarter indicated:
|
|
|
|
|
|
|
|
|
|
|
Stock Price |
|
|
|
High |
|
|
Low |
|
2007 |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
9.40 |
|
|
$ |
5.65 |
|
Second Quarter |
|
$ |
6.85 |
|
|
$ |
3.83 |
|
Third Quarter |
|
$ |
6.09 |
|
|
$ |
3.87 |
|
Fourth Quarter |
|
$ |
6.00 |
|
|
$ |
1.51 |
|
|
|
|
|
|
|
|
|
|
|
|
Stock Price |
|
|
|
High |
|
|
Low |
|
2006 |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
4.33 |
|
|
$ |
2.55 |
|
Second Quarter |
|
$ |
8.55 |
|
|
$ |
4.08 |
|
Third Quarter |
|
$ |
9.25 |
|
|
$ |
5.40 |
|
Fourth Quarter |
|
$ |
12.45 |
|
|
$ |
7.30 |
|
As of March 27, 2008, we had approximately 633 holders of record of our common stock.
Dividend Policy
We have not paid any cash dividends on our common stock since our inception and we do not
anticipate paying cash dividends in the foreseeable future. Any dividends that we may pay in the
future will be at the discretion of our Board of Directors and will depend on our future earnings,
any applicable regulatory considerations, our financial requirements and other similarly
unpredictable factors. For the foreseeable future, we anticipate that we will retain any earnings
that we may generate from our operations to finance our growth.
Item 6. Managements Discussion and Analysis or Plan of Operation
You should read the following discussion in conjunction with our audited historical consolidated
financial statements, which are included elsewhere in this Form 10-KSB. Managements Discussion and
Analysis or Plan of Operation contains statements that are forward-looking. These statements are
based on current expectations and assumptions, which are subject to risk, uncertainties and other
factors. Actual results may differ materially because of the factors discussed in the subsection
titled Risk Factors, located in Part I, Item 1, of this Form 10-KSB.
Company Overview
In 2007, Quepasa transitioned from being a bilingual search engine into a bilingual portal and
Hispanic social network. With the evolution of the site into a Hispanic portal and social network,
the products and services provided to businesses transitioned to predominately display advertising.
In December 2006, the portal service of Quepasa was discontinued. Quepasa re-launched the site on
February 6, 2008, to be solely a Hispanic social network with content provided by the user
community. Our community provides access to an expansive, bilingual menu of resources that promote
social interaction, information sharing, and other topics of importance to Hispanic users. We
offer online marketing capabilities which enable marketers to display their advertisements in
different formats and in different locations on our website. We work with our advertisers to
maximize the effectiveness of their campaigns by optimizing advertisement formats and placement on
the website. We also use our targeting capabilities to help advertisers reach their desired
audiences by placing contextually relevant advertisements on our pages.
11
We seek to create innovative and high quality Internet services for users and to provide
efficient and effective marketing services for businesses to reach these users. We focus on
increasing our user base and enhancing the user experience on our website to broaden the value of
our user base to advertisers and to increase the revenue from these advertisers. We believe that we
can increase our user base by offering compelling Internet services and effectively integrating
community, personalization, and content to create a powerful user experience. These user
relationships and the social community enable us to leverage our offered forms of online
advertising as well as premium services for users.
While many of our services are free to our users, we intend to generate revenue by providing
marketing services and advertising opportunities to businesses and by establishing paying
relationships with our users for premium services and products. All of our offerings are currently
available in both English and Spanish.
Revenue sources
During 2007 and 2006, our revenue was primarily generated from three principal sources:
revenue earned from performance based insertion of results from our directory and search engine
based on proprietary technologies, revenue earned from the Google AdSense program and the sale of
banner advertising on our website.
Performance-based Revenue. Performance-based revenue, or paid search results, is generated
when an Internet user searches for a keyword and clicks on an advertisers listing on our website.
Performance-based revenue is recognized in the period in which the click-throughs occur.
Click-throughs are defined as the number of times a user clicks on an advertisement or search
result. Performance-based revenue is recognized when there is evidence that the qualifying
transactions have occurred at a set price.
Banner Advertising Revenue. Banner revenue is generated when an advertiser purchases a banner
placement within our Quepasa.com website. We recognize revenue related to banner advertisements
upon delivery.
Google AdSense Revenue. Google AdSense revenue is generated when a Quepasa.com user clicks on
a Google advertiser through either the displayed advertisements associated with content or by
utilizing the Google search feature. We recognize revenue from Google AdSense in the period it is
reported by Google.
Summary
The majority of our revenues correlate to the number and activity level of users on our
website. In 2007 we redesigned and enhanced our website to provide a more relevant and user
friendly experience. We believe that enhancing the user experience leads to a more valuable
experience to both our users and advertisers and provides additional opportunities to introduce
users to our products and services. By providing a more robust community experience while providing
continued new products and services, we seek to become an essential part of our users online
experience. We believe this deeper engagement of new and existing users and our website, coupled
with the growth of the Internet as an advertising medium will increase our revenues in 2008.
Operating Expenses
Our principal operating expenses for 2007 and 2006 consist of the following:
|
|
search services expenses; |
|
|
product and content development expenses; |
|
|
sales and marketing expenses; |
|
|
general and administrative expenses; and |
|
|
depreciation and amortization. |
Search Services Expenses: Our search services expenses consist of payments made to our
affiliates and partners that have either integrated our performance based search services into
their sites or provided traffic to our directory listings. There are generally two economic
structures of the affiliate and partner agreements: fixed payments based on a minimum amount of
traffic delivered and variable payments based on the amount of searches or paid clicks associated
with affiliate or partner traffic.
Product and Content Development Expenses: Product and content development expenses consist of
personnel costs associated with the development, testing and upgrading of our website and systems,
purchases of content and specific technology, particularly our search engine software and
telecommunications access charges.
12
Sales and Marketing Expenses: Sales and marketing expenses consist primarily of salaries,
commissions, and expenses of marketing and sales personnel, and other marketing-related expenses
including our mass media-based branding and advertising.
General and Administrative Expenses: General and administrative expenses consist primarily of
costs related to corporate personnel, occupancy costs, insurance, and professional fees, such as
legal and accounting fees.
Depreciation and Amortization Expenses: Our depreciation and amortization expenses consist
primarily of depreciation related to our property and equipment and amortization of jet rights.
See Note 2 and Note 3 of the accompanying notes to the consolidated financial statements.
Other Income (Expense): Other income (expense) consists primarily of interest earned, net of
interest expense. We have invested our cash in money market funds and interest bearing checking and
saving accounts, including cash and cash equivalents, which are subject to minimal credit and
market risk.
Results of Operations
2007 Compared to 2006
Our results of operations for the years ended December 31, 2007 and 2006 were characterized by
expenses that significantly exceeded revenues during the periods. We reported a net loss of
$13,358,499 for the year ended December 31, 2007, compared to a net loss of $13,606,031 for the
year ended December 31, 2006.
Revenues
We generated $219,466 of revenue in 2007, a decrease of $175,966, or 44%, from $395,432 of
revenue generated in 2006. The decrease in revenue was primarily the result of a shift away from a
performance-based type revenue model to a revenue model geared more towards banner advertising
Secondly, in September 2007, we launched a new beta version of our website, which experienced
technical difficulties and performance issues that adversely affected the amount of traffic
visiting our website. As a result, revenues decreased by 54% in the fourth quarter of 2007
compared to the third quarter of 2007. In October 2007, a new senior management team was put into
place and immediately began to address the performance issues with the website. In February 2008,
the first of many website enhancements was launched. We are hopeful that website traffic will
increase in the second and third quarters of 2008. We believe there will be a direct correlation
between traffic and our ability to increase revenue.
Operating Costs and Expenses
Operating costs and expenses totaled $14,210,331 and $14,196,527 for the years ended December
31, 2007 and 2006, respectively, an increase of less than 1% in 2007. While the total change was
not significant, changes in the categories of cost was important. Non cash stock based
compensation expense was $2,314,344 for the year ended December 31, 2007 versus $9,450,587 for the
year ended December 31, 2006. The decrease of $7,136,243 in stock based compensation expense
consists of a decrease of $8,055,560 due to warrants issued in 2006 for strategic initiatives
offset by increases in 2007 of $919,317 for employee stock options and common stock issued to the
Board of Directors for compensation. Non stock based expenditures were $11,895,987 for the year
ended December 31, 2007 versus $4,745,940 for the year end December 31, 2006, an increase of
$7,150,047 or 151%. The increase is primarily the result of increased spending for technical
consultants, salaries, accounting and legal fees, outside recruiting fees, advertising, and
depreciation. The changes in the categories of costs are important because during 2007
significantly more cash-based expenses were incurred. Although we believe these cash-based
expenses are important, beneficial, and necessary to execute our business, they adversely affect
our liquidity.
Search Services: We did not incur any search services expenses during 2007, which corresponds
to the shift from a performance based revenue model to a banner advertising revenue model in late
2006. Expenses for search services decreased by $210,832, or 100%, from the prior year.
Sales and Marketing: Sales and marketing expenses for the year ended December 31, 2007
increased by $599,028, or 107%, to $1,160,514 from $561,486 for the prior year. The increase of
$599,028 in 2007 was primarily attributed to an increase in salaries of $316,392, an increase in
advertising costs of $237,820, and an increase in stock based compensation expense for sales and
marketing personnel of $48,486. In late 2006, as part of the change in revenue models to focus
more on banner advertising and content ad placements, we began adding sales and marketing personnel
and increased our advertising efforts to drive traffic to our website. Late in the second quarter
of 2007, we discontinued the bulk of our advertising investments once we identified the technical
difficulties with the website and the drop in traffic as previously discussed. In November 2007,
we closed our sales office in New York and significantly reduced our sales personnel. As our website is redesigned and enhancements are added in 2008, we expect to add sales and marketing
personnel and expand our reach to advertisers and users.
13
Product and Content Development: Product and content development expenses for the year ended
December 31, 2007 increased by $3,527,809, or 283%, to $4,773,965 from $1,246,156 for the prior
year. This increase of $3,527,809 in 2007 was attributed to increases in consulting costs of
$1,847,828, salaries for new and existing employees of $946,307, website management and development
costs of $344,294 incurred by Quepasa.com de Mexico, stock based compensation costs for product
development and technology personnel of $198,957, and fees for content on our website of $190,423.
These increases were primarily the result of efforts to redesign and re-launch our website in 2007,
which was released in September 2007. In November 2007, management discontinued the bulk of
technical consulting arrangements, reduced headcount, and re-concentrated our redesign and
development efforts with our Quepasa.com de Mexico personnel. We expect to incur significantly
reduced levels of technical consulting and product development costs in 2008.
General and Administrative: General and administrative expenses for the year ended December
31, 2007 decreased $4,219,793, or 35%, to $7,829,217 from $12,049,010 for the prior year. The
decrease of $4,219,793 in 2007 was primarily attributed to a decrease in non-cash stock based
compensation expense for general and administration personnel of $7,383,691 offset by an increase
of $3,163,893 in overall administrative expenses.
The decrease of $7,383,691 in stock based compensation expense consists of a decrease of
$8,055,560 due to warrants issued in 2006 for strategic initiatives offset by increases in 2007 of
$444,768 for employee stock options and $227,101 for common stock issued to the board of directors
for compensation in 2007.
The increase of $3,163,898 in general and administrative expenses for 2007 compared to the
prior year is primarily attributed to increases in the following areas:
|
|
|
An increase of $1,294,210 for outside professional fees, primarily for accounting
and legal services. As a result of the restatements disclosed in 2007, we incurred an
additional $721,027 for accounting services, $108,186 for filing and reporting
requirements, and $386,082 in legal services. Lastly, we spent $78,915 for consulting
services related to due diligence for potential acquisition targets and human
resources. |
|
|
|
An increase of $1,264,584 for salaries and employee related overhead expenses. As
a result of the increased number of employees and the website re-design efforts in
2007, we incurred $443,903 in additional costs for travel expenses, $430,576 in
additional outside recruiting fees, $390,105 in additional general and administration
salaries and related payroll expenses. |
|
|
|
An increase of $605,104 for Corporate overhead expenses related to an expansion of
the Arizona corporate headquarters in 2007. |
Depreciation and Amortization: Depreciation and amortization expense for the year ended
December 31, 2007 increased $317,592, or 246%, to $446,635 from $129,043 for the prior year. This
increase is attributable to an additional $216,847 for depreciation associated with capital
expenditures in late 2006 and 2007 and $100,745 in amortization expense related to corporate jet
rights received as part the MATT Inc. equity finance agreement in October 2006.
We have purchased and expect to continue purchasing the capital equipment needed to sustain
and build our infrastructure as our user growth and product requirements expand. As a result, we
expect depreciation and amortization expense to increase in 2008 as we invest in additional capital
equipment to support our growth.
Other Income (Expense). Other income (expense) consists primarily of interest income and other
income items, partially offset by interest expense. Other income for the year ended December 31,
2007 increased $437,302 to $632,366 from $195,064 for the year ended December 31, 2006. The
increase in income is primarily attributed to additional interest earned on cash and investments of
$235,080 due to higher average cash and investment balances during 2007 versus 2006 and a gain of
$169,682 realized in 2007 due to the forfeiture of prepaid advertising funds received in prior
years.
Liquidity and Capital Resources
As of and for each of the years ended December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Cash and cash equivalents |
|
$ |
3,673,281 |
|
|
$ |
14,093,811 |
|
|
|
|
|
|
|
|
Percentage of total assets |
|
|
62 |
% |
|
|
88 |
% |
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Net cash used in operating activities |
|
$ |
(10,153,236 |
) |
|
$ |
(3,983,769 |
) |
Net cash used in investing activities |
|
$ |
(817,812 |
) |
|
$ |
(489,065 |
) |
Net cash provided by financing activities |
|
$ |
546,150 |
|
|
$ |
17,117,548 |
|
|
|
|
|
|
|
|
We invest excess cash predominately in liquid marketable securities to support our growing
infrastructure needs for operational expansion.
We have substantial capital resource requirements and have generated significant losses since
inception. At December 31, 2007, we had $3,673,281 in cash and cash equivalents compared to
$14,093,811 at December 31, 2006, resulting in a net decrease in cash and cash equivalents of
10,420,530 for 2007.
The decrease in cash for 2007 was due to substantial increases in operating costs less stock
based compensation expenses, depreciation, and amortization and a reduction in revenues for 2007.
Cash based operating expenses totaled $11,449,352 for 2007, a burn rate of about $954,000 per
month, compared to revenues of $219,466, a rate of about $18,000 per month, resulting in a net cash
burn rate of about $936,000 per month. The net cash burn rate peaked in the third quarter of 2007
at $1,058,000 per month.
In October 2007, a new senior management team was put into place. Along with addressing the
website performance issues, the management team focused their attention on reducing costs while
maintaining the efforts to improve the performance of our websites. In November 2007, the
management team terminated the majority of the consulting arrangements, closed the sales office in
New York, and significantly reduced the headcount at the corporate headquarters in Scottsdale.
Based on the reductions initiated in November 2007, the net cash burn rate for the fourth quarter
dropped to $723,000 per month. We expect a net cash burn rate of approximately $450,000 per month
in the first quarter of 2008.
During 2007, we obtained proceeds of $921,150 from the exercise of common stock options and
warrants less $375,000 paid to Mexicans & Americans Thinking Together Foundation, Inc. (the
Organization), in connection with a private placement in October 2006. During 2006, we obtained
proceeds of $17,112,448 from equity financing agreements and the exercise of common stock options
and warrants less $69,293 paid to the Organization.
In January 2008, we received $6,982,500 in financing through the issuance of subordinated
promissory notes (see Note 10 Subsequent Events of the Consolidated Financial Statements). As a
result of the financing and the reduction of net cash burn rate, we believe that our current cash
balances are sufficient to finance our current level of operations through the next twelve months.
Cash flow changes
Cash used in operating activities is driven by our net loss, adjusted for non-cash items.
Non-cash adjustments include depreciation and amortization, warrants issued for strategic
initiatives, including an executive acquisition and other stock-based compensation expense. Net
cash used in operations was $10,153,236 in 2007 compared to $3,983,769 in 2006. In 2007, net cash
used by operations consisted of a net loss of $13,358,499 offset by non-cash expenses of $446,635
in depreciation and amortization, $2,314,344 related to the issuance of common stock options and
warrants for compensation, and $462,813 due to changes in operating assets and liabilities. In
2006, net cash used by operations consisted of a net loss of $13,606,031 offset by non-cash
expenses of $129,043 in depreciation and amortization, $7,387,979 related to the issuance of
warrants for strategic initiatives, and $2,049,206 related to the issuance of common stock options
and warrants for compensation.
Net cash used in investing activities is primarily attributable to capital expenditures. Our
capital expenditures were $842,787 in 2007 compared to capital expenditures of $521,227 in 2006.
The increase in 2007 was a result of our purchase of computer equipment and furniture to support
our expanding operations.
Net cash provided by financing activities is driven by the exercise of warrants and stock
options and our financing activities related to private placements. In 2007, we received proceeds
from the exercise of common stock and warrants of $921,150 compared to $7,477,384 in 2006. In
2007, we paid $375,000, compared to $69,293 in 2006, to the Organization, in connection with a
private placement in October 2006. In 2006, our cash proceeds from private placements were
$9,635,064, net of related costs of raising capital.
Financing
In July 2006, we received net cash proceeds of $2,870,000 from a warrant exercise related to
the first series of warrants issued in March 2006.
15
In October 2006, we completed a private offering of 1,000,000 shares of our common stock and
warrants to purchase 2,000,000 shares of our common stock to a single accredited investor, Mexicans
& Americans Trading Together, Inc. (the MATT Inc.). The net cash proceeds from this private
offering were $10,000,000 less the costs of raising capital of $364,936.
On November 20, 2006, in connection with the MATT Inc. financing transaction discussed above,
we entered into a Corporate Sponsorship and Management Services Agreement (the CSMSA) with MATT
Inc. and the Organization. The CSMSA provides that we will develop, operate and host the
Organizations website and provide to it all the services necessary to conduct such operations.
During the first three years of the term of the CSMSA, the Organization will reimburse us for its
costs and expenses in providing these services, not to exceed $500,000 per annum. The CSMSA
further provides that we will pay the Organizations operating costs through October 2016
(including certain special event costs commencing in year four), up to a cap of $1.2 million per
annum minus our costs and expenses for providing the services described above. We paid $375,000 to
the Organization during 2007 and $69,293 to the Organization during 2006. In addition, during the
fourth quarter of 2007, we recorded a liability in the amount of $7,250,562 to recognize future
obligations to the Organization under the terms of the CSMA, partially offset by $55,248 due from
the Organization to reimburse us for our costs and expenses incurred maintaining the Organizations
website. See Note 4 and Note 6 of the accompanying notes to the consolidated financial statements.
During 2007 and 2006, we received $921,150 and $4,607,384, respectively, from the exercise of
stock options and warrants.
Capital expenditures
Capital expenditures have generally been comprised of purchases of computer hardware,
software, server equipment, furniture and fixtures. Capital expenditures were $842,787 in 2007,
compared to $521,227 in 2006. We have budgeted additional capital expenditures of approximately
$500,000 for 2008 and are currently negotiating alternative financing arrangements as we continue
to invest in the expansion of our product and services offerings.
Critical Accounting Policies, Judgments and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon
our consolidated financial statements, which have been prepared in accordance with Generally
Accepted Accounting Principles. The preparation of these consolidated financial statements
requires us to make estimates, judgments and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and
liabilities. We base our estimates on historical experience and on various other assumptions that
we believe are reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates.
An accounting policy is considered to be critical if it requires an accounting estimate to be
made based on assumptions about matters that are highly uncertain at the time the estimate is made,
and if different estimates that reasonably could have been used, or changes in the accounting
estimate that are reasonably likely to occur, could materially impact the consolidated financial
statements. We believe that the following critical accounting policies reflect the more significant
estimates and assumptions used in the preparation of the consolidated financial statements.
Management has discussed the development and selection of these critical accounting estimates
with the Audit Committee of our Board of Directors. In addition, there are other items within our
financial statements that require estimation, but are not deemed critical as defined above.
Changes in estimates used in these and other items could have a material impact on our financial
statements.
Stock-Based Compensation Expense
See Note 1 Stock Based Compensation and Note 6 1998 Stock Option Plan in the
consolidated financial statements for additional information.
Recent Accounting Pronouncements
See Note 1 to our consolidated financial statements included in this report for discussion of
recent accounting pronouncements.
16
Item 7. Financial Statements
Table of Contents
|
|
|
|
|
|
|
Page |
|
|
|
|
|
|
|
|
|
F-1 |
|
|
|
|
|
|
|
|
|
F-2 |
|
|
|
|
|
|
Consolidated Financial Statements |
|
|
|
|
|
|
|
|
|
|
|
|
F-3 |
|
|
|
|
|
|
|
|
|
F-4 |
|
|
|
|
|
|
|
|
|
F-5 |
|
|
|
|
|
|
|
|
|
F-6 |
|
|
|
|
|
|
|
|
|
F-8 |
|
|
|
|
|
|
17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Audit Committee, Board of Directors,
and Stockholders of Quepasa Corporation
and Subsidiaries
We have audited the accompanying consolidated balance sheet of Quepasa Corporation and Subsidiaries
(the Company) as of December 31, 2007, and the related consolidated statements of operations,
stockholders equity (deficit) and comprehensive (loss), and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of internal control
over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Quepasa Corporation and Subsidiaries as of December
31, 2007, and the results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of America.
/s/ Berenfeld Spritzer Shechter & Sheer, LLP
Certified Public Accountants
Fort Lauderdale, Florida
March 31, 2008
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Stockholders
Quepasa Corporation and Subsidiaries
We have audited the accompanying
consolidated statements of operations and comprehensive loss, changes in
stockholders’ equity and cash flows of Quepasa Corporation and
Subsidiaries (the “Company”) for the year ended December 31,
2006. These consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated
financial statements referred to above present fairly, in all material
respects, the consolidated results of operations and cash flows of Quepasa
Corporation and Subsidiaries for the year ended December 31, 2006, (as
restated), in conformity with accounting principles generally accepted in the
United States of America.
As discussed in Note 1, the Company
adopted the provisions of Statement of Financial Accounting Standards
No. 123(R), “Share-Based Payment,” on January 1, 2006.
As discussed in Note 8b to the
consolidated financial statements, certain errors resulting in understatement
of previously recognized stock-based compensation expense during 2006, were
discovered by management of the Company during October 2007. Accordingly,
the 2006 consolidated financial statements have been restated to correct the errors.
As discussed in Note 9b to the
consolidated financial statements, there is substantial doubt about the
Company’s ability to continue as a going concern as of October 29, 2007.
/s/ Perelson Weiner LLP
New York, New York
April 17, 2007, except for Notes 8b and 9b to which the date is October 29, 2007
F-2
QUEPASA CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
|
|
|
|
|
|
|
December 31, 2007 |
|
ASSETS |
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
Cash and cash equivalents |
|
$ |
3,673,281 |
|
Accounts receivable trade, net of allowance $15,000 |
|
|
38,306 |
|
Other current assets |
|
|
146,876 |
|
|
|
|
|
Total current assets |
|
|
3,858,463 |
|
Property and equipment net |
|
|
1,023,041 |
|
Jet rights net |
|
|
885,712 |
|
Other assets |
|
|
133,692 |
|
|
|
|
|
Total assets |
|
$ |
5,900,908 |
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
Accounts payable |
|
$ |
887,598 |
|
Accrued expenses |
|
|
306,130 |
|
Unearned grant income |
|
|
65,917 |
|
Current portion of long-term debt |
|
|
1,668,808 |
|
|
|
|
|
Total current liabilities |
|
|
2,928,453 |
|
Long-term debt |
|
|
5,526,506 |
|
|
|
|
|
Total liabilities |
|
|
8,454,959 |
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (Note 5) |
|
|
|
|
STOCKHOLDERS EQUITY (DEFICIT): |
|
|
|
|
Preferred stock, $0.001 par value; authorized 5,000,000 shares;
issued and outstanding none |
|
|
|
|
Common stock, $0.001 par value; authorized 50,000,000 shares;
issued and outstanding 12,284,511 shares |
|
|
12,285 |
|
Additional paid-in capital |
|
|
138,880,462 |
|
Accumulated deficit |
|
|
(141,452,663 |
) |
Accumulated other comprehensive income |
|
|
5,865 |
|
|
|
|
|
Total stockholders equity (deficit) |
|
|
(2,554,051 |
) |
|
|
|
|
Total
liabilities and stockholders equity (deficit) |
|
$ |
5,900,908 |
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
F-3
QUEPASA CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
|
|
|
|
|
2006 |
|
|
|
2007 |
|
|
As Restated |
|
REVENUES |
|
$ |
219,466 |
|
|
$ |
395,432 |
|
|
|
|
|
|
|
|
OPERATING COSTS AND EXPENSES: |
|
|
|
|
|
|
|
|
Search services |
|
|
|
|
|
|
210,832 |
|
Sales and marketing |
|
|
1,160,514 |
|
|
|
561,486 |
|
Product and content development |
|
|
4,773,965 |
|
|
|
1,246,156 |
|
General and administrative |
|
|
7,829,217 |
|
|
|
12,049,010 |
|
Depreciation and amortization |
|
|
446,635 |
|
|
|
129,043 |
|
|
|
|
|
|
|
|
|
|
|
14,210,331 |
|
|
|
14,196,527 |
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS |
|
|
(13,990,865 |
) |
|
|
(13,801,095 |
) |
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
Interest income |
|
|
430,205 |
|
|
|
195,125 |
|
Interest expense |
|
|
(741 |
) |
|
|
(1,871 |
) |
Gain / (loss) on disposal of property and equipment |
|
|
4,638 |
|
|
|
(6,926 |
) |
Other income |
|
|
198,264 |
|
|
|
8,736 |
|
|
|
|
|
|
|
|
TOTAL OTHER INCOME |
|
|
632,366 |
|
|
|
195,064 |
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAXES |
|
|
(13,358,499 |
) |
|
|
(13,606,031 |
) |
Income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS |
|
|
(13,358,499 |
) |
|
|
(13,606,031 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
4,368 |
|
|
|
7,208 |
|
|
|
|
|
|
|
|
TOTAL COMPREHENSIVE LOSS |
|
$ |
(13,354,131 |
) |
|
$ |
(13,598,823 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER COMMON SHARE, BASIC AND DILUTED |
|
$ |
(1.09 |
) |
|
$ |
(1.50 |
) |
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING, BASIC AND
DILUTED |
|
|
12,233,573 |
|
|
|
9,063,947 |
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
F-4
QUEPASA CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders Equity (Deficit)
For the Years Ended December 31, 2007 and 2006 as restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
Total |
|
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Paid-in |
|
|
Accumulated |
|
|
Comprehensive |
|
|
Stockholders' |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Income (loss) |
|
|
Equity |
|
BalanceDecember 31, 2005 |
|
|
|
|
|
$ |
|
|
|
|
7,832,021 |
|
|
$ |
7,832 |
|
|
$ |
115,773,796 |
|
|
$ |
(114,488,133 |
) |
|
$ |
(5,711 |
) |
|
$ |
1,287,784 |
|
Issuance of stock options for compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,381,625 |
|
|
|
|
|
|
|
|
|
|
|
1,381,625 |
|
Issuance of warrants for compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
667,581 |
|
|
|
|
|
|
|
|
|
|
|
667,581 |
|
Issuance of warrants for strategic initiatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,387,979 |
|
|
|
|
|
|
|
|
|
|
|
7,387,979 |
|
Issuance of stock options for professional
services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,402 |
|
|
|
|
|
|
|
|
|
|
|
13,402 |
|
Exercise of stock options |
|
|
|
|
|
|
|
|
|
|
908,500 |
|
|
|
909 |
|
|
|
1,332,441 |
|
|
|
|
|
|
|
|
|
|
|
1,333,350 |
|
Exercise of warrants |
|
|
|
|
|
|
|
|
|
|
1,965,340 |
|
|
|
1,965 |
|
|
|
6,142,069 |
|
|
|
|
|
|
|
|
|
|
|
6,144,034 |
|
Issuance of common stock |
|
|
|
|
|
|
|
|
|
|
1,000,000 |
|
|
|
1,000 |
|
|
|
10,572,216 |
|
|
|
|
|
|
|
|
|
|
|
10,573,216 |
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,208 |
|
|
|
7,208 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,606,031 |
) |
|
|
|
|
|
|
(13,606,031 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BalanceDecember 31, 2006, as restated |
|
|
|
|
|
|
|
|
|
|
11,705,861 |
|
|
|
11,706 |
|
|
|
143,271,109 |
|
|
|
(128,094,164 |
) |
|
|
1,497 |
|
|
|
15,190,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock options for compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,087,243 |
|
|
|
|
|
|
|
|
|
|
|
2,087,243 |
|
Issuance of common stock to directors for
compensation |
|
|
|
|
|
|
|
|
|
|
41,250 |
|
|
|
42 |
|
|
|
227,059 |
|
|
|
|
|
|
|
|
|
|
|
227,101 |
|
Exercise of stock options |
|
|
|
|
|
|
|
|
|
|
531,000 |
|
|
|
531 |
|
|
|
891,819 |
|
|
|
|
|
|
|
|
|
|
|
892,350 |
|
Exercise of warrants |
|
|
|
|
|
|
|
|
|
|
6,400 |
|
|
|
6 |
|
|
|
28,794 |
|
|
|
|
|
|
|
|
|
|
|
28,800 |
|
Commitment
for Corporate Sponsership and Management Services Agreement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,625,562 |
) |
|
|
|
|
|
|
|
|
|
|
(7,625,562 |
) |
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,368 |
|
|
|
4,368 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,358,499 |
) |
|
|
|
|
|
|
(13,358,499 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BalanceDecember 31, 2007 |
|
|
|
|
|
$ |
|
|
|
|
12,284,511 |
|
|
$ |
12,285 |
|
|
$ |
138,880,462 |
|
|
$ |
(141,452,663 |
) |
|
$ |
5,865 |
|
|
$ |
(2,554,051 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
F-5
QUEPASA CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended |
|
|
|
December 31, |
|
|
|
|
|
|
|
2006 |
|
|
|
2007 |
|
|
As Restated |
|
Operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(13,358,499 |
) |
|
$ |
(13,606,031 |
) |
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
446,635 |
|
|
|
129,043 |
|
Issuance of warrants for strategic initiatives |
|
|
|
|
|
|
7,387,979 |
|
Issuance of stock options and warrants for compensation |
|
|
2,087,243 |
|
|
|
2,049,206 |
|
Issuance of common stock to directors for compensation |
|
|
227,101 |
|
|
|
|
|
Issuance of common stock and stock options for professional services |
|
|
|
|
|
|
13,402 |
|
Loss / (Gain) on disposal of property and equipment |
|
|
(4,638 |
) |
|
|
6,926 |
|
Grant income |
|
|
(29,063 |
) |
|
|
(8,201 |
) |
Bad debt expense |
|
|
15,172 |
|
|
|
|
|
Change in assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable trade |
|
|
20,877 |
|
|
|
(22,170 |
) |
Other current assets and other assets |
|
|
51,764 |
|
|
|
(341,694 |
) |
Accounts payable and accrued expenses |
|
|
390,172 |
|
|
|
615,634 |
|
Deferred revenue |
|
|
|
|
|
|
(207,863 |
) |
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(10,153,236 |
) |
|
|
(3,983,769 |
) |
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
Disposal of property and equipment |
|
|
24,975 |
|
|
|
32,162 |
|
Purchase of property and equipment |
|
|
(842,787 |
) |
|
|
(521,227 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(817,812 |
) |
|
|
(489,065 |
) |
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options and warrants |
|
|
921,150 |
|
|
|
7,477,384 |
|
Net proceeds from the issuance of common stock |
|
|
|
|
|
|
9,565,771 |
|
Grant proceeds |
|
|
|
|
|
|
103,181 |
|
Payments on long-term debt |
|
|
(375,000 |
) |
|
|
(28,788 |
) |
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
546,150 |
|
|
|
17,117,548 |
|
|
|
|
|
|
|
|
Cash and cash equivalents prior to effect of foreign currency exchange rate on cash |
|
|
(10,424,898 |
) |
|
|
12,644,714 |
|
Effect of foreign currency exchange rate on cash |
|
|
4,368 |
|
|
|
7,208 |
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(10,420,530 |
) |
|
|
12,651,922 |
|
Cash and cash equivalents at beginning of year |
|
|
14,093,811 |
|
|
|
1,441,889 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
3,673,281 |
|
|
$ |
14,093,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
741 |
|
|
$ |
1,871 |
|
|
|
|
|
|
|
|
Cash paid for income taxes |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
F-6
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
During the year ended December 31, 2007, the Company had the following transactions:
|
|
|
The Company recorded a long-term liability in the amount of $7,195,314 payable to
an Organization, in connection with the financing transaction to raise
capital. See Note 4. |
During the year ended December 31, 2006, the Company had the following transactions:
|
|
|
The Company received jet rights with a fair value of $1,007,445 in connection
with a financing transaction. See Common Stock section of Note 6. |
See accompanying notes to the consolidated financial statements.
F-7
QUEPASA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For The Years Ended December 31, 2007 and 2006
Note 1Description of Business and Summary of Significant Accounting Policies
The Company was incorporated in 1997. In 2007, the Company transitioned from being a
bilingual search engine into a Hispanic social network. With the evolution of the Companys
Quepasa.com website into a Hispanic portal and social network, the products and services provided
to businesses transitioned to predominately display advertising. The Company re-launched its
Quepasa.com website on February 6, 2008, to be solely a Hispanic social network with content
provided by the user community. The Quepasa.com community provides users with access to an
expansive, bilingual menu of resources that promote social interaction, information sharing, and
other topics of importance to Hispanic users. We offer online marketing capabilities which enable
marketers to display their advertisements in different formats and in different locations on our
website. We work with our advertisers to maximize the effectiveness of their campaigns by
optimizing advertisement formats and placement on the website. The Quepasa.com web site is
operated and managed by the Companys majority owned Mexico-based subsidiary, Quepasa.com de
Mexico.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiary, Quepasa.com de Mexico. All intercompany accounts and transactions have been eliminated in
consolidation.
Reclassification
Certain prior year amounts in the consolidated statements of operations and comprehensive loss
and consolidated statements of cash flows have been reclassified to conform to the current years
presentation.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with an original maturity of
three months or less to be cash and cash equivalents. The Company continually monitors its
positions with, and the credit quality of, the financial institutions it invests with. Periodically
throughout the year, the Company has maintained balances in various operating accounts in excess of
federally insured limits. As of December 31, 2007, domestic bank balances exceeded federally
insured limits by approximately $3,580,507.
Accounts Receivable Trade
The Company extends credit on a non-collateralized basis primarily to customers who are
located in the United States. The Company performs periodic credit evaluations of its customers
financial condition as part of its decision to provide credit terms. The Company maintains an
allowance for potential credit losses based on historical experience and other information
available to management. At December 31, 2007 the Company established an allowance of $15,000.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation. The cost of
improvements that extend the life of property and equipment are capitalized. All ordinary repair
and maintenance costs are expensed as incurred. Depreciation is provided using the straight-line
method over the estimated useful lives of the assets as follows:
|
|
|
|
|
Software |
|
2 years |
|
|
|
|
|
Computer equipment |
|
|
3 to 4 years |
|
|
|
|
|
|
Vehicles |
|
|
4 to 5 years |
|
|
|
|
|
|
Office furniture and equipment |
|
|
5 to 10 years |
|
|
|
|
|
|
Other equipment |
|
|
3 to 13 years |
|
F-8
Jet Rights
Jet
rights are stated at the original fair value less accumulated amortization. Amortization is provided
using the straight-line method over the ten year term of the rights. See Common Stock section in
Note 6 and Note 3.
Unearned Grant Income
Unearned grant income represents the unamortized portion of a cash grant received from the
Mexican government for approved capital expenditures. The grant is being recognized into other
income on the accompanying statements of operations on a straight-line basis over the useful lives
of the purchased assets.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from those
estimates.
Foreign Currency
The functional currency of the Companys foreign subsidiaries is the local currency. The
financial statements of these subsidiaries are translated to United States dollars using period-end
rates of exchange for assets and liabilities and average quarterly rates of exchange for revenues
and expenses. Translation gains (losses) are recorded in accumulated other comprehensive income
(loss) as a component of stockholders equity. Net gains and losses resulting from foreign exchange
transactions are included in other income (expense).
Revenue Recognition
The Company recognizes revenue on arrangements in accordance with Securities and Exchange
Commission Staff Accounting Bulletin No. 104, Revenue Recognition, and Emerging Issues Task Force
Issue 00-21, Revenue Arrangements with Multiple Deliverables. In all cases, revenue is recognized
only when the price is fixed or determinable, persuasive evidence of an arrangement exists,
delivery has occurred, and collectability of the resulting receivable is reasonably assured.
Income Taxes
The Company uses the asset and liability method to account for income taxes. Under this
method, deferred income taxes are determined based on the differences between the tax basis of
assets and liabilities and their reported amounts in the consolidated financial statements which
will result in taxable or deductible amounts in future years and are measured using the currently
enacted tax rates and laws. A valuation allowance is provided to reduce net deferred tax assets to
the amount that, based on available evidence, is more likely than not to be realized.
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No.
48, Accounting for Uncertainty in Income Taxesan Interpretation of FASB Statement No. 109 (FIN
48), which clarifies the accounting for uncertainty in income tax positions. This Interpretation
requires that the Company recognize in its financial statements the impact of a tax position if
that position is more likely than not of being sustained upon audit, based on the technical merits
of the position. The provisions of FIN 48 are effective for the Company on January 1, 2007, with
the cumulative effect of the change in accounting principle, if any, recorded as an adjustment to
opening accumulated deficit. The adoption of FIN 48 did not have a material effect on the Companys
consolidated financial position, cash flows, and results of operations.
Advertising Costs
Based on the provisions of Statement of Position 93-7, (SOP 93-7), the Company expenses
advertising costs as incurred. Advertising expense for the years ended December 31, 2007 and 2006
was $504,620 and $266,800, respectively.
Comprehensive Income (Loss)
Comprehensive income (loss) includes all changes in stockholders equity during a period from
non-owner sources. Comprehensive income (loss) for the Company consists of foreign currency
translation adjustments which are added to net loss to compute total comprehensive loss.
Loss per Share
Loss per share is computed by dividing net loss attributable to common stockholders by the
weighted average number of shares of common stock outstanding during the applicable period. Diluted
earnings per share is determined in the same manner as basic earnings per share, except that the
number of shares is increased to include potentially dilutive securities using the treasury stock
method. Since the Company incurred a net loss in all periods presented, all potentially dilutive
securities were excluded from the computation of diluted loss per share since the effect of
including them is anti-dilutive.
F-9
The following table summarizes the number of diluted securities outstanding for each of the
periods presented, but not included in the calculation of diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Stock options |
|
|
4,520,825 |
|
|
|
2,358,075 |
|
Warrants |
|
|
4,432,500 |
|
|
|
4,438,900 |
|
|
|
|
|
|
|
|
Total |
|
|
8,953,325 |
|
|
|
6,796,975 |
|
|
|
|
|
|
|
|
Long-Lived Assets
In accordance with FASB No. 144, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of, the Company reviews its long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of the asset may not
be recovered. For assets which are held and used in operations, the asset is deemed to be impaired
if its carrying value exceeds its estimated undiscounted future cash flows. If such assets are
considered to be impaired, the impairment loss recognized is the amount by which the carrying value
exceeds the fair value of the asset or estimated discounted future cash flows attributable to the
asset. No asset impairment occurred during the years ended December 31, 2007 and 2006.
Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash and cash equivalents, accounts
receivable, accounts payable, and accrued expenses approximate fair value as of December 31, 2007
because of the relatively short maturity of these instruments.
Product and Content Development Costs
Product and content development costs, including costs incurred in the classification and
organization of listings within the Companys website, are charged to expense as incurred.
Software Development Costs
Software development costs incurred in the application development stage of a project are
capitalized in property and equipment. Software development costs incurred in the preliminary
project and post implementation stages of an internal use software project are expensed as
incurred. To date, the Company has not capitalized any software development costs.
Stock-Based Compensation
As permitted under Statement of Financial Accounting Standards (SFAS) No. 123, Accounting
for Stock-Based Compensation (SFAS 123), as amended, until December 31, 2005, the Company
accounted for its stock option plans under the recognition and measurement provisions of APB
Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and related interpretations.
Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No.
123 (revised 2004), Share-Based Payment (SFAS 123(R)), using the modified-prospective
transition method. Since all share-based payments made prior to January 1, 2006 were fully vested,
compensation cost recognized during the year ended December 31, 2007 and 2006 represents the
compensation cost for all share-based payments granted subsequent to January 1, 2006 based upon the
grant-date fair value using the Black-Scholes option pricing model.
The fair values of share-based payments are estimated on the date of grant using the
Black-Scholes option pricing model, based on weighted average assumptions. Expected volatility is
based on historical volatility of the Companys common stock. The Company has elected to use the
simplified method described in Staff Accounting Bulletin 107, Share-Based Payment, to estimate
the expected term of employee stock options. The risk-free rate is based on the U.S. Treasury yield
curve in effect at the time of grant. Compensation expense is recognized on a straight-line basis
over the requisite service period of the award.
The assumptions used in calculating the fair value of stock-based awards represent our best
estimates, but these estimates involve inherent uncertainties and the application of management
judgment. As a result, if factors change and we use different assumptions, our stock-based
compensation expense could be materially different in the future.
Significant Customers
During 2007, two customers comprised 19% and 17% of total revenues. During 2006, three
customers comprised 15%, 12%, and 11% of total revenues.
F-10
Two customers comprised 43% and 28% of total accounts receivable as of December 31, 2007. One
customer comprised 62% of accounts receivable as of December 31, 2006.
Leases
In accordance with SFAS No. 13, the Company performs a review of newly acquired leases to
determine whether a lease should be treated as a capital or operating lease. Capital lease assets
are capitalized and depreciated over the term of the initial lease. A liability equal to the
present value of the aggregated lease payments is recorded utilizing the stated lease interest
rate. If an interest rate is not stated, the Company will determine an estimated cost of capital
and utilize that rate to calculate the present value. If the lease has an increasing rate over
time and/or is an operating lease, all leasehold incentives, rent holidays, or other incentives
will be considered in determining if a deferred rent liability is required. Leasehold incentives
are capitalized and depreciated over the initial term of the lease.
Recent Accounting Pronouncements
In September 2006, FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157), which
defines fair value, establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements. SFAS 157 does not
require any new fair value measurements, but provides guidance on how to measure fair value by
providing a fair value hierarchy used to classify the source of the information. SFAS 157 is
effective for fiscal years beginning after November 15, 2007. However, on February 12, 2008, the
FASB issued FSP FAS 157-2 which delays the effective date of SFAS 157 for all nonfinancial assets
and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually). This FSP partially defers the
effective date of SFAS 157 to fiscal years beginning after November 15, 2008, and interim periods
within those fiscal years for items within the scope of this FSP. Effective for 2008, we will
adopt SFAS 157 except as it applies to those nonfinancial assets and nonfinancial liabilities as
noted in FSP FAS 157-2. The partial adoption of SFAS 157 is not expected to have a material impact
on our consolidated financial position, cash flows, or results of operations.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities Including an Amendment of FASB Statement No. 115 (SFAS 159), which is
effective for fiscal years beginning after November 15, 2007. SFAS 159 permits an entity to choose
to measure many financial instruments and certain other items at fair value at specified election
dates. Subsequent unrealized gains and losses on items for which the fair value option has been
elected will be reported in earnings. The Company is currently evaluating the potential impact, if
any, that SFAS 159 will have on the consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (revised 2007) Business Combinations (FASB
No. 141 (R)). FASB No. 141(R) retains the fundamental requirements of the original pronouncement
requiring that the purchase method be used for all business combinations. FASB No. 141(R) defines
the acquirer as the entity that obtains control of one or more businesses in the business
combination, establishes the acquisition date as the date that the acquirer achieves control and
requires the acquirer to recognize the assets acquired, liabilities assumed and any non-controlling
interest at their fair values as of the acquisition date. FASB 141(R) also requires that
acquisition-related costs be recognized separately from the acquisition. FASB 141(R) is effective
for the Company for fiscal 2010. The Company is currently assessing the impact of FASB 141(R) on
its consolidated financial position and results of operations.
In December 2007, the FASB issued Statement No. 160, Non-controlling Interests in
Consolidated Financial Statements an amendment of ARB No. 51 (FASB No. 160). The objective
of FASB No. 160 is to improve the relevance, comparability, and transparency of the financial
information that a reporting entity provides in its consolidated financial statements by
establishing accounting and reporting standards for the non-controlling interest in a subsidiary
and for the deconsolidation of a subsidiary. FASB No. 160 applies to all entities that prepare
consolidated financial statements, except not-for-profit organizations. FASB No. 160 amends ARB 51
to establish accounting and reporting standards for the non-controlling interest in a subsidiary
and for the deconsolidation of a subsidiary. It also amends certain of ARB 51s consolidation
procedures for consistency with the requirements of FASB No. 141(R).
F-11
FASB No. 160 is effective for
fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008
(that is, January 1, 2009, for entities with calendar year-ends). Earlier adoption is prohibited.
The effective date of FASB No. 160 is the same as that of the related Statement 141(R). FASB No.
160 will be effective for the Companys fiscal 2010. FASB No. 160 shall be applied prospectively
as of the beginning of the fiscal year in which FASB No. 160 is initially applied, except for the
presentation and disclosure requirements. The presentation and disclosure requirements shall be
applied retrospectively for all periods presented.
Note 2Property and Equipment
Property and equipment consist of the following at December 31, 2007:
|
|
|
|
|
Software |
|
$ |
489,449 |
|
Computer equipment |
|
|
1,390,059 |
|
Vehicles |
|
|
20,697 |
|
Office furniture and equipment |
|
|
214,526 |
|
Other equipment |
|
|
10,821 |
|
|
|
|
|
|
|
|
2,125,552 |
|
Less accumulated depreciation |
|
|
(1,102,511 |
) |
|
|
|
|
Property and equipmentnet |
|
$ |
1,023,041 |
|
|
|
|
|
Depreciation expense is $345,890 and $108,055 in 2007 and 2006, respectively.
Note 3Jet Rights
In October 2006, as part of a financing transaction to raise capital, MATT Inc. has agreed to
provide the Company with the use of a corporate jet for up to 25 hours per year through October
2016. The Company has recognized the fair value of the jet rights of $1,007,445 as an asset and an
increase to additional paid-in capital. See Common Stock section in Note 6.
Jet rights consist of the following at December 31, 2007:
|
|
|
|
|
Jet rights
at original fair value |
|
$ |
1,007,445 |
|
Less: accumulated amortization |
|
|
(121,733 |
) |
|
|
|
|
Jet rights, net |
|
$ |
885,712 |
|
|
|
|
|
Amortization expense is $100,745 and $20,988 in 2007 and 2006, respectively.
On January 25, 2008, under the provisions of a Note Purchase Agreement between the Company and
MATT Inc., the Companys rights to the use of a corporate jet for up to 25 hours per year through
October 2016 were terminated. See Note 10 Subsequent events.
Note 4Long-term Debt
Corporate Sponsorship and Management Services Agreement
On November 20, 2006, in connection with a financing transaction, the Company entered into the
CSMSA with MATT Inc. and the Organization. The CSMSA provides that the Company will develop,
operate and host the Organizations website and provide to it all the services necessary to conduct
such operations. During the first three years of the term of the CSMSA, the Organization will
reimburse the Company for its costs and expenses in providing these services, not to exceed
$500,000 per annum. The CSMSA further provides that the Company will pay the Organizations
operating costs through October 2016 (including certain special event costs commencing in year
four), up to a cap of $1,200,000 per annum minus the Companys costs and expenses for providing the
services described above. The Organizations obligations to pay any costs and expenses due to the
Company are guaranteed by MATT Inc. See Common Stock section in Note 6.
F-12
The Company has established a reasonable estimate of the long-term debt based on the present
value calculation of the expected payout of $1,200,000 per year, or $300,000 per quarter, through
October 2016, discounted at a 12% annual rate, which is based on
available borrowing rates. The following table summarizes the long-term debt
calculation as of December 31, 2007 by year:
|
|
|
|
|
|
|
Present Value of |
|
Year Ending December 31: |
|
Expected Payments |
|
Unpaid 2007 Obligations |
|
$ |
520,225 |
|
2008 |
|
|
1,148,583 |
|
2009 |
|
|
1,020,502 |
|
2010 |
|
|
906,702 |
|
2011 |
|
|
805,593 |
|
2012 |
|
|
715,759 |
|
2013 |
|
|
635,943 |
|
2014 |
|
|
565,027 |
|
2015 |
|
|
502,019 |
|
2016 |
|
|
374,961 |
|
|
|
|
|
Total Debt |
|
|
7,195,314 |
|
Less: Current Portion of Debt |
|
|
(1,668,808 |
) |
|
|
|
|
Total Long-term Debt |
|
$ |
5,526,506 |
|
|
|
|
|
Note 5Commitments and Contingencies
Operating Leases
The Company leases its facilities under three non-cancelable operating leases which expire in
2008 and 2009. Rent expense is $409,327 and $179,852 in 2007 and 2006, respectively.
Future minimum lease payments under these leases as of December 31, 2007 are as follows:
|
|
|
|
|
Year Ending December 31: |
|
|
|
|
2008 |
|
$ |
382,214 |
|
2009 |
|
|
132,498 |
|
|
|
|
|
Total |
|
$ |
514,712 |
|
|
|
|
|
Litigation
From time to time, we are party to certain legal proceedings that arise in the ordinary course
and are incidental to our business. There are currently no such pending proceedings to which we
are a party that our management believes will have a material adverse effect on the Companys
consolidated financial position or results of operations. However, future events or circumstances,
currently unknown to management, will determine whether the resolution of pending or threatened
litigation or claims will ultimately have a material effect on our consolidated financial position,
liquidity or results of operations in any future reporting periods.
Employment Contracts
The Company has entered into employment agreements with certain executives. The contractual
obligations related to these agreements amounts to $330,000 per year until employment is
terminated.
Note 6Stockholders Equity
Preferred Stock
The Company is authorized to issue up to 5,000,000 shares of preferred stock, $0.001 par
value. Each share of preferred stock will be issued in a series and shall have the voting rights
and preferences determined at the time of issuance by the Board of Directors. As of December 31,
2007, the Company has no preferred stock outstanding.
Common Stock
In October 2006, the Company entered into a series of transactions with MATT Inc., which
culminated in the issuance of 1,000,000 shares of common stock to MATT Inc. for proceeds of
$10,000,000 pursuant to a private placement of the Companys equity securities, net of a finders
fee of $300,000 paid to a related party, legal fees of $64,936 and
net cash payments of 69,293 to the organization discussed below. In connection with this transaction, MATT Inc. received two warrants to purchase the Companys common stock.
Both warrants expire in October 2016. See Warrants section in Note 6.
F-13
In addition, the Company has agreed to develop, operate, and host a website for the
Organization, which was formed and controlled by MATT Inc., and provide it with all necessary
support services to operate the website through October 2016. The Organization will reimburse the
Company for the cost and expenses it incurs to provide these services during the first three years
of the arrangement up to a maximum of $500,000 per annum. The Company will fund the Organizations
operating costs for the ten year term of the arrangement (including certain special event costs
commencing in year four) up to a maximum of $1,200,000 per annum. For the years ended December 31,
2007 and 2006, respectively, the Company made net cash payments of $375,000 and $69,293 to fund the
operating costs of the Organization. In December 2007, the Company recorded a liability in the
amount of $7,250,562 to recognize our future obligations to the Organization under the terms of the
CSMA, partially offset by $55,248 due from the Organization to reimburse the Company for costs and
expenses incurred maintaining the Organizations website. See Note 4.
MATT Inc. has agreed to provide the Company with the use of a corporate jet for up to 25 hours
per year through October 2016. The Company has recognized the fair value of the jet rights of
$1,007,445 as an asset and an increase to additional paid-in capital.
During 2007, the Company issued 41,250 unrestricted shares of common stock to members of the
Companys Board of Directors pursuant to the 2006 Stock Incentive Plan (see below) as compensation
valued at $227,101 at the time of issuance, which is recorded as stock-based compensation expense
for the year ended December 31, 2007.
As of December 31, 2007, the Company has 8,953,325 shares of common stock reserved for future
issuance with respect to stock options and warrants outstanding.
1998 Stock Option Plan
In October 1998, the Company stockholders adopted and later amended the 1998 Stock Option Plan
(the 1998 Plan), which provides for the granting of options to employees, officers, directors and
consultants. The 1998 Plan permits the granting of incentive stock options meeting the requirements
of Section 422A of the Internal Revenue Code as well as non-qualified stock options. The Company
reserved 6,000,000 shares of common stock to be granted under the 1998 Plan. Incentive stock
options are issuable only to employees, while non-qualified options may be issued to non-employee
directors, consultants and others, as well as to employees.
Stock options granted pursuant to the 1998 Plan may not have an option price that is less than
the fair market value of the Companys common stock on the date of grant. Incentive stock options
granted to significant stockholders must have an exercise price of not less than 110% of the fair
market value of the Companys common stock on the date of grant. Generally, options granted under
the 1998 Plan vest ratably over a three year service period and expire ten years from the date of
the grant (or 90 days after the termination of employment). The Board of Directors of the Company
may modify the exercise price, vesting term and expiration date of the individual grants at their
discretion.
In September 2006, the Board of Directors approved, subject to stockholder approval, the 2006
Stock Incentive Plan (See 2006 Stock Incentive Plan section below). On June 27, 2007, the
stockholders approved the 2006 Stock Incentive Plan. As a result, no new awards will be available
for issuance under the 1998 Plan, effective September 2006.
F-14
A summary of employee stock option activity for the years ended December 31, 2007 and 2006 is
as follows:
Employees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Avg. |
|
|
Remaining |
|
|
|
|
|
|
Avg. |
|
|
Remaining |
|
1998 Plan - Employee |
|
|
|
|
|
Exercise |
|
|
Life |
|
|
|
|
|
|
Exercise |
|
|
Life |
|
Stock Options: |
|
Shares |
|
|
Price |
|
|
(years) |
|
|
Shares |
|
|
Price |
|
|
(years) |
|
Options
outstanding,
beginning of year |
|
|
2,248,075 |
|
|
$ |
2.42 |
|
|
|
|
|
|
|
2,211,375 |
|
|
$ |
1.65 |
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
820,200 |
|
|
|
3.59 |
|
|
|
|
|
Exercised |
|
|
(531,000 |
) |
|
|
1.68 |
|
|
|
|
|
|
|
(758,500 |
) |
|
|
1.48 |
|
|
|
|
|
Expired or forfeited |
|
|
(902,569 |
) |
|
|
2.55 |
|
|
|
|
|
|
|
(25,000 |
) |
|
|
1.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding,
end of year |
|
|
814,506 |
|
|
$ |
2.76 |
|
|
|
0.8 |
|
|
|
2,248,075 |
|
|
$ |
2.42 |
|
|
|
6.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable,
end of year |
|
|
809,506 |
|
|
$ |
2.73 |
|
|
|
0.7 |
|
|
|
1,822,078 |
|
|
$ |
2.04 |
|
|
|
5.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair values of share-based payments are estimated on the date of grant using a
Black-Scholes option pricing model that uses the weighted average assumptions noted in the
following table. Expected volatility is based on historical volatility of the Companys common
stock. The Company has elected to use the simplified method described in Staff Accounting Bulletin
107, Share-Based Payment, to estimate the expected term of employee stock options. The risk-free
rate is based on the U.S. Treasury yield curve in effect at the time of grant.
For the years ended December 31, 2007 and 2006, respectively, the Company recorded $582,561
and $1,381,625 of stock-based compensation expense for stock options granted to employees under the
1998 Plan. The fair value of each employee stock option is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average assumptions for the year
ended December 31, 2006:
|
|
|
|
|
|
|
For the year ended |
|
|
|
December 31, 2006 |
|
|
|
(As Restated) |
|
Risk-free interest rate: |
|
|
4.6 |
% |
Expected term: |
|
5 years |
|
Expected dividend yield: |
|
|
0 |
% |
Expected volatility: |
|
|
170 |
% |
Consultants:
In May 2005, the Company issued stock options under the 1998 Plan to two consultants. The
stock options entitled the consultants to purchase 150,000 and 100,000 shares of common stock at
exercise prices of $1.40 and $1.50 per share, respectively. These stock options vested immediately
and terminate 7 years from the date of the grant. The stock option to purchase 150,000 shares of
common stock was exercised in 2006. The stock option to purchase 100,000 shares of common stock is
still outstanding at December 31, 2007. The fair value of the stock options of $247,447 was
included in general and administrative expenses on the statements of operations for the year ended
December 31, 2005 and was determined using the Black-Scholes option pricing model with the
following assumptions:
|
|
|
|
|
Risk-free interest rate: |
|
|
4.5 |
% |
Expected term: |
|
7 years |
|
Expected dividend yield: |
|
|
0.00 |
% |
Expected volatility: |
|
|
123 |
% |
In July 2006, the Company issued stock options under the 1998 Plan to a consultant. The stock
options entitled the consultant to purchase 10,000 shares of common stock at an exercise price of
$6.25 per share. These stock options vest 50% on each of the first two anniversary dates of the
grant and terminate in ten years. In October 2007, the consultant was terminated. As of the
termination date, 50%, or 5,000 shares, of the stock options were vested, and the consultant has
ninety days to exercise the vested portion of the stock options from the date of termination. The
vested portion of the stock options, 5,000 shares, is still outstanding at December 31, 2007. For
the years ended December 31, 2007 and 2006, respectively, the Company recorded $16,609 and $13,402,
or 50% of the fair value of the stock options, of stock-based compensation expense which has been
classified as product and content development expenses on the accompanying statements of
operations. The fair value of the stock options has been determined using the Black-Scholes option
pricing model with the following assumptions:
|
|
|
|
|
Risk-free interest rate: |
|
|
4.99 |
% |
Expected term: |
|
6 years |
|
Expected dividend yield: |
|
|
0.00 |
% |
Expected volatility: |
|
|
167 |
% |
F-15
Totals for 1998 Plan:
As of December 31, 2007, there are a total of 919,506 stock options outstanding under the 1998
Plan including 814,506 to employees and 105,000 to consultants. As of December 31, 2007, there is
$24,877 in total unrecognized compensation cost related to non-vested employee stock options
granted under the 1998 Plan. That cost is expected to be recognized over a weighted average period
of 7 months.
2006 Stock Incentive Plan
On September 19, 2006, the Board of Directors approved the 2006 Stock Incentive Plan (the
2006 Plan), subject to stockholder approval. On June 27, 2007, the stockholders approved the
2006 Plan, which provides for the granting of incentive stock options, non-qualified stock options,
stock appreciation rights, restricted stock, or stock grant awards to eligible participants. As of
June 27, 2007, all stock options previously granted under the 2006 Plan, subject to stockholder
approval, were outstanding. Pursuant to the terms of the 2006 Plan, the Company may issue up to
3,700,000 shares of common stock plus an additional number of shares of common stock equal to the
number of shares previously granted under the 1998 Stock Option Plan that either terminate, expire,
or lapse after the date of the Board of Directors approval of the 2006 Plan. As of December 31,
2007, there are 855,000 shares of common stock reserved for issuance under the 2006 Plan.
Stock options granted pursuant to the 2006 Plan may not have an option price that is less than
the fair market value of the Companys common stock on the date of grant. Incentive stock options
granted to significant stockholders must have an exercise price of not less than 110% of the fair
market value of the Companys common stock on the date of grant. Generally, options granted under
the 2006 Plan vest ratably over a two or three year service period and expire ten years from the
date of the grant (or immediately upon termination of employment). The Board of Directors of the
Company may modify the exercise price, vesting term and expiration date of the individual grants at
their discretion.
Employees:
A summary of employee stock option activity for the years ended December 31, 2007 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2007 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Avg. |
|
|
Remaining |
|
|
|
|
|
|
|
Exercise |
|
|
Life |
|
2006 Plan Employee Stock Options: |
|
Shares |
|
|
Price |
|
|
(years) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, beginning of year |
|
|
|
|
|
$ |
|
|
|
|
|
|
Granted |
|
|
3,815,319 |
|
|
|
3.91 |
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
Expired or forfeited |
|
|
(215,000 |
) |
|
|
9.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, end of year |
|
|
3,600,319 |
|
|
$ |
3.57 |
|
|
|
9.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, end of year |
|
|
152,000 |
|
|
$ |
10.00 |
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
|
The fair values of share-based payments are estimated on the date of grant using a
Black-Scholes option pricing model that uses the weighted average assumptions noted in the
following tables. Expected volatility is based on historical volatility of the Companys common
stock. The Company has elected to use the simplified method described in Staff Accounting Bulletin
107, Share-Based Payment, to estimate the expected term of employee stock options. The risk-free
rate is based on the U.S. Treasury yield curve in effect at the time of grant.
F-16
Non-Executive Employees:
For the year ended December 31, 2007 the Company granted options to non-executive employees
pursuant to the 2006 Plan to purchase 307,000 shares of common stock at a weighted average exercise
price of $10.00 per share with a weighted average vesting period of 0.9 years. The company
recorded $426,792 of stock-based compensation expense for stock options granted to non-executive
employees for the year ended December 31, 2007. The fair value of each employee stock option is estimated on the date of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions for the year ended December 31, 2007:
|
|
|
|
|
|
|
For the year ended |
|
|
|
December 31, 2007 |
|
Risk-free interest rate: |
|
|
5.0 |
% |
Expected term: |
|
5.5 years |
|
Expected dividend yield: |
|
|
0 |
% |
Expected volatility: |
|
|
157 |
% |
Executive Employees:
For the year ended December 31, 2007 the Company granted options to executive employees
pursuant to the 2006 Plan to purchase 3,508,319 shares of common stock at a weighted average
exercise price of $3.38 per share with a weighted average vesting period of 1.6 years. The Company
recorded $1,072,192 of stock-based compensation expense for stock options granted to executive
employees for the year ended December 31, 2007. The fair value of each employee stock option is
estimated on the date of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions for the year ended December 31, 2007:
|
|
|
|
|
|
|
For the year ended |
|
|
|
December 31, 2007 |
|
Risk-free interest rate: |
|
|
4.0 |
% |
Expected term: |
|
5.8 years |
|
Expected dividend yield: |
|
|
0 |
% |
Expected volatility: |
|
|
153 |
% |
Consultants:
For the year ended December 31, 2007 the Company issued stock options under the 2006 Plan to a
consultant. The stock options entitled the consultant to purchase 1,000 shares of common stock at
an exercise price of $10.00 per share. These stock options vest 50% on each of the first two
anniversary dates of the grant and terminate in ten years. The Company recorded $2,465 of
stock-based compensation expense for stock options granted to the consultant for the year ended
December 31, 2007. The fair value of each employee stock option is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average assumptions for
the year ended December 31, 2007:
|
|
|
|
|
|
|
For the year ended |
|
|
|
December 31, 2007 |
|
Risk-free interest rate: |
|
|
5.0 |
% |
Expected term: |
|
5.5 years |
|
Expected dividend yield: |
|
|
0 |
% |
Expected volatility: |
|
|
156 |
% |
Totals for 2006 Plan:
As of December 31, 2007, there are a total of 3,601,319 stock options outstanding under the
2006 Plan including 3,600,319 to employees and 1,000 to a consultant. As of December 31, 2007,
there is $9,603,268 in total unrecognized compensation cost related to non-vested employee stock
options granted under the 2006 Plan. That cost is expected to be recognized over a weighted average
period of 2.8 years.
Warrants
In February, March and April 2004, the Company issued three warrant packages to purchase
25,000 shares of common stock each at exercise prices of $1.50, $2.00, and $2.50 per share as
compensation for financial advisory services. These warrants were exercised in 2006.
In May 2004, the Company issued a warrant to purchase 125,000 shares of common stock at an
exercise price of $2.00 per share as compensation for general business advisory services. These
warrants were exercised in 2006.
F-17
In September 2004, the Company issued a warrant package to purchase 50,000 shares of common
stock and 10,000 shares of common stock at exercise prices of $2.00 and $2.60 per share,
respectively, as compensation for services in connection with a financing transaction. These
warrants were exercised in 2006.
In September 2004, the Company issued warrants to purchase 250,000 shares of common stock at
an exercise price of $2.00 per share to investors in connection with a financing transaction.
Warrants to purchase 235,000 shares of common stock were exercised in 2005 and the remaining
warrants were exercised in 2006.
In December 2004, the Company issued warrants to purchase 278,000 shares of common stock at an
exercise price of $3.13 per share as compensation for services in connection with a financing
transaction. These warrants were exercised in 2006.
In December 2004, the Company issued warrants to purchase 342,240 shares of common stock at an
exercise price of $4.50 per share to investors in connection with a financing transaction. Warrants
to purchase 335,840 shares of common stock were exercised in 2006. Warrants to purchase 6,400
shares of common stock were exercised in January 2007.
In January 2005, the Company issued warrants to purchase 64,000 shares of common stock at an
exercise price of $4.50 per share to investors in connection with a financing transaction. These
warrants were exercised in 2006. See Common Stock section in Note 6.
In December 2005, the Company issued warrants to purchase 235,000 shares of common stock at an
exercise price of $4.00 per share to investors in exchange for the exercise of warrants to purchase
235,000 shares of common stock which were previously issued to the investors in September 2004.
Warrants to purchase 12,500 shares of common stock were exercised in 2006. Warrants to purchase
222,500 shares of common stock remain outstanding at December 31, 2006 and expire in 2008.
In January 2006, the Company issued warrants to purchase 10,000 shares of common stock at an
exercise price of $4.00 per share to an investor in exchange for the exercise of warrants to
purchase 10,000 shares of common stock which were previously issued to the investor in September
2004. These warrants are still outstanding at December 31, 2006 and expire in 2008.
In March 2006, the Company issued warrants to purchase 200,000 shares of common stock at an
exercise price of $3.55 per share as compensation to its Chief Executive Officer. These warrants
are still outstanding on December 31, 2006 and expire in March 2016. The fair value of these
warrants of $667,581 was determined using the Black-Scholes option pricing model with the
assumptions listed below and recognized in general and administrative expenses on the accompanying
statements of operations.
|
|
|
|
|
Risk-free interest rate: |
|
|
4.68 |
% |
Expected term: |
|
5 years |
|
Expected dividend yield: |
|
|
0.00 |
% |
Expected volatility: |
|
|
163.73 |
% |
During March 2006, the Company issued three series of warrants to purchase 1,000,000 shares of
common stock each at exercise prices of $2.87, $4.00, and $7.00 as compensation for certain
strategic initiatives, including acquiring the services of the Companys Chief Executive Officer.
The first warrant was exercised in 2006. The two remaining warrants are still outstanding at
December 31, 2007 and expire in March 2016. The fair value of these warrants of $7,387,979 was
determined using the Black-Scholes option pricing model with the assumptions listed below and
recognized in general and administrative expenses on the accompanying statements of operations.
|
|
|
|
|
|
|
|
|
|
|
Warrant #1 |
|
|
Warrants #2 and #3 |
|
Risk-free interest rate: |
|
|
4.69 |
% |
|
|
4.68 |
% |
Expected term: |
|
0.25 years |
|
|
5 years |
|
Expected dividend yield: |
|
|
0.00 |
% |
|
|
0.00 |
% |
Expected volatility: |
|
|
53.98 |
% |
|
|
163.73 |
% |
In October 2006, the Company issued two series of warrants to purchase 1,000,000 shares of
common stock each at exercise prices of $12.50 and $15.00 per share to MATT Inc. in connection with
the issuance of common stock. These warrants expire in October 2016 and are still outstanding as of
December 31, 2007. See Common Stock section of Note 6.
F-18
Note 7Income Taxes
The Company did not provide a current or deferred U.S. federal, state or foreign income tax
provision or benefit for any of the periods presented because it has experienced recurring
operating losses. The Company has provided a full valuation allowance on the deferred tax assets,
consisting primarily of the net operating losses, because evidence does not indicate that the
deferred tax assets will more likely than not be realized.
At December 31, 2007, the Company had net operating losses of approximately $93,812,000
related to U.S. federal and state jurisdictions. Utilization of the net operating losses, which
expires at various times starting in 2012 through 2026, may be subject to certain limitations under
Section 382 of the Internal Revenue Code of 1986, as amended, and other limitations under state and
foreign tax laws.
Actual income tax benefit differs from the amount calculated using the Federal statutory tax
rate of 34% as follows:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
U.S. federal income tax at statutory rate |
|
$ |
(4,542,000 |
) |
|
$ |
(4,626,000 |
) |
Nondeductible expenses |
|
|
45,000 |
|
|
|
2,530,000 |
|
Exercise of non-qualified stock options |
|
|
(1,059,000 |
) |
|
|
(1,624,000 |
) |
Change in valuation allowance |
|
|
6,304,000 |
|
|
|
4,562,000 |
|
State tax benefit, net of federal provision (benefit) |
|
|
(753,000 |
) |
|
|
(502,000 |
) |
Other |
|
|
5,000 |
|
|
|
(340,000 |
) |
|
|
|
|
|
|
|
Income tax expense |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
Significant components of the Companys deferred tax assets (liabilities) are approximately as
follows:
|
|
|
|
|
|
|
December 31, |
|
|
|
2007 |
|
Net operating loss |
|
$ |
36,193,000 |
|
Deferred revenue |
|
|
|
|
Property and equipment |
|
|
5,000 |
|
Stock options and warrants |
|
|
1,690,000 |
|
Accrued Professional Fees |
|
|
196,000 |
|
Other |
|
|
20,000 |
|
|
|
|
|
Total deferred tax assets |
|
|
38,104,000 |
|
Valuation allowance |
|
|
(38,104,000 |
) |
|
|
|
|
Net deferred tax assets |
|
$ |
|
|
|
|
|
|
Note 8Related Party Transactions
In October 2006, the Company entered into a series of transactions with MATT Inc. In November
2006, the Companys Board of Directors elected Alonso Ancira, the Chairman of the Board of
Directors of MATT Inc., to the Companys Board of Directors as a non-employee director. See Note 3
Jet Rights, Note 4 Long-term Debt, and Note 6 Common Stock section.
In October 2006, the Company paid a $300,000 finders fee to Lionel Sosa, a member of its Board
of Directors, upon the consummation of the financing transaction with MATT Inc. See Common Stock
section of Note 6.
Lionel Sosa, a member of the Companys Board of Directors, is the Chief Executive Officer of
the Organization, which, pursuant to the terms of the CSMSA, the Company has agreed to support
through October 2016. For the years ended December 31, 2007 and 2006, respectively, the Company
has made net payments of $375,000 and $69,293 to the Organization. In December 2007, the Company
recorded a liability in the amount of $7,250,562 to recognize our future obligations to the
Organization under the terms of the CSMA, partially offset by $55,248 due from the Organization to
reimburse the Company for costs and expenses incurred maintaining the Organizations website. See
Note 4.
In May 2007, the Company entered into a rental agreement with Altos Hornos de Mexico, S.A.B.
de C.V. (AHMSA) for office space in Mexico City. Alonso Ancira, a member of the Companys Board
of Directors, is the Chairman of the Board of Directors of AHMSA. The rental agreement is for a
one year lease, which expires in April 2008. For the year ended December 31, 2007, the Company has
paid $24,000 to AHMSA pursuant to the terms of the rental agreement.
In March 2008, the rental agreement was terminated.
F-19
In January 2008, the Company and MATT Inc. entered into a Note Purchase Agreement to raise
$5,000,000 of financing for the Company. Alonso Ancira, a member of our Board of Directors, is
also the Chairman of the Board of Directors of MATT Inc. and AHMSA. See Note 10 Subsequent
events for details of the transaction.
Note 9Restatements of Previously Issued Financial Statements
April 2007 Restatement:
In April 2007, the Company determined that a restatement of the Companys consolidated
financial statements for the first through the third quarters of 2006 was required. The Company
identified accounting errors related to its accounting for stock options and warrants during 2006.
Upon review of the assumptions applied during 2006, it was determined that certain assumptions
related to the expected terms and volatility rates used in the Black-Scholes option pricing model
were incorrect. Also, the Company restated its interim financial information for the third quarter
of 2006 related to a grant of common stock and stock options to a consultant that was rescinded in
January 2007. These corrections resulted in a charge of $4,871,642, which resulted in an increase
in net loss of $0.58 per share, for the nine months ended September 30, 2006. In addition, the
Company determined that certain reclassifications between operating expense line items on the
consolidated statements of operations were required for the first three quarters of 2006. These
reclassifications had no effect on total operating expenses or net loss in 2006. The restatements
had no effect on the Companys cash flows from operating, investing or financing activities for any
of the quarters in 2006.
October 2007 Restatement:
In October 2007, the Company determined that a restatement of the consolidated financial
statements for the fiscal year ended December 31, 2006 and for the interim periods ended March 31,
2006, June 30, 2006, September 30, 2006, March 31, 2007, and June 30, 2007 was required. Upon
review of the assumptions applied in the Black-Scholes option pricing model for warrants and stock
option awards granted in 2006 and 2007, the Company determined that the expected volatility rates
used in the April 2007 restatement were not annualized rates, resulting in lower expected
volatility rates and under-valued fair values of the stock options granted in 2006 and 2007. In
addition, the Company found minor inconsistencies with the application of the simplified method
described in Staff Accounting Bulletin 107, Share-Based Payment, to estimate the expected term of
employee stock options. As a result of expected volatility errors and minor inconsistencies with
the expected terms, the Company recorded an additional $2,156,547 and $77,440 in non-cash stock
compensation expense in fiscal year ended December 31, 2006 and in the interim six month period
ended June 30, 2007, respectively, causing increases in the Companys net loss per share of $0.24
and $0.00, respectively. The restatements had no effect on the Companys cash flows from
operating, investing or financing activities for the affected periods in 2006 or 2007.
The following table summarizes the effects of the two restatements on the Companys interim
financial information for the three months ended March 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originally |
|
|
April07 |
|
|
October07 |
|
|
|
|
|
|
Reported |
|
|
Restatement |
|
|
Restatement |
|
|
Restated |
|
|
|
(Unaudited) |
|
For the three months ended
March 31, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
$ |
(2,172,554 |
) |
|
$ |
(4,668,568 |
) |
|
$ |
(1,969,821 |
) |
|
$ |
(8,810,943 |
) |
Net Loss |
|
|
(2,164,774 |
) |
|
|
(4,668,568 |
) |
|
|
(1,969,821 |
) |
|
|
(8,803,163 |
) |
Loss per share |
|
|
(0.27 |
) |
|
|
(0.60 |
) |
|
|
(0.25 |
) |
|
|
(1.12 |
) |
The following table summarizes the effects of the two restatements on the Companys interim
financial information for the three and six months ended June 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originally |
|
|
April07 |
|
|
October07 |
|
|
|
|
|
|
Reported |
|
|
Restatement |
|
|
Restatement |
|
|
Restated |
|
|
|
(Unaudited) |
|
For the three months
ended June 30, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
$ |
(890,891 |
) |
|
$ |
(174,899 |
) |
|
$ |
(118,754 |
) |
|
$ |
(1,184,544 |
) |
Net Loss |
|
|
(883,226 |
) |
|
|
(174,899 |
) |
|
|
(118,754 |
) |
|
$ |
(1,176,879 |
) |
Loss per share |
|
|
(0.11 |
) |
|
|
(0.02 |
) |
|
|
(0.01 |
) |
|
|
(0.14 |
) |
F-20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originally |
|
|
April'07 |
|
|
October'07 |
|
|
|
|
|
|
Reported |
|
|
Restatement |
|
|
Restatement |
|
|
Restated |
|
|
|
(Unaudited) |
|
For the six months
ended June 30,
2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
$ |
(3,063,445 |
) |
|
$ |
(4,843,467 |
) |
|
$ |
(2,088,575 |
) |
|
$ |
(9,995,487 |
) |
Net Loss |
|
|
(3,048,000 |
) |
|
|
(4,843,467 |
) |
|
|
(2,088,575 |
) |
|
$ |
(9,980,042 |
) |
Loss per share |
|
|
(0.38 |
) |
|
|
(0.60 |
) |
|
|
(0.26 |
) |
|
|
(1.24 |
) |
The following table summarizes the effects of the two restatements on the Companys interim
financial information for the three and nine months ended September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originally |
|
|
April'07 |
|
|
October'07 |
|
|
|
|
|
|
Reported |
|
|
Restatement |
|
|
Restatement |
|
|
Restated |
|
|
|
(Unaudited) |
|
For the three
months ended
September 30, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
$ |
(1,324,134 |
) |
|
$ |
(28,175 |
) |
|
$ |
(57,046 |
) |
|
$ |
(1,409,355 |
) |
Net Loss |
|
|
(1,297,301 |
) |
|
|
(28,175 |
) |
|
|
(57,046 |
) |
|
|
(1,382,522 |
) |
Loss per share |
|
|
(0.14 |
) |
|
|
|
|
|
|
(0.01 |
) |
|
|
(0.15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months
ended September 30,
2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
$ |
(4,387,579 |
) |
|
$ |
(4,871,642 |
) |
|
$ |
(2,145,621 |
) |
|
$ |
(11,404,842 |
) |
Net Loss |
|
|
(4,345,301 |
) |
|
|
(4,871,642 |
) |
|
|
(2,145,621 |
) |
|
$ |
(11,362,564 |
) |
Loss per share |
|
|
(0.51 |
) |
|
|
(0.58 |
) |
|
|
(0.25 |
) |
|
|
(1.34 |
) |
The following table summarizes the effects of the two restatements on the Companys financial
information for the year ended December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originally |
|
|
April'07 |
|
|
October'07 |
|
|
|
|
|
|
Reported |
|
|
Restatement |
|
|
Restatement |
|
|
Restated |
|
|
|
(Audited) |
|
For the year ended
December 31, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
$ |
(11,644,548 |
) |
|
$ |
|
|
|
$ |
(2,156,547 |
) |
|
$ |
(13,801,095 |
) |
Net Loss |
|
|
(11,449,484 |
) |
|
|
|
|
|
|
(2,156,547 |
) |
|
$ |
(13,606,031 |
) |
Loss per share |
|
|
(1.26 |
) |
|
|
|
|
|
|
(0.24 |
) |
|
|
(1.50 |
) |
The following table summarizes the effects of the two restatements on the Companys interim
financial information for the three months ended March 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originally |
|
|
April'07 |
|
|
October'07 |
|
|
|
|
|
|
Reported |
|
|
Restatement |
|
|
Restatement |
|
|
Restated |
|
|
|
(Unaudited) |
|
For the three
months ended March
31, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
$ |
(3,332,838 |
) |
|
$ |
|
|
|
$ |
(49,267 |
) |
|
$ |
(3,382,105 |
) |
Net Loss |
|
|
(3,155,744 |
) |
|
|
|
|
|
|
(49,267 |
) |
|
$ |
(3,205,011 |
) |
Loss per share |
|
|
(0.26 |
) |
|
|
|
|
|
|
(0.00 |
) |
|
|
(0.26 |
) |
F-21
The following table summarizes the effects of the two restatements on the Companys interim
financial information for the three and six months ended June 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originally |
|
|
April'07 |
|
|
October'07 |
|
|
|
|
|
|
Reported |
|
|
Restatement |
|
|
Restatement |
|
|
Restated |
|
|
|
(Unaudited) |
|
For the three
months ended June
30, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
$ |
(3,775,573 |
) |
|
$ |
|
|
|
$ |
(28,173 |
) |
|
$ |
(3,803,746 |
) |
Net Loss |
|
|
(3,643,157 |
) |
|
|
|
|
|
|
(28,173 |
) |
|
$ |
(3,671,330 |
) |
Loss per share |
|
|
(0.30 |
) |
|
|
|
|
|
|
(0.00 |
) |
|
|
(0.30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months
ended June 30,
2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
$ |
(7,108,411 |
) |
|
$ |
|
|
|
$ |
(77,440 |
) |
|
$ |
(7,185,851 |
) |
Net Loss |
|
|
(6,798,901 |
) |
|
|
|
|
|
|
(77,440 |
) |
|
$ |
(6,876,341 |
) |
Loss per share |
|
|
(0.56 |
) |
|
|
|
|
|
|
(0.00 |
) |
|
|
(0.56 |
) |
The following table summarizes the effects of the two restatements and the reclassifications
on the Companys operating costs and expenses for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product and |
|
|
|
|
|
|
Depreciation |
|
|
|
|
|
|
Search |
|
|
Sales and |
|
|
Content |
|
|
General and |
|
|
and |
|
|
|
|
|
|
Services |
|
|
Marketing |
|
|
Development |
|
|
Administrative |
|
|
Amortization |
|
|
Total |
|
|
|
(Unaudited) |
|
For the three months ended March 31,
2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originally reported |
|
$ |
118,152 |
|
|
$ |
24,232 |
|
|
$ |
41,809 |
|
|
$ |
2,131,377 |
|
|
$ |
21,549 |
|
|
$ |
2,337,119 |
|
April07 restatement |
|
|
|
|
|
|
|
|
|
|
34,407 |
|
|
|
4,634,161 |
|
|
|
|
|
|
|
4,668,568 |
|
April07 reclassifications |
|
|
|
|
|
|
26,438 |
|
|
|
105,761 |
|
|
|
(132,199 |
) |
|
|
|
|
|
|
|
|
October07 restatement |
|
|
|
|
|
|
|
|
|
|
8,888 |
|
|
|
1,960,933 |
|
|
|
|
|
|
|
1,969,821 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated |
|
$ |
118,152 |
|
|
$ |
50,670 |
|
|
$ |
190,865 |
|
|
$ |
8,594,272 |
|
|
$ |
21,549 |
|
|
$ |
8,975,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30,
2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originally reported |
|
$ |
47,178 |
|
|
$ |
33,686 |
|
|
$ |
76,562 |
|
|
$ |
797,152 |
|
|
$ |
20,220 |
|
|
$ |
974,798 |
|
April07 restatement |
|
|
|
|
|
|
|
|
|
|
38,036 |
|
|
|
136,863 |
|
|
|
|
|
|
|
174,899 |
|
April07 reclassifications |
|
|
|
|
|
|
55,308 |
|
|
|
116,433 |
|
|
|
(171,741 |
) |
|
|
|
|
|
|
|
|
October07 restatement |
|
|
|
|
|
|
|
|
|
|
9,578 |
|
|
|
109,176 |
|
|
|
|
|
|
|
118,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated |
|
$ |
47,178 |
|
|
$ |
88,994 |
|
|
$ |
240,609 |
|
|
$ |
871,450 |
|
|
$ |
20,220 |
|
|
$ |
1,268,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originally reported |
|
$ |
165,330 |
|
|
$ |
57,918 |
|
|
$ |
118,371 |
|
|
$ |
2,928,529 |
|
|
$ |
41,769 |
|
|
$ |
3,311,917 |
|
April07 restatement |
|
|
|
|
|
|
|
|
|
|
72,443 |
|
|
|
4,771,024 |
|
|
|
|
|
|
|
4,843,467 |
|
April07 reclassifications |
|
|
|
|
|
|
81,746 |
|
|
|
222,194 |
|
|
|
(303,940 |
) |
|
|
|
|
|
|
|
|
October07 restatement |
|
|
|
|
|
|
|
|
|
|
18,466 |
|
|
|
2,070,109 |
|
|
|
|
|
|
|
2,088,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated |
|
$ |
165,330 |
|
|
$ |
139,664 |
|
|
$ |
431,474 |
|
|
$ |
9,465,722 |
|
|
$ |
41,769 |
|
|
$ |
10,243,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September
30, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originally reported |
|
$ |
34,812 |
|
|
$ |
46,252 |
|
|
$ |
101,474 |
|
|
$ |
1,171,395 |
|
|
$ |
23,914 |
|
|
$ |
1,377,847 |
|
April07 restatement |
|
|
|
|
|
|
15,743 |
|
|
|
13,946 |
|
|
|
(1,514 |
) |
|
|
|
|
|
|
28,175 |
|
April07 reclassifications |
|
|
|
|
|
|
103,312 |
|
|
|
174,661 |
|
|
|
(277,973 |
) |
|
|
|
|
|
|
|
|
October07 restatement |
|
|
|
|
|
|
2,500 |
|
|
|
2,478 |
|
|
|
52,068 |
|
|
|
|
|
|
|
57,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated |
|
$ |
34,812 |
|
|
$ |
167,807 |
|
|
$ |
292,559 |
|
|
$ |
943,976 |
|
|
$ |
23,914 |
|
|
$ |
1,463,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product and |
|
|
|
|
|
|
Depreciation |
|
|
|
|
|
|
Search |
|
|
Sales and |
|
|
Content |
|
|
General and |
|
|
and |
|
|
|
|
|
|
Services |
|
|
Marketing |
|
|
Development |
|
|
Administrative |
|
|
Amortization |
|
|
Total |
|
|
|
(Unaudited) |
|
For the nine months ended September
30, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originally reported |
|
$ |
200,142 |
|
|
$ |
104,170 |
|
|
$ |
219,845 |
|
|
$ |
4,099,924 |
|
|
$ |
65,683 |
|
|
$ |
4,689,764 |
|
April07 restatement |
|
|
|
|
|
|
15,743 |
|
|
|
86,389 |
|
|
|
4,769,510 |
|
|
|
|
|
|
|
4,871,642 |
|
April07 reclassifications |
|
|
|
|
|
|
185,058 |
|
|
|
396,855 |
|
|
|
(581,913 |
) |
|
|
|
|
|
|
|
|
October07 restatement |
|
|
|
|
|
|
2,500 |
|
|
|
20,944 |
|
|
|
2,122,177 |
|
|
|
|
|
|
|
2,145,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated |
|
$ |
200,142 |
|
|
$ |
307,471 |
|
|
$ |
724,033 |
|
|
$ |
10,409,698 |
|
|
$ |
65,683 |
|
|
$ |
11,707,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Audited)
|
For the year ended December 31, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originally reported |
|
$ |
210,832 |
|
|
$ |
555,073 |
|
|
$ |
1,221,505 |
|
|
$ |
9,923,527 |
|
|
$ |
129,043 |
|
|
$ |
12,039,980 |
|
April07 restatement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April07 reclassifications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October07 restatement |
|
|
|
|
|
|
6,413 |
|
|
|
24,651 |
|
|
|
2,125,483 |
|
|
|
|
|
|
|
2,156,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated |
|
$ |
210,832 |
|
|
$ |
561,486 |
|
|
$ |
1,246,156 |
|
|
$ |
12,049,010 |
|
|
$ |
129,043 |
|
|
$ |
14,196,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31,
2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originally reported |
|
$ |
|
|
|
$ |
490,781 |
|
|
$ |
993,637 |
|
|
$ |
1,808,299 |
|
|
$ |
92,603 |
|
|
$ |
3,385,320 |
|
April07 restatement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April07 reclassifications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October07 restatement |
|
|
|
|
|
|
3,361 |
|
|
|
3,173 |
|
|
|
42,733 |
|
|
|
|
|
|
|
49,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated |
|
$ |
|
|
|
$ |
494,142 |
|
|
$ |
996,810 |
|
|
$ |
1,851,032 |
|
|
$ |
92,603 |
|
|
$ |
3,434,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30,
2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originally reported |
|
$ |
|
|
|
$ |
314,772 |
|
|
$ |
1,339,238 |
|
|
$ |
2,091,165 |
|
|
$ |
103,658 |
|
|
$ |
3,848,833 |
|
April07 restatement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April07 reclassifications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October07 restatement |
|
|
|
|
|
|
3,761 |
|
|
|
3,900 |
|
|
|
20,512 |
|
|
|
|
|
|
|
28,173 |
|
October07 reclassifications |
|
|
|
|
|
|
32,599 |
|
|
|
(130,500 |
) |
|
|
97,901 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated |
|
$ |
|
|
|
$ |
351,132 |
|
|
$ |
1,212,638 |
|
|
$ |
2,209,578 |
|
|
$ |
103,658 |
|
|
$ |
3,877,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originally reported |
|
$ |
|
|
|
$ |
805,553 |
|
|
$ |
2,332,875 |
|
|
$ |
3,899,464 |
|
|
$ |
196,261 |
|
|
$ |
7,234,153 |
|
April07 restatement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April07 reclassifications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October07 restatement |
|
|
|
|
|
|
7,122 |
|
|
|
7,073 |
|
|
|
63,245 |
|
|
|
|
|
|
|
77,440 |
|
October07 reclassifications |
|
|
|
|
|
|
32,599 |
|
|
|
(130,500 |
) |
|
|
97,901 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated |
|
$ |
|
|
|
$ |
845,274 |
|
|
$ |
2,209,448 |
|
|
$ |
4,060,610 |
|
|
$ |
196,261 |
|
|
$ |
7,311,593 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-23
The following table summarizes the effects of the two restatements on the Companys
stockholders equity for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other |
|
|
Total |
|
|
|
Preferred |
|
|
Common |
|
|
Additional |
|
|
Accumulated |
|
|
Comprehensive |
|
|
Stockholders' |
|
|
|
Stock |
|
|
Stock |
|
|
Paid-in Capital |
|
|
Deficit |
|
|
Income (Loss) |
|
|
Equity |
|
|
|
(Unaudited) |
|
As of March 31, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originally Reported |
|
$ |
|
|
|
$ |
8,082 |
|
|
$ |
117,899,635 |
|
|
$ |
(116,652,907 |
) |
|
$ |
(11,413 |
) |
|
$ |
1,243,397 |
|
April07 Restatement |
|
|
|
|
|
|
|
|
|
|
4,668,568 |
|
|
|
(4,668,568 |
) |
|
|
|
|
|
|
|
|
October07 Restatement |
|
|
|
|
|
|
|
|
|
|
1,969,821 |
|
|
|
(1,969,821 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated |
|
$ |
|
|
|
$ |
8,082 |
|
|
$ |
124,538,024 |
|
|
$ |
(123,291,296 |
) |
|
$ |
(11,413 |
) |
|
$ |
1,243,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originally Reported |
|
$ |
|
|
|
$ |
8,520 |
|
|
$ |
118,683,701 |
|
|
$ |
(117,536,133 |
) |
|
$ |
(23,972 |
) |
|
$ |
1,132,116 |
|
April07 Restatement |
|
|
|
|
|
|
|
|
|
|
4,843,467 |
|
|
|
(4,843,467 |
) |
|
|
|
|
|
|
|
|
October07 Restatement |
|
|
|
|
|
|
|
|
|
|
2,088,575 |
|
|
|
(2,088,575 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated |
|
$ |
|
|
|
$ |
8,520 |
|
|
$ |
125,615,743 |
|
|
$ |
(124,468,175 |
) |
|
$ |
(23,972 |
) |
|
$ |
1,132,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originally Reported |
|
$ |
|
|
|
$ |
9,754 |
|
|
$ |
122,626,287 |
|
|
$ |
(118,833,434 |
) |
|
$ |
(13,544 |
) |
|
$ |
3,789,063 |
|
April07 Restatement |
|
|
|
|
|
|
(10 |
) |
|
|
4,871,652 |
|
|
|
(4,871,642 |
) |
|
|
|
|
|
|
|
|
October07 Restatement |
|
|
|
|
|
|
|
|
|
|
2,145,621 |
|
|
|
(2,145,621 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated |
|
$ |
|
|
|
$ |
9,744 |
|
|
$ |
129,643,560 |
|
|
$ |
(125,850,697 |
) |
|
$ |
(13,544 |
) |
|
$ |
3,789,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Audited)
|
As of December 31, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originally Reported |
|
$ |
|
|
|
$ |
11,706 |
|
|
$ |
141,114,562 |
|
|
$ |
(125,937,617 |
) |
|
$ |
1,497 |
|
|
$ |
15,190,148 |
|
April07 Restatement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October07 Restatement |
|
|
|
|
|
|
|
|
|
|
2,156,547 |
|
|
|
(2,156,547 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated |
|
$ |
|
|
|
$ |
11,706 |
|
|
$ |
143,271,109 |
|
|
$ |
(128,094,164 |
) |
|
$ |
1,497 |
|
|
$ |
15,190,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
As of March 31, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originally Reported |
|
$ |
|
|
|
$ |
12,231 |
|
|
$ |
142,270,210 |
|
|
$ |
(129,093,361 |
) |
|
$ |
10,060 |
|
|
$ |
13,199,140 |
|
Roll-forward of fiscal year
2006 restatement |
|
|
|
|
|
|
|
|
|
|
2,156,547 |
|
|
|
(2,156,547 |
) |
|
|
|
|
|
|
|
|
April07 Restatement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October07 Restatement |
|
|
|
|
|
|
|
|
|
|
49,267 |
|
|
|
(49,267 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated |
|
$ |
|
|
|
$ |
12,231 |
|
|
$ |
144,476,024 |
|
|
$ |
(131,299,175 |
) |
|
$ |
10,060 |
|
|
$ |
13,199,140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originally Reported |
|
$ |
|
|
|
$ |
12,271 |
|
|
$ |
143,053,292 |
|
|
$ |
(132,736,518 |
) |
|
$ |
1,533 |
|
|
$ |
10,330,578 |
|
Roll-forward of fiscal year
2006 restatement |
|
|
|
|
|
|
|
|
|
|
2,156,547 |
|
|
|
(2,156,547 |
) |
|
|
|
|
|
|
|
|
April07 Restatement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October07 Restatement |
|
|
|
|
|
|
|
|
|
|
77,440 |
|
|
|
(77,540 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated |
|
$ |
|
|
|
$ |
12,271 |
|
|
$ |
145,287,279 |
|
|
$ |
(134,970,505 |
) |
|
$ |
1,533 |
|
|
$ |
10,330,578 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
Note 10Subsequent Events
On January 9, 2008, the Company issued a $300,000 Multiple Advance Promissory Note (the BRC
Note) to BRC Group, LLC (BRC). BRC owns La Alianza de Futbol Hispano (La Alianza), an
organization involved in the support and development of amateur Hispanic soccer in the United
States. The Company and BRC agreed to the terms of the BRC Note with the understanding that the
Company and BRC would work towards finalizing an agreement, which would provide for, among other
things, the Company becoming the official social networking sponsor for La Alianza.
On January 10, 2008, the Company advanced $300,000 to BRC under the terms of the BRC Note.
On March 27, 2008, the Company entered into a Loan Agreement with BRC for a maximum amount of
$600,000. Among other things, pursuant to the terms of the Loan Agreement: (i) the $300,000
advanced by the Company pursuant to the BRC Note becomes advancement under the terms of the Loan
Agreement; (ii) the Company will advance BRC an additional $50,000 on April 1, 2008; and (iii) the
Company will advance BRC an additional $250,000 on September 1, 2008. BRC executed a promissory
note on March 27, 2008, in favor of the Company and agreed to repay all advancements made by the
Company under the Loan Agreement by January 8, 2011.
In addition, also on March 27, 2008, and in connection with the Loan Agreement, the Company
entered into an Equity Interests Purchase Warrant, a Right of Purchase and Right of First Refusal
Agreement, and a Website Development and Hosting Agreement with BRC. Pursuant to the terms and
conditions of these agreements the Company will: (i) become an official sponsor of the 2008 La
Alianza soccer tournament; (ii) retain the online rights to the La Alianza soccer tournament for a
period of three years; (iii) host and develop the La Alianza website; (iv) build the La Alianze
community within the Quepasa.com website; and (v) share equally with BRC in the advertising
revenues generated from the La Alianza website.
The foregoing descriptions of the Loan Agreement, Right of First Refusal, Webpage Development
and Hosting Agreement, Promissory Note, and Equity Interests Purchase Warrant do not purport to be
complete. For an understanding of their terms and provisions, reference should be made to the
agreements attached hereto as Exhibits 10.35, 10.36, 10.37, 10.38, and 10.39, respectively.
On January 18, 2008, the Board of Directors of the Company approved a Consulting Agreement
with Jeffrey Valdez and Valdez Productions, Inc. (Valdez Productions). The Consulting Agreement
is effective October 24, 2007, and the initial term will end on October 24, 2008. Prior to the end
of the initial term , upon 30 days written notice, either Valdez Productions or the Company may
terminate the Consulting Agreement without cause. After the initial term, the Consulting Agreement
will automatically renew for successive 3 month periods unless a party provides 30 days written
notice of its desire to terminate the Consulting Agreement, in which case the Consulting Agreement
will expire 30 days from the date such notice is received. Pursuant to the terms of the Consulting
Agreement, Valdez Productions will provide certain consulting services in the areas of web based
programming content, marketing, branding, and any other services mutually agreed to among the
parties. In exchange for the services rendered under the Consulting Agreement, the Company will
pay Valdez Productions $8,333 per month for the term of the agreement. In addition, the Company
will grant Valdez Productions options to purchase 210,000 shares of the Companys common stock at
an exercise price of $2.49 per share (which was the closing price of the Companys common stock on
January 18, 2008). One third of such options will vest on October 24, 2008, and the remaining
options will vest in 24 equal monthly installments over the following two years. However, the
options become fully vested in the event the Consulting Agreement is terminated without cause.
On January 25, 2008, the Company and MATT Inc. entered into a Note Purchase Agreement (the
MATT Agreement). Pursuant to the terms of the MATT Agreement: (i) MATT Inc. purchased a
$5,000,000 subordinated promissory note from the Company (the MATT Note); (ii) the exercise price
of MATT Inc.s outstanding Series 1 Warrant to purchase 1,000,000 shares of the Companys common
stock was reduced from $12.50 per share to $2.75 per share; (iii) the exercise price of MATT Inc.s outstanding Series 2 Warrant to purchase 1,000,000 shares of the
Companys common stock was reduced from $15.00 per share to $2.75 per share; and (iv) the Amended
and Restated Support Agreement between the Company and MATT Inc. was terminated, which terminates
MATT Inc.s obligation to provide the Company with the use of a corporate jet for up to 25 hours
per year through October 2016. See Note 4.
On January 25, 2008, the Company and Richard L. Scott Investments, LLC (RSI) entered into a
Note Purchase Agreement (the RSI Agreement). Pursuant to the terms of the RSI Agreement: (i)
RSI purchased a $2,000,000 subordinated promissory note from the Company (the RSI Note); (ii) the
exercise price of RSIs outstanding Series 2 Warrant to purchase 500,000 shares of the Companys
common stock was reduced from $4.00 per share to $2.75 per share; and (iii) the exercise price of
RSIs outstanding Series 3 Warrant to purchase 500,000 shares of the Companys common stock was
reduced from $7.00 per share to $2.75 per share.
Effective May 1, 2008, the Company terminated its future lease obligations of $344,495,
relating to one of its operating leases for office space in Scottsdale, Arizona. Under the terms
of the Lease Termination Agreement, the Company must pay $64,261 to the Lessor and forfeit the
security deposit in the amount of $44,703.
F-25
Item 8. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
None
Item 8A. Controls and Procedures
Disclosure Controls and Procedures
Management is responsible for establishing and maintaining adequate internal control over
financial reporting of the Company. Internal control over financial reporting is a process
designed by, or under the supervision of, our chief executive and chief financial officers and
effected by our board of directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principals.
Limitations on the Effectiveness of Controls
A control system, no matter how well designed and operated, can provide only reasonable, not
absolute, assurance that the control systems objectives will be met. The Companys management,
including its Chief Executive Officer and its Chief Financial Officer, do not expect that the
Companys disclosure controls will prevent or detect all errors and all fraud. Further, the design
of a control system must reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the Company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that breakdowns can
occur because of simple error or mistake. Controls can also be circumvented by the individual acts
of some persons, by collusion of two or more people, or by management override of the controls. The
design of any system of controls is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions. Over time, controls may become inadequate because of
changes in conditions or deterioration in the degree of compliance with associated policies or
procedures. Because of the inherent limitations in a cost-effective control system, misstatements
due to error or fraud may occur and not be detected.
Managements Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as defined in Exchange Act Rule 13a-15(f). Our internal control over financial
reporting is designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles.
Under the supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of
our internal control over financial reporting based on the framework established by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO) as set forth in Internal Control -
Integrated Framework. Based on our evaluation under the framework in Internal Control
Integrated Framework, our management concluded that our internal control over financial reporting
was not effective as of December 31, 2007.
This annual report does not include an audit or attestation report of our registered public
accounting firm regarding our internal control over financial reporting. Our managements report
was not subject to audit or attestation by our registered public accounting firm pursuant to
temporary rules of the SEC that permit us to provide only managements report in this annual
report.
18
Remediation of Weaknesses
During the financial reporting process for the fiscal year end December 31, 2007, certain
weaknesses in the Companys internal control over financial reporting were identified, including
inadequate documentation of policies, procedures, and internal controls; weaknesses in information
technology controls and procedures; a lack of sufficient accounting personnel and expertise to
address the Companys expanding and increasingly complex financial reporting needs; and incorrect
accounting treatment of certain expenses and equity issuances.
The Company is addressing these identified weaknesses. Among other things, the Company has
hired additional and more experienced accounting and finance staff to bolster the Companys
internal capabilities and expertise; recently hiring a Chief Technology Officer, a new Chief
Financial officer, VP of Finance, and an outside consultant to address information technology
controls and procedures; increased oversight of the Companys operations in Mexico; improving the
Companys technology related to its business and operations; and undertaking to systemically
resolve such weaknesses in consultation with its independent auditor.
Management has augmented its internal accounting resources by using external resources in
connection with its review and completion of the financial reporting process for the fiscal year
ended December 31, 2007. Management believes that there are no material inaccuracies or omissions
of material fact and, to the best of its knowledge, believes that the consolidated financial
statements for the year ended December 31, 2007, fairly present in all material respects the
financial condition and results of operations for the Company in conformity with accounting
principles generally accepted in the United States of America.
Changes in Internal Control over Financial Reporting
Except
for the weaknesses and remediations identified above, there was no change in our internal control over financial reporting (as such term is defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) during our fourth fiscal quarter that has materially
affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
Item 8B. Other Information.
On January 9, 2008, the Company issued a $300,000 Multiple Advance Promissory Note (the BRC
Note) to BRC Group, LLC (BRC). BRC owns La Alianza de Futbol Hispano (La Alianza), an
organization involved in the support and development of amateur Hispanic soccer in the United
States. The Company and BRC agreed to the terms of the BRC Note with the understanding that the
Company and BRC would work towards finalizing an agreement, which would provide for, among other
things, the Company becoming the official social networking sponsor for La Alianza.
On January 10, 2008, the Company advanced $300,000 to BRC under the terms of the BRC Note.
On March 27, 2008, the Company entered into a Loan Agreement with BRC for a maximum amount of
$600,000. Among other things, pursuant to the terms of the Loan Agreement: (i) the $300,000
advanced by the Company pursuant to the BRC Note becomes advancement under the terms of the Loan
Agreement; (ii) the Company will advance BRC an additional $50,000 on April 1, 2008; and (iii) the
Company will advance BRC an additional $250,000 on September 1, 2008. BRC executed a promissory
note on March 27, 2008, in favor of the Company and agreed to repay all advancements made by the
Company under the Loan Agreement by January 8, 2011.
In addition, also on March 27, 2008, and in connection with the Loan Agreement, the Company
entered into an Equity Interests Purchase Warrant, a Right of Purchase and Right of First Refusal
Agreement, and a Website Development and Hosting Agreement with BRC. Pursuant to the terms and
conditions of these agreements the Company will: (i) become an official sponsor of the 2008 La
Alianza soccer tournament; (ii) retain the online rights to the La Alianza soccer tournament for a
period of three years; (iii) host and develop the La Alianza website; (iv) build the La Alianze
community within the Quepasa.com website; and (v) share equally with BRC in the advertising
revenues generated from the La Alianza website.
The foregoing descriptions of the Loan Agreement, Right of First Refusal, Webpage Development
and Hosting Agreement, Promissory Note, and Equity Interests Purchase Warrant do not purport to be
complete. For an understanding of their terms and provisions, reference should be made to the
agreements attached hereto as Exhibits 10.35, 10.36, 10.37, 10.38, and 10.39, respectively.
19
The foregoing description of the lease termination agreement does not purport to be complete.
For an understanding of its terms and provisions, reference should be made to the lease termination
agreement attached hereto as Exhibit 10.40.
On March 27, 2008, the Compensation Committee of the Companys Board of Directors approved
amendments to the Employment Agreements with John C. Abbott, the Companys Chief Executive Officer
(the Abbott Amendment) and Michael D. Matte, the Companys Chief Financial Officer (the Matte
Amendment and together with the Abbott Amendment, the Amendments)). The Abbott Amendment and
Matte Amendment are both effective March 27, 2008, and are attached hereto as Exhibits 10.18 and
10.21, respectively, and are incorporated by reference herein.
The Amendments amend their Employment Agreements to provide that, following a change of
control (as defined in their Employment Agreements), all of their stock options granted pursuant to
the Employment Agreements shall vest immediately and they will have the right to exercise these
stock options for a period of two years after their termination. The Amendments further amend the
Employment Agreements to bring them in compliance with Section 409A of the Internal Revenue code.
All other terms and conditions in their Employment Agreements remain unchanged.
The foregoing descriptions of the Amendments do not purport to be complete. For an
understanding of their terms and provisions, reference should be made to the Abbott Amendment and
the Matte Amendment attached hereto as Exhibits 10.18 and 10.21, respectively.
20
PART III
|
|
|
Item 9. |
|
Directors, Executive Officers, Promoters, Control Persons and Corporate Governance;
Compliance with Section 16(a) of the Exchange Act. |
The information under the subheading Executive Officers of the Company in Part I, Item I of
this Form 10-KSB is incorporated by reference into this section. Otherwise, except as set forth
herein, the information required by this item is incorporated by reference from the Companys Proxy
Statement for its 2008 Annual Meeting of Stockholders to be filed with the SEC within 120 days
after the end of the fiscal year ended December 31, 2007.
Item 10. Executive Compensation.
The information required by this item is incorporated by reference to the Companys Proxy
Statement for its 2008 Annual Meeting of Stockholders to be filed with the SEC within 120 days
after the end of the fiscal year ended December 31, 2007.
Item 11. Security Ownership of Certain Beneficial Owners and Management And Related Stockholder Matters.
Except as set forth herein, the information required by this item is incorporated by reference
from the Companys Proxy Statement for its 2008 Annual Meeting of Stockholders to be filed with the
SEC within 120 days after the end of the fiscal year ended December 31, 2007.
Disclosure with Respect to the Companys Equity Compensation Plans as of December 31, 2007
The following table summarizes the options, warrants and securities available for issuance
under our equity compensation plans as of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities remaining |
|
|
|
Number of securities to |
|
|
Weighted-average |
|
|
available for future issuance |
|
|
|
be issued upon exercise |
|
|
exercise price of |
|
|
under equity compensation |
|
|
|
of outstanding options, |
|
|
outstanding options, |
|
|
plans (excluding securities |
|
|
|
warrants and rights |
|
|
warrants and rights |
|
|
reflected in column (a)) |
|
Plan Category |
|
(a) |
|
|
(b) |
|
|
(c) |
|
Equity compensation
plans approved by
security holders
(1) |
|
|
4,520,825 |
|
|
$ |
3.38 |
|
|
|
855,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
2006 Stock Incentive Plan |
Item 12. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item is incorporated by reference to the Companys Proxy
Statement for its 2008 Annual Meeting of Stockholders to be filed with the SEC within 120 days
after the end of the fiscal year ended December 31, 2007.
Item 13. Exhibits.
See Exhibit Index
Item 14. Principal Accountant Fees and Services.
The information required by this item is incorporated by reference to the Companys Proxy
Statement for its 2008 Annual Meeting of Stockholders to be filed with the SEC within 120 days
after the end of the fiscal year ended December 31, 2007.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
Quepasa Corporation
|
|
|
/s/ John C. Abbott
|
|
|
John C. Abbott |
|
|
Chief Executive Officer |
|
|
21
Power of Attorney
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Jerry Yang and Blake Jorgensen, his/her attorneys-in-fact, each with the power of
substitution, for him/her in any and all capacities, to sign any amendments to this Report on Form
10-K and to file the same, with Exhibits thereto and other documents in connection therewith with
the Securities and Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or substitute or substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated:
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ John C. Abbott
John C. Abbott
|
|
Chief Executive Officer and Director
|
|
March 31, 2008 |
|
|
|
|
|
/s/ Michael D. Matte
Michael D. Matte
|
|
Chief Financial Officer (Principal Accounting Officer)
and Executive Vice President
|
|
March 31, 2008 |
|
|
|
|
|
/s/ Jeffrey Valdez
Jeffrey Valdez
|
|
Chairman of the Board of Directors
|
|
March 31, 2008 |
|
|
|
|
|
/s/ Alonso Ancira
Alonso Ancira
|
|
Director
|
|
March 31, 2008 |
|
|
|
|
|
/s/ Ernesto Cruz
Ernesto Cruz
|
|
Director
|
|
March 31, 2008 |
|
|
|
|
|
/s/ Malcolm Jozoff
Malcolm Jozoff
|
|
Director
|
|
March 31, 2008 |
|
|
|
|
|
/s/ Lionel Sosa
Lionel Sosa
|
|
Director
|
|
March 31, 2008 |
|
|
|
|
|
/s/ Dr. Jill Syverson-Stork
Dr. Jill Syverson-Stork
|
|
Director
|
|
March 31, 2008 |
22
Exhibit Index
|
|
|
Exhibit No. |
|
Description of Exhibit |
3.1
|
|
Certificates of Restated Articles of Incorporation (1) |
3.2
|
|
Amended and Restated Bylaws (2) |
4.1
|
|
Specimen Common Stock Certificate (3) |
10.1
|
|
Securities Purchase Agreement dated October 17, 2006 by and between Quepasa Corporation and
Mexicans and Americans Trading Together, Inc. (4) |
10.2
|
|
Series 1 Common Stock Purchase Warrant dated October 17, 2006 by and between Quepasa
Corporation and Mexicans and Americans Trading Together, Inc. (4) |
10.3
|
|
Series 2 Common Stock Purchase Warrant dated October 17, 2006 by and between Quepasa
Corporation and Mexicans and Americans Trading Together, Inc. (4) |
10.4
|
|
Registration Rights Agreement dated October 17, 2006 by and between Quepasa Corporation and
Mexicans and Americans Trading Together, Inc. (4) |
10.5
|
|
Amended and Restated Support Agreement dated November 20, 2006 and effective October 17, 2006
by and between Quepasa Corporation and Mexicans and Americans Trading Together, Inc. (5) |
10.6
|
|
Corporate Sponsorship and Management Services Agreement dated November 20, 2006 and effective
October 17, 2006 by and between Quepasa Corporation and Mexicans and Americans Trading
Together, Inc. (5) |
10.8
|
|
Warrant Purchase Agreement dated March 21, 2006 by and between Quepasa Corporation, Richard
L. Scott Investments, LLC and F. Stephen Allen (6) |
10.9
|
|
Series 1 Common Stock Purchase Warrant dated March 21, 2006 by and between Quepasa
Corporation and Richard L. Scott Investments, LLC. (7) |
10.10
|
|
Series 1 Common Stock Purchase Warrant dated March 21, 2006 by and between Quepasa
Corporation and F. Stephen Allen (7) |
10.11
|
|
Series 2 Common Stock Purchase Warrant dated March 21, 2006 by and between Quepasa
Corporation and Richard L. Scott Investments, LLC (7) |
10.12
|
|
Series 2 Common Stock Purchase Warrant dated March 21, 2006 by and between Quepasa
Corporation and F. Stephen Allen (7) |
10.13
|
|
Series 3 Common Stock Purchase Warrant dated March 21, 2006 by and between Quepasa
Corporation and Richard L. Scott Investments, LLC (7) |
10.14
|
|
Series 3 Common Stock Purchase Warrant dated March 21, 2006 by and between Quepasa
Corporation and F. Stephen Allen (7) |
10.15
|
|
Registration Rights Agreement dated March 21, 2006 by and between Quepasa Corporation,
Richard L. Scott Investments, LLC, and F. Stephen Allen (7) |
***10.16
|
|
Amended and Restated 1998 Stock Option Plan (8) |
***10.17
|
|
Employment Agreement with John C. Abbott dated October 25, 2007 (9) |
*10.18
|
|
Amendment to the Employment Agreement with John C. Abbott dated March 27, 2008 |
10.19
|
|
Separation Agreement and General Release with Robert B. Stearns dated October 25, 2007 (9) |
***10.20
|
|
Employment Agreement with Michael D. Matte dated October 25, 2007 (9) |
*10.21
|
|
Amendment to the Employment Agreement with Michael D. Matte dated March 27, 2008 |
***10.22
|
|
Quepasa Corporation 2006 Stock Incentive Plan (2) |
***10.23
|
|
Quepasa Corporation Form of 2006 Stock Incentive Plan Non-Qualified Stock Option Agreement (2) |
***10.24
|
|
Quepasa Corporation Form of 2006 Stock Incentive Plan Incentive Stock Option Agreement (2) |
***10.25
|
|
Quepasa Corporation Executive Incentive Plan (10) |
10.26
|
|
Note Purchase Agreement dated January 25, 2008 by and between Quepasa Corporation and
Mexicans & Americans Trading Together, Inc. (11) |
10.27
|
|
Note Purchase Agreement dated January 25, 2008 by and between Quepasa Corporation and Richard
L. Scott Investments, LLC (11) |
10.28
|
|
Amendment No. 1 to Series 1 Common Stock Purchase Warrant dated January 25, 2008 by and
between Quepasa Corporation and Mexicans & Americans Trading Together, Inc. (11) |
23
|
|
|
Exhibit No. |
|
Description of Exhibit |
10.29
|
|
Amendment No. 1 to Series 2 Common Stock Purchase Warrant dated January 25, 2008 by and
between Quepasa Corporation and Mexicans & Americans Trading Together, Inc. (11) |
10.30
|
|
Amendment No. 1 to Series 2 Common Stock Purchase Warrant dated January 25, 2008 by and
between Quepasa Corporation and Richard L. Scott Investments, LLC (11) |
10.31
|
|
Amendment No. 1 to Series 3 Common Stock Purchase Warrant dated January 25, 2008 by and
between Quepasa Corporation and Richard L. Scott Investments, LLC (11) |
10.32
|
|
Subordinated Promissory Note dated January 25, 2008 by and between Quepasa Corporation and
Mexicans & Americans Trading Together, Inc. (11) |
10.33
|
|
Subordinated Promissory Note dated January 25, 2008 by and between Quepasa Corporation and
Richard L. Scott Investments, LLC (11) |
*10.34
|
|
Consulting Agreement with Jeffrey Valdez dated March 27, 2008 |
*10.35
|
|
Loan Agreement dated March 27, 2008 by and between Quepasa Corporation and BRC Group, LLC. |
*10.36
|
|
Right of First Refusal dated March 27, 2008 by and between Quepasa Corporation and BRC Group,
LLC. |
*10.37
|
|
Webpage Development and Hosting Agreement dated March 27, 2008 by and between Quepasa
Corporation and BRC Group, LLC. |
*10.38
|
|
Promissory Note dated March 27, 2008 by BRC Group, LLC. |
*10.39
|
|
Equity Interests Purchase Warrant dated March 27, 2008 by and between Quepasa Corporation and
BRC Group, LLC. |
*10.40
|
|
Lease termination Agreement dated March 10, 2008 by and between Quepasa Corporation and
Airpark Billorado, LLC |
*21.1
|
|
Subsidiaries of the small business issuer |
*23.1 |
|
Consent of Berenfeld, Spritzer,
Shechter & Sheer, LLP |
*23.2 |
|
Consent of Perelson Weiner LLP |
*24.1
|
|
Power of Attorney (See Signatures page) |
*31.1
|
|
Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of
the Securities Exchange Act, as amended |
*31.2
|
|
Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of
the Securities Exchange Act, as amended |
**32.1
|
|
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
**32.2
|
|
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
* |
|
Filed herewith |
|
** |
|
Furnished herewith |
|
*** |
|
Indicates management compensatory contract, plan or arrangement |
|
(1) |
|
Incorporated by reference to the Registrants Quarterly Report on Form 10-QSB as filed
with the Commission on August 15, 2007. |
|
(2) |
|
Incorporated by reference to the Registrants Current Report on Form 8-K as filed with
the Commission on July 3, 2007. |
|
(3) |
|
Incorporated by reference to the Registrants Registration Statement on Form 8-A12G as
filed with the Commission on March 16, 1999. |
|
(4) |
|
Incorporated by reference to the Registrants Current Report on Form 8-K as filed with
the Commission on October 19, 2006. |
|
(5) |
|
Incorporated by reference to the Registrants Current Report on Form 8-K as filed with
the Commission on November 27, 2006. |
|
(6) |
|
Incorporated by reference to the Registrants Current Report on Form 8-K as filed with
the Commission on March 22, 2006. |
|
(7) |
|
Incorporated by reference to the Registrants Registration Statement on Form SB-2 as
filed with the Commission on January 30, 2007. |
|
(8) |
|
Incorporated by reference to the Registrants Registration Statement on Form S-1 as filed
with the Commission on April 29, 1999. |
|
(9) |
|
Incorporated by reference to the Registrants Current Report on Form 8-K as filed with
the Commission on October 30, 2007. |
|
(10) |
|
Incorporated by reference to the Registrants Registrants Current Report on Form 8-K as
filed with the Commission on January 25, 2008. |
|
(11) |
|
Incorporated by reference to the Registrants Registrants Current Report on Form 8-K as
filed with the Commission on January 30, 2008. |
Copies of any of the exhibits referred to above will be furnished at no cost to stockholders
who make a written request therefore to Michael D. Matte, Quepasa Corporation, 7550 E. Redfield
Rd. Scottsdale, Arizona 85034.
24